Friday, 30 March 2012


Spain's general strike shows first signs of rebellion against austerity
Austerity measures look set to become far more dramatic on Friday, when prime minister Mariano Rajoy delivers one of harshest budgets ever seen in Europe.

29 March, 2012

With near-empty railway stations, shut factories, mass marches and occasional outbreaks of violence during a general strike on Thursday, Spaniards showed the first signs of rebellion against the reformist, austerity-preaching conservative government they voted in four months ago.

Police and pickets clashed in a handful of places, but it was a largely peaceful general strike in a country whose sinking economy, with 23% unemployment, has become the focus of worry about the future of the whole eurozone area.

Thousands of police officers remained on duty around the country on Thursday night as tens of thousands of flag-waving demonstrators flooded into city centres for protest marches against labour reform and austerity measures introduced by prime minister Mariano Rajoy's conservative People's party [PP].

Demonstrators brought the centres of Madrid, Barcelona and other cities to a standstill as trade unions claimed the strike was more widely supported than previous nationwide stoppages in 2010 and 2002. Rajoy's officials claimed, however, that the 2010 strike against a socialist government had received greater support.

Electricity consumption fell by 17%, suggesting the strike was impacting on major industries – though most shops appeared to be open in Madrid.

Street fires were set in both Madrid and Barcelona, where roads into the city were blocked, but there were few reports of serious violence.

The strike was most successful where Spain's big two unions, the General Workers Union and the Workers Commissions, are strongest – in large factories, the civil service and transport.

General Workers leader Cándido Méndez put average participation at midday at 77% but said that it was 97%in industry and construction.

"This strike has been an unquestionable success," he said.

Civilized protest looked unlikely to alter the determination of the government to drive on with reforms and austerity.

Rajoy has pledged not to backtrack on reform that has made it easier for employers to sack workers. And the austerity measures which strikers also demonstrated against looked set to become far more dramatic on Friday, when Rajoy is set to deliver one of the harshest budgets ever seen in Europe.

The general strike came on Rajoy's 100th day in power and at the end of a week that marks a watershed in political support for his party.

At the weekend he had seen support slip away in Spain's largest region, southern Andalucia, where the PP's share of the vote fell in a regional election from 46% to 41%.

The party also did badly in the northern region of Asturias, where it finished in third place in a Sunday vote.

Regional governments, which provide most welfare services and jointly failed to reduce their deficits at all last year, are seen as one of Spain's main problems.

The strike came amid growing concern about Spain in Brussels and the financial markets, which have put pressure on bond yields in recent weeks – though the Spanish government has had no trouble borrowing money to finance itself.

Yields remain below the levels at which bailed-out eurozone countries like Greece, Ireland and neighbouring Portugal were forced to seek help. Spain's national debt remains lower than in most eurozone countries.

Portugal's central bank cut its economic outlook on Thursday, warning the economy would be flat next year, where it had previously forecast a mild rebound of 0.3%. This year it expects a contraction of 3.4%.

With an economy that is twice the size of Greece, Portugal and Ireland put together, however, problems in Spain would have far-reaching consequences.

Rajoy held the budget back until Friday in order to avoid alienating voters in Andalucia, a strategy that has annoyed some commentators who believe he has wasted valuable time.

The European Union has set Spain a target of cutting its deficit from 8.5% of GDP to 5.3% this year, a net cut of some €34bn (£28.3bn).

As Spain falls back into a double-dip recession, however, economists say austerity measures will sharpen the fall. The government already predicts a 1.7% fall in GDP this year, with unemployment rising to 24%.

And with Spain entering a spiral of falling tax income, higher unemployment and recession, the real size of the cuts or tax hikes needed to meet the deficit target are much higher.

Economists have put the total adjustment needed to meet this year's target at between €52bn and €64bn – or well over €1,000 per Spaniard. The government has already covered €15bn of that with emergency measures announced in December.

Government sources said they were aware that Spain's credibility with the markets was on the line if it failed to meet the target, though some economists consider this impossible.

