Spanish Media and Reporting, Worldwide News by EFE

[Spain (MTTezla)]

EFE was created in 1939 by Spain's then-Minister for press and propaganda, Ramon Serrano Suner. Today, EFE is the largest multimedia news agency in Spain and the fourth-largest in the world, behind the Associated Press, United Press International, and Reuters. EFE provides a network of global journalists who produce both investigative and opinion writing, as well as a collection of news by other major Spanish outlets. EFE is committed to maintaining a politically neutral and fact-based approach to reporting, and allows its editorials full latitude in determining the content of their writing.

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European Debt Crisis
Blaming the Victim


July 23rd, 2012
Finding the Root of Spain's Economic Malaise
One of the first responses made by Spanish officials when accused of economic mismanagement is that the total public debt carried by the country in 2007 was a mere 42% of GDP, a decrease of 2% from the year before. The Spanish government's two years of fiscal responsibility meant very little over the rest of the decade, though, as a private equities bubble burst, taking most of the Spanish economy with it. The Spanish economy had been severely inflated, and the construction sector was the worst of a bad picture, building 750,000 homes a year for a market of only 250,000.


The construction of a bubble

The bubble in construction's cause is more complex than the collapse of the Spanish economy, but it begins and ends with the policies of the German-influenced European Central Bank. Interest rates in Spain during the bubble were, in real terms, at negative 2%. Money from Northern Europe poured into the Spanish construction bubble, especially from French and German banks seeking to take advantage of the market. Instead of raising interest rates or advising the Spanish government to pinch off the bubble in construction, the ECB doubled the rate of M3 money creation, adding more fuel to the fire.

When the crisis hit the Spanish economy, the ECB then began a vicious regime of countercyclical monetary policy, cutting the supply of M1 money creation by double digits for the next three years. At the same time, the central bank incomprehensibly raised benchmark interest rates, exacerbating the already severe cutoff of monetary funds to the Spanish economy. The EU bailout of the Spanish economy turned out to be equally dangerous, requiring cuts in government spending in the cut of more than 7.3% of the Spanish GDP over the next three years.

The combined effects of the bailout's terms and the abhorrent ECB policy led to a cutoff in capital to the Spanish economy similar to that against the German government in 1927 when they were blocked from international capital markets. As Spain's sovereign debts rises above 7% interest, the limit to participate in international financial markets, they risk being completely cut off from financing, possibly preventing the government from raising enough money to continue even day-to-day financing of their government.

Contagion to Italy seems like it could be very likely, as French banks hold large amounts of both Spanish and Italian debt. If Italy and Spain both enter severe financial peril, it is likely that the EU will be unable to bail out the countries. If severe difficulties strike, then contagion to France is inevitable, and it is likely that the other countries on the Euro, including the seemingly-stable German and Nordic economies. Even before that point, it is possible that a crisis large enough could spread to other exposed economies, such as Latin America or Southeast Asia.

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The Royal Family
Heavy the Head


August 1st, 2012
The Spanish King abdicates the throne
Juan Carlos I had always been rumored to have accidentally shot his younger brother, the Infante Alfonso of Spain, during a household accident. It was a different set of gunshots that brought his reign as King to an end though, as political fallout surrounding his hunting trip to Africa during a period of austerity in Spain became too much for him to continue holding the throne. The Royal Household announced earlier today that the King would be abdicating in favor of his son and heir apparent, Felipe, the Prince of Asturias. The political scandal cost Juan Carlos his sky-high approval ratings, as they fell to an all-time low of less than 50% in the weeks following the scandal.


Adios, Juan

The King was appointed the Prince of Spain by Francisco Franco in 1969, as the dictator Franco was nervous about giving the throne to Juan Carlos's liberal father, Juan de Borbon. Juan Carlos became the King of Spain while Franco was on his deathbed in 1975, becoming the Head of State and Government in what was meant to be a continuation of Franco's dictatorial reign. However, Juan Carlos instead led the country in a difficult transition to democracy, averting several coups by hardline right-wing elements in the military. During one coup, the King appeared in full military uniform as the Captain-General of Spain's Armed Forces on national television, commanding the military to stay loyal to the civilian government.

Though extremely popular with most of Spain, Juan Carlos was asked to abdicate and make Spain a Republic by hardline leftist parties for the last several decades, and has faced increased scrutiny by the public lately. The abdication today is seen as a compromise which will take further political pressure off of the Royal Household, and guarantee the continuation of the Bourbon line in Spain.

The incoming King, His Royal Highness Felipe, Prince of Asturias, is well-known and well-liked through Spain primarily for his charitable ventures, including the international Prince of Asturias Awards. When Felipe takes the throne, his popular wife Letizia, Princess of Asturias, will become the Queen of Spain, taking over for Queen Sofia. Felipe, an Olympic athlete in the tradition of his mother and father, will be 44 years old when he takes the throne. The coronation is currently being scheduled, but looks to be carried out sometime in the middle of the month.

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Social Instability
Youth, Wasted for the Young


August 12th, 2012
Youth unemployment is causing widespread unrest
It has been nearly two and a half years since Alberto Garcin has held down a job regularly, a period of unemployment compromising more than a third of his adult life. The 24-year-old worked as a manager for a prominent Spanish construction company in 2010, but was laid off as it became abundantly clear that the housing bubble had expanded well beyond anything close to a level supported by national demand. Garcin started looking for a job the next day, and hasn't found one since. His story is startlingly common in Spain, where youth unemployment (measured as the unemployment rate for those under the age of 25) has risen above 55% for the first time in the country's history.


At least we'll always have futbol

The high, persistent, and growing rate of youth unemployment has catastrophic potential for the sitting Spanish government and for Spanish culture as a whole. Among the more than 1.75 million unemployment youths, more than 75% are now willing to travel abroad for work, sparking an exodus of Spain's youngest and brightest to other parts of Europe and overseas. Among the youth, underemployment is also rampant; Garcin noted that he had started applying to fast food chains for work long ago, despite his college degree in business management.

Similar amounts of youth unemployment have led to increases in violent crime for other European countries; most famously, France's comparable level of unemployment among Muslim youth was frequently cited as a factor in the Paris riots of 2005. Those riots eventually spread to encompass most of the major cities, as Muslim youth from the banlieus, or slums, torched cars and protested for better living conditions. In Spain, protests have been growing in size and intensity, requiring police intervention more than five times in the last week alone.

For Prime Minister Mariano Rajoy, the youth unrest presents a potentially fatal problem for his government. Elected with a split vote among the youth, his austerity programs have exacerbated the problem of unemployment among the demographic. Cuts to public sector payrolls have left government departments, one of the few organizations in Spain still able to hire the youth, with many fewer slots to fill. The austerity program limits the government to hiring only one person for every ten released, functionally cutting off the hiring of new employees. This has left the most politically-active young Spaniards as the ones with the fewest job prospects, providing the protesters with a competent and active core of political organizers.

Other Spanish youth have begun to actively seek employment abroad; enrollment in German language courses has increased by 90% over the course of the crisis as youth seek a jobs haven. Former Socialist Prime Minister Jose Luis Zapatero created a stir recently when he said that the Germans were "stealing" talented Spanish youth; the German government has set up a "Work in Germany" website in an attempt to make the immigration process for high-achieving foreign youth easier. Zapatero claimed that austerity measures were meant to keep youth unemployment high, while Germany used the resulting desperation to "recruit, coerce, and rob Spain of its future". While Zapatero's former political rivals in the conservative People's Party have backed away from the statements, the Socialist Party has eagerly taken it up as a mantra, using it to rally the youth in protests.

As political pressure increases on Rajoy to do something about the growing crisis, the Prime Minister has urged universities to lower their tuition rates or to begin giving out better financial aid packages as a way to keep Spanish youth in school longer. His focus is on "making sure that Spain is ready to compete when it emerges from this difficult period of time." Only time will tell if he is successful.

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European Debt Crisis
On the Brink, Again


August 21st, 2012
German media declares a new "Iron Curtain" over summit
Winston Churchill declared in 1946 that an "iron curtain had descend across the continent", as the Soviet Union began solidifying its hold on satellite states through brutal torture, government overthrow, and political assassinations. German media has now stated that Spanish Prime Minister Mariano Rajoy's calling of a summit of indebted European states is more divisive than the regime that split Germany in two with a concrete wall. By the rhetoric alone, it is clear that Germany and the debt-weakened states of Southern Europe are moving further apart in Eurozone negotiations. All of Europe could face the consequences.


