June 19, 2024

Italy and Spain Defer Use of Bond Plan

Instead, both the Spanish prime minister, Mariano Rajoy, and his Italian counterpart, Mario Monti, insisted that they would continue to push for rapid adoption of a European fiscal and banking union. “With regard to the European agenda, Spain and Italy are more united than ever,” Mr. Rajoy said at a joint news conference with Mr. Monti.

Mr. Rajoy has been under pressure to tap a bond-buying program announced by Mario Draghi, the president of the European Central Bank, in early September. But he has refused to leap at the opportunity, and on Monday he said Madrid would ask for such financing only when he felt it was “convenient” to do so. Mr. Monti also dismissed the idea that Italy would need such help to meet its immediate refinancing obligations.

Neither leader is eager to expose his government’s finances to the greater European scrutiny that requesting the aid would entail.

The Madrid meeting of the two prime ministers came shortly after Mr. Draghi endorsed a proposal initially made by Wolfgang Schäuble, the German finance minister, to establish a European monetary and economic affairs commissioner. That person would have the power to intervene in national budgets if euro zone governments broke deficit rules. Creating such a post would probably require the approval of all 27 countries in the European Union.

“If we want to restore confidence in the euro zone, countries will have to transfer part of their sovereignty to the European level,” Mr. Draghi said last week during an interview with the German magazine Der Spiegel.

Mr. Rajoy and Mr. Monti discussed the supercommissioner proposal on Monday, but neither offered support for the idea, warning that it could further confuse investors about policy making in the euro zone.

“There is a limit to the signals that can be given to the markets in terms of fiscal virtue,” Mr. Monti said. “The markets could see this as meaning that the existing instruments don’t work.”

The Rajoy-Monti show of unity underlines the extent to which Madrid and Rome face the same challenges in persuading investors to buy their debt at a sustainable borrowing cost.

Mr. Monti argued that the difference between the interest rates of German and Italian government bonds, albeit less than before the European Central Bank’s bond-buying offer, remained “higher than what is justified” by economic fundamentals.

Separately, the Bank of Spain on Monday gave indicative valuations for the so-called bad bank that Madrid is creating to let troubled banks clean their balance sheets by transferring their bad property loans and foreclosed assets.

The central bank said that any loans that lenders placed in the bad bank would have an average write-down of 45.6 percent, climbing to an average 63.1 percent write-down for foreclosed assets. It estimated that the bad bank would start with about 45 billion euros of toxic assets. But it remained to be seen whether such discounts would be sufficient to attract the private investors that Madrid is hoping will share part of the risk in the bad bank.

Article source: http://www.nytimes.com/2012/10/30/business/global/italy-and-spain-keeping-ecb-offer-on-the-shelf.html?partner=rss&emc=rss

Socialists Lose to Popular Party in Vote in Spain

With 99.8 percent of the vote counted Sunday night, the Popular Party, led by Mariano Rajoy, had won 186 seats and a governing majority in the 350-seat lower house of Parliament, while the governing Socialists plummeted to 110 seats from 169. It was the Popular Party’s best showing, and the Socialists’ worst, since Spain’s return to democracy in the 1970s.

Spain is the third southern European country in two weeks to see its government felled by the debt crisis in the euro zone. In Italy and Greece, prime ministers were forced by mounting financial and economic woes to resign and give way to interim “unity” governments of technical experts, who are meant to take urgent but unpopular austerity measures to cope with the crisis and then call new elections.

The new Spanish prime minister will have an advantage they lack — the solid backing of a freshly elected single-party majority in Parliament — but he must still cope with the same dire combination of economic stagnation, gaping budget deficits and crushing debts that brought down his predecessor, and that swept governing parties out of office in Greece and Italy this month, Portugal in June and Ireland in February.

