Category Archives: Finance

Spain Votes to Implement Deficit Limit in Constitution

Friday 2nd September may well go down in history in Spain as a mostly unified bipartisan congress voted amend the constitution to limit the amount of Spain’s public debt and avoid a repeat of the current financial crisis.

Prime Minister José Luis Rodríguez Zapatero and leader of the opposition Mariano Rajoy, respectively leaders of the two largest parties between them had enough votes to ensure congress would pass the budget deficit amendment, though all of the smaller nationalist and fringe parties abstained or were not present during the vote. The bill passed congress 316 to 5 with 29 abstentions.

The amendments make two important provisions for future Spanish and regional governments with respect to financial afairs, with national and community governments now expected to balance their annual budgets, and a debt ceiling imposed on national and community level governments of 0.26% of GDP and 0.14% of GDP respectively.

With Friday’s vote, Spain becomes only the second state in the European Union to constitutionally limit public debt, and at a combined 0.4% for national and community governments is well below the current EU limit of 3% of GDP. The reforms will come into effect in 2020, with reviews of the percentage amounts possible in 2015 and 2018.

Whilst the vote never seemed to be in doubt, the lack of support from the smaller parties is a worrying sign that PSOE and PP as the nation’s two largest parties are not getting the support of smaller parties and begs the question what will happen after the next general election as the two majors line up for the possibly inevitable coalition government that is a hallmark of Spanish politics.

Numerous political parties, trades unions, and the M15 protest movement called for a referendum on the amendment, with the intention of voting against both the constitutional change and the other austerity measures the government has introduced at the insistance of the IMF and European Central Bank (ECB). Major trade unions with millions of members, nationalist parties with sizable bases in Catalonia and the Basque countries, as well as the enormous pulling power of the M15 movement now look set to challenge the two main parties in the coming months.

Assuring the constitutional amandment passes Spain’s senate will be the next task of Zapatero and Rajoy, though they are not expected to face much dissension within their party ranks. The more serious challenge comes from the UPyD party whose leadership have filed notice they intend to appeal the reform in the Constitutional Court on the grounds the measure was rushed through without proper consultation.

Spain’s national deficit of 9.2% of GDP in 2010 is now looking like might drop to 6% by the end of the 2011 financial year, and both the PSOE and PP have committed to bringing Spain’s national debt down to the EU mandated limit of 3% by 2013. These measures are intended to avoid a repeat of a Greek style bailout for Spain but with Italian austerity measures looking doubtful Spain may yet be forced to call in the IMF.

Spain Announces Constitutional Change to National Budget

Responding to deep international criticism of Spain’s budget deficit, Prime Minister Jos Louis Rodriguez Zapatero today announced his intention to seek a constitutional amendment that would require future governments to maintain a balanced budget, and would set limits on public sector borrowing.

Just a few days ago Germany and France together called for all Eurozone countries to adopt balanced budgets and cap spending as a percentage of GDP to avoid repeats of the current financial crisis facing the Euro.

Today’s announcement has broad political support, with Mariano Rajoy the opposition  leader stating his intention to help push through the 60% majority vote needed in parliament to change the constitution.

If passed the new measures are intended to boost confidence in Spain by the international financial community, and will be a significant reform as Spain battles reduced ratings making borrowings more expensive.

As well Zapatero announced that Friday will see further steps to reduce Spain’s high unemployment rate with changes to temporary employment contracts and additional funding for industry training to be allocated.

Low quarterly growth rates in the Spanish economy, with third quarter growth estimated at 0.2%, have however been welcomed, and with recent austerity measures expected to save an additional 5 billion euros in 2011, the government is cautiously optimistic the worst of Spain’s financial woes may soon be over.

Spanish Govt Introduces More Austerity Measures, Cuts Taxes on New Homes

As pressure mounts on Spain’s socialist led government from the EU and finance markets, the government has announced further austerity measures in its hopes of reducing the budget deficit and convince investors that positive economic growth can be expected.

Announcing the measures, Development Minister José Blanco stated that 700,000 new homes remain unsold after the property market crash in Spain, and that reducing the IVA on new homes from 8% down to 4% until the end of the year.

Spain’s decade of housing boom ended with the beginning of the financial crisis in 2008, leaving an estimated 2 million new properties unsold, and leading to Spain having the highest private debt burden in the Eurozone. Though the almost complete meltdown of the construction industry has meant more than half of these new properties have since been sold, the resultant slashing of home prices by as much as 50% in some markets has not been without pain to Spanish home buyers.

Corporate tax payments worth some 2.5 billion euros have been brought forward to 2011 with a decree aimed at boosting government coffers before the Nov 20 election. The socialist government is currently polling to lose the election and appears to be frantically aiming to minimise election losses by introducing measures to bring more stability to the economy.

