Costa del Despair

They dreamed of an idyllic life in the sun. But thousands of expat Britons hit by the falling pound are caught in a terrible trap...

Climbing out of the cockpit of his Spitfire after completing his final mission as an ace World War II fighter pilot, Ian Ross made a solemn promise to himself. Having cheated death countless times - on one occasion staging a dramatic last-ditch landing with black smoke billowing from a shattered wing - he swore that he would cherish every day of life as a civilian and never worry about anything again.

To the young RAF Flight Lieutenant, that simple philosophy seemed the most fitting way to honour the many comrades he had seen killed, and for 64 years he managed to adhere to it.

This week, however, at his retirement home on the Costa del Sol - a small, sparsely-furnished second-floor flat near Marbella, which vibrates to the traffic streaming incessantly along the nearby main road - Mr Ross confessed that his wartime resolution is being tested to breaking point.

For like tens of thousands of expats who left Britain in search of the Spanish dream, this 94-year-old war hero is facing an enemy so pernicious that even he can see no way of defeating it.

In the UK we face spiralling national debt, plunging house prices, sky-rocketing unemployment and the return of 50 per cent income tax - but for the British expats on the Costas the situation is even worse.

The Spanish economy is predicted to shrink by 3 per cent this year and one in five people is expected to be out of work - twice the EU average. Home repossessions have doubled, bankruptcies soared, and the bottom is fast falling out of the tourism industry.

All this means that the recession is bad enough for the Spanish nationals, yet, as I discovered this week, when visiting many embattled expat communities on the Costa del Sol, for a rapidly increasing number of the estimated 750,000 Britons who live in Spain it has become a fullblown catastrophe.

The broad reasons are well-documented. Barely six months ago, £1 bought about €1.4, but with the exchange rate now at virtual parity, the private and state pensions on which many expats depend - and which are paid in sterling - have lost almost one-third of their value.

At the same time, interest rates on their investments have fallen from around 6.5 to 1.5 per cent. To compound their problems, many are tied into long-term Spanish mortgages at much higher fixed rates, so they are not benefiting from falling interest rates.

For many, this seismic shift in their financial circumstances has left them so broke that the Spanish Dream has turned into a nightmare.

Even such essentials as paying the rent or mortgage and clothing and feeding their families are beyond them, and they are being forced to sell heirlooms and trinkets at car-boot sales and to second-hand gold dealers (one of the few new boom businesses).

As if their plight was not serious enough, in recent weeks the situation for many expats has worsened dramatically. With the property market in freefall, they are finding themselves trapped.

There are now an estimated one million surplus homes on the conspicuously over-concreted costas, many of them purpose-built for the British market, but estate agents are closing down all along the coast.

And as the only buyers are speculators making audaciously low offers (50 per cent of the asking price is not untypical), the villas and apartments expats bought for optimum prices during the recent property boom - in the belief their value could only go up - have become virtually un-sellable.

So, even if they want to start afresh in rainy old Britain, they can't - or at least not without losing their entire outlay. An increasing number are so desperate, though, that they are doing just that; handing back the keys to banks and mortgage companies, packing up and flying home.

Since the British community in Spain is so vast and diverse, the casualties span the social spectrum, and, of course, some cases are clearly more deserving of our sympathy than others.

In the upmarket Marbella suburb of Nuevo Andalucia, stamping ground of Premier League footballers and soap stars, I met Stan Cornell, a roguishly charming property speculator from Slough, Bucks, who still dances and drinks till dawn at 62 years of age and describes himself as 'a bit of a playboy'.

A couple of years ago, the entrepreneur snapped up a fabulous threestorey villa built with wrap-around views encompassing Gibraltar and the Atlas Mountains of Morocco, intending to gut and revamp it and sell it for a handsome profit.

Mr Cornell paid €900,000 (£640,000) for the then-desirable property and has spent a further £300,000 on it so far. Only a few months ago he could have expected it to fetch about £2 million when it was finished, turning a profit of more than a million.

But the mortgage alone is costing around £90,000 a year to service, and, with a buyer nowhere in sight, the property is 'bleeding me dry', he says. He is so desperate to get rid of it that he would gladly drop the price by a million and write off his losses.

'I've lost everything in recessions before, so I'm not quite on the little green and black pills yet,' he joked. 'But at this rate you never know.

'The one thing I won't do is go home. You can't behave like a teenager in your 60s in Britain, but you can in Marbella. And anyway, in the pubs at home my girlfriend couldn't dance on the tables.'

If our hearts don't exactly bleed for characters like Mr Cornell, who are in it for a fast buck and know the risks, one finds all too many genuinely sad stories; and surely none more so than that of former Spitfire pilot Mr Ross.

An Ulsterman, he returned to County Antrim after the war, where he married happily and carved out a career as an auctioneer.

When he retired, during the early Eighties, he and his wife, Maureen, who had no children, moved to a golf course villa in Spain, living modestly but comfortably on his state and RAF pensions, together worth about £13,000 a year.

His wife died from cancer 15 years ago, whereupon he moved to a smaller home and stoically set about making the most of the life that had been denied to so many of his generation.

Even at his advanced age, and suffering from arthritis, he still shops, cooks and cleans for himself, swims twice daily, and stays mentally alert by doing Sudoku puzzles. The problem is that at 94 he knows he cannot remain self-sufficient indefinitely and will soon need to be cared for professionally.

'Until a few months ago, I had made plans for what I would do when things reached that stage,' Mr Ross told me, sitting in the communal garden at his apartment complex on a beautiful April morning.

'As I have no family in Northern Ireland now and virtually all my friends are here, I thought I'd move into the old people's home at the end of my street. It's very pleasant there, and there are all different nationalities - English, Swedes, Americans - so even though I don't speak much Spanish I'd have plenty of company.

'But I've looked into this carefully, and because my pensions are paid into my bank in sterling, and the pound has fallen so badly, I won't be able to afford the home's £500-a-week fees.

