Spain's Turn To Compound Eurozone's Trouble

The will of the Spanish to hold to their austerity plan has begun to be questioned. The nation’s finance minister, Elena Salgado, will present her budget for the next year shortly. Capital markets investors do not believe that the nation’s austerity measures are adequate. Spain’s unemployment is now 20%. It is considered one of the weakest countries in the region along with Portugal, Greece, and Ireland.

Ireland has already begun to pay usurious interest on its sovereign debt as fears about the health of its bank sector grow. Economists still believe that it is mathematically impossible for Greece to cover its financial obligations. And, the GDP growth of the entire eurozone has  begun to slow based on numbers from its own statistics office. The turnaround in Europe, which seemed to hold such promise two months ago, is in the process of crumbling.

The conundrum for the weaker nations in Europe has become nearly unsolvable. Austerity breeds budget deficit reduction if it does not hurt economic growth too much.  That is if the higher taxes that often go with it do not cripple chances of a recovery. Austerity is not only based on the will of politicians. The citizens who elect them must approve of the approach as well. Otherwise, they will throw out their legislators and premiers, or worse, simply vent their anger through strikes, which by any measure renders laws to cut public costs moot.

Spain may be a perfect test ground for the new drive to salvage the value of the public debt of many eurozone nations. Officials recently suggested that member nations which cannot comply with budget regulations should be fined as if those fines will overcome public will. The levies will also deepen the financial obligations of the weakest nations.

What began in Greece and spread to Ireland may make an ugly stop in Spain. The eurozone recovery plans have begun to be tested and those tested already have failed.

Douglas A. McIntyre