Flash Point: When Austerity Fails – the Case of Spain

We have argued before that austerity measures – spending cuts and tax increases – fail when they are implemented at the bottom of an economic cycle. On July 13, Spain increased the VAT on goods and services from 18% to 21% effective September 1, 2012. Today from Mike Shedlock, we read that Retail Sales in Spain [in September] Plunge 10.9%, Largest Drop on Record; All Pain, No Gain.

It is likely that the expected revenue increase from the tax increase has turned out to be negative with major damage done to the economy. The impact on GDP will be to deepen the recession (depression really). If Greece wasn’t proof enough that eurocrats have a complete misunderstanding of the economic crisis they have on their hands and the correct way to deal with it, now we have the example of Spain, soon to be followed by Italy and then France.

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