BBC News - Spain PM Rajoy calls for fresh cuts as protests loom

Spanish PM Mariano Rajoy has announced a 3% VAT rise in a series of austerity measures aimed at cutting the public budget by 65bn euros (£51bn;$80bn).

Crowds lined the streets of Madrid to welcome the coal miners

The changes come as hundreds of Spanish miners arrived in Madrid to protest against government cuts to subsidies.

Mr Rajoy said sales tax would go up to 21% and there would be a 3.5bn euro cut in local authority budgets.

The measures are in return for a eurozone bank bailout and an extension to Spain's deficit reduction targets.

Eurozone finance ministers have agreed to provide 30bn euros (£24bn) for Spain's troubled banks by the end of the month and to give Madrid an extra year - until 2014 - to hit its budget targets.

The prime minister told parliament that the measures he was announcing had to be adopted without delay.

The package of tax rises and spending cuts would cut the budget by 65bn euros over two-and-a-half years, or 6.5% of GDP, he said.

"The excesses of the past are being paid for right now," he said, adding that Spaniards had never before experienced such a recession.

Without a cut in Spain's budget deficit, public services would be put at risk. Savings of 3.5bn euros would be made to government administration budgets: local authorities would not be able to offer services they could not afford and the number of councillors would be reduced by 30%.

The door had been opened to a new EU model, he said, and the summit agreements had committed everyone equally.

Spain's unemployment is running at more than 24% and analysts say European leaders want to see a credible Spanish plan for viability and deficit reduction.

"What animates us is the five million people out of work," Mr Rajoy told parliament.

Clashes

Most of the miners arriving in Madrid late on Tuesday had walked hundreds of miles since 22 June from northern Spain where protests outside coal mines have resulted in clashes with police.

They were greeted by thousands of supporters as they marched on Gran Via in the centre of the Spanish capital.

A second mass rally of miners is due to take place on Wednesday and unions hope it will draw at least 25,000 people.

The miners are angry at plans to slash coal industry subsidies from 301m euros last year to 111m euros this year.

Unions say the cuts threaten 30,000 jobs and could destroy their industry.

The Spanish government argues that it pays disproportionately high subsidies to a small and unprofitable part of the economy.

Overnight the miners streamed down Madrid's streets with their helmet lamps shining in the dark.

Crowds lined the streets, chanting support.

"We didn't expect such a big welcome," said Roberto Quintas, a miner of 22 years from Villablino near Leon.

"The fact that people are coming into the street and mobilising is a good sign."

Manuel Cinoceda, a retired miner from the Aragon region, added: "The fight is for something just, we are just coming to claim what is ours."

Spain's 30bn-euro bank bailout will be the first instalment of a package worth up to 100bn euros agreed in June.

Eurozone ministers must get approval from their own parliaments and hope to make the payment by the end of July.

Reuters News - Sanctions squeeze forces Iran to cut oilfield flow

A general view of an oil dock is seen from a ship at the port of Kalantari in the city of Chabahar, 300km (186 miles) east of the Strait of Hormuz January 17, 2012.

Credit: Reuters/Raheb Homavandi

By Peg Mackey and Alex Lawler

LONDON | Tue Jul 10, 2012 4:56am EDT

(Reuters) - Tough Western sanctions are forcing Iranto take drastic action and shut off wells at its vast oilfields, sinking production to levels last seen over two decades ago and costing Tehran billions in lost revenues.

Iran struggled to sell its oil in the run-up to the European Union ban on July 1, yet it managed to sustain oilfield flows at lofty rates above 3 million barrels per day (bpd) by stashing unwanted barrels in tanks on land and on ships in the Gulf.

But oil sales have now slumped to half the rate of last year and storage is running out. As a last resort, Tehran is carrying out "enforced" maintenance at its ageing reservoirs, say Iranian and Western oil sources, dropping output below 3 million bpd.

It's a step that could make Tehran look as if it is caving in to the West and, in any case, leaves it trailing former rival Iraq in the ranks of the world's top oil producers. And if a big volume of oil is closed down, it will be difficult to bring it back online when it's needed, say Western oil experts.

"We're now in a situation where we are being forced to reduce production - so we will prolong the rehabilitation of our oilfields," said an Iranian oil source, who requested anonymity due to the sensitivity of the information.

