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Spanish Business News

The latest business, economic,property, stock market and financial news from Spain. Keep up to date with what is happening with the Spanish economy, stock market, the economic crisis, the euro zone debt sovereign debt crisis and the Spanish property market.

Greece, Spain rocked by riots in a day of protests
30 June 2010

Dozens of masked youths clashed with police yesterday at a union protest in Athens during a general strike against the cash-strapped Greek government's planned pension and labour reforms.

Similar strikes in Spain also led to arrests and clashes with police.

Greek riot police fired tear gas and stun grenades to disperse troublemakers who threw chunks of marble smashed off a metro station entrance and set rubbish bins on fire.

The violence came as 10,000 people took part in a demonstration organised by the country's two main unions and fringe left-wing groups. A separate march by 5,000 members of the Communist Party-backed PAME union ended peacefully.

Public services shut down across Greece as workers walked off the job as the strike disrupted public transport, left hospitals operating on emergency staff and pulled all news broadcasts off the air.

They are protesting against draft legislation that would increase retirement ages and make it cheaper for companies to fire workers. The measures are aimed at fixing the country's debt crisis, which has shaken the entire eurozone. Similar protests in May also turned violent, with three workers dying in a bank torched by rioters.

Greece is caught in a major debt and deficit crisis. It avoided bankruptcy last month only after receiving the first installment of a €110bn emergency loan package from the European Union and the International Monetary Fund.

In Spain, similar strikes against austerity measures caused transport havoc in Madrid and led to clashes between police. Subway trains stopped running because of the stoppage to protest against public sector wage cuts ordered by the government. Spain is struggling to emerge from nearly two years of recession following the collapse of its construction sector which had earlier fuelled a decade of economic boom.

Besides its swollen deficit problems, it also has an unemployment rate of 20pc, the highest in the EU.

Source: Irish Independent

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Spain fights ECB loan plan
30 June 2010

SPANISH banks are bracing themselves today as the European Central Bank prepares to call back €442bn (£358bn) of one-year loans.

Senior bankers in the country have described the central bank’s plans to end long-term loans as “absurd.”

While the ECB will today offer unlimited loans for three months to lessen the blow to banks across Europe, the Spanish finance minister has warned the repayment schemes ignore the liquidity needs of the country’s banking system.

“The ECB says it doesn’t like governments telling it what to do. I simply say I hope that on this occasion, as in others, the ECB will be aware of the needs of the Spanish financial system,” Elena Salgado said on Spanish radio yesterday.

Banks in Spain and other countries have lobbied the ECB to ease the comedown from the expiry of the one-year-old loans on Thursday.

The ECB remains keen to cushion the banks as it draws its emergency monetary policy to a close.
“There are some banks that are in a less good situation that might eventually suffer, but we will make sure that there are no problems and everything goes OK,” Christian Noyer, who heads the Bank of France, told Europe 1 radio.

Source: City AM

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Strike halts Madrid subway again
30 June 2010

MADRID — Spain's capital endured a second day without subway service Wednesday, with big traffic jams forming as people scrambled to find alternative transport, as workers striked over pay cuts that are part of government austerity plans.

No negotiations were planned and unions were to vote on whether to make the strike open-ended. Among other things, that would mean the subway line running to and from Madrid's busy Barajas airport would remain shut just as the summer vacation season begins on earnest on July 1.

Morning rush hour traffic was a third heavier than usual as people took to cars and buses, city officials said. But they said the gridlock was not as bad as the first day of the strike, when unions announced unexpectedly that they were reneging on an obligation to run 50 percent of scheduled trains.

Union spokesman Vicente Rodriguez said Tuesday night he cannot say when the strike will end.

The network carries more than two million travelers a day.

Worker are protesting a 5 percent pay cut ordered by the Madrid regional government, which oversees the metro system.

The regional government tried and failed Tuesday evening to get the line to the airport up and running. It said there were drivers available to man the trains, but it decided in the end to hold off because it could not guarantee the line would stay open Wednesday.

Madrid mayor Alberto Ruiz Gallardon criticized unions for not living up to a binding agreement to provide at least 50 percent service.

"They do not have the right to do what they are doing to all the people of Madrid. I think we are in an emergency situation now in Madrid," he told Cadena Ser radio.

The strike actually began Monday, but that day some trains did run.

Source: AFP

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Spanish banks rage at end of ECB offer
29 June 2010

Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a €442bn ($543bn) funding programme this week, accusing the ECB of "absurd" behaviour in not renewing the scheme.

On Thursday, the clock runs out on the ECB financing programme - the largest amount ever lent in a single liquidity operation by the central bank - under the terms of the one-year special liquidity facility launched last summer

One senior bank executive said: "Any central bank has to have the obligation to supply liquidity. But this is not the policy of the ECB. We are fighting them every day on this. It's absurd."

Another top director said: "The ECB's policy is that they don't want to provide maturity of more than three months. But they have to adapt."

Banks across the eurozone, but in Spain in particular, have found it hard in recent weeks to secure liquid funding in the commercial markets, with inter-bank funding virtually non-existent.

The €442bn ECB facility, which charges interest at a rate of 1 per cent, is not set to be renewed, something that banks say ignores current commercial realities.

A special offer of six-day liquidity will tide banks over until the following week's regular offer of seven-day funds.

Tomorrow, the ECB will also be offering unlimited three-month liquidity, and further offers of three-month liquidity will keep banks going until at least the end of the year.

"The system is just not working," agrees Simon Samuels, a banks analyst at Barclays Capital in London. "We're approaching the third year of liquidity support and still the market cannot survive unaided."

BarCap estimates that at least €150bn of the ECB funding that is maturing will not be rolled over into shorter-term three-month schemes, forcing banks to shrink their own lending.

Spain's banks have been among the hardest hit by the faltering confidence in the eurozone economies in recent months following problems with the country's smaller savings banks, or cajas. The bigger commercial banks, led by Santander and BBVA, feel unfairly tarred.

The euro's monetary guardian has also come under pressure from German banks to provide one-year loans. It stopped offering such loans late last year when it began unwinding exceptional measures taken after the collapse of Lehman Brothers.

It resisted reintroducing such offers even when its "exit strategy" was thrown into reverse last month by the escalating eurozone debt crisis.

ECB policymakers worry providing cheap loans for such a long period distorts markets and could restrict the room for manoeuvre in monetary policy.

Eurozone banks' lending to businesses and households is improving modestly, in spite of the pick up in economic activity.


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The eurozone's vulnerable banks
29 June 2010

They are facing funding pressure because of their holdings of govt debt as eurozone govts struggle to cut deficits

EUROZONE banks are having a scary sense of deja vu. In 2008, a funding freeze caused several banks to fail. Investors and other banks stopped lending because of fears over the banks' holdings of toxic securities. This time, eurozone governments are struggling to rein in their deficits. Banks - especially those based in peripheral economies such as Spain, Portugal and Greece - are caught in the crossfire because of their holdings of government debt.

In some ways, the funding pressure is less severe than the last time. Banks have learnt from the 2008 crisis, pre-funding maturing debt and stockpiling liquid securities. Moreover, the European Central Bank (ECB) has stepped in to provide unlimited funding. While this should avert bankruptcies, it won't lead to a healthy banking industry. A sustained period of higher borrowing costs would force weaker banks to shrink their balance sheets, rein in lending and jack up rates on consumer and corporate loans - hurting the real economy at a time when it is already being battered by governments curbing their deficits.

Banks across the board are paying more to borrow, and investors are reluctant to lend them money for long periods of time. But the picture is particularly severe for lower-rated banks from weaker 'peripheral' eurozone economies such as Spain or Portugal. Some of these are barely able to borrow at all. The boss of BBVA , the Spanish bank, admitted recently that international capital markets are closed for most Spanish banks and companies.

The deterioration in wholesale debt markets matters because European banks only fund about half of their 33 trillion euros (S$57 trillion) of assets through deposits, and a further 9 per cent through equity. They rely on the international debt capital markets to finance the remaining 40 per cent. These can be divided into short-term borrowings, which make up about 27 per cent of the total, and long-term debt, which accounts for the remaining 13 per cent, according to Citigroup.

Short-term debt is the cheapest kind of borrowing, but needs to be refinanced frequently. The more a bank uses it, the more exposed it is if markets shut down. The short-term markets consist of commercial paper (CP), IOUs with maturities of less than a year, and interbank borrowings.

The CP market, which is mainly based in the United States, has been having a rough time. Yields on US 30-day commercial paper have doubled in recent months. The overall amount lent to financial companies, both US and international, has shrunk consecutively every week for the last five weeks, reaching a low of US$497 billion, down from more than US$690 billion at the end of last year.

Eurozone banks are having a particularly difficult time. US money market investors have grown more wary of buying their CP. Some banks from peripheral economies, such as Spain, have been reportedly unable to roll maturing commercial paper. But conditions are harder for everyone. Even the stronger banks are struggling to replace maturing CP with debt longer than three months.

Aside from CP, European banks also raise short-term funds from other banks through the various interbank markets. These consist of unsecured markets, as well as repo, a form of collateralised lending.

Here too conditions have worsened. Unsecured interbank rates have been creeping up, with three-month dollar Libor reaching 54 basis points from 31 on April 20, although it seems to have stabilised at that level.

Some banks, particularly smaller Spanish lenders, are reportedly struggling to borrow at all in the public interbank markets, although they may have private contingent loans with other banks that they can draw on in emergencies. Overall volumes of lending in the interbank market have fallen as banks hoard cash, rather than lend it out. They are parking a record 384 billion euros in overnight deposits at the European Central Bank.

Banks also issue longer-term debt, including anything from one-year to perpetual bonds. Issuing this kind of debt is more expensive but helps banks match the maturities of their assets and liabilities, reducing exposure to changes in interest rates.

The first port of call is the unsecured bank debt market, both through public bonds and private placements.

Credit spreads have soared recently. The Markit iTraxx senior financial index, which measures credit default swap spreads based on senior-ranking bank bonds, rose above 200 basis points in the first week of June, more than double the spread from mid-March. This is an average. The debt of banks in peripheral economies is yielding more. Five-year bonds sold by Portuguese bank Banco Espirito Santo, for example, are yielding about 3 per cent more now than they were at the start of the year.

Besides the higher cost, availability of long-term funding has shrunk. Banks sold 1.9 billion euros of senior debt in May, compared with 30 billion euros in the same month last year. Most of that was for maturities of four years or less.

Banks can also use secured debt markets for long-term funding. This is more appealing for investors, although the need to pledge collateral can limit banks' freedom to manoeuvre. The main source of secured borrowing is covered bonds, which allow a bank to borrow with a higher credit rating by pledging assets such as mortgages or loans to governments and regions.

This market has been far from immune to the recent sovereign crisis. Banks sold just over one billion euros of the securities in May, down from about 20 billion euros in the same month a year earlier - although the market has recovered sharply in June with banks already selling over 11 billion euros so far this month. But, again, the picture isn't uniform. Covered bonds spreads for Spanish and Portuguese banks are at record highs, and no bank from these countries has issued covered bonds since the end of March.

