FINANCE & ECONOMICS-3

Spain Seen as Moving Slowly on Financial Reforms

By NEW YORK TIMES

MADRID — A planned merger has stalled between two weak savings banks in Galicia, in northwestern Spain, illustrating the reluctance of the Spanish government to take a firmer hand to its financial problems.

The longer consolidation is delayed among the banks, which are saddled with losses on loans to the construction industry, the more expensive it may be to deal with them.

What’s more, regional banks are deteriorating not just in Galicia, but throughout the country.

Investors and analysts say the lack of progress in tackling the banking issue underscores the Spanish government’s shortcomings in addressing its broader problem: crushing fiscal deficits arising from high unemployment and a persistent recession.

Spain risks falling into the same trap as Greece, these investors say, unless it takes more forceful action. It could find itself unable to raise money on the private markets at acceptable interest rates — even though its government debt burden, as a share of the overall economy, is only half what Greece carries.

“Any further wavering could lead to a much more critical situation,” said Xavier Vives, an economics and finance professor at the IESE business school of the University of Navarra. “A year ago, the government didn’t even want to think about reforms. Now, under pressure from financial markets, they are at least talking about reforms. But the government really needs to get going.”

So far, the federal government has delayed significant fiscal tightening. It fears that doing so would cause political harm, particularly in regions where elections are coming soon, while also choking off a long-awaited recovery.

José Luis Rodríguez Zapatero, the center-left prime minister, presented an austerity plan this year based mostly on measures that would not kick in until next year at the earliest. The measures include spending cuts amounting to a modest 2.5 percent of gross domestic product.

But Mr. Zapatero may no longer be able to wait. Just as he has been unable to force the savings banks, Caixanova and Caixa Galicia, to consolidate before the situation deteriorates further, he finds Spain increasingly vulnerable to forces beyond its control.

The planned merger of Caixanova and Caixa Galicia — banks known here as cajas and important to local politicians — is caught up in squabbling over who would dominate the combined institution. Desperate to break the deadlock, a Galician government official warned last week that fighting between power brokers from the cities where the banks are headquartered could lead to “self-destruction.”

In a broader setback, Spain joined Greece and Portugal last week in being downgraded by Standard & Poor’s, the rating agency. While Spain remains well above the junk level S.& P. gave to Greece and ahead of Portugal’s A- rating, its fall from AA+ to AA was a blow.

Among the reasons for its decision, S.& P. highlighted Spain’s private sector indebtedness of 178 percent of G.D.P. and an inflexible labor market that was likely to leave Spain with a jobless rate of 21 percent this year.

To date, Mr. Zapatero’s policies have rested on the hope that the economy would begin to recover soon and that the jobless rate would average no more than 19 percent this year.

Yet the jobless rate has already reached 20 percent, according to government statistics for the first quarter released Friday, almost double the level when Spain’s recession began in 2008.

The bleak outlook makes it difficult to come up with a coherent policy. Mr. Zapatero is now boxed in, experts say, because he failed to adopt changes that challenged existing political interests when he enjoyed greater popularity after his re-election in 2008.

The leading Popular Party opposition has rallied against his economic management, often with the backing of trade unions that once supported the Socialists. While the Popular Party’s own credibility is suffering because it is engulfed in a bribery investigation, it now enjoys an advantage over the Socialist government in polls.

Perhaps the biggest obstacle to overhauling the economy is a Spanish electoral calendar likely to put regional priorities ahead of national ones. Though Mr. Zapatero has two years remaining as prime minister, most of Spain’s regions will have held their own elections by then, starting with Catalonia this autumn.

The regional governments already account for 57 percent of Spain’s public spending, double the level of two decades ago, according to Carlos Sebastián, an economics professor at Complutense University in Madrid.

“The two big parties really value their regional strongholds and are not willing to do anything that would risk losing control over one of them,” he said. “Until these regional elections, nobody will want to push for reform.”

Federal and regional interests diverge on crucial issues, notably labor legislation, the overhaul of which is seen by economists as essential to reducing unemployment and increasing productivity. For instance, the regions of Andalusia and Extremadura in the southwest apply looser rules on eligibility for unemployment assistance than those in the rest of Spain. That assists the seasonal work forces that underpin their large but fragile farming sector.

Both regions have Socialist governments that face tough re-election campaigns and therefore have little incentive to support any proposal from Mr. Zapatero that could upset their workers.

Indeed, Mr. Zapatero has shown little inclination to force change on his people. In late January, his government proposed pushing up the retirement age to 67 from 65 to help cope with the costs of a rapidly aging population. After a series of protest marches, the plan was put on the back burner.

But now investors are turning their skepticism to Spain as the weakest spots in the country’s economy show little sign of improvement.