"But it's a mistake to think this will make us put our hands up. Iran will not surrender."

Nor will Iran say very much, if anything. Oil sales began to slow in March due to the rigorous restraints imposed by the United States and European Union, but Iran only conceded in June that exports had fallen significantly.

As for lower production, an inevitable result of a sustained slowdown in exports, the Islamic Republic has gone further into lock-down mode - making it exceedingly difficult to obtain precise information.

"In operations - upstream or downstream - maintenance is not something unexpected," said an Iranian oil official, who insisted on anonymity. "It is very normal to have some maintenance."

He declined to comment on whether Iran had taken the opportunity to work-over its oilfields with exports now running about 1 million bpd below last year.

Western oil experts reckon tight storage and plunging oil sales may have forced Tehran to turn down the oilfield taps by at least several hundred thousand barrels a day.

"The pressure is definitely on, but it's difficult to know the details," said a senior Western oil executive. "What is clear is that the situation is extremely complicated and delicate and things are not being said in public."

Adding a further layer of complexity, there are changing faces among the top brass at the National Iranian Oil Co. (NIOC). On the job for just a year, Mohsen Qamsari, head of international affairs, has just been replaced by Mohammad Ali Khatibi, Tehran's representative on OPEC's governing board.

EXPORTS FALL

Oil shipments have declined steadily as buyers cut imports to comply with U.S. and European Union sanctions imposed due to concerns the country is attempting to build a nuclear bomb. Iran says its nuclear activities are peaceful.

Last month, Iran acknowledged that exports had fallen sharply - down 20-30 percent from normal volumes of 2.2 million barrels daily.

A National Iranian Oil Company official, Mohammad Ali Emadi, put the decrease down to oilfield maintenance and not sanctions imposed on Iran's nuclear programme.

When pressed for further details on the oilfield overhauls, three senior Iranian officials declined to comment. There is no end of speculation among Western executives and policy-makers.

"I have heard that some fields are shut in and just by looking at the numbers, I believe that's correct. I don't think they have much more space to put oil," said an industry source who tracks Iranian production and exports.

"But I am sure they don't want to admit it or give away any ideas on which fields."

In April, shipping sources said Iran had been forced to deploy more than half its fleet to store oil at anchorage in the Gulf, equating to 33 million barrels. The country is expected to store at least a further 8.3 million barrels this month.

Those who track the oil shipments of Iran and other members of the Organization of the Petroleum Exporting Countries say there is precious little available storage in tanks onshore.

"It's full up. It got full quite quickly before the floating storage started getting filled up," said the industry source.

LONG-TERM DAMAGE?

While oil industry experts say that shutting in production is beneficial to Iran's hard-worn reservoirs, a prolonged closure of high volumes would not be desirable.

"The more production is shut in, the harder and longer it is to bring back production when it is needed," said Peter Wells of geological consultancy Neftex Petroleum.

Iranian engineers have been battling for years to get the best out of Iran's oilfields, for decades deprived of easy access to cutting-edge technology designed to maximize flows due to successive rounds of U.S. sanctions.

Output from Iran's ageing fields has slumped from 3.9 million bpd in 2005, according to OPEC, as recovery rates are relatively low due to Western restrictions on technology transfers needed to counter production declines or tap trickier discoveries offshore.

Iran is meanwhile dipping deep into savings to fund investment in its energy industry, while increasing its refining capacity for the home market, reporting giant new oil or gas finds, and even touting investment in renewable energy as a possible solution to dependence on oil.

On July 3 - two days after the EU embargo on Iranian oil took effect - Oil Minister Rostam Qasemi signed a memorandum of understanding (MoU) for his ministry to tap the National Development Fund, a sovereign wealth fund largely filled with oil revenues accumulated in better days, for $14 billion.

The fund, now valued at around $35 billion, is the successor of a fund set up in 1999, when oil was below $10 per barrel, to save money for a rainy day.

Qasemi said the move "indicates that the country has enough financial resources to fund projects". The ministry will also issue bonds to raise cash.

The government could be in for a long haul.

"There is an increasing desperation," said a Western oil executive. "It seems very unlikely they will get any relief from sanctions any time soon."

