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I.Highlights
I.
Highlights:SpainsEconomicSituation
AccordingtoINE(NationalStatisticsBureau)estimatesGDPgrowthin2011 0.7% Since mid 2011 growth prospects have deteriorated. Economy entered in recession during 4Q 2011 with quarterly GDP growth falling to 0.3% from 0,0% in the previous quarter. ForecastsstatethatSpainwillenterarenewedrecessionin2012: 1%EuropeanCommission. 1,7%IMF. 1,5%BankofSpain. Thesituationinthelabour marketdeterioratedinthe4Q2011. Labour ForceSurvey:
Unemploymentrate 22,85%in4Q2011from21,52%inthepreviousquarter. Youthunemployment (agedunder25):48,6%Vs.45,8%previousquarter
II.EconomicPolicy
TheGovernmentsnewEconomicPolicyisbasedonthreepillars 1. BudgetaryandMacroeconomicStability:
FiscalDiscipline BudgetaryEquilibrium:aConstitutionalMandate Budgetary and Financial Stability Law implemented at all levels of the PublicAdministration
2.
Boldandpromptstructuralreforms:
Financial sector consolidation; enhanced transparency and solvency requirements Reform of the Spanish Labour market legislation and labour market policies Increasingcompetitivenessandproductivityinfactormarkets
3.
PublicAdministrationOverhaul
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AClearMandate:OverallMajorityatNationalandRegionalLevel
II.
EconomicPolicy:SpainsStartingPointfor FiscalConsolidation.
The deterioration in the economic indicators has entailed a deviation in the 2011deficittarget (from6%to8.51%/GDP):immediatemeasuresamountedto 15bn (1.4%/GDP)tocompensateforthisdeviation 8.9bn cutsinspending:minimumwage&civilservantswagefreeze,20% reductioninsubsidiestopoliticalpartiesandsocialagents,rationalisation ofadministrativestructures,nonewpublicemploymentin2012 6 bn in tax increases: temporary increase in Personal Income tax, selectivetaxrateincreaseonrealestate,oilsubsidiesremoval New Programme against tax evasion under evaluation: 8 bn additional incomeexpected
2013 3% 2,4%
*Government forecasts
2012:NEWSCENARIOANDPUBLICDEFICITOBJECTIVES %GDP
ProjectedDeficit GDPgrowth assumption
2013 3%
The commitment is to continue with the fiscal consolidation path in accordance with the new projectionsandassumptions Structural Balance commitments will be reinforced. In 2012, the adjustment in structural termswillbearound3.5percentagepoints.
Guaranteeingdebtsustainabilityatalllevelsofgovernment Reinforcing Spains commitments with the investor community and with the EU intheframeworkoftheFiscalCompact Transparencyandexantecontrol AlllevelsoftheAdministrationinvolved
BudgetaryandFinancial Sustainability GENERALRULES: Budgetarybalanceorsurplus Nostructuraldeficits Expendituregrowthcappedbelow headlineGDPgrowth Expenditureceilingforalllevelsof Government Source:MinisteriodeEconomayCompetitividad. Expenditureceilingsalso introducedattheRegionaland LocalGovernmentlevels Budgetsurplusestobededicated todebtreduction Automaticcorrectionofdeficits anddebtthresholds Earlywarningsystem adoption ofcorrectivemeasures Establishmentofsanctionsincase ofnoncompliance 6 Reportingintermssimilartothe onesunderEDP Scopeofinformationtobe publishedbroadened BudgetaryPlanningandControl ReinforcementofBudgetary control PreventiveandCorrectiveArm AffectsalllevelsofGovernment: Central,Regional,LocalandSocial Security TransparencyandDisclosure Surveillanceatallstagesof budgetaryapprovalprocess
2009:CreationoftheFundfortheOrderlyBankRestructuring(FROB) toliquidatenon viable entitiesandtosupport restructuring processofviable ones (up to 36 billion with possibilityofincreasingupto 99billionifneeded).Conditionaloncostcuttingmeasures 2009:Regulatoryreformofsavingbanks 2011:LawtoStrengthenCapitalBaseandConfidence:solvencyrequirementsincreased to 8%/10% in February 2011 and additional transparency requirements by the Bank of Spain.September2011,endofcapitalisationprocess Savingbanksrestructuringprocess:savingbankshavedecreasedinnumberfrom45to17
Despitethesemeasures,morereformsareneeded: There are still doubts on the valuation of real estate assets owned by credit institutions.Thisgenerates: Difficultiesforcreditinstitutionstogainaccesstowholesale funding Insufficientfundingavailabletotheprivatesector Furtherconsolidationeffortsarenecessary
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*Dataat30thJune2011
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31%
72,7
Exposure (outstanding loans and foreclosed assets) Currently covered with provisions
22,5 15,0
27% 16,2
4,0
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Instruments Significant increase inbank asset writedowns of about 52billion,both through provisioning and capital requirements (capital buffer) Signiticant incentivesto consolidate the system Transparent process enabling the specific treatment for each type of asset to beidentified Financial effort supported bythe financial institutions, without the need of public funds
Objectives
Improve confidence,credibility and strength of the system Dispel doubts about the valuation of realestateassets Encourage the banking sectorto placeits realestateassets inthe market Give institutions better access to capitalmarkets to encourage lending Facilitate acorrection of excess capacity and improve efficiency Strengthen governance of institutions created through mergers Further concentration
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II.3Financialsectorreform:cleanupofreal estateassets.
