The EU has accused Spain of overstating its 2011 budget deficit thus making it easier to make progress in 2012. Furthermore the EU is upset about delays in austerity measures ahead of regional elections next month.

According to Reuters, EU to punish Spain for deficits, inaction

The European Union is likely to take action against Spain’s newly installed government by May for delaying austerity measures ahead of a regional election next month, sources familiar with the situation have told Reuters.

Three senior EU officials told Reuters that a final decision still has to be made, but the European Commission believes the new government overstated the deficit figures for 2011 so the current year’s data would look better. Spain is also not addressing quickly enough the deterioration in public finances expected in 2012, risking the country’s longer-term growth, the officials said.

Asked if the European commissioner for economic and monetary affairs, Olli Rehn, would take action and recommend that the bloc’s 27 finance ministers adopt sanctions against Madrid, one of the officials said: “It is very likely.”

“It is not that we want to. But if there is a deviation, and it is almost inevitable, then we will have to,” added the official, who spoke on condition of anonymity.

With the economy heading for recession, Spain’s deficit commitments of 6 percent for 2011 and 4.4 percent for 2012 — based on a 2.3 percent growth in 2012 — look unattainable.

Fantasyland Growth Projections

2.3% growth in Spain in 2012 is pure Fantasyland material. A 2.3% contraction is more like it.

Regardless, any contraction means Spain will miss its targets and in turn Germany will demand more spending cutbacks.

With unemployment at 22.9%, how long will it be before we see Greek-style pushbacks?

Unprecedented Spanish Bond Front-Running

Please consider Spain risks choking market with bond supply glut

Madrid is running far ahead of the euro zone pack in terms of 2012 sovereign debt issuance, smashing its funding targets by cashing in on strong demand from domestic banks flush with money borrowed from the European Central Bank.

To date, Spain has raised 29 percent of the 86 billion euros it needs in 2012 compared with 18 percent of planned bonds sales by this time last year. In contrast, Italy has raised 10 percent and Germany 11.5 percent.

“They see an open window and are trying to secure as much liquidity as they can… Everyone was expecting some front-loading but this is unprecedented,” said Michael Leister, strategist at DZ Bank in Frankfurt.

“The glut of liquidity put in by the ECB is trumping fundamentals…which is why we believe that Spain and Italy are getting away these auctions at the levels they are. We believe it isn’t sustainable and the effects of the LTROs (ECB long-term refinancing operations) will begin to wane,” said Rabobank strategist Lyn Graham-Taylor.

The decision by rating agency Moody’s to cut Spain’s credit rating underscores the country’s fundamental problems, which cannot be overcome by the provision of cheap cash to banks.

Spanish Farmers Protest Morocco Trade Deal

With unemployment at nearly 23%, one can expect protests over trade agreements. Consider this a start: Spanish farmers protest over EU-Morocco trade deal

Spanish farmers pelted the European Parliament and Commission office in Madrid with tomatoes on Tuesday in protest against a trade agreement with Morocco that they say could put fruit and vegetable growers out of work and add to high unemployment.

The reciprocal agreement lowers trade barriers on the entry of primary goods – mainly fruit and vegetables – into the European Union from Morocco in return for allowing processed goods into the North African country.

Farmers from the COAG union plan to turn up with 500 tonnes of oranges to another protest on Wednesday and further action is set for Thursday, when the European Parliament is due to vote on prolonging the agreement.

Europe Job Losses Accelerate

Bloomberg reports Europe Job Losses Accelerate

Global companies from NEC Corp. (6701) to PepsiCo Inc. (PEP) and AstraZeneca Plc (AZN) are chopping jobs more than three times faster than in 2011 as they brace for recession in Europe and a slowdown in China.

Announced workforce reductions surged to 94,369 through Feb. 10 from 26,561 a year earlier, according to data compiled by Bloomberg. Employers based in Western Europe accounted for the biggest group of job-cut disclosures, threatening to add to unemployment in the euro area already running at a 13-year high.

Such firings are now running at the quickest pace to start a year since a 2009 peak, when the European and U.S. economies shrank amid the deepest slump since World War II. Now, Europe’s debt crises may help spur a 0.5 percent contraction in the euro- area economy in 2012, based on economists’ estimates.

Signs point to a deep and lengthy recession, not the shallow recession forecast by economists. I seriously wonder what the heck they are looking at.

Mike “Mish” Shedlock
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