NEWS,23.1.2013

Emerging world challenges multinationals

The battle in emerging markets is heating up as competition between multinational companies and firms from the developing world increases, a report said.According to a report published by the Boston Consulting Group found that a new generation of global challengers consisting of 100 fast-growing and fast-globalising companies from the developing world, is on track to becoming global leaders in their respective industries. To keep up, Western conglomerates will have to know when to compete and when to work together with the new kids on the block. The report said the global challengers were not "mere curiosities operating in distant regions" but rather were "full-fledge competitors that would shape the global economy in the next decade".  These global challengers includ South African media giant Alibaba, China's largest e-commerce company; Trina Solar, the fourth-largest solar panel manufacturer in the world; Indian carmaker Tata Motors and software group Infosys; Russian firms Lukoil and Gazprom as well as Chile's Latam Airlines.  "If ever there was a wake-up call for business leaders in the West, this is it," David C Michael, coauthor of the report, was quoted as saying. "We have been monitoring the rise of global challenger companies for nearly a decade, and the ambition of these companies - what we call the accelerator mindset - has never been stronger," said Michael.  The report goes on to say that global challengers already outpace their competitors from the developed world in growth, job creation and productivity.  Their average revenue was $26.5bn in 2011, compared with $21bn for the S&P 500 nonfinancial companies.  In addition, in the last five years global challengers added 1.4 million jobs, while employment at nonfinancial S&P 500 companies remained flat, the report said.  Chinese and Indian companies dominate the list of global challengers but companies from Egypt, South Africa, Saudi Arabia and Qatar are fast catching up, with the span of industries also widening.  The rise of emerging market companies presents opportunities that could be mutually beneficial to both sides, the report said.

Davos heads seek trillions in new revenue

Business leaders in Davos have plenty to worry about, from the eurozone to global geopolitical upheavals, but at heart their problem is simple: how to find new revenue in a low-growth world.Half a decade on from the financial crisis, investors want to see earnings driven by more than just cost cutting. Their focus now is on a return to sales growth, which presents the world's largest corporations with a $5 trillion challenge.That is the amount of extra revenue the 1 200 top global companies need to find each year simply to meet analysts' expectations, according to consulting firm Accenture. "The trouble is that stock markets' expectations of the ability of companies to grow far exceeds the underlying macroeconomic growth rates," said Mark Spelman, Accenture's global head of strategy. "So companies need to get beyond just thinking about emerging markets and rising middle classes and start to look at those segments where you are seeing significant consumer change, because there is a lot of latent growth in those segments." Increasingly, companies are seeking specific pockets of opportunity for sales growth. They remain cautious about major new investments, however, with confidence among managers in the near-term outlook for their businesses still weak. The annual PricewaterhouseCoopers survey of more than 1 300 chief executives worldwide found only 36% were "very confident" of their firm's prospects for revenue growth in the next 12 months, down from 40% a year ago.    The mismatch between the sputtering global market for goods and services predicted by macroeconomists and the lofty numbers forecast by analysts following individual companies is striking. In all regions, analysts' forecasts for company revenue growth are well above prevailing views on underlying economies. While the World Bank last week cut its 2013 global growth forecast to 2.4% - and just 1.3% in advanced economies - analysts see company revenues expanding by 7.8% in Asia outside Japan, 3.8% in the United States and 2.4 in the eurozone, according Thomson Reuters data. And consensus forecasts call for 2014 sales to pick up even further, especially in the US, where a recovery, it is hoped, could be spurred by rapid growth in shale oil and gas supplies. Companies in the middle of the current hoped-for recovery are wary, as reflected in results from two of Europe's biggest manufacturers on Wednesday. Siemens warned that industrial demand was weakening, while Unilever said economic conditions were "tough", though it had countered this by faster innovation in its products.  Longer term, CEOs are more optimistic, but there are bound to be questions over delivery, given that only around a tenth of companies in the S&P Global 1200 index have seen revenue growth outstrip economic growth in each of the past three years. In the fight to buck the slow-growth trend, nimbleness is key as companies move away from broad-based bets to more targeted strategies that they hope will win market share. "Uncertainty is itself becoming more of a certainty," said Jonas Prising, who heads Manpower's operations in the Americas and southern Europe. "In this new environment, strategic flexibility becomes all important."    Mergers and acquisitions would be one way for corporations to buy growth but CEOs remain reluctant to undertake large-scale deals, despite cheap credit and relatively low valuations. In fact, the focus of CEOs on M&A is at the lowest level in six years, according to the executives surveyed by PwC. "M&A activity is going to be very focused, very targeted and certainly nowhere near the levels that we saw over the past several years," said PwC International chairperson Dennis Nally. The calamitous nature of some bold deals from the recent past, such as those of miner Rio Tinto, whose CEO was sacked last week, will do nothing to encourage boldness by other business leaders. An important focus for companies now is on smarter ways to serve sections of their existing markets, while placing selective bets on new openings. For many, this involves embracing digital technology to keep pace with changes in how consumers buy goods and services - from shifting more resources to online sales to greater use of new tools to analyse behaviour. But new opportunities come in many guises. Luxury goods companies, for example, are aggressively growing their retail networks, especially flagship stores, particularly in growth markets, while companies in many sectors are chasing new service contracts that can lock in profits for years. Geography, too, remains a vital lever for managers to pull as they chase new sales. For Spanish companies struggling with a dire home market, Latin America has become a prime target because of their language advantage, helping the likes of telecoms giant Telefonica. Others are betting that the US market will indeed surge back this year, including German carmaker BMW and fashion house Hugo Boss. With $5 trillion to find, the world's business leaders can afford to leave no stone unturned.  