In a research note last week, analysts at Credit Suisse argued that beyond agreeing on a multiyear rescue package for Greece, Europe needed to set up standby arrangements for Spain and Portugal, allowing them to “fund their ongoing budget deficits while carrying out tough fiscal adjustment programs.”

In the first quarter, the Spanish government’s expenditures overshot its income by 8 percent. Again, economists partly blame politics, as the Madrid government maintained its own bloated ministerial structures while delegating more power and authority to regional governments.

As for the ailing savings banks — which are worse off than the big name banks like Santander and BBVA, in part because they earn little from lending abroad to offset real estate losses at home — both the Spanish central bank and the government have recently stepped up pressure on them to consolidate. That followed a warning in March from the finance ministry that a third of the 45 cajas faced solvency issues.

Another proposed alliance, led by Cajastur and Caja Murcia, could involve as many as eight cajas. While the proposal does not call for a full merger, it is proving even more contentious as its political stakeholders represent different regions.

“When politics intervenes in the banking sector, obviously you get a clash,” said Jamie Dannhauser, who covers Spain for Lombard Street Research in London. “I don’t think that the recognition process of bad loans has really got going at all.”

CARTOON

ASKING FOR DIRECTIONS !

CURRENT AFFAIRS-1

Spanish judge Garzon faces trial




Spain's most high-profile judge, Baltasar Garzon, faces trial on charges of overreaching his powers by launching an inquiry into the Franco regime.

In 2008 Mr Garzon opened the probe - later shelved - into atrocities committed during the four-decade rule of General Francisco Franco.

A magistrate ruled on Wednesday that he had acted without jurisdiction.
Mr Garzon is famous for targeting international figures including Augusto Pinochet and Osama Bin Laden.

The case against Mr Garzon followed complaints by several Spanish right-wing groups.
They claimed he had knowingly exceeded his official remit in launching an investigation into tens of thousands of disappearances during Spain's 1936-1939 Civil War and under the Franco regime that followed.

Mr Garzon had ordered the immediate exhumation of civil war-era mass graves.

'Artificial arguments'

In February, Supreme Court investigating magistrate Luciano Varela ruled that Mr Garzon had ignored a 1977 amnesty that covers crimes committed during the civil war.

GARZON'S FAMOUS CASES
• Campaigned for extradition of former Chilean military ruler Gen Augusto Pinochet from UK to Spain over human rights abuses in 1998. Request turned down on health grounds
• Charged Osama Bin Laden over 9/11 attacks in 2003
• Tried unsuccessfully to prosecute Italian politician Silvio Berlusconi on charges of tax fraud and breaching anti-trust laws in Spain through stake in Spanish TV company Telecinco

The amnesty law pardoned politically motivated crimes committed by both sides. By guaranteeing that the past would not be raked over, it underpinned Spain's delicate transition from dictatorship to democracy, correspondents say.

Mr Garzon appealed against the ruling.

But on Wednesday, Mr Varela asserted that Mr Garzon had been aware of his lack of jurisdiction due to the amnesty law.

"Conscious of his lack of jurisdiction... he constructed artificial arguments to justify his control of the penal proceedings," he said in a written ruling.

Gonzalo Martinez-Fresneda, a lawyer for Mr Garzon, said the judge would probably be suspended from his post at the national court in the next few days and that a trial could start as early as June.

Mr Garzon, who is highly popular among the Spanish political left and international human rights campaigners, has strongly denied that he broke the law.

He has been supported by the International Commission of Jurists.

"If this trial goes ahead, it will be the first time that we know of where a judge, who is trying to reach truth, justice and reparation for over 100,000 people who disappeared, is tried," said Esteban Beltran, director of the Spanish branch of Amnesty International.

But some on the right accuse Mr Garzon of launching cases that are politcally motivated.

FINANCE & ECONOMICS

BA-Iberia merger agreement signed 8 April 2010



British Airways and Spanish airline Iberia have signed a deal to merge and create one of the world's biggest airline groups.

The merger, which was provisionally agreed in November last year, is expected to be completed by the end of the year.

In a statement the two companies said the merger would benefit shareholders, employees and customers.

It is expected to save the airlines 400m euros ($533m; £350m) a year.

The new company will be called International Airlines Group, but the BA and Iberia brands will continue to operate as normal.

The company will have its headquarters in London, with BA shareholders retaining 55% ownership of the company.

In total the group will operate 408 aircraft and carry more than 58 million passengers a year, the two companies said.

BA chief executive Willie Walsh said the merger would be good for customers.
"The merged company will provide customers with a larger combined network," he said.

Iberia's chairman and chief executive Antonio Vazquez said the merger was important for the future of the airline industry.

"This is an important step in the process towards creating one of the world's leading global airlines that will be better equipped to compete with other major airlines and participate in future industry consolidation," he said.
Pension problem

The merger is seen as a chance for the two airlines to cut costs following two very tough years for the airline industry.

