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Weekly Report  (28.09.12)

By Per Svensson

miércoles 22 de octubre de 2014, 11:21h

Serious warning against Catalan secessionists

The Association of Spanish Military (AME) has warned that those promoting a ‘break-up of Spain may end up being judged by the military courts’  adding that the ‘Attitude of the President of the Catalan Government and the separatist members of his Parliament is against the law and is inadmissible.’

The leader of the socialists has proposed a federal state, while PP has stressed that it will defend the Constitution and the unity of Spain.

Half a million over 55 unemployed

The Federation of Employment Agencies report that the number of unemployed aged over 55 has increased from 131,700 in 2007,  to 495,700 today.  Seven out of ten in this group have been jobless for more than 1 year.   42.7% of the long term, elderly, unemployed are women.

Mayor of Orense in prison

The socialist mayor of the Galician city of Orense has been released on bail from prison, after being accused of influence trafficking and money laundering.  Two representatives of the company Ventex and the Ex-President of the local water confederation were also arrested.

Mortgages down 40%

The number of property purchases in Spain continues to dwindle, as can be seen by the number of mortgages for the purchase of dwellings approved.  In July they fell 17.5% compared with the same month last year,  with analysts expecting a fall of 40% this year, following a fall of 43% last year.

The average mortgage level approved has also been shrinking.  In July it was 98,892 euros, 10% lower than a year ago.

Rich become richer

The investment company of Alicia Koplowitz (El Corte Ingles) increased its assets in June to 511 million euros, 15% up on that of the end of last year.  She is followed by the Del Pino family, with 398 million in assets.

More immigrants leaving Spain

More and more foreign workers are leaving Spain.  The Social Security system reveals that 65,517 left in August, 81,631 above that of last year. There are now 1,748,415 foreigners contributing to the system, which include 283,141 Romanians, 65,037 Italians, 55,781 Bulgarians, 50,919 British and 44,848 Portuguese.

Forty percent of the immigrants live in Catalonia and Madrid, followed by Andalucía with 203,522, Valencia 179.218, Baleares 86.954, Murcia 78.035 and The Canaries 77.930.

Car production down 15.7%

Ninety percent of all cars produced in Spain are being exported, mainly to other EU countries,  but as vehicles sales fall both in Spain and the rest of Europe, Spanish production is being reduced. The sector expects less than 2 million cars will leave Spanish factories this year; the level of 1995. Last year 2.35 million cars were produced.

The Weekly Crisis

Spain is negotiating the conditions for a complete financial rescue of the country, but without a formal application, so as to save the face of Rajoy as long as possible

In expectation of the ‘unlimited purchase of State Bonds’ announced by the European Central Bank, the markets have eased pressure on Spain. The Treasury is using the moment to place bond issues at conditions similar to those existing at the beginning of the year

However, Spanish finances are bleeding from the huge debts already contracted at high interest rates,  and the country is in an unsustainable situation, where the government will be forced to apply, formally, for a rescue

Our readers will remember that the purchase of State Bonds by the ECB requires a formal application from the country in question, the acceptance of a number of strict conditions and the dictates of the ‘men in black’

The coming week is crucial for Spain: On Thursday the State Budget for 2013 will be presented and we will learn which of the ‘strict conditions’ have already been accepted.  Spain will be forced to cut an additional 40,000 million euro.  One day later comes the so called Wyman-report on how many millions must be borrowed to keep the banking system afloat

In the meantime Rating Agency Fitch has reduced the credit rating of Banco Popular from BBB- to BB+, a level where its debts are purely speculative, or ‘rubbish’

The stock exchange IBEX increased 2.6% at the beginning of the week, only to loose most of the gains over the following days

Greece: Royal palace for sale

In Greece, the debt laden government has announced that some state owned buildings will be sold, among them the Palace of Tatoi. The Palace was the home to the Greek royal family before they fled in 1967,  and the Hellenic Republic was proclaimed in 1974.  When the family fled, the Greek Government seized the royal family’s property without any compensation to the King.   HM King Constantine sued in the European Court of Human Rights saying that because his ancestors had obtained the property through legal means and it was inherited through the generations, it was his personal property.   Whilst the court officially sided with him, the judgment given for compensation was less than 1% of the palace’s value.

