Tag Archives: Rajoy

Spanish Scandal Could Force Energy Strategy Change

ImageAfter a turbulent first year of cuts aimed reducing a crippling deficit, Spain’s energy sector could see a shift in direction as a corruption scandal threatens the current conservative government.

Since taking office after early elections just before the New Year in 2011, the government led by Prime Minister Mariano Rajoy has led a campaign of cuts and adjustments meant to drive down an energy sector deficit that greeted them around $30 billion.  Attributing the daunting amount to unsustainable government subsidy programs, Rajoy and his Minister of Industry, José Manuel Soria set out a series of cuts that have spurred appeals to the European Commission and lawsuits from investment firms.

However, the fate of Mariano’s party leadership in Madrid has recently been cast into doubt amid allegations that senior officials had received secret cash payments after the practice was made illegal in 2007. Rajoy denied any wrong-doing following an extensive report published in Spain’s national daily, El Pais detailing payments to him as late as 2008. The El Pais report was quickly followed by calls for Rajoy’s resignation and denials from party officials.

While it is not yet clear whether a return to the Socialist leadership that led the country for eight years before Rajoy would signal a change in pace, it is even less clear whether voters would hand the reigns back to the left should the conservatives be forced from office. Recently, both of the country’s largest political parities have seen support erode thanks to their handling of the economic crisis. On the local level, this has allowed support to shift to smaller, less centrist parties.

However, even if Rajoy remains in power – which regional observers expect he will – the government’s approach to the energy sector will likely see a change in the New Year. Despite the government’s cuts and general deficit reduction strategy, the energy sector’s deficit has continued to rise in recent months casting doubt on their approach. While Soria and company predicted a slowdown as a result of the cuts, which have focused on solar and wind subsidies; the deficit has actually grown at double the expected rate. Soria has signaled a different approach in the coming year and insisted once again that further cuts will not include retroactive actions.

This expected reversal reflects a broader trend in Spanish economic improvement, which has largely relied on cuts in spending and services across the country’s seventeen communities. With unemployment continuing to rise and economic growth stagnant, Madrid and Brussels alike have suggested an approach that does not focus so much on austerity and may include additional efforts aimed at growth.

Image: Iberosphere.com

Originally Posted: Newsbase Euroil Monitor

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Rajoy, Reform and the Burden of Employment Expectations

As thousands took to the streets this past weekend, it quickly became clear that the Partido Popular’s approach to job creation had more than a few critics. Focusing their anger on reforms passed on the 9th of February, critics called out the new government’s efforts to reduce mandatory severance pay from 45 to 33 days per year worked and allowing what they felt was an unfair freedom for companies to opt-out of collective bargaining agreements and adjust wages and hours according to their unique financial standing.

Explaining their approach, the Rajoy government explained that “it wants to give firms the ability to modify workers’ hours in response to demand rather than simply laying them off, bringing an end to the rapid rise in temporary contracts that has helped push youth unemployment to just shy of 50 percent.”

Really, the reforms proposed and passed by the dominant Rajoy government, who earned a powerful legislative majority during November elections, should not have come as much of a surprise. They are, after all, the country’s conservative party so supply-side reforms to the labor market should have been an expected part of the package. Alongside promises of widespread cuts in public spending, business-friendly labor reform seems as much a part of the conservative platform as reversing anything that offends the Catholic Church. Prior to early elections, Rajoy and company promises such an approach and with a strong parliamentary majority, they delivered.

Still, now that the reforms have passed, it should be asked, is that all they have to offer? Its hardly a novel observation that massive cuts, no matter how much they are required by Brussels and Berlin, are not a sure fire way to spurring growth.

“They don’t have much of a strategy apart from the typical laundry list of structural and labor market reforms, which is fine, but that is not going to deliver much in the short-term,” Guntram Wolff, deputy director of Bruegel, a Brussels think-tank told Reuters. “It’s become clear that this focus on austerity and fiscal consolidation is not enough, so they need the economic growth and employment element.”

So, are Rajoy’s labor reforms the only other solution they are offering to resolve Europe’s worst unemployment rate?

