The FX Report

The Spanish economy contracted by 0.4% between January and March, one tenth more than in the previous quarter, confirming a return to recession after joining two consecutive quarters of falls.

Is the estimate of the Bank of Spain, which in its latest bulletin indicates that the evolution of the economy in the coming quarters is uncertain and subject to the risk that can lead to new episodes of sovereign debt crisis.

Compared with the first quarter of 2011, GDP fell 0.5% after seven quarters of interannual increases.

The agency explains that relapse is due to weak domestic demand and a slowdown in activity are damped only by the relative strength of the external sector, as exports are slowing.

Stresses that the labor market continued to deteriorate, which has led to the unemployment rate is placed at around 24%, before it considers that the labor reform will be essential to return to job creation, but without their effects will be immediate.

In this context, the Bank of Spain is a priority to clear the doubts that hang over the Spanish economy through the completion of the restructuring of the banking system and strict adherence to the objectives of reducing the public deficit.

Therefore calls for a rigorous implementation of the state budget-in which is the risk that revenues are below than expected, and close monitoring of autonomous regions and municipalities for the payment plan to its suppliers generate “perverse incentives” that deviate from the deficit target compromised.

For now, the economic agents’ confidence remains very weak, as evidenced by household consumption, which fell 0.4%, the entity attributed to the deterioration of the labor market, the decline in household wealth and entry into force of the rise in income tax.

The same factors were responsible for housing investment continued to decline in the first months of the year.

Also, government spending continued to fall during the first three months, both investment and consumption, the effect of fiscal adjustment to reduce the deficit.

Business investment, which contracted 3.5%, was affected by the economic downturn and the tightening of financial stress.

The negative contribution of consumption and investment caused the domestic demand fell 0.9% in quarterly terms.

For its part, the external sector continued its positive contribution to GDP, though somewhat lower than the previous quarter, as it went from 0.9 to 0.6 percentage points, which is due to a “slight decline” of the exports.

Netherlands today entered into a political crisis with the resignation of the government after failing to agree with parliamentary partners a pact to reduce the public deficit to 3% of GDP in 2013, the deadline agreed with the European Union.

The insurmountable differences with the anti-Muslim party (PVV) on the adjustment plan have led to the prime minister, Mark Rutte liberal right to submit his resignation and that of his entire cabinet to Queen Beatrix Queen.

The Queen “shall consider the resignation” while asking the members of the Dutch Executive continue involved in matters of state, according to a statement quoted by the Dutch news agency ANP.

Rutte is expected to be directed to the Parliament tomorrow at noon to further explain its decision at an extraordinary debate.

Rutte, 45 and in power since October 2010, thus became another victim of the austerity policies implemented in the EU since the beginning of the financial crisis in 2008.

The call for early elections will be immediate, but so far no official date has been set for the elections.

The electoral law requires a minimum of 80 days between that elections are held and held.

The fall of the government in the Netherlands has been the chronicle of an announced decline since March 5 began negotiations on further cuts between the two parties in the current coalition (right liberal Democrats), with its members of parliament, the anti-Muslim led by Geert Wilders (PVV).

Wilders, with 23 seats in Parliament a few weeks ago threatened to break the deck of the covenant, but his return to the negotiating table seemed to indicate that he was willing to accept agreements to end.

So the decision to withdraw its support for the minority coalition at the last moment has been a surprise to analysts and to the prime minister himself, who on Saturday will not hesitate to blame the failure of Wilders negotiation.

According to information leaked in the press, the three parties had managed to agree a new adjustment package to save 14,200 million euros to the Treasury until the end of 2013, breaking taboos as the tax deduction for home mortgages, the pact to accelerate the implementation of the 66 as retirement age, the increase in VAT or increased copayment in Health.

The European Commissioner for Trade, Karel De Gucht, has expressed concern to Argentina for the expropriation of oil company YPF and noted that the EU provides for “all options” as to resort to the WTO, restrictive measures on imports has increased over the last year.

“The expropriation of the shares of Repsol YPF is added to a growing list of problematic decisions recently taken by Argentina in the area of ​​trade and investment,” said De Gucht in a letter last Thursday to the Argentine Foreign Minister Hector Marcos Timerman.
In the letter, the Commissioner emphasizes once again the concerns of the European Commission for the expropriation, which “sends a very negative signal by the Government of Argentina to all international investors.”