The Greek royal family is now based in London but that is never “home” according to HM Queen Anne-Marie: “When I think of ‘my home’ it is the Tatoi. It is such a lovely place. Our residence in London will never be regarded as anything other than ‘home away from home.’  The palace grounds include 40 outbuildings, stables, and a cemetery where Greek royalty have been buried since 1880.  The Greek population appears to be mixed on the idea of offloading the royal palace which may make a sale difficult. In addition, the palace has fallen into extreme disrepair which could also affect the sale. There is no word if the King and Queen of the Hellenes are interested in re-purchasing the property.

 

Spain: Unfinished business

By Tony Barber

Effort is only effort when it begins to hurt. José Ortega y Gasset, Spanish philosopher (1883-1955)

When Santiago Carrillo, the guiding light of 20th-century Spanish communism, died on Tuesday at the age of 97, one of the first to pay his respects at the late politician’s Madrid home was King Juan Carlos. “A person fundamental for democracy,” the monarch said.

It was generous praise for Carrillo, whose involvement in the bloodletting of the 1936-39 civil war long scarred him in the eyes of the Spanish right. It was also an attempt by the king to persuade Spaniards that the painful divisions of the civil war and subsequent 36 years of Francoist dictatorship belong firmly to the nation’s history and matter less than the shared values of modern, democratic Spain.

But as the beleaguered government of Mariano Rajoy, prime minister, edges closer to a request for emergency international financial aid, joining Greece, Ireland and Portugal in Europe’s intensive care unit, old Spanish wounds are festering again and new sources of political and social tension are emerging. It is a moment of truth for Spain and for the post-1945 cause of European unity, but the potential repercussions extend beyond Europe to the rest of the world.

Spain has the fourth-biggest economy in the 17-nation Eurozone, almost five times larger than that of Greece, and the 13th largest in the world. A failure on the part of European leaders to help Spain through its troubles, and a failure on Spain’s part to execute its ambitious economic reform plans, might wreck Europe’s monetary union and destabilise the global financial system.

Spain’s most visible challenges are financial and economic in nature: banks devastated by the bursting of a 15-year economic bubble, rising public debt, a steep budget deficit, high and potentially unsustainable government bond yields, deep recession and severe unemployment. Collectively, they explain why Spain’s banking system would have collapsed this year without European Central Bank support, why economic growth is unlikely to return until 2014, and why bankers in Madrid think Mr Rajoy probably has no choice but to ask his European allies as early as next month for a formal rescue program.

Yet these challenges mask a more profound crisis of the Spanish state, a crisis that demands a substantial overhaul of the structures established during the post-Franco transition to democracy in the late 1970s. Spain’s national drama is not just about banks and bond yields; it is political, institutional and regional.

The political dimension of the crisis was captured in an excoriating essay published this month in El País, Spain’s leading liberal newspaper, by César Molinas, a former investment banker who has also worked in government. Within days the article was a talking point all over Spain. “My daughter says it went viral on Twitter,” the author says gleefully.

Mr Molinas blasted Spain’s political classes as a closed elite, deaf to society and blind to the nation’s general interest because of an electoral system in which party leaders restrict voters to choosing between lists of candidates drawn up by the leaders themselves. In such circumstances it should come as little surprise that the main parties – Mr Rajoy’s centre-right Partido Popular (the “People’s party”) and the opposition Socialists – had no credible strategy for hauling Spain out of crisis, Mr Molinas argued.

The gulf between politicians and society is, however, a deformity of Spanish public life that dates from the early post-Franco years. With political and civic freedoms suppressed under the dictator, the founding fathers of modern Spanish democracy were determined to foster strong political parties. They guaranteed the parties various privileges, including access to public funds, and devised the electoral system that minimises voters’ influence over party leaderships.

The innovations were well intentioned and Spain in most respects established itself in the family of European democracies. But the long-term effects were more pernicious. Mr Molinas, a left-leaning thinker, compares the youthful democracy to Doctor Frankenstein, unwittingly creating a monstrous political class.

Holding this elite directly responsible for a disastrous property bubble, Mr Molinas now believes that electoral reform is essential to produce a ruling class that is less self-serving and more conscious of its responsibilities to the nation. But rightwing critics are no less scathing about certain features of public life. Luis María Anson, a former editor of ABC, a conservative monarchist paper, says politics at national, regional, provincial and local level is far too costly because of the proliferation of asesores – political advisers or consultants – since the late 1970s.

