NEWS,04.10.2012

Spain central bank undercuts budget as rescue looms

Spain's central bank chief undercut the government's proposed 2013 budget today, saying it was based on over-rosy forecasts for economic growth and tax revenue.Speaking to a parliamentary budget committee, newly-appointed Central Bank Governor Luis Maria Linde delivered a blunt message as Prime Minister Mariano Rajoy weighs when to seek an international bailout."This outlook ... is certainly optimistic in comparison with the outlook shared by the majority of international organisations and analysts," he said.Linde said the government, which has already hiked taxes and cut tens of billions of euros in costs, should consider further steps this year to meet next year's deficit target of 4.5% of gross domestic product agreed with the European Union.Expectations that Rajoy will request a euro zone rescue package before the end of the year lowered Spain's borrowing costs at a Treasury auction on Thursday of 4 billion euros in government bonds.The yield on bonds due in 2014 dropped significantly to 3.282% from 5.204% when it was last sold in July.But market pressure could return if Rajoy drags his feet on seeking a bailout or is held back by German reluctance to put more assistance for Spain to its parliament.The European Central Bank has pledged to support Spain by buying its short-term debt on the open market, but only once Madrid signs up to the conditions attached to European aid."Markets are giving Spain the benefit of the doubt in anticipation of a rescue. Foreign investors need to see some sort of conditional backstop in place before seriously thinking about buying Spanish debt again," said Sassan Ghahramani, head of New York-based hedge fund consultancy SGH Macro.The euro zone is considering aiding Spain by providing insurance for investors who buy government bonds in a move designed to maintain Spanish access to capital markets, shaping a rescue differently than the previous full bailouts of Greece, Ireland and Portugal.The bond gaurantee scheme, which is under consideration and has not been decided yet, would achieve two important aims. Spain would be rescued without draining Europe's entire bailout fund and there would be no contagion to Italy.ECB head Mario Draghi praised Spain's fiscal consolidation and economic reforms but reiterated that countries would have to make a formal application and sign up to strict conditions to benefit from the bank's bond-buying programme.Central banker warns A rescue looks increasingly on the cards, as a prolonged recession complicates efforts to cut government spending.Tens of thousands of protesters gathered near parliament in Madrid on three nights last week, demonstrating against the austerity measures and demanding changes in government.Anger over costly rescue plans for banks has increased with one in four workers jobless. The shrinking economy has eaten into tax revenue and also pushed up unemployment benefit costs.Much of the savings from aggressive cost-cutting have gone to servicing debt due to high borrowing costs.Linde said most independent forecasters expect a 1.5% economic contraction in Spain next year, rather than the 0.5% fall on which the government based its calculations.Rajoy sent a tough budget to parliament on Saturday with 13 billion euros in savings from spending cuts and tax increases.The budget included a 1% increase in state pensions next year but Rajoy has not yet said whether he will maintain an inflation-pegged rise in pension payments as well.Linde said an inflation adjustment to pensions would be so costly as to endanger budget execution.The government is also taking on additional debt - some of it from European rescue funds - to bail out troubled banks and cash-strapped regional governments.The central bank chief also urged ministers to make a prudent forecast for revenue next year, saying the tax-take outlook in the 2013 budget was subject to downside risks.Fitch ratings agency also flagged the budget as unrealistic but said it would not downgrade Spanish bonds to junk status if the country sought a bailout and unlocked ECB bond-buying."Some of the assumptions certainly are optimistic in terms of the Spanish budget, nonetheless we do think that they're putting in place a programme which is consistent with giving support. And we'll give some tine to see how that will evolve," Fitch's head of sovereign ratings David Riley said in an interview with Reuters on Thursday.Fellow credit watchdog Moody's is due to decide this month whether to downgrade Spain's sovereign rating to junk.The yield on Spain's benchmark 10-year bond traded slightly higher on Thursday at 5.8% . In July, before Draghi announced the ECB's bond-buying programme, the Spanish 10-year yield spiked above 7%, a level seen as unsustainable.

Russia dismisses talk of new spy scandal with US

Russia said today that the Kremlin had nothing to do with a network alleged by the United States to be smuggling military technology to Moscow.The US Justice Department said on Wednesday it had broken up an elaborate network aimed at illegally acquiring US-made microelectronic components for Russian military and spy agencies.It charged 11 people with taking part.The Russian Foreign Ministry expressed surprise at the allegations."The charges are of a criminal nature and have nothing to do with intelligence activity," Deputy Foreign Minister Sergei Ryabkov told Russian news agencies.The situation had caused deep concern in Russia, whose relations with its former Cold War enemy are difficult despite President Barack Obama's call for a new start.Authorities were questioning the Russian nationals who were among the accused, Ryabkov said.Foreign Ministry spokesman Alexander Lukashevich said Washington had informed Moscow that the charges were criminal and unrelated to espionage."We will look into this situation and what really happened, and what charges are being imposed on our citizens," he said.US authorities had "not properly informed" Russia of the arrest of its citizens and Russian diplomats were seeking access to them, he added. A consul had met one in a courtroom, he said.Foreign Minister Sergei Lavrov said in an interview this week that Moscow and Washington must do more to strengthen relations because the "reset" called for by Obama could not last forever.Republican candidate Mitt Romney has accused Obama of being soft on Moscow during his four-year term and described Russia as the United States' "number one geopolitical foe".In a case in 2010 that harked back to the Cold War, the United States arrested 10 suspected Russian agents who were later sent back to Russia in the biggest spy swap since the Soviet era.Security experts puzzled The US Justice Department said 11 people, and companies based in Houston, Texas and Moscow, had been accused on Wednesday of illegally exporting high-tech components to Russian security agencies.The US companies from whom the components were bought were not identified.A US official said Alexander Fishenko, a Kazakhstan native who immigrated to the United States in 1994 and has frequently travelled to Russia, had been charged with operating in the United States as an unregistered agent of the Russian government.He was being held in custody with seven others in Houston.The Justice Department said the three others were in Russia including Sergei Klinov, identified as CEO of Apex System, which it said served as a certified supplier of military equipment to Russia's government, working through subsidiaries.Klinov, reached by telephone in his office in Moscow, said he had learned about the accusations from media reports."Honestly, I am very upset. I just don't know what to say. Everyone has his own truth and it is somewhere in the middle,".Asked whether he worked either for the security services or for the Defence Ministry, he said: "I am floored by this. I don't know what I'm supposed to say."Russia's Federal Security Service, successor of the KGB, and the Defence Ministry denied immediate comment.Another person facing accusations was named as Yuri Savin and described as the marketing director of Russia-based company Atrilor. The company denied having an employee of that name.Asked about the allegations, a Russian security expert said such practices has not been unusual in Soviet times.