The short answer is no. Rajoy and his PP-controlled parliament have pledged that more should and will be done. Though, this promise has come with few actual specifics and a warning that given the country’s current trajectory, things will likely get worse before they get any better. Indeed, analysts at BBVA predict an increased 24.4 percent unemployment rate by the end of this year and a likely 24.6 in 2013.

Specifics on this pledge have been light, though Rajoy and EC President José Manuel Barroso have both called for additional funds from the European Regional Development Fund (ERDF) and the European Social Fund (ESF) to be put aside specifically for job creation programs. Of the countries with accessible funds, Spain boasts the most with 10.7 billion euros.

Perhaps a more relevant question for analyzing the Rajoy approach is will the reforms do enough to address the structural challenges that led to such a daunting 22.9 percent unemployment rate in the first place. Will it be enough to reverse what Profs. Samuel Bentolila, Juan Dolado and Juan Francisco Jimeno call Spain’s “insider-outsider” labor economy? In a report published just days before Rajoy presented his labor reforms, the three argued for greater attention to the country’s temporary contract economy, which accounted for 1.4 of the 1.6 million jobs lost since 2007 and efforts to combat the country’s nearly 50 percent youth unemployment rate.

The answer to this question comes with a deeper look at Rajoy’s proposed reforms aimed at providing tax breaks for hiring workers under the age of 30 and reducing the time needed to ensure a permanent contract from 3 to 2 years. While straying slightly from the party’s supply-side approach, the reforms do little to address issues of training, education and diversification in a labor market previously led by now dormant industries.

Rajoy has been quick to defend his government’s approach, stating that it will not only increase Spanish employment, but also put the country’s economy on equal footing with the rest of Europe.

“We are planning an economic policy which coincides substantially with what is being planned at the European Union level — so we support that and will be at the forefront in all these things, particularly in budget consolidation and structural reforms,” he told a press conference in Madrid last week in response to labor reform criticism, according to Reuters.

However, even he has warned that the results will be slow to materialize. Echoing the aforementioned BBVA predictions, Rajoy has stated that the country’s employment numbers will likely rise before falling. That warning may sound dour for those hoping for a rebound this year, but it may just buy the new government some time and tapered expectations to allow for his labor reforms to start showing progress. Once that time is up, it’s difficult to imagine even his supporters in Madrid and Brussels to stay quiet for very long.

Image: Libre Mercado

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Are Germany’s Demands Even Good for the Med?

As Spain’s new government settled in to the reality that 2012 may just be worse than they dared dream it could be – with unemployment hitting 22.8 percent today – Prime Minister Mariano Rajoy appears to have realized that straight cuts and deficit reduction may not be the only path to recovery. Indeed, Rajoy now joins a host of Mediterranean leaders who are withering under the deficit demands of the EU’s strongest and most influential figure, Germany’s Angela Merkel. They want to get things under control, they insist, but all austerity and no efforts to spur growth are leaving them stagnant and facing increasingly frustrated populations. Making matters worse, they are facing a growing chorus of critics who suggest that the very cuts so vital to Merkel’s plans for recovery and assurances of fiscal support are actually making growth harder to achieve. At this week’s World Economic Forum in Davos, both George Soros and IMF Chief Christine Lagard echoed those sentiments with what could be construed as appeals for Merkel to back off and let a more collaborative approach take over, with the IMF head noting, Resorting to across-the-board, across-the continent, budgetary cuts will only add to recessionary pressure.”

For Rajoy and heads of state like Italy’s Mario Monti, the situation has left them appealing to Merkel directly, asking her to ease up on deficit cutting demands to allow for some efforts to spur growth when their countries need it and jobs most.

The Guardian’s Giles Tremlett reported, “While Rajoy, who met German 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 letting it be known that they want the EU to ease up on deficit targets which require severe adjustments. Rajoy himself has pointed out that the EU’s target for 2011 supposed not only that last year’s deficit would be 6%, but also that growth this year would reach 2.3%.”