Both BA and Iberia are expected to report heavy losses this year, with BA predicted to announce its biggest annual loss since privatisation.

The airlines are also regarded as a good match, having few overlapping routes.
The merger will also allow the company to compete more effectively with other European giants including Air France-KLM and Germany's Lufthansa.

The airlines are expected to complete the merger by December, subject to approval from regulators and shareholders.

One stumbling block could be BA's pension problems. Its two final-salary pension schemes have a combined deficit of £3.7bn, which it needs to cut.

Last month, the airline agreed plans with unions to increase pension contributions to close the deficit.

But Iberia still has the option to call off the merger if it decides that the plans are not satisfactory.

CURRENT AFFAIRS-2

Taking the global pulse of healthcare
BBC


After one of the biggest debates in its history, The US Senate has passed a new landmark health bill. This new legislation could lead to some of the biggest changes in US healthcare in decades. But how do other healthcare systems around the world compare and what changes are they going through?

China: Barefoot to bureaucracy

If President Obama is facing difficult challenges addressing healthcare in the US, how does the country with the largest population and one of the world's fastest growing economies organise its healthcare?

China's health system is as counter-intuitive for a so-called communist government as its economic model.

Instead of operating under a socialist model, it has a hybrid system combining employer based insurance and social service supplements.

But many people cannot afford to pay for healthcare.

Professor Li Ling, senior advisor to China's Ministry of Health, says that prices are a barrier for many people.

But she says the government is trying to improve health services.

"The target is that by 2020 we will have a universal system and people will only pay for 20% of treatment," she told the BBC World Service.

But in the meantime, some are making use of the increasing number of cheap, illegal clinics operating particularly in the rural areas.

Before the economic reforms of the 1980s, China was famous for having a strong network of primary care - or 'barefoot doctors' who looked after people in villages under rural schemes which covered everyone.

But after the market-orientated reforms, the private sector took over, a user-pays system was introduced, and the primary care system began to fall apart.

While the hope is that the new model will better serve China's population from a cost, quality, and availability perspective, at the moment, it is simply proving too expensive for many people.

India: Caring for millions

India, with a similarly large population and growing economy, is to a certain extent travelling in the opposite direction.

Rather than moving from a 'socialist' to a private model, India is aiming to move from a mainly private service to increase public health spending.

At the moment, 75% of health spending comes out of people's own pockets.

As Surja Kant Mishra, the Minister of Health in West Bengal admits, there is simply not enough public spending on health.

"The health spending in India has been abysmally low," he told the BBC's World Today programme.

"The target is 2 to 3% of GDP but even I would say that is nothing...government spending has to be increased."

The other major problem India faces is the huge divide between rural and urban areas.

Rahul Bose, a community worker in West Bengal tells a story which illustrates the problem well.

"There was this lady who came to my house at eight in the morning," he says.

"She had been bitten by a snake at four in the morning, but since there were no male members in the house, she was not able to leave the house.

When I took her to the hospital, the doctors delayed treatment for two hours and so she died in my car."

Cultural attitudes towards women in rural areas, as well as problems of distances from health centres both prove major challenges for improving health.

India is also still facing high levels of infectious diseases, such as HIV and tuberculosis and has one of the worst child malnutrition rates in the world.

South Africa: After the Revolution

Perhaps the country which has had the greatest change in health care in the smallest amount of time is South Africa.

After the end of apartheid in 1994, health care was revolutionised.

The idea was that services should be available for everyone, regardless of race.

South Africa now has a large public sector and a smaller but fast-growing private sector. But the system is overstretched.

While the state contributes about 40% of all expenditure on health, the public health sector is under pressure to deliver services to about 80% of the population.

Despite this, most resources are concentrated in the private health sector, which caters to just 20% of the population.

There is also a shortage of doctors, who are often lured into the private sectors or overseas where pay is better.

While the country's former President, Thabo Mbeki, was criticised for not acknowledging the depths of the AIDS crisis, experts now say that things are now slowly improving.

Last month, the government allocated nearly $120m to deal with the pandemic.

But leading AIDS researcher, Dr Franchesca Barnadie, says that South Africa needs to use that money more wisely by investing in primary health care.

"We need to take away treatment from the care of doctors with the exception of complicated cases and give it to primary health care nurses because of the burden of illness" she told the BBC World Service.

UK: Failing some?

If you asked many people around the world where they would least mind falling ill, it is likely that many of them would say the UK.

The British are often critical of their health service, but last summer, an attack on the National Health Service (NHS) from a Conservative MEP on American TV, resulted in an outpour of online support via Twitter and Facebook.

While the British pay for the National Health Service through their taxes, it is free at the point of use.

