The Wall Street Journal – Spain, Rescued but Not Saved

In Spain’s recent attempts to right its economy, a pattern emerges: There is intervention layered upon intervention, dithering as the problem deepens, “reform” resulting in higher taxes—and, sometimes, the suggestion of cronyism.

Last month La Moncloa announced “perhaps one of the most necessary reforms” to address the “debt hole left by previous governments.” Since 1998, Spain has subsidized the production of green power via feed-in tariffs, which require electrical companies to pay renewables producers a fixed, above-market price for their output. It worked. In 2008, Spain accounted for half of the world’s new solar-power installations in wattage terms.

But to keep household electricity bills from rising too quickly, the government covered the utilities’ extra costs out of the public purse. The accumulated “tariff deficit” had grown to €24 billion by this year, and was set to grow an additional €5 billion annually. (Spain’s entire 2011 budget deficit was €100 billion.)

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