- Decision taken following discussion about eurozone's struggling economy
- Spanish minister said aid will not come with austerity conditions attached
- Move comes a day after Spain's credit rating was downgraded
- David Cameron has said UK will not contribute funds to eurozone bailouts
- Euro falls and forecasters say it could hit seven-year lows by September
- Cost of bailout is equivalent to 81billion or $125billion
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Spain's deep economic misery will get worse this year despite the country's request for a European financial lifeline of up to 100billion euro (81billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.
Spain will stay stuck in its second recession in three years, and more Spaniards will lose their jobs in a country where one out of every four are already unemployed, Mr Rajoy said today.
He spoke a day after the country became the fourth - and largest - of the 17 countries that use the common currency to request a bailout.
A woman at a branch of troubled Spanish bank Bankia. A bailout would be aimed only at the country's banks
'This year is going to be a bad one: Growth is going to be negative by 1.7 per cent, and also unemployment is going to increase,' Mr Rajoy said.
Spain will regain the economic credibility it has lost by shoring up its banks, which will result in credit being restored so businesses and individuals shut off from loans can start borrowing and the economy will grow again, Mr Rajoy said. But he didn't offer guidance on how long that could take.
And that, Mr Rajoy insisted, in turn should help restore credibility to the eurozone, which has been shaken for more than two years by the financial crisis.
Europe's widening recession and financial crisis has hurt companies and investors around the world. Providing a financial lifeline to Spanish banks is likely to relieve anxiety on the Spanish economy - which is five times larger than Greece's - and on markets concerned about the country's ability to pay its way.
Another huge test for Europe comes next week when Greece holds elections that could determine whether it leaves the single currency. European leaders said it was crucial for Spain to have help lined up for its banks before the June 17 balloting.
Mr Rajoy repeatedly refused to call the rescue package a bailout, saying it is a 'line of credit' that is different than bailouts taken by Greece, Ireland and Portugal because their lifelines include strict outside control over public finances - and Spain's does not.
Optimistic: Spain's Minister of Economy Luis de Guindos said he hoped that as a result of the bailout loan families and companies will have more solvent banks which are able to offer them credit
Mr Rajoy blamed Spain's woes on the previous Socialist administration of Jose Luis Rodriguez Zapatero without mentioning him or his government by name. Mr Zapatero was ousted by Mr Rajoy in a landslide last November by voters outraged over the Socialist handling of the economy.
'Last year Spain's public administration spent 90billion euro more than it took in, this can't be maintained, we can't live like that,' Mr Rajoy said.
He also defended his decision to jet off Sunday afternoon to Poland to see Spain's famed national football team take on Italy in the Euro 2012 competition. He said he would only be on the ground in Gdansk for the game and would be back in Madrid late Sunday night.
'I'll be there two and a half hours and then I'll leave,' Mr Rajoy said. 'I think the national team deserves it.'
The move to formally request a rescue package was announced by the Spanish economy minister Luis de Guindos at a hastily convened press conference in Madrid.
Mr de Guindos did not put a price on the bailout but said it would be ‘significantly’ more than the 32 billion suggested earlier by the International Monetary Fund.
Sources close to the talks suggested up to 80billion or $125billion is likely to be offered.
Less than an hour before the announcement, Spanish government sources were saying that a decision on whether to ask for a bailout would be delayed until auditors had completed examining the books of the troubled banks.
Mr Rajoy had previously insisted that any decision on accepting a loan would come after the results of two independent audits of the Spanish banking system, which has been blighted by the collapse of the country’s property market.
The auditors are due to report within two weeks. Under current agreements, the UK is insulated from the proposed Spanish bailout other than through our membership of the IMF.
Leaders: German chancellor Angela Merkel, left, said today she has not pressured Spain into asking for a bailout. David Cameron has promised that UK money will not be used to prop up European banks
On Friday, the IMF said that a ‘stress test’ showed that while some of Spain’s financial sector was well managed, measures were needed to help people hardest hit by the recession.
‘It is critical that the authorities continue to take decisive action to address the weaker institutions and restore market confidence in Spanish banks,’ an IMF report said.
It warned that delays would make the economic downturn worse.
If Spain – Europe’s fifth-biggest economy – receives the massive handout, it will become the fourth member of the 17-nation eurozone to get help since the Continent’s debt crisis erupted two years ago. It follows bailouts to Greece, Ireland and Portugal.