“The asesores, as everyone knows, are a pure invention of the political class and trade union caste to find cosy jobs for relatives, cronies and hirelings,” Mr Anson railed in a polemic seven weeks ago.

Such opinions are often viewed with suspicion in Spain’s outlying regions because they come from the right, closely identified in the political tradition with centralised rule from Madrid and even authoritarianism.

Yet industrialists and economists of the moderate centre-right caution against dismissing the criticisms of Mr Anson, and others of his ilk, as empty of substance.

They say that the expansion of regional self-government since the adoption of Spain’s 1978 constitution is one reason why the nation’s political classes, like the ranks of their advisers and hangers-on, have evolved into an ever bigger leech on the public purse and obstacle to change.

After Franco, the case for granting autonomy to the Basque Country, Catalonia and to a lesser degree Galicia and Andalucia was unanswerable. The first two regions were home to proud, self-conscious nationalities.

However, autonomy came to be granted to all 17 regions in a compact termed café para todos or “coffee for everyone”. Consequently, the regions have spawned homegrown parties, administrations and interest groups whose raison d’être combines self-perpetuation with the expenditure of centrally allocated public money for which, in most cases, they are not accountable to local voters.

Regions and lower tiers of government are under pressure from Madrid to exercise far more fiscal self-discipline. A constitutional amendment, passed last year, requires the regions to observe strict debt and deficit limits and commands local authorities to submit balanced budgets. It was an overdue reform: the budget deficits of the regions, now denied access to international capital markets, accounted in the first quarter of this year for almost 19 per cent of Spain’s general government deficit.

Tightening the fiscal relationship between Madrid and the regions is, however, an exercise fraught with peril. Hundreds of thousands of Catalans rallied last week in Barcelona, the region’s capital, under the slogan “Catalonia: a new European state”. The demonstration underlined how swiftly secession has caught the public imagination in Catalonia since Spain descended into acute financial crisis in 2010. Short of breaking up the Spanish state, the Catalans might settle at present for a “fiscal pact” giving them more control of their own taxes.

But Mr Rajoy, at a meeting on Thursday with Artur Mas, Catalonia’s leader, yielded no ground on this demand. The uncertainty over Catalonia’s future points to a deeper problem with the post-Franco settlement.

Since 1978 the legal and political balance of power between Madrid and the regions has been in an almost permanent state of renegotiation. The stability that characterises the US and German federal systems is absent in Spain. A comprehensive constitutional reform would help but it will be difficult as long as the economic crisis persists and the Catalan question remains filled with tension.

There are, in any case, other institutional issues that demand attention. One is Spain’s judicial system, penetrated by political interests and plagued with slow-moving courts. (In one cause célèbre, which involved the deaths of hundreds of people from contaminated cooking oil, it took 15 years for government officials to be put on trial.) A second is Spain’s poor education system, even though it boasts some of the world’s highest- ranked business schools.

A third issue is the monarchy. Juan Carlos won admiration for his role in the defeat of a 1981 attempted military coup, but with his advancing years – he is 74 – he has occasionally seemed out of touch. Attacked for making an elephant-hunting trip to Botswana in April while his countrymen were battling hardships at home, he delivered a public apology.

In coming weeks, the focus will understandably be on the timing and terms of a possible European rescue operation, on the health of the banks and on the prospects for economic recovery. For the medium to long term, the outlook is brighter than often supposed, say some high-level bankers in Madrid.

Spanish business is demonstrating its resilience. Exports are 26 per cent up from their 2009 trough and exceed by 7 per cent the pre-crisis heights achieved in early 2008. In two years, business will regain the competitiveness lost between 1998 and 2008.

Successful companies such as Inditex, the fashion industry leader which is the only European company to have entered the Fortune 500 list since 1975, and Mercadona, Spain’s largest supermarket chain and food distributor, are expertly managed.

Structural economic change is making progress, too. The Rajoy government’s labour market reforms are more far-reaching than measures agreed in Italy or proposed in France. In work contracts they are already eroding the practice of automatic indexation of wages to inflation.

With living standards squeezed and unemployment darkening the horizons of young people, the road ahead will be long and hard – as José Ortega y Gasset, the liberal philosopher, would have appreciated.

But street protests are overwhelmingly peaceful and there is so far no sign that voters will flock to an anti-establishment party of the radical left similar to Syriza of Greece. Such social calm may reflect the closeness of Spain’s family networks but job losses are so widespread that some families lack any breadwinner.