It is also relatively efficient. Britain spends half as much per capita on healthcare than the US for a system which covers everyone.

Dr Sam Everington, a Doctor working in East London, says that Britain's strong primary care is one of the reasons for its efficiency.

"We know that in hospitals everything is far more expensive," he told the BBC World Service.

"But in primary care you have doctors with a lot of knowledge and skill which can sometimes avoid those investigations, so it controls some of those costs of the NHS."

But criticisms remain.

Some argue that too many costs are being sneaked into a system which was meant to be free at the point of use.

Others say that it is not effective at delivering healthcare in what is now a market-orientated world.

There are also limits on what the NHS can afford, so the National Institute for Health and Clinical Excellence (NICE), makes decisions about which treatments and drugs should be provided by the NHS.

Generally, things like cosmetic surgery or lifestyle treatments like Viagra are not provided.

But more controversially, some drugs to treat diseases like cancer or Alzheimers are not available.

Those whose treatments are deemed not to be cost-effective, such as David Cook who has advanced kidney cancer, often feel that the system has failed them.

"In the UK they are saying I am a terminal case and therefore to give me another couple of months of life is not worth it," he told the BBC World Service.

"The medical treatment I have had under the NHS has been absolutely outstanding. I just feel let down by the model they are operating under."

FINANCE & ECONOMICS-1

FINANCIAL TIMES INTERVIEW WITH JOSÉ LUIS RODRÍGUEZ ZAPATERO (April 8th 2010)



FT: We’re experiencing the first crisis of European monetary union…What specific steps do you favour for closer economic coordination?

Zapatero: In terms of the monetary and economic union I think it’s crucial that we have more and better coordination of our financial systems. Obviously the new regulations must seek common standards not just within the monetary union but within the union in general but also internationally. And second we must develop the internal market. The internal market has been a great success, it has made us more competitive in those sectors where it has operated and worked, and now we have ahead of us two or three crucial sectors where we need to achieve an internal market and that’s energy and the digital market.

FT: Let’s talk about the economic crisis. Greek bond yield spreads have widened again and markets are talking of a bailout. Do you anticipate having to act in the near future?

Zapatero: It’s really hard to predict, but we do need to issue a clear message to the markets and the message cannot contain any element of uncertainty or lack of clarity. The message is that there is an agreement in the European Council to provide support to any country in the eurozone that is in trouble, support hand in hand with the IMF, and that means shared responsibility, co-responsibility, first of course the responsibility lies with Greece but also all the other countries of the eurozone.

FT: Do you agree with Mr Van Rompuy when he said Greece cannot be allowed to fail?

Zapatero: Absolutely.

FT: Is that realistic? What can you do to stop Greece defaulting if the markets dictate that?

Zapatero: I think markets basically work on trust and confidence and the EU has to provide that confidence and the Greek government has to generate that confidence. I think that right now in these coming days we have to rebuild and re-establish and remind everyone that there is a standing agreement whereby the countries of the eurozone will back if necessary and will bail out Greece if necessary, with the support of the IMF.

FT: Do you anticipate announcements next week?

Zapatero: I think in the next days there will have to be some clarification of Greece’s status and position and the possibilities of resorting to the IMF and a reminder by the countries of the eurozone that the markets require that sort of reassurance, and in fact tonight last thing I will be speaking to [Greek prime minister] George Papandreou.

FT: A senior banker told me this morning that the Greek crisis was the best possible news for Spain in that this was the perfect political cover for you and your government to take decisive action to tackle the budget deficit. Do you agree with that?

Zapatero: That is one possible interpretation that I respect but don’t share. My government had a surplus […] and we are now equally determined to bring down the public deficit to 3 per cent by 2013 in accordance with the EU’s requirements. We have a plan, a credible, quantified plan which we have already begun to implement, a plan to reduce the public deficit.
Everything that we’ve committed for 2010 in terms of deficit reduction has already been executed. And therefore we are on target and there are I think elements of credibility already demonstrated in the plan. I of course preside over a Socialist government but it’s the first government that worked to have a surplus because I feel it essential for a country to have well balanced public accounts and in fact the process that we experienced before the crisis was a process in which the public sector was saving and we reduced debt

FT: Mr Prime minister, the good times are over, they’re not coming back.

Zapatero: Yes but even in good times there were others who had deficits and we at the time were able to obtain surpluses and reduce debt down to 30 per cent of GDP which has given us leeway now.

FT: But you’re looking at a budget deficit of 11 per cent, more than that, and you’re talking about surpluses. On the best possible scenario you’re not going to be in surplus for quite some time.

