Spain hoping to avoid Greek style bailout

Mariano Rajoy’s conservative government will be meeting today to discuss, and approve, an extra 10 billion euros of spending cuts and increased charges in health and education as part of his austerity drive and an attempt to convince investors that Spain does not need a Greek style bailout.

“The fundamental objective at the moment is to reduce the deficit,” Rajoy said in Madrid this week.

“If we don’t achieve this, the rest won’t matter: we won’t be able to fund our debt, we won’t be able to meet our commitments.”

Rajoy said his government is committed to making cuts and reforms to ensure the Spanish economy becomes stable and  productive. “We need this process of adjustments in order to grow and create jobs,” he said.

Despite a high demand for long-term bonds at auction earlier this week, the country’s economy is still struggling to get moving following the crash of 2007.

With the highest public debt Spain has ever seen and the highest unemployment in Europe, Rajoy’s government have already introduced 50 billion euros of austerity cuts across the country which has resulted in protests from unions and the public.

With many Spaniards already doubting that the country can bounce back Rajoy’s announcement may be seen as a threat to encourage the people of Spain to accept the new cuts as a necessary evil that may be the only choice Spain has left.

“No one can expect such deeply rooted issues to be resolved in a few weeks,” Rajoy said.

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Elections, strikes and budgets – a busy week for Rajoy

In the days after Mariano Rajoy’s Partido Popular (PP) won the regional election in Andalucía, people may be asking “what happens now?”

The first thing that happened was that Spanish stocks fell across Europe.  On Monday the Spanish IBEX index was down 1.7 percent as economists looked ahead to Rajoy’s mandate to deepen cutbacks  in public spending as part of his efforts to  drag Spain out of the euro zone debt. Rajoy is expected to announce a further 40 billion euros to be cut from expenditure, in addition to the 15 billion already saved.

Andalucia, one of the most indebted regions in Spain relative to its output, and has the highest jobless rate, at over 31 percent of all of Spain’s regions. Part of the planned reforms will hand more power to the regions to cut health care and education spending, something which local councillors have long been asking for.

Rajoy may not have won a majority in Andalucía but he still has an absolute majority in the national parliament and will press ahead with further cuts despite a general strike, planned for this Thursday.

“A day after the polls, the PP is still the dominant power in Spain … but electorally it is starting to suffer the effects of the (economic) situation it has to deal with,” El Pais reported.

However, with the combined total seats of the Socialists, with 47, and the United Left with 12, the possibility of a leftist ruling coalition is an option for the opposition parties, but analysts think the negotiations will not be easy.

“Today we’ve seen that the majority of voters in Andalucia have not voted for the right. They want change that defends the social model and equality of opportunity,” United Left leader Cayo Lara said in a television interview.

“The people of Andalucia want change, but they want change through the left,” she added.

With a strike due on Thursday and a budget due on Friday, it seems the PP has work to do to impress itself upon Andalucía, and the rest of Spain. The people will speak on Thursday when the number of protesters will act as a good indicator of public confidence in Rajoy’s plans.

Spain’s Popular Party set to take Andalucía

The PP swept the board in November
Polls suggest a PP victory in Andalucía

With elections due in Andalucía this weekend opinion polls are suggesting Mariano Rajoy’s ruling Partido Popular (PP) is likely to take control.

If the party win in Andalucía they will control almost all of Spain’s 17 regions.

The poll, published in El Pais, showed the party taking 47.3% of the vote in the coastal region, which is the last remaining Socialist stronghold in Spain.

The socialist party has been losing popularity due to scandals over allegedly fraudulent severance payments from the public purse, and high unemployment figures which some blame on Zapatero’s previous Socialist government. The region of Andalucía has been under socialist rule for 30 years.

To gain control of the region the PP will require 55 seats for an absolute majority. A Sigma Dos poll, published in El Mundo, shows they currently expect to win between 54 and 57 seats.

Spain has been under pressure from EU officials to reduce its public deficit and unemployment rate, one of the highest in Europe, and has introduced unpopular labour reforms and austerity measures which some feel could cost them the vote.

We’ll see on Sunday when the polls open!