Banks can also try to issue securitised debt, another kind of secured borrowing in which banks parcel cash flows from home or consumer loans. This was an important source of funds before the sub-prime crisis, but is now a fragment of its former self. Many investors, such as structured investment vehicles or money market funds, have gone out of business or stopped buying, meaning the market is unlikely to come back in any size soon.

Banks may have to get used to a new normal in which periodic bouts of political uncertainty cause temporary market closures. Funding, when it comes, may be more expensive, and available for shorter periods.

Banks are in a better position to face this turmoil than they were in 2008. They have been stockpiling cash, and pre-funded their borrowing requirements when times were good. Europe's largest banks have already funded about 65 per cent of this years' maturing debt, according to Morgan Stanley.

Eurozone banks can also fall back on the ECB, which is providing banks with unlimited funding through a series of repo operations, ranging from three months to one year at a rate of one per cent. The ECB is currently lending about 827 billion euros to banks through its various repo lines. It is also offering to provide banks with unlimited dollar funds to counter the constraints in the commercial paper and interbank markets, albeit at more expensive rates. So far, banks have used little of this latter facility because of its cost, though they may need it in future if dollar funding rates keep rising.

The ECB provides a safety net, but not a solution. The central bank does not want to be in the position of supplying commercial banks with all their funding needs. After all, it does not have the expertise to assess credit risk across the board. A centrally-planned system for allocating funding would gum up the eurozone economy. That's why the ECB has tried to limit its involvement to offering short-term funding for highly liquid assets - and why it is keen to exit its support programmes as soon as possible.

The snag is that the ECB may now be driven to offer longer-term funding for less liquid assets. As a short-term emergency measure, that may be necessary. But it hardly seems sustainable. What's more, faced with jittery and more expensive debt markets, banks are still likely to shrink their balance sheets. That will lead to rising borrowing costs for customers and lower loan growth.

To get over this, banks need to be able to fund themselves easily and cheaply in the market. They must convince investors that they are worth lending to, and that they can absorb the fallout of a sovereign default.

One way would be for the banks to undergo rigorous public stress tests, using conservative estimates for public and private sector loan losses if say, Greece and other countries restructured their debt. Governments would need to back up the stress tests with a clear plan to recapitalise banks that fall short. Unless the eurozone has the stomach for such a move, its banks' problems may only get worse.

Source: The Business Times

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Safety Net Frays in Spain, as Elsewhere in Europe
28 June 2010

MADRID — This was the deal that Gema Díaz, 34, thought she had made: When she took a job with this city as a purchasing agent 12 years ago, she knew her salary would be low.

But the income would be reliable. She could expect steady raises, manageable hours, six weeks of vacation, a good pension and the usual benefits — from free health care to subsidized housing.

Now, as Spain embarks on a range of austerity measures, the careful math of Ms. Díaz’s life is coming undone. Her salary is being cut. Her pension does not look so secure. Even the day care for her second child — due in August — will cost more.

“There can be no more illusions about getting help from the state,” said Ms. Díaz, at home on a recent evening in a charmless, government owned complex on the outskirts of the city. “We talk about it all the time. We talk about it with our friends. We talk about it with our family. The fear is the worst part.”

Hers is a story repeated across Europe, fueling the protests and strikes that have tied up airports, blocked highways and, in Greece, even turned deadly.

For millions of Europeans, modest salaries and high taxes have been offset by the benefits of their cherished social model — a cradle-to-grave safety net which, in the recent boom years, seemed to grow more generous all the time.

Now, governments across Europe say they have little choice but to pull back on social benefits, at least for now. Tax revenues are falling; populations are aging and rising deficits are everywhere, threatening the euro. Cutbacks and higher taxes have been announced in Ireland, Spain, Italy, Greece and Portugal. Even France, until recently a holdout, has now proposed to raise the legal retirement age to 62 from 60.

The reforms, however, may be politically explosive. In Spain, they come at a particularly hard time. The austerity measures are hitting a population that is already reeling from the highest unemployment in the euro zone — 20 percent over all, 40 percent for its young people. In some cases, entire families are surviving on the pension of a grandparent.

With each new proposal, the popularity of the Socialist government has plummeted. One recent poll found that more than 50 percent of the population wanted Prime Minister José Luis Rodríguez Zapatero to call early elections, which he would lose by more than 10 percentage points.

When Mr. Zapatero announced a move to stimulate the economy last week — an overhaul of the country’s labor laws, which make it virtually impossible to fire older workers — unions, traditionally his allies, called for a general strike in September, the first one in nearly a decade.

“These are painful times,” said Ángel Torres Torres, the secretary general of economic policy and international affairs. “We have a model that we value. We are a civilized society. We pay taxes. We take care of your needy. The question is — is this sustainable?”

For Ms. Díaz and her partner, Robert García, also 34, Spain’s austerity measures — which include salary cuts for civil servants, pension freezes and the elimination of a $3,400 baby bonus — have been profoundly unsettling.

Only two years ago, the couple believed that they had made all the right choices, well on their way to a comfortable middle-class existence, with benefits that included subsidized child care and an interest-free mortgage available to municipal workers.

They were able to afford a large flat-screen television and vacations in Russia and China. They retiled the kitchen and bathroom. When their first child, Anders, was born 22 months ago, they used their baby bonus to buy a bigger car.

Now, Ms. Díaz wishes she could take back those purchases. She is already budgeting for the 5 percent cut to her $2,000-a-month salary and bracing for more. The bare energy-saving light bulbs hanging from the ceiling in her living room will not get fixtures soon. There will be no more evenings out. And the indoor parking space will have to go.

More distressing still is that Mr. García, a driver at a construction site who spent last year unemployed, may lose his job again. The water-distribution project he is working on — earning about $1,200 a month — may be on the list of capital improvements the government wants to postpone to save money.

Mr. García fumes. He would like to see the bankers he considers responsible for the country’s problems taxed and prosecuted. He does not think much of government officials, either. The day the first austerity measures were announced, he saw the mayor of Madrid and his minister of public works on television attending a sporting event in Germany.

“If we have no money, why are they there?” he said. “I don’t understand why we are making social cuts. Look at the monarchy. What is that worth? Why are we paying for that? And there is a lot in the public service that could be cut — official cars, official trips.”

He voted for Mr. Zapatero last time. But says he will not do so again, though he sees no real alternative. “I hope no one votes,” he said. He has every intention of striking in September and is annoyed that he will have to wait that long.

Mr. García and Ms. Díaz are puzzled by the health system in the United States. They see universal health care as a basic right. “In this aspect the United States does not seem to be a first-world country,” Mr. García said.

The García-Díazes have virtually no savings, as they consider the deductions from their paychecks going to pay for pension and health care as their basic safety net. In times of trouble, they expected to be able to lean on their parents, who are retirees. But their incomes, too, are being cut. The $1,700-a-month pension that Ms. Díaz’s mother, Marisol Alcala, 62, receives has been frozen, even though Spanish law guarantees cost-of-living increases.

Like many other Spaniards, Mrs. Alcala opted for early retirement. She worked in the kitchen of a private school. But as she got older, it became difficult to lift the heavy pots, she said.

She worries, remembering the days under the Franco government when city dwellers often could not find enough to eat.

“What is happening now is as frightening as when I was a little girl,” said Mrs. Alcala. “What future will the children have?”

Source: New York Times

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EasyJet is 'no longer low-cost airline' claims founder Stelios Ioannou
27 June 2010

Lawyers for easyJet founder Sir Stelios Haji - Ioannou claimed the carrier is 'no longer a low-cost airline' because of additional charges customers are hit with.

On the first day of a two-week hearing in London's High Court, Michael Bloch QC, representing Sir Stelios, claimed the airline is in breach of its rights under a brand licence agreement that limits the amount easyJet can make from these non-core activities to 25pc of revenues.

The legal battle is the latest in a series of high-profile conflicts between the founder, who still controls 38pc of the airline, and the easyJet board.

Sir Stelios has been an outspoken critic of the board's expansion strategy, calling for the airline to slow aircraft orders and start paying a dividend.

Bloch said easyGroup was concerned the growing easyJet fleet of Airbus planes appeared to depend on expanding the range and significance of nonticket revenues - so- called ancillaries - and thereby changing the public perception of the business, as well as taking up space in sectors that could be occupied by other 'easy' brand licences.

He added: 'The focus on ancillaries disguises the fact that for many customers easyJet is no longer really a low-cost airline.'

The agreement was put in place when easyJet floated in 2000, when it was a ' straightforward, focused, low-cost airline'. It allows the carrier to use the 'easy' brand name, owned by Sir Stelios's easy-Group empire.

It means the carrier must comply with the 75:25 rule that restricts sales of non-core activities to a quarter of revenues.

Ticket prices are agreed to be core. But food and drink, travel insurance, hotel bookings and car hire are said by easyGroup to be ancillary. easyJet disagrees.

The 2000 agreement defines the airline's core activity to be 'the transportation of passengers in fixed wing aircraft'.

The Cypriot tycoon claims easyJethotels and easyJetholidays could be confused with his other easyGroup ventures such as easyHotels and easyCruise.

Bloch said: 'On any sensible view, easyJet is operating either on the wrong side of, or perilously close to, it (the 75:25 rule).'

According to easyJet's latest accounts, ancillary activities account for 20pc of its income. But easyGroup claims that if the definition of the figures follow the guidelines under the licence, the true amount is more than 25pc and growing.

EasyJet (up 8.1p at 426.1p) insisted it is operating 'well within the ambit of the rule on any reasonable interpretation of it'.

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Police quell Ryanair mutiny with chocolate
27 June 2010

Police help passengers stuck in plane on Prestwick tarmac as Ryanair refuses to offer refreshments or let anyone leave.

Police in Scotland had to buy emergency supplies of chocolate and water for a planeload of Ryanair passengers who were close to mutiny after spending four hours on the tarmac without any food and drink.

Strathclyde police were called to the Ryanair flight at Prestwick airport in Ayrshire yesterday after the plane was held on the runway due to delays caused by an air traffic controllers strike in France.

The flight, to Girona in Spain, had been due to leave at 2pm but by 6pm the flight's besieged crew called the police.

The 168 passengers, many with children, became increasingly angry after the crew refused to open the refreshment trolleys, saying they were forbidden from doing so until the flight was in the air. Others wanted to get off the plane.

Officers decided to buy Mars bars, Double Deckers and water at the force's expense and brought the supplies on board. The flight eventually left shortly before 8pm.

A Strathclyde police spokeswoman said: "Officers attended at 6pm to assess the situation and assist cabin crew. Officers subsequently purchased water and chocolate for every passenger on board and took it to them.

"Some of the passengers were slightly fraught after a delay in their flight departing. [Police] remained at the airport until after the plane had left."

Ryanair said it was unable to allow the passengers to disembark.

"Ryanair asked passengers to remain on board while awaiting take-off authorisation, to minimise passenger inconvenience and avoid a further delay or likely flight cancellation," a spokesman said.

"Ryanair sincerely apologise to all affected passengers for this delay caused by French air traffic control strike action.

"While the aircraft was on the ground passengers on board were allowed to use mobile phones and toilet facilities, and as per legal restrictions, the bars on board remained closed."