Swiss aims to ban 'mercenary' firms

The Swiss government said on Wednesday it aims to ban any companies offering mercenary services in conflict areas, in a bid to preserve Switzerland's cherished neutrality and ensure it respects international law. "The Federal Council wants to ban from Switzerland companies offering mercenary services," it said in a statement."The new law would make it illegal for security companies based in Switzerland to directly participate in hostilities within the context of an armed conflict abroad," it added.In the proposed law, which will need parliamentary approval before it can take effect, all companies headquartered in Switzerland would be required to declare all their security-linked activities abroad, the government said.This would allow Swiss authorities to determine whether the activities fell within the law or whether they should be banned, it said.The new rule would apply not only to companies that offer security services in Switzerland and abroad but also holding structures of firms that only do their business overseas."Security companies will not be permitted to carry out activities susceptible to enabling serious human rights violations," the government said, adding that firms would for instance be blocked from running prisons in countries known to use torture.The Swiss government had said it was necessary to regulate private security firms after Britain's Aegis Group Holdings, one of the world's biggest security companies operating in crisis or conflict zones, moved its headquarters to Basel in 2010.Around 20 security companies in Switzerland offer similar services.It will likely take another two to three years before the new law passes through both houses of the Swiss parliament, and it could take another year or so after that before it goes into effect, government spokesperson Luzius Mader told AFP.

NEWS,16.05.2012.

Judge to lead Greece in emergency Government

 