(Additional reporting by Daniel Fineren in Dubai; Editing by Peter Graff)

Reuters News - Fed officials favor QE3; Asian data signal drop in global demand

A truck is driven down a road at a yard where cars are parked before being exported at a port in Incheon, west of Seoul June 17, 2012.

Credit: Reuters/Choi Dae-woong

By Nick Edwards and Leika Kihara

BEIJING/TOKYO | Mon Jul 9, 2012 6:31am EDT

(Reuters) - Asia's biggest exporters showed further signs of slowing down in data published on Monday, signaling a fresh slide in global demand, as two top U.S. Federal Reserve officials said they favored easing monetary policy to boost growth.

Japan's core machinery orders in May plunged 14.8 percent from April, with the key gauge of capital spending sinking far below analyst expectations of a 3.3 percent decline. That raised the risk that growth momentum in the world's No. 3 economy will stall if firms start to scale back investment.

Meanwhile consumer inflation in China, the world's second biggest economy, eased more than expected in June, with producer prices in outright deflation for a fourth month.

The numbers signal that demand for goods from the nation's vast factory sector - especially from foreign customers - is declining as the global economy weakens.

Exports from Taiwan, one of the world's largest producers of electronics, declined in annual terms for a fourth straight month in June against market expectations of a modest rise. Taiwanese firms make the majority of Apple gadgets as well as smartphones for various brands, and the dip reflects falling global demand for such consumer products.

Europe's biggest economy, Germany, announced that imports and exports rose more in May than expected, but economists said it was a rebound from weak figures in April.

The data points in Asia underlined a downbeat assessment of growth prospects in the world's biggest economy by Boston Federal Reserve President Eric Rosengren in a speech in the Thai capital Bangkok on Monday.

"My pessimism is rooted in an expectation of weakness in investment, net exports, and government spending," including "concerns about economic and financial conditions in Europe," said Rosengren, who described himself as more pessimistic than policy-setting colleagues on the Federal Open Market Committee (FOMC).

He's not alone in feeling grim about near-term U.S. economic prospects, with Wall Street economists more convinced than ever that the Fed will embark on a so-called QE3 program - a third round of quantitative easing via large-scale bond purchases.

A Reuters poll on Friday revealed that primary dealers, the large financial institutions that deal directly with the Fed, expect a 70 percent chance of the $2.3 trillion QE program being expanded.

The poll was conducted after the U.S. Labor Department reported that employers created only 80,000 jobs in June, far fewer than needed to bring down the 8.2 percent unemployment rate and adding to evidence that Europe's debt crisis was weighing on global growth.

Rosengren told reporters after his speech that it was "appropriate to have more quantitative easing" from the Fed.

His comments were echoed by fellow Fed official, Chicago Fed President Charles Evans, also speaking in Bangkok.

"Additional monetary accommodation is need to more quickly boost output to its full potential level," said Evans, one of the Fed's most dovish voices. "The economic circumstances warrant extremely strong accommodation.

Neither is a voting member of the FOMC this year, but both will be in 2013.

RISKS GROWING IN JAPAN

Some analysts also believe the Bank of Japan might be compelled to expand its own asset purchase program on Thursday at the conclusion of its monthly policy-setting meeting.

"The BOJ looked like it would be on hold this week, but given weak U.S. economic data and monetary easing by central banks in China and Europe, there is now a 50 percent chance that the BOJ could ease this week," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

A surprise interest rate cut from the People's Bank of China last week - the second in a month - on the same day that the European Central Bank also cut rates and the Bank of England expanded its quantitative easing program - has only served to deepen the downside risks being priced into asset markets.

Asian shares and the euro slumped on Monday as sluggish U.S. jobs data and cooling inflation in China deepened worries about slowing global growth.

"What investors are most sensitive to right now is the risk of an economic deceleration around the world," said Tetsuro Ii, president of Commons Asset Management.

A raft of recent profit warnings from Chinese firms covering a swathe of sectors from sportswear to steel production and property development clearly demonstrate the downturn in prospects for the real economy - not just in the aggregate data.

But the signals from the two big Asian economies and the still precarious position of debt-ridden Europe - on which much of the downside risks to global demand and economic growth are focused - do raise the likelihood of policy action, coordinated or not, in major economies across the globe.

