Spain Down The Drain (Rajoy unveils new austerity package)

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Spain Down The Drain (Rajoy unveils new austerity package)

Postby Murazor » 2012-04-09 05:56pm

From here.

Spain unveils $36 billion austerity package

By DANIEL WOOLLS, Associated Press – Mar 30, 2012

MADRID (AP) — Spain's new conservative government has unveiled a €27 billion ($36 billion) deficit-reduction package that it hopes will convince its partners in Europe and wary international investors that it won't need a bailout.

The measures announced Friday include big spending cuts and tax increases on large companies, but there was no increase in the sales tax, as had been widely predicted in the run-up to the administration's first full budget.

Finance Minister Cristobal Montoro said it was the biggest deficit cut since Spain regained democracy in 1977 after the death of Gen. Francisco Franco. Spain is taking drastic action to lower its debts, even at a time of recession which has seen unemployment balloon to nearly one in four, as investors remain skeptical it can avoid needing a bailout like Greece, Ireland and Portugal.

"We are taking extraordinary measures because the situation is extraordinary," Montoro told a news conference after a Cabinet meeting at which the budget plan was passed.

The blueprint will go to Parliament on Tuesday and is expected to be formally passed in June. The plan is for Spain to reduce its budget deficit to 5.3 percent of its gross domestic product from 8.5 percent last year.

Spain's fate is crucial to the future of the euro, since bailing it out would severely test the resources of its partners in the 17-nation currency bloc. Spain's economic output last year was worth a little over a trillion euros, or double the size of Greece, Ireland and Portugal combined.

Deputy Prime Minister Soraya Saenz de Santamaria said the 2012 draft budget calls for cutting central government ministry spending by an average of nearly 17 percent and freezing civil servant wages. Overall ministry spending will be cut by €14 billion ($18.7 billion).

Saenz de Santamaria said retirement pensions will remain indexed to inflation, and VAT taxes — a levee on sales and services — will not be raised, contrary to what some had believed. Civil servant wages, already cut in 2010 — will remain frozen but not be further reduced.

The austerity plan from the government, elected last December, came a day after a general strike over labor reforms that make it easier and cheaper for companies to lay people off.

Separately, Montoro announced a tax evasion amnesty: undeclared assets or those hidden in tax havens can be repatriated by paying a 10 percent tax, with no criminal penalty.

On the corporate taxes, he said that rather than actually raise rates, the government will eliminate deductions that companies have been entitled to until now and which lowered their effective tax liability.

In a previous austerity package unveiled in December, the government raised income and property taxes. But it left them alone this time and focused on the corporate world, although the vast majority of Spain's companies are small- to medium-sized, with fewer than 50 employees.

"The aim is very clear — it's just to present the budget in a way that people think the effort is being shared in an equal way," said Antonio Barroso, a London-based analyst with the Eurasia Group consulting firm.

He called the budget cuts tough and said the deficit goal will be challenging to reach. Spain's exporters are very resilient but domestic demand is depressed and small- and medium-sized companies are highly dependent on credit that "is not flowing," Barroso said.

Antonio Moreno Ibanez, an economics lecturer at the University of Navarra in northern Spain, said Spain needs economic growth and the key will be getting credit flowing again. "That is what is going to create jobs and create a virtuous cycle," he said.

He noted that while the tax amnesty will help bank liquidity, the fight to cut the deficit will have a recessionary impact.

Market reaction to the budget was mostly positive, with the benchmark Ibex 35 stock index up 0.8 percent shortly before the closing bell.

The budget has been long awaited. Until now the government has been operating on an extension of the 2011 budget. The government has come under criticism in Brussels for delaying the new budget until after a regional election last weekend.

Although Spain's borrowing rates have fallen in recent months, they have edged back up recently. That was partly due to the government decision to put off presenting the 2012 budget until after the regional election Sunday in Andalusia, in which the ruling Popular Party had hoped to extend its control to a Socialist stronghold and thus to a historic level. But it failed to win an absolute majority and thus will remain in the opposition.

Bond investors also worried that the general strike and protests might push the government to water down its reforms.

But Saenz de Santamaria said "one way or another" the government will achieve the 5.2 percent deficit target.

The yield on Spanish benchmark 10-year bonds was at 5.35 late Friday, up from 4.96 percent a month ago. By contrast, the interest rate on the equivalent German bonds — considered the safest in Europe — was only 1.82 percent.

