Spanish Siesta Under Threat

Is this the end of the Siesta?
Is this the end of the Siesta?

I’m sure you’re aware of the Spanish Siesta; the two hours in the afternoon, usually 2pm – 4pm, where shops close and everyone goes for a nap.

Spain is one of the few remaining countries that does this and some people suggest it affects business by effectively “closing” the country for two hours every day.

Acting Prime Minister, Mariano Rajoy, has plans to scrap it and reduce the length of the working day bringing it in line with the rest of Europe.

Mr Rajoy said he intended to “find a consensus to make sure the working day ends at 6pm.”

The siesta isn’t universally observed these days but the working day is still split with a two, or even three, hour lunch break, meaning the working day doesn’t finish for most people until 7pm.

The siesta was originally introduced to allow farmers and construction workers to avoid working during the hottest part of the day. It is also said that despite the longer working day, the siesta actually diminishes productivity for Spanish workers.

Flexible Hours

In 2013, a Spanish parliamentary commission said “We need more flexible working hours, to cut our lunch breaks, to streamline business meetings by setting time limits for them, and to practise and demand punctuality.”

The report also suggested that dropping the daily siesta would raise the quality and life, raise low birth rates and reduce marriage breakdowns.

The acting PM is also considering a return to GMT (Greenwich Mean Time) for the country which currently operates an hour ahead of London. The time zone shift was the decision of dictator General Franco in 1942 as a way of showing support for Hitler’s Nazi regime by bringing Spain in line with German time.


Europe imposes 32 new rules on Spain as a condition of bank bailout fund

Spain will be forced to comply with 32 conditions laid down by the EU if it wants to get its hands on the 100,000-million-euro bank bailout.

IVA will have to go up and tax relief on first homes will be scrapped as part of the list.

The ministry of the economy will have to hand over much of its jurisdiction to the Bank of Spain, particularly in terms of the power to sanction financial institutions and granting licences for them to trade.

Internal audits within the Bank of Spain will be carried out, and the Central European Bank (BCE) will supervise its activities.

The Ordered Bank Restructuring Fund (FROB) will have greater powers, and the government must force banks which are sinking to wind up.

Those which require public funding to stay afloat must hand over their affairs to a liquidation company, cut down branch numbers and slash jobs, sell off investments and shares in industry and limit bank managers’ salaries.

Banks which have received State help will be obliged to float on the stockmarket, and savings banks – effectively, building societies – will no longer be able to manage their own commercial banking activities.

Holders of preferential shares and other ‘hybrid’ investments will be expected to bear a percentage of the loss when a bank needs public funds to be able to continue.

Overall, Spain’s banking sector will be closely supervised by the European Commission (EC), the BCE and the European Banking Authority – the latter taking the place of the IMF – and will regularly audit those institutions which have received bailout funds to ensure they comply with the rules.

This will involve their having to supply weekly data on their liquidity and cash held in deposit in client accounts.

Taxpayers will be directly affected by a rise in IVA – the exact percentage of which has not been confirmed – the elimination of tax breaks on first residences, labour reforms, a rise in State retirement age, and a ‘taxation system which aims at fiscal consolidation’, as yet undefined.

Spain’s State deficit will have to come down from its present 8.9 per cent of its GNP to 6.3 per cent by the end of 2012, then to 4.5 per cent after 2013 and 2.8 per cent by 2014.

The banks for which the bailout fund is destined will include, among others, Bankia, CatalunyaCaixa, NovaCaixaGalicia and Banco de Valencia, being the four most pressing cases.

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And finally…

Graph represents: business confidence, employment figures, bank profits, property sales... take your pick!
Graph represents: business confidence, employment figures, bank profits, property sales, Spain’s future… take your pick!

Once again there isn’t much in the news about Spain other than the bailout so here is a quick overview of what has happened this week.

Hundreds of miners marched in Madrid to protest over a government decision to cut subsidies to the mining sector by nearly two-thirds next year.

Several of Spain’s autonomous regions are at risk of over-shooting their budget-deficit target of 1.5 percent of GDP this year. Budget minister, Cristobal Montoro said yesterday that they have been given one week to take corrective measures.

EU leaders agreed to lend 100 billion Euros to Spanish banks and also to direct it to them, rather than add to the governments debt. Some of the nations involved are looking at taking shares in the Spanish banks as extra collateral.

Rajoy announced that one of the conditions attached to the loan was that he must raise sales tax (IVA). The troubled PM announced to his MP’s that an increase of 3% would be applied bringing the standard rate up to 21%. The reduced rate of 8% for public transport fares, processed foods and bar/hotel services will increase 2 points to 10%. So again, the public are paying for the governments mistakes.

Another condition of the loan is to implement a further 65 billion euros of austerity measures and subsidy cuts.

“We are living in a crucial moment that will determine the future of our families, our youth, our social welfare and all our hopes,” Mr Rajoy said.

“That is the reality. We have to get out of this mess and we have to do it as soon as possible.”

I don’t know why he thinks pumping money into the banks will help anyone, other than the banks. Leaders across Europe are making the same mistake and they will all pay for it at their next elections.

