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SPAINSECONOMICREFORMPROGRAMME
March 22nd 2012
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I.Highlights
II.EconomicPolicy:thestructuralreforms
FiscalConsolidation
Budgetaryand
Financial
Stability
Law
FinancialSectorReform
LabourMarketReform
FutureReforms
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I. Highlights:SpainsEconomicSituation
2
AccordingtoINE(NationalStatisticsBureau)estimatesGDPgrowthin2011 0.7%
Since
mid
2011
growth
prospects
have
deteriorated.
Economy
entered
in
recession
during 4Q 2011 withquarterly GDP growth falling to 0.3% from 0,0% in the previou
quarter.
Forecastsstate
that
Spain
will
enter
arenewed
recession
in
2012:
1%EuropeanCommission.
1,7%IMF.
1,5%BankofSpain.
Thesituationinthelabour marketdeterioratedinthe4Q2011.
Labour ForceSurvey:Unemploymentrate 22,85%in4Q2011from21,52%inthepreviousquarter.
Youthunemployment (agedunder25):48,6%Vs.45,8%previousquarter
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TheGovernmentsnewEconomicPolicyisbasedonthreepillars
1. BudgetaryandMacroeconomicStability:
FiscalDiscipline
BudgetaryEquilibrium:aConstitutionalMandate
Budgetary and Financial Stability Law implemented at all levels of the
PublicAdministration
2. Boldandpromptstructuralreforms:
Financial sector consolidation; enhanced transparency and solvency
requirements
Reform of the Spanish Labour market legislation and labour marketpolicies
Increasingcompetitivenessandproductivityinfactormarkets
3. PublicAdministration
Overhaul
AClearMandate:OverallMajorityatNationalandRegionalLevel
II.EconomicPolicy
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The deterioration in the economic indicators has entailed a deviation in the
2011deficittarget (from6%to8.51%/GDP):immediatemeasuresamountedto
15bn (1.4%/GDP)tocompensateforthisdeviation
8.9bn cutsinspending:minimumwage&civilservantswagefreeze,20%
reduction insubsidiestopoliticalpartiesandsocialagents,rationalisation
ofadministrative
structures,
no
new
public
employment
in
2012
6 bn in tax increases: temporary increase in Personal Income tax,
selectivetaxrateincreaseonrealestate,oilsubsidiesremoval
New
Programme
against
tax
evasion
under
evaluation:
8
bn additional
incomeexpected
II. EconomicPolicy:SpainsStartingPointforFiscalConsolidation.
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STABILITYPROGRAMMEOFTHEKINGDOMOFSPAINASSETINAPRIL2011 VS.LATESTDATA
II.1 EconomicPolicy:FiscalConsolidation
Path
5
%GDP 2011 2012 2013
ProjectedDeficit6%(8,51%) 4.4%(5.3%) 3%
GDPgrowth
assumption1,3%(0,7%) 2,3%(1.7%)* 2,4%
Projected
Deficit
and
GDP
growthassumptionsareoff
by2012.
The commitment is to continue with the fiscal
consolidation path in accordance with the new
projectionsandassumptions
Structural Balance commitments will be
reinforced. In 2012, the adjustment in structural
termswillbearound3.5percentagepoints.
*Government forecasts
%GDP 2012 2013
ProjectedDeficit5.3% 3%
GDPgrowth
assumption1,7%
2012:NEWSCENARIOANDPUBLICDEFICITOBJECTIVES
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Mainobjectives:
Guaranteeingdebtsustainabilityatalllevelsofgovernment
ReinforcingSpains
commitments with
the
investor
community
and
with
the
EU intheframeworkoftheFiscalCompact
Transparencyandexantecontrol
AlllevelsoftheAdministrationinvolved
Draftproposedby
Govt.on27/01/2012
Tobecomeeffective
beforeJune30th
II.2 BudgetaryStabilityLaw.AllGovernmentlevelsinvolved.
Source:MinisteriodeEconomayCompetitividad.
BudgetaryandFinancial
Sustainability
GENERALRULES:
Budgetarybalance
or
surplus
Nostructuraldeficits
Expendituregrowthcappedbelow
headlineGDPgrowth
Expenditureceiling
for
all
levels
of
Government
BudgetaryPlanningandControl
ReinforcementofBudgetary
control
Expenditureceilingsalso
introducedattheRegionaland
LocalGovernmentlevels
Budgetsurplusestobededicated
todebtreduction
PreventiveandCorrectiveArm
AffectsalllevelsofGovernment:
Central,Regional,LocalandSocial
Security
Automaticcorrectionofdeficits
anddebtthresholds
Earlywarningsystem adoption
ofcorrectivemeasures
Establishmentof
sanctions
in
case
ofnoncompliance
TransparencyandDisclosure
Surveillanceatallstagesof
budgetaryapprovalprocess
Reportingintermssimilartothe
onesunderEDP
Scopeofinformationtobe
publishedbroadened
6
http://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htmhttp://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/20120127_CouncMins_DraftLawBudgetaryStability.htm8/2/2019 BRIEF RESUME: SPAINS ECONOMIC REFORM PROGRAMME
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II.2 BudgetaryStabilityLaw.AllGovernmentlevelsinvolved.