Euro zone finance chiefs meet in Brussels later on Monday for talks focused on plans to reinforce the single currency, but they may end up doing little more than highlighting limitations of last month's deal to help indebted states and banks.

CHINA READY TO ACT

There's more chance of action from China, the biggest marginal generator of growth in the global economy, where politics are shifting policy into pro-growth high gear ahead of a once-a-decade handover of power scheduled for the autumn.

The showpiece event means the government is determined to ensure it takes place against a backdrop of social stability and economic prosperity, the delivery of which the Communist Party says justifies its one-party rule.

Premier Wen Jiabao was quoted by the official Xinhua news agency on Sunday as saying more aggressive efforts were needed to support growth in the face of substantial downward pressures.

China has been easing monetary and fiscal policy since the autumn of last year, during which time growth has continued to slow, with data scheduled for release on Friday expected to show that the second quarter of 2012 was the weakest three months of growth since Q1 2009.

The benchmark Reuters poll forecasts China's economic output in the second quarter grew 7.6 percent from the year-ago period. Chinese GDP grew 8.1 percent in the first quarter of this year versus the first quarter of 2011.

China's central bank unexpectedly cut benchmark interest rates last week for the second time in a month in a bid to bolster growth. It has also lowered banks' required reserves ratios (RRR) in three 50 basis point steps since November 2011, freeing an estimated 1.2 trillion yuan ($190 billion) to lend.

Meanwhile the Yiwu "Prosperity Index" - based on data from wholesalers in the eastern city in Zhejiang province that is a bellwether of low-cost exports - has dipped below the level separating expansion from contraction for the first time since its launch in 2006.

Published by China's Commerce Ministry, the index stayed above its current level even when China's exports cratered during the global financial crisis in 2009.

China's June trade data is scheduled for release on Tuesday - the next in a series of major economic indicator releases for the Chinese economy - and is likely to reinforce market expectations for action.

"The looming risk of deflation highlights weak aggregate demand, and not just softening global commodities prices," economists at HSBC said in a client note.

"We see plenty of ammunition left and expect more quantitative easing in the form of additional 200 bp RRR cuts for the rest of this year and further fiscal easing measures. Get ready for the next RRR cut."

BBC News - Chinese inflation eases to 2.2% in June

Inflation has eased sharply in China, giving policymakers more room to spur economic growth amidst a global slowdown.

The BBC's John Sudworth in Shanghai explains why inflation is coming down and why it's both good and bad news

Consumer price rises cooled in June to 2.2% compared to the previous year, China's statistics bureau said.

That is down from 3% in May and is well below the government target of 4%.

China has taken steps to bolster growth as the global economic crisis weighs on demand for its goods.

Analysts said lower food prices was the main driver of the slowing inflation.

Pork prices, one of the biggest contributors to skyrocketing inflation last year, fell 12.2% from 2011.

Growth steps

China's central bank has cut key interest rates twice since the start of June, with benchmark lending rates down to 6%.

It has also cut the amount of money banks must keep in reserve in an effort to boost lending.

Analysts said they expected more such moves to boost growth from the government going forward.

"A lower consumer price index opens room for further policy easing, which we expect will pick up," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.

Economic 'fine tuning'

That sentiment was echoed over the weekend by Chinese Premier Wen Jiabao, who said more aggressive efforts were needed to support growth, according to the official Xinhua news agency.

"China's current economic situation is generally stable, but it still faces relatively huge downward pressure," Mr Wen said while on a trip to the eastern province of Jiangsu.

"We should increase the strength of policy fine-tuning," he added. Fine tuning is an often-used term by Chinese policy makers to indicate that policy moves will be gradual.

The Chinese economy grew at 8.1% in the first three months of this year compared to the previous year, its slowest pace in almost three years.

The easing of food prices, especially pork, is the main contributing factor to slowing inflation

BBC News - China's central bank cuts interest rates in growth move

The Chinese central bank has cut its benchmark interest rates for the second time in two months, in a bid to arrest slowing economic growth.

China's interest rate cuts are aimed at boosting slowing economic growth

Benchmark lending rates will be cut from 6.31% to 6%, while deposit rates will fall from 3.25% to 3%.