'The only way I'll be able to manage is by going into a home in Belfast and I'm dreading that.

'Spain is my home now and I feel quite apprehensive about the prospect of having to go back to a strange place. I think that, and the miserable British weather, might just do for me.'

Unlike many Britons caught up in this mess, Mr Ross, who has all but given up his little luxuries, pities himself not at all. 'It's just how things are,' he says resolutely. He smiles and adds: 'My mistake was that I never expected to live this long. If I had known, I'd have put a bit more money by to provide for myself. It's all a bit unfortunate.'

This is something of an understatement. The situation is also 'a bit unfortunate' for thousands of others, among them Andrew Anderson, president of the Marbella-based British Association.

Mr Anderson is in a reverse bind to Mr Ross. His pensions have also sharply declined in value - but he is keen to return to his native Dunfermline. With Se Vende (For Sale) signs sprouting up all over the area, however, the 73-year-old architect knows he has little hope of selling his apartment unless he slashes the €225,000 (£205,000) asking price.

Thus, at a time when he would like to be roaming the Scottish heather with his new Trinidadian wife, he is trapped. 'With climate change, even the weather here is not as good as it was,' he said ruefully. 'Now it rains in summer.'

The picture grows more depressing still when you drive 40 minutes along the coast to the cheap-and-cheerful British enclave of Fuengirola, with its brash, football-themed bars, and cafes serving English pub grub.

Strolling along 'Fish Alley', a gourmet thoroughfare for British stodge and lager guzzlers, it soon became clear that the glutinous gravy-train has well and truly hit the buffers.

Usually by late April, the canopied terraces would be filling up with the Union Jack shorts brigade; but on Tuesday afternoon, with the thermometer tipping 72 degrees, they were eerily deserted.

Indeed, a good many British landlords have thrown in the towel and gone home. Among those still struggling on gamely, I found former London publican Fred Hill and his wife Anne, who paid about £65,000 for the lease to Friar Tuck's restaurant almost three years ago.

Like most of his rivals, he is attempting to lure customers with cut-price meals. 'This is the REAL deal,' reads his latest sign. 'Fresh Icelandic fish, fresh chips and mushy peas - only €7.50.'

Since imported fish prices have risen five times since he took over, one wonders how he does it.

'Business was fantastic at first,' said Mr Hill mournfully. 'We only needed to open from 6pm till 10.30pm, and we would get 90 customers. Now we open for 13 hours a day, and we're lucky if we get 30.

'I know two people who've just locked up and gone, losing everything they invested - tens of thousands of pounds. But we haven't quite reached that stage yet. Besides, there's nothing to go home to, is there?'

Sadly, the experiences of those who have returned to Britain suggest he is right, and not only because there are so few job opportunities and the economy lies in ruins.

Although the Spanish welfare system is far less generous than ours, affording scant protection to incomers who lose their jobs or fall on hard times, unemployed expats actually often find themselves worse off when they come back home.

What they fail to realise is that, by switching their residency to Spain, they have forfeited the right to claim UK benefits. Before they can do so, they must go through a laborious reregistration process which can take months. They must do the same to become eligible for NHS treatment.

'It can often be very difficult for those who go home because they find that the UK is not the great benefactor people seem to think,' says Tony Aldous, of Age Concern in Estepona, near Malaga. 'There should be a cross-border arrangement whereby benefits are transferable, but that is a long way off.'

Among those to have discovered the harsh truth are Suzanne Carmichael, 38, and her partner Carl Butler, who were forced back to Britain recently with their children, Zoe, 11, and Luis, two. Five years ago they sold their townhouse in Rochester, Kent, for £229,000 and took out a whopping €795,000 mortgage (£709,000 at today's exchange rate) to buy the home of their dreams: a white, Moorish castle-style villa with sumptuous views of the Mijas costa.

When times were good, they had no problem meeting their €3,000 (£2,500) a month repayments. But when their fixed interest rate ended, sending the monthly instalments soaring to €4,700 (£4,200), and they lost their jobs - she as a software company executive and he in construction - they couldn't manage.

Falling on the kindness of Mr Butler's mother, who offered to put them up at her home in Chatham, Kent, at the end of January, they gave back their keys (in an arrangement which at least preserved their credit rating) and flew home.

Almost three months later, the family who once dined nightly on a starlit terrace scented with bougainvillea, and spent idyllic weekends picnicking on the playa, are still humble lodgers.

'Coming back has been quite an eye-opener,' says Ms Carmichael. 'The first shock came when we were told that our UK passports and the fact we were born here meant absolutely nothing. The woman at Jobseekers even said to us: "Can you not just go back to Spain?"

'Since we got back, all we've had to live on is the £90-a-week Jobseekers allowance. The system is so severely under strain with the number of new people on housing benefit that we are still waiting for our claim to go through. Our child benefit forms haven't been processed yet, either.

'Another thing we have found is that people have such a negative attitude towards us. I class myself as very intelligent and hard-working, but because we have to claim benefits, through no fault of our own, we are treated as scum.

'That's very hard to take, particularly when you walk down Chatham High Street and see how standards of behaviour have deteriorated here since we left for Spain five years ago.'

Even after all they have been through, the family haven't given up on their Mediterranean idyll. Ms Carmichael says they may move abroad again once their daughter's education is completed.

Meanwhile, we must hope the battered pound strengthens sufficiently for Spitfire pilot Mr Ross to avoid spending his final years among strangers in some draughty British old folk's home.

He surely deserves his place in the sun. And when it comes to helping hapless victims of the Costa Credit Crunch, the country for which he fought so valiantly is no longer a land fit for heroes.

Source: Daily Mail

Ever gloomier economic outlook

World growth 'worst for 60 years'

World economic growth is set to fall to just 0.5% this year, its lowest rate since World War II, warns the International Monetary Fund (IMF).

In October, the IMF had predicted world output would increase by 2.2% in 2009.

