BRIEF RESUME: SPAIN’S ECONOMIC REFORM PROGRAMME

8/2/2019 BRIEF RESUME: SPAINS ECONOMIC REFORM PROGRAMME

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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.htm


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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.

9

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

12

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


18/30

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
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