Zapatero: No but what I was saying just as an example was that in the four years before the crisis we showed this budgetary discipline and cut our debt and had a surplus, with very high economic growth rates it’s true, because I have always held that principle, and now that there’s a recession we’ve had to make a huge effort in public expenditure to provide social protection to our unemployed citizens and to bolster production and activity as far as we were able but now that the deficit has got to a point that’s unsustainable I am completely determined and we do have a three-year plan to bring it down and we will meet those targets.

FT: You’ve said you’re proud to be a socialist prime minister. What do you say to those critics who say that because you face elections in two years time you’re not prepared to take any really difficult decisions until then and that a lot of the difficult decisions just happen to fall in 2012?

Zapatero: No, we’ve just taken difficult decisions. Raising the VAT, I can tell you that’s not something that’s been done to get people applauding us. You just have to take a look at the reaction of public opinion. Of course our citizens don’t like their taxes being raised. We’ve raised VAT by two points, we’ve just cut our public employment offer to 10 per cent of the replacement rate and that’s a tremendous sacrifice for the government and we’ve also had to introduce an additional €5bn cut for this year cancelling investment commitments and from here to the elections our policy is going to have to be one of austerity and cost cutting and cutting also in terms of investment and resources and that’s clear. But that’s the only way, there is no other way. And to date, our commitments to reduce the deficit in the year 2010 are being complied with impeccably.

FT: So, what of this theory that some have that everything will be fine in Spain because the difficult decisions will be taken when Mr Zapatero begins his third term?

Zapatero: The essential reforms I want to have already complete by the end of the year. Reforms to improve competitiveness, reforms of the labour market and also to reduce public expenditure. And when you’re on your second term, as is my case now, and you’ve gone through such a severe crisis, such a severe crisis and you know that your country has serious problems your option is to adopt the measures even if they are not very nice and agreeable to all. Always out of a conviction that I have which is always guaranteeing the broadest possible social protection and that cuts that we are now doing and that we will have to continue to do in the coming years do not affect all the efforts in investment and research and development and innovation which is one of the great needs of Spain’s economy.

FT: You don’t believe that you need to announce further measures beyond what you’ve already announced in the last few months in order to convince markets that you’re serious about cutting the deficit?

Zapatero: What we have to do is implement the plan we already have on the table. We’ve all seen that the economy is evolving in sometimes unforeseeable ways but in principle with the deficit reduction plan that we have and that we’ve sent to the European Commission we will be meeting this target of ours of reducing the deficit. What we have to be judged on in the future is whether we gradually do implement all the different items included in that plan. We will certainly do so, whatever the cost.

FT: You made employment a signature of your premiership and said it would go down but in fact it’s gone up. How did you get that so badly wrong and what are you going to do about it?

Zapatero: Well, yes, unemployment is Spain’s greatest societal problem. As president of the government I must refer to the past - in 2007, unemployment was at its lowest ever in history, reaching 7.9 per cent, slightly below the European average. We created 3m jobs during my last term in office and the crisis has brought about an extremely severe destruction of jobs. It is true that our forecast before the explosion of the international financial crisis was to continue creating jobs. We were not right in our forecast but neither was anyone – though that isn’t something that helps.

FT: Some would say you’re an incurable optimist.

Zapatero: I’ve always expressed myself as an optimist and I remember one of Bill Clinton’s sentences, because pessimism does not create a single job, that’s something that was said by Bill Clinton, I’m quoting him. When you’re leading a government you have to adopt a positive vision of your country and I have a positive vision of Spain. Spain has major achievements during its 30 years of democracy but also problems. Now we’re going through a difficult time, but we’re going to get out of this and we’ll do so, we’ll leave it behind and if we do things well, we’ll be stronger for it. Yes, I have to admit that criticism of being an optimist.

FT: When did you realise that this crisis was something really serious and would not pass after six months?

Zapatero: In September 2008 [after the collapse of Lehman Brothers], that was when we started to understand the severity of the financial crisis when you see those huge North American financial companies topple and you realise that the interbank rates are gone, because no-one is lending anyone anything, and you start to realise that all companies are feeling the crunch, every small and large company was unable to get any money from the banks at all, and that’s when really that historical meeting in October 2008 at the Elysée in France where every European, well every country in the eurozone, plus the UK with Gordon Brown himself – and it was a great help that he was there in my opinion – came out and said ‘We are going to put all our GDP’ – because that it what it took – ‘to bail out the financial system’. And that was really the turning point; I had the feeling of experiencing a moment in history where we either got it right or there would be a major economic disaster.

FT: On labour reform, do you favour a situation where small businesses could say to their workers, ‘We don’t want to lay you off, so how about a wage cut or reduced working hours?’?

