Spain Calls It Quits On Fiscal Stimulus

Spain 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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