The way the public see it is that if a person robs a bank they go to prison but if a bank robs the people they get bonuses! It has to stop. The banks took our money and lost it, we bailed them out with billions of taxpayers euros yet still they fail and still they refuse to lend and still a quarter of the country is unemployed.

Wake up Rajoy! Concentrate on the people. It is them who will vote you out, not the bankers.

IVA changes in the pipeline

Speaking to the General Assembly of Employers’ associations
Rajoy speaking to the General Assembly of Employers’ associations

Mariano Rajoy’s government are preparing a package of anti-crisis reforms which will include an increase in sales tax (IVA).

Tax agency sources revealed that they are discussing an increase in IVA which was demanded by the European Commission and International Monetary Fund (IMF). However, the first step is to move some products that are currently subject to a reduced rate into the general 18% band.

On Monday Rajoy said that more “difficult” economic measures would be coming “soon” and are needed in order to “grow and create employment”.

He didn’t say much more and didn’t reveal details but tax agency sources confirmed the government is revising a list of products that attract reduced rates of four and eight per cent. This would increase state income from IVA by applying the full 18% to more items.

At present 18% IVA is applied to the majority of consumer goods and services. The prime minister is reluctant to increase the general rate (he slammed the two per cent hike introduced by Zapatero in 2010) as he fears heavy criticism as well as a slump in consumer spending.

The EU suggested expanding the top band without formally increasing the rates would be a good way to increase income without a general increase. This is more a lesson in semantics. Call it “expand” rather than “increase” and the public backlash will be reduced. Interesting politics.

Some of the items that currently enjoy a reduced rate of 8% include some food products, glasses and contacts, catering and tourism, cultural events, newspapers, hairdressing, funeral services and certain health and farming equipment.

The further reduced rate of 4% is applied to products considered as basic essentials, such as bread, milk, eggs, fruit and vegetables, cheese, books, medicines, and ‘protected’ housing.

Rajoy warned that there are more “difficult” measures to come during his speech to the General Assembly of the CEOE, the Spanish Confederation of Employers’ Organisations.

Rajoy provided no further details as to what is to come. However, experts suggest that measures could affect public administration, public sector salaries, pensions and possibly unemployment benefits.

Some experts predict worse things to come in Spain if the government move tourism into the 18% band. Many parts of the country depend on tourists and worry that any increase could seriously damage the sector.

Bank recapitalisation agreed

Mr Rompuy said the deal was a "breakthrough"
Mr Rompuy said the deal was a “breakthrough”

Spain has received a lifeline from Europe as the direct recapitalisation of it’s banking sector was approved in the final hours of a long summit in Brussels.

German Chancellor Angela Merkel appeared to yield on tough reforms in exchange for rescue money after saying earlier that her country would not put up any more cash.

The European Council president, Herman Van Rompuy, said the decision was a “breakthrough that banks can be recapitalised directly”.

Spain had requested that any bailout be directed to the banks as it did not want to increase the government debt, and this decision appears to be exactly what they wanted.

The new agreement makes it clear that the EU’s existing bailout fund will put up the money until the new fund, the European Stabilisation Mechanism (ESM), becomes operational.

Eurozone leaders agreed to begin implementing the rescue plan by 9 July but warned that it could be the end of the year before the money become available.

Spanish newspaper El Pais reported that Mariano Rajoy didn’t want to comment on the agreement when he left but he was visibly satisfied. Italian PM Mario Monti recognised that the discussion had been “hard and full of moments of tension”, but that it had been worth it also adding that Italy did not intend to apply for a bailout.

German chancellor, Angela Merkel, said she was “very satisfied that we took good decisions on growth”.

The 17 leaders of the eurozone also agreed to a joint banking supervisory body and the full 27-member European Union agreed to a general long-term plan for tighter budgetary regulations and political union.

Spain ready for bailout after debt test

It's been a difficult six months for Rajoy
It’s been a difficult six months for Rajoy

Spain’s borrowing costs are likely to see a new high today as the country waits to see the results of independent debt tests conducted by US and German auditors who have been studying the balance sheets of the country’s failing banks.

The government will be looking to borrow a rather modest two billion euros this morning by way of a bond auction but with their borrowing costs already close to 7% and likely to rise analysts warn the bailout may not be enough.

It is almost two weeks since prime minister Mariano Rajoy finally buckled and admitted his country needs help and in that short time he has seen his country’s borrowing costs rise from 5% to 7%, the same level that prompted Greece to request a bailout.

Although Spain has not requested a specific amount, choosing to wait until independent auditors have completed their analysis, the IMF has suggested the country requires around 40 billion, while JP Morgan (does anyone still trust what they say?) put the figure closer to 75 billion euros.

Reports suggest that 100 billion euros has been set aside but some are worried about what will happen if the auditors report indicates a far greater requirement. Europe has hinted that it will give Spain the money it needs plus a little bit more to cover unforeseen circumstances. How much is “a little bit more”?