The financial crisis in Spain provoked an attack on David Cameron by Labour leader Ed Miliband.
HOW MUCH WILL THE UK PAY?
The International Monetary Fund (IMF) made a 27 per cent contribution to the bailout loan to Greece and a third of the total cost of loans for Portugal and Ireland.
As a member of the IMF, the UK has historically contributed 4.5 per cent to any IMF funding.
So that would mean that if Spain gets an 80billion bailout, the UK might be liable to indirectly contribute around 1billion.
He said: ‘As we’ve been saying for many months, we need to ensure there is stability in the banking system and where that requires action, it should take place swiftly. The austerity approach is not working.’
Spain’s fourth-largest lender, Bankia, recently asked for 15 billion to help deal with losses on loans that cannot be repaid.
Many Spanish banks borrowed large amounts on the international markets to lend to developers and homebuyers, a move seen as riskier than funding loans with deposits from savings.
The decision came amid fears that a Spanish collapse could cause a disastrous chain reaction which could eventually destroy the single currency and is follows ratings agency Fitch's decision to drastically cut Spain's credit rating to BBB, just two notches above dreaded 'junk' status.
It is also just days before elections in Greece and follows an outspoken attack on austerity measures by Barack Obama.
In a sideswipe against David Cameron Mr Obama warned that such measures risked dragging the world economy into a new ‘downward spiral’.
Spanish Economy Minister Luis de Guindos said the aid will go to the banking sector only and so would not come with new austerity conditions attached for the economy in general.
A statement from the finance ministers of the 17 countries that use the euro explained that the money would be fed directly into a fund Spain set up to recapitalize its banks, but emphasized that the Spanish government is ultimately responsible for the loan.
Speaking at a news conference Mr de Guindos said: 'This is not a rescue, this is a loan which is given in very favourable conditions, which will be determined in the next few days.
'But they are very favourable - much more favourable than the market ones.
'We hope that as a result of these injections [of capital] families and companies will have more solvent banks which are able to offer them credit, which they are not able to do at the moment.'
That plan allows Spain to avoid making the unpopular commitments which Greece, Ireland and Portugal were forced to take when they were given bailout loans.
Spanish Prime Minister Mariano Rajoy has seen his country's banking crisis escalate rapidly
Instead, the eurogroup statement said it expected Spain's banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labour market and manage its deficit.
He added that Spain would request enough money for recapitalization, plus a safety margin that will be 'significant.'
With markets in turmoil, de Guindos said the government's efforts to shore up the financial sector 'must be completed with the necessary resources to finance the needs of recapitalization.'
Dieter Merz, chief investment officer of Switzerland's MIG Bank, added: 'The euro issue is a major one and Spain is in a serious problem. It will remain so until a proper solution is found.'
He said the euro could fall to $1.18 (76 pence) by September - levels not seen since 2005.
The eurogroup said the loans will go to its bank restructuring agency called FROB. In a statement it said it 'considers that the Fund for Orderly Bank Restructuring, acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned.
The Spanish government will retain the full responsibility of the financial assistance'.
Spanish leaders hope an injection of EU funds will stem the sector's crisis, which has escalated wildly since last month's dramatic nationalisation of troubled lender Bankia.
German chancellor Angela Merkel today said she had not forced Spain or any country into taking a bailout, adding: 'It's down to the individual countries to turn to us.'
David Cameron has vowed that UK funds will not be used to prop up Spanish banks. 'I wouldn’t ask British taxpayers to stand behind the Greek or Spanish deposits. It's not our currency,' the Prime Minister said.
However, the five main UK high street banks have 160billion tied up in loans, mortgages and government debt in Spain and the other bailout countries - Portugal, Italy, Ireland, Greece and Spain.
The fortunes of RBS and Lloyds are of concern to UK households across the UK as taxpayers are already sitting on a combined loss of almost 40bn as the banks’ share prices have plunged.
Banks have been busy cutting their eurozone exposures, shoring up their finances and building up their capital reserves.
Deputy Spanish Prime Minister Soraya Saenz de Santamaria said no decision on a bailout had been made at Friday's Cabinet meeting.
She added that the government would not act until it receives a raft of reports on how much money Spain needs to save its banks from collapsing under the weight of soured real estate investments.