Zapatero: We cannot be compared with other economies if we do not take into account the heavy weight of the construction sector. But we want to introduce new measures to reduce the working day, to reform collective bargaining and we want this to be done through an agreement. Within the broad array of reforms I presented to parliament is precisely the reform of the labour market, and that’s what people have talked about the most. Perhaps because it the most demanding job to be done, because it is essential. It is true that I have not changed the labour market, the labour market is as it was when I got to the job. And those who demand the reform most fervently are those who did not do a thing about it and left the law just as it was. But we are now in a process of dialogue talking to both the business world and trade unions and we are doing this most intensely and we want to reach an agreement that includes more flexibility while preserving guarantees and rights of employees.
There are many recipes for this. You have to use your imagination. We are working on formulas that promote cost-cutting for businesses while not cutting the rights of workers. There are models; for example we have the Austrian model. There is an Austrian capital injection model that we are exploring that we might be able to use in part and adjust it to our system and it might turn out to be useful. And we are trying it in out talks with both business and the trade unions. And it is clear that we want an agreement on the reform. We want that to be the result of consensus and based on trust. Because all of this will contribute to job creation. And we think that will begin to happen at the end of this year. But the key to begin creating jobs again is to recover growth again. And we do think that we are already on the road to growth recovery.

FT: You spoke about new measures by the end of the year for competitiveness, labour reform and cutting the budget, but then you implied that most of these were already under way and had been announced. As well as announcing more spending, more aid, might you not also have to announce more austerity, because it’s essential for Spain and the markets will demand it?

Zapatero: I’ve explained about the cuts for 2010, and of course of the increase in taxes, too.

FT: But there’s not much left for contingencies, for instance if you have to contribute to a bailout for Greece, or the German economy doesn’t recover. And you’re constrained by the need to spend on debt repayments, and the spending of regional governments.

Zapatero: Well, if we had to bail out Greece, it would be a loan, not a deficit, so as you know the level of our debt [relative to GDP] is 20 points below the European average, although it has gone up. Second, the fact that a significant part of public expenditure is in the hands of regional governments does not mean that we cannot influence that expenditure, and bring it down. For instance personnel costs – the remuneration of all public employees is decided on by the central government, and therefore we do have more ability to influence those items than it might seem.
But right now, if we meet strictly the deficit reduction of 2.5 points in GDP, 2 points in 2011, and 2 points in 2012 and 2 in 2013, we will be at 3 per cent deficit in 2013, and that is with moderate forecasts of economic growth. Let’s wait and see how we end 2010 and where we are on the budget and whether we are meeting our targets, and of course if we have to make more cuts or demand more austerity, then we will do so.
So far, the concrete plan that we have in place means we have to cut public expenditure on investments by 13 per cent over the next three years, 35 per cent in transfers to the regional governments and 15 per cent overheads we are going to cut that, no matter what it costs just as we said at the beginning of the year that we are going to cut expenditure by another €5bn, and it was approved by cabinet immediately.
So we do meet our commitments, and when we make an announcement we execute it. The reduction in public employment we just approved. We’ve gone from 15,000 new jobs last year to only 2,000 new jobs this year, almost half for the police and Guardia Civil, where we still want to make progress. It has been bad news of course for those people who sat their public service entrance exams. I understand that – so it is not quite a popular measure. It has been a big sacrifice for many but it is necessary for the country.

FT: Some have said Spain has become more polarised in the last few years. In America, things are polarised too. But some people in Spain blame your government’s legislation. Do you accept that Spain is more polarised and should you do something?

Zapatero: Well I used to think that our country was polarised but at the same level as other countries, really. In fact, I have seen times of much greater division in Spain, back in the 90s, for instance, with huge confrontation between Felipe González and Aznar. That last stage was really tough. It is true there has been polarisation but that has had a lot to do with the strategy set by the American neocons which has spread to many conservative forces elsewhere and I believe we should get past that as soon as possible.
And now in this term, I feel there is slightly less polarisation than in the first term in government, when there was some major conflicts in the fight against ETA, a lot of tension between government and opposition, as you said, when we passed progressive laws, of different types.
The gay marriage law has actually made me feel extremely proud. I think people see it as something entirely normal in Spain, gay marriages. We were told that we were killing the family in Spain and yet the Spanish family is in rude health, and a lot more people are happy. We’ve managed to recognise the right of people who have been discriminated against and harassed for many years, because of their sexual orientation and I hope that is an unstoppable trend in advanced societies.
So it’s a law I am particularly proud of - it contributes to tolerance in society as a whole. And it’s true that Spain is supposed to be a secular state but not everybody understands that in the same way, and we have a relationship with the Catholic church and there are certain sectors where any European law that you transpose they feel it’s going to be an end to the nuclear family and our tradition and our culture - the very traditions that kept us really apart and separate from Europe and history. We’ve now passed a new abortion law which is very much within the European average.

