Please consider The raiding of Spain’s “pensions piggybank”
Spain drew €5bn from the Social Security reserve fund on Monday, reported Europa Press, and will draw an additional €428M on account of income tax before the end of the month. Presumably this is to help attain the year’s deficit target.Spain Budget Allegedly on Track
Commentators present this as “raiding the piggybank” of the pension system. Europa Press writes that, in 2012-2013, €23.6bn will have been drawn from the fund, bringing it down to €53.7bn. The original €77bn had been gradually accumulated over the previous decade. For comparison, Spain’s pension outlays are slightly over €100bn a year or roughly 10% of GDP, so the pension [reserve] fund even at its peak was only enough to cover about 9 months’ worth of pensions.
Another source of public consternation has been the fact that 97% of the reserve fund is invested in Spanish public debt, up from 55% in 2008, as described by Expansión earlier this year. Before the crisis sovereign spreads were minimal and the fund was diversified among various Eurozone member states, but in 2009 the government of PM Zapatero started trading higher-rated debt for Spanish debt and the process of rebalancing into Spanish debt was nearly complete by the end of 2012.
On October 29, the Wall Street Journal reported Spain In Line to Meet 2013 Deficit Target
Spain's Budget Ministry Tuesday said the euro zone's fourth-largest economy is in line to meet its 2013 deficit target, after the preliminary government budget deficit stood at 4.8% of gross domestic product between January and August.EU Probes Spanish Officials as Concerns Rise Over Budget Data
Spain is seeking to cut its budget deficit to 6.5% of GDP this year from 6.8% of GDP last year, excluding the impact of the banking bailout.
"Our budget targets are perfectly compatible with economic recovery," said deputy Budget Minister Marta Fernández-Currás.
Spain's government didn't provide budget deficit numbers for the first eight months of 2012. Ms. Fernández Currás said this is because recent changes in accounting methods so Spain complies with EU practices make last year's data non-comparable.
It seems EU officials (with good reason) are highly skeptical of official pronouncements. After all, and in spite of the fact that Spain's deficit targets were reduced at least three times in three years, Spain has not yet met a single target.
On November 5, Bloomberg reported EU Probes Spanish Officials as Concerns on Budget Data Escalate
European Union officials made an extraordinary visit to Spain in September that signals escalating concern about the reliability of the country’s budget data.Spain, Italy Warned About New Budget Rules
EU statisticians ordered a so-called ad-hoc visit, a procedure reserved for urgent issues, to assess whether regional officials are complying with recommendations after failing to report all the unpaid bills they had accumulated in 2011, Tim Allen, a Luxembourg-based press officer for the statistics agency Eurostat, said in an e-mail. The visit included meetings with officials from Valencia and Madrid regions.
Eurostat raised concerns about Spanish data in April following at least two “upstream dialog visits,” the second of four levels of checks the agency has on member states’ statistical reporting.
September’s visit signaled a shift in gear to the second-most serious intervention. Ad-hoc visits are triggered by urgent issues regarding the quality or the methods used to produce the data, which only can be resolved with a face-to-face meeting, according to the agency Web site.
Deficit Revisions
Valencia posted a budget deficit equivalent to 5 percent of GDP in 2011 after initially reporting a shortfall of 3.68 percent, according to the Budget Ministry. Madrid’s deficit was 1.96 percent compared with 1.13 percent initially reported. That helped to push the country’s public sector deficit that year to 8.9 percent, the Budget Ministry said in a May 2012 statement. The final figure was revised later to 9.6 percent.
Eurostat officials checked the early warning systems being used by the Madrid region to avoid any future deficit deviations, a spokesman for Madrid’s regional budget and economy department said in an e-mailed statement.
On November 15, the BBC reported EU warns Spain and Italy over their budget plans
The European Commission, the European Union's executive arm, has warned Spain and Italy that their draft budgets for 2014 may not comply with new debt and deficit rules.If Spain meets it budget deficit target this year, it will likely do so by some sort of accounting gimmickry or purposeful under-reporting of regional debt.
It also said French and Dutch plans only just passed muster.
Non-complying countries may have to revise their tax and spending plans before re-submitting them to national parliaments. It is the first time the Commission has done this.
Budgetary surveillance
Spain's draft 2014 spending plans were "at risk of non-compliance", said the Commission, as the country does not envisage returning to EU financial norms until 2016 at the earliest.
Other countries at risk of breaking EU finance rules included Finland, Luxembourg and Malta.
Heavily indebted countries that received EU bail-outs at the height of the financial crisis - Ireland, Cyprus, Portugal and Greece - were not included in the review.
Expect the same thing multiple times in 2014, because Spain will have to not only catch up with its 2013 revised deficit shortfalls, but also comply with new rules that likely take away some sleight of hand budget gimmickry.
By the way, it's important to note that 97% of what's left of the reserve fund is invested in Spanish government debt. Think that investment won't ever take a haircut?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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