Spain Unveils

Arthi Gupta
11 Jul, 2012
New York City

The European indexes traded mixed and Spain announced new

[R]3:50 PM Frankfurt – The European indexes traded mixed and Spain announced new €65 billion in austerity measures and Germany raised €4.15 billion from debt sale at record low yields. Gerresheimer soared 5.1% after quarterly net rose.[/R]

European markets traded mixed and Spain announced new austerity measures to meet the terms of the latest bailout and Germany sold debt today at record low yields.

Spain's Prime Minister Mariano Rajoy unveiled tax increases and spending cuts to reduce the budget deficit by €65 billion over two years.

Rajoy said at a speech to lawmakers, “We have very little room to choose” and added “I pledged to cut taxes and now I am raising them. But, the circumstances have changed and I have to adapt to them.”

Some of the austerity measures include raising the value-added tax to 21% from 18%, reducing jobless claim benefits by 10% after six months, and imposing salary cuts for government employees and foregoing of Christmas bonus.

Rajoy also proposed to reverse the mortgage rebate he introduced only seven months ago at his second cabinet meeting and also asked the pension committee to address early retirement that may cut down the pension increase he implemented in December.

Miners took to the street protesting against mining subsidy reductions agreed by the previous administration. Rajoy wants to cut the lowered subsidies of €111 million in 2012 that were lowered from €301 million in 2011.

This week the euro area finance ministers agreed to release €30 billion to banks in Spain by the end of this month and also, extended the deadline for the country’s excessive deficit correction to 3% of GDP by one year to 2014.

Separately, Greek Finance Minister Yiannis Stournaras said the government requires another €3 billion to cover its short-term funding requirements.

To add to investors’ woes, a report from the International Labor Organization stated that unemployment in the euro-zone could reach almost 22 million over the next four years, up from 17.4 million.

The survey further showed that unemployment has risen in more than half of the region’s 17 countries since 2010 and over three million youth aged between 15 and 24 are unemployed.

In Paris trading, the CAC-40 Index declined 19.76 or 0.6% to 3,155.64 and in Frankfurt the DAX Index edged lower 4.03 or 0.1% to 6,434.12.

The yields on Spain’s benchmark 10-year bonds declined four basis points to 6.75%. Italian 10-year yields dropped three basis points to 5.90%.

German Bond Auction

Germany raised €4.15 billion from the sale of its 1.75 percent July 2022 bund today at an average yield of 1.31% compared to an average yield of 1.52% in the previous sale on June 13, Bundesbank said.

The bid-to-cover ratio rose to 1.5 from 1.4 in June.

Gainers & Losers

Deutsche Post AG fell 1.1% to €14.13 after the logistics services provider plans to expand its market-leading position in China.

Fraport AG rose 0.3% to €44.23 after the air transportation hub operator registered 5.4 million passengers in June, up 5.4% from last year.

Gerresheimer AG soared 5.1% to €38.88 after the specialty products manufacturer reported second quarter group revenues rose 10.3% to €314 million from a year ago. Net income in the quarter surged 30.8% to €17.4 million from €13.3 million in the earlier year quarter.

Telefónica, S.A. declined 0.8% to $12.10 after the telecommunications provider said it continued the divestment process of its stake in its subsidiary, Atento Inversiones y Teleservicios, S.A. Unipersonal.

TUI Travel PLC, the leisure travel company fell 0.7% to €169.10 pence after Boeing signed a five-year agreement with the company to provide 787 Dreamliner flight, maintenance and cabin safety training.