Spain Calls it Quits on Fiscal Stimulus

SpainSpain appears to be the first major country to throw in the towel on fiscal stimulus. The central bank announced that the country is officially tapped out.

From Business Week:

Spain’s central bank told the government on Tuesday (16 June) there is no room for further spending measures above those already announced, and warned that the country’s rising budget deficit could hamper growth when a global upturn arrives.

“We have to stop public sector debt becoming an obstacle when the Spanish economy is in a better condition to grow,” said central bank governor Miguel Angel Fernandez Ordonez in a speech accompanying the Bank of Spain’s annual report.

“Any chance of using fiscal policy to increase spending has now been exhausted,” he said.

Spain’s unemployment rate is currently 18.1% and is expected to reach 20% or more next year. Business Week indicates the economy isn’t expected to start growing again until 2011.

I guess the question might be is this necessarily a bad thing for Spain. It sounds as if they’ve thrown everything including the kitchen sink at the economy to no great effect. At some point you have to say no mas and let recovery take its natural course. Growth will eventually come globally and Spain will along with others be pulled along. Why set yourself up for failure then because you went to deep in the hole now?

You have to wonder if the recession persists how many other countries might find themselves in this same situation, including us.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

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