The rate cuts will come into force on Friday and closely follow on from the last cuts made on 7 June.

Before these moves, the People's Bank of China had not cut interest rates since 2008.

Commenting on the move, Rupert Armitage, director at Shore Capital, said: "China are cutting rates because they're experiencing a slowdown.

"Everybody's been concerned about the economy, but now they're actually doing something about it."

The central bank's rate cuts come on the back of a gradual liberalisation of China's banking system.

Banks can now compete on the interest rates they offer customers, within a stipulated range.

China's export growth has been hit by a fall in demand from two of its biggest markets, the US and Europe, still struggling with the global debt crisis.

China's economy grew at an annual rate of 8.1% in the first quarter, the slowest pace in almost three years.

It hopes lower interest rates will help boost domestic demand.

BBC News - Christine Lagarde: IMF to cut global growth forecast

International Monetary Fund (IMF) chief Christine Lagarde has said that the organisation's next forecast for global economic growth would be down from the 3.5% predicted in April.

Christine Lagarde was speaking at a symposium in Tokyo

She also hailed EU leaders' efforts to solve the debt crisis.

She said "significant steps" had been taken, but further reforms and strong implementation were needed.

Christine Lagarde was speaking at an economic symposium in Tokyo as part of a week-long tour of Asia.

But there were signs that those significant steps had still not calmed investors.

The yield on Spanish 10-year bonds, which is taken as an indicator of how much the government would have to pay to borrow money, rose sharply on Friday.

It rose to 6.9%, close to the 7%, which is considered unaffordable in the long term.

More to do

Christine Lagarde was clear that further measures were needed.

Referring to measures adopted by eurozone leaders in Brussels last week, she said: "From the IMF perspective, we believe that more needs to be done in order to complete [the reform].

"It's also a question of implementation - diligent, rigorous, steady implementation."

She particularly praised moves towards banking union.

But she added that more would need to be done both inside and outside the eurozone, with renewed attempts at increased co-operation between countries.

She said they should work together to restore trust in sovereign debt, reform the financial sector and achieve sustained growth.

'Certainly lower'

She warned that the IMF's forecast for global economic growth, which is due out later this month, would be lowered.

"What I can tell you is that it will be tilted to the downside and certainly lower than the forecast that was published three months ago," she said.

Japanese Prime Minister Yoshihiko Noda complained that Europe's debt problems were hurting the Japanese economy because they were causing unjustified rises in the value of the yen.

"Market jitters on eurozone problems, especially one-sided yen rises that do not reflect Japan's economic fundamentals, are inflicting severe damage on economic sentiment," he said.

Credit ratings agency Moody's also said on Friday that the short-term risks to the eurozone economy had reduced.

But it warned there would be a high cost to wealthier eurozone countries.

The eurozone's problems could return to prominence later on Friday, when Greek Prime Minister Antonis Samaras is due to outline to parliament his government's proposals for revising the terms of the bailout from the EU and the IMF.

But there have been reports that the Greek government has decided that it is falling too far behind its targets to be able to renegotiate the terms.

EU finance ministers are due to meet next Monday to discuss the issues leftover from last week's summit.

Reuters News - Economic gloom seen pushing ECB to cut rates

A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt June 29, 2012.

Credit: Reuters/Alex Domanski

By Sakari Suoninen

FRANKFURT | Thu Jul 5, 2012 3:36am EDT

(Reuters) - The European Central Bank is widely expected to cut borrowing costs to a record low on Thursday to support a deteriorating euro zoneeconomy and complement measures agreed by government leaders last week to tackle the bloc's debt crisis.

Economic surveys released on Wednesday suggested even euro zone powerhouse Germany is entering a modest downturn and investors want the ECB to take action. The consensus forecast is for a 1/4-percentage point cut in its main interest rate.

The ECB's policymaking Governing Council began meeting at 3 a.m. EDT, with financial markets steady ahead of the decision on interest rates, which the bank will announce at 7.45 a.m. EDT. ECB President Mario Draghi then holds a news conference at 8.30 a.m. EDT.

The central bank is under pressure from investors and even the International Monetary Fund to take bold measures, with IMF Managing Director Christine Lagarde urging the bank to resume its purchases of government bonds - an unlikely scenario.