If the social peace is holding, it may owe more to the buoyancy of an underground economy that accounts for up to 20 per cent of gross domestic product. Official statistics that estimate unemployment at almost 25 cent of the workforce are significantly overstated. They take no account either of those who claim jobless benefit while working clandestinely or of others who, like their employers, pay no social security contributions.

Spain still needs large-scale external help to recapitalise its banks and ease it through the debt crisis. But it is building a platform for recovery and its people have not lost faith in their European vocation. What remains is to modernise the structures of government and public life that were designed 35 years ago for a nation only just emerging from decades of repression into the varied and vibrant society it is today.

BBC:

Valencia: A Spanish city without medicine

The Spanish regions are heavily in debt. People rely on them for free health and education, but they can no longer pay their bills - and they can't expect much help from central government, as it too struggles under a huge financial burden.

You always know if an interview is going to be fun if the interviewee has a sharp, diagonal fringe.

Paula, the pharmacist, has such a fringe, and a grin that suggests she not only understands English but could crack a few jokes in it. But she chooses to speak in Spanish. Because what is happening in Valencia is no fun.

The sign on the wall tells the story. "Important information. The government of Valencia owe this pharmacy for all the medicine we have dispensed to you in January, February, March, April and May".

We are down to our last packs of insulin - we just have no money to buy the stock” 

And not just this pharmacy. The government of Valencia - which runs the health system - owes a grand total of half a billion euros to the region's pharmacies.

Paula guides me into that back room that exists in all pharmacies, where the prescription drugs are kept. The problem is, now, there are not many drugs left.

"Look, this drawer is usually full," she says, pointing to where the suppositories are kept. Now there are only two packets."

She opens the fridge. "Look," she says, "we are down to our last packs of insulin. We just have no money to buy the stock."

I ask: "What happens if several people come in on the same day for insulin?" She makes two fingers walk along the back of her wrist. "They have to go around the neighbourhood to see if anybody else has it. It is the same with drugs for heart disease, stroke, anti-retrovirals."

It is an ordinary pharmacy: clean, white, with the regulation green neon cross outside. Now quite a lot of the patients are having to do something which for them is extraordinary: they are having to pay - a bit - for their medicines. There is a sign on the door explaining the new charges.

The Spanish regions have an extraordinary problem. During the property boom which has now busted Spain, they were collecting some taxes - from, yes, property.

Now that source of revenue is gone, they are expecting the central government to provide them with the cash they need. But the central government is in trouble too: it cannot borrow - except at punitive rates.

Valencia is littered with vanity projects that tell their own story.

The regions cannot borrow either. Valencia's deep in debt and who does pharmacist Paula blame? She smiles bitterly. "That is a very hard question to answer," she says.

In the baking heat outside Valencia's cathedral, there are people who do not find that question hard at all. They are holding up a banner: "The Route of Waste".

Journalists sacked when a local paper closed have taken to doing "citizen journalism" - which today means organising a coach trip around all the various projects Valencia built in the good times.

There is the Formula One racetrack, which runs right through the city so the roads had to be redesigned. But the city has lost its Formula One race.

There is the America's Cup dock, with huge sheds for ocean-going yachts and a massive white control tower. But there is no more America's Cup racing in Valencia.

There is the Opera House, a cross between the one in Sydney and something you would imagine only in your more disturbed dreams - 400 million euros to build, 40 million a year to run - 15 performances a year.

"Yes I am proud of it," says Xabi, one of the tour guides. "Yes the architecture is spectacular. But I would rather have schools."

Whether by corruption - and there has been a great deal of that - maladministration, or pure bad luck, Valencia is littered with vanity projects that tell their own story.

The airport that has never seen a single plane land. The theme park built in a place where the summer heat rises above 40C (104F). The land bought at premium prices that is now worthless.

The local press were also on the coach trip. And the next day I find out what they were working on. Headlines about me! They say the BBC's "star economics expert" - thanks for the compliment, guys - has come to Valencia to (here is the subtext) pour scorn on their wonderful infrastructure projects. The story makes the regional daily and the national conservative daily ABC.

And not only that. There are now angry demands in the official weekly press conference of the government: Why are the BBC here? Have you given them an interview? Will you give us an interview about what you told them in their interview?

"It is Spain," sighs the financial controller of Valencia.

