Category Archives: Economic Crisis

PSOE add pressure on Rajoy over Sarkozy

President Sarkozy’s earlier comments are still causing a headache for the Government which it could do without. This time, the main opposition party, the PSOE are calling on the Partido Popular to reject the French premier’s words and to call him to task.

Soraya Rodríguez, PSOE spokesman in the Congress of Deputies, called on Prime Minister Mariano Rajoy to defend Spain and its economy on an international level.

Rodríguez has been quick to capitalise on the discomfort that Rajoy and his colleagues must be feeling about Sarkozy’s blunt turn of phrase. Although public ally they contain to insist the French president means to draw comparisons with the poor economic policies of the previous socialist government, in private many will be wondering why their Conservative cousins and allies in the European Parliament have chosen this difficult time to knock the Spanish economy even further. Many will also be asking why Sarkozy did not chose to air his views on the failure of the previous government ahead of the last election.

Sarkozy strikes again

French President Nicolas Sarkozy renews his attack on the Spanish Economy (photo: Downing Street)

French President Nicolas Sarkozy has this morning renewed his negative comments about the state of the Spanish economy. Fresh from yesterday’s attack on the socialist policies which brought Spain to its knees, Sarkozy this morning said on French Radio: “Do you think the French people want to follow the fortunes of Greece and Spain?”

The comments, although hardly extensive, have hit the headlines in the Spanish media once again. Yesterday’s comments were easily played down by Spain’s Economy Minister Luis de Guindos, as part of an electoral campaign to warn of the dangers of socialism. However, renewing the attack in less than 24 hours is starting to look like the French premier is talking the Spanish economy down – something which Spain’s Government are desperate to avoid as the market views their economy with suspicion.

If yesterday’s comments were unhelpful, then today’s will be downright irritating to Prime Minister Mariano Rajoy and his colleagues, as they try desperately to restore market confidence in their reforms and economic policies.

De Guindos insists bailout not an option

Luis de Guindos - Economy Minister (photo: lamoncloa.es)

A busy day of fire-fighting for Economy Minister Luis de Guindos, who has given a radio interview this evening in which he ruled out the possibility of Spain needing a bailout. After more wobbles for the Spanish economy today, de Guindos said this evening:

“We have not asked for [a bailout] – it is not on the table.”

He later added that a bailout would be the “worst outcome possible” and that it would be “a last resort”.

“Spain cannot lose it autonomy with regard to economic matters,” he concluded.

He also reiterated his earlier claim that Spain’s biggest problem is the uncertainty about the finances of the heavily indebted Autonomous Communities.

With regard to today’s news on the risk premium, de Guindos was quick to point out that Spain is not alone, and that other eurozone countries, notably Italy, also saw their risk premium rise today.

He also downplayed President Sarkoy’s earlier comments on Spain and Greece, saying that they were clearly meant as a critique of the social-democrat politicians which until recently governed in both countries.

The full interview can be listened to here (in Spanish)

Alonso invokes Thatcher’s “bitter medicine”

Spain's economic reforms - A bitter pill to swallow? (photo: li-la-lutz)

With the Spanish economy on the ropes and back in the main pages of Europe’s newspapers today, the ruling Partido Popular has come out fighting in defence of their economic strategy. Earlier Economy Minister Luis de Guindos claimed the problem was more a case of nervousness about Spain’s ability to recover.

Now the party’s spokesman in the Congress of Deputies, Alfonso Alonso, has used the news of the increased risk premium as proof that the Government’s tough General Budget, although a “bitter medicine”, is vital if Spain’s economy is going to recover.

Alonso assured that the Government is not taking these measures “gratuitously”, but rather in response to “an extremely serious” situation. “The austerity drive and the containment of the deficit continue to be essential”, he said to EFE news agency. “This is the bitter medicine that Spain needs to win back confidence”.

Students of British politics might be reminded by Alonso’s last comment of the words of former British Prime Minister Margaret Thatcher who, at the height of her own austerity drive in the 1980s famously said: “Yes, the medicine is harsh but the patient requires it!”

At the time Thatcher’s reforms were deeply divisive and were met with great hostility. It was not for years after that her Government began to be widely credited with restoring credibility to the British economy. So far, the PP have only witnessed the hostility – they will be hoping recognition and vindication will not be too far down the track.

Sarkozy stokes the flames

President Nicolas Sarkozy of France (photo: UMP)

As Government ministers in Spain try desperately to combat the pessimism about their country’s economic future, they will no doubt be none too pleased that President Sarkozy of France has today highlighted the Spanish economic crisis as a failure to be avoided.