As well, the government announced restrictions on doctors prescribing branded medications, instead insisting the generic or unbranded medicines must now be prescribed in an effort to shave a further 2.4 billion euros off the national debt.

In the last week, the European Central Bank has been buying up Spanish debt to avoid a possible default by Spain, and at the same time German Chancellor Merkel, and French President Sarkozy have been increasing pressure on Spain to make concerted efforts to cut the budget deficit now, and not after the election.

Previous efforts to stabilise the economy and reduce the debt burden included a sales tax (IVA) increase, slashing of public sector wages, and freezing of pensions.

Economic growth has been affected by the austerity measures, with 2011 forecast growth of 1.8% downgraded to 1.3%, though current forecasts from the National Statistics Institute suggest 0.7% growth might be more realistic. This on top of an official unemployment rate above 20%, the highest in the Eurozone.

Property Owners in Spain to get English Language Help

Intense lobbying by the British government in the EU, English language press, and by expatriate residents in Spain has resulted in the Spanish government conceding that English language help for property owners will be made available as new property regulations came into force on July 7, 2011.

In the first instance, property owners and buyers will now be able to request a copy of the ‘nota simple‘, the Land Registry Certificate, in English. The certificate contains all of the pertinent details of the property including any charges against the property. The English language nota simple will be available from the Colegio de Registradores, or can be applied for online https://buyingahouse.registradores.org after paying a 29 Euro fee including VAT and translation (See Currencies Direct Spain for the best conversion rates).

In addition, owners of property bought outside planning regulations, a form of ownership known as ‘fuera de ordenación’ can now apply to have their interest recorded in the Land Registry for additional protection. Specifically, this will allow owners who bought in good faith to have their property recorded in the registry, whilst also protecting the fuera de ordenación status of the property. This is particularly important for owners of properties who may in the future face demolition orders, and are unable to prove their claims due to not having their property listed in the Land Registry.

The changes to the Land Registry now mean it is no longer possible to have a property included and a ‘nota simple’ issued until a license of first occupation has been approved, a construction license approved, and finally a technical certificate from a technical architect stating the construction and building standards meet those of the plans under which the construction license was approved.

Whilst these changes on the face of things appear to be simply a case of amending the laws to add more detail to the ‘nota simple’, in fact these are significant indeed since the majority of land ownership demolition orders and fines over the last 25 years have been due to non-conformance with Land Registry regulations.

By including all pertinent information in the nota simple, and by making this available in English from the College of Architects, the Spanish government hopes that future investors will at least be able to understand the notations in the property certificate thus avoiding a repeat of previous years.

The most significant development however relates to future purchases of Spanish property, an update to the Ley Estatal de Suelo which will make it impossible for buyers to purchase Spanish property that does not satisfy local town planning laws, and therefore, cannot be issued with a nota simple.

Unfortunately, current owners of property under ‘land grab’ litigation will not benefit from the new changes, and the British government and EU will continue to lobby the Spanish government to have these properties legalised, or at least offer compensation to owners whose property is subject to a demolition order.

Giles Paxman, the British ambassador in Spain stated, “I welcome these initiatives. Communicating essential information in English, combined with the measures announced in the decree, should help to ensure buyers are accurately informed of any legal issues connected with a property.”

Upgraded Mortgage Protection for Spanish Property

The Spanish central government has recently amended laws relating to mortgages to offer more protection for embattled mortgagees facing financial difficulties, with specific changes to personal income thresholds which rise by 261 euros per month, and adjusting the minimum value attached to the repossessed homes upto 60% of the value of the mortgage.

These changes were announced by Spain’s 1st deputy Prime Minister Alfredo Perez Rubalcaba on July 1st, and herald a softening of the burden imposed on mortgage holders, and a hardening of the government’s position against banks that have largely been seen as part of the problem rather than the solution to Spain’s economic crisis.

Regarding income levels, Perez Rubalcaba announced that when a home is embargoed pending foreclosure, an act that is similar to bankruptcy proceedings in other nations, the personal income of the mortgagee is capped to recover debt owed. With this latest announcement the income retained by the mortgage holder and not passed to debtors rises from 700 euros to 961 euros per month, and additional amounts of 192 euros per month can be retained for each member of the household without an income.

Describing the minimum resale value of a repossessed property, Perez Rubalcaba said the current level of 50% of the value of the remaining mortgage places terrible burdens on borrowers who are liable for remaining debt even after their home has been repossessed and sold. The new minimum level will rise to 60%, and is expected to give much needed peace of mind to families facing repossession.

Certain measures however have not yet been instituted, being considered too radical in the short term, with proposals to clear the mortgage debt after repossession being rejected.

In addition, the minimum-interest clause (Clausula Suelo) has not been repealed or amended. Banks and mortgagors are permitted to charge a minimum amount of interest on variable rate mortgages irrespective of the floating Euribor base rate meaning mortgagees have not benefited from recent drops in the central bank rate.