In each case, the financial markets have forced the pace of events. As happened to Italy and Greece before it, Spain saw the effective interest rates on its new debt issues soar over the past week to heights not seen since the 1990s, before the introduction of the euro. The so-called risk premium demanded by investors for holding Spanish government bonds — compared with those of Germany, the soundest of the euro economies — briefly exceeded that of Italy on Friday. Together, they demonstrate a deepening skepticism that the euro zone can hold together and head off defaults by its weaker members.

In the end, the Socialist government of Prime Minister José Luis Rodríguez Zapatero was undone by the evaporation of Spain’s economic boom after the world financial crisis took hold. When the government took office in 2004, the Spanish economy was growing by 3 percent a year, the budget was balanced and unemployment was low by Spanish standards. But when the financial crisis hit, property values and the construction industry collapsed, banks needed rescuing, economic growth slowed, joblessness soared (it is now over 21 percent), and government finances fell deeply into deficit.

When Mr. Rajoy, 56, takes over as prime minister next month, he will bring little novelty to the Spanish political scene: he held senior posts in his party’s last government, from 2001 to 2004, and was defeated by Mr. Zapatero in the general elections of 2004 and 2008.

In the closing days of the campaign, Mr. Rajoy called on Spaniards to make “a common effort” to confront what he described as “the most difficult economic situation that Spain has faced in the past 30 years.” He also insisted that Spain’s voice “needed to be respected in Brussels” during coming European negotiations over the debt crisis, adding, “We will stop being a problem and instead form part of the solution.”

The threat of another recession and the magnitude of the euro debt crisis have made even supporters of the Popular Party question whether a center-right government can deliver the swift turnaround in Spain that the financial markets are demanding.

“The situation is so critical that it’s unfortunately not inconceivable that Spain will need outside intervention even before the new government gets a chance to get down to work,” said Gonzalo Díaz-Rato, a Madrid financier, who added that he backed the Popular Party because “Spain really needs change.”

Spain was not due to hold the election until March, but the impact of the debt crisis forced Mr. Zapatero to move up the date and forgo a campaign for re-election himself. Alfredo Pérez Rubalcaba, Mr. Zapatero’s 60-year-old former interior minister, led the Socialists in the campaign instead. Turnout was high, at 71.8 percent, but slightly lower than in 2008.

Mr. Zapatero’s government introduced a series of austerity measures over the last 18 months, cutting spending and laying off state workers, but economists say the new government will have to cut billions of euros more from state spending to meet the country’s deficit reduction targets. In the campaign, both parties’ leaders avoided spelling out in any detail what they would do to pull Spain from its economic quagmire.

“There will be no miracles, and we haven’t promised them, but when things are well done, results arrive,” Mr. Rajoy said after his victory.

Consuelo Pérez Cribeiro, a Popular Party volunteer poll watcher in Madrid, said Sunday that it was easier to predict how the election would come out than “to predict exactly what the next government will be able to do.”

Some regional parties also did well in the election. The Catalan nationalist party that governs the Catalonia region gained seats, as did Amaiur, a radical Basque nationalist party, a month after the separatist group ETA announced that it would stop its campaign of violence.

Aside from his government’s struggles with the economy, Mr. Zapatero brought marked social change to Spain, promoting women’s rights, pushing through contested changes in the abortion law and legalizing same-sex marriage. Relations with the dominant Roman Catholic Church cooled as his government made the state more secular. Mr. Rajoy has pledged to tighten access to abortion, but he is not expected to significantly unwind other parts of the Socialist agenda.

His new government will be pressed to overhaul rigid labor rules and the banking sector, particularly its savings banks, known as cajas.

“I think the market is after a clear resolution on the banking issue, because so far the approach to the restructuring and recapitalization of the cajas has been very hesitant,” said Gilles Moec, co-head of European economic research in London for Deutsche Bank.

While he has recently emphasized the importance of government by elected politicians rather than by technocrats, Mr. Rajoy’s government is expected to include some party outsiders in important jobs, including the Finance Ministry.

Article source: http://www.nytimes.com/2011/11/21/world/europe/spanish-voters-punish-socialists.html?partner=rss&emc=rss