But Juan José Toribio, of Spain's IESE business school, said the country could no longer afford the welfare state built up during boom years and fuelled by a giant housing bubble that has since burst.

"We cannot sustain the current model of the welfare state," he said. "I am not saying we cannot have welfare, but we must seek a less expensive model."

Kathleen Brooks, research director at, warned that the sight of protesters on the streets of several Spanish cities will prompts fears that the government might relax its fiscal plans, making sovereign debt a less attractive purchase

Rajoy to Unveil Deepest Spanish Budget Cuts in 30 Years
Prime Minister Mariano Rajoy will unveil the most austere budget since before Spain’s return to democracy in 1978, risking a deeper recession in a bid to avoid succumbing to Europe’s debt crisis.

30 March, 2012

There’s interest in seeing how they are going to manage this particular trick of cutting the budget so aggressively,” said Harvinder Sian, an interest-rate strategist at Royal Bank of Scotland Group Plc in London, during a telephone interview. “The recession will be dramatic.”

The yield on Spain’s 10-year bond has risen 61 basis points since March 2 when Rajoy unilaterally raised his deficit goal for 2012, as a deepening economic slump compounded a bigger- than-forecast shortfall last year. The yield rose 13 basis points yesterday to 5.46 percent, pushing the difference with comparable German debt to 365 basis points, the highest close in almost four months.

Budget details will be released around 2 p.m. in Madrid after the weekly Cabinet meeting. Rajoy, in power since December, has pledged to trim the deficit to 5.3 percent of gross domestic product even with the economy mired in the second recession since 2009 and unemployment topping 23 percent.

Socialists’ Efforts

The promised deficit reduction of 3.2 percentage points of GDP, the equivalent of 34 billion euros ($45 billion), would be the biggest by that measure since at least 1980. That’s more than the cuts of 2.7 percentage points achieved by his Socialist predecessor, Jose Luis Rodriguez Zapatero, in the previous two years.

Zapatero managed that reduction by raising value-added tax and cutting civil servants’ pay by 5 percent, options that Rajoy has ruled out. Rajoy will also operate in an economy forecast to shrink 1.7 percent this year, while Zapatero enjoyed an expansion of 0.7 percent growth last year and a contraction of just 0.1 percent in 2010.

Rajoy riled European Union partners with his March 2 announcement at a summit in Brussels that he had raised Spain’s deficit target to 5.8 percent of GDP from the 4.4 percent initially pledged. Earlier he had attended a ceremony to sign a treaty aimed at ending the debt crisis by enforcing fiscal discipline. EU allies pushed back and got Spain to agree on March 12 to a 5.3 percent goal.

Fiscal Slippage

Rajoy tried to raise the target after his predecessors left him with a deficit of 8.5 percent of GDP, dwarfing the 6 percent the Socialists had pledged to the EU.

The significance of the budget is to demonstrate commitment,” said Marc Chandler, the head of global currency strategy at Brown Brothers Harriman in New York. “Budget shortfalls last year and then this year and the way this was handled did not build confidence.”

Spaniards have already had a taste of Rajoy’s budget- cutting. The premier raised income tax and slashed spending by 9 billion euros in December in a 15-billion euro package designed to carry public finances through until the 2012 budget is approved.

Fitch Ratings said on March 27 that a deficit of 6 percent was likely this year and that Rajoy’s goal to get Spain back within the euro-region’s 3 percent deficit-ceiling in 2013 was “unrealistic.”

Additional austerity will likely be met with more popular unrest. Unions held a general strike yesterday, hobbling transportation and manufacturing across the country. Less than a week earlier, the People’s Party failed in a bid to unseat the Socialists in a regional poll in Andalusia, the third biggest regional economy. The PP also failed to make advances in voting in Asturias region.

Polls had indicated that the PP would win in Andalusia and the result suggests that Rajoy’s austerity drive may be eroding the support that led to his landslide victory in December, Ricardo Santos, a European economist at BNP Paribas in London said in a March 26 report.

