Spanish Revenues Collapse by 16.8%, GDP Misses Target; Is a Bailout of Spain in the Cards?

Every day I get emails from a friend Bran who lives in Spain. Today Bran writes ...

Hello Mish

The big news here today is with government accounts. GDP is lower than expected, and revenue are down way more than expected (down 16.2% compared with a predicted drop of 12.8%).

Therefore, the government is looking at another few billion in borrowing this year and its schedule of deficit targets is thrown out of line.

Spain's budget is already tight after spending cuts and salary reductions, so the article suggests higher taxes might be need to get back on target.

All the best, Bran.

For those who can read Spanish, here is the link Bran sent: Zapatero, abocado a una subida de impuestos por no cumplir el crecimiento

Google offers a rough translation Zapatero, heading to a tax increase for failing to meet growth from which it is easy to glean a few more facts.

• The deficit compromises growth objectives for 2012 through 2014.
• Staff reductions are increasingly difficult.
• Spain is in a very problematic situation.
• Personal income taxes are down 19.4%
• Corporate incomes taxes are down 42.7%
• VAT collection is down 22.4%
• Excise duties are down 40%

Judging from the above, I am wondering how overall revenues are down only 16.2%. I am also wondering how soon the interest rates in Spain soar as they did in Greece, then Ireland, then Portugal.

Spain 10-Year Government Bond Yield



click on chart for sharper image

If the Spanish economy continues to deteriorate (and I believe it will), don't expect that "low" yield to last.

"Low" is in comparison to Greece where 10-year government bonds yield 15.4% as opposed to Germany where 10-year bonds yield a mere 3.12%.

Is a bailout of Spain in the cards, or is Spain simply too big to bail? We will have our answer in due time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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