Spain agrees new deficit target

Mariano Rajoy
Rajoy claimed victory over deficit target

Brussels has set a new deficit target for Spain and Mariano Rajoy’s government have accepted it, claiming a victory after winning some concessions.

The target for this years budget deficit is now 5.3% of GDP, slightly lower than the 5.8% target that Rajoy set last month without consulting EU officials.

Following the decision Spain’s economy minister, Luis de Guindos, said “Spain is completely committed to the budget adjustment,” and that the new target “will be accepted by the government”.

The new target is half a percentage point lower than Rajoy was hoping for and this means an extra five billion euros must be saved via spending cuts or tax increases. This is on top of the 15 billion euros of savings already expected in the upcoming budget.

Rajoy is claiming a political victory despite EU ministers rejecting his 5.8% target, which he said was a matter of national sovereignty, as the original target passed from Brussels was 4.4%, previously agreed by Zapatero’s socialist government.

The prime minister argued that his government had inherited a large deficit overshoot when they were elected in November and risked another recession if he imposed too much austerity, an argument which the EU’s senior economic official, Olli Rehn, accepted.

Spanish foreign minister, José Manuel García-Margallo said “The Spanish government has won this battle.”

He added that EU leaders had taken the Spanish arguments seriously saying “They gave us the maximum possible.”

The Spanish government have previously said that Spain will cut their public sector deficit to 3% of GDP by 2013 and this was reiterated in Brussels.

Sr. Rajoy has yet to announce how he intends to meet the target as the national budget has been postponed pending the outcome of the regional election in Andalucía, due later this month. The region is currently under socialist rule.

Economists and analysts say it will be difficult for Spain to reach it’s target without increasing the risk of a second recession. Too many spending cuts or tax raises could push the economy downwards, increasing unemployment which, in the long run, will not increase tax revenue for the state.

“We remain concerned that it will be very difficult for Spain to achieve this level of fiscal consolidation, especially given that the economy has already moved into recession,” Barclays Capital said on Tuesday.

Spain will miss 2012 deficit target

Mariano Rajoy speaking in Brussels
Spain will miss target, says Rajoy

Spanish prime minister, Mariano Rajoy, has told Brussels that Spain “will miss” their 2012 deficit target, putting the country at risk of sanctions from the European Union.

The announcement was made shortly after the prime minister had signed a new fiscal agreement with fellow EU leaders. The pact is supposed to ensure all member states’ commitment to disciplined finances and the prevention of debt build-ups that many blame for the crisis.

Spain is in an increasingly difficult position with unemployment levels still rising and a fall in economic output, making the EU imposed target of 4.4% “almost impossible”.

Sr. Rajoy, who’s PP party swept to election victory in December, made no apologies for his comments, saying that the 2012 deficit target was not realistic, given the country’s economic problems.

However, Rajoy said Spain still plans to cut its deficit to 3 per cent in 2013, bringing the country back in line with the new fiscal rules. He said that his government was committed to austerity.

Rajoy expects this years deficit to be 5.8% of GDP, a fall from 8.5% in 2011, but still above the 4.4 per cent it had previously agreed with the EU.

Meanwhile, in Madrid, Economy Minister Luis de Guindos announced the 1.7% GDP contraction forecast and said the economy is expected to shrink further in the first two quarters of 2012 and possibly the third, before beginning to pick up. The minister blamed slowing domestic consumption, high oil prices and a slow in the world economy.

He also added that unemployment will rise over the short term as recent labour reforms passed by the new government will take time to have any noticeable effect.

Spain seeks support over deficit target

Mariano Rajoy, Spain’s prime minister, is seeking support from his EU counterparts after requesting a reduction in his country’s deficit target.

Rajoy, elected last November, said on Wednesday that Spain would do “everything we can” to cut the budget deficit because the public sector could not continue spending 90 billion euros more than it earned each year.

Spain announced this week that its 2011 budget deficit was 8.5 percent of GDP, much higher than expected. This will make the 2012 target harder to achieve.

The PM said recently that Spain’s target of 4.4% is almost impossible to meet and has discussed the options for increasing the target.  This has apparently upset a few people within the Commission, where officials view Rajoy’s efforts as improper politicisation of what should be a technocratic judgement by staff economists.