MainAspects
Public debt is introduced as a criterion of budget sustainability: public debt
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TheBudgetaryStabilityLawenvisagesacoordinatedeffort indeficitreduction
andcontrolofallPublicAdministrations.
In
order
to
assist
regions
in
the
payment
to
suppliers
of
goods
and
services
and
in therefinancingofoutstanding financialdebt,a 10bn ICO (Spains financial
agency) credit line has been created. Regional Governments requesting ICO
support, willbesubjecttostrictconditionality.
Additionally,local
and
regional
governments
will
be
assisted
by a
new
35
bn
Fundtofinancepaymentstosuppliersofgoodsandservices.
Paymentswillbechannelledthroughasyndicatedbankloan.
Largestrefinancing
operation
to
have
taken
place
in
Spain.
StrictconditionalityonPublicAdministrationsthatrequestassistance.
II.2 BudgetaryStabilityLaw. AllGovernmentlevelsinvolved.
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II.3Financial sectorreform:Previous Measures.
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2009:CreationoftheFund fortheOrderlyBankRestructuring (FROB) to liquidatenon
viableentitiesandtosupportrestructuringprocessofviableones (up to 36billionwith
possibilityofincreasingupto 99billionifneeded).Conditionaloncostcuttingmeasures
2009:Regulatory
reform
of
saving
banks
2011:LawtoStrengthenCapitalBaseandConfidence:solvencyrequirements increased
to 8%/10% in February 2011 and additional transparency requirements by the Bank of
Spain.September2011,endofcapitalisationprocess
Savingbanksrestructuringprocess:savingbankshavedecreasedinnumberfrom45to17
Despitethesemeasures,morereformsareneeded:
There
are
still
doubts
onthe
valuation
of
real
estate
assets
owned
by
credit
institutions.Thisgenerates:
Difficultiesforcreditinstitutionstogainaccesstowholesale funding
Insufficient
funding
available
to
the
private
sectorFurtherconsolidationeffortsarenecessary
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Landand ongoing developmentprojects
Total(approx.):88billion
Currentprovision coverage:
around 31%on average
Other troubled assets
Total(approx.): 87billion
Currentprovision coverage:
around 27%on average
Nontroubled assets (148billion)
Currently without provision coverage
Troubled assets (175billion)
Realestate
assets linked to loans to developers (323
billion)*
*Dataat30thJune2011
II.3Financial sector:current situation.
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billions
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
25%
27%
31%
16,2
64,6
4,0
15,0
22,5
72,7Exposure (outstanding loans and
foreclosed assets)
Currently covered with provisions
Land Ongoing
developments
Finished
properties and
housing
Current coverage ofexposure to troubled real estate
assets
II.3Financial sector:current situation.
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II.3Financial sector:the new reform
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Significant increase inbankasset writedowns of about52billion,both throughprovisioning and capitalrequirements (capital
buffer)
Signiticant incentivestoconsolidate the system
Transparent processenabling the specific
treatment for each type ofasset to beidentified
Financial effort supportedbythe financial institutions,without the need of public
funds
Improve confidence,credibilityand strength of the system
Dispel doubts about thevaluation of realestateassets
Encourage the banking sectorto
placeits real
estate
assets in
the
market
Give institutions better accessto capitalmarkets to encouragelending
Facilitate a
correction of excesscapacity and improve efficiency
Strengthen governance ofinstitutions created throughmergers
Instruments Objectives
Further concentration
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Newprovisionsandcapitalrequirements: 52billion
Troubledassets
Specificprovision
Extraordinaryprovisions
must
be
set
aside
against
profits.
The
total
amount
is
estimatedtobe25billion
Capitalbuffer
Creationofacapitalbufferof20%(land)and15%(currentdevelopments)forthemosttroubledassets(withthemostuncertainvaluation).Tobechargedagainstretained
earnings,
capital
increases
or
conversion
of
hybrids
(preferential
convertiblebonds,subordinateddebt...).Theestimatedtotalamountsto 15billion
Nontroubledassets
Genericprovisions
Agenericprovisionofaround7%shouldbesetasidefornontroubledassetslinkedtorealestatedevelopments sincetheyhaveahigherriskthanotherportfolioassets topreventpossiblefutureimpairments.Thisprovisionwillbechargedagainstprofitsandisestimatedat 10billion
Deadlineforestablishingthespecificandgenericprovisionsandthecapitalbufferrequirements:December31st,2012
II.3Financialsectorreform:cleanupofrealestateassets.
