Spain Protests: Civil Servants Protest Wage Cuts
Spanish civil servants, many dressed
in mourning black, took to the streets Friday in angry protest as the
government approved new sweeping austerity measures that include wage cuts and
tax increases for a country struggling under a recession and an unemployment
rate of near 25 percent.Spain is under pressure to get its public finances on
track amid concerns in the markets over the state of the country's banks and
the wider economy."Spain is going through one of its most dramatic
moments," Deputy Prime Minister Saenz de Santamaria said after a Cabinet
meeting at which sales tax hikes and spending cuts were approved.Admitting that
the austerity measures were "neither simple, nor easy, nor popular,"
she said the government would try to enact the measures "with the maximum
justice and equity."The conservative government has come under mounting
criticism that the austerity measures are hitting the middle and working
classes the hardest."The government should go after the big companies that
don't pay tax and bankers that have committed fraud and have run this country
to the ground," said Pablo Gonzalez, 52, who works for the Madrid regional government.
"Instead, we have to pay."The aim of the latest package of measures
is to chop (EURO)65 billion ($79 billion) off the budget deficit through 2015,
the biggest deficit-reduction plan in recent Spanish history.Though the
increase in sales taxes, which risks slowing consumption and worsening Spain's
recession, will take effect Sept. 1, other reforms will be left for later in
the year, including a plan to speed up the gradual raising of the retirement
age from to 65 to 67.Meanwhile, Economy Minister Luis de Guindos announced the
creation of a new mechanism to help Spain's 17 regions finance themselves more
easily. Some, such as Valencia in the east, are finding it increasingly difficult to tap capital
markets for much-needed cash.The latest bout of austerity is prompting
widespread opposition, not least from civil servants. In Madrid, several hundred
government workers blocked traffic briefly in different parts of the city. In
Valencia, several hundred Justice Ministry workers shouted "hands up, this
is a stick-up" at a protest rally.The civil servants whose wages were cut 5 percent on average in
2010 in the first round of austerity cuts –are usually paid 14 times a year.
The government is now axing an extra payment made just before Christmas. The
prime minister, his cabinet and lawmakers will also suffer the cut. At the
local, regional and central level, there are around 3 million public servants
in Spain.In the Puerta del Sol in downtown Madrid, about 500 civil servants
gathered, about half dressed in black. Some women wore veils, as if at
funerals. Protesters blew whistles and horns. Civil servants are often
ridiculed in Spain and seen as lazy, clock-in and clock-out types with the luxury of
lifetime jobs. But many earn as little as (EURO)1,000 a month.Isabel Perez, a
40-year-old librarian, said "our wages have already been cut and now they
take away the Christmas payment. I don't make it to the end of the month as it
is. The extra payment gave some relief. We're not exactly millionaires."
She earns (EURO)1,300 a month and had already faced a yearly (EURO)330 euro
wage cut by the Madrid regional government.The latest austerity package has
come after Spain won approval from the other 16 countries that use the euro for
the first (EURO)30 billion tranche of a bailout of up to (EURO)100 billion for
its troubled banking sector. Spain also managed to
secure an extra year to meet a European deficit reduction target of 3 percent
of GDP. The size of Spain's economy in 2011 is estimated to have been $1.5
trillion.Investors' response has been lukewarm, and the yield on Spain's
benchmark 10-year bonds, a measure of investor wariness of a country's debt,
remains very high at 6.61 percent, up 4 basis points for the day.Investors are
also becoming increasingly wary of placing money in Spanish banks, which are
having to turn to the European Central Bank for financing.In June, Spanish bank
borrowing from the ECB rose 17 percent from May. The accrued total as of the
end of that month was (EURO)337 billion, 77 percent of all the money owed to
the ECB and seven times the figure from June 2011.A draft memorandum of
understanding agreed by eurozone finance ministers for Spain's bank bailout
suggests billions in problematic assets should be segregated into an
"external asset management agency" to clean up Spanish banks' balance
sheets.It also says that by the end of the year certain areas of jurisdiction sanctioning and licensing should be transferred from the Spanish economy
ministry to the Bank of Spain.This is seen as paving the way for Europe having
a single bank supervisory body that will oversee central banks and be empowered
to recapitalize Spanish and other troubled banks directly instead of via
debt-laden government.
