Bloomberg News

Traders Reject Romney’s U.S.-Spain Comparison: BGOV Barometer

October 16, 2012

Republican presidential nominee Mitt Romney says he sees similarities between government spending in the U.S. and Spain. To investors in each country’s sovereign debt, there’s no comparison.

The BGOV Barometer shows it costs almost 10 times as much to insure Spanish government bonds against default as it does U.S. Treasuries.

While Romney says government spending in the U.S. is about the same as Spain’s as a share of gross domestic product, the barometer shows U.S. expenditures have a long way to go to match Spain’s percentage, according to official figures. What’s more, almost a third of government spending in the U.S. is at the state and local level, beyond the control of Congress and the president.

“Spain now spends 42 percent of their total economy on government,” Romney said Oct. 3 during the first presidential debate in Denver. “We’re now spending 42 percent of our economy on government.”

“I don’t want to go down the path to Spain,” said Romney, who meets Obama today for the second debate starting at 9:30 p.m. in Hempstead, New York.

Outlays by government at all levels accounted for 43.6 percent of Spain’s GDP in 2011, according to Eurostat, the European Union’s statistics agency. That compares with 35.4 percent in the U.S., Office of Management and Budget figures show, with federal spending making up 24.1 percent of GDP and state and local government expenditures accounting for 11.3 percent.

Significant Differences

“This aggregate data masks some significant differences,” Jacob Funk Kirkegaard, a research fellow at the Washington-based Peterson Institute for International Economics, said in a telephone interview. “The United States is just a much, much bigger country. That tends to mean a relatively large share of government spending in the United States is at the state and local level. Government spending in Spain means a lot more than it does in the United States.”

Trading in credit default swaps shows the contrast between investors’ perceptions of risk in the government debt of the two countries, as Spanish officials consider whether to request aid from Europe’s permanent rescue fund. It costs about $354,000 to insure $10 million of Spanish government debt against default for 5 years, compared with about $37,600 to insure a like amount of U.S. debt, swaps trading shows.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Katherine Rizzo at krizzo5@bloomberg.net


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