Sarah Toom, one of the affected passengers, told BBC Scotland: "It was quite hectic in the aircraft earlier – a lot of parents with young kids were getting quite upset and raising their voices because we weren't allowed off the aircraft to buy food and drink.

"None was being brought on board and none was being offered by Ryanair staff, whom, I have to say, were doing their best."

She said a loud cheer went up when the police brought supplies.

Source: The Guardian

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British airlines poorly rated in Which? survey
26 June 2010

• Which? survey ranks Thomas Cook worst for leg room
• Easyjet, BMI Baby, and Thomson Airways were all poorly rated

After months of dealing with volcanic ash cloud disruption, British airlines have been dealt another blow: they are some of the worst carriers in the world, according to a customer survey from the consumer magazine, Which?

While Swiss Airlines came top of the satisfaction list for passengers on short haul flights, the eight worst-rated carriers were all British, apart from Irish airline Ryanair. Thomas Cook Airlines came bottom of the short haul table, deemed worst for leg room; while Ryanair was rated poorly for its checked baggage allowance., Easyjet, BMI Baby, Thomson Airways and Monarch Airlines were all poorly rated.

After a year plagued by strikes and record losses, British Airways came out middling in the Which? research. Customers on its short haul flights praised BA's cabin staff, cleanliness and approach to dealing with delays, but it was still rated just 11th out of 18 airlines. On long haul flights, BA's inflight entertainment was well rated, but the airline fell short on value for money, leg room and refreshments.

The best airline to fly long distance with, according to Which?, is Air New Zealand, which was rated top for cleanliness and inflight entertainment. Second best was Singapore Airlines, with Emirates coming third. The Middle Eastern airline was rated top for checked-in baggage allowance, permitting each passenger a 30kg bag.

The survey also found that despite Ryanair's reputation as the cheapest airline in Europe, the Irish carrier was often not the cheapest option for a family of four travelling with hold luggage. Flying London to Barcelona, for example, Easyjet was far cheaper, and deposits passengers in the city's main airport, whereas Ryanair uses an airport actually in Girona – a 57-mile €12 (£10) bus ride away.

Which? also reports on how expensive it can be for British passengers reaching airports by train, particularly those using London airports. The cost of a single ticket from Glasgow to Prestwick airport cost just 17p a mile, whereas it costs £1.22 a mile on the Heathrow Express between Paddington and Heathrow.

"We've also found evidence suggesting that, on routes to the three biggest London airports, train companies could be deliberately bumping up fares for customers travelling to airport stations," said Which? in its new Holiday magazine.

When Which? compared the cost of travelling per mile to the station one stop before the airport on the Stansted Express, there was a 24% difference between the 39p per mile you would pay from Liverpool Street to Stansted Mountfichet, and the 51p per mile you would pay to the airport instead. The result is that it would be cheaper to get out at Mountfichet and hail a cab.

Source: The Guardian

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Euro 'will be dead in five years'
25 June 2010

The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists taking part in a wide-ranging economic survey for The Sunday Telegraph .

The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey the first major wide-ranging litmus test of economic opinion in the City since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.

Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:

The economy will grow by well over a percentage point less next year than the Budget predicted in March.

The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.

Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.

But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City would have confidently predicted the currency's demise. But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel's acknowledgement that the currency is facing an "existential crisis", have radically shifted opinion.

Two of the eight experts who predicted that the currency would survive said it would do so only at the cost of seeing at least one of its members default on its sovereign debt. Andrew Lilico, chief economist at think tank Policy Exchange, said there was "nearly zero chance" of the euro surviving with its current membership, adding: "Greece will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup I'd put the likelihood of that over the next five years as around one in four."

Douglas McWilliams of the Centre for Economics and Business Research said the single currency "may not even survive the next week", while David Blanchflower, professor at Dartmouth College and former Bank of England policymaker, added: "The political implications [of euro disintegration] are likely to be far-reaching Germans are opposed to paying for others and may well quit."

Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.

Peter Warburton of consultancy Economic Perspectives said: "Possibly Germany will leave. Possibly other central and eastern European countries plus Denmark will have joined. Possibly, there will be a multi-tier membership of the EU and a mechanism for entering and leaving the single currency. I think the project will survive, but not in its current form."

Tim Congdon of International Monetary Research said: "The eurozone will lose three or four members Greece, Portugal, maybe Ireland and could break up altogether because of the growing friction between France and Germany."

The recent worries about the euro's fate followed the creation last month of a $1 trillion (£691bn) bail-out fund to prevent future collapses. Although the fund boosted confidence initially, investors abandoned the euro after politicians showed reluctance to support it wholeheartedly.

Source: Yahoo/The Telegraph

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Why Investors Must Keep an Eye on Spain
25 June 2010

Greece is not the big story of Europe anymore - just a smoke screen.

The big story is Spain and the United Kingdom, and the news is getting worse.

In the past week, Spanish officials acknowledged to reporters that the country's banks and companies were having difficulty obtaining credit. The credible website EuroIntelligence reported that Spain is now effectively cut off from international capital markets, which is a major new development.

It has had to turn to the European Central Bank (ECB) for funding, which is not exactly brimming with money itself. The newspaper El Pais reported that Spanish banks now account for 16.5% of direct ECB borrowing, about double their normal shares. That represents a 26.5% increase over May.

The Financial Times chimed in with the view that the Spanish government's austerity plan is undermining investors' confidence in the potential for the country's recovery. With the Spanish banking system reliant on the ECB, the country's 10-year bond yields rose to 4.67%, which is a whopping two percentage points more than the coupon that Germany pays.

Spain's economy is five-times the size of Greece, so the fact that its banks are reeling is a big deal. This is not something that is likely to go away quietly. Spanish unemployment is north of 20%, its government is slashing spending to get its deficit under control, and public workers are striking in protest - thereby exacerbating the slowdown in output. It's going to be a rocky summer, and most likely not friendly to European stock prices.

Meanwhile, over in Great Britain emerged a story that did not seem to get much play here, but is important. The London Telegraph reported that the Bank of England (BOE) has determined that investors have made a massive options bet on a 20% decline in the FTSE 100, which is the United Kingdom's version of the Dow Jones Industrial Average.

The Telegraph noted that this coincided with a report from the Bank for International Settlements that showed the United Kingdom has major exposure to the Irish and Spanish banking systems, which many fear could be at risk in the next round of the financial crisis. 

Moreover, we have just learned that German investor confidence plunged in June on concern that the sovereign debt crisis would undermine export prospects and crimp growth in Europe's largest economy. The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months ahead, slumped to 28.7 from 45.8 in May, according to Bloomberg News. Economists had forecast a drop to 42.

This is a surprising development because the German economy is actually quite strong. Unemployment is down to just 7.7% due to an increase in production to meet booming orders.

"The debt crisis continues to spook investors [because] while the German economy is doing well at the moment, the austerity measures across Europe will hurt exports and growth later in the year," an ING Groep NV (NYSE ADR: ING) economist told Bloomberg.

My view is that we're now in an environment in which there seems to be a real lack of understanding in the United States and Asia about how serious the European funding crisis could become. It reminds me of the way that subprime loan losses were dismissed in late 2007 as too small to worry about - not just by investors and brokerage analysts, but the U.S. Federal Reserve.

If investors are ever made to starkly face the blow-up of a major Spanish bank due to an inability to meet short-term obligations, after blithely ignoring the issue for months, the shock value could indeed create a big 10%-plus dislocation in pricing, otherwise known as the "c word" that rhymes with flash, trash and bash.

Source: Money Morning

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Spanish Economic Crisis Threatens to Sink Euro Currency
25 June 2010

Spain is among the latest European countries to introduce tough austerity measures that may not be popular at home, but are deemed necessary to keep the country afloat. Spain, alongside Greece, is among those European countries with massive public debts and economies widely deemed vulnerable to a crash that could drag the euro with it.

It is 7:30 in the morning in the north of Madrid, and the queue for the job center is already stretching around the block.
Among those in line is Patricia Martinez. She used to be a nurse, but seven months ago she was laid off. Now each morning she arrives here to try to find new work. She is not having much luck.

"The reality is that economically it is fatal, but emotionally for people too it can also be terrible.  I do not know what is happening, not just in Spain, but in Europe and the world," she said.

Patricia's story is all too familiar.  Spain has the highest unemployment rate in Europe at 20 percent, and it is likely to get worse.

Europe is haunted by the fear of huge public debt. Spain's debt totals more than 11 percent of its GDP. Although its economy is far larger, investors fear that Spain, like Greece, might soon be unable to pay its creditors. So the government is slashing public spending by $18 billion over two years.

Economist Javier Ortega at London's City University says Spain's debt has been rising sharply in recent years. "The reason is essentially this increase in unemployment, because there are more unemployment benefits to be paid.  So now there is a problem of credibility of what the government is going to do, and of course the situation is different to situations in other periods because now there is a common currency," he said.

Debt collection is now big business in Spain and it has got a highly visible face. One company called 'El Cobrador del Frac' specializes in shaming their targets into paying up, by dispatching debt collectors dressed in top hats and tuxedos to shadow their targets.  he company's commercial director Juan Carlos Rodriguez says business is booming.

"The construction industry is among the worst hit.  It all began three or four years ago when there was construction boom.  Then with the crash, nobody would finish the work.  Nobody got paid.  In Andalusia in the south of Spain especially you can see the results of this," he said,

On the southern coast - known as the Costa del Sol - block after block of apartments lie empty or half finished, many of them designed for foreign buyers who have long since abandoned the idea of investing in Spain.

Inez Rix of Direct Property Auctions specializes in helping owners who are now struggling to sell their place in the sun. "It was absolutely crazy here in the boom times.  It was really in the late 1990s or 2000s.  Prices were just going up and up, people were asking for anything they could get away with.  Now there are hundreds of places like this across the Costa Del Sol because developers have run out of money, and of course the banks have pulled out," he said.

The debt crisis is threatening to sink the euro currency, so the European Union has pledged to guarantee loans totaling around a trillion dollars.  But in return, governments must slash public spending.

The prospect of wage cuts and pension freezes has prompted street demonstrations. Unions have called for a nationwide strike in September, against plans to make it easier for companies to hire and fire workers.

Economist Javier Ortega says Europe must become more competitive."For our European welfare state to be maintained there have to be changes. Essentially we have to adapt more quickly to competition from other countries. It is not like in the past," he said.

Europe may have emerged from recession, but its effects are only now becoming clear. With the euro currency under threat, the pain of government cuts will be felt for many years to come.

For job-hunter Patricia Martinez, this day brought no change of luck. And like millions of people across Spain, she will be back again in the morning looking for a new job and wondering how the situation can improve.

Source: VOA News

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Spain uses stolen HSBC data for tax probe
25 June 2010

Spain has become the latest country to tap data stolen from HSBC's Swiss private banking arm by an IT employee to hunt down tax evaders.

Herve Falciani stole account data for around 79,000 clients three years ago and fled to France while under investigation before eventually handing it over to authorities.

In April, French prosecutor Eric de Montgolfier revealed that the stolen files have been decrypted and launched a tax investigation based on over 8000 accounts related to French customers.

The following month Italian police launched their own investigation after being given a list of around 7000 account holders by French counterparts.