Fault lines

With new reports indicating that a collapse of the Euro could cost Germany more than 3.3 trillion Euros, it is unclear why the German government has turned to such hysterics in response to the Spanish-called summit. In response to the German outrage over the summit, Rajoy reassured summit-goers that it was meant to supplement, not replace, Eurozone leadership and wrote a personal letter to Angela Merkel inviting her to the summit. Merkel promptly and decisively declined the invitation, calling Rajoy's administration a "definite mistake".

The abruptly strong split between Berlin and Madrid originated in discussions in the Eurozone about how a potential establishment of Eurobonds, a financial instrument which would spread liability for future bailouts across Europe instead of piling onto national debt. When Spanish and French officials raised issues with the proposed German mechanism for oversight, an unelected body of German-approved "technocrats" with the ability to force changes to national budgets and to withdraw all European financial support to endangered countries if German prerogatives were put into place too slowly, Merkel lost her temper and accused Spanish and French officials of pandering to their electorates.

The German response to the crisis is drawing international criticism; German economist Fabian Linder compared Merkel's response to the post-WWI reparations imposed by the victorious Allies. If left unchecked, Linder went on to say that the measures could force Spanish and Greek banks to collapse, as the German banks did in 1931. The risk for contagion is high; German banks are "notoriously undercapitalized", and have caused crises regularly since the collapse of the Herstatt Bank in 1973. The collapse of the Eurozone would have far-reaching implications; the United Kingdom and other EU states are extremely exposed to European debt, and economies as far away as China have begun to slow as European demand drops precipitously. It is likely that the collapse of the Eurozone would lead to another Great Depression.

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Social Instability
Latin Tempter


August 22nd, 2012
Massive protests over German "luxury trains"
Perhaps there was a better time for German Minister of Transport Peter Ramsauer to announce a massive expansion of the German high-speed rail network. Ramsauer announced today that the German government would be spending $40 billion on the upgrade to the rail lines, roughly the size of the last European bailout to Spain and larger than the bailouts given to Greece. Though numbers are fuzzy about the specific German contributions to bailout packages, it can now be considered likely that the German government has pledged to spend more on its rail system than on assisting critical European states.


Seeing red

The German spending on rails has been highly criticized by Spanish public officials, who have labeled the new rail expansions "luxury trains". Much of the Spanish political discourse has revolved around the implication that German officials care more about their convenience and comfort during their trips around the country than they do about keeping the Eurozone together.

"The German government has said, over and over, that we must make sacrifices to save the EU," said Maria Fatima Banez, Minister of Employment and Social Security. "At the same time that they ask more than half of the Spanish youth to seek out help just to put food on the table, they are toasting their new dominance in Europe with champagne and velvet on absurd new trains. This is not a joint venture in the eyes of the Germans - it is a way for them to squeeze more money and more talented youth out of Spain."

One of the common themes of protests has been the role that the Nazi German government played in influencing the Franco dictatorship during the Spanish Civil War. Pictures of Franco, Hitler, and Angela Merkel are common, and chants of "Not Twice" are common in large protests. During the Civil War, the German government provided millions of dollars of weapons to the Franco regime, which caused decades of miserable conditions in Spain in terms of both the economy and civil rights. The Spanish Republican forces, outgunned and outnumbered by German "volunteers", were quickly overwhelmed. The Franco government carefully toed the German line for the rest of the war, and were kept out of the international community until Franco's death more than thirty years later.

The unrest has manifested as massive protests throughout the country, especially focused in the southern province of Andalusia, where unemployment is highest. In Madrid, protests have been controlled with a massive display of force by police, who have deployed military forces to supplement local policing. The authorities have been careful to maintain an atmosphere of security to protect the upcoming European Prosperity Summit. Protests have turned violent in most cases, except those in Madrid, with numerous casualties reported among both police and protesters. It is possible that these riots could spread even further, as anger at the German luxury trains appears to be universal.

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European Prosperity Summit
The Path Ahead


August 30th, 2012
Rajoy lays out his agenda
Nothing has caused more of a stir in the European debt crisis than the German reaction to Madrid's hosting of a conference on the European debt crisis. Apparently insulted by a lack of an invitation - despite being only one of 37 European nations not be invited - the Germans have taken the last month to insist that the Summit is a "new block" in Europe, determined to throw Germany out of the continent. The Spanish response, supplemented by that of Italy, has been consistent - that the Summit is a meeting of indebted European states, looking for international assistance from some of the world's most capitalized states. The agenda published by Rajoy, seems to support the Italian hypothesis, seeing as there is no budgeting for bulldozers and ships designed to move Germany to East Asia.


A "pointed" rebuke

The agenda is focused on increasing confidence in debt issued by Southern European countries, with a focus on increasing the room for fiscal flexibility by the countries in question. The news coming from the Eurozone Summit seems to indicate that the German, French, and Spanish governments have essentially agreed on a system of Eurobonds to be issued up to 50% of GDP for affected countries, with the implementation of European financial oversight by a new, technocratic body. Spanish efforts at the Summit seem to be focused on rehabilitating the debt which will be left over after the exhaustion of Eurobond funding. The remaining debt, which makes up roughly 18% of Spanish GDP, is likely to still be considered toxic by some, raising the risk that rolling over the debt will still generate 7+% interest.

In addition, the Spanish government plans to attempt to build a joint IMF-volunteer package for the period directly after the initiation of the Eurobonds. The Spanish government has published a series of plans explaining the use for the funds in improving economic growth, building on the development of credible debt-issuing by the European nations. The focus of the conference is on restoring stable employment at the 10% level in the affected countries, hoping to stabilize the societal uprisings occurring in Spain, Italy, and Greece. With the restoration of social stability in the Southern European countries, it is likely that confidence in a rebounding Europe will be able to stabilize GDP growth over the next three years, driving a GDP recovery in Northern Europe as well as demand increases in their largest importers.

At the same time, the Spanish government's plans show plans for medium-to-long term austerity, as promised in the amendments to the Spanish Constitution that mandate a balanced budget by 2020. These austerity measures begin in late 2016, and carry through to 2020, when a small surplus is expected. After 2020, the Spanish budgets plan for continuing surpluses in order to pay down Eurobond debt, a task that will be completed in 2030 at the latest. The plan, balancing the Northern European desire for austerity and budget stability and the Southern European desire for stability and employment growth, would need to have the support of larger non-European countries like the United States, which will be in attendance.

German interests at the meeting will likely be proxied through the responses of other less debt-ridden European countries such as Belgium, but are likely to be less influential than they would have been if Chancellor Merkel had accepted repeated Spanish invitations to the conference.

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Iranian Nuclear Program
Liquid Temptation


September 2nd, 2012
Iran offers to restore lucrative oil contracts to Spain
Spain's economic collapse can be credited to many sources, including but not limited to the ECB's interest rates, an uncontrolled housing bubble, and austerity measures imposed midway through the first flicker in the economy. One of the factors most frequently overlooked, however, was the cutoff of Iranian oil, following the imposition of joint American-EU sanctions against the Revolutionary regime. The sanctions, meant to shake the government from their hidden nuclear program, carry with them heavy penalties for countries dealing with Iranian oil.


At least they're not Sri Lanka

Iranian oil makes up a large part of the Spanish energy industry, composing 150,000 barrels of imports a day at its height, 13% of the country's total oil imports. While the US regime of sanctions would impose penalties on Spanish banks and other institutions that engage with the Iranian regime, the penalties could likely be avoided with a clause in US sanctions allowing countries time to adapt to new energy sources. The EU sanctions, however, are much less flexible - but the Spanish government was one of the 27 states to unilaterally agree with their imposition.

The sanctions were passed under the government of Luis Zapatero, the Socialist Prime Minister who preceded the current office-holder, Mariano Rajoy. It is possible that the new government would be willing to reverse this policy, though it could severely interfere with American willingness to assist at the upcoming European Prosperity Summit. With the price of gas twice what is was before the sanctions against Iran, the restoration of Iranian oil imports to Spain could be a way out of economic stagnation if the international community doesn't come through. Perhaps Iran would be more loyal friends than the Germans.

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Social Unrest
Paying the (German) Piper


September 6th, 2012
Austerity begins to bite police and rail
Lorenzo Nebrera, the spokesman for the Spanish national police union, is always careful to say that the cuts to individual police budgets through the country do more than just take numbers out of individual paychecks.

"Cuts to the departments mean that police officers have to buy their own equipment, and this new equipment is not high-quality," he said, demonstrating by breaking an apparently flimsy pair of handcuffs. "When you only issue uniforms and service weapons to the officers, they get under-preforming bullet-proof vests, flashlights, and radios. This makes an already difficult and dangerous job much more dangerous, both for the police and for the citizens whom they are trying to protect."