Rajoy accepts that deficits need to be cut but not at the expense of job creation, which is a top priority for Spain where unemployment is currently at 23%, one of the highest rates in Europe.

“We will lower (the deficit) as much as we can, but these policies should be made compatible with those used to create jobs,” Rajoy said speaking to Radio Nacional de España. “We will do it with no rush but no pause.”

But the Commission says it is not willing to show flexibility until Spain provides an explanation of why the 2011 deficit was so much higher than expected and puts forward new austerity measures to help meet this years target.

“There is an in-depth debate: is it logical to maintain targets as if nothing had happened?” said Joaquín Almunia, Spain’s European commissioner. “That is a political discussion that may start tomorrow [Friday] in the European Council and I think it is better to have this discussion with as much data as possible on the table.”

Some smaller euro-zone countries have expressed anger over Rajoy’s efforts saying they viewed it as an attempt to get special treatment.

“It would question the entire economic governance tool kit,” said a senior diplomat from a smaller country that has previously had it’s own fight with the Commission over deficit targets. “We hope there is equal treatment.”

Chairman of euro zone finance ministers, Jean-Claude Juncker, told Spanish radio he was sure a solution could be found for Spain, but with a second recession on the horizon, escalating unemployment and unpopular tax increases there has to be a question of whether a reduced target could be met at all.

Labor reforms fast-tracked

A number of arrests were made
A number of arrests were made

Spain’s new conservative government, led by Mariano Rajoy, have approved desperately needed labor market reforms as part of a drive to revive a failing economy and solve Europe’s worst unemployment rate of nearly 23 percent.

The plans are designed to encourage companies to hire more people by simplifying the hiring and firing procedures and offering tax breaks for employing young people.

However, the fast-track approval of the reforms resulted in violent clashes between riot police and protesters who say they will lose worker benefits.

Spain’s largest union is now calling for mass protests across the country on Feb. 19 in response to the changes.

Ignacio Fernandez Toxo, a spokesman for General Workers and Workers’ Commissions said the reforms “are brutal, they cheapen, facilitate and deregulate firing workers as the government’s only solution to unemployment.”

“We want to raise a clamor in the streets of Spain against the labor-market reforms,” said Sr Toxo, although he stopped short of calling for a general strike.

He added that the reforms “limit the rights of workers but offer no benefits for the people.”

The decree will reduce the cost of an unfair dismissal associated with an open-ended contract to 33 days a year worked, down from 45. More importantly, it will make it easier for employers to justify a fair dismissal with a cost of 20 days. Some economists and business leaders say the high costs associated with dismissal can act as a disincentive to hiring.

Under the new reforms, companies will be able to pull out of collective bargaining agreements and have greater flexibility to adjust an employee’s working hours, tasks and wages depending on how the economy and the company are doing.

Severance packages will also be cut from 45 days of severance pay per year worked to 33 days.

Nearly a third of workers in Spain are on temporary contracts, a huge percentage that makes the country’s jobless rate so volatile. From January 1st, 2013, temporary contracts must become permanent after 24 months. Zapatero’s Socialist government had introduced reforms in 2010 that allowed temporary contracts to run indefinitely.

Taking people off benefits will also provide employers with incentives under the new laws by paying the employer 50% of the unemployment benefit while the employee will continue to claim 25%.

This is sold as a 25% saving for the government. How? Usually when someone gets a job they come off benefits so how is this going to save money? You get a job and continue to receive benefits – surely that’s spending more, not less.

One protester, Cristina Fernandez, waved a placard saying “Every cut mutilates my rights” and said the labor reforms won’t achieve the government’s goals in reducing unemployment.

“To reduce unemployment, you need to create jobs, not simplify firing,” she added.

It seems to me that there is nothing in the reforms for me, and the rest of the workers that keep Spain alive. Only the companies that choose to treat employees like numbers seem to be gaining anything here. They can dump you cheaper and easier than before.  This will do nothing to reduce the unemployment level in Spain. If anything, it will increase the numbers as it’s almost certain that many people who were in secure positions before will now become victims of the new “easier-to-justify-and-cheaper-dismissal” laws.