Now, according to local media reports, details on around 3000 accounts, which could hold around EUR6 billion, have been given to Spanish authorities.

In an interview with state television, the country's finance minister, Elena Salgado, revealed that the holders have been told about the development and warned they have to put "accounts in order with the treasury" and pay any penalties.

Source: Finextra

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Spanish EU presidency marred by economic crisis
25 June 2010

MADRID — Spain's ambitious presidency of the EU was eclipsed by the European debt crisis which thrust the country's fragile economy into the global spotlight and weakened the Spanish government, analysts said.

Socialist Prime Minister Jose Luis Rodriguez Zapatero had planned to use the six-month presidency of the 27-nation bloc, which wraps up on July 1 when Belgium takes over, to bolster his international stature.

But nothing went as planned as the eruption of the Greek debt crisis, and the subsequent fears that it could spread to other southern European nations like Spain and Portugal, caused stock markets and the euro single currency to plunge.

Under pressure by EU heavyweight Germany, the Spanish government adopted unpopular austerity measures, including public sector spending cuts, aimed at slashing a public deficit that hit 11.2 percent of gross domestic product in 2009, the third-highest after Greece and Ireland.

The government also adopted an overhaul of its rigid labour market as recommended by the International Monetary Fund to fight an unemployment rate of 20 percent.

The reforms, which make it easier and less expensive to fire workers, put an end to Zapatero's honeymoon with the nation's unions, which have called a general strike for September 29, and caused his popularity to drop.

Spain was ending its stint as EU president as a "protectorate" of the bloc with its "economy managed from abroad", the leader of the main opposition Popular Party, Mariano Rajoy, charged Wednesday during a debate with Zapatero in parliament.

"The circumstances of the Greek crisis and the widespread problem of fiscal deficits overtook Spain as they would have overtaken any rotating presidency," said Ignacio Molina, a Europe analyst with the Elcano Institute think tank in Madrid.

"But Spain also emerged as one of the weakest countries in this scenario. It found itself without a margin for manoeuvre, being in the position of judge and litigant at the same time. It was difficult for other countries to consider it a neutral president," he added.

Hierlemann Dominik, a specialist in European affairs at German's Bertelsmann Foundation, said all other priorities "such as relations with the Maghreb, the rights of women, were swept away by the crisis in the euro, they were marginalized."

On the diplomatic front Spain's presidency of the EU was marked by the cancellation of two key summits, one with the United States in May and the other with the Mediterranean Union in June.

The EU-US summit was called off after US President Barack Obama cancelled the trip citing his busy schedule while the Mediterranean Union summit was postponed to give time for progress in indirect talks between Israel and the Palestinians.

The death of Cuban dissident Orlando Zapata in February torpedoed Spain's bid to get the EU to soften its common position regarding the communist island.

Spain did achieve its goals for the EU-Latin America summit held last month with the announcement of a free trade agreement between the bloc and Central America and the relaunch of free trade talks with South American trading bloc Mercosur, which is made up of Argentina, Brazil, Uruguay and Paraguay.

Zapatero defended Spain's performance during the EU presidency, saying Wednesday it had been "satisfactory" and "useful".

He pointed to the approval at an EU summit last week of Madrid's proposal to make bank stress tests public -- which he said would be "fundamental" to restore calm in the markets -- as an example of the success of the Spanish presidency.

"We had to deal with difficult circumstances for the European Union and also for our country," he added.

Source: AFP

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Spain's government increasingly isolated over labour reforms
25 June 2010

Spain's Prime Minister, Jose Luis Rodriquez Zapatero, looked increasingly isolated after crucial labour reforms only just won enough votes to pass through parliament.

The measures, which will ease hiring and firing regulations seen as essential to lift Spain out of the recession, won preliminary approval only after Spain's opposition parties agreed to abstain in Tuesday's vote.

The governing Socialist party won 168 votes in favour in the 350-seat assembly with 173 deputies abstaining, including all those from the conservative opposition Popular Party.

The labour market reforms, which will make it easier to dismiss workers and will simplify contracts, have angered Spain's main unions, who have called a general strike in September in protest.

The Governor of the Bank of Spain, Miguel Angel Fernandez Ordóñez, also voiced his criticism of the measures claiming they did not go far enough.

Spain's unemployment rate has soared to 20 per cent of the workforce, the highest rate in the 27-nation European Union after Latvia's, following the collapse of the labour-intensive construction sector at the end of 2008.

The rise in joblessness has caused government spending on unemployment benefits to soar, which has in turn helped to push Spain's public deficit to 11.2 per cent of gross domestic product last year, the third-highest in the eurozone after Greece and Ireland.

Zapatero's €15 billion (£12.5 billion) austerity bill scraped through parliament by one vote last month. The unpopular plan aims at shoring up Spain's public finances amid investor concerns it could follow Greece into a financial crisis.

Source: The Telegraph

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Spain Aims To Finalize Labor Law Amendments By Early Sept
25 June 2010

MADRID (Dow Jones)--The Spanish government aims to finalize any amendments to its recently approved overhaul of labor laws by late August or early September, a parliamentary spokesman for the ruling Socialist party said Thursday.

As result, the spokesman said, parliamentarians will likely have to work during August, traditionally a month of parliamentary recess.

The government of Prime Minister Jose Luis Rodriguez Zapatero has made labor market reform a key part of its efforts to repair the country's ailing economy and boost investor confidence.

The European Union had asked Spain for economic reforms and new budget cuts in exchange for the creation an EUR750 billion financial backstop, largely designed to reassure investors about the debts of Spain and Portugal.

Zapatero's government, which lacks a parliamentary majority, obtained parliamentary approval for its reform Tuesday when the country's biggest opposition parties abstained from the vote. The government agreed to open up a second legislative process that would allow the legislation to be amended.

The government's reform aims to encourage hiring by reducing Spain's high cost of dismissal and by giving companies more flexibility to reduce working hours and staff levels in economic downturns.

Unions have called a general strike on Sept. 29 to protest the measure.

Source: Wall Street Journal

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Spain probing holders of 3,000 Swiss accounts: government
25 June 2010

MADRID — Spanish tax authorities are investigating the holders of about 3,000 secret bank accounts in Switzerland over possible unpaid taxes, Finance Minister Elena Salgado said on Thursday.

She said the treasury had sent all the account owners demands to declare the origin of the funds, on which they will be asked to pay tax and penalties as necessary.

"They know that the fight against fraud is becoming more intense," she told Spanish public television.

She declined to indicate the amount of money involved, but the business daily Expansion said the accounts, held by many of Spain's wealthiest people, could hold a total of around 6.0 billion euros (7.4 billion dollars).

It said Spain received the details of the accounts from French authorities.

In January 2009, French authorities seized customer data stolen from the Geneva branch of banking giant HSBC by a former employees.

Salgado said Spain has recovered some 35 billion euros from tax cheats in recent years.

"We are stepping up our efforts" against tax fraud, she said.

The move comes as Spain's Socialist government is pushing ahead with tough austerity measures to slash its massive public deficit.

Prime Minister Jose Luis Rodriguez Zapatero said last month that he planned a new tax on the richest people in the country.

But the government has ruled out declaring a "tax amnesty" to boost state coffers, as was approved in Italy this month and which allows repatriation of funds without explaining how they were earned.

Switzerland's neighbours and the world's leading economies have forced the country to offer concessions on banking secrecy over the past year, in an international clampdown on tax evasion.

The Swiss government has vowed to find ways to prevent foreigners from hiding undeclared funds in the country's banks.

Source: AFP

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The pain in Spain lies mainly on the Costas
23 June 2010

Once the full extent of the financial crisis in Greece became apparent, the governments of the EU, the European Commission and the European Central Bank, set about putting together a rescue package which eventually also took account of money market pressures against Portugal and Spain.  Owing to several delays in getting this massive project under way, the money markets rapidly lost confidence in any determined action from the EU and Eurozone countries and had started to concentrate, not simply on sovereign debt issues alone but on the trend increases in the deficits and the composition of the economies the markets felt most at risk.  Despite having a national debt level of "only 50 per cent", Spain was deemed to be the next most vulnerable to potential default.

During late April 2010, Standard and Poor downgraded Spain's Credit Rating and on 28 May 2010, Fitch followed suit by cutting the country's rating from AAA to AA+.  A bitter blow to the Spanish government which had started implementing an unpopular austerity programme worth 15 billion euros this financial year; has drawn up plans to reduce the deficit from 11.2 per cent of GDP in 2009 to three percent by 2013; has recently nationalised one of the struggling savings banks, Cajasur; and was encouraging mergers or "alliances" between the remaining 44 regional savings banks in order to avoid insolvency.  Spain had also completely reversed its programme of stimulus spending, extended unemployment benefits and loan guarantee schemes.  All this against rising trade union unrest, though thankfully, none of the violence witnessed in Greece.

The rating agencies remained unmoved.  Both, no doubt, took account of Spain's 20 per cent unemployment, which surely must increase, and that dubious 0.1 per cent growth figure for this year's first quarter and expressed doubt on Government growth targets.  BBC Business News quoted Fitch: "The inflexibility of the labour market and the restructuring of regional and local savings banks will...hinder the pace of adjustment, particularly in the aftermath of the real estate boom."  It is that real estate, explosion, in both senses of the word that has caused Spain's current financial crisis.

At first glance Spain is a rich, large economy, usually ranking about 12 in the world, with an estimated 2009 GDP of $1.47 trillion, about $35,000 per head.  This is roughly 3.6 per cent lower than 2008 and gloomier estimates think the fall could have been as much as four per cent.  Unemployment, which had been as low as eight per cent in 2007, rose to 11.4 per cent in 2008 and further to 19 per cent by December last year.  The fiscal deficit which had been less than four per cent in 2008 and was expected to double in 2009, has been estimated at just over 11 per cent by Eurostat.

Although sovereign debt figures flatter, it's Spain's Private Sector Debt rising from $2.98 trillion in December 2007 to $3.45 trillion by  the end of 2008 that cause money market concerns, as a great deal of this amount is tied up in the country's recently booming but now very bust real estate.  The American Federal Government estimated that the construction industry accounted for some 13 per cent of GDP during the boom.

The small regional savings banks (cajas) have at least 450 billion euros worth of loans outstanding to the property sector and most of this property has been developed along Spain's Costas where the market has crashed by up to 65 per cent - that's if you can find a buyer!

Thankfully, not a problem to worry us Brits.  Well, not quite, as up to a million UK citizens live in Spain at or close to the popular holiday destinations - the Canaries, Mallorca and those Costas.  Many have retired to Spain and have sold everything in the UK so as to live in Channel 4's "A Place In The Sun".  Ample sun maybe but with a collapsing pound, credit crunch, housing bust and general rise in the Spanish cost of living, tens of thousands are now suffering real financial hardship.

Although many have returned to the UK, of those that stay a surprising number have never bothered to apply for a Tarjeta de Residente Comunitario, a Community Residence Card, even although this is a legal necessity and allows one access to all the (welfare) benefits of a Spanish citizen.  Only some 350,000 such cards have been issued.  Well if these represent the determined to stay in Spain, as many may soon be returning to dear old Blighty, afterall, it will be the rain in Spain they will so miss.