Police and fireman, under fire

The Spanish cuts also directly hit the pocket of the Spanish police, who have been protesting cuts of one of their 14 annual paychecks; worse still, the paycheck cut is the one coming directly before Christmas. Plainclothes protests of the police have been common, especially at the graduation ceremonies of Spanish police cadets. The police unions have demanded the restoration of funding to departments to purchase better equipment, and Navarro has made his case based on the increasing number of officers injured in clashes with street protesters.

"The government wants to impose its austerity on the nation, but is cutting the only way to deal with the outcry. This is a recipe for chaos within the country."

Spanish police aren't the only ones that are irked at the austerity measures' impact on resources. Union representatives from RENFE, the state-owned company responsible for running most major passenger and freight trains in the country, have complained that cuts to its budget and privatization of its subsidiaries is preventing it from performing critical upgrades to its high-speed trains. The high-speed trains, or AVEs, were supposed to be replaced this year by a new model, but cuts to the budget forced officials to refurbish and upgrade the current trains with new signaling mechanisms to make sure that there wouldn't be conflicts between the two common types of tracks in Spain ("Iberian grade" and "European grade"). The upgrades have been delayed by union strikes and a lack of funding, which has officials concerned about communication issues between trains.

Workers on the upgrade program have complained about similar cuts, and there is a reported lack of enthusiasm from the very top of the company - as part of the mandated austerity program, salaries for officials at state-owned companies were capped at roughly €100,000 a year, well below where the salaries once stood.

Other Headlines

Foreign Ministry officials "concerned" by lack of information from Ecuador
Spanish bid for 2020 Olympics in peril, say organizers
Little worry over alleged joint Iran-Egypt-Syria meeting

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Eurozone Summit
Eurobondage


September 10th, 2012 - Editorial
A new bailout for Spain also brings new oversight
Allegedly, negotiations between Germany's Chancellor Angela Merkel and Spain's Prime Minister Mariano Rajoy reached the point of shouting at several times during the negotiations over the latest planned tranche of bailouts for Southern Europe. The dispute was not over the bonds to be given to Southern Europe (up to 50% of GDP in jointly-guaranteed Eurozone-issued bonds, commonly known as Eurobonds), but over the new body meant to enforce German austerity standards on the continent. The body, which is reportedly named the Eurozone Central Planning Commission (ECPC) after similar East German structures, is given the authority to arbitrarily withdraw funding for the bonds at any time, based on perceived noncompliance with German directives. Though the proceedings of the meeting have not yet been released, it is reported that Rajoy's protests over the measures were met with threats to cut off the existing promised bailout funds for Spain, which would throw both the Spanish and European economies into turmoil.


Bullish German "leadership"

After Spain acceded to the German threats and agreed to support the creation of a German Central Fiscal Authority, the rest of Europe was split over whether or not to support such a creation. Though the voting is not completed (certain countries such as the United Kingdom were not present at the summit, and as such still need to vote), it appears that Greece, despite needing a bailout most urgently, stood up to the Germans and voted against the proposal. It is likely that the example of Greece's boldness will haunt Rajoy, as protesters have already picked up on the contrast between Southern European leaders.

The German plan seems to revolve around the same strategy used by the European Central Bank in supporting favorable conditions for German growth, while keeping Southern Europe in economic disarray; appoint German "technocrats" to the positions on the council, while then using the technocrats to enforce crippling austerity on the other countries. However, there is some hope for the Spanish economy - measures pushed through by Rajoy in amending the structure of the Central Planning Commission include a straight-majority vote of the countries in the Eurozone to appoint officials to positions on the council. Rajoy likely believes that the Southern European countries, which outnumber the Northern Europeans, will be able to use their majority to keep German technocrats off of the council.

The plan, however, is contingent on the electoral math of the Eurozone. Belgium, Greece, Ireland, Italy, and Portugal have all been severely hurt by austerity already, and are likely to support Spanish candidates. These countries make up six of the seventeen members of the Eurozone. Austria, Finland, Germany, and the Netherlands have been staunchly for austerity, giving them four of the remaining eleven votes. This leaves the Spanish needing to convince three of the seven undecided votes, while Germany would need to convince five. The voters, excluding candidates likely to abstain, will come down to Cyprus, Estonia, France, Slovakia, and Slovenia. The future of the European economy likely rests on their shoulders.

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Civil Unrest
Switching Places


September 12th, 2012
Catalan police briefly join protestors
Chaos briefly overtook the streets of Barcelona when elements of the Mossos d'Esquadra, the Catalan regional police force, switched from containing street protests to joining them. Apparently a continuation of police protests against austerity measures which have decreased police pay and equipment funding, the policeman took off their riot helmets and turned to face the Palau de la Generalitat. The turning towards the seat of government in Catalonia was apparently a pre-planned action, as the protesters immediately welcomed the police into their ranks as they advanced on the palace. The protesters stayed outside of the palace itself in order to avoid damaging the ancient building that has become a symbol of democracy in the autonomous community.


Peaceful, for now

The police presence in the area was restored with the arrival of the Spanish National Police, who were given special authority to intervene by the Catalan government. Normally, the Catalan police hold sole jurisdiction over law enforcement within the province, though they sometimes allow the national police force to assist with certain investigations. The Spanish National Police restored order and the cordon around the palace without violence, though there were sporadic reports of arrests and several claims of police brutality by the protesters, who said that protesters getting too close to the line had been bludgeoned repeatedly.

The turning of the autonomous police forces could be a destabilizing factor throughout the country - the Spanish National Police only regularly operates in certain autonomous communities. In Catalonia, the Basque Country, and Navarre the policing is undertaken by separate police agencies. In Madrid and the surrounding areas, a complementary police force, usually embedded within the Spanish National Police and known as the BESCAM, provides resources for the National Police in the area. If the regional police forces begin defecting, then it is highly unlikely that the National Police, known as the CNP, will be able to cover all areas of protest.

In Madrid itself, security continues to increase as preparations for the European Prosperity Summit continue. BESCAM and the CNP have been supplemented by reinforcements from the Spanish Civil Guard, the country's gendarmerie. The GC, as it is known in Spain, has units throughout the country, but has moved an estimated 50,000 of its 80,000 officers to Madrid in order to supplement preparations for the summit. Regular military are reported to also be on hand in case the summit requires further protection, but police union officials have hypothesized that the units are available in case of police strikes or other disruptions, which would outside of the military's legal authority.

The Spanish government has confirmed reports that it will be requesting the use of standby forces from the European Gendarmerie Force, a combined effort between Spain, France, Italy, the Netherlands, Portugal, and Romania, to supplement the CG. These forces will be used to supplement the most direct defenses to the conference as an international guard for the guests.

Other Headlines

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European Debt Crisis
Bailed Out, Bailed In


September 14th, 2012
A €540 billion bailout for Spain is imminent
The most recent Eurozone Summit has been the target of heated rhetoric from all sides of the political aisle in nearly every country in Europe, not to mention the rest of the world. But leaked documents from the conference, which closes this week, show that the assembled countries have agreed to a bailout package worth half the GDP of Spain, Italy, Greece, and other affected countries. The deal, based on the issuance of commonly-guaranteed "Eurobonds", allows each country to take out up to half of its GDPs in the new debt issuances to pay down higher-interest national debt. Of course, the bailout has not come without a price - the establishment of a new European body to oversee fiscal activity of its member states... or rather only those in Southern Europe.


She might now have it

The Spanish government's plans for the bailouts, which were obtained by interviews with Ministry of Finance officials who elected to remain nameless, are extensive and largely expansionary. The bulk of the money will be set aside for several purposes related to increasing confidence in the Spanish economy: first, the government has guaranteed the debt issued by autonomous communities, whose debt has come under fire from speculators in recent months. Second, the government has expanded its guarantees on deposits in Spanish banks, and has begun purchases of some of the more toxic assets held by large troubled banks. Third, the government has set aside a pool of the money to be held as a backstop for other government programs having trouble raising capital, especially unemployment insurance and welfare. The threat of these program running out of liquidity has raised fears of a complete economic collapse, which would look like the economic chaos of the 1920s. In total, some €300 billion has been added to the already extensive €100 billion bailout already given to protecting liquidity in private Spanish banks, bringing the total backstop on the banks to €400 billion, which outweighs even the most pessimistic estimates of €300 billion of "problem loans" held by the sum of all banks. The sum is also more than eight times the size of the banking bailout in the United States known as TARP, the Troubled Assets Recovery Program.