An International Monetary Fund report was released late on Friday, and two independent auditor surveys are due by June 21.
Spanish prime minister Mariano Rajoy said yesterday he would await the outcome of two external audits later this month before talking about how to recapitalise troubled lenders.
Spain's immediate problem is that international markets have become nervous about lending money to it with interest rates rising to 6 per cent.
However this is merely a symptom of problems with the Spanish economy stemming from the bursting of the property bubble.
Before 2008 Spanish debts were only 36 per cent of GDP with the country one of the most thrifty in the eurozone.
Spain's banks, property developers and ordinary home-buyers collectively borrowed and fuelled an huge property bubble when interest rates fell and property prices tripled between 1996 and 2007.
Now that bubble has burst, property prices are on a downward course and millions are out of work.
The government is borrowing like mad to try and keep the crippled economy afloat.
Financial services firms get stiff fines - Independent Online
The Financial Services Board (FSB) Enforcement Committee, the board’s administrative justice arm, has fined two financial services companies R100 000 each for not adhering to the law.
* The first, Regent Life Assurance Company, was fined R100 000 for contravening the policyholder protection rules of the Long-Term Insurance Act, in that Regent:
- Entered into an agreement in connection with its insurance products with Gertel Algemene Handelaars CC trading as Multi Brokers, while Multi Brokers was not authorised to render financial services;
- Did not provide a policyholder with written information; and
- Conducted business with Multi Brokers without having entered into a written agreement.
The second, Ness Consulting Services, was fined R100 000 for contravening the Financial Advisory and Intermediary Services (FAIS) Act for conducting financial services business with another company, Prospercare Benefit Solutions, which was not licensed to render financial services in respect of funeral benefit policies.
And Prospercare Benefit Solutions was fined R80 000 for contravening:
- The FAIS Act by giving advice and rendering intermediary services on long-term insurance policies without being licensed to do so in terms of the Act; and
- The Long-Term Insurance Act by inducing consumers to buy or continue long-term insurance policies by offering a competition draw that made them eligible to win various types of prizes.
Other recent fines handed down by the Enforcement Committee include:
* Prosperity Group was fined R50 000 for negligently allowing at least one staff member to sell fraudulent life assurance policies to earn commissions. Prosperity clients had their bank accounts debited for the premiums.
The Enforcement Committee found the negligence was a contravention the FAIS Act’s general code of conduct for authorised financial services providers (FSPs) in that Prosperity failed to render financial services with due skill, care and diligence and in the interests of clients and the integrity of the financial services industry when it failed to put in place proper internal controls to prevent or detect the submission of fraudulent applications for insurance cover by its employees.
Prosperity accepted responsibility for the contravention, reported the case to the police, assisted the police in apprehending one of the suspects, reversed the commissions and reimbursed the clients whose accounts were debited as a result of the fraudulent cover.
* FSP Clement Karabo Phakane was fined R25 000 and FSPs Roderick Charles McFarquhar and Gidimag CC were each fined R10 000 for contravening the FAIS Act by marketing and/or advertising the services of foreign-based Safecap Investments trading as Markets.com, which was not an authorised FSP nor a representative of an authorised FSP.
The FSB Enforcement Committee may impose administrative penalties, compensation orders and cost orders on respondents that are found to have contravened any law administered by the FSB.
UPDATE 2-Wall St Week Ahead: Spain aid deal calms Europe fears - Reuters UK
(Updates with Euro zone agreeing to lend Spain up to 100 billion euros)
By Angela Moon
NEW YORK, June 10 (Reuters) - U.S. stocks will get a lift on Monday after euro zone finance ministers agreed to lend Spain up to 100 billion euros ($125 billion) to help its battered banks.
The surprisingly large amount of aid removes a huge cloud that has been hanging over financial markets, with investors fearing that a banking crisis in euro zone's fourth-largest economy could have compounded the currency bloc's troubles with Greece.
Though the exact amount to be lent will be decided in just over a week, striking a deal now means Spain has added support in case Greece's June 17 elections throw financial markets into a tailspin.
"This is a major step in avoiding a contagion," said Tim Speiss, partner-in-charge of EisnerAmper's Personal Wealth Advisors Group in New York.
"The amount is pretty high, higher-than-expected. Although we need to get more details, at least for equity markets in the U.S. and around the world, this definitely eases short-term fears," Speiss said.