 Greece put a senior judge in charge of an emergency Government yesterday to lead it to new elections on June 17.In a sharp blow to confidence, sources at the European Central Bank it had halted liquidity operations with some Greek banks because their capital had been too far depleted.The move would mean those banks are no longer able to park assets at the ECB in return for cash, and would have to seek costlier emergency financing from the Bank of Greece.It was not clear which banks, or how many of them, were affected. One person familiar with the matter said the capital of four Greek banks was so depleted they were operating with negative equity capital.Greeks have been withdrawing hundreds of millions of euros (dollars) from banks in recent days as the prospect of the country being forced out of the European Union's common currency zone seems ever more real - although there has so far been no sign of a run on bank branches in Athens.European leaders who once denied vociferously that they were fretting over Greece leaving their currency union have given up pretence.Asked if he was concerned about a Greek exit, European Central Bank chief Mario Draghi said simply: "No comment".Political leaders failed to form a government following an inconclusive parliamentary election on May 6, leaving the state with its coffers almost empty and no elected cabinet in place to satisfy lenders it deserves the money needed to stay afloat.President Karolos Papoulias, whose powers as head of state are limited, named supreme administrative court head Panagiotis Pikrammenos as caretaker prime minister.He will have no power to take political decisions, only to carry Greece into the vote.The parliament that was elected on May 6 will convene today and be immediately dissolved, a presidency source said.The interim leader is little known. State television said he was born in 1945 and studied law in Athens and Paris. A court source said he would name as few ministers as possible."Thank you for your trust, and I believe that I am worthy of this mission," Pikrammenos said at a meeting with the president. "This is purely a caretaker government. However, it escapes no one that our country is going through difficult times."He repeated a joke he said he had read in the press, that his own name, which translates as "sorrowful" in English, made him suited to be the last prime minister of a political era.Leftists lead A new poll confirmed what other surveys have shown: that radical leftists who reject a bailout agreed with the EU and IMF are poised for victory, and the two establishment parties that agreed the rescue are sinking further after an historic wipeout 10 days ago.The leftists argue they can tear up the bailout and keep the euro, but European leaders say if Greece fails to meet promises to them, lenders will pull the plug on financing, driving Athens to bankruptcy and a swift exit from the EU single currency.On Monday, according to an official account, the president told party chiefs that figures from the central bank headed by George Provopoulos showed savers had withdrawn up to 800 million euros ($1 billion) from banks."Mr. Provopoulos told me there was no panic, but there was great fear that could develop into a panic," the president was quoted as saying in minutes of a meeting that failed to yield agreement on a cabinet."Withdrawals and outflows by 4 pm when I called him exceeded 600 million euros and reached 700 million euros," he said. "He expects total outflows of about 800 million euros, including conversions into German Bunds and other such things."Several banking sources told Reuters similar amounts had also been withdrawn on Tuesday. Nevertheless, there was no sign of panic or queues at bank branches in Athens on Wednesday. Bankers dismissed suggestions that a bank run was looming.A senior executive at a large Greek bank: "There is no bank run, no queues or panic. The situation is better than I expected. The amount of deposit withdrawals the president mentioned referred to three days, not one."Still, some were taking no risks. A 60-year-old textiles store owner who gave his name only as Nasos said he had transferred 10,000 euros over the phone to a bank in fellow eurozone state Cyprus on Tuesday afternoon."Any way you see it, things are difficult. If they call elections on June 17 - then everyone will take their money out on the Friday." That June 17 date was later confirmed.Charles Dallara, chief negotiator for the body representing private sector holders of Greek bonds, said there had been "a pickup in deposit flight from Greece".Dallara, who as head of the International Institute of Finance spent months negotiating the largest ever sovereign debt restructuring, said a Greek exit from the euro zone would be "somewhere between catastrophic and Armageddon" for Europe.

Merkel, Hollande promise joint growth strategy

 