Small Spanish villages face big budget woes

20 March, 2012

In a verdant mountainous area in western Spain, the tiny village of Higuera de la Serena has a big problem.

Its municipal debt is a staggering $1 million -- for a town of just 1,000 residents.
Mayor Manuel Garcia no longer has enough budget to pay for a full-time municipal staff.

So on Sundays in the main plaza, they now hand out brooms, shovels, picks and other equipment to any of the townsfolk willing to work. And volunteer badges, too.

"Having the support of the people makes you stronger, and keeps you going, with the help of volunteers," said Garcia, who took office last June with the huge debt already piled up.

Across Spain, municipalities large and small are drowning in debt. It's the result of what many analysts and officials say was unbridled spending and taking out large loans during the economic boom years, only to find revenue all but dried up in the economic crisis.

But in Higuera de la Serena, they're gaining attention for their fiscal fight.

The mayor, from the Communist-leaning United Left coalition, and others on the town council who normally would get a salary have renounced their paychecks.
The volunteers now take on many tasks that in previous times would have been done by municipal employees.

On a recent Sunday, that meant watering the newly planted trees at a new site called Volunteer Park. The water came at no cost to the taxpayers, from the mayor's own small farm.

Just beyond town, a larger group of volunteers scoured the hillsides to pick up trash at a popular picnic site. Nearby, others dug out rocks and debris so an old spring would flow again.

Antonio Vita, a construction worker who was laid off a year ago in northern Spain and has since moved back to his hometown, Higuera, said he was happy to help fix the spring. But he's concerned about Spain's economic predicament and his own.
"I'm worried about all of Spain. Things are not going very well," Vita said. "There's a lot of debt."

Especially for companies and individuals who provide goods and services to town halls. They are owed billions of dollars, and many have gone bankrupt waiting to get paid.
Spain's new conservative government just approved a new loan fund, in conjunction with banks, so that towns could soon get cash to pay suppliers. The loans would be paid back over 10 years at favorable rates.

The government reported that nationwide, 177,000 suppliers may soon be paid $12 billion owed by city halls, under the loan program.

In Higuera, local gas station owner Ignacio Martin said he's owed $8,000 for fuel that heats the school and runs the city vehicles.

"City hall wants to get help from a new national loan fund to pay suppliers," Martin said at his gas station. "They hope to pay me in May, more or less."

That's a potentially much quicker solution than at the town's brand new nursing home. It was built under the previous Socialist local administration at a cost of $2.5 million, mainly with loans and subsidies from the regional government and the European Union, Deputy Mayor Manuel Tamayo said.

But the building can't be opened for use. It sits idle, as sheep graze nearby.

Regional health officials discovered that the building does not meet code regulations. The hallways were built too narrowly, and stretchers cannot make a turn from the hall into the patient bedrooms. The site was designed for 40 senior citizens, and most of them would need to be moved on stretchers or wheelchairs.

The inside of the nursing home is already fully outfitted, with a cafeteria, large television, even exercise equipment.

Tamayo said if it could open, it would create some badly needed jobs in the town, which relies mainly on agriculture. But instead, the town hall must pay a night security guard to ensure that things inside are not stolen.

Yet the sickest patient of all may be Spain itself, said Miguel Hernandez, a professor at Madrid's IE Business School.

With 8,100 municipalities in Spain -- 70% of them with less than 2,000 residents -- he believes some should merge to cut costs.

"Sooner or later, the structure of local government has to change," Hernandez said. "We can't have a country with 8,000 mayors."

But Higuera's mayor said the key is really not overspending the local budget.

Garcia hopes Higuera won't have to merge with another village town hall. But it already participates in a cost-sharing plan with other nearby towns for roadwork improvements and some other services.

Garcia and Tamayo celebrated with the volunteers at an impromptu picnic after the work was done on Sunday.

The volunteers even put together a free lunch, which included stewed lamb and cured ham, local specialties.
They say they'll try to get by hand to mouth, until the bill for years of overspending is paid off.

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