NEWS,25.09.2012

Spain prepares further austerity measures

Protesters clashed with police in Spain's capital today as the government prepares a new round of unpopular austerity measures for the 2013 budget that will be announced tomorrow. Thousands gathered in Neptune plaza where they planned to form a human chain around parliament, surrounded by barricades, police trucks and more than 1500 police in riot gear.Television images showed the police beating some protesters with truncheons, in a brief, tense stand-off one block from parliament as police trucks tried to divide the crowd in two.The protest, promoted over the Internet by different activist groups, was younger and more rowdy than recent marches called by labour unions. Protesters said they were fed up with cuts to public salaries and health and education."My annual salary has dropped by 8000 euros and if it falls much further I won't be able to make ends meet," said Luis Rodriguez, 36, a firefighter who joined the protest. He said he is considering leaving Spain to find a better quality of life.With this year's budget deficit target looking untenable, the conservative government is now looking at such things as cuts in inflation-linked pensions, taxes on stock transactions, "green taxes" on emissions or eliminating tax breaks.The 2013 budget is the second one conservative Prime Minister Mariano Rajoy has had to pass since he took office in December. Spain must persuade its European partners that it can cut the budget shortfall by more than 60 billion euros by 2014.Rajoy has already passed spending cuts and tax hikes worth slightly more than that over the next two years, but half-year figures show the 2012 deficit target slipping from view as tax income forecasts will not be hit due to economic contraction.Spain is at the centre of the euro zone debt crisis on concerns the government cannot control its finances and those of highly indebted regions, bitten by a second recession since 2009 which has put one in four workers out of a job.Running out of options Half-year deficit data indicate national accounts are already on a slope that will drive Spain into a bailout. The deficit to end-June stands at over 4.3% of gross domestic product, including transfers to bailed out banks, making meeting the 6.3 percent target by the end of the year almost impossible.Yesterday, the treasury ministry said the central government deficit to end-August had reached 4.77% of GDP, already above its year-end target of 4.5% of GDP."Its going to be difficult keeping the deficit to around 2% in the second half, when the first half was closer to 4%, especially since traditionally, the second half deficit is higher than the first," said Juan Ignacio Conde-Ruiz, economist at Madrid's Complutense University.For 2012, the measures aim to reap savings of over 13 billion euros, but economists see the deficit missing the target by almost 1 percentage points implies further saving needs of up to 10 billion euros for this year alone.Rajoy has been careful to highlight the importance of next year's deficit target of 4.5% of GDP though any shortfall this year will weigh on 2013's accounts.After slashing civil servants' wages, raising value added tax by 3 percentage points - the main VAT has gone from 16% to 21% since 2010 - and cutting health and education spending, Rajoy is running out of options.More than 60% of government spending goes to pensions, unemployment benefits and servicing debt, making further cuts on the revenue side difficult without hitting 6 million jobless people.

Spain's parliament on protest alert

Spain's parliament took on the appearance of a heavily guarded fortress on Tuesday, hours ahead of a protest against the conservative government's handling of the economic crisis.The demonstration, organised behind the slogan "Occupy Congress", is expected to draw thousands of people from around Spain and was due to start around 17:30 GMT.Madrid's regional interior ministry delegation said some 1 300 police would be deployed though protesters say they have no intention of storming the chamber, only of marching around it.They are calling for fresh elections, claiming the government's austerity measures show the ruling Popular Party misled voters to get elected last November.The protest comes as Spain struggles in its second recession in three years and with unemployment near 25%.Spain has introduced austerity measures and economic reforms in a bid to convince its euro partners and investors that it is serious about reducing its bloated deficit to 6.3% of gross domestic product in 2012 to 4.5% next year.Concerns over the country's public finances was evident earlier when the Treasury sold €3.98bn in short-term debt but at a higher cost.It sold €1.39bn in three-month bills at an average interest rate of 1.2%, up from 0.95% in the last such auction on August 28, and €2.58bn in six-month bills on a yield of 2.21%, up from 2.03%.The government is expected to present a new batch of reforms on Thursday as it unveils a draft budget for 2013. A day later the results of bank stress tests carried out by an international auditing company are to be released.Spain has already been granted a €100bn loan by its 16 partner nations using the euro currency to help bail out those of its banks worst hit by the collapse of the country's real estate sector in 2008.Spain has yet to tap the fund and initial estimates say the banks will need some €60bn.

China and Japan (and U.S.) Island Dispute: It's All About Oil

The dispute over the territory known as the Senkaku Islands in Japan (and the U.S.) and as the Diaoyu Islands in China has all the makings of a Tom Clancy thriller. The 73-year-old Japanese Finance Minister, Tadahiro Matsushita was found hanged  not death by seppuku  in his home on suicide prevention day. The newly appointed Ambassador to China for Japan was found dead on a street in Japan at age 60 before he could take up his duties in China. The wife of Bo Xilai, a top contender for the top seat in the Chinese Politboro, is in prison facing a death sentence for the murder of a British businessman. The murder was revealed when one of his top aides, now sentenced to 15 years in prison, tried to defect to the United States and revealed his role in the cover-up. Governor of Tokyo, Shintaro Ishihara (79) and author of the controversial late 1980s book The Japan That Can Say No: Why Japan Will Be the First Among Equals (irreverently known as "get lost America, we can covertly rearm, develop nuclear capabilities, close U.S. bases, and handle our own defense") inflamed relations between China and Japan by engineering the government's purchase of the Senkaku Islands from a private Japanese citizen. Isihara's son Nobuteru (55) is the one of the candidates for leadership of Japan's Liberal Democratic Party, and if the party wins the election, he could possibly become Prime Minister of Japan if he can win out over Ishiba and Abe, the former Prime Minister of Japan.The car of the U.S. Ambassador to China was swarmed by protesters, and the melee was quickly broken up by Chinese security forces.U.S. Presidential candidates are silent on Asian tensions, seemingly engrossed in an adolescent battle of embarrassing sound bites.Riots have broken out in China over the disputed Islands, even though the islands were never under Chinese rule. The Japanese believe the islands belong to Japan. The Japanese Defense Minister takes comfort from U.S. Assistant Secretary of State Kurt Campbell's acknowledgement that the islands fall under the umbrella of the U.S.'s security pact with Japan.All this is happening when there's a power vacuum in China (between elections), a power vacuum in Japan (same reason), and a power vacuum in the U.S. (our elections are in November).Oil Islands As it happens, it appears that the dispute is really all about the right to explore for potential oil reserves around the islands' waters. The Japanese Finance Minister had prostate cancer and was investigating insider trading. He may or may not have had a say in whether the government should buy the islands. But his alleged suicide seemed to stem from an extra-marital affair he had with a 70 year-old Ginza bar hostess. She was retired, asked him for money, and when he refused, she sold her story to the tabloids.The death of the newly appointed ambassador to China for Japan appears for now to be just a sad coincidence of timing.China's Bo Xilai scandal is a tawdry story of corruption and greed.Sentiment within Japan's business community seems to be (based on my limited and unscientific sampling) that provoking war with China is insane, and the purchase of the islands was an unnecessary irritant. Yet the Japanese government provoked tensions with the purchase of the Islands, and the political spin in China is that this is about national integrity rather than oil exploration rights. If the Chinese invade the islands, Japan will likely fight for them, and the U.S. would be dragged into the conflict.If there is a conflict, it won't matter whether you call them the Senkaku Islands or the Diaoyo Islands. The important thing to remember is that everyone hopes they are the Oil islands.