 New French President Francois Hollande and German Chancellor Angela Merkel have acknowledged differences over how to boost growth in recession-plagued Europe, but pledged to forge a joint approach in time for an EU summit next month.The Socialist Hollande jetted to Berlin yesterday only hours after being sworn in to meet Merkel, a conservative, for the first time, arriving over an hour late after his plane was hit by lightning and he was forced to return briefly to Paris.The meeting was being closely watched for signs the leaders of Europe's biggest economies will be able to move beyond a war of words over how to resolve the debt crisis that now threatens to tear apart the 13-year-old currency bloc.Hollande sharply criticised Merkel during his election campaign for insisting on tough austerity to bring down suffocating debt levels across the euro zone. She in turn had backed Hollande's rival, conservative incumbent Nicolas Sarkozy.Supported by others in southern Europe, Hollande has vowed to shift the focus to growth and reopen a tough new set of budget rules that Merkel and other EU leaders agreed to adopt earlier this year - a step considered taboo in Berlin."I said it during my election campaign and I say it again now as president that I want to renegotiate what has been agreed to include a growth dimension," Hollande told a joint news conference with Merkel at the Chancellery in the German capital.Merkel's five-year double act with Sarkozy earned the duo the moniker "Merkozy" for their close cooperation during Europe's debt crisis. The new Franco-German couple - referred to by some as "Merkollande" - took care to play down their differences on Tuesday, hoping to send a signal of unity at a time when speculation is growing that Greece may have to exit the euro zone and return to the drachma."Growth has to feed through to the people. And that's why I'm happy that we'll discuss different ideas on how to achieve growth," Merkel said.They said the goal was to present joint proposals at a European Union summit in late June.Growth pact Instead of reopening Merkel's "fiscal compact", they are expected to complement it with a new "growth pact".Berlin has already signalled it is open to several ideas favoured by Hollande, including more flexible use of EU structural aid, a bigger role for the European Investment Bank and the introduction of "project bonds" to foster investments in infrastructure like transportation and energy networks.But most economists agree that these steps will make little difference to countries like Greece, which is in its fifth year of recession and has seen unemployment surge to 22 percent.That means Germany is likely to come under pressure to take additional steps, like giving struggling euro countries more time to reduce their deficits, a step it has so far resisted for fear of spooking jittery financial markets.Although the reserved Merkel learned over time to work with the impulsive Sarkozy, her advisers often complained about his erratic behaviour and some believe she will ultimately form a closer bond with the more outwardly cautious Hollande.The two were born less than a month apart, grew up in religious households and both scorn the flashy styles of their more charismatic predecessors, Sarkozy and Gerhard Schroeder.Hollande noted that French and German leaders of different political stripes had a long history of working well together to promote the common European project, referring to Schroeder and Jacques Chirac, as well as to Helmut Kohl and Francois Mitterrand, and Helmut Schmidt and Valery Giscard d'Estaing.After the news conference, the two leaders dined on lamb schnitzel and asparagus on the eighth floor of the Chancellery, overlooking the Tiergarten park and the Reichstag parliament building. Aides said they had a broad conversation on topics ranging from economic and foreign policy to bilateral issues.Hollande later flew back to Paris. He is due in Washington later in the week to meet US President Barack Obama ahead of G8 and NATO summits at Camp David and Chicago.Hollande finds himself in the hot seat from day one. Earlier on Tuesday, Greece abandoned a nine-day hunt for a government and called a new election that could hand victory next month to leftists opposed to the terms of the country's EU/IMF bailout.A growing number of policymakers in Europe have warned over the past week that if Greece does not stick to the budget cuts and structural reforms agreed with its international lenders, it may have no future in the currency bloc.Both Merkel and Hollande said they wanted Athens to remain a part of the euro project and stood ready to explore ways to support the Greek economy so it could return to growth: "Like Mrs. Merkel, I want Greece to remain in the euro zone," Hollande said.

NEWS,23.02.2012.