Europe shows chocolate not recession-proof
An assumption that chocolate is a
recession-proof treat that consumers continue to buy despite the grim economic
outlook was proven wrong today by the sharpest fall on record in Europe's
quarterly cocoa grind - an indicator of demand.Analysts said worsening economic
conditions in the euro zone had prompted a sharp slowdown in European demand
for chocolate, and the outlook could deteriorate further if the crisis
deepens.The Brussels-based European Cocoa Association (ECA) reported that
Europe's second-quarter cocoa grind tumbled 17.8% from the same period last
year to 292,551 tonnes, far worse than even the most pessimistic predictions of
a fall of up to 12%."We think the current slowdown in grindings reflects
worsening economic conditions in the euro area. If contagion spreads to Spain
and Italy, this would have undoubtedly an impact on demand for indulgence
products like chocolate," said Francisco Redruello, senior food analyst at
Euromonitor International.In Switzerland, the world's top chocolate consumer,
domestic chocolate consumption dropped about 8% by volume in the first four
months of the year, said Franz Schmid, managing director of the association of
Swiss chocolate manufacturers Chocosuisse.Swiss chocolate exports - of which
around two thirds are destined for Europe - also fell about 12% in the January
to April period. Schmid said the strong Swiss franc also had hurt exports.In
Germany, one of the world's largest chocolate consumers, retail sales of
chocolate bars by tonnes fell 7.3% on the year in the first four months of
2012, according to the association of German confectionery producers
BDSI.Following the grindings data, benchmark ICE September cocoa futures fell
5% to $2,177 per tonne 1516 GMT."It is by far the worst ever result in a
quarter since the ECA began reporting these figures. It is reflecting the
reality of the demand picture in Europe," said Javier Almela, head of
cocoa purchasing at Spanish cocoa processor Natra Cacao.In Spain, where
unemployment is high and consumers are feeling the pinch, chocolate consumption
is expected to suffer.According to market research firm Mintel's June chocolate
confectionary report, only 44% of Spaniards agree that chocolate is value for
money, while 43% claim that they will cut back on purchasing chocolate if the
value of their favourite bars rises."Given these responses it is not
unreasonable to assume that consumers are likely to be cutting back on
purchasing some forms of chocolate," said Marcia Mogelonsky, global food
and drink analyst at Mintel.Cocoa demand growth typically tracks GDP growth,
and with many European countries in recession plus cocoa processing margins
being squeezed, analysts had expected a negative grind number - just not of
this magnitude.Some are adjusting their global supply and demand balance sheet
accordingly."This transforms a flat supply and demand picture into looking
like a meaningful surplus for the year. We are now looking at a 2011/12 surplus
of over 100,000 tonnes," said Jonathan Parkman, joint head of agriculture
at broker Marex Spectron.In May, the International Cocoa Organization (ICCO)
forecast a 2011/12 global cocoa deficit of 43,000 tonnes.Until now, growing
global demand was attributed to strong cocoa powder demand from emerging
markets including Brazil and China, but Parkman said the weak grind data throws
this into question.When cocoa beans are ground, they produce roughly equal
parts of butter, which makes chocolate melt in the mouth, and powder, used to
flavour products including cakes and biscuits."Everyone is aware that
powder demand has been holding grindings up and yes margins were negative, and
that's what caused this slowdown in grindings, but the European grind also
suggests the powder demand story has been exaggerated. Powder demand certainly
doesn't seem to be growing," said Parkman.
China's economic growth slows
China's economy expanded at its
slowest pace since the depths of the global financial crisis more than three
years ago, official data showed on Friday, fuelling expectations of more
stimulus moves.The world's second-largest economy grew 7.6% from April to June
year-on-year, the National Bureau of Statistics said, the worst performance
since 6.6% in the first quarter of 2009.The slowdown "was mainly due to
the continued deterioration in the international environment, which further
dampened foreign demand," statistics bureau spokesperson Sheng Laiyun told
reporters."Domestic demand eased also as macro-economic tightening,
particularly controls on the real estate sector, continued."The weak
second-quarter expansion dragged down growth to 7.8% for the first half of the
year.Sheng expressed confidence that the economy would stabilise and China would meet its
full-year growth target of 7.5%."I believe China's economy will
continue moderate and steady growth in the second half of the year," he
said, citing the potential for investment, consumption and exports to propel
expansion the rest of the year."We are very confident in achieving the
full-year growth target."Nevertheless, the target growth rate of 7.5% is
well down on the 9.2% achieved last year, and 10.4% in 2010.Market reaction in China to Friday's data was
muted. Chinese stocks turned slightly into negative territory after initially
rising following the release of the figures.The Shanghai Composite Index, which
covers both A and B shares, was down 0.15%, or 3.30 points, to 2,182.19 in late
morning.Tang Jianwei, economist at Bank of Communications in Shanghai, said the
second-quarter result was in line with expectations and that China's planners
would be able to speed up the economy."We expect economic conditions in
the second half of the year will be slightly better than the first half,"
Tang said. "We've already seen stabilisation in investment from June's data
thanks to government stimulus policies."The government last week took the
rare step of slashing interest rates for the second time in a month. That came
after three cuts since December in banks' reserve requirements, or the amount
of money they must keep on hand.Such cuts are meant to free up funds for
lending and thus boost the economy.Chinese leaders have vowed to take further
measures. Premier Wen Jiabao this week called stabilising economic growth the
government's "top priority".Slowing growth in China is also casting a
further cloud over the broader global economy, which is still suffering the
effects of the 2008-2009 financial crisis.Employment figures in the United
States, the world's biggest economy, remain weak and Europe is struggling to
overcome its sovereign debt crisis.Ren Xianfang of IHS Global Insight said in a
report that China's second-quarter figure marked the sixth straight three-month
period of slower growth, and highlighted that the country's economy risked
losing momentum. Still, she said that the government retained ample tools -
including another interest rate cut, more loosening in bank reserve
requirements and exchange rate stability - to spur activity."We are
expecting about 7.9% growth this year," she said.Besides the growth
figures, the bureau released a slew of other economic statistics on Friday that
backed up the broader slowdown.Growth in retail sales, the main gauge of
consumer spending, continued to slow in June, rising 13.7% in June compared
with the same period a year earlier, marginally down from growth of 13.8% in
May.Output from China's millions of factories and workshops also continued to
slow, growing by 9.5% year-on-year in June, the bureau said, down from 9.6% in
May.However, indicating that some government measures to revive growth were
starting to kick in, China's urban fixed asset investments rose 20.4% in the
first half of 2012 compared with a year earlier, the bureau said.The
investments for the half year compared with growth of 20.1% in the first five
months of the year, signalling a slight increase in June.Fixed asset
investments are a key measure of government spending on infrastructure.
