Explaining Spain’s unsurprising deficit fudging

Reports are finally coming out that Spain’s 2011 deficit “miss” may have just been the new government trying to make 2012 look better.

When a government changes, you generally only get blamed for what happens on your watch. If you get elected in December, it’s almost a gift from the gods, since its trivial to make the old guys look bad and you look good.

It likely started like this: three years ago, when the deficit was starting to look bad, the government shifted a bunch of costs from the end of December to the beginning of January. Obviously this trick only works once, because once you get to the next year, you’ve already shifted as much from December to January the next year.

So the new government comes in and says, geez, we have a bunch of expenses in January that should have really been for December, lets just shift those back to December. This way, we get a head start on the deficit next year, and we can drum up a panic to justify what we were going to do anyway.

Of course, sometimes politicians can be too clever for their own good… in the case of Greece, the new government tried this trick in 2009, but instead of inspiring confidence in the next years budget numbers, the reaction of the markets was total panic and the rest is history.

Urdangarin’s amusing “I paid a lot of IVA” excuse

A couple weeks ago, the lawyer of son-in-law of the king tried to make Urdangarin look better by saying that everything he did was legal, and that he even paid a lot of IVA.

The funny thing is, that if Urdangarin did what he was accused of (get lots of money to his institute for services that were never rendered), then naturally he would have paid a lot of IVA, since he would only have been able get rebates of IVA against the IVA that he had to pay for services.

This is because IVA is a “Value Added” tax, so you end up paying it on the amount of value you add to the product or service. If someone pays you for doing nothing, you pay 100%, since that is your mark-up. (Well, the guy paying you technically pays the IVA, but you are the one that needs to collect it and give it to the government.)

Why Garzon may have a case at the European Court of Human Rights

I was very disappointed at the recent conviction of Baltasar Garzon. It was the equivalent of a head of a horse delivered to every judge in Spain.

We can already see part two of this playing out in the trial of Urdangarin, where the CGPJ (the same friendly folks that suspended Garzon) have opened disciplinary proceedings against the judge without any real evidence.

There’s a host of problems with the recent conviction of Garzon at the hands of the Supreme Court of Spain. The fact that the Supreme Court managed to convict someone all by itself without any determination by a public prosecutor that a crime occurred should make anyone nervous.

There may be some issues that could be appealed to the Constitutional Court, but given the unanimous verdict of the Supreme Court, it’s obvious that in Spain, the wagons are being circled.

The European Court of Human Rights may provide an interesting route of appeal, since as part of the European Convention of Human Rights, anyone convicted of a crime has the right for the conviction to be reviewed by a higher tribunal. It's not clear that the Constitutional Court would qualify, since its mandate is only to review constitutional issues, not to act as a court of appeal.