The ECB's main refinancing rate is already at a record low of 1.0 percent, and 48 of 71 economists in a Reuters poll expect the bank to cut it further, most of them by 25 basis points to 0.75 percent. Some others see a larger decrease.

An interest rate cut is not seen as a panacea for the euro zone's problems, which stem from a loss of confidence in state and bank finances, but a reduction in borrowing costs would show the ECB is ready to breathe life into the flagging economy.

"It's not so much about the real effect that (a rate cut) will have," said Nordea analyst Aurelija Augulyte. "It's more a psychological game, a game of trying to be supportive of sentiment."

There is only a slim chance the ECB will offer a repeat of the twin 3-year ultra-cheap loans with which it funneled over 1 trillion euros to banks in December and February. But the ECB could cut the deposit rate it pays banks for parking money with it overnight and which acts as a floor for the money market.

IMF ADVICE

The IMF on Tuesday publicly questioned the wisdom of cutting rates further and urged the ECB to buy the bonds of distressed euro zone countries. ECB policymakers are unlikely to heed this advice, however, with Executive Board member Peter Praet having offered the clearest signal that the bank will cut rates.

"There is no doctrine that interest rates cannot fall below 1 percent," he said on June 27. Rate cuts "are justified if they contribute to guaranteeing price stability in the medium term."

Furthermore, a core of ECB policymakers feel the bank's bond buying program - dormant for four months - amounts to monetary financing of governments, which is beyond the ECB mandate.

Easing price pressures give the ECB far clearer cover to cut interest rates, backing up the summit deal last week when government leaders agreed to let the euro zone's rescue fund inject aid directly into banks and intervene on bond markets.

While inflation remains above the ECB's target of just below 2 percent, it has been sliding recently and ECB staff expect it to average 1.6 percent next year, giving room for a rate cut.

Business surveys released on Wednesday strengthened the case for a cut, showing the euro zone's private sector downturn eased only slightly in June and that it remains in recessionary territory.

A cut would be welcomed by the southern European banks that have tapped the ECB heavily for loans. A 25-basis-point cut would decrease annual interest payments from the 1 trillion euros in 3-year loans by about 2.5 billion euros.

"Given the banks' reliance on (such) funds, that will produce a very immediate injection into the financial system," Lena Komileva at G+ Economics said.

DEPOSIT RATE

In addition to the main refinancing rate, analysts are eager to see whether, and by how much, the ECB cuts its deposit rate, which acts as a floor for the money market.

A cut to as low as zero - from 0.25 percent now - could encourage banks to lend to each other rather than simply parking funds of up to 800 billion euros back at the ECB every night.

However, a deposit rate of zero could hamper the functioning of the money market as costs would exceed returns.

And, even with the deposit rate at zero, "good banks don't want to lend to insolvent banks," Nordea's Augulyte said, adding she expected a 15 basis point cut, to 0.1 percent.

In a Reuters poll, money market traders were evenly split between cutting and holding the rate.

The ECB is unlikely to announce any further "non-standard measures" - bond purchases or ultra-long loans - after already loosening its lending rules on June 22. It will want to see the impact of that step before tweaking the framework.

ECB President Mario Draghi will be quizzed on how firm the central bank's opposition is to reactivating its bond buy program, and whether it could change its mind regarding giving the ESM bailout fund the option to tap ECB funds.

While the ECB is not ready to announce that the SMP bond program is officially over, it has become clear that the purchases would be restarted only in an absolute emergency.

"The bond buying program is in a deep sleep, and it will remain there," ECB Governing Council member Klaas Knot said in a magazine interview released on Wednesday.

Less clear is what Draghi will say about giving the euro zone's ESM permanent bailout fund a banking license, which would allow it to exponentially increase its firepower from the planned 500 billion euros.

Some analysts see the ECB changing its course on ESM as the best option to quell the debt crisis.

"I think it's easier for the ECB and the Bundesbank to change their minds regarding the ESM than to reactivate the SMP program," said Natixis economist Sylvain Broyer.

"We will at some point have to buy sovereign debt en masse, and it would be cleverer to let the ESM do it."

(Reporting by Sakari Suoninen. Editing by Jeremy Gaunt.)