It now projects the UK, which recently entered recession, will see its economy shrink by 2.8% next year, the worst contraction among advanced nations.

The IMF says financial markets remain under stress and the global economy has taken a "sharp turn for the worse".

In another gloomy view of the UK economy, the Institute for Fiscal Studies (IFS) said Britain would be saddled with government debt for more than 20 years.

IFS director Robert Chote warned that spending would have to be cut or taxes raised by more than planned to allow public finances to recover.

The predictions came as Pascal Lamy, the director general of the World Trade Organization, urged countries not to react to the global economic crisis by resorting to protectionism.

Speaking from the World Economic Forum in Davos, Mr Lamy said such a move would be "a big mistake".

'Virtual halt'

According to the IMF, the outcome of the economic slowdown has been to send global output and trade plummeting.

"We now expect the global economy to come to a virtual halt," said IMF chief economist Olivier Blanchard in a statement.

The IMF says that despite a number of policy moves, which have been carried out by many states, financial strains remain.

International co-operation is needed now to draw up new policy initiatives, and for capital injections to support "viable financial institutions".

Meanwhile, it predicts that the eurozone economy is poised to shrink by 2.0% in 2009 and the US economy by 1.6%.

Banking crisis

The report comes on the same day the International Labour Organization said that as many as 51 million jobs worldwide could be lost this year because of the global economic crisis.

It had been hoped that growth in developing nations would continue at a steady pace and help offset the recession in developed nations such as the US and UK.

But the seemingly endless crisis in the banking system has put paid to that notion.

Countries such as China are now struggling with a collapse in demand from their primary export markets.

Meanwhile, developed economies such as Japan, Spain, the US and UK are in recession, with new job losses being announced on a daily basis.

'Uncertainty'

The IMF says that growth in emerging and developing economies is expected to slow sharply, from 6.25% in 2008 to 3.25% in 2009.

It cites the main reasons for the drop as being falling export demand, lower commodity prices and much tighter external financing constraints.

The IMF points out that policy efforts to tackle the downturn so far - such as liquidity support, deposit insurance and recapitalisation - have been drawn up to address the immediate threats to financial stability.

However, it says that these emergency measures "have done little to resolve the uncertainty about the long-term solvency of financial institutions".

"The process of loss recognition and restructuring of bad loans is still incomplete," says the IMF's World Economic Outlook Update.

'Bad bank'

The IMF says future co-ordinated financial policies should concentrate on recognising the scale of financial institutions' losses and on providing public support to those institutions that are viable.

"Such policies should be supported by measures to resolve insolvent banks and set up public agencies to dispose of the bad debts, including possibly through a 'bad bank' approach, while safeguarding public resources."

The IMF says the global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3%.

"However, the outlook is highly uncertain, and the timing and pace of the recovery depend critically on strong policy actions," it warns.

Source: BBC News

Economic pain in Spain

Spanish economy woes

Spain, which has enjoyed 14 years of consecutive growth, has gone into sudden reverse.

Analysts expect figures to show that the country is already in recession, with GDP falling since the middle of last year.

The gloomy statistics are building up. Last week, they showed that industrial output had tumbled by 15.1%, the biggest fall on record, and the country's unemployment rate hit a 12-year high in 2008 of three million.

BBC News website readers in Spain have been sending their stories about how the slowdown is affecting them.

ELISA ARIAS, JOURNALIST AND PR, MADRID

I came back to Spain after two and a half years living in the UK because the credit crunch prompted me to do it earlier than I expected to - and the situation cannot be more devastating.

I was hired by an online newspaper and was promised a one-month contract but when I arrived there was no contract, so I worked there on a temporary basis for three weeks.

The newspaper closed down this week and 40 people, some with young children, will lose their jobs.

Because I had no contract, I have no unemployment benefit or social security. I lived in Madrid, but was forced to go to Malaga to my parents' house.

Many magazines, websites and local televisions have closed down, so it is almost impossible to get a job.

I feel ridiculous leaving CVs everywhere, because I know it's not worth it, it just doesn't make any sense.

It is almost impossible for highly-educated job-seekers like me to find a job. The problem in Spain is that almost everyone has a university degree, so you have to do something else, like a masters or doctorate degree. But in this situation, it doesn't even help.

The figures given yesterday by the government were depressing: three million unemployed - one million more than last year. And the figures may rise one more million in 2009.

Many young people are like me, they don't have any proper contracts or social security. That's why we all live with our parents until we are 30 years old.

You usually have to stay and put up with almost illegal contracts until they finally hire you, and this happens very frequently with journalists.

I think for employers it is too expensive to hire new people, because they have to pay many benefits. This should be regulated in a different way so that more jobs are created.


RICARDO, COMPANY DIRECTOR, BARCELONA

The economy here is at its worst, hundreds of jobs and companies disappearing every day and prices rising.

From the point of view of operating a business in Spain, it is unsustainable in the long run. Spanish legislation is so rigid and in favour of employees, that it is hard for businesses to restructure and adapt to the crisis.

If you need to restructure and cut jobs or change the salaries, even if it is temporary, you are not allowed to do so. So you can't save your business and end up in bankruptcy.

This affects employment because as an employer, when I want to hire people I would rather employ them as freelancers because it is too expensive to give them a contract.

Credit is very difficult to get and it is not easy to get credit cards or get in debt. So people are not heavily indebted, but they are definitely poorer because the salaries are low and haven't gone up in line with prices.

People are not buying and demand has certainly gone down. Demand for our products has fallen by 50%.

If the current situation persists and the government does not change its legislation I do not see many companies staying in Spain or investing in the future. The outlook is definitely gloomy.


LOUISE BRACE, ADVERTISING, MALAGA

I live in Malaga province and have been running a small advertising agency for five years. Our agency tries to help Spanish business communicate with the ex-pat market and we also help the British connect with the local businesses.

