The euro debt crisis isn't over. It's just changed its address.
Spain has officially informed the European Union that it will miss its deficit reduction target for 2011. And not by just a bit, either. The budget deficit came to 8.5% of GDP for 2011. That's above the government's previous estimate of an 8% budget deficit and way above the country's target of 6%.
The shortfall is even more discouraging than those numbers make it sound. Spain's governments -- national and state -- spent 91.34 billion euros more than they took in during 2011. Shockingly, that gap isn't all that much lower than the 98.17 billion euro gap in 2010, in spite of the country's austerity plan.
And figures in this report -- showing that almost two-thirds of the shortfall in 2011 comes from above-budget spending by the country's autonomous regional governments -- suggest that it's going to be really hard for the national government to meet Spain's budget deficit target even in 2012.
Now what happens?
Spain either gets some kind of reduction in its target for 2012 of a 4.4% budget deficit or the country has to pile on new spending cuts and tax increases to make up for the miss. Leaving the goals unchanged would require Prime Minister Mariano Rajoy's government to add 25 billion euros of deficit reduction to the 15 billion euros in spending cuts (9 billion euros) and tax increases (6 billion euros) that Spain promised on Dec. 30.
That's a 167% increase in austerity in less than two months. And a lot of pain to impose on a country already facing an unemployment rate of 23%.
The answer Spain gets from the European Union on its budget submission will tell us a lot about how much of the anger at the inability and unwillingness of the Greek government to keep its budget promises has spilled over to other countries facing a debt crisis. There are already accusations that the Rajoy government is dragging its feet on the toughest austerity measures until after the March 25 regional election in Andalusia.
And it will also tell us how much substance there is in recent talk by eurozone leaders about the need to balance budget austerity with initiatives that promote economic growth.
If the European Union decides to hold Spain to a full make-good on its 2011 target, we'll know the answer to both questions.
The first indication will come from the March 1 meeting of eurozone finance ministers, when Spain will present its budget plans for 2012.
All this just in case anyone was thinking that the euro crisis had ended with the recently announced Greek rescue deal.
At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.