Yes, Spain - where the arrival of the foreign media is a juicy story for the local papers but where massive white elephant projects went unquestioned for a decade, and where the banks that funded them, boards stuffed with appointed politicians, have now gone bust. And where if you need some insulin from the health service, you had better hope you are the first in the queue.

Missed Chances Stoke Skepticism Over EU’s Crisis Fight

By Simon Kennedy – Bloomberg on Sep 19, 2012 1:01 AM GMT+0300

Sept. 18 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. Most U.S. stocks fell, after the Standard & Poor’s 500 Index climbed to the highest level since 2007, as FedEx Corp. slumped and concern grew that European leaders will struggle to resolve the region’s debt crisis. (Source: Bloomberg)

“There are still a huge amount of unanswered questions and the region has to find a way back to growth and reduced debt,” said Michels. “The journey is still very, very long.”

Time has been bought by ECB President Draghi’s pledge to purchase government securities and the imminent birth of Europe’s 500 billion-euro ($653 billion) bailout fund, the European Stability Mechanism. To persuade global investors that the euro area can make it through its second decade intact, French socialists, German burghers, Catalan separatists, Italian technocrats and Greek tax collectors have to forge a rainbow alliance to meet the conditions demanded by markets, creditors and the ECB.

Following an unproductive meeting of European finance chiefs in Cyprus last week, a market rally triggered by Draghi’s debt-buying plan has run out of steam. Spanish and Italian bonds have surrendered some of their recent gains.

Spanish Yields

Spanish 10-year yields reached a euro-era record 7.75 percent on July 25, before Draghi pledged a day later to do “whatever it takes” to safeguard the monetary union. Since then, they have fallen below 6 percent, while those of Italy have dropped more than a percentage point toward 5 percent. The euro has gained 7 percent against the dollar since the start of August.

“Politicians tend to act for their own good and that of their countries rather than the greater good of Europe,” said Jacques Cailloux, chief European economist at Nomura International Plc in London. “That’s an unfortunate case and if it continues the markets will test the sovereigns again.”

Unresolved is whether Spanish Prime Minister Mariano Rajoy will trigger the ECB’s aid-for-austerity deal and if Greek leader Antonis Samaras keep his constituents, coalition partners and benefactors onside enough to keep aid cash flowing.

Looming is the vulnerability of Italy and the fragility of unelected Premier Mario Monti’s coalition as Cyprus negotiates the fifth bailout after Greece, Ireland, Portugal and Spain’s financial system.

Banking Struggles

Outside the danger zone, German Chancellor Angela Merkel must rally her bailout-allergic electorate and French President Francois Hollande needs to recast his growth-model. Meantime, European policy makers are struggling to meet a self-imposed deadline of the start of 2013 to get a bank-supervisory regime up and running. Merkel and Hollande are scheduled to meet Sept. 22 Ludwigsburg, near Stuttgart.

Crisis aside, they all share the urgency of finding an economic elixir. Unemployment is at a record 11.3 percent in the euro bloc and as high as 25 percent in Spain. The region is bound for its second recession in three years.

“The region has to get down to the messy business of implementation, and is likely to throw up problems along the way,” said Alex White, an economist at JPMorgan Chase & Co. in London.

Moment of Calm

Europe’s powers are, for now, enjoying a moment of calm after the ECB revived bond buying, Germany’s constitutional court blessed the ESM, an election in the Netherlands passed without an anti-euro spasm and Greece’s prospects for help stayed intact despite budget backsliding.

“Europe is stabilized,” Austrian Finance Minister Maria Fekter says. French Finance Minister Pierre Moscovici sees “light at the end of the tunnel.”

The lesson of the turmoil is nevertheless that pride has always come before a fall. Leaders declared a turning point six months ago before hitting reverse as Spain’s banks wobbled and support for Greek anti-bailout parties forced two elections there in a six-week span. In 2011, officials cheered the results of a July summit and headed on vacation only to find their pact in pieces before they returned.

The respite in markets won’t “last long” if Spain doesn’t seek assistance, ECB Governing Council member Luc Coene said Sept. 17. “Spreads will rise again, and then Spain will be somewhat forced to come back on its decision and submit to the conditionality program,” he said.

Rajoy’s Delay

Delay is the order of the day in Madrid. Rajoy, in power for 10 months after winning the biggest parliamentary majority in almost three decades, is balancing the need for aid with the potential for political and economic fallout.

