The biggest news is the Spanish budget, a political bombshell to the growing numbers of Spaniards furious at the burdens of yet another dose of austerity — and certain to add to the Catalonian secessionist impulse while triggering still more certainty of the Spailout to come. We’ve tried to piece together the fullest possible account of the cuts. The sight of the Prime Minister strolling on a New York street, contentedly smoking a stogie added fuel to the outrage. Oh, and another regional government’s asked for a bailout from Madrid.
The German president finally signed off on the eurozone stability pact, but not before winning concessions from other governments.
Italian Prime Minister Mario Monti, the Troika-imposed unelected technocrat, has reversed his previous declarations that he’d never run for office and allowed that’s now he’s contemplating just that. Meanwhile, Irish debt and the government’s budget deficit have both increase, while the French president will be unveiling his austerian budget today, then meeting with pols further North early next week.
We close with German jobless numbers, which aren’t good.
Europe edges into recession, business confidence drops
We begin today’s collection with an overview.
From Jan Strupczewski of the Irish Independent:
The outlook for Europe’s economy darkened on Thursday with eurozone business confidence falling to a three-year low and a range of economic indicators across the continent pointing towards recession.
Shrinking lending and rising unemployment in Germany, until now a mainstay for growth in the eurozone, added to the gloom, with economists saying there was now no hope of growth for the region in the third quarter of the year.
“It is bad. Everything is down, we are heading towards another quarterly economic contraction,” said Carsten Brzeski, economist at ING bank in Brussels.
The eurozone economy stagnated in the first three months of the year and contracted 0.2pc in the April-June period. Economists expect another contraction in the third quarter.
Two consecutive quarters of contraction is considered to mark recession.
Spain unveils austerian budget, cuts
We begin with two videos, the first a brief scene-setter from Agence France-Presse:
Next, a video of the budget’s debut from Al Jazeera:
And the details, first from Talia Ralph of Global Post:
Spain’s budget for 2013 was released Thursday, amidst growing social unrest and pressure from European Union members and the markets.
Spain has been experiencing violent protests over the austerity measures imposed by Prime Minister Mariano Rajoy, as he rushes to meet his bailout commitment of slashing $23.2 billion off the country’s deficit by next year, Bloomberg Businessweek reported.
Rajoy’s government has also said it plans to cut the deficit to just 4.5 percent of Spain’s GDP by 2013: it was at 6.3 percent in 2012, and 9 percent in 2011, according to the Wall Street Journal.
“We know what we have to do, and since we know it, we’re doing it,” Rajoy said on Wednesday from New York, as protests in Madrid and threats by northeastern Catalania region to secede boiled over back home. “We also know this entails a lot of sacrifices distributed… evenly throughout Spanish society,” Reuters reported.
According to Spain’s deputy prime minister Soraya Saenz de Santamaria, speaking at a press conference Thursday, the reforms include 43 new laws to safeguard the country’s economy, and 64 percent of the measures in the new plan are “social spending.”
Paul Day of the Irish Independent adds some details:
Ministry budgets were slashed by 8.9pc for next year and public sector wages frozen for a third year as Prime Minister Mariano Rajoy battles to trim one of the eurozone’s biggest deficits while unemployment benefit costs rise in a recession.
Beset by anti-austerity protests and threats of secession by the wealthy northwestern region of Catalonia, Mr Rajoy is resisting market and diplomatic pressure to apply for a rescue, partly out of concern for national sovereignty but also because EU paymaster Germany insists Spain doesn’t need help.
The conservative government said tax revenue would be higher than originally budgeted in 2012 — partly due to a hike in value-added tax (VAT) — and would grow by 3.8pc next year from this year.
Central government spending would be cut by 7.3pc while revenue would rise 4pc in 2013 including a big leap in VAT income. Regional budgets will be presented individually through the year. More details will be announced tomorrow when the proposal goes to parliament.
Pensions, earmarked by the European Commission as a key area for reform, will rise by 1pc next year, but Treasury Minister Cristobal Montoro would not be drawn on whether the government would pay an inflation catch-up which could be over 3pc this year.