EU Employment experts coming to Spain

youth unemplyment
Spain has highest unemployment in EU

The President of the European Commission, Jose Manuel Durao Barroso, has announced that he will be sending employment experts to Spain to help develop a plan of action to battle the “big problem” of youth unemployment.

Almost half (48.7%) of 18-24 year olds in Spain are unemployed with the figure being over 50% in the Malaga region. Spain currently has the highest unemployment in the EU, more than double the rate in Germany.

The initiative will involve the creation of “action teams” including employers, Spanish unions and the Government, but will also be rolled across other EU countries with high unemployment including Greece, Portugal and Italy.

The European Union executive’s spokeswoman, Pia Ahrenkilde, said “We must act now, and in the short term, to do more to combat the urgency of youth unemployment. It is unacceptable to have these very alarming rates of youth unemployment in some Member States”.

The experts will “visit each of the countries concerned in February, for one or two days, to identify where the EU contribution could be useful to help develop a youth employment plan”, she added.

European aid to the value of 10,700 million euros has been assigned to Spain up to 2013, and the action teams will consider the best way to spend this money in order to increase employment.

“One of the objectives of these ‘action teams’ should be to agree on how to accelerate and, where necessary, redirect these uncommitted funds”, Ahrenkilde explained. Also they will “review the priorities of existing programs in order to have more impact on measures for young people and job creation in SMEs”, she added, going on to say that “there are no new funds” for fighting youth unemployment.

The ‘action teams’ aim to create the action plan by mid-April.

Prime Minister, Mariano Rajoy, responded by saying he was quite prepared to send his own experts to Brussels to accelerate the implementation of this initiative.

The plan was agreed and endorsed by EU leaders at the summit on Monday.

“…for one or two days” – is that enough to fix such a huge problem? To me this sounds like some EU executives fancy a holiday around Europe. What can they really do in two days? Watch this space for yet another failed EU initiative.

Rajoy expecting strikes over labor reforms

Mariano Rajoy
Expecting strikes

The Spanish Prime Minister, Mariano Rajoy, has told European partners he believe’s labor reforms, to be adopted in mid-February, will likely cause strikes.

“The labor reforms will cost me a strike,” Rajoy whispered to Finnish Prime Minister Jyrki Katainen, apparently unaware that the cameras were watching and the microphones listening.

The EU has said Spain should give priority to the labor reforms to reduce the high level of unemployment in the country but Rajoy thinks there is trouble ahead.

“Now comes the hardest thing,” he said to Dutch Prime Minister, Mark Rutte, adding that the reforms will leave “a very bad legacy”.

After meeting with José Manuel Barroso, the president of the European council, Rajoy confirmed that the restructuring of the financial system will be adopted next Friday and the new labor reforms will be ready in February.

I look forward to reading the details of the reforms – some will no doubt benefit but I’m sure the majority of people will be in the same position that there are in now, or worse!

Unemployment in Spain still increasing

Spain's Unemployed
Unemployment in Spain at highest for 17 years

The National Statistics Institute has released figures showing that 5.3 million people were out of work in Spain at the end of December 2011, up from 4.9 million at the end of the third quarter.

This sets a 17 year high for unemployment in Spain with 22.8% of the population out of work. This is more than double the average across the 17 members of the Euro zone, which stood at 10.3% in November, according to the report.

Furthermore, the figures show an alarming rate of unemployment for the younger generation with almost half of all 16-24 year-olds being jobless – 48.6% now, compared with 45.8% in December.

Men are faring slightly better than their female counterparts with male unemployment increasing to 22.46%, whilst 23.32% of females are unemployed.

Some sectors did show a decrease in unemployment. In Agriculture, for example, there were 42,300 fewer unemployed and, surprisingly, the construction industry also saw a small decrease with 2,900 fewer people losing their jobs.

New conservative prime minister Mariano Rajoy has pledged action from his government to improve the job market but he isn’t working fast enough for some people. A number of public service employees held a series of demonstrations across Spain earlier this week to protest against unemployment and the governments austerity measures.

The situation with rising unemployment is a bit of a catch-22 for Mariano Rajoy’s administration. As more people register to receive benefits the governments bill increases and fewer people in work means fewer people paying income tax, so less revenue is generated. Add this to the fact that fewer earners means fewer spenders and the economy seems sure to head back into recession.