Spanish bonds and stocks have advanced today, but we remain profoundly skeptical of claims that the country has turned a corner. Shortly after announcing what the EU's Ollie Rehn suggested was an austere budget that went above EU recommendations, Spain revised its 2012 budget deficit.

Recall that the 2011 deficit was recently revised to 9.4% from just below 9%. For this year, the EU gave initially gave Spain a 5.3% target. In May, coming out of an EU summit, Prime Minister Rajoy indicated a much higher shortfall and later compromised with the EU for a 6.3% shortfall. It now says the deficit, when including the cost of support for troubled banks (as Ireland and Greece have done) will be closer to 7.4% of GDP.

Spain says that the 2013 shortfall will be 4.5%, as the EU requires. Yet one of the key reasons behind its projection is an optimistic assumption