Before the end of the year the government will announce a pension reform that will restrict early retirement.
Some of the specifics are reported by the BBC:
Among the key points presented were:
- a 12% average cut in ministerial spending
- a freeze in public sector pay for the third consecutive year
- a new independent authority to monitor government finances
- an increase in pensions funded by drawing on 3bn euros of reserves
- a new 20% tax on lottery wins above 2,500 euros (£2,000; $3,200)
- a new car scrappage scheme
And more from Louise Armitstead of the London Telegraph:
The budget included a pledge to enact 43 laws to bring about structural reforms in the next six months – an apparent bid to mitigate the need for tough austerity measures if Spain does request a formal bail-out.
“This is a crisis budget aimed at emerging from the crisis,” Soraya Saenz de Santamaria, deputy prime minister told reporters. “In this budget there is a larger adjustment of spending than revenue.”
Olli Rehn, European Union Economic and Monetary Affairs Commissioner, said: “The reforms are clearly targeted at some of the most pressing policy challenges.”
Spain faces more woe on Friday with the results of its bank stress tests.
Finally, this from Jesús Sérvulo González of El País:
Despite putting the austerity drive into fifth gear, overall spending is due rise 9.2 percent as a result of higher interest rates on public debt and Social Security system outlays, largely a result of unemployment benefits, with a quarter of the working population out of a job.
State pensions are to be raised by 1 percent next year, and the government will maintain the practice of topping them up to compensate for the loss of purchasing power as a result of any deviation from the official target set for the year.
Borrowing costs are set to rise by 9.1 billion euros to 38 billion. This is expected to exceed the cost of the public sector payroll, which was already less than debt servicing costs this year. Financial costs are estimated to be double those budgeted for 2009 due to the jump in outstanding public debt resulting from the deficit.
Social security outlays to cover state pensions, temporary incapacity payments and benefits to families are budgeted at 6.683 billion euros
Stupid political cigar trick #17
There’s something about conservative politicians and pundits and their cigars. About the only time we smoke one is when overseas, where we always buy a Cuban cigar and smoke it out of principle, in protest of the stupid Cold War embargo.
But there’s a certain Right-minded sort that brandishes the biggest and brashest smelling stogie, wearing it like an aggressively cocked hat.
We don’t know how the tilt of the Spanish prime minister’s cigar, but it’s got some folks righteously riled.
From the Irish Independent:
Pictures of Prime Minister Mariano Rajoy enjoying a cigar on New York’s Sixth Avenue were splashed across Spanish newspapers on Thursday as his government prepared to unveil unprecedented austerity measures.
The conservative leader’s conspicuous taste for the finer things in life jarred as he asks Spaniards to accept yet more painful sacrifices to restore public finances.
Some Spaniards said on Twitter the photo of Rajoy outside Radio City Music Hall reminded them of Marie-Antoinette, the queen beheaded during the French revolution after reportedly saying that people should eat cake if they had no bread.
A spokeswoman for Rajoy said the prime minister had been on an especially tight schedule in New York — meeting other leaders, addressing the United Nations and giving media interviews — and the short walk was his only breather.
But the image of him breathing cigar smoke recalled another incident that raised doubts about Rajoy’s sensitivity for public opinion.
Another Spanish region goes for a bailout
It’s now at the more where regional governments asking Madrid for a bailout outnumber those that haven’t.
From María Fabra of El País:
Castilla-La Mancha on Thursday became the fifth Spanish region to seek a bailout from the central government’s rescue fund, which faces a huge depletion in its resources before it has even been set up.
Regional premier María Dolores de Cospedal, who is also the secretary general of the ruling Popular Party, said Castilla-la Mancha needs 800 million euros from the Regional Liquidity Fund (FLA) to meet debt maturities.
Madrid is currently finalizing the establishment of the FLA with funding of 18 billion. The petition from Castilla-La Mancha brings total requests from the country’s cash-strapped regions to around 15.6 billion euros. Earlier this week, Andalusia said it would need close to five billion euros from the FLA. Catalonia has requested just over five billion, Valencia 4.5 billion and Murcia 300 million.