The rest of the bailout funds, roughly €240 billion, are not being held as a backstop, but are instead being used to help the economy restore its growth. This two-pronged strategy is meant to help, above all else, the troubling debt-to-GDP ratio in Spain. Because the backstop money can be accessed at any time, the Spanish government does not have to actually buy the bonds, and thus increase the debt. The only debt that will be added to the sovereign's books is the €240 billion being used in direct stimulus. The stimulus itself takes various forms.

First, it is being used to pay off some of the highest-interest loans issued, especially those above 7%. While no Eurobonds have yet been auctioned off, and it is thus impossible to determine their interest rates, other German-backed debt has been selling at less than 1.5% interest for 10-year yields. It is likely that Eurobonds will sell in roughly the same range. The Spanish government intends to perform its own version of "Operation Twist", the activity practiced by the United States Federal Reserve, selling off short-term debt for long-term, lower-interest debt. This will reduce the deficit in the short term, by greatly decreasing currently-due interest payments which are greatly increasing the amount of Spanish debt. This portion of the stimulus will use roughly €40 billion in bonds.

Second, the money is being used to bolster unemployment insurance and welfare, programs previously cut nominally as part of austerity programs. The earlier cuts, which had been made to "encourage unemployed to return to work", have been described by a high-ranking Ministry official as a "cruel joke, considering the lack of available work." The measures are meant to stimulate consumption in low-income and hard-hit areas, seeking to access the multiplier effect common when there is little marginal utility for saving. A sharp decline in consumption makes up more than 40% of non-trade factors in the decline of overall Spanish GDP. The programs' expansion, together, will use up about about €6 billion of the €27 billion in spending cuts of the 2012 budget. The measure then spends a further €7b on increases in payments to families receiving welfare, noting that the payments are spread over the next two years and expire annually. The expiration date, clearly advertised in the checks being sent to families, are meant to ensure the use of the funds while they can still affect the crisis.

The third plank of the bailout will be used to further increase consumption of the middle and lower classes in Spain, especially targeting the unemployment rate. Increases in gas and electricity prices, which could become crippling in the coming Spanish winter, have been rolled back for certain tax brackets, saving €10 billion for Spain's lower and middle classes. Cuts at other government ministries have remained in place, however, leaving the Foreign Ministry, for example, with less than half of its preexisting funding. In total, the program expansions will cost roughly €5 billion of the €27 billion in spending cuts of the 2012 budget.

In order to combat youth unemployment, a number of increases grants are being made to Spanish universities, earmarked for a massive expansion in scholarship funding over the next five years. This program is meant to decrease the unemployment rate by bringing youth looking for work out of the numbers of those actively looking for work, one of the prerequisites to be counted as unemployed. The scholarships are earmarked for full room and board, and are meant to cover living expenses for gifted Spanish postgraduate students who might otherwise be forced to look for work abroad. The scholarship fund will cost an estimated €10 billion over five years.

Import-replacement subsidization has made up the next chunk of the stimulus, designed both to help struggling exporters cope with an artificially strong Euro and to help industries competing with artificially cheap imports. The measures have developed a Spanish equivalent to the American Export-Import Bank, an organization chartered to improve the ease of exporting for Spanish companies who might lack credit or trustworthiness. The bank, like its American version, will make advancements on credit for the companies, allowing the companies lower interest rates on their debt and the guaranteed ability to do business. Unlike the American version, which is currently mandated to help small businesses, the Spanish version will help small and medium businesses, as well as larger businesses whose creditworthiness has been affected by the current crisis. The bank's starting funding will be €80b, spread over the next two years and with a mandate to use all budgeted money in each year. The mandate of the bank expires after three years, when it may either be renewed or cancelled by the Spanish government, with its outstanding debts absorbed by the Ministry of Finance.

Along the same front, a Spanish Domestic Development Fund has been initiated to seek out opportunities to streamline loans and crediting to Spanish banks funding import-replacement industries in Spain. A large increase and reliance on imports is responsible for more than a third of the Spanish decrease in GDP, and most of the rest has been caused by a lack of investment in the economy. The Fund is mandated to conduct its operations through Spanish banks, making sure that its measures will be matched with private Spanish banking funds in order to recapitalize the Spanish banking industry as well as easing liquidity in the Spanish economy. This measure seeks to improve both indicators at the same time, as well as easing unemployment by boosting Spanish job-creation. The Fund's starting capital will be placed at €80b, set for the next two years. Like the Export-Import Bank, its mandate will expire in three years, after the effects of the stimulus can be studied in greater detail.

Finally, the last €22b of stimulus money will be spread out through extensive job training funding, meant to both create work and to ease the notoriously static Spanish workforce. The fund will cover partial moving expenses, job training, industry shift employment, and various other methods meant to encourage switches from employment in the housing and construction industries to other, higher-potential industries such as alternative energy. The funding will be disbursed, unlike most of the funding, over the next five years to match the funding being spent on education. These programs will specifically target the youth.

More breakdowns of the reforms are expected in the next several days, as the numbers become official. Overall, the impression is of a highly liberal package, unusual for the conservative Peoples' Party - several commentators have suggested that the stimulus will cover more bitter economic measures to come.

[Spain (MTTezla)]

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European Debt Crisis
The Nitty Gritty


September 15th, 2012
More analysis of Spain's stimulus
Details of the Spanish stimulus package, funded by the new Eurobonds, continue to come out as the week carries on. The stimulus package is the largest in modern Spanish history, and the direct spending alone makes up more than 14% of GDP. Adjusting for the relative size of the Spanish economy, there is more than seven times as much direct government spending than the American stimulus of 2010. And in indirect spending, the government is backing bank accounts by more than eight times the amount used in the United States's TARP initiative. The direct spending in the package is by any measure, overwhelming.


Seeing clearly

The direct spending, however, appears to the be the carrot before the stick. The details of the direct spending were leaked well before the news that they would be accompanied with policies much more in line with the traditional party line of the conservative People's Party. The next series of reforms have to do with undermining the power of unions, with the goal of improving flexibility within the Spanish labor market. The Spanish unions are unusually strong, thanks to their role in organizing resistance during the Spanish Civil War and during the reign of Francisco Franco afterwards. The unions have particularly strong control over wage cuts, which has prevented employers from cutting wages. Instead, the employers have had to simply cut payrolls, leading to massive layoffs and an increasing underemployment rate.

The measures are attached the bailout package, meaning that if the minority Socialist Party wants to put any major political resistance in the way of the changes to union laws, they will have to also vote against improving funding for a smorgasbord of popular liberal policies. The unions themselves have begun vociferously protesting the changes, but have been undermined by the sweeteners included in the deal for the rest of the country, especially decreased electricity and gas prices for lower and middle-class Spaniards. While union leadership continues to appear at protests, attendance among workers is steadily falling, and it appears that the political power of the unions may have been neutered by the unusual combinations of policies.

Other measures in the bill include a cut in the minimum wage, increases of the retirement age even further from 67 to 68, and a series of deregulatory policies placed across several closely government-observed industries. Also tucked into the bill are a severe curtailing of the powers of public-sector unions, including and largely focused on police and rail unions, which have gone on strike several times in the last two months. The rail union strikes have allegedly put into jeopardy much-needed upgrades to communications equipment on Spanish trains, which are notoriously old.

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[Spain (MTTezla)]

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European Debt Crisis
Toeing the Line


September 17th, 2012
Rajoy's People's Party pushes through the stimulus
Alfredo Perez took over the Spanish Socialist Workers' Party (PSOE) in time to coordinate the 2011 general election, after the resignation in disgrace of former leader and Prime Minister Luiz Zapatero. He promptly led the PSOE to the worst electoral defeat of a sitting government in Spanish history, losing them an astonishing 59 seats in the Chamber of Deputies, Spain's lower house. Now, he has failed to split away enough members of the People's Party to prevent the passage of a massive stimulus package that will curtail union rights in a more drastic manner than ever before in Spanish history. Worse still, when it became clear that the measure would pass, members of the PSOE began defecting to avoid political fallout from voting against electricity and gas price cuts for the lower and middle class. The vote for the stimulus package now looks very much like a cross-party landslide.


Nearly unanimous support

By the end of the defections, and with the support of several minor parties, it appears that the final vote in favor of the stimulus package was 168 of 266 (63%) in the Senate, and 264 of 350 (75%) in the Chamber of Deputies. While parts of the stimulus will go into effect in November and December, many of the more complex measures such as the Export-Import Bank will be set up through the rest of 2012, and will not enter effect until January of 2013. If the vote had been successfully delayed by the PSOE, intricacies within the bill would have prevented the execution of most complex stimulus until 2014, and the passage of the bill on the first ballot is a huge victory for Prime Minister Mariano Rajoy.

