Spain stopped reforms before starting them

Spain has not even started the real reforms needed to revive its economy, and the government already announced that the reforms will be stopped. This is the real meaning of the prime-minister comment that country will not meet the deficit target for 2012. As a part of resolving European debt crisis, EU members decided to implement strict budget rules including a 3% max of sovereign deficit.

As a plan negotiated with European Commission, in 2012 Spain had to reach a 4,4% deficit. Instead, Mr Rajoy (prime-minister) said the deficit will be 5,8%. The deficit target of 2011 was also missed.
The absolute budget discipline is a milestone of the new - inspired by Germany, fiscal pact. According to it in a few years time the budget deficit will become almost heresy and the heretics will be burned in public. The European Commission will have an extreme power to punish the governments that break the rules. In fact the first heretic is already at stage - Hungary missed deficit target and is in procedure of punishing.
Now is interesting if Spain will follow it or EU will find an excuse for it as "much more important" country than Hungary.
But more important than this is the thinking of Spain and its politics. No one even presumed of not meeting the target a month ago. The interest rates on Spanish debt bonds were skyrocketing and the country was accepted as "next and bigger Greece", competing with Italy who will default first. Then the European Central Bank (ECB) decided to print 1 trillion new euros and pour them mainly to bond market. This inflationary decision artificially reduced the interest rates on all bonds, including problematic ones of Spain and Italy.
And like just waiting for this, the prime-minister decided to cancel even not yet started reforms. Reforms that require not only serious spending cuts, but also - deep reforms in labor market, regulation and government intervention in economy. The only factor that pressed EU governments to implement unpopular reforms was the increase of interests and rising the price of using debt financing. After ECB started the new money-print round, the Spain government decided the problem resolved and the reform plans stepped-back.
Spain and other south Europe PIIGS countries has deep economy problems, sourced by an enormous government regulation in economy. It is almost madness to start business in Spain or Italy. You will be immediately crushed by army of bureaucrats and fantastic taxes. Choked by this the economy is hardly alive and the government compensates this by earning loans and spending them for social policies. This pyramid is close to crash and in Spain the unemployment is over 20% with 40% among young people.
Instead of reforming, Mr Rajoy obviously decided just to use ECB money-print to guarantee low interests, that will allow him to continue borrowing and spending on social purposes.
So generally it looks like the ECB "saving-all" money print will become poisonous for EU. It will give a chance for politics to avoid and postpone necessary reforms and this way deepen the real fundamental problems. Spain is just first to step-back in reforms. Italy is also on its way, inspired by its own low interest rates on bonds. Nothing will change in EU, until inflation crushes all European dreams...


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