Sarkozy, who faces the first round of the French Presidential elections in just two weeks, used live television broadcast to attack his political rival, the Socialist Francois Hollande. Sarkozy claimed Hollande would drive France to an economic situation “worthy of Spain, or above all Greece”.

The denigration of the Spanish economy at a time when Government ministers are desperately trying to hold back the tide of market jitters will have not been appreciated in  Madrid. Sarkozy will argue his attack was directed at the socialist model, although his timing will not be viewed as helpful by his fellow conservative and ally Mariano Rajoy.

Onwards and Downwards

Economy Minister Luis de Guindos, defending the Government's economic strategy (photo: by mercedesalonso)

Another shaky day for the Spanish economy, as Spain’s risk premium continues to rise – reaching the highest point since December, and since the Partido Popular took power at the end of last year.

Economy Minister Luis de Guindos claimed today that the rising risk premium is down to the markets’ worries about the ability of Spain to recover from the economic crisis. He went out of his way, though, to highlight that this was not a problem confined to Spain.

“What this shows,” he said, ” is that there has been an increase in market nervousness, but it has not been only about Spain. It has affected all the countries of the eurozone. It has been evident in the rest of the eurozone countries which are vulnerable in one way or another.

“It is a problem which is all about the negative perception of economic growth in Spain, Portugal and Italy,” de Guindos added. He went on to defend the measures the Government is taking, especially with regard to the proposed national budget for 2012.

The only slight silver lining today was that the Spanish stock exchange held steady, despite the storm clouds gathering overhead. The Ibex 35 closed down just 0.2%.

Unemployment in Spain – Reuters

Reuters has today posted a useful video highlighting the rising unemployment in Spain, with a brief summary of the proposed Government budget for 2012.

Disappointing Bond Auction Knocks Confidence in Spanish Economy

(photo by aranjuez1404)

The Spanish economy took another slap in the face today, and with it so did the Government who had hoped that their defiance in the face of violent ant-cuts protestors last week would signal strength of purpose.However the markets once again had different ideas. In the first auction of government bonds since the announcement of the Government’s austere budget for 2012, the Ministry of the Economy sold €2.5 billion in three-, four- and eight-year bonds despite aiming to sell between €2.5 – €3.5 billon.

In a rallying call to those who oppose his proposed budget, Prime Minister Mariano Rajoy said today:

“Spain is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and those who do not understand that are fooling themselves.”

He also went on to raise the threat of Spain requiring an international bailout should his budget plans falter altogether. Stressing that although “no on likes” the budget his Government announced last week, he added “the alternative is infinitely worse”.

To add to this disappointment, Spain’s risk premium rose its highest level since the Partido Popular took office in December. The stock markets also took a hit, with the Ibex 35 closing down more than 2 percentage points.

 

Snip, Snip, Snip…

Spain's PM, Mariano Rajoy (photo: lamoncloa.gob.es)

The Spanish Government, and in particular Prime Minister Mariano Rajoy, have continued to defend the planned cuts to the central government budget announced last week.

The Government’s announcement last week that it was looking to make reductions to €27 billion over the course of 2012 (equivalent to 2.5% of GDP) continue to dominate headlines.

On average, there will be a 16.9% reduction in spending by Government ministries. Yesterday, the Government revealed a further breakdown of exactly where those cuts would fall in particular Government ministries, with Spain’s Foreign Ministry receiving the largest percentage budget cut for this year, meaning the biggest cuts will be made in overseas aid and development programmes.

Furthermore, all civil servant salaries will be frozen, and they will be required to work and extra 10 hours a month.

The Government continues to insist that their planned budget, although extremely severe, is better and significantly less painful than having to receive a bailout from European counterparts.

On top of the €27 billion planned to be cut from the national budget, Spain’s Autonomous Communities are facing a cut of €15 billion to their budgets to reach the necessary deficit reduction targets.

Today’s El Mundo carries a useful breakdown of the planned budget. Among the key points are:

  • All Government ministers will have their salaries frozen.
  • The Royal Family’s annual budget will be reduced by 2%.
  • A 25% reduction in the investment into Research and Development – one of the areas of Government expenditure which has been hardest hit.
  • A 33% reduction in railway expenditure and 23% reduction in airport investment coupled with a 10% rise in airport duty.
  • A 16.9% average reduction in the expenditure of Government ministries. The Foreign Ministry sees its budgets slashed by 54.4%, with significant reductions also for the Treasury, Public Works, Education, Industry, Agriculture and Economy. Least affected are the Ministry of the Presidency and Ministry of the Interior.
  • A controversial “fiscal amnesty” in an attempt to recuperate €2.5 billion.
  • State funding of political parties is set to be reduced by 12.7%
  • A huge cut of 97.6% to the planned weapons modernisation budget at the Ministry of Defence.