Already Dutch Can’t Meet Fiscal Compact Rules – Embarassing

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Under the new Fiscal Compact rules the every euro zone country is signing up to, even the Dutch won’t be able to meet the target next year. According to the CPB Bureau for Economic Analysis who are usually spot on, apart from not reaching the budget deficit, the debt/GDP will also be well over the 60% limit by 2015. Oh how embarassing 😉 Cheeky bastards were lecturing the Greeks recently.

The CPB, accustomed to delivering inarguable verdicts on fiscal and budgetary policy, said the Netherlands was in flagrant breach of the new eurozone rulebook and fiscal pact it has been highly instrumental in drafting.

“The government has the intention of living up to the rules, but it’s embarrassed that it can’t meet the targets now,” says Coen Teulings, director of the CPB.

On current policy, a mild recession would leave the country nursing a budget deficit of 4.5% of gross domestic product next year, 2 points higher than previously projected and 50% above the eurozone ceiling of 3%, – risking the wrath of Brussels and the imposition of automatic penalties the Dutch had been keen to devise for others.

What’s more, without a new round of austerity, the Dutch would still be above the eurozone deficit limit by 2015. National debt levels are also running in the wrong direction, from 65.4% of GDP last year to 75.8% in 2015, well above the 60% eurozone threshold.

So now the government find themselves in a bit of a jam on this one. Its the last thing it needs right now. Any austerity to try and meet the fiscal compact rules could push it over the edge.

The government’s in a fix,” says Paul Nieuwenburg, a political scientist at Leiden University. “It’s a problem of image. Having such a big mouth on Greece and seizing the moral high ground, they are now morally obliged to stick by the rules. Things have become very complicated. That’s why Rutte has withdrawn into splendid isolation and they won’t talk to the media.”

In order to meet its pledge of complying with the 3% deficit next year, it now needs to save a further €9bn in a year. That’s a very tall order. Teulings calculates that for every €3 in deficit reduction, you need to generate €5, meaning €15bn euros worth of spending cuts and tax increases are needed by next year.

“That’s so outrageous and it’s not really required by the economics,” he said. “Structurally we have to get spending down and revenue up to sustainable levels. Doing that too hastily means tax increases which are bad for the economy. Raising taxes in the middle of a recession is a bad thing. Structural reforms like raising the retirement age are preferable.”

A depressed housing market, with prices falling 8% since 2008 and likely to fall further, reduced consumption, shrinking pension funds and spending cuts which have seen disposable income curbed by 2% this year all underpin Holland’s budgetary dilemmas.

In a euro sceptic country, the sentiment is further shifting away from europe.

If the Netherlands has traditionally been a europhile country, that has changed sharply since it voted down the European constitution in 2005. Wilders’ strength on the right is currently mirrored on the hard left by the Socialist party which is riding high in the polls and is fiercely hostile to the EU. Between the two of them – Wilders’ Freedom party and the socialists – the anti-European stream musters 55% in the opinion polls.

Wilders sought to exploit the crisis by demanding a referendum on a return to the guilder, but this was dismissed by the political mainstream. An opinion poll showed 56% of the Dutch were against a referendum, but 39% were in favour. A sizeable minority, around one third, of supporters of the two governing parties wanted a vote. And while 61% were against bringing back the guilder, two thirds believed there should have been a referendum in the 1990s on joining the euro – 54% would have voted against.


The euro crisis could yet bring down another eurozone government – even in a country as prosperous and successful as the Netherlands.

And whats the solution to failing to meet the fiscal compact, yeah you guessed it AUSTERITY!!!!!!!!

Source: The Guardian

Spain’s Woes Caused By Euro

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Spanish economist Dr. Manuel Balmaseda gave an interview with RussiaToday outling the problems Spain find itself in and relates it to its membership of the euro. The key points are:

ECB set interest rates for core of Europe but too low for Spain.

Cheap money created a real estate bubble and brought in many unqualified immigrants.

When crisis happened, the real estate bubble collapsed causing the economy to collapse.

The cuts now won’t make a difference, it’s the euro that’s causing the problem.

There is about 6 – 9 months of goodwill left in the country after that the people will feel deceived when they realize that reality doesn’t meet their expectations.

Spain’s future does not lie in the euro zone, same for the PIGs.

Spain’s exit from eurozone is a political problem. Of Spain’s’ foreign debt of €900 billion, about half is owned by France and Germany so they don’t want Spain to leave the euro. Because if you leave the eurozone you must default.

It’s very simple, if I am a bank and you owe me money, then “STOP EATING, TAKE YOUR CHILDREN OUT OF SCHOOL AND PAY ME BACK”.

Devaluing is the solution and long as you make other structural changes also, but you can do nothing if you don’t devalue.

Politicians have FALSELY said if you leave the euro you are out of the EU.

In Spain nobody is aware that the crisis is caused by the euro and lack of competitiveness it brought. The banks and media blame overspending by the administration, although that didn’t help.

Its economics 101, if you have these countries in trouble and force cuts, this will cause them to go deeper into recession. You will never reach the goal of closing public deficit because the cuts keep reducing your income.

For full interview click here.

MISH wrote further about Spains worsening economy

Conditions in Spain have deteriorated at a rapid pace. As little as a few months ago the Spanish economy was foolishly projected to grow at .7%. Now it expected to contract 1%.

Likewise, Spain’s budget deficit was supposed to shrink to 6% in 2011 and 4.4% in 2012. Instead it rose to 8.51 percent in 2011, up from a revised estimate of 8.2% which was up from a revised estimate of 6.5%.

Spain must explain soon to the European Commission why its 2011 budget deficit was substantially higher than expected and deliver clear future budget plans, the Commission said on Tuesday.

Spain’s 2011 budget deficit came to 8.51 percent of GDP, the finance minister said on Monday, up from early estimates of 8.2 percent and far above forecasts from the Commission for something nearer 6.5 percent.

Specifically, Spain’s budget deficit is 91.3 billion euros, 8.51% of GDP. So it should not take a wizard to realize the simple mathematical fact that team Rajoy has not yet begun with budget cuts and tax increases, if by 2012 Spain is to meet the 4.4% of GDP deficit target set by creditors.

The measures announced in December were only an appetizer. Instead of sharpening the blades, I think a good lawn mower would be more practical.

The announced cuts and tax increases of last December (income tax, capital gains), are expected to generate about 14,900 million.

To meet the objective of a 4.4% deficit, in 2012 the government deficit should not exceed 46,500 million euros.

To do so requires a nearly 30 billion euros hole to be filled, with the aggravating circumstance that it’s now March and those 30 billion euros need to come in the next 9 months.

This figure is double the cuts and tax increases approved last December. So Rajoy has quite imagination if he expects this to happen.

Ireland’s REAL Budget Deficit Worsens

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The Irish Government came out with the tax returns for January and claimed that it was up. This meant that the deficit (jan) from last year was €483.2mln and is now down to €393.7mln. Sounds good.

But what they didn’t say is they delayed the corporation tax payments from December2011  to January. This meant approx $250million extra being slipped in to massage the figures.

When you take this extra €250 mln off (that shouldn’t be there), the budget deficit actually widened to €643.7mln.


Calculations from Constantin Gurdgiev.

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