He has already reneged on promises not to cut firing costs or unemployment benefits, raise taxes and scrap a tax break on mortgages. The leader of Catalonia, which accounts for 20 percent of the country’s economy, raised the specter of secession even as he clings to a financial lifeline from Madrid.

“An imminent application for external assistance by the government is unlikely,” said Antonio Barroso, an analyst at the Eurasia Group in London. “Rajoy’s priority is to limit the number of conditions attached to another rescue package and thereby limit the negative political spillover from accepting additional external aid.”

German Conditions

Rajoy is first trying to pacify markets by promising to detail new reform measures by the end of this month, including a possible increase in the retirement age, shift toward consumption taxes and deregulation of closed professions. If that’s not enough, he will have to decide on the size of a bailout, with Germany advising against a full rescue given he has already secured 100 billion euros for banks.

The more Spain digs in its heels, the more Germany may seek harsher terms, said Andrew Benito, an economist at Goldman Sachs Group Inc. While Germany’s top court backed the ESM and Merkel endorsed Draghi’s Outright Monetary Transactions over the resistance of Bundesbank President Jens Weidmann, her public is less sympathetic.

Their views -- reflected in an ARD-DeutschlandTrend poll that showed just 13 percent supported ECB bond-buying -- will count increasingly as Merkel gears up for re-election next year.

“The more the Spanish administration indulges domestic political interests and is perceived to be taking undue advantage of external support, the more explicit conditionality is likely to be demanded,” said Benito. “This would add to existing tensions.”

‘Cliff Effect’

The risk of German antagonism could leave the ECB in a tight spot if a bailed-out country then falls short of what’s demanded. The Washington-based Institute of International Finance, which represents more than 450 financial companies, this week warned of a “cliff effect” in which termination of support prompts an “abrupt” market correction.

In another squabble that could delay a lasting solution, Germany is pushing back against the timetable for greater banking oversight, urging caution when assigning new duties to the ECB. European Union leaders want a single supervisor by the start of next year to break the negative feedback loop between sovereign and banking debt.

That spat foreshadows a deeper divide as the bloc’s leaders turn to closer cooperation on budget issues. “We’ve made little progress on fiscal union, and that will be the next focus,” said Joachim Fels, chief economist at Morgan Stanley (MS) in London.

Monti’s Reforms

If Spain does hit the aid button, attention would shift to Rome where officials so far deny the need for help even as an austerity-driven recession deepens. Monti is now overhauling the labor market by easing the rules on firing workers during difficult economic times without the risk of a court ordering their reinstatement. Support for the government fell to a low of 17 percent, a poll by Rome-based IPR Marketing showed Sept. 17.

The need to quell a “contagion effect” will likely leave Italy under pressure from governments and investors to sign up for help if Spain does, said Tobias Blattner, director of European economic research at Daiwa Capital Markets in London.

Europe’s original problem child, Greece’s three-way coalition government is still trying to win aid blocked since June. It has yet to to agree on a full package of 11.5 billion euros of savings in the next two years.

“You want to be sure if something happens to Greece, you want Spain and Italy under the umbrella,” Blattner told Mark Barton on Bloomberg Television’s “Countdown.”

Greek Verdict

While late homework has typically meant punishment, Greece is winning some respite and may get easier terms as Europe’s chiefs try to cement the market rally and keep from reheating the euro-exit trade. A verdict on the country’s fiscal plans will now wait until October when European leaders next gather.

Even if the next chunk of a 240 billion-euro package is released there remains a funding gap unlikely to be cut by fiscal measures amid a fifth year of recession, says Erik Nielsen, chief global economist at UniCredit SpA in London.

“My bottom line is that Greece will remain in limbo, drip- fed by Europe and the IMF during the next six to 12 months, and that crunch time is more likely to start next year,” said Nielsen.

Longer-term, Jennifer McKeown of London-based Capital Economics Ltd. warns it’s too soon to “sound the all clear.” Europe may still find its financial firewall too small and while bond-buying deals with the symptoms of the euro’s ills it doesn’t tackle unsustainable debts and how to cut them without deflating economies, she said.

“Our long held view that a limited euro-zone break up will commence in the coming months is unaltered,” said McKeown.