FT: I wonder how history will judge you. Will historians look back and say here was a truly enlightened leader of Spain, a true socialist who remained faithful to his values but who ultimately missed the moment, missed the historic moment when necessary decisions had to be taken to preserve the legacy of González and Aznar, which was to put Spain in the premier league and when they look back they will see this was the moment when Spain slipped off into the second division?

Zapatero: No, no, Spain is not going to fall back into the second division. Yes, times are difficult, but we will be in the first division, with the strong countries. To tell you the truth, I don’t know how history will judge me. I’m sure that opinions will be divided as is only normal in a democracy. I think what counts is for me to have been loyal to my commitments to have acted them on and another element is accepting the mistakes. I’m sure that Aznar thought that everything he did was great. I know that I get some things right and I don’t get others right and I suppose that’s how I’d like to be remembered.

FINANCE & ECONOMICS-2

Banks slated over customer gripes



The UK's biggest High Street banks have been severely criticised by the main City regulator for the poor way they deal with their customers' complaints.

The Financial Services Authority said five of the banks, who are unnamed, had agreed to make big improvements.

Two are being investigated further and may suffer large fines.

The FSA blamed a lack of interest by senior bank management, bonus schemes that inhibited staff from paying compensation, and poor decision making.

"While we found some good practice, there is clearly evidence of unacceptable standards of complaints handling in banks," said Dan Waters, the FSA's director of conduct risk.

"Delivering change in this area is a major priority and we are determined to use all the tools available to us to ensure that banks comply with our rules," he warned.

Millions of complaints

The banking industry receives about three million complaints a year.

Last year, the Financial Ombudsman Service (FOS) reported that in many of the cases it dealt with, banks appeared to be deliberately fobbing off their customers in the hope they would go away, rather than showing any genuine desire to resolve the problem.

It said customers were being dealt with "dismally" and eventually found in favour of more than half the customers whose complaints it dealt with.

The FSA would not identify the individual banks it examined, save to point out that they were responsible for 70% of the complaints that firms receive and more than 60% of the unresolved complaints that ended up with the FOS.

The five that were highlighted when the ombudsman started naming and shaming the most complained about banks in the second half of 2009 were Lloyds Banking Group, Barclays, RBS-NatWest, Abbey (now Santander) and HSBC.

But HSBC said it was not one of the five being forced to change their ways by the regulator.

"HSBC can categorically confirm that it is not one of the five banks being investigated by the FSA," a HSBC spokesman said.

Eric Leenders of the British Bankers' Association (BBA) admitted that the industry needed to improve.

"Clearly more needs to be done - that is why the BBA is working with the industry to bring all banks up to the standards of the best.

"This is why both FOS and the banks have started to publish detailed complaint information," he said.

Findings

The FSA demanded changes after investigating the way the banks had handled 600 sample complaints.

These related mainly to day-to-day banking problems rather than the mis-selling of payment protection insurance, or overdraft charges, which have been dealt with separately by the FSA

The regulator found examples of good practices in some parts of the banks which, it said, showed they could deal with their customers properly if they tried.

One bank, unnamed, was judged to be satisfactory overall, though even it has agreed to some remedial action.

At the four other banks, standards were generally low.

The FSA said this was because front-line staff were not given sufficient time or training to deal with complaints properly. It found that:

• Thirty-six per cent of complaints it examined had been investigated poorly or inadequately, especially by staff in branches or call centres

• Eighteen per cent of decisions had been wrong and unfair to the customer

• Where compensation was offered, it was often not enough

• Correspondence was inadequate, with banks failing to tell the customers the outcome of their investigation in a way that was "fair, clear and not misleading"

• Three out of the five banks misused their "two-stage" complaints procedure, delaying the resolution of the complaints

• Four out of the five banks were too slow at dealing with complaints

• Three of the five banks failed to tell customers they could go to the FOS if they were still unhappy with their bank's reply.

"This is another damning indictment of the banking industry, many of whose members consistently put sales before customer service," said Which? chief executive Peter Vicary-Smith.

"Dismissive approach"

The FSA blamed senior management for not being sufficiently interested in their complaints procedures.

And it pinpointed bank bonus schemes at branch level as another contributory factor.
"Two banks' reward structures potentially encouraged poor complaint handling by focusing staff on meeting targets for the level of redress paid, rather than the quality of the outcome provided to the customer," it said.

"This contributed to a poor culture, where branch staff and management were reluctant to make redress payments, even when the bank had made an error and the complaint was justified," it added.

Marc Gander of the Consumer Action Group (CAG) welcomed the FSA's action, but said its findings were not surprising.

"The banks have employed a diffident and dismissive approach to customer complaints for many years," he said.

"We believe that it has always suited the banks to make complaining tough for their customers because, in this way, they have been able to fatigue and exhaust many of their customers into giving up.

"The entire attitude of the UK banking industry towards its customers needs to be overhauled," he added.