In the meantime, restrictions against union price-setting and striking abilities enter effect immediately, as union leadership has begun calling for a general strike against the provisions. Most major Spanish companies have begun mechanisms for cutting wages already, which will allow rehirings to begin around the start of the new quarter in 2013. The employment surge will come into effect after three months of job training programs and relocation subsidies are already in effect, likely making hiring in Spain easier than it has been in the democratic era. The rigid labor market has been one of the red flags for Moody's and other rating agencies in downgrading potential for Spanish debt and GDP growth. When Spanish companies need to cut payroll, the only way in which they can do so is laying off employees, as rigid union rules prevent pay cuts.

The pay cuts mean that GDP growth in 2012 will likely be slightly more negative than expected, though it is possible that immediate government spending in gas and electricity subsidies will be able to counterbalance the effects. The unemployment rate will likely beginning falling in the final quarter of 2012, but not by much - more precipitous drops will come in early 2013, as scholarship funds begin accepting students to university for the spring semester.

The spin battle over the next three months is likely to define the perceived success or failure of the stimulus package; it Rajoy can convince Spanish voters to hold their judgement of the stimulus package, then its effects in 2013 will likely boost its popularity. If not, the stimulus could be dead before it starts, thanks to the efforts of union officials.

[Spain (MTTezla)]

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Social Instability
Waxing and Waning


September 19th, 2012
Street protests lose their vigor post-stimulus
Rosalita Perez had been out in the street for the last three weeks, protesting the austerity imposed by the German government with vigor. Now, she's packed her bags and says that she's ready to hang up her protest gear and take a shower for the first time in far too many days.

"Now that we once again have cheap gas and power, and now that we will be able to return to school in the new year, I no longer need to be here," she said, packing mementos of the protest, including a policeman's hat. "The protests were a means meant to accomplish an end, and that end has been achieved. Those that continue to stay on the street are there because someone high up in a union has told them to be there, even though none of the things that we were protesting still exist. It's just as bad as the Socialist government was when they were in power - the leadership thinks that they can control the people, but the people were always the ones that have been in control."


Union leadership, isolated

The sentiment that Ms. Perez espouses seems to be shared by many of the youth that packed the streets of Madrid, Barcelona, and most other major Spanish cities over the last three months. The protests, they claim, were never about protecting union rights, but instead were about preventing more bouts of austerity, and rolling back those which had already happened. Prime Minister Rajoy's stimulus plan has done both, and the result in an increasing divide between union leadership and those that used to be their staunchest ally.

An unusual result of the long period of high youth unemployment has been the lack of any significant loyalty to unions or their leadership - many of the youth on the street have simply never been in contact with the unions during periods of employment. Others worked only a short time before being laid off, and experienced only paying mandatory dues to union leadership, not the wage guarantees that they provided. As a result, the union's ability to draw protesters out into the street has been diminished as quickly as their membership rolls, and they now are starting to feel similar pressure politically. Though it is relatively unusual for a conservative party to have significant appeal among the youth, polling shows that Rajoy's People's Party now counts the youth, and especially unemployed youth, among its strongest supporters. The perceived relationship between union leadership and the Socialist Party has negatively affected both of their standings in the eyes of the Spanish youth.

What is less clear is if this trend will hold. Before the economic downturn, the Socialist Party could count on the fairly staunch support of the youth vote, and it was often enough to win swing votes throughout the country, giving the Socialists a healthy parliamentary majority. Without these youth voters, the People's Party could be looking at a major coup in upcoming elections by sweeping away a major demographic, or turning it altogether. The next elections are scheduled for 2014, but it is likely that Rajoy will strategically move them up into late 2013 to take advantage of the benefits of the bailout in progress.

The lack of union support may be spreading beyond just the youth - polling has shown drastically decreased support for unions among those who have been unemployed longer than 19 weeks, commonly the benchmark for the "long-term unemployed". These groups blame the unions for the inability to find work almost as much as they blame the German government for the austerity measures that largely crippled the Spanish recovery. While these groups have been more fickle supporters of the Socialist Party, and thus matter less electorally, if their support of unions disappears, the unions themselves may be in serious trouble of losing their political sway in Spanish politics. Even more, if calls for strikes continue to go unanswered, unions may face increased pressure from the management with whom they negotiate; long used to getting the better of negotiations with the help of the government, the unions may now be in for a change of pace.

[Spain (MTTezla)]

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War in Afghanistan
Too Many Chefs


September 19th, 2012
Pakistani involvement in Afghanistan may scare off Spain
No member of the government ever thought that the war in Afghanistan was going to be an easy affair, insists Spanish Minister of Defense Pedro Morenes. His insistence betrays the facts of the time, when most Spanish politicians discussed the war either openly or behind closed doors as a "nice little war" - an intervention to express their solidarity with the Americans and to shake the rust off of the Spanish Army. One would think that a country so freshly humiliated from fighting in the Spanish Sahara would know more about the dangers of desert insurgencies, but the government appeared overconfident. Now, the government appears to have made a full 180.


A few too many sides involved

The official reason for the lack of government enthusiasm for Spain's continued presence in the country is the increasingly bold intervention of the Pakistani government. The Pakistani Army, known to regularly attack Afghan villages and army units on the other side of the Durand Line, as their common border is known, has expanded its operations, and has been shelling Afghan villages with ferocity. Pakistani officials have claimed that these actions are to prevent militants from hiding in Afghanistan, a rather laughable claim considering insurgents face no pressure from the Pakistani Army on their own side of the border, but face massive ISAF armaments on the Afghan side.

The Spanish government, along with the other governments of the ISAF, have repeated appealed to the Pakistani government to attack safe havens in Waziristan and Khyber Pakhtunkhwa, the area formerly known as the Northwest Frontier Provinces. While the Pakistani Army did launch an offensive to combat the Pakistani Taliban (TTP) in several areas in Balochistan, they largely left alone safe havens used by the Taliban, the Haqqani Network, and various other affiliated insurgent groups such as the Islamic Movement of Uzbekistan (IMU). The safe havens allow Afghan groups to flee repercussions of ISAF advances with impunity, and are subject only to sporadic drone attacks once they reach the umbrella of the Pakistani government.

The intervention of the Pakistani Army is seen as a sign that the ISI is again gaining predominance in conducting the foreign affairs of the Pakistani state; for the years following the Soviet invasion of Afghanistan, the ISI led a massive intervention of Pakistani forces into Afghanistan to topple successive democratic governments. The Pakistani interventions established the rule of the Taliban, though the government now claims that it has cut ties with these insurgent groups. Several Spanish officials, speaking off the record, noted the high likelihood that the Pakistani intervention meant that they had formalized relations with certain Afghan resistance groups, and were beginning to kill off their rivals in preparation for a post-American Afghanistan.

Spanish defense officials also stated that the country's longstanding policy was to not intervene in large-scale, multilateral wars, and raised fears that this is exactly the situation in Afghanistan. If the two countries go to war, it will be the first time that they have done so since Pakistan's independence from the British Raj in 1947. Pakistani aircraft or artillery have bombed Afghan villages in 1949 and 2003.

[Spain (MTTezla)]

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Austerity
Not Dead Yet


September 20th, 2012
Some austerity is still featured in Spain's 2013 budget
Most areas of Spanish society have managed to dodge austerity measures in next year's budget, thanks to the last-minute establishment of Eurobonds, lending liquidity to the Spanish government's stimulus efforts. However, certain segments of the society have not - in the crosshairs, the wealthier members of society, whose tax increases have not been rolled back, and the military, whose budget is coming under concerted attack. Though Rajoy has claimed that these areas are the only ones coming under austerity measures in the short-term, they have both been hit hard.


On second thought, maybe save that ammo

The tax increases for the upper class do not make up a significant portion of their income, but the effects of the stimulus make them slightly more pronounced. Previous austerity measures such as gas and electricity price hikes have been rolled back for the middle and lower classes, but have stayed in effect for those in the highest Spanish tax brackets. The Spanish government's rationale for these changes is a technical one - arguing that the rich are less likely to spend the money from the savings than the poor are, they are using the limited resources where they will be most likely used fastest.

The argument has not mollified representatives of the upper class, who feel that they have been betrayed by the usually conservative People's Party and its leader in Rajoy. Arguing that they have been unfairly targeted, there have been rumblings within the party itself about replacing Rajoy as the party leader, and putting in his place someone more willing to consider the interests of the rich. However, because the stimulus has been so kind to large Spanish businesses, the movements for Rajoy's ouster have been lacking a critical corporate support. As Rajoy seems unwilling to antagonize corporate interests, and has in fact mollified them at several turns with provisions in the stimulus, especially the backing for toxic construction debt in banks. This backing will likely lead to better debt renegotiation terms with the banks, helping major industries both in banking and construction, not to mention the various other industries negotiating with the banking industry.

