To cut the deficit almost four points in one year would be a true depressionary shock for an anaemic economy, made worse by the requirement for banks to mark their real estate losses to market prices

Spanish revolt brews as national economic rearmament begins in Europe - Telegraph

Though he swept into office as an apostle of orthodoxy, Mariano Rajoy has since delved into Madrid’s ghastly accounts and concluded that it would be "suicidal" to try to slash the budget deficit from 8pc of GDP to 4.4pc of GDP this year, as demanded by Europe's fiscal Calvinists. Such a policy would require a further €40bn or €50bn of cuts and accelerate the downward spiral already underway, beyond the 1.7pc contraction expected this year by the International Monetary Fund. The unemployment rate would rise to well over 25pc with six million out of work by the end of the year, equivalent to 30pc under the old definition used in the last jobless crisis in the early 1990s. A study by BBVA of 173 cases of fiscal squeezes in OECD countries over the last thirty years concluded that demands on Spain are almost unprecedented. They found only four such cases, and three were offset by devaluations. The fourth was Ireland in 2009. The country crashed into slump, culminating in a 54pc fall in Dublin house prices. There is near unanimity across the political spectrum that drastic pro-cyclical tightening at this stage is unwarranted and dangerous. Josep Borrell, ex-president of the European Parliament and the voice of Spain's pro-European establishment, said such debt-deflation risks pushing the banking system over the edge. "To cut the deficit almost four points in one year would be a true depressionary shock for an anaemic economy, made worse by the requirement for banks to mark their real estate losses to market prices."

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