 

The demolition of Spain’s welfare state

Article | September 23, 2012 - 9:28pm | By David Cronin

My little brain always had trouble with riddles. “Is it better to be nearly drowned or nearly saved?”  An age seemed to pass before I had figured out the answer to that question. 

Some day soon – assuming that newspaper predictions come true – Spain will apply for a “rescue package”. The inevitability that any such “package” or “bail-out” will have onerous conditions attached has got me thinking afresh about the riddle that blighted my boyhood. If a man is drowning, is it right to stamp your foot on his head?

Spain’s working and jobless people find themselves in the position of the metaphorical drowning man. Heartless ideologues – some based in Madrid; others outside the country – have exploited their plight to introduce “reforms” that would have not been contemplated a few years ago.

The journal Clinical Medicine has just published the results of a new study into the health effects of austerity measures in a sample of European countries. It argues that the centre-right government in Spain has “fundamentally reworked the healthcare system” within less than a year. Whereas all residents had previously been entitled to free medical attention, access to care is now being linked to employment. The upshot, then, is that Spain is becoming more like the US, where medical entitlements are also connected to holding a job. In the measured words of Martin McKee, a public health professor, and the other academics behind the study, “this creates a potentially serious situation in Spain, where over half of all youth are unemployed.”

Mariano Rajoy, the Spanish prime minister, insists that the measures being implemented reflect “common sense”.  The rules of democracy have not deterred him. He has resorted to both the standard practice of reneging on election pledges and the more extraordinary step of having decisions enforced by royal decree. Why let pesky legislative procedures stand in the way of “common sense”?

Of course, the next question should be: who benefits from this “common sense”? Could it be the kind of individuals who are applauding the measures most enthusiastically?

Francisco González, chief executive of the bank BBVA, belongs in that category. In April, he travelled to Berlin, where he addressed the Spanish-German Forum. He availed of the occasion to advocate “a labour law reform that eliminates the problems of collective bargaining”.

What this really means is that he was urging the kind of war against trade unions that Ronald Reagan and Margaret Thatcher waged in the 1980s. According to his mindset, the hard-won right of workers to bargain for decent wages is a problem that must be eliminated. Like a tabloid journalist, González does not allow the truth get in the way of his story.  The truth is that Spain’s economic woes were not caused by collective bargaining. They were caused by financial speculation. As part of a property bubble, more houses were built in Spain over the past decade than in Britain, France and Germany combined. Who profited from this speculation? Could it have been some of those bankers that González regaled in Berlin?

A careful reading of González’s comments might leave one wondering what he has to whinge about. He bragged of how BBVA “had earnings of 4.6 billion euros in 2010, the worst of the crisis”. It is known that German banks were heavily involved in property speculation in Spain and Ireland, where a similar construction boom took place. And yet DeutscheBank made a cool 8 billion euros in profits last year. Who will stand to gain from any new “rescue package” for Spain? Could it be a banking elite? 

The sycophants who surround Olli Rehn like to give the impression he  has an unrivalled knowledge of Europe’s economic history. Yet the EU’s monetary affairs commissioner is not above concealing important details when it suits him.

Rehn recently said that “Europe is undergoing a difficult but necessary adjustments of imbalances” in the 10 years preceding 2008. “Countries that have been running current account deficits for a long time need to achieve surpluses in order to begin to reduce their debt,” he added.

A little bit of fact-checking reveals that Spain was not running a budget deficit before the crisis erupted. On the contrary, it ran a surplus.

In his bid to refashion the European economy, Rehn has decided to mislead. The crisis we are living through now is not the result of profligacy in the public sector. It is the result of lax regulation in the financial sector.

Asbjorn Wahl’s book The Rise and Fall of the Welfare State shows how strong social protection can’t be done on the cheap. To pursue the kind of social policies found in Scandinavia, it’s necessary for half the economy to be “under direct political control”, he wrote. 

In 2007 - before the crisis - Spain introduced a subsidy for new-born babies, the kind of benefit associated with Sweden. It has now been scrapped. 

These kind of advances are not being reversed because Spain can no longer afford them. They are being reversed because they clash with the pervading philosophy among the EU’s powerful. According to that philosophy, “competitiveness” and profit maximisation must be prioritised over everything else.

With full connivance from the EU hierarchy, Spain  is destroying  the welfare state. When Rajoy speaks of “common sense”, he means that his demolition derby makes sense if you want capitalism to triumph and Europe to become a carbon copy of the US. 

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