Instruments Newprovisionsandcapitalrequirements: 52billion Troubledassets Specificprovision Extraordinaryprovisionsmustbesetasideagainstprofits.Thetotalamountis estimatedtobe25billion Capitalbuffer Creationofacapitalbufferof20%(land)and15%(currentdevelopments)forthe mosttroubledassets(withthemostuncertainvaluation).Tobechargedagainst retainedearnings,capitalincreasesorconversionofhybrids(preferential convertiblebonds,subordinateddebt...).Theestimatedtotalamountsto 15 billion Nontroubledassets Genericprovisions Agenericprovisionofaround7%shouldbesetasidefornontroubledassets linkedtorealestatedevelopmentssincetheyhaveahigherriskthanother portfolioassets topreventpossiblefutureimpairments.Thisprovisionwillbe chargedagainstprofitsandisestimatedat 10billion Deadlineforestablishingthespecificandgenericprovisionsandthecapitalbuffer requirements:December31st,2012
13 Approvedby Parliament 16/02/2012
100 90 80 70 60 50
29%
65%
15%
40
31%
23%
35% 25%
10%
30 20
31%
27%
10 0
Land
27%
25%
Ongoing developments
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Advantages
Deadlines:Therequired provisioningandcapital bufferingexerciseisspreadover twoyears Writedowntheimpairmentof assetsagainstequity. TheFROBs marginofactionis extendedbyallowingthe acquisitionofcontingent convertiblebonds(FROBs capitalwillbeincreasedfrom 9.0billionto15billion)
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II.4 LabourMarket.Currentsituation
Theadjustmentinourlabour markettraditionallytakesplacethrough dismissalsandnotthroughwages
Tasas de variacin interanual del PIB, empleo y salarios (2006-2011)
6,0
GDP, employment and wage per employee (Year on year growth rates 2006-2011)
4,0
2,0
2,0
09 IV
10 I
10 II
10III
10 IV
11 I
11 II
11 III
4,0
6,0
Employment Empleo
Source:Bank of Spain 17
II.4 LabourMarket.Currentsituation
Dismissalsarefocusedontemporaryworkers,whicharemostlyaged under25.ThiscreatesahugedualityintheSpanishlabour market
Job losses in% compared to Q4 al IV Destruccin de empleos en % respecto2007 T 2007
5,00% 0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00%
Temporary
Permanent
Temporales workers
Indefinidos workers
International Organizations main recommendations on the Spanish labour market: 1. Reductionoflabour marketduality. 2. Reduction of dismissal costs and improvement of their managementtopreventfraud 3. Reformthecollectivebargainingsystem,especiallytheopt outclauses 4. Eliminationofwageindexationsystems 5. Increasethequalityandeffectivenessofpublicemployment services 6. Improveactiveemploymentpoliciesandtrainingofworkers, paying special attention to the problem of youth unemployment
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II.4 LabourMarketReform.Objectives
RoyalDecreeLaw presentedbyGovt.on 10/02/2012
Objectivesofthereform:
Theapprovedlabour marketreformseekstooverhaulthelabour market.Goals: Improveefficiencyandreducelabormarketdualitybydecreasing dismissalcosts Enhance the employability of workers, especially the young, improving job intermediationandtraining Adjustinternalwagebargainingandreformthecollectivebargainingsystem Implementeffectivemechanismsofinternalflexibilitywithincompanies Promotejobcreationthroughpermanentcontractsandothermeasures
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II.4 LabourMarketReform.Hiringconditions
I.