Of Spain’s 17 regions, only Madrid, Galicia and La Rioja have categorically ruled out availing themselves of the liquidity pot. The FLA will be funded by the Treasury, the state lottery company and commercial banks.
German president signs the fiscal pact
It took a decision by the country’s highest court to authorize it, but the German president has finally signed off on the European Stability Mechanism.
The politically controversial funding of the ESM led to a court case challenging the president’s power to sign off on a measure that arguably overrides the country’s constitution — and it’s still unpopular with many in Chancellor and More Europe zealot Angela Merkel’s own party.
From Agence France-Presse:
Germany’s president Thursday ratified the European Union’s 500-billion-euro ($643-billion) firewall to help struggling eurozone countries, paving the way for the fund to come into force on October 8.
Joachim Gauck’s office said in a statement he had “signed the documents with which the treaty … setting up the European Stability Mechanism (ESM) is ratified” bringing to an end a long legislative process in Europe’s top economy.
Earlier Thursday, the ambassadors of the eurozone countries signed a joint declaration, tweaking the text to take into account stipulations demanded by Germany’s top court.
Eurocrats bow to Germany’s bailout cap
The German constitutional court approved the European Stability Mechanism — the machinery designed to fund bailouts of troubled eurozone economies — but ruled that Germany’s contributions would have to be capped, rather than open-ended and subject to parliamentary approval.
Since Germany’s the most powerful regional economy and the biggest beneficiary of the creation of the eurozone, the decision effectively limits the country’s contributions to the €190 billion already pledged, absent another voe.
And given the increasing political controversy over the fund and opposition from both the Bundesbank and members of Chancellor Angela Merkel’s own party, the decision may end hopes of raising the fund to €2 trillion.
From Deutsche Presse-Agentur:
Eurozone members have agreed that commitments to the bloc’s permanent bailout fund cannot be hiked without states’ explicit agreement, in line with a German demand, EU diplomats said Thursday in Brussels.
The 17 eurozone ambassadors to Brussels had agreed Wednesday to the pledge that no member state could be forced into “payment obligations higher than (their) portion of the authorized capital stock” in the European Stability Mechanism (ESM), the diplomats said.
No further action is required on the agreement.
And on to Italy. . .
Italy may be dealt another hand of Three-card Monti
Though the Troika-installed prime minister had previously and frequently denied any intention of running for election when his appointment runs out next year, he’s suddenly singing another tune.
The technocrat so popular with the Troika has, as they say in American politics, dipped his oar in the water.
From Deutsche Presse Agentur:
Italian Prime Minister Mario Monti Thursday said for the first time he might be prepared to stay in office beyond elections next year, but only if “circumstances” require it.
Several commentators have foreseen such a scenario if neither the centre-left Partito Democratico nor the centre-right People of Liberty (PDL) party of former premier Silvio Berlusconi manage to lead a coalition into victory in the elections due by April.
“I hope there will be a clear result with a clear possibility for whatever majority to be formed and for a government led by a political leader,” Monti said while speaking at a Council on Foreign Relations event in New York.
“Should there be circumstances in which they were to believe that I could serve helpfully after that period of elections, I will be there, I will consider, I cannot preclude anything,” he added.
Irish deficit, debt increase again
The harsh reign of Troika-imposed austerity hasn’t produced the promised reductions in the two Ds, and one suspects there’s more cuts coming than thus far revealed.
From the Irish Independent:
The deficit in the State’s central fund increased by almost €7 billion last year to over €25 billion, the 2011 annual report of the Comptroller and Auditor General has found.
Receipts into the State’s central fund increased by €3 billion in 2011 to €35.6 billion.
However, money issued from the central fund increased by 19 per cent last year to €64.2 billion. This included repayment of almost €3.1 billion related to promissory notes issued to the Irish Bank Resolution Corporation and the Educational Building Society.
The report also found that the general Government debt stood at €169 billion, an increase of 17 per cent on 2010. There were also additional commitments of over €4 billion in public private partnership contracts.
The value of the National Pension Reserve fund decreased by 41 per cent last year to €13.4 billion.