The austerity package will draw money out of the Spanish economy at a time when it is entering recession for the second time in three years.

Many economists in Madrid say that, for the time being, Prime Minister Mariano Rajoy is clearly governing more with an eye to satisfying investors and officials in Brussels than avoiding criticism at home.


So things are grim and looking worse by the day. Just today, the government specified a 10 billion euro cut to the budgets of education and healthcare as part of this new austerity plan, and the Minister of Economy has recently been making noise about setting up a nation-wide co-payment mechanism for access to healthcare.

Overall, things could get rather volatile over here in very short order.

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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Skgoa » 2012-04-10 08:07am

So your government's plan comes down to trying to hold it together until the Great Recession ends and the spanish economy can safely go back to normal? At least they understand that a "bailout" is amongst the worst things that could happen to your country.
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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby madd0ct0r » 2012-04-10 11:59pm

isn't youth unemployment already at 40% or something stupid?

in a less developed country i'd be talking about reigme change.
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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Starglider » 2012-04-11 01:38am

madd0ct0r wrote:isn't youth unemployment already at 40% or something stupid?


The solution is, as usual, for the country to leave the euro, now undeniably a tool of German financial repression of the rest of the continent.
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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Simon_Jester » 2012-04-11 01:44am

What would your serious answer as to the solution be, by the way?

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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Starglider » 2012-04-11 02:01am

Simon_Jester wrote:What would your serious answer as to the solution be, by the way?


That's it. There are no other solutions; Spanish labour and assets are too expensive, Germany refuses to allow inflation of the eurozone as a whole, correction by deflation is essentially grinding austerity. As Duchess often points out the southern European countries traditionally inflated their way out of debt overhang and high labour costs, but this time they can't because Germany has grabbed control of their finances.

I expect another year or two of eurocrats desperately denying the obvious in increasingly more hysterical tones (we'll get to the point where there is a summit every weekend) but ultimately the euro must be rolled back.
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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Simon_Jester » 2012-04-11 02:19am

I apologize. I thought you were being sarcastic again.

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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Murazor » 2012-04-11 02:53am

madd0ct0r wrote:isn't youth unemployment already at 40% or something stupid?


50.5% for 25 and under, as of the latest Eurostat update. General unemployment near 23% and climbing steadily.

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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Starglider » 2012-04-11 02:55am

Simon_Jester wrote:I apologize. I thought you were being sarcastic again.


If I was being sarcastic I would say that it is the clear duty of Germany, the country with the lowest unemployment, to lend Spain a trillion euros interest free, so that it can engage in a properly comprehensive program of socialist make-work programs. It would actually be better than the trillion printed euros LTRO1 & 2 just dumped into European banks, at least ordinary peopke would see some benefit however temporary.
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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby SirNitram » 2012-04-11 09:23am

The two step plan must be repeated until things change! 1. Give bankers a big pile of money to set fire to. 2. Cut benefits, employment, and services for everyone else.

I'm honestly shocked no one has had the tiniest brain-spark that repeating a failed plan won't un-fail things.
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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Murazor » 2012-04-11 03:21pm

Slight update.

Apparently fearing the likely backlash to the aforementioned budget cuts, the Rajoy government has decided to get though on protesters by expanding articles of the Penal Code designed for anti-terrorism purposes to all forms of violent

Crap source, but this is all there is in English at this point. Sources in Spanish available if someone wants to check them out.

Spain converts passive resistance into a crime
larger | smaller
By h.b. - Apr 11, 2012 - 12:17 PM
Those who organise protests over the internet now face charges 'of integration in a criminal organisation'.
Protests in Sol - EFEProtests in Sol - EFE

The debate in Congress on Wednesday revealed that passive resistance will be considered ‘a crime against authority’ in Spain.

The Minister for the Interior, Jorge Fernández Díaz, has explained some reforms to the Penal Code which he has been working on with the Minister for Justice, Alberto Ruiz-Gallardón.

The ‘crime against authority’ will include passive or active resistance, a violent attack against a policeman was the example given, threats and intimidating behaviour, and the throwing of dangerous objects.

Those who organise gatherings of protest groups which turn violent, for example over the internet, now face being charged with the crime of ‘integration in a criminal organisation’.
Any violent conduct by a protestor will be considered to ‘aggravate’ the charges.

Converting passive resistance into a crime is a major step and observers think the move has been taken because the Government realises only now the social cuts and labour reforms will start to take effect.

