Thursday, May 15, 2014

15/5/2014: Bad Habits Die Hard


A neat summary of the euro area revisions to targeted deficits for 2014-2016 period:



Per BBVA Research: "The relaxation in fiscal targets approved by ECOFIN in the first half of 2013 was an important factor in the European economy’s recovery in the second half of the year, as we pointed out in previous editions of this report. The panorama has not changed. Fiscal policy continues to be contractive, but less so than forecast at the time, thanks to the postponement of the 3% deficit target for several countries, including France, Italy and Spain. Deviations from the deficit targets in 2013 have been small, except in France (0.4pp off the May 2013 stability plan’s target) and plans presented to the Commission in April this year retain the targets forecast or modify them towards a somewhat slower consolidation path."

Here's a question: we have growth in underlying GDP (anaemic, but still growth). We have widening deficits compared to targets, and deficits reductions over time are penciled in at slower rates for 2014-2015. Oh, and we are still running deficits… so explain to me where is that amazing 'austerity' excluding the bizarre stretch of the imagination by which lowering deficits (not turning surpluses) is 'austerity'… [presumably in the same way as spending money we don't have is a stimulus, may be]…

Just a few pages down, BBVA gloriously declare: "Fiscal policy will continue to be restrictive in the forecast horizon, although fiscal efforts will be less rigorous than those of 2012 and 2013, since the rest of the adjustment has been postponed, in order to meet the target of structural balance in the public accounts beyond 2015. With all this, public consumption may go up by around 0.3% in 2014 and 0.7% in 2015."

Ah, European 'austerity' - where reducing the rate of spending growth represents unbearable economic pain and is yet consistent with a possible increase in the Government consumption...

It clearly looks like we are back to the good old 'bad' habits' on the side of the euro area periphery's largest sovereigns...

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