Reductionofdismissalcosts,inordertoaddresslabourmarketduality Unfairdismissal:compensationof33daysperyearworked (upto24months).Down from45daysand42months Thiscompensationwillapplytonewcontracts.Forcontractsalreadyinforce,a mixedrulewillbeapplied Encouragementoftheuseoffairdismissal:compensationof20daysperyearworked (upto12months).Newregulation: Clarifiesobjectivecausesoffairdismissal Eliminates procedural wages (wages paid during the duration of the judicial proceedings) Eliminatesexpressdismissal Effect:fairdismissaltobethemainchanneltoendthecontractasopposetonow
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II.4 LabourMarketReform.Hiringconditions
I.
Reductionofdismissalcosts,toaddresslabourmarketduality(cont.) Reform of collective and objective redundancies to reduce legal uncertainty andhighcosts Removes the administrative authorization required for collective redundancies Reformofthejudicialreviewofcollectiveandindividualredundancies PublicAdministrationswillbeallowedtodismissbasedonobjectivecauses
Effect:increasedandwidespreaduseofcollectivefairdismissal(compensation of20daysperyearworked)
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II.4 LabourMarketReform.HiringConditions
II. Encouragingpermanentcontracts CreationofanewpermanentcontractaimedtoSMEs with50or fewerworkersandselfemployedworkers: Durationoftheprobationperiod:upto1year 3,000 tax deduction for these companies / self employed workerswhohiretheirfirstemployee(iflessthan30years) Additional tax deduction of 50% of the employees unemploymentbenefitsforayear The employee may receive, along with his salary, 25% of unemploymentbenefits
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II.4 LabourMarketReform.HiringConditions
II. Encouragingpermanentcontracts NewbonusesforSMEs,specificallyaimedathiring: Unemployed young workers (1630 years): 3,600 per permanentcontractsigned Longterm unemployed workers (over 45 years): up to 4,500 perpermanentcontractsigned Conversionoftrainingcontractsandsubstitutioncontractsinto permanentones:upto1,500percontract Reintroduction of the prohibition to link different temporary contractsformorethan24months(January1st,2013)
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II.4 LabourMarketReform.Employability
III. Labourmarketintermediationandvocationaltraining Temporary Employment Agencies are now authorized to act as private placemententities. Thiswillpreventfraudintheunemploymentbenefit Previously, only the public employment service and a few private agencies wereinvolvedinjobintermediation Improveprofessionaltraining: Developmentofanewindividualrighttoprofessionaltraining(20hoursper year).Future"trainingcheck"paidwithpublicfunds Increasedsupplyofprofessionaltrainingbyallowingthedirect participation ofprivateagents Creation of a new training account associated to each worker to improve trainingitinerary incaseofunemployment
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II.4 LabourMarketReform.Employability
III. Labourmarketintermediationandvocationaltraining Newtrainingcontract(forworkersaged1630): Nolimitinthenumberoftrainingcontracts Allowstheoreticaltrainingwithinthecompany Bonusestoencouragetheuseofthiscontract Modification of the current permanent parttime contract to allowextrahoursandincreaseitsflexibility Regulationofteleworking topromoteitsimplementation
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II.4 LabourMarketReform.InternalFlexibility
IV. Internalflexibilityandcollectivebargaining Facilitation of contract modifications on roles, duties, geographical location, wage and working time. Previously, the existence of rigidities allowed little roomforcontractstoadapttodemandortechnologicalchanges. Removalofadministrativeauthorizationstosuspendthecontract ortoreduce the working time based on economic, technical, organizational or productive reasons Collectivebargainingreform: Objectiveoptoutclauseofthecollectiveagreement Priorityofenterprisecollectiveagreementonthemostrelevant issues(e.g. wage, number of hours). Previously, sectorial and global collective agreementsdominatedcontractconditions Ultractivity. Application of extinguished collective agreements will be limitedto2years.Previously,ultractivity hadnotimelimit
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II.5 FutureReforms
Transformation and simplification of the National Regulatory Bodies, avoiding overlapping competences and fostering professionalism and less politically influencedorgans. Reduction of redtape and bureaucratic procedures, and removal of opening licensesfornewSMEs Reinforcementoftheinternalmarketatanationallevel,seekingaconvergence towardsacommonregulatoryframeworkinall17regions. EnergyPolicy: Tacklingdecisivelytheproblemofthetariffdeficit. Nuclearcemeterydecided(Villar deCaas,Cuenca) Supporting more efficient Renewable Energies in the production mix, in order to guarantee a clear integration of these energies, a reduction in emissionsandadecreaseinSpainsenergydependence
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MoreandupdatedinformationontheSpanish economy.
http://www.thespanisheconomy.com
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