We have been exceptionally hard hit here, because of the crash in the construction and real estate market and of course the bad publicity that we have received, because of the ongoing problem of fraud within local councils.

This region relies a lot on real estate and tourism and this is what has kept the southern region of Andalucia going.

Now it's all drying up and business is next to nothing. We try to find jobs to supplement our business and pay our mortgages, but there are no jobs.

Our bank has now frozen our overdraft and asked for the money back immediately. They just told us that we should try to find the money from another bank to pay it off, or ask my family.

The treatment of small to medium-sized businesses by the banks here has had a huge effect on the crisis. With nearly 90% of the business population in this category, they are literally wiping us out with their lack of support in times of crisis. They are taking away loans and overdrafts, not helping to fund our survival.

As much business from ex-pats has been going badly many people, including ourselves, are trying to sell their properties, but it's difficult.

Everybody is selling their properties on the Costa del Sol well below what they are worth, because of the recession and because of the drop in foreign buyers.

Brand new developments with gymnasiums and pools are selling at half-price. There are many empty buildings and empty complexes without a licence. It used to be said that Spain's emblem was the crane, but I think promoters and builders just built and built and now not enough people are buying their properties.

I think they built to satisfy a market of people who were trying to get away from built-up areas and then ruined it by overbuilding.


NEIL SCOTT, CONTRACTOR, SITGES

We live and work in Spain and have been here for the last ten years, my brother and I have a company that does renovations. Around 60% of our clients are from overseas and the rest are residents.

We haven't been affected particularly as our client base is strong and in the upper market level and people are still doing renovations, but construction has taken a nosedive.

We have seen expensive properties which were started a couple of years ago and now just standing partially completed and the machinery abandoned.

We didn't notice the downturn until September, as we usually rest for two months during the summer. Spain shuts down in that time.

But when we came back to work and went to buy materials, we found out that all our credit accounts had been suspended. We usually buy all the materials, put a deposit down and then pay the rest over the next six weeks, but that has stopped.

I didn't know it, but this credit line is debt factored by an insurance company which guarantees the money, and they just stopped the credit.

We managed to survive doing private arrangements because we have been living here for ten years, always pay on time and have a good track record. But many contractors now can't get any credit and this dries up construction.

What is really noticeable now is that shops are starting to close in the towns, and the once busy bars and restaurants are also closing and are virtually empty in the evenings.

Sitges on a Friday night is now totally dead - this was unheard of before.

You have to remember that here in Spain the personal debt problems that people experience in the UK just don't exist to the same level. Here, if you haven't got money in the bank they won't let you spend it and credit cards are paid at the end of the month in full. It is very difficult to rack up a large personal debt.

Source: BBC News

Has the economic downturn affected you or the sector where you work? How do you see the economic situation evolving? What do you believe should be done?

Ever seen a €500 note?

Spanish hoards of €500 notes could aid liquidity

It is, perhaps, the strangest idea yet for pumping extra liquidity into Europe's troubled banking system. Spanish officials were yesterday reported to be looking for ways of encouraging Spaniards to remove the estimated 108m €500 notes they have hoarded in safes or under floorboards and take them to the bank. That averages out to at least two per Spaniard, or a total of €54bn, circulating outside the country's banking system.

A combination of tax-cheating and a long-standing mistrust of banks, means Spain soaks up a quarter of all the €500 notes - one of the world's highest denomination bank bills - released every year.

One option for getting the notes into the banking system, by offering a no-questions-asked fiscal amnesty, was ruled out by the finance minister Pedro Solbes yesterday. El Mundo newspaper reported, however, that there had been pressure from within the government's finance team to consider a fiscal amnesty. Spain's tax inspectors, whose job it is to root out the notes when they are used for tax fraud, were among those opposing the idea.

The purple €500 notes are so rarely seen that they have earned the nickname "Bin Ladens".

Most are used in real estate deals, where property is often bought and sold in a mixture of fiscally opaque cash and fiscally transparent bank transfers. The price of property deals reported to the tax authorities is, therefore, often much lower than that really paid.

Other notes circulate in the country's black economy. Sectors including the footwear industry, construction or silversmiths are thought to do much of their business in black currency.

Spain is estimated to have one of the biggest black economies in Europe, accounting for between 20 and 23% of annual GDP. Spanish tax authorities are investigating 12,000 big transactions involving €500 notes.

Source: Guardian

Do you trust the banks? Have you had any unfair treatment at the hands of them?

Baked beans beat the crisis

Baked bean sales soar as families turn back to canned food
The humble baked bean is back in fashion as families return to canned food in a bid to beat the credit crisis.

Sales of baked beans have increased by 12 per cent over the last year, surpassing annual sales of £300 million for the first time.

As food inflation in Britain has risen higher than almost anywhere else in the developing world, consumers are cutting back on their grocery bills.

Sales of post-war, ration book era food are booming, according to statistics, and families are stocking up on canned goods.

In the 52 weeks to the end of August baked bean sales reached £300.4 million, compared with just £250.2 million three years ago, according to the market research company IRI.

The figures follow evidence from supermarkets, that shoppers are starting to buy cheaper cuts of meat, such as chicken thighs rather than breast meat and braising steaks rather than sirloin or fillet.

Sheraz Dar, head of marketing for Branston Baked Beans, which released the IRI data, said: "The credit crunch is undoubtedly having some effect. Baked beans provide a very cheap source of fibre and protein so it's not surprising people are increasingly turning to baked beans for nutrition."

Asda says that sales of its budget range of Smart Price baked beans, which retail for just 20p for a 420g tin, have soared by more than 50 per cent over the last year.

With £300 million of beans sold over the last year, this could buy each household in Britain more than 22lbs (10 kilos) – or 23 large cans – worth of high-quality baked beans. Not quite enough to stock up an underground bunker, but plenty to fuel a family if the economy plumbs new ration-book era depths.