America - China Strategy

Forty years ago, on a clear, cold afternoon in Beijing, I followed President Nixon onto the tarmac at Beijing's Capital Airport. I have a belated confession to make. When I tried to sleep on Air Force One on the way to Beijing, I was jolted awake by a nightmare. I dreamed that Generalissimo Chiang Kai-shek would be standing there with his old political sparring partner and secret pen pal, Zhou Enlai. In my dream, Chiang stepped forward to greet his former friend and political backer Richard Nixon with a loudly sarcastic "long time, no see!" As we pulled up to the shabby old structure that was then the only terminal at Beijing's airport, I peered anxiously out the window. Others were elated to see Premier Zhou emerge to greet us. I was merely relieved that he was there pretty much by himself. It’s almost impossible today to recall the weirdness of that moment, when an American president who had made a political career of reviling Chinese communism strode without apology into the capital of the People's Republic of China--a state and government the United States did not recognize--to meet with leaders that Chiang Kai-shek--whom we officially viewed as the legal president of all China--called "bandits at the head of a bogus regime." I had entered the foreign service of the United States and learned Chinese because I thought we would eventually have to find a way to recruit China geopolitically. I was thrilled to be the principal American interpreter as our president led an effort to do exactly that. My job was to help him and his secretary of state discuss with China's communists what to do about other, even more problematic communists.Last Tuesday, on the precise anniversary of that February 21, 1972, personal introduction to Beijing, I was back there--not to try to rearrange the world again but to make Chinese financiers aware of specific investment opportunities in the United States. In 1972, it was necessary for the leader of the capitalist world to save China from Soviet communism. In 2012, the world looks to China to save capitalism, and the world's capitalists flock to China in search of funds. How very much was changed by the forces Nixon and Mao put in motion that afternoon forty years ago.There is no more Soviet Union; the bipolar world it helped define is gone, as is the unipolar American moment its collapse created. The famous Shanghai Communiqué of 1972 opened with a long recitation of the irreconcilable differences between the United States and China on almost every major international question of the time. Encounters between Chinese and American leaders now produce far less dramatic laundry lists of relatively minor and entirely manageable frictions as well as grumbles, growls and whines about highly technical issues that lower-level officials in both countries need to work on.China has risen from poverty, impotence and isolation to retake its premodern place atop the world economic order. The People's Republic is now a major actor in global governance. It is fully integrated into every aspect of the international system it once sought to overthrow and, in some ways, more devoted to that system than we are. Forty years ago, China's backwardness and vulnerability were the wonder of the world. Now, the world envies and ponders the strategic implications of China's rapidly growing wealth and power.Reality, unlike ghosts in China, seldom travels in straight lines. But if current trends advance along current lines, as early as 2022 China will have an economy that is one-third to two-fifths larger than that of the United States. If China continues to spend roughly 2 percent of its GDP (or 11 percent of its central-government budget) on its military as it does now, ten years hence it will have a defense budget on a par with ours today. Even with the exchange-rate adjustments that will surely take place by 2022, $600 billion or so is likely to buy a lot more in China than it can here. And all that money will be concentrated on the defense of China and its periphery, whereas our military, under current assumptions, will remain configured to project our power simultaneously to every region of the globe, not just the Asia-Pacific region.What sort of relationship do we want with the emerging giant that is China? The choice is not entirely ours, of course. China will have a lot to say about it. To the extent we pay attention to the views of allies like Japan, so will they. But we do have choices, and their consequences are sufficiently portentous to suggest that they should be made after due reflection, rather than as the result of strategic inertia.Right now, the military-strategic choice we've made is clear. We are determined to try to sustain the global supremacy handed to us by Russia's involuntary default on its Cold War contest with us. In the Asia-Pacific region, this means "full-spectrum dominance" up to China's twelve-mile limit. In effect, having assumed the mission of defending the global commons against all comers, we have decided to treat the globe beyond the borders of Russia and China as an American sphere of influence in which we hold sway and all others defer to our views of what is and is not permissible. This is a pretty ambitious posture on our part. China's defense buildup is explicitly designed to counter it. China has made it clear that it will not tolerate the threat to its security represented by a foreign military presence at its gates when these foreign forces are engaged in activities designed to probe Chinese defenses and choreograph a way to penetrate them. There's no reason to assume that China is any less serious about this than we would be if faced with similarly provocative naval and air operations along our frontiers. So, quite aside from our on-again, off-again mutual posturing over the issue of Taiwan's relationship to the rest of China, we and the Chinese are currently headed for some sort of escalating military confrontation. At the same time, most Americans recognize that our own prosperity is closely linked to continued economic development in China. In recent years, China has been our fastest growing export market. It is also our largest source of manufactured imports, including many of the high-tech items we take pride in having