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Spanish cities in debt

According to figures provided by the Ministry for the Economy 8 out of Spain’s 52 provincial capitals now owe on average more than 1000 euros per inhabitant. In fact last year was a record year for local town halls and regional governments getting into debt with a new record of 34,595 million euros of debt out of which 28,770 correspond to town halls and 5,825 to regional governments. The town hall of Madrid stands out because the 6,777 million euros of debt it has acquired is almost a quarter of the total debt owed by all of Spain’s 8000 municipalities put together.

Last year Spain’s town halls acquired a budget deficit equivalent to 0.5% of GDP. However this is much less than central government which has acquired a budget deficit equivalent to 8.7% of GDP or regional governments which have acquired a budget deficit equivalent to 2.2%. Nevertheless the debt owed by town halls has started to have serious consequences such as redundancies, cuts in services or reduction in salaries.

The problem for town halls is in part down to the property crash because a large proportion of its revenue was linked to the property boom and many town halls used money it received through property sales to finance its ordinary activities. With the reduction in these payments town halls have raised their levels of debt by 2,565 million euros.

In cities with more than 50,000 inhabitants levels of debt owed by town halls has risen on average by 9.4%. In particular, Ceuta has raised its levels of debt by 109 million euros, Málaga by 101 million euros, Sevilla by 100 million euros and Madrid by 93 million euros.

There are 446 municipalities which have raised their levels of debt by more than 100% among them Ceuta and Cáceres. Another 380 town halls have seen debt go up by 50% amongst them Melilla, San Sebastián, Cuenca and Vitoria. Nevertheless almost 3000 municipalities have reduced their levels of debt and another 2,845 have maintained it at zero.

The increase in debt of Spain’s town halls and regional governments means that there are 8 provincial capitals which owe more than 1000 euros per inhabitant. This is the case in Ceuta, Madrid, Teruel, Melilla, Málaga, Zaragoza, Tarragona and Valencia. The provincial capitals which owe the least amount of debt are Bilbao, Toledo and Pontevedra.

The amounts owed by town halls is less than it could be thanks to Plan E funded by central government which in 2009 invested 8,000 million euros in local projects. However, in 2011 town halls will be forced to settle their accounts and not only will Plan E investment come to an end but also it will be time to balance the books and in many cases central government has invested more than necessary which means town halls will be need to repay excess funding.

This week the government signed an agreement with the Spanish Federation of Municipalities and Provinces (FEMP) to reduce their budget deficits from 0.5% of GDP to 0.2% by 2013.

Corruption in Mallorca

Corruption scandal surrounding PP in the Balearic Islands

The corruption scandal surrounding the funding of the PP in the Balearic Islands has deepened over the last few days. The anti-corruption judges, Pedro Horrach and Juan Carrau investigating the case allege that public funds were used to pay Nimbus, the advertising agency that ran PP’s publicity campaign in the last general elections. And the former President of the Balear Regional Government, Jaume Matas, is accused of covering up the use of public funds through false invoices to pay for the work carried out by Nimbus.

Pedro Horrach and Juan Carrau believe that they have enough witness statements and documentation to prove that the PP made payments to Nimbus using public money. It is also alleged that Nimbus received payments which were never officially billed.

The case has evolved after it was revealed that the construction of the Palma Arena velodrome cost 111 million euros which is three times the estimated amount that it should have cost. Documents also show that duplicate bills for services such as cleaning and repairs were used to cover up the syphoning off of money for the funding of the PP’s publicity campaign in the 2007 general elections - the biggest electoral campaign ever launched the Balearic Islands.

Documents show that Nimbus received payment of 2.4 million euros over 3 years for its advertising campaigns on behalf of the regional government of the Balearic Islands under the PP and the presidency of Jaume Matas who now faces nine charges of corruption and up to a maximum prison sentence of 24 years and bail conditions of 3 million euros.