It urges the parties to “seek an amicable agreement”, and Buenos Aires, to respect its international commitments and, in particular, the bilateral investment protection signed with Spain.

“The situation is now at a point where you run the risk of jeopardizing our trade and investment in general,” said the commissioner.

At the same time, De Gucht stressed the EU’s concern about the increasing number of restrictive measures against imports applied by the Argentine government, because of its “discriminatory policy of import substitution.”

According to the curator, these measures are “manifestly incompatible” with the rules of the World Trade Organization (WTO), and have already had “significant adverse effect” on European exports to Argentina in several areas.

De Gucht recalled that the EU and 18 other WTO members sent last March 30 a statement to that organization, which denounced the situation.

Given the lack of response from Argentina, De Gucht stated in the letter that the EU “is open to all possible options to address the issue both bilaterally and multilaterally.”

Community sources told that in the context of import restrictions imposed by Argentina, studying action in Geneva.

The commissioner also stressed that such measures are “inconsistent” with the spirit of negotiating an association agreement with Mercosur, which is “essential to maintain confidence and avoid steps that jeopardize the process.”

Finally, Argentina stated that this position also runs counter to its commitments to the G20 to reject protectionism.

The EU is the largest foreign investor in Argentina, accounting for more than 50% of foreign direct investment entering the country.

The European Union (EU) has done it again today called on Argentina to avoid destroy foreign investment in its territory and to respect its “international obligations”.

This expressed the community’s top diplomat, Catherine Ashton, on arrival at the meeting of foreign ministers of the Twenty dealing with the matter today in Luxembourg.

“I think I sent a pretty strong message in the European Parliament last week,” recalled Ashton, who has made clear that the EU believes that “in the interest of Argentina and the European and global economic future, it is important not to end in a position in which direct foreign investments are destroyed. ”

The EU High Representative also called on the Argentine government to respect its international obligations.

It is expected that the Spanish Foreign Minister, Jose Manuel Garcia-Margallo, raise their European counterparts today to its position on the expropriation of oil company Repsol YPF to by Argentina.

Also on arrival at the meeting, the Minister of Luxembourg, Jean Asselborn, said today the European support to Spain.

“Spain is an EU member and you have to be in solidarity with Spain. I think we can not allow economic expropriations taking place in countries where there are EU members affected,” he said.

Asselborn defended the “dialogue” as a way to resolve the conflict and called for “pressure” on Argentina at G20 (group of developed and emerging) that “this kind of thing is not repeated.”

“Spain is the victim, but tomorrow is another country,” he said.

The Spanish Minister of Economy, Luis De Guindos, warned that any “additional action” by the Argentine government against Spanish companies “would further aggravate the situation,” and hoped it would “not play” what happened to the expropriation of the majority of Repsol YPF in the oil.

In a press conference after the meetings of the International Monetary Fund and World Bank held in Washington, the minister was asked if Spain does not fear new Argentine measures against Spanish firms in reaction to the recent sanctions announced by Madrid.

“The Spanish government acts on principles”, made clear from Guindos.

“When you consider a violation of a principle, has to act independently of possible further action, the only thing that would would further aggravate the situation we live in today and I hope not play,” he added.

De Guindos noted that, like yesterday the Group of Twenty (G20), also today the International Monetary Fund (IMF) introduced at the request of Spain in their final conclusions, a mention of the need to “protect the investment” and avoid protectionist temptations.

“At this point in the global economy, any protectionist pressure would be extremely negative from the standpoint of recovery,” said the Spanish representative.

De Guindos met today with U.S. Treasury Secretary Timothy Geithner, but said the minister was not addressed during the conversation the dispute with Argentina.

He insisted not to disclose what specific steps you plan to take the Spanish government to respond to the expropriation of the majority that the Spanish company Repsol YPF oil company had on.

“It will take all measures from the legal standpoint, and in multilateral institutions, to exercise a perfectly legitimate, derived from the Argentine government’s decision,” repeated De Guindos.

“In an environment like the current financial volatility, in which investment flows are extremely nervous, all that is certainty is a very positive element in consolidating the investment and recovery,” he argued.

“In this sense, the Spanish government, like many other governments, considers that the Argentine government’s decision was contrary to the necessary stability.”