Hollande crafts his own austerian budget
The French president belongs to one of Europe’s Bizarro World socialist parties, the sort in which the goal of government is transmuted by base alchemy from a mechanism to ensure that the opportunity for work in employee-owned factories, farms, and cooperative businesses, with housing, food, clothing, and the opportunities for recreation freely available to all to one in which worker empowerment is destroyed and the reins of control are handed over to the greediest and most rapacious.
Now the French president is introducing his first budget, a vigorously austerian document.
From Louise Armitstead of the London Telegraph:
President Francois Hollande faces a double test of confidence – by his electorate and the bondmarkets – as he unveils the toughest and most ambitious French Budget in three decades on Friday.
Mr Hollande, who has said the Budget will be “the most important fiscal effort in 30 years”, is expected to unleash €30bn (£23.9bn) of austerity cuts and tax hikes needed to cut France’s deficit to 3pc of GDP by next year.
Bond traders on Thursday were poised to dump French debt if Mr Hollande reneges on his promise. The handling of Europe’s second biggest economy, which is on the verge of recession and a public debt of almost 90pc of GDP, is being carefully watched around the world. The President is also under intense pressure at home to slow the pace of austerity for the sake of the fragile economy. Earlier this week, French unemployment rose by about 3m for the first time in 13 years.
Economist Nicholas Spiro said: “It’s the first big test of investor sentiment towards France since Mr Hollande became president in May. For the past four months, the bond markets have given the new Socialist government a free pass. The idiosyncrasies of France’s debt market – deep, liquid and relatively safe enough to act as a “second-best” alternative to even richer German paper – have trumped concerns about the country’s deteriorating economy. The question is whether doubts about the credibility of French fiscal and economic policy in the coming weeks and months will be the trigger for a reassessment of France.”
Hollande sets huddle with Nordic pols
With the crisis deepening the French president is hustling for consensus on bailouts and the scheme to create the More Europe banking regulatory machine that will take banking oversight out of the hands of national governments.
He’ll spend part of next week looking to bolster support in two countries where support is weak.
From Agence France-Presse:
French President Francois Hollande will meet Swedish Prime Minister Fredrik Reinfeldt in Paris on Monday and his Finnish counterpart Jyrki Katainen on Tuesday, the Nordic governments said on Thursday.
The discussions between Reinfeldt and Hollande “will focus on the economic situation in Europe and other issues relating to the EU, like the proposed banking union and the EU’s next long-term budget,” the Swedish government said.
France is an ardent supporter of plans for a European banking union, while Sweden is among its opponents. On September 15, Swedish Finance Minister Anders Borg described a European Commission proposal for a banking union as “totally unacceptable”.
Reinfeldt will also be meeting with French Prime Minister Jean-Marc Ayrault in Paris.
The following day, Hollande and Katainen will discuss “the stability and the current economic situation of the euro area, the development of the European Monetary Union and the EU’s internal market and its development,” the Finnish government said.
The Finnish leader, a staunch supporter of the euro, heads a six-party coalition government in which some parties have taken a hawkish stance against helping the eurozone’s troubled members.
German jobless numbers, the good/bad news
While at first glance the latest German unemployment news looks good, there’s a deeper meaning, and one that bodes ill for the near-term future.
From Deutsche Welle:
A seasonal pick-up in economic activity has reduced the number of jobless people in Germany to 2,788,000 in September. However, the jobs motor of Europe’s biggest economy is sputtering on the back of the eurozone crisis.
The number of Germans unemployed in September dropped by 117,000 compared with the previous month, to reach a total of 2,788,000, according to latest figures released by the German Labor Agency on Thursday.
The jobless rate came in at 6.5 percent – down 0.3 percent compared with August. Year on year, some 7,000 fewer Germans were in search of jobs this month.
However German Labor Agency chief Frank-Jürgen Weise noted that much of the decline was due to a routine autumn upswing in the economy, and that the pace of job creation was slowing month by month.
As a result, figures adjusted for seasonal factors such as holidays, tourism activity and the number of school leavers, actually showed an increase in unemployment by 9,000 people compared with August.