Source: International Business Times

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Are Spain resigned to a more direct approach?
23 June 2010

Spain came into this tournament as one of the favourites and what separated this current golden generation from their underperforming predecessors was their adherence to a unique footballing style and philosophy. Yet while many neutral pundits were impressed with Spain’s superiority over Honduras in Monday’s 2-0 win, there was the sense that victory was achieved in a manner unfamiliar to Spain’s aficionados.

Coach Vicente del Bosque denied that Spain had changed their style, but admitted afterwards that he felt his team played better in their defeat to the Swiss. In their opening game, Spain dominated possession and controlled the match - we saw plenty of their trademark tiqui–taka (pass and move) but not once did they find the back of the net. They found the net twice against Honduras, but as the match wore on, Spain started to look increasingly less, well, like Spain. They surrendered control of the match and while attack v attack may appear thrilling, it’s a major deviation from the Spanish manifesto that says possession is nine tenths of the law.

Training and playing at altitude has taken it’s toll on the players who were visibly tiring towards the latter stages. Vicente del Bosque had already reduced the work load in training – but the team were playing with less intensity than normal and after the match, several players admitted to me that they felt heavy legged: surely a case for keeping the ball and utilising the players capable of doing so.

Fatigue and ambient conditions are not the only explanations for Spain’s changing style. Del Bosque has been concerned for a while that rivals had worked Spain out (Inter Milan’s Champions League success over Barcelona can’t have eased those doubts) and the coach has been working on a plan B. However, if the line-up against Honduras is an indicator, then Plan B has become Plan A. Will we now be seeing a more direct Spain, playing with one or two wingers and two holding midfielders in South Africa?

Many in the Spanish press feel that del Bosque’s use of Busquets and Xabi Alonso is one defensive midfielder too many; yet the manager feels they combine defensively and offensively to provide what has been lost in the absence of Senna. But that means using two players to perform the role instead of one - and requires sacrificing one of the short passing players that became Spain’s hallmark at Euro 2008. Del Bosque has taken a risk with the core principles of possession that Spain’s success has been founded upon - Spain cannot compete physically with many teams and they make too many defensive mistakes when they don’t have the ball.

Despite the win, there are still just as many questions as answers. What happens to Cesc Fabregas? He is clearly struggling with his apparent demotion from 12th man to occasional or emergency sub. Instead of the two holding midfielders, starting with Fabregas would provide Del Bosque with the directness and drive that he craves, plus the goals from midfield that no-one else in the squad provides. Unfortunately, the coach’s new tactics achieved the desired result – if not the performance - and he seems unimpressed with Fabregas's disaffection. It’s a vicious circle: Fabregas deserves more than this and as an individual desperate to prove himself and make an impression, he’ll only find it harder the longer he remains peripheral.

Source: The Times

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Spain Says Banks in Credit Crunch
23 June 2010

MADRID—Spanish officials acknowledged that the country's banks and companies are having difficulty finding credit, underscoring the pressure Madrid faces to pursue deep structural changes to win back investor confidence.

Investors are particularly concerned that Spain would be unable to supply its banks with more capital, if needed, without emergency aid from the European Union and the International Monetary Fund.

Spain has been scrambling in recent weeks to convince markets that it can repair both its ballooning deficit and its troubled banking sector. Spain's Socialist government plans on Wednesday to begin pushing through a controversial labor-market overhaul that seeks to address a problem that many economists say is at the heart of Europe's economic malaise: rigid labor markets that dissuade companies from investing.

One big worry has been the increasing difficulty Spanish banks have faced borrowing from other banks in the so-called interbank lending market, an important source of funding that banks rely on for short-term liquidity needs. Spanish banks—including its savings banks, or cajas—have suffered massive losses amid a steep downturn in the country's real-estate market.

Spanish officials have largely been quiet on the issue but on Monday Treasury Secretary Carlos Ocaña, speaking at an economics conference, said tightness of credit for Spain "is a problem."

"Obviously we do need for the markets to loosen," he added.

At the same conference, Francisco González, chairman of Banco Bilbao Vizcaya Argentaria SA, the country's second-largest bank, said credit markets remain "closed" for many companies and urged the country to accelerate the pending reforms. "It's a priority that we restore market confidence," he said.

German Chancellor Angela Merkel, responding to speculation that Spain may be forced to follow Greece in seeking aid from the EU and the IMF, said late Monday that Spain could tap the EU's rescue fund if necessary. "If there should be problems—and we shouldn't talk them up—the mechanism can be activated at any time," Ms. Merkel said at a joint news conference with French President Nicolas Sarkozy in Berlin.

Last month in the wake of a €110 billion ($133 billion) bailout of Greece, the EU and the IMF set up an emergency fund for members of the euro zone.

The European Commission dismissed talk of a bailout for Spain. "There is no plan under discussion to provide for assistance to any member state," spokesman Amadeu Altafaj said Monday. Referring to reports in the German press that a Spanish bailout was being readied, Pia Ahrenkilde Hansen, the commission's top spokeswoman, said there is "no such preparation, no such plan."

The office of Spain's prime minister on Monday said there is no aid package and that "Spain hasn't asked for anything, not even one euro."

Europe's debt crisis is forcing the Continent's most vulnerable countries to make deep cuts to government spending while also finding ways to spur recovery. At a time of questions regarding the viability of Europe's common currency, Spain is a crucial testing ground. Its €1 trillion economy is the fourth-largest in the 16-nation euro zone, accounting for about 11% of the region's economic output. By comparison, Europe's other teetering economies, Greece, Ireland and Portugal, together account for roughly 6%.

Many economists argue that the only way for such countries to rebound is for governments to unshackle their heavily regulated economies by making it easier for businesses to operate.

Spain "as a whole needs to become more competitive, and the labor market is one of its least competitive parts," said Fernando Fernández, an economist and professor at Madrid's IE Business School.

The country has a two-tier labor market similar to those in France and Germany. One level typically includes older, skilled workers in jobs that pay well and are protected. The second consists of younger workers who earn less and can be easily dismissed. Critics say this system has resulted in high youth unemployment and argue that deregulating the first tier would lead to the creation of more and better jobs.

Plans for the labor-market overhaul come as Spain's government rushes to prepare other reforms, including a restructuring of the country's banking sector, that are also considered crucial. Investors have been pushing for such changes amid concerns about Spain's rising debt burden, and lenders have been charging higher premiums.

Last week, in a €3.9 billion auction of three-month bonds, Spain offered investors an average yield of 3.3%, compared with a yield of only 2% for a similar auction in April. The difference, or spread, between the yield on Spanish bonds and German debt recently widened to its highest level since the introduction of the euro, a further reflection of investor concern over Spanish debt.

The central government has to borrow €97 billion this year to finance a €553 billion national debt. The increase in borrowing costs could complicate Spain's effort to progressively lower its deficit down from 11% last year, to 9% by the end 2010, and back to within the euro zone limit of 3% by 2013.

Spain's private sector is also facing tighter credit conditions, as lenders remain wary of the impact that a collapsed housing market and shrinking economy could eventually have on the financial sector. Banks don't know how many more bad loans will develop as borrowers continue to succumb to the downturn. And the value of properties that banks now have on their books continues to shrink along with prices of Spanish real estate.

Spain loosened conditions for the use of short-term job contracts in 1997. The change fueled employment during Spain's real-estate driven boom. But it also created a job market that gobbles up workers during growth periods, and quickly disgorges them during downturns.

Most of the millions of jobs created in Spain during the economic expansion were short term—leading many workers to bounce from job to job, often with minimal wages. When the downturn hit, the labor market collapsed. A jobless roster of 1.7 million people in 2007 soared to over 4.6 million by the end of March—a jobless rate of 20%.

Then there are the millions hired under Spain's old labor laws. The security offered by their job contracts, and progressively better benefits, often means it is cheaper for employers to keep them than to pay their severance during downturns. It's also cheaper, in many instances, to put up with unproductive workers than to face the severance and legal implications of their dismissal.

The measures disclosed in a government draft last week would lower severance pay entitlements for new hires to 33 days, from 45, for each year of the worker's employment. In a bid to encourage employers to rely less on temporary workers, the government would also use a state fund to bear the cost of eight of those days as long as the worker was hired on a long-term contract.

The government, which is discussing the draft with unions, employer groups, and rival parties, plans to present the decree to parliament next week. The assembly can block a decree if rivals muster enough support—an outcome that in May nearly derailed a €15 billion austerity plan that conservatives deemed too tepid.

The center-right Popular Party says it could challenge the labor reform if a final version doesn't include stricter measures, including less judicial interference for certain types of dismissals and a change in collective bargaining rules that would give individual companies—as opposed to broad industry groups—greater say in labor negotiations.

Source: Wall Street Journal

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Spain ratifies labour reforms to cut unemployment
23 June 2010

Spain's parliament has ratified labour reforms designed to bring down high unemployment.

Measures include promoting youth employment and cutting the cost of firing workers, which critics say makes employers reluctant to hire more staff.

Changes to the labour law follow spending cuts introduced last month in a bid to cut the large budget deficit.

Spain's two main unions have called a general strike on 29 September in protest at the tough economic measures.

Only members of Prime Minister Jose Luis Rodriguez Zapatero's Socialist Party voted in favour of the labour reforms.

Members of the two biggest opposition parties, the Popular Party (PP) and Catalan nationalist party (CIU), abstained and eight deputies voted against the moves.

Spain's unemployment rate of 20% is the highest in the eurozone.

Some economists have laid the blame on the cost of firing workers which encourages the use of temporary contracts that have few benefits and rights.

Workers on full contracts are entitled to severance pay of as much as 45 days per year worked, one of the highest levels in Europe.

Under the reforms this would be cut to 33 days for some contracts.

Labour Minister Celestino Corbacho told parliament that more than eight million workers who are either unemployed or on temporary contracts "will directly benefit" from the reform plan.

He said it would increase flexibility for companies without reducing job security, "promoting stable employment instead of uncertainty".

The labour reforms can still be amended in parliament over the coming months.

"Labour reform is necessary but this is not labour reform, it is the reform of (job) dismissals," said PP spokeswoman Soraya Saenz de Santamaria.

"We intend to enhance it with our amendments," she said.

Spain's high unemployment and large budget deficit had prompted speculation that it might be seeking a Greek-style bailout.

But the head of the International Monetary Fund, Dominique Strauss-Kahn, calmed those fears during a recent visit to Madrid saying Spain was taking the right measures for economic stability.

Source: BBC News

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Zapatero's State of Denial Will Be Felt Far Beyond Spain as Pain Spreads
22 June 2010

Greece is the sideshow, a warm-up act. Spain is the main event, the country that will have a huge impact on the future of the euro and on whether a new governance system will be put in place to control euro-zone members' budgets. The pain in Spain will fall, well, just about everywhere. That's why key figures from the world's financial institutions converged on Madrid late last week.

