NEWS,27.09.2012

Spain announces tough economic reforms

Spain announced a detailed timetable for economic reforms and a tough 2013 budget based mostly on spending cuts today in what many see as an effort to pre-empt the likely conditions of an international bailout.Government ministries saw their budgets slashed by 8.9% for next year, as Prime Minister Mariano Rajoy's battle to reduce one of the euro zone's biggest deficits was made harder by weak tax revenues in a prolonged recession.However, the conservative government said tax revenue would be higher in 2012 than it had been originally budgeted for and would grow 3.8% next year from this year.Spending cuts would be worth 0.77% of gross domestic product in 2013, while adjustment in revenue would be worth 0.56% of GDP."This is a crisis budget aimed at emerging from the crisis ... In this budget there is a larger adjustment of spending than revenue," Deputy Prime Minister Soraya Saenz de Santamaria told a news conference after a marathon six-hour cabinet meeting.Spain, the euro zone's fourth largest economy, is at the centre of the crisis. Investors fear that Madrid cannot control its finances and that Rajoy does not have the political will to take all the necessary but unpopular measures.Madrid is talking to Brussels about the terms of a possible European aid package that would trigger a European Central Bank bond-buying programme and ease Madrid's unsustainable borrowing costs.Economy Minister Luis de Guindos reiterated that the government was still analysing potential conditions for aid.Uncertainty over Spain's ability to control its economy, and especially the regional governments which make up around half of total spending, has been further rattled by rising demands for independence in the wealthy northeastern state of Catalonia.The deputy prime minister said today the region was not permitted to hold a referendum on independence before consulting with the rest of the country.Economic reform timetable Saenz de Santamaria said the government would detail 43 new laws to reform the economy over the next six months, including a reform of the pension system, one of the state's most expensive costs, before the end of the year.Spain's detailed timetable for economic reforms goes beyond what the European Commission has asked of Spain and is an ambitious step forward, the EU's top economic official said on Thursday in response to the government announcements."The reforms are clearly targeted at some of the most pressing policy challenges," EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.Market reaction was cautious."The first impression (of the announcements) are good, heading towards a major adjustment in spending rather than in revenues," said Jose Luis Martinez of Citigroup, in Madrid."However, we see as too optimistic the macroeconomic assumption of 0.5% recession for the next year. We see a scenario with a deeper recession and if this were the case, further spending cuts will be needed".De Guindos' statement that the 2012 budget deficit target would be met this year due to a solid increase in revenues will also be viewed with suspicion with many economists expecting the government to miss its deficit target of 6.3 percent of GDP.The measures continue to heap pressure on the crisis-weary population and are likely to fuel further street protests, which have become increasingly violent as tensions rise and police are given the green light to use force to disperse crowds.

EU wants $12bn US sanctions in Boeing row

The European Union has asked the World Trade Organisation (WTO) for the right to impose annual trade sanctions worth up to $12bn on the United States in retaliation for illegal US subsidies to planemaker Boeing.The EU request is the latest legal move in the world’s biggest trade dispute. The wrangling over subsidies given to Boeing and its European rival Airbus stretches back more than seven years.“This follows the EU’s assessment that the United States had not lived up to its obligation to remove its illegal subsidies in the aircraft sector, as required by the WTO rulings that clearly condemned US subsidies to Boeing,” the EU said in a statement.The figure of $12bn was “based on estimates of the damage suffered by the EU due to unfair and biased competition from the US industry”, it added. Airbus, which is owned by aerospace group EADS, said the figure was justified by the WTO’s finding that the effect of the “particularly pervasive” subsidies was significantly larger than their face value. It also said that the launch of Boeing’s 787 aircraft would not have been possible without illegal subsidies.“It is the largest WTO penalty ever requested and it follows the worst loss a party has seen in the history of the WTO,” Airbus said in a statement.In two parallel legal disputes, the WTO has ruled that both companies have received billions of dollars in illegal subsidies to support their large civil aircraft programmes. In Boeing’s case, the deadline for the United States to comply with the WTO ruling was last Sunday, but the EU has rejected US assurances that the handouts have stopped.  The European demand for sanctions mirrors a US claim to the right to impose up to $10bn of sanctions on the EU.  Both claims are effectively frozen until other legal avenues have been exhausted, and many experts expect the two sides will settle the dispute outside the courtroom rather than let the tit-for-tat litigation drag on for years.“We regret that Boeing continues a legal battle that should have long been resolved by a mutual agreement. We made offers time and again but are ready to fight it through if the other side wishes to do so,” Airbus spokesperson Maggie Bergsma said.There was no immediate reaction from the US Trade Representative’s office. However, US ambassador to the WTO Michael Punke, speaking to reporters in Geneva on Wednesday, said the EU was much more at fault than the United States.“Here is the key figure to keep in mind, for those who are keeping score at home on the Boeing-Airbus discussion: through the WTO dispute resolution process there have been identified $19bn of illegal financing by Airbus. The equivalent number that has been identified for Boeing is $3bn to $4bn. So that’s the starting point for our discussion,” Punke said.“Beyond that, it is very much our contention that many of the types of subsidies that have been identified in the European context are very much still at play, including, for example, in the launch of the (Airbus) A350 and the A380.” 

EU plans airline industry shake-up

The EU will get tougher rules to ensure fair competition and protect its airline companies as it seeks to boost an industry vital to the wider economy, the European Commission said on Thursday."Archaic ownership and control restrictions" must also go as part of an international effort so as to ensure airlines get easier access to needed new capital, EU Transport Commissioner Siim Kallas said in a statement.The European Union would negotiate "new and more effective EU instruments to protect European interests against unfair practices," he said.Standard "fair competition clauses" would be included in current bilateral air services agreements between EU and non-EU countries, he added.Most countries apply control restrictions - foreign ownership in US airlines is limited to 25% and in the EU 49% - but these deny carriers access to new capital and prevent consolidation, Kallas said, adding: "It is now time to address this issue more vigorously."Kallas said European aviation had suffered badly in the economic downturn and it needed a shake-up to make it more competitive given the rise of fast growing airlines in Asia and the Middle East targetting a global market."We urgently need a step change. Faced with the dramatic changes in global aviation, Europe must respond and adapt rapidly or be left behind," he said.To help carriers access to new markets, the commissioner said he wanted to negotiate EU-level air service agreements with countries such as China, Russia, the Gulf States, Japan, India and southeast Asian countries.In addition, accords were needed with neighbouring countries such as Ukraine, Azerbaijan, Tunisia, Turkey and Egypt, Kallas said, claiming the agreements would produce annual benefits of €12bn.