US: Secret chemical tests raise concerns

Doris Spates was a baby when her father died inexplicably in 1955. She has watched four siblings die of cancer, and she survived cervical cancer.After learning that the US army conducted secret chemical testing in her impoverished St Louis neighbourhood at the height of the Cold War, she wonders if her own government is to blame.In the mid-1950s, and again a decade later, the army used motorised blowers atop a low-income housing high-rise, at schools and from the backs of vehicles to send a potentially dangerous compound into the already-hazy air in predominantly black areas of St Louis.Local officials were told at the time that the government was testing a smoke screen that could shield St Louis from aerial observation in case the Russians attacked.But in 1994, the government said the tests were part of a biological weapons programme and St Louis was chosen because it bore some resemblance to Russian cities that the US might attack. The material being sprayed was zinc cadmium sulfide, a fine fluorescent powder.Now, new research is raising greater concern about the implications of those tests. St Louis Community College-Meramec sociology professor Lisa Martino-Taylor's research has raised the possibility that the army performed radiation testing by mixing radioactive particles with the zinc cadmium sulfide, though she concedes there is no direct proof.But her report, released late last month, was troubling enough that both US senators from Missouri wrote to army Secretary John McHugh demanding answers.Aides to Senators Claire McCaskill and Roy Blunt said they have received no response. Army spokesperson Dave Foster declined an interview request from The Associated Press, saying the army would first respond to the senators.The area of the secret testing is described by the army in documents obtained by Martino-Taylor through a Freedom of Information Act request as "a densely populated slum district". About three-quarters of the residents were black.Spates, now 57 and retired, was born in 1955, delivered inside her family's apartment on the top floor of the since-demolished Pruitt-Igoe housing development in north St Louis. Her family didn't know that on the roof, the army was intentionally spewing hundreds of pounds of zinc cadmium sulfide into the air.Three months after her birth, her father died. Four of her 11 siblings succumbed to cancer at relatively young ages."I'm wondering if it got into our system," Spates said. "When I heard about the testing, I thought, 'Oh my God. If they did that, there's no telling what else they're hiding.'"Mary Helen Brindell wonders, too. Now 68, her family lived in a working-class mixed-race neighbourhood where spraying occurred.The army has admitted only to using blowers to spread the chemical, but Brindell recalled a summer day playing baseball with other kids in the street when a squadron of green army planes flew close to the ground and dropped a powdery substance. She went inside, washed it off her face and arms, then went back out to play.Over the years, Brindell has battled four types of cancer - breast, thyroid, skin and uterine."I feel betrayed," said Brindell, who is white. "How could they do this? We pointed our fingers during the Holocaust, and we do something like this?"Martino-Taylor said she wasn't aware of any lawsuits filed by anyone affected by the military tests. She also said there have been no payouts "or even an apology" from the government to those affected.The secret testing in St Louis was exposed to Congress in 1994, prompting a demand for a health study. A committee of the National Research Council determined in 1997 that the testing did not expose residents to harmful levels of the chemical. But the committee said research was sparse and the finding relied on limited data from animal testing.It also noted that high doses of cadmium over long periods of exposure could cause bone and kidney problems and lung cancer. The committee recommended that the army conduct follow-up studies "to determine whether inhaled zinc cadmium sulfide breaks down into toxic cadmium compounds, which can be absorbed into the blood to produce toxicity in the lungs and other organs".But it isn't clear if follow-up studies were ever performed. Martino-Taylor said she has gotten no answer from the army and her research has turned up no additional studies. Foster, the army spokesperson, declined comment.Martino-Taylor became involved years ago when a colleague who grew up in the targeted area wondered if the testing was the cause of her cancer. That same day, a second colleague confided to Martino-Taylor that she, too, lived in the test area and had cancer.Martino-Taylor decided to research the testing for her doctoral thesis at the University of Missouri. She believes the St Louis study was linked to the Manhattan Atomic Bomb Project and a small group of scientists from that project who were developing radiological weapons. A congressional study in 1993 confirmed radiological testing in Tennessee and parts of the West during the Cold War."There are strong lines of evidence that there was a radiological component to the St Louis study," Martino-Taylor said.Blunt, in his letter to the army secretary, questioned whether radioactive testing was performed."The idea that thousands of Missourians were unwillingly exposed to harmful materials in order to determine their health effects is absolutely shocking," the senator wrote.McCaskill agreed. "Given the nature of these experiments, it's not surprising that Missouri citizens still have questions and concerns about what exactly occurred and if there may have been any negative health effects," she said in a statement.Martino-Taylor said a follow-up health study should be performed in St Louis, but it must involve direct input from people who lived in the targeted areas."Their voices have not been heard," Martino-Taylor said.