Spain matters because its economy is the euro zone's fourth largest, four times larger than Greece's. In the words of Goldman Sachs economists, if Spain were to experience a real financial fiasco, "the degree of cross-border financial exposure for the entities based in the larger euro-area economies would multiply dramatically." Spain's banks are already frozen out of interbank loan and capital markets, and are now the European Central Bank's largest customer. Last month they borrowed €85.6 billion ($105.9 billion) from the lender of last resort, up from €74.6 billion in April. Spain's banks account for roughly 10% of the euro zone banking system, but account for 16% of all net euro-zone loans. Next stop, the €440 billion European Financial Stability Facility, created by the euro zone powers-that-be as part of a €750 billion rescue package aimed at reassuring markets that there will be no defaults.

The need for a bailout is hotly denied by all of the players in this financial drama. A U.S. Treasury delegation joined International Monetary Fund head Dominique Strauss-Kahn in Madrid to meet with Spanish Prime Minister José Luis Rodríguez Zapatero and key government officials in what was represented as a rather routine, long-scheduled affair to discuss growth prospects over the next decade. European Council president Herman Van Rompuy stressed the "normality" of the meeting. No emergency measure was even discussed. Speculators and others circulating rumors that the EFSF is preparing a €250 billion rescue package are tilting at windmills.

"I am really confident in medium- and long-term prospects for the Spanish economy," announced Mr. Strauss-Kahn as he emerged from the Madrid meeting, adding, "providing the efforts that have to be made will be made." Quite a proviso, given Mr. Zapatero's long period of denying that a crisis exists, his initial refusal to cut the size of the public sector and the one-vote margin by which some of his reforms passed a parliament convinced that his future prospects are about as bright as those of Tony Hayward's.

The markets remain appropriately skeptical, nervous that the premium that Spain has been paying over safe(r) German bunds will balloon when it taps the debt markets for some €50 billion over the summer. Even more important, with Spain's government in no position to help its banks, failures would rain pain throughout Europe and on the U.S. and Britain. Miguel Ángel Fernández Ordóñez, governor of the Bank of Spain, hopes to calm the financial waters by releasing the results of the stress tests some of Spain's banks have undergone. He claims these will show that the nation's banks are adequately capitalized to withstand defaults by over-borrowed construction and property companies, and individual mortgagees. Markets are not reassured: the tests are confined to a handful of banks, and contain not very stressful assumptions.

New data from the Bank for International Settlements reveal that banks in the euro zone have a $1.58 trillion exposure to Greece, Ireland, Portugal and Spain, of which $727 billion is exposure to Spain. German and French banks carry 61% of euro-zone exposure, most of it exposure to private borrowers. So the EFSF is really aimed at easing the pain of Europe's banks. The argument that it is designed to help the euro zone nations, says Cantor Fitzgerald, "is to treat all the citizens of Europe and the wider world like naïve fools. It was cobbled together to help the leading banks of Europe who are heavily exposed to weak sovereign debt."

German Chancellor Angela Merkel might hate the idea of saving Spanish banks, but she knows that the bell that might toll in Madrid will reverberate in Berlin. She knows, too, that the day of complete sovereignty over national budgets is over in the euro zone. Jean-Claude Juncker, president of the council of euro-zone countries, was overstating things, but not by much, when he announced, "Too many countries amongst the 16 members behave like national economies, but national economies no longer exist; we are in an economy crowned by the common currency."

The good news is that there now is widespread recognition that Spain will not prosper unless it reforms its labor market, which it has started to do by making it less expensive to fire workers, a sure way to encourage hiring.

Meanwhile, spare a tear for Mr. Zapatero. The European Central Bank is telling him the only sure route to economic growth is austerity. President Barack Obama will use the G-20 meeting later this week to argue that stimulus, not austerity, is the key to prosperity. Mr. Zapatero needs the ECB and its bail-out facility more, right now, than he needs Mr. Obama.

Source: Wall Street Journal

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Spanish banks' stress tests questioned
22 June 2010

Spain's two leading banks – BBVA and Santander – need to raise £9bn of new capital – a leading City analysts has claimed.

The warning comes just days after the governor of the Bank of Spain declared the pair "the strongest in Europe".

BBVA and Santander were last week subjected to a stress test by the Bank of Spain that led it to declare them the two best capitalised institutions in Europe, but its findings have been challenged by Joseph Dickerson of Execution Noble.
Mr Dickerson, who conducted what he described as a balance sheet stress test of "severe outcomes within the scope of possibility", said the markets continued to have doubts about Spanish banks despite the comments from the Bank of Spain.

"The central bank claims that it seeks to ensure that banks have adequate capital "not only for what would currently seem to be the most reasonable scenarios, but also for complex growth scenarios in the near future," he said.

"Most reasonable begs the question as to whether the banking system is being stressed for truly adverse scenarios – necessary given ongoing rising unemployment, deflationary forces, the well-known effects of a domestic property bust, tight interbank conditions, and an international buyers' strike on Iberian bank paper."

Mr Dickerson says the banks might need as much £9bn each based on his stress test, which assumes conditions such as 10pc write off in the value of their holdings of Spanish government debt.

A spokesman for Santander declined to comment on the report, pointed out the bank had conducted its own rigorous stress tests.

Source: The Telegraph

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Spanish Parliament to vote on labor reforms
22 June 2010

MADRID — Spanish lawmakers were to vote Tuesday on labor market reforms the government says are crucial to bringing down the country's soaring 20 percent unemployment rate.

The reforms, which ease hiring and firing regulations, are to be approved or rejected in an afternoon session of Parliament. The main opposition parties are expected to abstain, allowing the Socialist party to get the measures through by a simple majority.

The package follows an austerity plan aimed at slashing a bloated deficit of 11.2 percent of GDP in 2009 to 3 percent by 2013 that lawmakers approved by just one vote last month.

The Socialists have 169 deputies in the 350-seat lower chamber but have seen the support they normally receive from smaller centrist and leftist parties disappear in recent months.

If approved, the package will be subject to debate and open to adjustments over the coming months, although Labor Minister Celestino Corbacho insists it will not be watered down.

Chiefly, the reforms cut severance payments for new jobs from a current 45 days per year worked to 33. The government hopes other changes will encourage companies to move away from temporary contracts, which now represent more than a quarter of all contracts.

The measures, while sharply criticized as insufficient or counterproductive at home, have been welcomed by the U.S. government, the International Monetary Fund and the European Union.

The White House said President Barack Obama talked by telephone with Zapatero on Monday to express his support.

"The president expressed support for the difficult but necessary economic actions that President Zapatero has taken in recent weeks to strengthen Spain's economy," U.S. Deputy Press Secretary Bill Burton said.

The reforms also are aimed at calming fears among market investors that Spain might be headed for Greece-style bailout. But some are not convinced.

Sandalio Gomez, professor of management at IESE Business School in Madrid, said the fact that the reforms now face a period of debate and likely change in Parliament does not instill confidence.

"This does not provide security to anyone. This transmits doubts," he told the AP.

He said the government in trying to conceal that it was making it easier and cheaper to lay off workers, has failed miserably in explaining exactly what it is doing.

"They've missed a perfect opportunity — and there are few like this — to transmit confidence to the labor market, a push forward that would allow jobs to be created," he said.

Europe's fourth largest economy, Spain is struggling to emerge from nearly two years of recession triggered by the collapse of a boom fueled by construction and free-flowing credit.

Its public coffers are now nearly drained by spending to cope with a eurozone-high jobless rate with more than 4 million people out of work and economic stimulus measures.

Source: AFP

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IMF says Spain's economy is in a 'good situation'
22 June 2010

Spain is taking the right measures for economic stability, the head of the International Monetary Fund has said.

Dominique Strauss-Kahn said he was "confident" Spain's economy would recover and called on all Spaniards to back the government's austerity work.

He was speaking after a meeting in Madrid with Spanish Prime Minister Jose Luis Rodriguez Zapatero.

Mr Zapatero had earlier denied his government was seeking an IMF bailout, but markets have been nervous.

Mr Zapatero said on Thursday that Spain's economy was solid and solvent, and the visit by Dominique Strauss-Kahn was a scheduled one.

Mr Strauss-Kahn said all the measures being put in place by the Spanish government were "clearly being done for the benefit of the economy".
Continue reading the main story

"I am really confident in the medium and long-term prospects for the Spanish economy, providing the efforts that have to be made will be made," he added.

He specifically praised continuing efforts to liberalise the Spanish labour market, saying they went in "the right direction".

Mr Zapatero said that during the meeting he had conveyed to Mr Strauss-Kahn "the determination of the Spanish government to implement and to make effective every single one of these reforms that we have launched".
Nervous markets

Mr Zapatero's government recently introduced a package of spending cuts and a reform of the labour market in an attempt to persuade nervous financial markets that Spain's finances are under control.

However, that's a difficult task, as after the crisis in Greece, the financial markets have been concerned that Spain could be the next country to require outside financial assistance.

As a result, Spain is having to pay record rates to sell its debt, and this week a senior banker revealed that Spanish financial institutions are struggling to get funding on international markets.

Spain is now promising to publish the results of what are known as "stress tests" on its banks, to prove that any fears of their failure are unfounded.

The country is still reeling from the collapse of the construction sector, has a budget deficit of 11%, and one in five workers is unemployed.

To help reduce the jobless count, the Spanish government wishes to liberalise labour laws that currently deter Spanish firms from taking on full-time staff because of the difficulty of making redundancies.

However, this has already faced strong opposition from unions, who are threatening to hold a general strike in September.

Source: BBC News

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The Summer sales start in Spain ahead of the VAT rise
22 June 2010

Shops in Madrid were yesterday the first in Spain to hang the poster of sales, the last before the implementation of the VAT rise on 1 July.  The opportunity to find bargains will last until 21 September. The search in department stores will be shorter because it does not start until July 1. 

Consumer organizations estimate that spending will be made of Madrid in this section will range between 75 and 151 euros per person. 

Translated from el Pais

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Spain's Santander may top EU stress test results
18 June 2010

LONDON (MarketWatch) -- Spain's Banco Santander and BBVA may be rated the two healthiest banks in Europe when the European Union publishes the results of "stress tests" in the coming weeks, while analysts say Germany's unlisted landesbanks could be among the weakest.

EU leaders agreed on Thursday to publish the results of the tests no later than the second half of July after the governor of the Bank of Spain said he would release the results of tests on Spanish banks, whether or not there was an agreement.

The tests are intended to gauge whether banks' balance sheets are strong enough to cope with another sharp deterioration in the economy. 

Spanish press reports citing government sources indicated that Santander /quotes/comstock/06x!csan (ES:SAN 9.28, +0.25, +2.78%) /quotes/comstock/13*!std/quotes/nls/std (STD 11.49, +0.22, +1.95%) and BBVA /quotes/comstock/06x!cbbva (ES:BBVA 9.21, +0.35, +3.93%) could be the strongest of the major European banks, but analysts gave a mixed reaction to the announcement.

Shares in Santander rose 2.4% Friday and BBVA gained 3.8% as the pair outperformed most other European banks.

UBS analyst Alastair Ryan said the tests are not a panacea and that without a significant portion of banks failing, the tests "potentially amount to little more than an empty gesture."

"With customer spreads falling rapidly, 650 billion euros of wholesale funding needs, overvalued property and declining nominal gross domestic products, we would see little value in a credit stress test that major Spanish lenders all passed," Ryan said.

