Spain’s federal budget announces large spending cuts

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• significant federal government spending cuts of over 7%;
• continuing public sector wage freezes; and,
• a 4% increase in government income based on a general 15% increase in value-added tax introduced this month (now 21%) on all but food, drink, goods from chemists; construction work; and some newspapers (4%), and passenger transport, hotel and restaurant services (10%).

The budget now goes to parliamentary debate, which is said could last for weeks. Concurrently:

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• Spain’s 17 regions (or provinces) are yet to present budgets for next year, and are said to have to meet public debt reduction goals pursuant to significant cost reductions;
• the region of Catalonia is threatening secession from Spain;
• there have been, and presumably will continue to be, public demonstrations against austerity; and,
• Spain is scheduled to reveal its bank stress tests at noon ET, after the European financial markets are closed.

Recall that:

• measured by 2011 GDP Spain was the fourth largest country in the 17 country Eurozone, the fifth largest economy in the European Union, and the twelfth largest economy in the world; and,
• Spain’s reported overall and youth unemployment rates currently are about 25% and 53% respectively.

Spain is a big deal, and I think in the end Spain’s budget debates are unlikely to end well, and that will prove to be not a ‘good big deal’ for the Eurozone and for the world economies. Topical Reference: Spain’s crisis budget aims at spending cuts not tax rises, from Reuters, Andres Gonzalez and Paul Day, September 27, 2012 – reading time 3 minutes. Also see: French budget and Spanish bank stress tests: live, from The Telegraph, Szu Ping Chan, September 28, 2012 – reading time 3 minutes. Brief Commentaries prompted by world headlines (collective reading time 2 minutes) Eurozone >> Italy: Italian anti-austerity protest and bleak economic report on southern region Reports today say:

• there were anti-austerity protests in Rome today; and,
• there is new report that the south of Italy is “heading for social and economic meltdown”, citing job losses, population exodus, and industrial decline. The region is not large in the context of Italy’s population or economy, but nonetheless this is something to take note of.

Topical References: French budget and Spanish bank stress tests: live, from The Telegraph, Szu Ping Chan, September 28, 2012 – reading time 3 minutes. Also see: Italy’s south heading for economic meltdown, from The Telegraph, Nick Squires, September 28, 2012 – reading time 2 minutes. North America >> United States: U.S. August durable goods orders drop by 13.2%, not the 5% expected The heading is self-explanatory. Two points:

• order intake precedes sales revenue, so where order intakes are up and those orders are converted to sales (say) one – three months later, sales then will be up – and vice versa. So, this is not a good sign in the context of year-end revenues; and,
• that said, results from one month are not necessarily either correctly reported, or if they are correctly reported, indicative of a trend.

That said, U.S. durable goods orders are an important marker to watch going forward. Topical Reference: Durable goods orders take worst monthly drop since recession, from NBCNews, from Reuters, September 27, 2012 – reading time 2 minutes. Important Snippets From Today’s Commentaries Snippet #1: Spain is a big deal, and I think in the end Spain’s budget debates are unlikely to end well, and that will prove to be not a ‘good big deal’ for the Eurozone and for the world economies. Snippet #2: At September 28, 2012 U.S. durable goods orders are an important marker to watch going forward.

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