U.S. stocks are coming off their best week of 2012, in large part due to expectations that something would be done for Spain's banks.
After a 2-1/2-hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.
For Wall Street, anything that diminishes fears over Europe is welcome news. The broad S&P 500 index fell 6.3 percent in May, its largest percentage drop since September, as the euro zone debt crisis worsened in the wake of Greek elections that produced a hung parliament.
In the first Greek poll, a large number of voters voted for parties opposed to the country's international bailout. The re-run of Greek elections on June 17 could decide whether the country stays in the euro zone.
"It's good that the news of the aid come ahead of the Greek elections. There has already been a lot of volatility in the market associated with it (the elections), so it's a good way to calm the sentiment until we get the elections out of the way," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
In other parts of the world, news was not as good.
Data showed China's inflation dipped to a two-year low in May while economic activity remained weak. This reinforced expectations that further policy easing could be in the pipeline to head off a sharper slowdown in the world's second-largest economy.
However, the data released by the National Bureau of Statistics on Saturday was not as grim as the market had feared after China's surprising interest rate cut this week - the first since the depths of the 2008/09 global crisis.
But the numbers still suggested economic activity remains sluggish in China. There were also concerns that while the economy may stabilize with stimulus measures, growth could slow down further.
EYES ON APPLE
Apple Inc kicks off its annual conference for software developers on Monday, and more than ever, the consumer electronics juggernaut finds itself in a pitched battle with the online search giant, Google Inc - in smartphones, cloud computing and the never-ending competition for the hearts and minds of the best software developers.
Apple is expected to announce its own mapping application, challenging the position of Google Maps as one of the most-valued features on the iPhone. It will unveil closer integration of its iPhone apps and iCloud storage service with all its devices, the latest riposte in its battle with Google's Android smartphone software.
Apple shares rose 1.5 percent to close at $580.32 on Friday. For the week, the stock rose 3.5 percent, but for the month, the shares were almost flat.
Google shares rose 0.4 percent to end at $580.45 on Friday, closing the week with a 1.7 percent gain. However, for the month, the stock was almost unchanged.
On June 1, the S&P 500 index ended below its 200-day moving average for the first time this year, but it clawed its way back above the key level and rallied later in the week on hopes that Europe would find solutions to its problems. For the week on Friday, the Dow advanced 3.6 percent, the S&P 500 rose 3.7 percent and the Nasdaq jumped about 4 percent - their best weekly percentage gains since December.
The U.S. economic calendar in the coming week includes data on the Producer Price Index and retail sales on Wednesday. Reports on the Consumer Price Index and initial weekly jobless claims are set for Thursday. Data on Friday includes the Empire State manufacturing index, U.S. industrial production and the preliminary reading for June on consumer sentiment from the Thomson Reuters/University of Michigan surveys. (Wall St Week Ahead runs every Friday. Comments or questions on this column can be emailed to: angela.moon(at)thomsonreuters.com) (Reporting By Angela Moon; Editing by Kenneth Barry, Jan Paschal and Christopher Wilson)
Mobile money plan stumbles at start in Haiti - AP - msnbc.com
PORT-AU-PRINCE, Haiti — Getting money in Haiti can be a harrowing experience: Bank branches are few, most of them are in the capital and a simple transaction can take half a day. Cash machines are scarce as well, and often broken or empty. And then there are the thieves who often wait nearby in hopes of finding a mark.
So aid agencies trying to remake Haiti after a catastrophic earthquake are promoting a new way to bypass banks altogether: easy money transfers by cellphone. The U.S. government and the Bill & Melinda Gates Foundation have pumped millions of dollars into the plan, which lets people save and move money in mobile phone accounts and quickly withdraw it at a network of retail stores around the country.
As yet, though, few Haitians are buying the idea, which has become one of many post-quake projects to fall short of expectations and a reminder of how hard it is to change a society that has been repeatedly set back by political upheaval and natural disasters.
"I'm not going to invest my money in something I don't see," said James Alexis, a 33-year-old truck driver, as he stood in line at a bank in downtown Port-au-Prince, a wait he expected would take two hours. "It could be a trick."
Backers admit adoption has been slower than expected, though they remain optimistic it will expand, in part because so many Haitians rely on cellphones, often to find jobs. Some 800,000 people initially registered for the service, even if only about 22,000 people regularly use it.