Approvedby
Parliament
16/02/2012
13
Instruments
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Fortroubledassets,combiningthespecificprovisionsandthecapitalbuffer,coveragefor
landwould increasefrom31%to80% andforongoingdevelopmentscoverage increases
from 27% to 65%. Coverage of the remaining troubled assets in the real estate
developmentand
construction
sector
(finished
properties
and
housing)
would
increase
to
35%
The restructuring, including the provisions and the capital buffer, would total
approximately52billion.From2008toJune2011,theSpanishbankingsectorhassetaside
specificprovisions
of
around
66
billion
The levelofrestructuringof thebalancesheets isextremelyhighandrepresents avery
significantpriceadjustmentcomparedtotheoriginalvaluationoftheguarantees,duetoa
combinationoftwoelements:
Thenew
requirements
are
applied
to
the
gross
balance
of
exposures
Thevalueoftheguarantees ishigherthanthevalueofthe loans (averageloanto
value 60%)
The
criteria
established
in
Banco de
Espaa Circular
4/2004
will
be
applied
to
real
estate
assetsthatbecometroubledin2012orinsubsequentyears,andtonewtransactions
II.3Financial sectorreform:Cleanup of realestateassets.
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0
10
20
30
40
50
60
70
80
90
100
%Coverage
35%
27%
80%
25%
10%
31%
29%
25%
65%20%
31%
27%
23%
15%
Additional provisions
Capitalbuffer
Land Ongoing
developmentsFinished
properties and
housing
Additional provisions and capitalbufferto beadded to existing coverage
Current provisions
II.3Financial sector.The FinalPicture
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Afeasibilityplanand
corporategovernance
measuresthatfacilitaterapid
and
efficient
integration Commitmentstoextendcredit
Deadlinesforcompleting
mergerswillbesignificantly
tight
Institutionsmustsubmittheir
projectsby30May
Applicationswillbedecided
withinone
month
Institutionsintheprocess
ofmergingshallsubmit
Advantages
Deadlines:Therequired
provisioningandcapital
bufferingexerciseisspreadover
two
years Writedowntheimpairmentof
assetsagainstequity.
TheFROBs marginofactionis
extended
by
allowing
the
acquisitionofcontingent
convertiblebonds(FROBs
capitalwillbeincreasedfrom
9.0billionto15billion)
II.3Financial sectorreform:Incentivesformergers.
16
Theobjective:
to
have
fewer,
stronger,
more
accountable
and
better
governed
entities
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Theadjustment
in
our
labour market
traditionally
takes
place
through
dismissalsandnotthroughwages
7,95%(2Q 2007)
II.4 LabourMarket.Currentsituation
8,0
6,0
4,0
2,0
0,0
2,0
4,0
6,0
06 I 06 II 06 III 06 IV 07 I 07 II 07 III 07 IV 08 I 08 II 08 III 08 IV 09 I 09 II 09 III 09 IV 10 I 10 II 10III 10 IV 11 I 11 II 11 III
Tasas de variacin interanual del PIB, empleo y salarios (2006-2011)
PIB Empleo Remuneraci n por asalariad o
GDP, em p loym en t and w age pe r em p loyee
( Ye ar o n y e ar g r o w t h r a t e s 2 0 0 6 - 2 0 1 1 )
GDPEmployment
Wage per employee
Source:Bank of Spain
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Dismissalsare
focused
on
temporary
workers,
which
are
mostly
aged
under25.ThiscreatesahugedualityintheSpanishlabour market
II.4 LabourMarket.Currentsituation
Fuente: INE, EPA
35,00%
30,00%
25,00%
20,00%
15,00%
10,00%
5,00%
0,00%
5,00%
Destruccin de empleos en % respecto al IV T 2007
Te mporale s Inde finidos
Job l osses i n% com pared to Q4 20 07
Temporary
workers
Permanent
workers
Source:INE.Labour Force Survey
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II.4 LabourMarket.Internationalrecommendations
InternationalOrganizationsmain recommendationson theSpanish
labour market:
1. Reduction
of
labour market
duality.