The cuts to the military may risk more political backlash, and have deeply angered the military leadership, most of which was promoted during the Socialist administration. The cuts proposed in the 2013 budget are extremely steep for the military, and come to a total of roughly €3 billion, out of a budget of only €11.2 billion. These massive cuts come with the end of many of Spain's future Naval programs, drawing the particular ire of Spain's admiralty. The Navy is making the case very publicly that the cancelled Spanish multi-purpose F-110 frigates and submarines are "critical for Spanish naval security", stating that the defense of Spain's aircraft carriers cannot be guaranteed without them. Defense department officials have fired back, saying that the frigates, which would have an anti-air focus, are redundant with the new F-100 frigates already being constructed.

The Navy is also upset with the folding of the Canary Islands Naval Zone, which means the loss of jobs for several of the Navy's admiralty directly. The admirals have made the case that the Canaries cannot be sufficiently protected with the rest of the Atlantic Zone, citing the long distance between Spain and the islands, as well as ongoing cooperation efforts with surrounding African states. Their claims are somewhat betrayed by the lack of effort on the later front - the Canary Island Zone has been largely undermanned and starved of resources by the admirals over the last five years.

The anger with the cuts is also evident in the Army, where personnel cuts will cost the Army an entire brigade of troops, leaving them at troop levels reminiscent of their 2004 levels. The Army warns that the decreased size of the military will prevent the armed forces from being able to provide sufficient backup for police forces which need reinforcements, though the large Spanish Civil Guard, not subject to cuts, is the first line of defense in that regard. The Army also claims that its counterterrorism duties will suffer, and that its expeditionary function, seen in the deployments in Afghanistan, will be functionally disabled by the cuts.

The Air Force has joined in the complaints, though the only cuts to its branch have been nominal, halving its purchases of cargo aircraft and helicopters. The Air Force's complaints have been more muted, likely so they will not face more wrath from the government in future austerity measures. Still, they have shown solidarity with their sister branches to at least a point, and have complained in published reports along with the Navy and Army.

The cuts will save Spain a great deal of money not just in the next year, but will also yield savings over the next five to ten years, according to a declassified report by a Spanish Ministry of Defense review. These savings will undoubtedly be an integral part of Rajoy's "medium-term" austerity, the measures that he plans for the five-year mark as part of the effort to strike a balanced budget by 2020. "Long-term" austerity is focused both on the balanced budget in 2020 and a series of planned budget surpluses after that point, meant to drive down the national debt and to begin paying back Eurobond and IMF loans.

[Spain (MTTezla)]

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Security
A Critical Stop


September 20th, 2012
A trio of Al Qaeda operatives are arrested in Southern Spain
Spaniards remember with great pain the date of March 11, 2004, when Islamist terrorist groups detonated a series of explosives in Madrid's subway system, killing 191. The attacks instigated a decade of careful security work by the Spanish security forces and military, who have arrested more than 400 people linked with various Islamist groups since that time. Now, it appears that the security apparatus of both Spain and the international community have struck a huge victory, catching three senior Al Qaeda operatives with a large amount of explosives and experience in "poison and car bombs".


Foiled

Spanish authorities said that the arrests were made with the assistance of the intelligence organizations of "Spain's allies", usually a euphemism for the assistance of European and American intelligence agencies. The operation to capture the three was a part of one of the biggest international operations to date, evidently having been planned over a number of years due to the volatility of the suspects.

The three suspects were found with enough explosives to "destroy a bus", according to Spain's Minister of the Interior, Jorge Diaz. He went on to note that one of the suspects had put up "massive resistance" during his capture, but declined to give further details about the capture of the operative, not clarifying if the resistance was violent or covert. When asked if there were more operatives still free in Spain, Diaz said that if there were, they were "not related" to the operation foiled by the capture of the agents.

Spain makes a tempting target for terrorist attacks given its long, involved history with Muslim culture. Extremist groups often refer to "taking back Al-Andalus", the name of the province during its time as a part of the Ottoman Empire, before its reconquest by French and Spanish royalty. Another Al Qaeda operative captured in March was known as "the librarian", and was responsible for running various websites and support for the group's operations in North Africa and Spain.

[Spain (MTTezla)]

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European Prosperity Summit
Breaking the Silence


October 3rd, 2012
Rajoy's signature summit is drawing little enthusiasm
Most diplomatic functions are relatively similar - participants open the conference with a series of long and dull speeches expressing unity and sentiments of cooperation, before delving into the more detailed issues at hand. Spanish Prime Minister Mariano Rajoy tried to break this pattern with a bold opening speech at the Greater European Prosperity Summit being held in Madrid, and appears to have thrown off the other delegates in doing so. With the exception of a supportive Italian speech, the assembled representatives have failed to make their sentiments known, instead calling for multiple recesses.


Waiting for the action

The silence of the representatives is understandable from a variety of perspectives; Rajoy's break with diplomatic proceedings was not just unexpected, but also somewhat technical, and it is likely that the assembled groups needed time to consult with both government officials in their respective capitols and with economic experts. In fact, the one minister to speak, Italy's Vieri Ceriani, holds a Ph.D. in Economics and Public Finance. EFE has also taken the time to break down the proposals made by the Prime Minister in his speech, and has summarized the contents below.

Opening: Confidence Boosters
Rajoy spent the first several minutes of his speech discussing his confidence that the Eurobonds and other measures taken by the Eurozone will be sufficient to stabilize the EU and end the current financial crisis. He goes on to say that the Summit is being held to restore 2007-like levels of growth to Southern Europe and the recessed global economy. He notes that he will be presenting some proposals from Spanish economists, but that he welcomes proposals from the assembled representatives.

Proposal 1: Guaranteed Public Debt
Rajoy notes that major financial default has not happened in modern European history, and that such an event is exceedingly unlikely. To prevent similar future runs on national debt, he proposes joint debt guaranteeing by assembled nations to keep such speculation in check. To maintain credibility, he proposes limiting joint liability to 100% of GDP, adjusted to allow for stimulus during times of recession.

Proposal 2: Commitment to Free Trade
Rajoy makes the usual request for countries to continue to restrict tariff and non-tariff trade barriers. He asks for a formal commitment to continue doing so to ease global liquidity.

Proposal 3: Transparency Regulations
Rajoy requests that the Summit adopt a standardized system of reporting economic figures to global economic institutions to ease faith in potentially corrupt systems and to temper expectations during economic booms.

Proposal 4: Mutual Aid Pact
Rajoy waxes eloquent about the need for Mutual Aid Pacts (MAPs) to replace Mutual Defense Pacts (MDPs). He proposes that the assembled nations agree in principle (though in a non-binding capacity) to aid each other during economic recessions to prevent the massive spillover characteristic of economic distress in the modern era.

Overall, the agenda laid out by Rajoy appears to stress an attitude of enmeshing global finances, in light of continued problems with economic contagion. The last two major economic crises to hit the Western world (the U.S. financial collapse and the subsequent European financial collapse) quickly affected not just the countries with bad banking, but nations throughout the world, smashing GDP growth expectations from Beijing to Berlin to Brasilia. The reforms suggested generally increase clarity in a global marketplace which is expected to support itself internationally by investors but which often turns to protectionism during recessions. It remains to be seen if the other representatives will follow along.

Other Headlines
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"Brett Burton" is actually political prankster - El Pais
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[Spain (MTTezla)]

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Austerity
Safety First


October 12th, 2012 - Editorial
The capture of three Al Qaeda agents defies military cuts
One fact should stand out among the many being reported about the plans of the three Al Qaeda operatives who were caught in the middle of a plot to attack European targets - they are only three of the many operatives in both Europe and Spain. The risk of terrorist attacks, from both radical separatist movements and from international Islamist terrorism has not diminished since the bombings of the Madrid metro trains.


Through the grit

The cuts that appear to be solidifying in the 2013 Spanish budget make it clear that stopping future terrorist attacks like the Madrid bombings and like the plans of the Al Qaeda Three. The massive cuts to the military include critical European integration efforts that are integral to tracking these terrorists before the leave Moroccan deserts and before the enter Spanish soil. Indeed, it was these very efforts that provided the location, plans, and identities of the operatives in Spain to let Rajoy capture the terrorists before they were able to injure or kill innocent Spanish civilians.