designed but do not make. And we know we have to work with China to address the common problems of mankind.So our future prosperity has come to depend on economic interdependence with a nation we are also setting ourselves up to do battle with. And, at the same time, we hope to cooperate with that nation to assure good global governance. Pardon me if I perceive a contradiction or two in this China policy. It looks to me more like the vector of competing political impulses than the outcome of rational decisionmaking.Of course, no Washington audience can be the least surprised that capitol confusion, intellectual inertia and the prostitution of policy to special interests, rather than strategic reasoning, determine policy. Why should China be an exception to other issues? But even those of us long calloused by life within the Beltway ought to be able to see that we've got a problem. Our approach to managing our interactions with China does not compute.Actually, we have a much bigger problem than that presented by the challenge of dealing with a rising China. We cannot hope to sustain our global hegemony even in the short term without levels of expenditure we are unprepared to tax ourselves to support. Worse, the logic of the sort of universal sphere of influence we aspire to administer requires us to treat the growth of others' capabilities relative to our own as direct threats to our hegemony. This means we must match any and all improvements in foreign military power with additions to our own. It is why our military-related expenditures have grown to exceed those of the rest of the world combined. There is simply no way that such a militaristic approach to national security is affordable in the long term, no matter how much it may delight defense contractors.In this context, I fear that the so-called "pivot" to Asia will turn out be an unresourced bluff. It's impressive enough to encourage China to spend more on its military, but what it means, in practice, is that we will cut military commitments to Asia less than we cut commitments elsewhere. That is, we will do this if the Middle East comes to need less attention than we have been giving it. At best, the "pivot" promises more or less more of the same in the Indo-Pacific region. This would be a tough maneuver to bring off even if we had our act together both at home and in the Middle East. But we do not have our act together at home. Our position in West Asia and North Africa is not improving. And some Americans are currently actively advocating war with Iran, intervention in Syria, going after Pakistan, and other misguided military adventures in West and South Asia.So, what's the affordable alternative approach to sustaining stability in the Asia-Pacific region as China rises? My guess is that it's to be found in adjustments in our psychology. We need to get over World War II and the Cold War and focus on the realities of the present rather than the past.Japan initially defeated all other powers in the Asia-Pacific, including the United States. We then cleaned Japan's clock and filled the resulting strategic vacuum. We found our regional preeminence so gratifying that we didn't notice as the vacuum we had filled proceeded to disappear. Japan restored itself. Southeast Asians came together in the Second Indochina War. ASEAN incorporated Indochina and Myanmar. India rose from its post-colonial sick bed and strode forward. Indonesia did the same.But we have continued to behave as though there is an Asian-Pacific power vacuum only we can fill. And, as China's rise has begun to shift the strategic equilibrium in the region, we have stepped forward to restore it. We seem to think that, if we Americans don't provide it, there can be no balance or peace in Asia. But, quite aside from the fact that there was a balance and peace in the region long before the United States became a Pacific power, this overlooks the formidable capabilities of re-risen and rising powers like Japan, South Korea, India, Indonesia and Vietnam. It is a self-realizing strategic delusion that powers a self-licking ice-cream cone.If Americans step forward to balance China for everyone else in the region, the nations of the Indo-Pacific will hang back and let us take the lead. And if we put ourselves between them and China, they will not just rely on us to back their existing claims against China, they will up the ante. It cannot make sense to empower the Philippines, Vietnam and others to pick our fights with China for us.The bottom line is that the return of Japan, South Korea and China to wealth and power and the impressive development of other countries in the region should challenge us to rethink the entire structure of our defense posture in Asia. Unable to live by our wallets, we must learn to live by our wits. In my view, President Nixon's "Guam Doctrine" pointed the way. We need to find ways to ask Asians to do more in their own interest and their own defense. Our role should be to back them as our interests demand, not to pretend that we care more about their national-security interests or understand these better than they do, still less to push them aside to take on defense tasks on their behalf.We need to think very differently than we have done over the nearly seven decades since the end of World War II. To be sure, a less forward-leaning American approach to securing our interests in Asia would require painful adjustments in Japan's and South Korea's dependencies on us as well as in our relations with the member states of ASEAN and India and Pakistan. It would almost certainly require an even stronger alliance with Australia. Paradoxically, it would be more than a little unnerving for China, which has come to like most aspects, even if not everything, about the status quo.It is not in our interest to withdraw from Asia. But, more than six decades after we deployed to stabilize Cold War Asia, we should not be afraid to adapt our strategy and deployments to its new post-Cold War realities. Both the strategic circumstances of our times and the more limited resources available to us demand serious reformulation of current policies. These policies cannot effectively meet the evolving challenges of the world the Nixon visit to China--forty years ago this week--helped to create.