Bank of America Merrill Lynch analyst Michael Helsby, however, argued that anything that improves transparency in the banking sector has to be a good thing.

Under Merrill's own stress-test assumptions -- including a 10% drop in revenue, two year's of bad-debt charges at the same level as the early 1990s and a 30% loss on Greek sovereign debt -- listed European banks would need to raise around 11 billion euros, Helsby said.

If sovereign debt conditions worsen and a 30% haircut was taken on the debt of Portugal, Ireland, Italy, Spain and Greece, that figure would rise to 22 billion euros, he added.


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Spanish economy: IMF head meets government
18 June 2010

The head of the International Monetary Fund is in Spain to meet the government over its finances.

There are persistent rumours the Spanish government is planning to follow Greece in seeking a bail-out from the IMF and the EU.

Spain's prime minister, Jose Luis Rodriguez Zapatero, denied the speculation again on Thursday.

He said Spain's economy was solid and solvent, and the visit by Dominique Strauss-Kahn is a scheduled one.

His government has just introduced a package of spending cuts and a reform of the labour market in an attempt to persuade nervous financial markets that Spain's finances are under control.

Nervous markets

That's a difficult task.

This meeting between Mr Zapatero and Mr Strauss-Kahn was scheduled before rumours of an imminent bail-out for Spain began to circulate.

So both the government here, and the IMF, insist it doesn't mean Spain's seeking access to a multi-billion euro credit line for its struggling economy.

But after the crisis with Greece the financial markets are nervous.

That means Spain is having to pay record rates to sell its debt now and this week a senior banker revealed that Spanish financial institutions are struggling to get funding on international markets.

So Spain has now promised to publish the results of what are known as "stress tests" on its banks, to prove that any fears of their failure, are unfounded.

The country is still reeling from the collapse of the construction sector, with a budget deficit of 11% - one in five workers is unemployed.

But the government got a welcome boost in Brussels yesterday.

European leaders rallied around Spain's prime minister, praising his recent spending cuts and reforms and stressing their confidence his government can handle this crisis.

Source: BBC News


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Spanish unions to announce general strike 29th September 2010
15 June 2010

MADRID — Spain's two main unions will make a formal call on Tuesday for a one-day general strike to protest the government's planned reforms of the country's labour market, a union leader announced.

The CCOO and the UGT, which together have some two million members, have threatened for several days to call a national general strike over the reform plan.

The Socialist government on Friday unveiled details of the reforms, which are aimed at reviving Spain's fragile economy and easing market fears of a Greek-style debt crisis.

The cabinet is to approve the plan on Wednesday before a June 22 vote in parliament, where the government is seven seats short of a majority.

CCOO spokesman Fernando Lezcano said Monday that "there will be a general strike" and that the leaders of the two unions will meet on Tuesday to decide on the date.

"The date will be announced tomorrow (Tuesday) as well as the procedure to be followed to prepare for this general strike," he said.

Union sources said the strike could be held in either September or October. It could coincide with a European "day of action" planned for September 29 which will have as its focal point a protest at a meeting of EU finance ministers scheduled the same day in Brussels.

UGT head Toni Ferrer said on Saturday that the labour market plan "undermines the rights of workers" while Spain's national employer association, CEOE, has also found fault with it, saying it is "insufficient".

But Prime Minister Jose Luis Rodriguez Zapatero defended the labour reforms, which he said "maintain the rights of the workers and match the expectations of those workers who have precarious jobs."

The government is pushing ahead with its own version of the plan after talks between unions, employers and the government to reach a consensus collapsed on Thursday after nearly two years.

The reforms, which the International Monetary Fund said are urgently needed, would facilitate the hiring and firing of workers, thus cutting an unemployment rate which has soared to more than 20 percent, and slashing government spending on jobless benefits.

Among the measures included in a draft released by the labour ministry is the creation of a government-sponsored fund for each worker that could be used by firms to pay a portion of an employee's severance in case of a dismissal.

Many economists blame the high jobless rate on the high cost of firing workers in Spain, which makes employers reluctant to hire staff and encourages the use of temporary contracts that have few benefits and rights.

Source: AFP

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Nightmare vision for Europe as EU chief warns 'democracy could disappear' in Greece, Spain and Portugal
15 June 2010

  • EU begin emergency billion-pound bailout of Spain
  • Countries in debt may fall to dictators, EC chief warns
  • 'Apocalyptic' vision as some states run out of money

Democracy could ‘collapse’ in Greece, Spain and Portugal unless urgent action is taken to tackle the debt crisis, the head of the European Commission has warned.

In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money.

The stark warning came as it emerged that EU chiefs have begun work on an emergency bailout package for Spain which is likely to run into hundreds of billions of pounds. 

A £650 billion bailout for Greece has already been agreed.

John Monks, former head of the TUC, said he had been ‘shocked’ by the severity of the warning from Mr Barroso, who is a former prime minister of Portugal.

Mr Monks, now head of the European TUC, said: ‘I had a discussion with Barroso last Friday about what can be done for Greece, Spain, Portugal and the rest and his message was blunt: “Look, if they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies. They've got no choice, this is it.”

‘He's very, very worried. He shocked us with an apocalyptic vision of democracies in Europe collapsing because of the state of indebtedness.’

Greece, Spain and Portugal, which only became democracies in the 1970s, are all facing dire problems with their public finances. All three countries have a history of military coups.

Greece has been rocked by a series of national strikes and riots this year following the announcement of swingeing cuts to public spending designed to curb Britain’s deficit.

Spain and Portugal have also announced austerity measures in recent weeks amid growing signs that the international markets are increasingly worried they could default on their debts.

Other EU countries seeing public protests over austerity plans include Hungary, Italy and Romania, where public sector pay is to be slashed by 25 per cent.

Deputy Prime Minister Nick Clegg, who visited Madrid last week, said the situation in Spain should serve as a warning to Britain of the perils of failing to tackle the deficit quickly.


He said the collapse of confidence in Spain had seen interest rates soar, adding: ‘As the nation with the highest deficit in Europe in 2010, we simply cannot afford to let that happen to us too.’

Mr Barroso’s warning lays bare the concern at the highest level in Brussels that the economic crisis could lead to the collapse of not only the beleaguered euro, but the EU itself, along with a string of fragile democracies.

But it risks infuriating governments in southern Europe which are already struggling to contain public anger as they drive through tax rises and spending cuts in a bid to avoid disaster.

Mr Monks yesterday warned that the new austerity measures themselves could take the continent ‘back to the 1930s’.

In an interview with the Brussels-based magazine EU Observer he said: ‘This is extremely dangerous. 

'This is 1931, we're heading back to the 1930s, with the Great Depression and we ended up with militarist dictatorship.

‘I'm not saying we're there yet, but it's potentially very serious, not just economically, but politically as well.’

Mr Monks said union barons across Europe were planning a co-ordinated ‘day of action’ against the cuts on 29 September, involving national strikes and protests.

David Cameron will travel to Brussels on Thursday for his first summit of EU leaders since the election.

Leaders are expected to thrash out a rescue package for Spain’s teetering economy. Spain is expected to ask for an initial guarantee of at least £100 billion, although this figure could rise sharply if the crisis deepens.

News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years.

Germany’s authoritative Frankfurter Allgemeine Newspaper reported that Spain is poised to ask for multi-billion pound credits.

Mr Barroso and Jean-Claude Trichet of the European Central Bank are united on the need for a rescue plan.

The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece. 

Greece contributes 2.5 percent of GDP to Europe, Spain nearly 12 percent.

Yesterday’s report quoted German government sources saying: ‘We will lead discussions this week in Brussels concerning the crisis. It has intensified to the point that the states do not want to wait until the EU summit on Thursday in Brussels.”’

At the end of last month the credit rating agency Fitch downgraded Spain, triggering sharp falls on stock markets.

On Friday the administration in Madrid continued to insist no rescue package was necessary.  But Greece said the same thing before it came close to disaster.

Yesterday the European Commission and the statistics authority Eurostat met to consider Spain‘s plight as many EU countries consider the austerity package proposed by the Madrid administration insufficient to deal with the country‘s problems.

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Spain objects to Street View Wi-Fi snooping
14 June 2010

Google may face a Spanish court over the legality of the Wi-Fi snooping activities of its Street View fleet, El País reports.

The snappily-titled Asociación para la Prevención y Estudio de Delitos, Abusos y Negligencias en Informática y Comunicaciones Avanzadas (Association for the Prevention and Investigation of Crime, Abuse and Malpractice in Information Technology and Advanced Communications), aka Apedanica, has filed suit in the Police Court of Madrid against the legal representative of Google Spain.

It suggests the company has breached Article 197 of the Penal Code, which provides for between one and fours years' jail for anyone who "intercepts telecommunications, or uses listening, transmission, recording or reproduction devices on any other communication signal".

When it confessed back in back in May that Street View spymobiles had been "collecting information sent over open Wi-Fi networks", Google claimed the whole thing was a "mistake", and later blamed it on a rogue software coder.

This explanation has failed to impress. Apedanica president Miguel Angel Gallardo insisted that "something which was carefully programmed and has been done in 30 countries can't be an error".

On 19 May, the Spanish Data Protection Agency (Agencia Española de Protección de Datos, or AEPD) opened an investigation into the matter, and last Tuesday Google Spain's director general, Javier Rodríguez, promised all culled data would be handed over to the agency.

Apedanica has evidently decided that's not good enough, and its legal action adds to increasing international pressure on Google over its Orwellian black Opel black ops.

Source: The Register

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EU leaders to thrash out multi-million pound rescue package for Spain as it faces bankruptcy
14 June 2010

EU leaders are meeting this week to thrash out a rescue package for Spain as its economy teeters on the brink.

News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years.

Germany’s authoritative Frankfurter Allgemeine Newspaper reported that Spain is poised to ask for multi-billion pound credits.


It said Manuel Barroso of the EU Commission and Jean-Claude Trichet of the European Central Bank are united on the need for a rescue plan.

The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece. 

Greece contributes 2.5 per cent of GDP to Europe, Spain nearly 12 per cent.

The FAZ reported German government insiders telling it: ‘We will lead discussions this week in Brussels concerning the crisis.

‘It has intensified to the point that the states do not want to wait until the EU summit on Thursday in Brussels.’

At the end of last month the credit rating agency Fitch downgraded Spain, triggering sharp falls on stock markets.

On Friday the administration in Madrid continued to insist no rescue package was necessary. 

But Greece said the same thing before it came close to disaster.

‘The European Commission and the European Central Bank are obviously on the way to supporting Spain,’ said the FAZ. 

The money would come from the 750 billion euro (£290billion) fund that the EU and the IMF established last month as an emergency kitty for struggling nations.

The Financial Times Deutschland also reported that Spain is on the verge of rescue.

Today the European Commission and the statistics authority Eurostat met to consider Spain‘s plight as many EU countries consider the austerity package proposed by the Madrid administration insufficient to deal with the country‘s problems.

Germany in particular is concerned that a new wave of financial speculation is looming over debt as market predators move on from Greece to Spain.