It should be clear even to those without my military background that there could not be a worse time for the government to abandon the soldiers that have given their blood, sweat, tears, and sometimes lives to protect our Kingdom, both in Afghanistan and at home. But Rajoy himself has chosen to ignore this sacrifice, and reward those soldiers' sacrifices with pink slips. The Army and the Navy face the most drastic cuts, and are likely to be shells of their former selves by the time the cuts cease in 2015 under the new budget. It is insane to think that the hollowed-out institutions will be able to supplement the intelligence and manpower of the police in a way that they have in the past.

At the same time, our links in the military and security realms with other European and North American allies will be destroyed at the same time. Without our own military to count on, and without the aid of our allies throughout the world, it will become clear to those that wish to do harm to Spain that now is the time to strike. If we do not head off this threat, then it will not be Mariano Rajoy that pays the price - it will be the innocent Spaniards and their families that are killed in the next attacks.

Carme Chacon was the Minister of Defense for the PSOE government from April 2008 until November 2011.

[Spain (MTTezla)]

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Foreign Policy
The Return


October 18th, 2012
Spain may be returning to prominence internationally
Spain was largely an outcast during the reign of Francisco Franco; the dictatorial former ally of Adolf Hitler seemed to be out of place in time in a Europe now dominated by the conflict between democracy and communism. The fascist remnant of the 1920s was largely left alone by both sides, neither a member of NATO nor the Warsaw Pact. Though Spain was able to use the time to develop economically by the end, but its international influence was crippled during the time, and Spain's leadership on the international stage disappeared.


Finally time to move on?

Spain's presence internationally hasn't been particularly rehabilitated since the dictator's departure in the early 1980s. Instead, Spain seemed happy enough to remain on the periphery of international politics, staying out of the spotlight during heated negotiations over the founding of the European Union and during the reforms that followed. In fact, Spain likely would have stayed off of the international stage altogether had it not been for the financial crisis that brought Spain abruptly and unwelcomely into the headlights of international media. Their last foray into international affairs, after all, had been to support the Iraq War, which was commonly blamed for the terrorist attacks in Madrid.

All of this could be about to change in the upcoming two years. Spain's election to the United Nations Security Council gives the nation an amplified voice in international affairs, especially with rising tensions over sanctions against Iran, the arms embargo against China, and the crisis in Syria. This will be Spain's fifth term on the council, but all but one of its earlier terms were while Franco was in power. Spain will have served 10 years on the Council, as many as or more than all but two countries in the Western Europe and Others group (Canada and Italy).

At the same time, Spain's prominence in the EU is on the rise, and is currently hosting a major conference whose representatives include the President of the United States, even in the midst of a reelection campaign. Spain has also hosted several high-level representatives, including the Chinese Minister of Foreign Affairs, indicating a level of global involvement not recently seen by Spain. It is possible that this leadership will continue around the agenda laid out at the European Prosperity Summit, which has called for a more closely entwined global response to crises, including the adoption of Mutual Aid Pacts.

In any case, the success of any such international leadership will be greatly dependent on the performance of Mariano Rajoy in the European Prosperity Summit. Its fate has yet to be decided.

[Spain (MTTezla)]

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European Union
So... Now What?


November 17th, 2012 - Editorial
The EU might be tempted to rest on its laurels. It cannot.
By any measure, the package of debt relief that came in the form of Eurobonds is massive. The deal struct, not without acrimony, between Berlin, Paris, and Madrid will undoubtedly do enough to stabilize the sovereign debt crisis, and will likely also give even the most indebted states, such as Greece, breathing room to stabilize declining GDPs in 2013. Countries with more flexibility, such as Spain, have been able to put into place massive stimulus packages, which have the countries looking at quick bounces back on increased government spending alone. It seems like the crisis in Europe might be over - but it is not.


Still taking on water

Especially in Northern Europe, the patience with any further rebuilding has been entirely worn out. The so-called "Helsinki Declaration", a grand name for a stubborn pact between Finland and Austria, pledges no more funding for Southern Europe. Germany's domestic political groups looked to be on the fringe of throwing Merkel out altogether before the Eurobonds - she might now be lucky to avoid riots in the streets. The Czech Republic and Belgium voted "no" in the Eurobond package itself. No one can doubt that European governments, battered incessantly by the crisis, want to simply leave it alone. This would be a terrible mistake.

First, there is some potential for the continent to slip back into a crisis. While the Eurobonds have been sufficient in restoring confidence in large countries like Italy and Spain, this confidence has come from the large absolute size of the bailouts - 50% of the GDP of Italy or Spain is simply a much larger number than 50% of Greece. Greece owed $494 billion at the height of the crisis, more than 160% of GDP. The bailout funds, which allow for withdrawals of up to 50% of GDP, shaved the number to a still-massive $315 billion. Spain has attempted to guarantee most of the rest of the debt with its proposals in the European Prosperity Summit (GEPS, as it has become known in Spanish media), the most prominent of which would guarantee up to 100% of Greek debt, which does not include Eurobond liability.

It is true that the urgency of these reforms has decreased. The pressing cause for the crisis in Greece was the fear that the government would not be able to sell its debt, and would be prevented from paying its day-to-day expenses. At this point, the government would be forced into a technical default, which would trigger an unknown wave of consequences as complex financial derivatives known as credit-default swaps entered effect. This risk has ended, and Greece has some flexibility. However, the underlying trends in the Greek economy have not shifted radically enough, and the continued decreases in the Greek GDP mean that the ratio of debt-to-GDP will continue rising quickly even if severe austerity measures are put into place. Worse, the austerity measures demanded by the "troika" of the EU, the ECB, and the IMF has kept tax revenues sinking in Greece, leaving the country with revenues sinking faster than their spending cuts can keep up. With unemployment rising, welfare and unemployment insurance payouts are also shrinking government coffers.

If the Spanish debt collectivization program passes, the Greek government will be able to end its austerity programs, and will simply take on additional debt in the short-term in order to pay off stimulus packages. This will let GDP, unemployment, and tax revenues stabilize, at which point the government can begin taking a serious look at shrinking government outflows and truly beginning to cut into the Greek debt. This flexibility has already been seen in Spain, where the government was able to use its relatively low debt-to-GDP ratio to justify allocating the majority of their Eurobond funds to creating a backstop for private banks, restoring confidence in both public and private Spanish debt. If Greece is able to do the same, then the crisis will not be delayed in the short term, but ended in the long term as well.

This process does not carry the same moral weight for nominally uninvolved Northern European countries. Whereas before the countries could justify such measures as necessary to "save the Euro", the measures will now be accurately represented as simply speeding up the recoveries of the Southern European states. But this is a result that Northern European governments should be able to sell to their people, for the recession did not begin and end with Greece. Instability in Southern Europe sends massive shock waves through the common currency zone, and has threatened the viability of many of the major exporters in Northern Europe. In the past, these losses have been offset by the rapidly declining value of the euro, but the newest bailout plan has had the perverse effect of increasing the value of the euro. Already-squeezed exporters will now have to deal with their goods becoming relatively more expensive outside of Europe, and weak demand inside of the Eurozone.

The only solution to this problem is to restore demand in Southern Europe, which has always been the traditional buyers for Northern European goods when the Euro appreciates. The good news is, this solution doesn't have to cost money, and therefore doesn't violate the conditions of the Helsinki Accord. Because all of the nations in the EU are able to withdraw up to 50% of their GDP in Eurobonds, not just nations in crisis, Northern Europe can use their Eurobond funding as a source of cheap credit for loans to the Greek government. This does not violate the Helsinki Accord, as they can charge the same interest that they are charged on the Eurobonds, and will lose no money in the prospect. More likely, the countries will actually earn a small amount of money as they charge slightly higher interest to the Greeks. The idea of earning something back from the irresponsible Greeks will likely carry a sweet ring to the ears of German and Finnish citizens.

The effect in Greece, where the cheap debt will allow the government to roll back its austerity measures and to begin rebuilding its ravaged economy, will be immediate. The end of austerity means the end of most street protests, the end of anarchists burning buildings, and the end of far-right groups taking advantage of the crisis to build parliamentary coalitions. When this instability fades away, investors will once again remember that Greece was once a flourishing economy, and is now likely a cheap target for investments that could pay back richly as the economy grows. After all, they will have just received a strong signal from the rest of Europe: we stand by each other, even in times of crisis.

[Spain (MTTezla)]

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Iranian Nuclear Program
A Surprise Visit


April 4th, 2013
Mariano Rajoy announces an impromptu trip to Iran
The Spanish government has not seen a high-level meeting with Iran of any sort since July of 2009, when the two countries' foreign ministers spoke on the phone to discuss Iran's post-electoral instability. That trend is now going to change in a major way, as Prime Minister Mariano Rajoy's office has announced that he has scheduled a trip to the pariah state for early May.