PROFILES

Juan Antonio Samaranch




Juan Antonio Samaranch is widely credited with rescuing the Olympic Games and turning it into the worldwide phenomenon you see today.

When the Spaniard, who has died at the age of 89, was elected president of the International Olympic Committee in the wake of the 1980 Moscow Games, he inherited an organisation that was on its knees.

There was reportedly little money in the bank and the United States had just led a 65-nation boycott of the Olympics after the Soviet invasion of Afghanistan in 1979.

In the following 21 years, Samaranch turned around the fortunes of the Olympics through television deals and sponsorship and increased the number of participating nations with each passing Olympiad.

His two-decade tenure as the head of the IOC was seen as largely successful, but has been overshadowed by accusations of corruption within the organisation and his links to fascist Spanish dictator General Francisco Franco in his homeland.

Samaranch was born into a wealthy Barcelona family, the son of a textile manufacturer, on 17 July 1920.

He was educated at the Barcelona Higher Institute of Business Studies and joined the family business after the 1936-39 Spanish Civil War.

He competed in boxing and roller hockey and used his wealth to promote the latter sport and help set up an international championship in Barcelona in 1951.

Three years later he joined the Spanish Olympic Committee and was elected to the Barcelona city council.

He went on to serve as Spain's chief representative at the 1956 winter Olympics and the 1960 and 64 summer Games before being appointed government secretary for sports by Spanish dictator Franco and being elected as a member of the IOC in 1966. A year later Samaranch became president of the Spanish Olympic Committee.

Franco died in 1975, by which time while Samaranch had progressed to vice president of the IOC, a post he held from 1974-78 and Spain's transitional government decided the best way to deal with him was to offer him a "golden exile".

Subsequently Samaranch became Spain's first ambassador to the Soviet Union and Mongolia in 1977. He held the post for three years and the contacts he made in the Soviet Union, a sworn enemy of the Franco regime, helped him win votes for his election to the presidency of the IOC in 1980.

The Olympic movement had endured a traumatic trio of summer Games before he took over with the tragedy of the Munich massacre in 1972 followed by the financial disaster that was the 1976 Games in Montreal and the US-led boycott of Moscow's Olympics.

Samaranch was elected the seventh president of the IOC prior to the Moscow Games, following Lord Killanin's resignation, but he officially took over after the event, and immediately set about resurrecting the fortunes of the Olympics.

At the time, the Olympics were seen to be a financial and organisational burden on a host city, a point emphasised by the fact that in 1978 only Los Angeles had put itself forward to host the 1984 showpiece.

However, the first summer Games under Samaranch's jurisdiction were deemed a success, despite a Soviet Union-led Eastern Bloc boycott. They pulled out just two months before the opening ceremony, citing security concerns and "chauvinistic sentiments and an anti-Soviet hysteria being whipped up in the United States".

One hundred and forty nations took part, 60 more than in Moscow, and the Games were the first since the Los Angeles Olympics of 1932 to make a profit.

Samaranch continued to increase the number of participating nations, with 160 turning up in Seoul in 1988, rising to 199 for the Sydney Olympics in 2000 - his last Games in charge.

They were tinged by the death of his wife of 45 years Maria Teresa. Samaranch left Sydney on the second day of the Games to return home to see his gravely ill wife Maria, but she had passed away before he arrived. He returned to the Olympics four days later where the flags were lowered to half mast.

Under his guidance, the IOC also altered its sponsorship agreements, choosing to partner with global sponsors rather than allowing each host city to select local ones, and brokered new broadcasting deals that helped the balance sheet hugely.

Samaranch also wanted the best athletes competing at the Olympics, which led to the gradual acceptance of professional athletes.

While some saw this as a natural progression that would help the Olympic movement flourish, critics lambasted his over-commercialisation of what used to be an amateur competition.

There were also accusations of corruption levelled at Samaranch surrounding a culture of favours extorted from bidding cities by IOC members.
This came to a head during the bidding process for the 2002 Winter Olympics. In 1999, 10 IOC members were forced to resign over scandals involving the way Salt Lake City had secured the Games.

Samaranch did take steps to curb this excesses but it is argued that he must have been aware of what was going on and that he only acted after media pressure.

In 2001, he did not reapply for the presidency and he was succeeded by current incumbent Jacques Rogge.

However, he remained involved with the organisation and was named Honorary President for Life of the IOC.

Samaranch campaigned for Madrid to be awarded the 2016 Games, and was considered key to the city finishing second in the voting, behind Rio de Janeiro but ahead of Tokyo and favourites Chicago.

"I know that I am very near the end of my time. I am, as you know 89 years old," he told IOC representatives at the vote in October 2009.
"May I ask you to consider granting my country the honour and also the duty to organise the Games in 2016."