Note: this is a continuation of the “…and they call it austerity” series.
Spain’s government revealed its FY13 budget today, one that it hopes will preclude the need for a Brussels-led bailout. Never mind that the entire package was done under the watchful and approving eye of Brussels anyway.
The result is a dog’s breakfast of some genuine spending reductions and the usual fauxsterity of salary cuts and tax increases. According to Kathleen Brooks of Forex.com (via the Telegraph): “This is slightly larger than the EU39bn the market had been expecting and nearly 60% of the budget consolidation will come from spending cuts with the rest from tax increases.” That computes to a tax hike of over $18 billion. They also used economic projections for 2013 that are considered wildly optimistic by just about everyone (Telegraph) except Brussels.
If this all sounds like a painful farce, that’s because, well, it is. Both Greek and Spanish politicians have presented fauxsterity not as a way to fix what ails their economies, but as the only way to stay in the eurozone. How surrender of economic sovereignty turned into a mark of national pride says more about the weakness of the European elites than anything else. More to the point, however, is that it adds monetary contraction (no matter how many euros are being printed, they aren’t staying in Spain or Greece) to tax hikes.
The last time the United States tried both at the same time was 1932. We know how that turned out.
Cross-posted to Virginia Virtucon