Source: Telegraph

Has the crisis altered your shopping in any way? Have you stopped buying things because they have got too expensive? Do you still treat yourself now and again to something despite its expense?

This advert for beans is from 1986 but has the same jingle as today: "beanz meanz heinz".


Do you have a favourite ad, past or present?

AlItalia troubles

Alitalia may be nationalised by Berlusconi after rescue fails

Silvio Berlusconi, the Italian Prime Minister, will consider the option of "temporary nationalisation" of Alitalia after the dramatic collapse yesterday of a rescue bid for the troubled airline by an all-Italian consortium.

As the Italian Cabinet prepared to meet to discuss the crisis this morning, reports said Mr Berlusconi had wrongly calculated that CAI, the consortium of industrialists, would go ahead with the rescue plan despite the refusal of CGIL, Italy's largest union, and the pilots' union to accept it.

Mr Berlusconi is putting pressure on the investors to change their mind and "try again" with the support of trade unions willing to back the deal.

His miscalculation accounted for his air of optimism yesterday afternoon as the deadline for the unions to accept the CAI offer approached.

When his assumptions proved false, the Italian leader was nonplussed, according to aides, asking his advisers, "What do we do now?". He soon bounced back, however, vowing "I will not give up" and undertook to keep Alitalia flying, the aides said.

Il Giornale, the newspaper owned by the Berlusconi family, today put the blame for the crisis on the left-wing CGIL and its leader Guglielmo Epifani under the headline: "Alitalia collapses — thanks to the unions". The paper added: "The unions have tried for years to bring down Italy but they have brought down Alitalia instead".

Most newspapers condemned Alitalia staff at Fiumicino, the main Rome airport, for exulting as news of the withdrawal of the rescue plan came through, with airline staff punching the air and shouting "Better a collapse than those bandits", a reference to the industrialists in the consortium. "The cost of this irresponsibility is clear" said Il Messaggero, the Rome daily: "163 aircraft on the ground and 18,500 employees without jobs".

It said the protesters were "like those who danced on the Titanic as the ship went down". They were like people "smiling at a funeral", said La Repubblica, reporting that Air France had already applied for Alitalia's slots at Fiumicino, while Lufthansa was seeking the slots at Malpensa near Milan.

Alitalia risks becoming the first big European flagship airline to collapse since Swissair Group and Belgium's Sabena went under in 2001.

The company, which has been losing €2 million (£1.58 million) a day, has debts of more than €1 billion and risks running out of cash by the end of this month, filed for insolvency at the end of August so that the state-backed rescue and relaunch effort could get under way.

Mr Berlusconi earlier this year rejected an offer from Air France-KLM to buy Alitalia, saying he preferred an "all-Italian" solution.

Air France-KLM withdrew its offer in any case because of the unions' "impossible" conditions. Mr Belusconi, who was campaigning for election at the time, was accused by the Left of "beating the nationalist drum" to get votes and, in the process, passing up a chance to rescue Alitalia with foreign help.

The CAI rescue package included more than 3,000 job cuts and contracts laying down more hours for the same pay.

Augusto Fantozzi, the government-appointed commissioner running Alitalia, said if no further credible bids were forthcoming he would have to start liquidation proceedings. He said the carrier might start grounding flights soon. But asked if Alitalia would continue flying until the money ran out, he replied: "That is what the law stipulates and I shall respect the law."

Maurizio Sacconi, the Labour Minister, said: "The road now opens up that leads to the collapse of all the companies in the Alitalia group." He confirmed a warning by Mr Berlusconi that workers left without jobs because of liquidation would not benefit from the generous redundancy terms offered as part of the CAI rescue plan.

Italy's civil aviation authority has called Mr Fantozzi to a meeting after the weekend to decide if Alitalia's temporary licence should be revoked.

The CAI consortium had undertaken to plough more than €1 billion into Alitalia, merging its flying operations with those of Air One, Italy's second biggest domestic airline, while selling maintenance operations and other support activities.

Source: The Times

Saving the pennies

Why is a 99p price tag so attractive?

The tactic of shops ending prices with 99p is nothing new, but a study has found it's as effective as ever in getting shoppers to part with their cash. So why is one of the oldest tricks in the retail trade hard to resist?

In terms of familiar retail ruses employed to entice shoppers to part with their money, ending price tags with 99p, rather than rounding up to the full pound, is right up there with buy one, get one free promotions and half-price offers.

But according to a French study the phenomenon still swings a considerable number of shoppers. Researchers found that lowering the price of a pizza from 8.00 euros to 7.99 euros boosted sales by 15%.

For consumers, the saving is minimal and the copper coins they receive as change when paying with a note seem to be more of a hassle than a benefit - in 2005, Britons discarded or stashed away £133m in unwanted coppers, according to Virgin Money.

So if shoppers aren't concerned about saving mere pennies these days, why are they falling for the 99p effect?

Emotional difference

One theory is consumers just aren't up to the maths. Dr Jane Price, lecturer in psychology at the University of Glamorgan, says we "tend to put numbers in categories like 'under £5' or 'under £6' - rather than them representing a value. Shoppers are aware of what is going on, but don't respond to it because they don't think logically about how close numbers are - such as £99.99 and £100."

She thinks shoppers tend to focus on the big denomination - which the pound sign draws the eye to - rather than the smaller denomination: the pence. There is also the emotional incentive - people like to feel they are getting better value for money.

Robert Schindler, professor of marketing at Rutgers Business School in the US, has published several papers on the "99 effect". He expresses it slightly differently, observing that people overweigh the left hand number.

"When a price changes from $30 to $29.99, the change from three to two makes more of a difference than the value of that money could predict," says Mr Schindler. "It is like when a 39-year-old turns 40, the birthday feels like a big deal. Or when 1999 ends and 2000 starts. It feels like an emotional difference."

Discount associations

It's sometimes suggested the "99 effect" was adopted as a control on employee theft - cashiers had to open the till for change, reducing the chances of them pocketing the bill.