2. Reduction of dismissal costs and improvement of their
managementtopreventfraud
3. Reformthecollectivebargainingsystem,especiallytheopt
outclauses
4. Eliminationofwageindexationsystems
5. Increasethequalityandeffectivenessofpublicemployment
services6. Improveactiveemploymentpoliciesandtrainingofworkers,
paying special attention to the problem of youth
unemployment
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II.4 LabourMarketReform.Objectives
Objectivesofthereform:
Theapprovedlabour marketreformseekstooverhaulthelabour market.Goals:
Improveefficiency
and
reduce
labor
market
duality
by
decreasing dismissal
costs
Enhance the employability of workers, especially the young, improving job
intermediationandtraining
Adjustinternal
wage
bargaining
and
reform
the
collective
bargaining
system
Implementeffectivemechanismsofinternalflexibilitywithincompanies
Promotejobcreationthroughpermanentcontractsandothermeasures
RoyalDecree
Law
presentedbyGovt.on
10/02/2012
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II.4 LabourMarketReform.Hiringconditions
I. Reductionofdismissalcosts,inordertoaddresslabourmarketduality
Unfairdismissal:compensationof33daysperyearworked (upto24months).Down
from45
days
and
42
months
Thiscompensationwillapplytonewcontracts.Forcontractsalreadyinforce,a
mixedrulewillbeapplied
Encouragementof
the
use
of
fair
dismissal:
compensation
of
20
days
per
year
worked
(upto12months).Newregulation:
Clarifiesobjectivecausesoffairdismissal
Eliminatesprocedural wages (wages paid during the duration of thejudicialproceedings)
Eliminatesexpressdismissal
Effect:fairdismissaltobethemainchanneltoendthecontractasopposetonow
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II.4 LabourMarketReform.Hiringconditions
I. Reductionofdismissalcosts,toaddresslabourmarketduality(cont.)
Reform of collective and objective redundancies to reduce legal uncertainty
and
high
costs
Removes the administrative authorization required for collective
redundancies
Reform
of
the
judicial
review
of
collective
and
individual
redundancies PublicAdministrationswillbeallowedtodismissbasedonobjectivecauses
Effect:increased
and
widespread
use
of
collective
fair
dismissal
(compensation
of20daysperyearworked)
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II.4 LabourMarketReform.HiringConditions
II. Encouragingpermanentcontracts
CreationofanewpermanentcontractaimedtoSMEs with50or
fewerworkers
and
self
employed
workers:
Durationoftheprobationperiod:upto1year
3,000
tax
deduction
for
these
companies
/
self
employedworkerswhohiretheirfirstemployee(iflessthan30years)
Additional tax deduction of 50% of the employees
unemploymentbenefits
for
ayear
The employee may receive, along with his salary, 25% of
unemploymentbenefits
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II.4 LabourMarketReform.HiringConditions
II. Encouragingpermanentcontracts
NewbonusesforSMEs,specificallyaimedathiring:
Unemployed young workers (1630 years): 3,600 per
permanentcontractsigned
Longterm
unemployed
workers
(over
45
years):
up
to
4,500
perpermanentcontractsigned
Conversionoftrainingcontractsandsubstitutioncontractsinto
permanentones:
up
to
1,500
per
contract
Reintroduction of the prohibition to link different temporary
contractsformorethan24months(January1st,2013)
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II.4 LabourMarketReform.Employability
III. Labourmarketintermediationandvocationaltraining
Temporary Employment Agencies are now authorized to act as private
placement
entities.
Thiswillpreventfraudintheunemploymentbenefit
Previously, only the public employment service and a few private agencies
were
involved
in
job
intermediation Improveprofessionaltraining:
Developmentofanewindividualrighttoprofessionaltraining(20hoursper
year).Future
"trainingcheck"paidwithpublicfunds
Increasedsupplyofprofessionaltrainingbyallowingthedirect participation
ofprivateagents
Creation
of
a
new
training
account
associated
to
each
worker
to
improvetrainingitinerary incaseofunemployment
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II.4 LabourMarketReform.Employability
III. Labourmarketintermediationandvocationaltraining
Newtraining
contract
(for
workers
aged
16
30):
Nolimitinthenumberoftrainingcontracts
Allowstheoretical
training
within
the
company
Bonusestoencouragetheuseofthiscontract
Modification
of
the
current
permanent
part
time
contract
to
allowextrahoursandincreaseitsflexibility
Regulationofteleworking topromoteitsimplementation
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II.4 LabourMarketReform.InternalFlexibility
IV. Internalflexibilityandcollectivebargaining
Facilitation of contract modifications on roles, duties, geographical location,
wage
and
working
time.
Previously,
the
existence
of
rigidities
allowed
little
roomforcontractstoadapttodemandortechnologicalchanges.
Removalofadministrativeauthorizationstosuspendthecontract ortoreduce
theworking time based oneconomic, technical, organizational or productive
reasons
Collectivebargainingreform:
Objectiveoptoutclauseofthecollectiveagreement
Priorityofenterprisecollectiveagreementonthemostrelevant issues(e.g.
wage, number of hours). Previously, sectorial and global collective
agreementsdominatedcontractconditions
Ultractivity.
Application
of
extinguished
collective
agreements
will
be
limitedto2years.Previously,ultractivity hadnotimelimit27
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More and updated information on the Spanish
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http://www.thespanisheconomy.com
MoreandupdatedinformationontheSpanisheconomy.
29
http://www.thespanisheconomy.com/http://www.thespanisheconomy.com/