The 15-M indignant protests in Spain showed the power of such gatherings, and it seems from now on you can be arrested for sitting down with others in a plaza.


Not quite thoughtcrime yet, but we are getting there.

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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Rabid » 2012-04-11 06:52pm

Franco, is that you ?~~

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Re: Spain Down The Drain (Rajoy unveils new austerity packag

Postby Murazor » 2012-04-19 04:39pm

Well, it didn't take them long to start with the breakdown of this austerity package.

From here.

Spain seeks health care cuts as crisis deepens
A trader talks on the phone during a bills auction in Madrid

By Paul Day

MADRID (Reuters) - Spain's government met regional officials on Wednesday to agree ways to cut state healthcare, an attack on a treasured welfare system that will fuel anger among a population weary of EU-enforced austerity to tackle a ballooning deficit.

The conservative government has warned Spaniards they would have to start paying more for prescriptions, part of the welfare system that has provided state-financed health and education since the country's transition to democracy began in the 1970s.

Although protests against cuts have been mostly peaceful and polls show that many Spaniards are resigned to reining in costs to fight the debt crisis, violent flashes during a recent national general strike may suggest patience is wearing thin.

"It's time we end the culture of everything for free," Industry Minister Jose Manuel Soria told Spanish state television when asked whether the government planned to force pensioners to pay for medicines.

Despite promises to not touch the welfare state before an election in November last year, the conservatives say they have been forced into a U-turn on health and education and must save 10 billion euros ($13.14 billion) this year.

Health Minister Ana Mato met regional leaders in Madrid on Wednesday to decide on how best to reform the system.

Some media said pensioners, who receive free medicines, would have to pay 10 percent of their drugs bills while people with jobs would have to pay 50-60 percent, depending on income.

On Monday, Education Minister Jose Ignacio Wert said classroom sizes would increase by up to 20 percent and the number of teachers' working hours would also rise.

The estimated savings - 3 billion euros a year in state schools and 7 billion euros in the health service - are set to be approved at the government's weekly meeting on Friday.

Spain has returned to centre of the euro zone debt crisis in the past few months on concerns Prime Minister Mariano Rajoy is unable to control the highly devolved regions' spending and deflate one the bloc's highest public deficits.

Spain's central government may intervene in regional finances in return for financing help as soon as next month if they do not meet the tough line needed to help allay fears over the country's debt, a high ranking source said.

CONTROL REGIONAL SPENDING

Rajoy's fight against regional debt could become as symbolic as British former prime minister Margaret Thatcher's crushing of trade unions in 1980s, Goldman Sachs said in an investors note. It said it expected a final 2012 deficit of 6.7 percent of GDP and warned against short term measures.

"While the Spanish government may have a genuine intention to implement reforms, it needs to become more effective in enacting them and articulate a strategy that looks beyond the near term," it said.

Investor concerns over the euro zone's fourth largest economy, soothed by a trillion euros of cheap liquidity from the European Central Bank, were set on edge in March after Rajoy tore up the deficit target agreed with European partners.

The cost of financing 10-year Spanish debt jumped to 5-month highs on Monday, close to the unsustainable levels, while the cost of insuring against default hit highs, though market pressure eased after a successful auction on Tuesday.

Spain's 17 autonomous regions control their healthcare and education budgets and the conservatives say reform is necessary after they overspent in 2011. The healthcare system faces some 15 billion euros in unpaid debts, the conservatives say.

Public health spending was $3,067 per capita in 2009, below an average of $3,361 per capita in the OECD club of wealthy nations, based on the latest available data.

"Health spending has a significant impact on the regions and the reform is part of current efforts to reach the goal of making public finances sustainable," Economy Secretary Fernando Jimenez Latorre told parliament.

Spain has said it will reduce its public shortfall, which hit 8.5 percent of gross domestic product last year, to 5.3 percent of GDP this year and 3 percent in 2013.

However, many economists say this will be impossible as the economy slips into its second recession since 2009 and families and businesses rein in spending to pay down debt despite the central government committing to 27 billion euros of savings in the 2012 budget. ($1 = 0.7610 euros)

(Additional reporting By Inmaculada Sanz; Editing by Julien Toyer and Elizabeth Piper)

Reuters


It is also reported that tomorrow they are going to approve a raise of 66%+ in university fees. For all that people are scared out of their wits by the situation, things could get hot over here in relatively short order.


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