But Mr Schindler thinks it has a different origin. It was introduced for sale items, to emphasise the discount.

"I studied adverts in the New York Times from 1850 - where there were no 99 endings - to the 1870s and 1880s where they started to appear. Although department stores were doing it - which would fit with the cash register hypothesis - they were advertising discounts. But for the regular price they would use a round number," he says.

He thinks the retail practice developed from there, to communicate discount or the impression that things are on sale - even when they are not.

But it is a subtle effect, which works when consumers are susceptible to price sensitivities and are making a snap decision, rather than deliberating over big items like cars and houses. And high end brands which exude a classy image tend not to use the tactic.

Pressure on income

Nick Gladding of Verdict Research, is sceptical shoppers are fooled by the "99p effect". However, in these more straitened times, even tiny adjustments in price can be enough to win over hard up consumers.

"We are seeing fuel prices going up and down by 1p - it is a tiny amount of money, but people want to hear about it," he says.

So are there any other numbers that the unsuspecting shopper should be aware of?

A .95 ending is also popular, observed Mr Schindler, although anyone shopping in Asia might be struck by how prices often end in .88. The reason? Eight is an auspicious number in countries such as Japan, Hong Kong and mainland China.

Source: BBC News

18,000 Euros to leave Spain

Spain's radical plan for migrants

On the northern outskirts of Madrid, the Tres Cantos railway station is getting a makeover.

Under a fierce midday sun, immigrant labourers from North Africa, Latin America and Eastern Europe shift huge concrete slabs into place on the platform, and scatter fresh layers of shingle between the rails and sleepers.

This back-breaking work pays €1,200 (£950) per month, and everyone is making the most of it.

With the construction industry in dire trouble, their Spanish boss has no other projects in the pipeline, and the entire workforce will be laid off when this job ends.

So, any takers for the government's new offer to unemployed immigrants?

If they volunteer to go back to their home countries and not return to Spain for three years, foreigners will qualify for lump-sum benefit payments, typically worth around €18,000 (£14,200).

The scheme applies to the citizens of 19 non-EU countries which share social security agreements with Spain.

"If someone offered me that cash now I'd go," says Patrick, from Equatorial Guinea. "Back home, it would go further; I could invest it," he adds.

Guillermo, from the Dominican Republic, warns that: "if the economy carries on like this, we'll all have to leave". But given a choice, he would rather stay. "I now consider myself Spanish," he grins.

Unemployment benefits

In the space of barely a decade, Spain's immigrant population has leapt by an astonishing 800%, and cheap immigrant labour was a vital factor in the construction-led economic boom.

As long as there was work to go round, Spain mostly avoided the kind of immigration-related tensions witnessed in other European countries.

Today, however, with an EU-high unemployment rate of 10.7%, the picture looks very different.

"Immigrants were seen by everyone as helping," explains Pedro Schwarz, an economist.

"They took jobs in construction - boosting growth and keeping wages down. But today, with the jobless total rising, some Spanish-born citizens are complaining that the new immigrants are beginning to hog the unemployment benefits."

For the time being, the 2.1 million foreigners registered for Spanish social security are net contributors to the system - paying in more than they receive.

But, over the past 12 months, the number of immigrants claiming unemployment benefit has surged by 81%, to 178,230 in July 2008.

"What we're trying to do is link immigration to the labour market," says Celestino Corbacho, Spain's minister for work and immigration.

"The forecasts say it'll take two or three years for the economy to recover, so we think it's good to offer people possibilities.

"If someone is entitled to $15,000 (£8,000), that's going to create more opportunities in their home country than here in Spain."

"Thank you and goodbye"

Under the new scheme, scheduled for launch in September, participating immigrants would receive two years worth of up-front unemployment benefits - 40% when they volunteer for the scheme in Spain, the rest on arrival back in their country of origin.

To qualify, they would have to surrender their Spanish work and residence papers for the duration of the deal.

The government insists this is merely a common sense response to Spain's undeniable economic problems, but immigrant welfare groups view the policy with suspicion.

"I feel that we've been used," complains Washington Tobar of the Hispano-Ecuadorean Foundation in Madrid.

"When they needed cheap labour, the doors opened. And now they don't need us, they just say 'thank you and goodbye' - and expect us to go back to our own countries."

In a modest apartment in Madrid's La Latina district, 42-year-old Leonardo Ramirez prepares lunch for his two children.

A marketing graduate in his native Ecuador, he paid his way here through construction, until the work dried up a year ago.

Now renting out a spare room to help pay his mortgage, Leonardo is one of 100,000 unemployed foreigners whom the government hopes immediately to tempt with its offer. But he is far from keen.

"Even $20,000 or $30,000 isn't that much money, in terms of capital to invest back home," he explains.

"They are people who'll have to buy a house, and children's schooling is expensive. Also, immigrant families are integrated here - they don't want to start all over again."

Avoiding conflict

Outside, on Leonardo's housing estate, immigrant children play football, while Latino pop blares out from several apartments.

This new Spain is unrecognisable from the country of 10 years ago, and the government is controversially trying to turn back the clock.

But Mr Corbacho denies that Spain is ungrateful for the contribution made by immigrants, or that foreigners are being made scapegoats for the country's economic woes.

"Immigration is not a problem, it's a phenomenon," says Mr Corbacho.

"And phenomena are never neutral - they change a lot of things and create new challenges. Our challenge is to manage this phenomenon, so that our diverse, multicultural society avoids conflict in the future," he says.

It is a radical approach to immigration from a socialist government which appeared to run shy of the issue in the lead-up to its election victory in March.

Now, the politicians hope - quite literally - to make the problem go away. And other EU governments, facing similar challenges, will be closely monitoring the Spanish scheme's progress.
Source: BBC News

Wall Street turmoil

Shares on Wall Street plummet* 3%

Leading US stock market indexes have plummeted around 3% after the price of oil soared* to yet another record high.