New French president Francois Hollande said Spain’s high borrowing costs are unacceptabe and Europe must show “a much faster ability to intervene”.

Spain are expected to make a formal request for help at a meeting of Euro zone finance ministers in Luxembourg this evening.

Mariano Rajoy is “the most incompetent leader in Europe”

The leader of the UK Independence Party (UKIP) Nigel Farage MEP says the Spanish prime minister is “just about the most incompetent leader in the whole of Europe.”

He made his comments to the European Parliament in Strasbourg last week in response to the pre-approval of a 100 billion euro bailout for Spain.

Farage said that despite having assured the EU that Spain would not need one, the country has now asked for a banking bailout, similar to Greece and Ireland.

Farage’s accusation was in response to comments from Rajoy made earlier in the week.

“This bailout shows what an incredible success the Euro has been,” said the Spanish prime minister.

Farage said this shows that he is the most incompetent leader in all of Europe, “and that’s saying something because there is stiff competition,” the MEP added.

His full statement can be viewed below. (Thanks to Henry III for the link)

Rajoy looking to peers for the ‘formula’

Spanish prime minister Mariano Rajoy
Spanish prime minister Mariano Rajoy

Spanish Prime Minister Mariano Rajoy said he’s talking to his European peers about how to save the country’s struggling banking sector.

The prime minister said he has spoken to other European leaders and colleagues in the European Union to try to find “the formula for the financing of the capitalization of the banking sector”.

He told reporters that he will take the decision that “best defends the interests of Spaniards.”

The comments came just before ratings agency Fitch downgraded the country’s credit rating to ‘BBB’, and ratings and research agency Standard & Poor’s forecast Spanish banks are likely to recognise losses of between 80 and 112 billion euros by the end of 2013 as the country’s double-dip recession forces more borrowers into default.

Pressure is building on Spanish banks to make loan-loss provisions this year for both 2012 and 2013.

Spain is trying to overcome opposition from Germany to allow the euro region’s bailout fund to funnel capital directly to lenders avoiding an official international bailout. The treasury are seeing their access to capital markets reduced as it increasingly depends on domestic banks to buy its bonds.

Yesterday Spain’s 10-year bond yields rose to 6.237, heading back toward the 7% mark that triggered bailouts in Greece, Ireland and Portugal. The treasury met its issuance goal selling 2.07 billion euros of securities, surpassing the target of 2 billion euros.

Spain doing “everything right” says German Finance Minister

German Finance Minister Wolfgang Schaeuble
German Finance Minister Wolfgang Schaeuble

German Finance Minister Wolfgang Schaeuble said Spain is doing “everything right” regarding it’s reforms and austerity measures but is suffering the effects of the situation in Greece, reported Handelsblatt.

The minister is also reported to have said that the euro zone needs to realise the medium-term project of fiscal union before any discussion of common euro zone bonds.

“The Spaniards are doing everything right and nonetheless they are coming under market pressure,” Schaeuble said. “We need to manage this …through close and trusting coordination.”

When asked about the possibility of additional burdens being placed on German taxpayers to increase Europe’s bailout funds, the minister said his government would not raise taxes.

He said Europe needed to implement what had already been agreed and fight the problems as and when they arose without setting false incentives.

“The government has always said that before we can talk about common debt management, we need a proper fiscal union.”

Schaeuble also said that euro zone policymakers including the head of the ECB and the European Commission president had been commissioned to develop a blueprint plan for fiscal union. However that, he said, was “a medium-term project.”

One bank could bring the country down, warns Rajoy

Spanish prime minister Mariano Rajoy - AFP/Getty Images
Rajoy gave an unexpected press conference

The Spanish government will not allow any bank or regional government to collapse “otherwise the country would fall,” Prime Minister Mariano Rajoy warned on Monday.

The PM made the comments to the press but failed to calm the markets that had reacted to Spain’s biggest bank bailout of 23 billion euros, handed to Bankia last week.

The Bank of Spain estimates the total of potentially loss-making real estate assets left over from the 2008 housing bust to be around 180 billion euros, of which Bankia holds some €32 billion.

“We are not going to let any region or financial entity fall, because otherwise the country would fall,” he said.

Despite the bailout Bankia shares plummeted losing 13% on the Madrid stock market. It has now lost two-thirds of its value since shares were floated in July 2011.

“We took the bull by the horns because the alternative was collapse,” explained Rajoy.

The PM also claimed that most of Spain’s problems stemmed from the crisis in Europe and Greece, more so than Bankia.

“There are major doubts over the eurozone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message that there’s no going back for the euro,” he said.

However, as voters in Greece seem to be favouring pro-bailout parties in the run up to elections in June, reducing the likelihood of a Greek exit from the euro, the rise in Spain’s borrowing costs shows that investors are still nervous.

Spanish yields have hit their highest level since November and while the London stock market rallied slightly, Spain’s lost two points. The Ibex index is at a nine-year low.

Rajoy once again dismissed comments from French president François Hollande who predicted a mass of Spanish banks will need rescue packages from Europe’s bailout funds.

“There will be no rescue of the Spanish banking sector,” he said.