Dominos

(h/t Naked Capitalism)

Spain Deficit Goals at Risk as Cuts Consensus Fades: Euro Credit

By Angeline Benoit, Bloomberg News

Aug 22, 2012 3:23 AM ET

The Socialist president of the northern Basque Country Patxi Lopez today told Cadena Ser radio he is moving local elections initially scheduled for March 2013 forward to Oct. 21 in order for Basques to choose how to deal with the crisis. “There is a lot of uncertainty about the future and our economic model is what counts,” he said.

The Andalusia region said Aug. 1 it will take the state to court on 2012 debt ceilings. It should be allowed to borrow more as its burden is 10.6 percent of its GDP compared with a 13.5 percent regional average, it said.

The 17 semi-autonomous governments won’t keep their economic promises this year, according to a report released this week by the Fedea research institute in Madrid. It forecast overspending for the regions may reach 4 percent of GDP, compared with 3.3 percent last year and a target of 1.5 percent.

The government has ruled out cutting pensions next year and extended a temporary benefit for long-term jobless people to stem growing discontent, Afi’s Herce said. “Rajoy’s strategy is to wait and say little to avoid political damage in the short term.”

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Support for Rajoy’s PP has slipped 8 percentage points since it won 40.6 percent of votes in a landslide in November. Since then, Rajoy has announced more than 100 billion euros of budget cuts, raising income and value-added tax, scrapping a tax break for home owners and cutting civil servants’ wages, unemployment benefits and health care and education spending against his word.

Italy Looks ‘Perilously Close’ To Getting Shut Out Of The Bond Markets

Mamta Badkar, Business Insider

Aug. 21, 2012, 11:30 PM

Italian GDP contracted for the last 12 months and the country is now looking at a longer and deeper recession than was previously expected.

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Societe Generale’s James Nixon points out three key points about Italian debt and its economic growth:

1. Italy has extremely high debt-to-GDP and to bring this in control, the government is pushing austerity. This austerity along with a credit crunch are hurting economic growth.  Nixon projects Italian GDP to decline 2.3 percent in 2012, and 1.4 percent in 2013, and expects it to be flat in 2014. The IMF puts Italy’s long-term growth rate at 0.5 percent per annum.
2. Rising unemployment is impacting consumer confidence and has caused a drop in private consumption.
3. Finally, to achieve fiscal consolidation Italy is raising taxes on consumption and property, both sectors that are being hit hard by unemployment and tight conditions in the banking sector. “Italy also faces a significant increase in its service costs which, if not addressed, threatens to wipe out all of the consolidation planned for next year.”