Franc Schaeffler, the financial expert of Germany’s coalition governing party the FDP, said: ‘It is almost certain that Spain will inn the coming weeks ask for the emergency parachute to be pulled.’

The question is - how much? 

German media reports say it needs 120 billion euros (£100,000) immediately, triggering concerns that any final bailout could be two to three times higher, and perhaps even more than that.

The collapse of the Spanish real estate market in tandem with spiralling unemployment, rigid employment rules and teetering banks has made Spain the new sick man of mainland Europe.


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What are the Bilderberg Group really doing in Spain?
05 June 2010

Security is so tight at the annual cabal of the world's elite that conspiracy theories about what is discussed – and who's invited – are rife.

If the conspiracy theorists are on to something, they could be plotting the invasion of Iran, planning the funeral of the Euro or scheming to wipe out French poodles in pink sweaters at this very minute.

Or perhaps the world's financial and political leaders are simply schmoozing about their golf game as they enjoy a "chocolate massage" followed by the "honey body scrub" and the "spectacular oxygen Echo2 facial" at the Dolce Hotel's spa in Sitges.

It is also possible that the world's executives, media moguls, and financial gurus came to the elegant seaside town near Barcelona to study the booming gay tourist market there (although they missed the wild Carnival celebration by a few months) and to sneak a preview of next year's international horror film festival.

But ordinary citizens can only guess at the goings-on at the annual meeting of the secretive Bilderberg Group, a media-barred pow-wow of the global elite that in the past has reportedly attracted former US President Bill Clinton, Tony Blair and David Cameron, and US treasury secretary Timothy Geithner. Even the late Enoch Powell once attended.

The heavyweight weekend retreat kicked off yesterday with hordes of police security and a gag order for employees at the luxury Dolce, whose aptly-named presidential suites overlook the Mediterranean. None of the illustrious guests posed for photos or spouted prepared statements for the media. Instead, activists, journalists and bloggers attempted to stake out positions in the surrounding hills to catch glimpses of this year's participants, guerrilla-warrior style.

"We just dropped two people by the hills and they are trying to run for cover so they aren't spotted by the snipers," said Hannah Borno, co-founder of an activist agency, Trilever, which is calling for transparency on the Bilderberg deliberations and offers information (also known as leaks) to the press. "I hope they're OK."

Ms Borno paid €135 for the hotel's cheapest room for the chance to see the preparations – as well as swarming secret service agents – before being forced to leave for a nearby campsite, surrounded by police. Overhead: a no-fly zone.

"The public is paying for this security," she added. "I can see 20 to 30 police vans right now. We are offering a pro-bono lawyer in case any of the activists or bloggers are arrested."

Some people consider the Bilderberg Group, founded in 1954, an innocent brainstorming session, but the cloak-and-dagger theorists scored a point this week when the self-appointed Bilderberg expert Daniel Estulin addressed the European Parliament on the invitation of an Italian member, Mario Borghezio.

Mr Estulin, an investigative journalist who has written two best-selling books on the subject, contends that "the Bilderberg Club" is not a classic conspiracy but a potentially dangerous meeting of minds with a common goal: to centralise global economic power to benefit corporations. He defined it as "a virtual spider web of interlocking financial, political and industrial interests".

"It isn't a secret society," he said. "No matter how powerful they are, no group sits around a table holding hands and deciding the world's future. It is an ideology."

Secret society or not, the speculation surrounding Bilderberg rivals the eternal question of who shot JFK – to the extent that one Spanish activist vowed he has sighted freemasonry symbols on the Sitges hotel. Being the meeting is secret, it is impossible to confirm which executives and lawmakers have checked into the spiffy Dolce, in the heart of golf-and-sunbathing territory. Politicians often deny participation. But according to press leaks, this year's A-list participants include Queen Beatrix of Holland, Spain's Queen Reina Sofia (supposedly a regular), World Trade Organisation Director Pascal Lamy, European Central Bank President Jean-Claude Trichet, former NATO chief Jaap de Hoop Scheffer and former Spanish vice president Pedro Solbes, known during his stint as an EU commissioner as "Mr Euro".

Meanwhile, Extremadura Progresista, a left-wing newspaper from Extremadura, one of Spain's poorest regions, published a list of participants on its website, including former Secretary of State for Business Peter Mandelson and the Chancellor of the Exchequer George Osborne (although he's currently in Asia), plus executives from Siemens AG, Microsoft, Royal Dutch Shell, Chase Manhattan Bank and Morgan Stanley International.

And what might this all-star cast be discussing between forkfuls of paella and sips of cava on a warm summer's eve? Topics reportedly include everything from the possible failure of the euro and the creation of a global currency, to a military strike against Iran.

Another issue supposedly on the agenda is the financial meltdown in Greece, where last year's brainstorming session was held. The irony is not lost on Spanish activists, who hope the Bilderberg "witches' Sabbath" does not brew bad tidings for the troubled Spanish economy. "We joke that the horror film festival is starting early," Didac Sanchez, an activist with the organisation EcoXarxa Montseny, told The Independent over the phone amid background chanting. "The monsters are here."

Thursday's protests, which attracted about 100 demonstrators, were paltry compared to previous anti-globalisation rallies in Catalonia – partly because chic-and-wealthy Sitges is not the sort of place to get ruffled about whatever a bunch of CEOs do in their spare time. But Bilderberg's low profile also played a part.

"It's so secretive that not even people in the leftist movements know about it," Mr Sanchez said. "And it's so frightening that people can't even believe that it's real. Some people theorise that they want to kill off half the world; others believe they're directing the world's finances. But we're here to say it is real, it is happening."

He expects momentum to build throughout the weekend, however. The carnival-inspired theme of the protest is "unmasking Bilderberg". "We will set up a healing camp," he said. "It will be a festival of cleansing."

The guests...

Peter Mandelson, Ex-Business Secretary

Jean Claude Trichet, European Bank President

Reina Sofia, Queen of Spain

... and the alumni

Bill Clinton, US President

Tony Blair, Prime Minister

Enoch Powell, Conservative minister

Source: The Independent

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Up to £80 to take a bag on a Ryanair flight: Airline ramps up charges for summer season
02 June 2010

Ryanair is increasing the cost of checking-in suitcases to up to £80 per bag during the summer holiday season.

The airline promotes itself as a budget fare operator but hits passengers with a raft of 'must pay' extra charges that dramatically push up the price of flights.

The charge for a first bag that is checked into the hold via Ryanair's website will rise from £15 to £20 in July and August, while the figure for the second bag goes up from £35 to £40.


But a customer who forgets to check-in online will be charged £40 for the first bag and £80 for a second bag at the airport in July and August. 

The same charges will apply if the flight has been booked through a call centre. At present the charges are £35 for a first bag and £70 for a second bag. 

The increases will hit families with young children particularly hard as they have no choice but to check-in extra bags with nappies, clothes and other equipment.

And Ryanair has a relatively mean limit of 15kg for checked-in bags, which is lower than many airlines. If a family of four were to check in eight bags at the airport - rather than online - the bill could be as much as £480 each way.

Ryanair is also planning to charge passengers £1 to use lavatories on its planes.

The company has profited from the strikes at British Airways as worried travellers seek alternative carriers to avoid disruption.

The increase in bag charges was condemned by industry experts. Bob Atkinson, of, said: 'This is cynical exploitation from Ryanair and a real blow for families travelling on a budget.'

Rochelle Turner, head of research at Which? Holiday, said: 'Ryanair might claim that they are incentivising people to travel light, but we think it is more a case of penalising those families who can only go away on holiday at this time.

'Having to pay an extra for checking in bags during July and August is unfair.' The airline's controversial chief executive, Michael O'Leary, confirmed the baggage charges yesterday as he revealed profits for the year to March of £281million.

He claimed the figures as a triumph when compared to a loss of £150million the year before. The company reported a 14 per cent increase in travellers to 67million.

Ryanair claims the higher fees are designed to 'incentivise' people to take as little luggage as possible. Mr O'Leary said: 'We are pretty much telling you we don't want your second bag at all. How can we be profiteering when we are making it more affordable for families to go on holiday?'

He said his family had paid100 euros in baggage fees on Ryanair last year.

He will have no problem paying the higher charges this year, for he is in line for a dividend payment of £16.7million on his 4 per cent shareholding in the airline.

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Strike in Spain 8th June
01 June 2010

MADRID, May 17 (Reuters) - Spanish unions have decided to delay a public sector strike to protest wage cuts to June 8 as they wait for the government to clarify planned austerity measures aimed at cutting the budget deficit.

'We'll know the details of the impact of the government's cuts on May 20, so for organisational matters we've decided to push back the strike until June 8,' a spokesman for Spain's second largest union UGT said on Monday.

Public Works Minister Jose Blanco told TV station Telecinco on Sunday that state employees stand to lose between 36 and 220 euros a month from wage cuts aimed at reining in the country's budget deficit.

The government is studying salary cuts of between 2 and 8 percent for civil servants to save over 4 billion euros. The majority of Spain's 2.8 million state employees earn between 1,200 and 3,000 euros a month, El Pais reported on Monday.

Source: Reuters

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Spain vows labour market reform by end of June
01 June 2010

MADRID — The struggling Spanish government vowed Monday to push through reforms of the labour market aimed at reviving the economy by the end of June if unions and employers fail to agree on the terms.

El Pais daily earlier reported that the two sides have reached agreement on measures to fight youth unemployment and reduce worker hours during economic downturns but remain far apart on steps to make it easier to fire workers.

"Do not have any doubts, if these talks ultimately do not produce the results we all desire, the government is going to implement labour market reform in the very short term, before the end of June," Finance Minster Elena Salgado told a business forum.

The government had set Monday as the deadline to reach an agreement but said it and the unions and employers would continue meeting over the coming days.

Financial markets have been closely watching the talks amid concerns that sluggish growth in Spain, Europe's fifth-largest economy, could cause the country to follow Greece into a debt crisis.

Last week, the International Monetary Fund warned that Spain's economy needs "far-reaching and comprehensive reforms" of its rigid labour market and banking sector if it was to make headway on its own large debt and deficit problems.

"The labour market is very difficult in Spain and that has been said by many international institutions, including the IMF, which have recommended a reform of the market," IMF managing director Dominique Strauss-Kahn said in an interview published Monday in daily newspaper ABC.

"The government is now taking measures in this sense and we must wait to see the results of the negotiations between the government, the company sector and the workers," he said.

Spain's unemployment rate has soared to 20 percent -- the second highest in the European Union after Latvia -- since the collapse of a property bubble at the end of 2008.

Many economists blame the high jobless rate on Spain's two-tiered labour market, which protects those on permanent contracts with generous severance pay guarantees while those on temporary contracts have few benefits and rights.

At the end of 2009, more than 25 percent of Spanish workers were on temporary contracts compared to an average of 14 percent for the 27-nation European Union in 2008, according to Eurostat figures.

According to El Pais, the government is planning to cut severance pay to 33 days per year worked for people on permanent contracts from the current 45 days and would impose greater restrictions on the use of temporary workers.

Spain two largest unions, the CCOO and the UGT, have threatened to call a general strike if the government unilaterally imposed labour reforms.

Source: AFP/Google

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