The service "has gone on in the face of political violence, political instability, cholera, gas shortages, you name it, and we're this far," said Greta Greathouse, director of a U.S. Agency for International Development program to improve financial services in Haiti. "Does it mean we're there yet? No. We want it to be sustainable and there's a lot of work that needs to be done."
A spokesman for the Gates Foundation in Seattle, Chris Williams, said by telephone that the project is a "work in progress" but that it's going well.
"It's not a huge surprise to find some disconnect between the number of registered users and currently active users," Williams said. "It takes some time to build up to scale."
The project began months after the January 2010 earthquake when the Gates Foundation announced that it was creating the Haiti Mobile Money Initiative with a $10 million donation. USAID contributed another $5 million for technical assistance.
The idea was to help the 90 percent of Haitians who don't use banks by replicating a mobile money-transfer system that has gained popularity in countries such as Kenya, Uganda and the Philippines.
Two local cellphone companies, Digicel Group Ltd. and Voila, rushed to compete for the money by setting up their own mobile money transfer systems, and so far have been awarded a total of $6.8 million from the foundation.
The system is essentially an account linked to the telephone. Users can transfer up to $250 at a time to another subscriber, who can then withdraw the money from a network of shops ranging from auto-parts stores to internet cafes. As much as $1,500 can be transferred in a month. So far, international transfers are not allowed.
Digicel-Haiti's former CEO, Maarten Boute, said at a Barcelona conference in February that it wasn't easy to explain the system.
"Our main lesson learned is how difficult it is to educate customers," said Boute, who is now a senior adviser to the Jamaica-based company. "When we launched the service we assumed it would be something like selling a mobile phone, where you stick a mobile phone into someone's hand and almost anyone can start using it quite quickly because it's very easy to understand. With a mobile banking service or a mobile money service it's not quite that easy."
The Christian charity World Vision joined the program, seeing it as a simple, cash-free way to pay small rental subsidies to help people move out of the gloomy settlements that sprang up after the earthquake.
But many people didn't understand how to use the technology and were leery of it, said Keith Chibafa, who oversees the project for World Vision. The nonprofit registered 6,000 subscribers for the service, but only 1,000 actually use it.
Confidence was undermined on one occasion when residents of a camp in the city of Croix-des-Bouquets, outside the capital, went to collect their payments and were told there was no money.
"We did have an agent running out of cash," Chibafa said. "It was a problem, a serious problem."
Cab driver Ernst Figaro said he doesn't trust the new service any more than the banks, which are not known for their customer service.
"The electronic system in Haiti is not standing on its feet yet," Figaro said while taking a break from work on a park bench. "I just don't trust putting my money in this system."
Others, such as Wilner Destina, have become converts. The 40-year-old street painter signed up six months ago because he was eager to avoid the frustrating hour-long lines at commercial banks. "It allows us to do (money) transfers with ease," Destina said outside a Digicel store in downtown Port-au-Prince after sending the equivalent of $50 to a friend in Gonaives, a port city 110 kilometers (68 miles) northwest of Haiti's capital.
David Sharpe, Digicel's director of products and services, hopes to find more people like Destina, attracting them with features such as a lottery played on the cellphone and, later, international wire transfers.
More users will arrive through a new government program that will use the service to make transfers to as many as 100,000 mothers who keep their children in school.
With the recent acquisition of Voila, Sharpe joked in an interview that mobile banking will take off in the coming years. "I'll put 10 bucks down that we beat all of your expectations."
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
This "Phil of Sussex"... I really would like to know how old he is, as he comes across like a little boy who has just learnt his first 'naughty' word, and is running around excitedly shouting it at grown ups and then disappearing around the corner, sniggering. I have invited him to give a reasoned account of his beliefs on the EU topic, but that too is met with abuse, as he apparently considers himself too superior to debate with DM readers. - Mike, Folkestone
To be fair to the guy, English isn't his first language. He is desperate that Britain stays in the EU otherwise he will probably have to return to his home country - and can't come up with a sensible reason why it is in Britain's best interest to stay in, so he just hurls abuse at anyone who disagrees with him. Everyone is familiar with that now, so it is probably best to just ignore and pity him.
- Steve, Winchester, 10/6/2012 17:39
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