The Dow Jones index of 30 leading shares fell nearly 400 points to close at 12,209 - a drop of 3.13%.

The S&P500, seen as a better market barometer, fell 43 points to 1,360.68, while the technology-heavy Nasdaq shed 75 points to close at 2,474.

Investor confidence had been shaken by a sharp increase in US unemployment, and a jump of $11 in the price of oil.

It was the largest one-day rise in the history of US oil markets, with one barrel of light crude oil now trading for around $139.

Earlier in the day markets had been surprised by a sudden rise during May in the US rate of unemployment, from 5% to 5.5% - the sharpest increase in more than two decades.

Financial services firms and airlines were the biggest losers on Wall Street, with United Airlines down nearly 15%, Washington Mutual down 12.5%, and Northwest Airlines, Continental and American Airlines all seeing their shares drop just under 9%.

The bad economic news from the United States had also startled European investors, with London's FTSE 100 index falling 1.48%, Frankfurts Dax shedding 1.99% and the Cac 40 in Paris down 2.28%.


Vocabulary Focus

*plummet means to fall rapidly while *soar means to rise rapidly. Look at the following ways to describe increases and decreases:

• There has been a dramatic increase in mobile phone sales over the last 10 years...
• .....while there has been a steady decrease in the number of people buying radios.
• The number of people buying on-line has risen sharply.
• Advanced bookings have dropped slightly this year.
• Binge drinking is on the increase among youngsters.
• Consumer confidence is continuing to tumble.
• Inflation climbed to a peak of 7.5%.
• The government's opinion poll rating has sunk to it's lowest ever.
• Crime rates have shot up since this government came to power.
• House prices have diminished substantially recently.
• Unemployment went up steadily last year but this year it seems to have levelled off.
• Church attendance has dwindled over the past 20 years.
• The cost of the project has jumped by 10%.
• My savings are shrinking fast.
• Spiralling costs mean that more and more families have difficulties reaching the end of the month.

So you see that there are many ways to express increases and decreases. Use some of the examples above to create some statistics of your own.

Truck Drivers on Strike

Spanish hauliers on fuel strike

Tens of thousands of Spanish lorry drivers have begun an indefinite strike over the soaring price of diesel, which has risen by 20% this year.

After stopping work at midnight, many disrupted traffic at one of the border crossings between Spain and France.

A number of lorries crossing the picket lines had their windscreens broken, lights ripped out and tyres slashed.

The government is preparing a package to assist the sector, with emergency loans and more flexible contracts.

It would also offer cash payments to older lorry drivers who are willing to retire.

Wide support

Overnight, about 200 lorry drivers parked their vehicles beside roadside toll booths in the Catalonian town of La Jonquera, close to the border with France.

The protesters prevented other lorries from passing, and caused delays to car traffic. There have also been protests in Barcelona, the Basque country and Valencia.

Most of the 90,000 hauliers participating in the strike are self-employed, or working for small and medium-sized haulage companies, and they have warned that many supermarkets will run out of goods within days.

They are receiving support from counterparts in south-eastern France, who had threatened to disrupt the flow of traffic along one of the main routes into Spain.

However, Spain's largest hauliers' trade union is not taking part.

The drivers want the Spanish government to establish, by law, a minimum price for their services, and to ensure that haulage contracts better reflect the fluctuating cost of fuel, which has risen by more than 20% since the start of the year.

Their strike follows action by hauliers in France and other European countries.

They are following the lead of Spanish and French fishermen, many of whom are already on strike because of the soaring price of fuel.

The fishermen have said they will go out of business unless the EU allows national governments to give them more financial aid and subsidise maritime diesel.

However, the EU has insisted that any fuel subsidies would be illegal under European law and unsustainable in the long term.

EU rules state that the value-added tax (VAT) rate on fuel cannot be less than 15%. Member states are free to set VAT rates at or above that minimum.

Source: BBC News

Do you have any sympathy with the truck drivers?

Is it right that workers with grievances can disrupt the lives of the public?

Can you think of any strikes which achieved their purpose?

Happy Birthday to the Euro!

When the euro was launched there were plenty of people who thought it would crash and burn.

Ten years on, its role as a global currency is secure, even if it hasn't achieved everything its founders hoped.

Wednesday is the 10th anniversary of the agreement that launched the single currency.

However, residents of the first 12 EU states that adopted the euro didn't begin using euro banknotes and coins until 1 January, 2002. Things didn't start out so well.

The euro spent its early life hitting record lows against the dollar - but now it is the greenback that's falling.

Tourists and exporters in the eurozone have to cope with the euro at a record high. Many in Europe are now bracing themselves for the effects of the slowdown in America.

Stronger position

But as the European Commission is keen to remind us, for once the eurozone economies are coming into this credit crunch from a position of relative strength.

About 16 million jobs have been created in the eurozone since the birth of the euro, and unemployment has fallen, from 9% in 1999 to 7% in 2007.

In contrast to the UK, most governments also have room to cut taxes to boost growth if they need to: the average budget deficit in the eurozone countries last year fell to record low of 0.6% of GDP.

Who gets the credit?

Of course, neither of these achievements is necessarily due to the euro, any more than the fall in average inflation and long-term interest rates can be directly attributed to the European Central Bank.

Nearly all of the world's advanced economies have seen a steady decline in inflation since the late 1980s (at least until recently), a development that has pushed down interest rates as well.

However, supporters of Economic and Monetary Union would say that the budget deficit and employment figures do owe something to the euro.

They would say that the Stability and Growth Pact, which asks countries in the eurozone to keep their budget deficits below 3% of GDP has imposed budget discipline.

Even so, some large economies like Germany have sometimes flouted the rules, and the pact was revised in 2005.

Economic reform

Supporters would also say the single currency has forced countries to get on with reforming their economies - including the labour market - because being part of the eurozone means that governments have lost the option of devaluing their way out of trouble.

