I have been saying for a few months now that all of the periphery would miss their targets as depression took hold. However, the language in the October 2011 EU summit agreement is unforgiving for Portugal and Ireland:

We invite both countries to keep up their efforts, to stick to the agreed targets and stand ready to take any additional measure required to reach those targets.

Here’s how I put it in October:

Translation: continue fiscal austerity until you reduce your deficits significantly. If the depression this creates causes you to miss your fiscal targets, redouble your efforts under the watchful eye of the Troika.

Portugal is out making additional cuts and increasing taxes (link in Spanish). Nevertheless, Olli Rehn has already indicated that Portugal runs the risk of not making its 2011 fiscal targets (link in Portuguese). Even Spain, not under an IMF program, will miss fiscal targets.

So, it is only a matter of time before what is happening in Greece happens at a minimum in Portugal and probably in Ireland as well. How will the Portuguese react?

-On the Troika’s Coming Occupation of the Periphery

I think Ireland is the model here. But Spain comes second. If these countries can’t make their targets, it tells you that the austerity and drip, drip monetisation approach will ultimately prove anti-growth.

Belgian newspaper De Standaard reports that the new Spanish government is fearful. My translation from Dutch below:

The new Spanish government of conservative Prime Minister Mariano Rajoy has expressed doubts about the feasibility of its budget target for the first time. It is based on outdated growth assumptions, it is said.

Spain agreed with the European Commission to reduce the budget deficit this year to 4.4 percent. But that target is based on the outdated growth prospects of the former Socialist government of José Luis Zapatero said Spanish Finance Minister Cristobal Montoro.

The Zapatero government assumed economic growth of 2.3 percent for this year. The International Monetary Fund (IMF) expects from Spain, however, a negative growth of 1.7 percent for this year and 0.3 percent for 2013.

Yet according to Montoro, Spain will maintain its objective of reducing the deficit as quickly as possible to under three percent.

The Spanish government will therefore among other things force heavily indebted autonomous regions to enforce budgetary discipline. They now have to present their budget proposals to the Government for approval.

The Rajoy government put forth a good week after taking office in late December it’s first austerity package. It wants to reduce spending during the first quarter of this year by 8.9 billion and plans to increase taxes to bring in some 6.2 billion euros more.

Notice Rajoy’s government did not say specifically it believes it will make this year’s target. I don’t think the Spanish will be able to get it done. Let’s see how this unfolds.

Source: Spanje twijfelt aan begrotingsdoelstelling – De Standaard

This post originally appeared at Credit Writedowns and is posted with permission.