A different "high-level" meeting

The visits are intended to observe and ascertain the results of the sanctions being implemented by the United Nations, European Union, and United States against the Iranian people, according to the Prime Minister's office.

"As we in Spain implicitly understand, sanctions can often have a devastating effect not just on the government that they target but on the innocent people as well. As a responsible nation, and a nation which is implementing these sanctions, we have a personal responsibility to make sure that they are not the cause of unjust suffering among the Iranian people that have no way of affecting change to Iranian domestic energy policy.

"The Prime Minister's trip to Iran is meant to create this responsibility. The international community has ignored reports of severe hardship among the Iranian populace, and has failed to independently confirm or deny Iranian government reports to the same effect. If these reports are true, then the international community must find another approach to develop an incentive-based regime for the Iranian government to moderately and legitimately develop nuclear power, as is its right."

The Prime Minister's trip comes as EU sanctions on international financial institutions, such as the SWIFT international banking system, begin to take full effect against Iranian financial institutions. The EU sanctions are designed to strip Iranian businesses and government institutions of their ability to access international finance markets, and have been successful by most accounts of draining Iranian foreign currency reserves. The shortage has been responsible for increasingly severe inflation within the country's borders, though reports are limited by the Iranian government's hold on information leaving the country.

The Spanish government has long been a relatively weak supporter of sanctions against the Iranian regime, and has repeatedly stated in the past that Iran has a sovereign right to developed a nuclear energy program.

[Spain (MTTezla)]

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European Prosperity Summit
Progress, At Last


May 20th, 2013
Eight countries sign onto the European debt guarantee
For a while, it seemed like the Greater European Prosperity Summit, the biggest foreign policy move of the Rajoy administration, would end with no results whatsoever. Now, it appears that the conference has taken a massive leap forward. Eight countries have signed onto the signature proposal at the Summit, a joint guarantee of the sovereign debt of all countries. The proposal, often incorrectly referred to as a "bailout", involves no actual transfer of funds, and is focused on allowing wiggle room for countries on the margin in Europe like Greece.


Stand them back up

The Eurobond plan has been effectively in culling the outright panic surrounding small European countries like Greece and Portugal, and has allowed larger countries like Spain and Italy to implement stimulus packages, bringing their GDP growth estimates into positive figures for the foreseeable future. However, the structure of the Eurobonds (allowing countries to withdraw up to 50% of GDP) doesn't allow for fiscal flexibility for countries with small GDPs like Greece. These countries, where borrowing costs increases have increased debt to levels well above 100% of GDP, still find themselves without the ability to implement new fiscal measures, and have been forced to continue austerity measures.

The Summit's joint debt guarantee is designed to alleviate this problem. The guarantee extends to 100% of sovereign debt, not including the Eurobonds, which are issued jointly by Eurozone nations. This gives countries in the Eurozone debt that is guaranteed by other nations up to at least 150% of GDP, enough to cover even the debt of countries like Greece. The measure should allow short-term austerity measures to be fazed out in small Southern European countries, creating stimulus conditions in countries hit particularly hard, like Greece. The interest rates on the debt issued by the Greek and Southern European governments have also dropped to below-normal levels, averaging around 1.73% for ten-year bonds, a real interest rate of about 0.47%, a spread of 0.17% above German bonds. As the details of the agreement become more clear, and as the Chinese commitment to the plan becomes more credible, it is likely that bond prices will fall lower still. The security of Chinese debt, though it has not been issued due to credit surpluses by the Chinese government, is likely to be valued at negative real interest rates due to their fiscal stability.

The eight countries that joined the guarantee included the EU members Italy, Portugal, and Greece, which likely increase risk in the bond issuance, and Hungary, Ireland, and Latvia, which are more stable. Iceland, a non-EU nation that participated in the summit, also agreed to the plan, though its debt is likely considered highly risky. The biggest coup so far from the Summit has been the agreement of the Japanese to sign onto the debt guarantee. The Japanese carry a large amount of debt, but it is legendarily stable, currently carrying a spread of 0.83%, a real interest rate of 1.03% (Japan currently suffers, and has regularly suffered, from deflation). The Japanese guarantee may be designed to keep the Japanese "in the loop" of European affairs, offsetting the influence that may have been gained by the Chinese.

Six of the eight countries also agreed to the three other principles presented by Rajoy, which are largely nominal commitments to free trade, fiscal openness, and mutual aid (Japan and Iceland declined to formally agree to free trade provisions). The one condition that may be important from these is a commitment for the IMF and World Bank to develop international transparency standards, preventing the sort of covert banking integral to the US and Spanish banking risks. The international bodies have until December of this year to create said standards.

A number of countries have yet to state their positions on the issues, including the US, the UK, Brazil, and Turkey. The commitment of the later three would have a largely nominal effect (though the UK might experience lower interest rates if it joined), but the commitment of the US would speed the drop in interest to roughly inflation levels.

The Spanish proposal puts no timeline on the ending of such a guarantee (though the Chinese have reportedly already promised to end such a guarantee in ten years), and this has created an interesting possible future effect. If the guarantee extends indefinitely, the bonds issued by the participating countries, especially if the US participates, will become an international safe haven for investors, a role currently held by US treasuries and German bonds. The Chinese and Japanese guarantees have created the potential for an accidental Eastern alternative.

[Spain (MTTezla)]

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European Prosperity Summit
Mission Accomplished


May 29th, 2013
The United States signs onto the joint debt guarantee
Luis Zapatero, speaking from the protection of being well outside of the government, happily declared the Greater European Prosperity Summit a "boundless failure" earlier this year. For a long time, it looked like he was exactly right, as the Summit staggered along without any significant progress of any of its fronts. Then, with the Chinese agreement to join the mutual debt guarantee in an agreement outside of the Summit, everything changed, culminating with the agreement of the US to the four main proposals of the Summit.


At last, a reason to smile

The Summit appears to be close to a conclusion, but it's closing with a bang. Two major non-European countries agreed to three out of the four provisions of the Summit's closing statement, the United States and Brazil, adding more than $17.5 trillion of stable guarantees to the agreement. Bond yields on debt issued by countries participating in the program have dropped significantly, and several states have begun preparations to begin issuing new debt, used to pay off old debt issued at unusually high interest rates during the crisis. Greece, especially, has begun its version of a similar Spanish operation undertaken after the Eurobond issuance to remove its high-yield debt.

The operations have the interesting effect of increasing the national deficit, as the countries must put a larger "down payment" on the high-interest debt. At the same time, the operations reduce the overall national debt, removing interest payment obligations over the next ten years, depending on the bond's maturity. As such, Greece's deficit in 2013 will likely be unusually high, but their debt will continue to fall. Unusual side effects are rebounding the economies of Greece and Portugal, the two countries putting the plan into effect. Yields on six-month and one-year bond issuances are actually higher than five and ten-year yields, which makes no sense economically. The effect is created by investor fear that there will be a "debt forgiveness" program for small European countries struggling with high short-term deficits which will affect only short-term debt or debt issued which matures in 2013.

According to unnamed sources with the Spanish Ministry of Finance, preliminary studies have been put forward to investigate a new bailout of Greece which will end the effects on one-year bonds. The bailout would be issued in the form of long-term (likely 10-year bonds), used to purchase one-year Greek bonds in a 1:1 exchange of real value. Certain countries received larger bailouts from the Eurobond scheme, as well as larger guarantees from the joint issuance program because of their relatively high GDP. This group includes Spain and Italy, large Southern European countries with an excess of liquidity after the two complementary plans and relatively small 2013 deficits.

Early plans for the bailout, reviewed by EFE staff, show plans for the bailout to come only from countries that themselves received bailouts earlier in the cycle and which are now stable. The preliminary list, which is still under review, would propose that the bailout would come from Spain, Italy, and Ireland. The plans show a projected an addition of roughly $50 billion to the 2013 deficits of each country, with no effect on the national debt of any of the three countries. Ireland has the most short-term liquidity, as it does not require any stimulus efforts, closely followed by Italy, followed further by Spain. All three, however, have enough short-term liquidity needed to carry out the proposed plan without significant effect to the yields on their own issued short-term debt.

Spain's efforts are likely intended to secure its role as the nation most directly responsible for aiding Southern European countries. After the German-led Eurobond effort, which successfully stabilized Northern Europe and large Southern European countries like Italy and Spain, Rajoy's government led the debt guarantee meant to provide more liquidity to borderline European nations such as Cyprus and Slovakia, and also to stabilize countries like Greece and Portugal. The final step in the process appears to be providing liquidity to last set of nations, which are now stable but which are suffering from limited bond-issuance capability.