However, despite such appeals, Merkel appears unmoved while the debate continues to build around her. Still, its worth asking how long she can hold out until she begins to feel the pinch as sustained unemployment and negative economic growth in the southern states continue to weigh down Germany’s flagship economy.

 

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Spain and Rajoy: Still Waiting

 

 

Over two weeks on from the landslide election that gave Mariano Rajoy and Spain’s conservative Partido Popular a seemingly unstoppable majority and details about just what they plan to do to help put the country back on track remain vague. This week saw the first meeting of the national parliament and two cabinet postings, coming from, as expected, two long time party figures. However, short of again pointing out what the country now faces and promising no miracles as Spain looks ahead to almost non-existent growth in 2012 and a possible slip back into recession, Rajoy remained coy about what exactly he plans to do after being sworn in on December 21st. Given the scope of the challenges ahead and the reality that much of the country’s market stability and ability to continue borrowing under sustainable rates are now subject to forces beyond their own borders, it is not terribly surprising that Rajoy is taking his time unveiling actual policy proposals or appointees, including the highly anticipated finance minister. However, given the dour mood the country now finds itself in and the run-up time Rajoy and the PP had with the confident knowledge that they would indeed hand the outgoing PSOE a significant defeat, its difficult to understand why the new prime minister would hold out on offering even a hint that he came to the table with a few solutions. Instead, the incoming head of state has simply said he would offer no new revenue streams through taxes and would expand cuts to government services, though he left the deeply unpopular hits to health and education to the community level. Already hitting communities hard in Catalonia and Castile and Leon, these cuts will likely rise to make way for planned tax cuts aimed at small and medium sized businesses that Rajoy has placed at the center of his plan to kick-start job creation and chip away at the country’s 21 percent unemployment rate.

There is undoubtedly some sense to being clean and clear with a population that will be called upon to sacrifice for the greater good over the next few months but I find it hard to understand why Rajoy would offer so much salt without a little sugar. Is there not some plan he can offer to raise spirits and allow people to look beyond the difficulties of 2012 beyond, if we work hard, we’ll soon be back to zero? Is there not some solution he could offer that would help the Spanish economy adapt and evolve rather than, I plan to do exactly what the last party has been doing, but more? Furthermore, given the heavy evidence that has emerged to suggest simple austerity in the name of deficit reduction will do little to spur the growth Spain so desperately needs now, is it out of line to ask, beyond more of the same and broad promises to “reform the banking sector, the public sector and the labour market, and introduce greater competition in communications, energy and transportation, and open the way to economic growth starting after 2012, creating jobs,” what exactly does Rajoy plan on doing to move Spain forward?

As the holidays approach and businesses shutter for the new year, it seems increasingly unlikely any real answer to that question will come before 2012 arrives, leaving Spain to do what they are growing sadly accustomed to doing – waiting for a leader with a plan.

Image: Financial Times

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Election Day Hangover – Spanish Resaca Pt. 2

Forty eight hours on and the narrative that’s emerging is, I am certain, not quite what the conservatives may have hoped for. Yes, the new government has officially been chosen and yes, they have the largest Parliamentary majority that anyone can remember but any hopes that a Rajoy-led transition would calm the markets and give investors some semblance of confidence as debt yields shot up to a 14 year high this morning, making Spanish debt nearly impossible to sustain should this continue. Rajoy, it seems, will have to do more than just show up to make much of a dent in the current wave of uncertainty about Spain’s ability to weather the storm and bounce back in the coming weeks. In the meantime, we get lukewarm reactions from across the globe that amount to “congratulations, welcome to the top, now do something dammnit”.

On a highly opinionated note, observing the traditional month long transition period at this particular juncture seems naive at best and deeply oblivious of the situation at worst. If there was ever a national emergency that demanded swift, unconventional action from the government, I would think this would be it.

This possible state of emergency is made all the more pressing by the announcement today that Greece has much less time than once thought to convince international creditors to hand over the next installment in their financial support program, amounting to about 8 billion euro. Once thought to have until mid-December until the coffers emptied in Athens, the new government has announced they will likely run dry in eight days.

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