NEWS,28.01.2012.

 Spain demands new 'realism' from EU over austerity

Spain's prime minister, Mariano Rajoy, 

meets German chancellor Angela Merkel.Spanish unemployment breaks through the 5 million barrier, the new government of Mariano Rajoy has begun to put pressure on the European Union to ease Spain's deficit targets, which are sending the country hurtling back into recession.Rajoy's government is demanding greater "realism" from Brussels as it struggles to rein in a deficit that ended more than two percentage points, or €20bn, above its EU-set 6% target last year.EU officials are unlikely to greet his message with enthusiasm after continued wrangling in Athens over a deal with private creditors and a torrid day on the bond markets that pushed Portugal closer to needing a Greek-style rescue. Brussels indicated that talks in Greece would take at least another 48 hours.And on Friday, ratings agency Fitch downgraded five countries – Spain, Italy, Belgium, Cyprus and Slovenia – with Spain pushed down by two notches. The move came two weeks after Standard & Poor's downgraded nine eurozone countries, including France, which lost its coveted AAA status.Rajoy's attempt to strike a more relaxed deal on debt echoes that of Italy's new technocrat prime minister, Mario Monti, who has been telling German policymakers that austerity alone may not be the answer to the eurozone's problems.EU leaders will meet in Brussels on Monday: the agenda will include tweaking policies to promote jobs and growth. A draft of the summit statement obtained by the Guardian says: "Growth and employment will only resume if we pursue a consistent and broad-based approach, combining fiscal consolidation, sound macroeconomic policies as well as an active employment strategy. We will stay the course and emerge from this crisis stronger.” José Manuel Barroso, the European commission's president, said: "We cannot resort to fiscal stimulus to boost growth.” Spain, which already boasted Europe's worst unemployment rate, recorded a further 350,000 job losses in the last quarter of 2011.That rate now stands at 22.8% of the population and is set to worsen as Rajoy's conservative People's party government pursues a €40bn (£33bn) budget adjustment, most of it in spending cuts, to meet the EU's deficit target of 4.4% this year.Pressure for Brussels to review Spain's deficit came as bond investors began to abandon neighbouring Portugal, with 10-year bond yields soaring to 15%. Bonds expert Gary Jenkins of Swordfish said: "They may have crossed the Rubicon in the eyes of the market". He believes the talks between the Greek government and its bondholders might "become a template for Portugal in how to deal with their debt, which would not be good news for investors." S&P already rates Portugal's bonds as "junk", along with Greece's.With a record 5.3m unemployed, Spain is facing a spiral of decline. The IMF, led by a former euro-area finance minister, Christine Lagarde (pictured below), has already predicted that the economy will shrink by 1.7% this year, with a further decline in 2013.Further evidence that public austerity programmes were damaging the wider Spanish economy came from figures on company closures. Around 35,000 companies folded in the second half of the year – a third of all those to have shut since Spain's economy ran into trouble at the end of 2008.

While Rajoy, who met Germany's chancellor, Angel Merkel, in Berlin on Thursday, publicly maintains his target of reducing the deficit to 4.4% from more than 8% last year, his ministers are now letting it be known that they want substantial adjustments to Brussels's programme.Budget minister Cristóbal Montoro was explicit about the need for the EU to adjust its predictions – and, logically, its targets. "I am sure that no one, in Europe or anywhere else, is interested in including growth estimates that are not going to be met," he said, adding he was convinced change would come. That, he said, would help the government to be "realistic" about its options.The socialist opposition, meanwhile, is already complaining that Rajoy has not persuaded Brussels to relax the pressure. "The rope is tightening around our neck," said Carme Chacón, one of two candidates to succeed former prime minister José Luis Rodríguez Zapatero as party leader.Rajoy's government has already announced a combination of income tax rises and spending cuts that will bring a €15bn adjustment, but that is less than half of what is needed.