It is alleged that Nimbus received payment of 71,038 euros in illegal payments made by Fernando Areal, the head of the PP in the Balearic Islands and brother in law of the ex president of the Islands. Jaume Matas and Fernando Areal could both face up to 3 years imprisonment for hiding electoral costs. They both deny these charges although Miguel Romero, the owner of Nimbus, who is also accused of receiving public funds illegally, has recognised in a court of law that such payments were made.

Other allegations against the PP include 12,000 euros paid to the head of the velodrome Jorge Moisés, a former press officer for the PP, for a study that was never carried out.

Jaume Matas who was the Minister for the Environment for the government of the PP from 2001 to 2003 and President of the Balearic Islands from 1996 to 1999 and 2003 to 2007 has been given the cold shoulder by the majority of his former PP colleagues and the only prominent member and ex minister for the PP to publically show his support has been Eduardo Zaplana, former Mayor of Benidorm, President of the Valencian Regional Government and former minister in Aznar's second term.

Pensions in Spain

Average pension in Spain to rise below the rate of inflation

In Spain the average pension is 775.30 euros. This figure represents a rise of 3.4% according to official statistics released today.

Pensions in seven autonomous regions plus Ceuta were above the national average. The highest average monthly pensions correspond to the Basque Country (961.38 euros), followed by Asturias (926.29 euros) and Madrid (917.04 euros).

The regions where pensioners are paid the lowest average monthly pension are Murcia (683.54 euros), Extramadura (662.22 euros) and, lowest of all, Galicia (648.37 euros).

The two main types of pension paid in Spain are for retirement and for "permanent incapacity" given to victims of a chronic ailment or injury. The average in Spain for this second kind of pension is 846.98 euros 878.64 euros for retirement.

Merger of Iberia and British Airways

It is expected that the boards of directors of both Iberia and British Airways will approve the final plans for a merger between the two companies. If the merger goes ahead as expected it will create the third largest European airline.

Sources from both companies have indicated that once the merger plans have been ratified there is no going back. So far merger plans are on schedule following over a year and a half of negotiations between Iberia and British Airways. It is expected that the new company will come into operation on 1st January 2011.

According to the merger plans currently on the table 45% of the new company will be held by Iberia and the other 55% by British Airways. The cost of the merger will be around 350 million euros.

Antonio Vázquez will be the chairman of the merged company while Willie Walsh will act as its managing director. The current chairman of British Airways will hold the post of deputy chairman. It is expected that the operation will generate approximately 400 million euros in addition to the money obtained from the joint operation of routes between Spain and the United Kingdom.

Although the merger plans do no hold any surprises sources close to Iberia’s board of directors have indicated that some of the final details still need to be agreed. One of these could be what to do with the massive deficit in British Airways pension fund currently believed to be 3,700 million pounds (4,100 million euros).

Both companies agreed last November to a fixed penalty of 20 million euros to be included in the final merger plans if either party breaks the agreement.

The shareholders of the new company will be the current shareholders of Iberia and British Airways and the headquarters are expected to be located in Madrid with its operative and financial centre in London although once the merger is completed it is expected that finance will be dealt with in the Spanish headquarters. The board of directors will consist of 14 - 7 from each company.

The final merger plans will need to be approved by the shareholders of each company as well as the aeronautical authorities in the United Kingdom and Spain in addition to competition organizations which need to give the green light to the admission of shares in the FTSE index.

The provisional name of the new company will be TopCo although other names such as International Airlines Group are being considered. The merged company will have a turnover of around 15,000 million euros, with a fleet of 419 planes flying to 205 destinations all over the world.

Clients of British Airways will have 54 new destinations to choose from 13 of which will be in Latin America while Iberia clients will have access to 98 new destinations.

The new company will try to optimize its ‘hubs’ in order to improve its strategic position and capacity to compete with other large Airlines thanks to the presence of British Airways in North America, Asia, the Pacífic and AfrIca and Iberia’s leadership in Latin America.