But many economists would disagree.

Germany has done an excellent job of retaining its competitiveness in recent years by keeping costs down - even as the euro has risen against other currencies.

But the same cannot be said of Italy, whose producers are struggling to keep any foothold in global markets.

This relates to one of the disappointing aspects of the euro's record to date, at least for some of its founders.

No convergence

Economic and monetary union does not seem to have promoted economic convergence among the major economies.

If anything, the reverse is true.

The situation right now is a case in point.

Spain and Ireland did well out of the early years of the euro - too well, some would say.

Being part of the single currency meant that interest rates were lower, for longer than they would otherwise have been, during the boom years when their economies grew rapidly.

That allowed some US and UK-style imbalances to build up, particularly in the housing market.

Both economies are now set to slow sharply as a result of the credit crunch. It is possible that they will even suffer a recession.

By contrast, Germany and France had less of a boom, and may now only suffer a modest slowdown.

Pity the European Central Bank, which has to set interest rate policy for all of them.

Supranational Powers

Monetary policy alone cannot make the mature economies of the eurozone converge.

It would be unrealistic to expect it to.

The only way to achieve that kind of convergence would be to create an enormous central eurozone budget which could redistribute money between countries to help smooth out the differences between them.

There are some die-hard Europhiles who would support this.

But don't hold your breath.

Source: BBC News

Watch a video (by clicking on the main title "Happy Birthday to the Euro") discussing the pros and cons of the Euro.

Do you agree with the points made in the article and video?

Do you think that Spain has benefitted from being part of the Euro venture? Or do you think that Britain has been wise to stay out?

La Mancha's Manhattan

Dark clouds over ‘La Mancha’s Manhattan’

A forest of construction cranes still surrounds Francisco Hernando’s vast residential complex in Seseña, just half an hour’s drive from Madrid, but with the bursting of the Spanish property bubble, Mr Hernando’s plan to build a “Manhattan in La Mancha” looks like a Quixotic dream.

At the height of Spain’s building frenzy, Mr Hernando, a rags-to-riches real estate tycoon, obtained planning permission to build 13,500 new homes in the sun-baked plains of Castile. There were to be 280 blocks of flats built around lush gardens, swimming pools and a lake, even though Seseña suffers from water shortages every summer. The residential complex was billed as one of the largest in Spain, and would be marketed to young families who could not afford the cost of living in Madrid.

Mr Hernando, who declined to be interviewed, is being investigated for alleged corruption in the planning process for the Seseña development. He stood to make a fortune by transforming 180 hectares of scrubland into a dormitory town for Madrid commuters. The international credit squeeze, however, may have dashed those hopes.

Of the 13,500 planned flats, only 2,500 have been sold. Another 2,500 are being completed, but it is not clear whether the new owners will want to move in.

“Property prices are falling, and some of the new owners are trapped in negative equity,” says Manuel Fuentes, mayor of Seseña. “It is likely that many buyers will prefer to lose deposits rather than take up mortgages larger than what their houses are worth.”

Mr Hernando’s property group is still marketing the Seseña development, but falling property prices and tougher credit conditions are driving many real estate developers out of business.
Spain’s four largest real estate groups have reported a 60 per cent fall in off-plan sales.

Completed house purchases, meanwhile, fell 27 per cent in January compared with the same month a year ago, according to the national statistics institute.

Many small and medium-sized builders and real estate groups are going bust. Asprima, a property developers association, estimates house prices will fall 8 per cent this year, following a boom decade in which property values more than doubled. Real estate developers complain that banks have cut off their credit. As a result, they forecast only 300,000 new homes will be built in Spain this year, compared with 760,000 in 2006, when the construction boom was going strong. Asprima estimates the construction sector will shed 700,000 jobs by the end of 2009.

The fear is that if the property slump deepens, it will drag down the financial system with it. Spanish banks have €303bn ($477.5bn, £240bn) in outstanding loans to property developers, €153bn to construction companies, and a mortgage portfolio totalling €618bn. Together, these loans account for 60 per cent of total credit at the end of 2007, according to the Bank of Spain.

Although the ratio of bad debts is low, at only 1 per cent of total loans, it is rising. Regulators are putting pressure on banks to set aside more reserves against impaired loans.

The housing slump is also eroding the government’s fiscal surplus. Spain ended 2007 with a budget surplus of 2 per cent of gross domestic product – about €20bn – which Pedro Solbes, finance minister, said would be spent on reactivating the economy. In the first two months of the year, however, the surplus shrunk to 0.8 per cent of GDP as a result of a fall in value added tax receipts and a steep rise in benefit payouts.

Oversupply crisis

For years, many Spaniards believed that nearly all northern Europeans were wealthy and that most wanted a holiday or retirement home in the sun.

An estimated 80,000 property developers were operating at the peak of the residential housing boom four years ago, when entire villa and apartment developments were being sold off-plan within days. These days, according to a report this week by Aguirre Newman, the same estates can take an average of 50 months to shift.

Years of rampant price inflation have eroded Spain’s competitive edge, while over-development along some parts of the coast, along with a series of corruption scandals, has dulled the allure of owning property in the country. The credit crunch and property market downturn in countries such as the UK have turned what might have been a gradual decline in sales into a hard landing. However, talk of a crash is overdone, according to some.

“This is not a crisis of demand,” says Gaspar Lino, general manager of Marbella-based property developer Peninsula. “There are always people interested in buying a quality product at the right price.

“This is a crisis of oversupply, made worse by the credit crunch. Banks have gone from one extreme – of lending to virtually anyone – to the other almost overnight.”

Peninsula is weathering the downturn well. Mr Lino says sales at its three main residential estates – in Granada, Jerez and the Canary Islands – are down about 40 per cent on the same time last year. He knows of other developers struggling against a 90 per cent drop. In the notoriously blighted Murcia region, finished developments are sitting without a single sale.

Source: The Financial Times