DAX Up 1.5%; Spain Amends Constitution to Limit Deficit

Arthi Gupta
29 Aug, 2011
New York City

European indexes edged higher. Spain reached an accord on public deficit limit. Home prices in the UK declined in August. Nordea planned to slash 2,000 jobs by 2012.

[R]2:00 PM Frankfurt – European indexes edged higher. Spain reached an accord on public deficit limit. Home prices in the UK declined in August. Nordea planned to slash 2,000 jobs by 2012.[/R]

Spain’s main political parties reached an agreement on including limits on the country’s public deficit and debt in its constitution.

The amendment calls for public debt not to exceed 60% of gross domestic product, though the ceiling may be breached in the case of “natural catastrophe, economic recession or emergencies,” according to the text distributed last week by the Socialist party.

Spain’s ruling Socialist and conservative opposition Popular Party set a maximum structural or long-term deficit in the annual budget of 0.4% of gross domestic product from 2020 that will be enshrined in the constitution.

However the constitutional amendment agreed by the parties must be approved before June 30, 2012 and will not come into effect until 2020 and will not include a specific cap on the deficit.

The Spanish state would be allowed a structural deficit of up to 0.26% of GDP and the 17 semi-autonomous regions a maximum shortfall of 0.14% of GDP.

The government aims to cut its deficit to 6% of gross domestic product by the end of this year from 9.2% in 2010 and aims to reach the EU target of 3% by 2013.

The Spanish economy expanded 0.7% annually in the second quarter from a revised 0.9% in the first quarter.

Separately, the Spanish government announced a package of labor market reforms aimed at fighting the jobless rate of 20% and 45% in youths under 25.

As part of these measures, temporary jobs will no longer be automatically converted into permanent jobs after two years. Additionally, for youths aged between 16 and 25 without qualifications, a new type of job contract has been introduced by the government wherein they can spend 25% of their time in training.

German Chancellor Angela Merkel on Sunday in an interview to the Bild am Sonntag newspaper said that she is confident of convincing her coalition partners of the necessity of the legislation and the strengthening of the stability of the euro.

Merkel reiterated that that the idea of eurobonds is a completely wrong tool to cope with the debt crisis. She further told the newspaper that she is still not in favor of having collateral in return for loans to Greece.

In another report, Finland''s Prime Minister Jyrki Katainen said in an interview to Finnish newspaper Helsingin Sanomat on Saturday that the demand for collateral from Greece in return for loans may weaken his country''s position in the European Union.

However, the country is committed to its demand for collateral in return for Greek bailout guarantees, government officials were reported as saying.

In Paris, CAC-40 Index soared 57.02 to 1.84% to 3,144.80 and in Frankfurt DAX Index edged higher 83.40 or 1.51% to 5,620.88. The UK markets are closed for a public holiday today.

Japanese Finance Minister Yoshihiko Noda was elected as head of the ruling Democratic Party of Japan on Monday succeeding Prime Minister Naoto Kan who resigned on August 26.

The president of the Democratic Party will become Japan''s prime minister due to the party''s strength in parliament. Hence, Noda will become Japan''s sixth prime minister in the last five years.

Greek banks EFG Eurobank Ergasias SA and Alpha Bank SA plan to merge, reports said citing people familiar with the matter. The newly formed entity will be Greece''s largest bank with assets of €150 billion or $217 billion, more than 2,000 branches and about €80 billion in deposits, according to various Greek media reports.

National Bank of Greece surged 30% and Piraeus Bank soared over 28%.

UK Home Prices Drop

Home prices in the UK declined for a fourth consecutive month in August, property data firm Hometrack said on Monday.

Home prices fell 0.1% in August, and was 3.7% below the August 2010 level, Hometrack said.

Nordea Plans to Slash Jobs

Nordea Bank AB, the Swedish financial services group said it plans to slash 2,000 jobs as part of staff cost reduction and initiated negotiations with trade unions in the four Nordic countries.

The bank said it aims to reduce around 2,000 employees in 2011 and 2012 to reach the anticipated cost efficiency and profitability. Of the planned job cuts, between 500 and 650 will be in Denmark, Finland and Sweden, respectively, and between 200 and 300 in Norway.

Gainers & Losers

Actelion Ltd. rose 2.25% to Sfr33.23 after the Swiss biopharmaceutical company said an exploratory phase II study with macitentan in patients with idiopathic pulmonary fibrosis did not meet its primary endpoint of forced vital capacity.

Advanced Inflight Alliance AG fell 0.029% to €3.5 after the company engaged in the licensing of film rights reported first-half net profit rose 43.5% to €3.3 million from €2.3 million in the corresponding period last year.

Novartis AG climbed 0.90% to Sfr46.01 after the Swiss drugmaker said the U.S. Food and Drug Administration sought additional information regarding the company''s ACZ885, or canakinumab, in gouty arthritis patients.

PAION AG dropped 2.44% to €1.60 after the German biopharmaceutical firm said it began a Phase Ib study with its recombinant human thrombomodulin Solulin in haemophilia.

United Company Rusal Plc soared 3.62% to HK$8.29 after the Russian aluminium producer reported second quarter revenue climbed 11.4% to $3.33 billion from $2.99 billion last year. Net profit for the quarter plunged to $339 million or $0.02 per share from $1.12 billion or $0.07 per share in the prior year.

Volkswagen AG gained 0.27% to €109.45 after the automobile manufacture said it has set up an engine reconditioning plant in Dalian to provide the Chinese market with a range of engine parts.