EU Struggles to Tame Crisis as Spain

FRANKFURT—The European Central Bank is now open to purchasing government bonds of Italy and Spain, though has made no firm commitment to do so, according to people familiar with the matter.

Buying bonds of the two countries, which together issue roughly €600 billion ($857 billion) of government bonds a year, would be a major step for the central bank. Until this week, the ECB had bought less than €80 billion of Greek, Portuguese and Irish government bonds.

ECB watchers had assumed the there wasn't appetite for such a drastic escalation. The bank's decision on Thursday to restart, after a four-month gap, purchases of Irish and Portuguese bonds was opposed by at least three members of the 23-strong ECB board, including by the head of the powerful German Bundesbank.

Many analysts said those purchases needed to be broadened to Spain and Italy in order to keep the debt crisis that began almost two years ago in Greece from threatening those countries. Friday's signal came as a relief to investors concerned that central bankers might sit idly by while Europe's debt crisis engulfed the euro zone's third- and fourth-largest economies.

The bank, which has generally preferred to see national governments get their own finances in order, urged Italy and Spain to accelerate the pace of fiscal austerity and economic reform, according to people familiar with the matter, though reforms won't necessarily bring bond purchases. Italy on Friday announced new steps to speed up fiscal consolidation.

The ECB "is ready to make major efforts to help the situation, but countries have to do what is necessary first, otherwise it's just like pouring water into a bucket with a hole in it," Belgium's central bank governor Luc Coene told a Belgian radio station early in the day.

ECB President Jean-Claude Trichet on Thursday suggested he was waiting for Italy to make the first move, saying it was "urgent" for European countries to front-load economic reforms, "and for Italy of course."

Any enthusiasm from Mr. Trichet's announcement on Thursday that the central bank was back in the market buying bonds was quickly damped by reports from bond traders that the ECB was only buying Irish and Portuguese debt.

German Chancellor Angela Merkel and French President Nicolas Sarkozy plan to speak by phone later today, their offices said. The European Commission called for an expansion of the European Financial Stability Facility, the 440 billion-euro ($623 billion) rescue fund, earning a rebuke from Germany.

“It’s important to constantly review if there is a need to further reinforce the EFSF in terms of its size,” European Union Economic and Monetary Commissioner Olli Rehn said in a Bloomberg Television interview in Brussels. German Economy Minister Philipp Roesler rejected taking more measures.

Europe’s government leaders were back in the spotlight after a divided ECB restarted its bond-purchase program yesterday following a four-month hiatus. The central bank refused to extend the purchases to Italy and Spain, the two countries at the center of the current turmoil.

“Would the ECB please get serious?” Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London, said in an e-mailed note. Limiting the bond-buying to Ireland and Portugal brings to mind “a fire brigade that responds to a major emergency but then drives to the wrong place and refuses to turn around and douse the real fire.

Spanish and Italian bonds rallied on speculation that policy makers may take more action to arrest the crisis. Ten- year yields dropped 22 basis points to 6.06 percent in Spain and 4 basis points to 6.16 percent in Italy.

The euro was up 0.8 percent at $1.4207 at 4:15 p.m. in Brussels.

Over the opposition of the German central bank, the ECB bought bonds of Ireland and Portugal yesterday, two countries drawing on official aid. It did so again today, according to two people with knowledge of the transactions. The ECB stopped short of buying Italian bonds, and ECB President Jean-Claude Trichet said Italy has to show it is “ahead of the curve” in taming its debt.

A clash over the size of the bailout fund flared between European officials and Germany, the biggest underwriter of aid packages to Greece, Ireland and Portugal.

A call by Jose Barroso, commission president, for a review of “all elements” including the fund’s size was rejected today by Germany’s Roesler.

Spain Has Need Lot to Do on Budget

Spain and Italy are especially vulnerable to attacks from market speculators and should accelerate reforms of their economies as much as possible, Gonzalez-Paramo said in an interview with Spain's Cadena Ser radio.

There is no time for holidays. It's extremely urgent to act decisively and to show an inflexible compromise with the need to reform economies to make them grow," the ECB board member said.

Gonzalez-Paramo's words echoed those of European leaders in separate declarations Friday evenings after a round of telephone calls between euro-zone heads of state. 

Spain has practically completed the reform of its banking system but still needs to make progress on budgetary reforms, where elements of vulnerability remain, the ECB board member said.

"We have been told that on August 19 we will hear more of the measures which will assure that Spain will meet its budgetary targets," said Paramo, referring to Spain's commitment to reduce its budget deficit.

Spain still has a lot to do on the budget front,” said Gonzalez-Paramo in an interview with Spanish radio Cadena Ser broadcast yesterday. “Urgent measures also need to be taken to reform the labor market.”

With stock markets sinking for an eighth day, European leaders were hunting for solutions to shield Italy and Spain from market turbulence. The ECB resumed its bond-buying program, without extending the purchases to those two countries.

Umberto Bossi, leader of Italy’s co-ruling Northern League party, said the ECB will start buying Italian bonds on Aug. 8, as part of an exchange for the new economic measures unveiled by Italy’s government yesterday, Ansa newswire reported.

Meanwhile, Spanish Prime Minister Jose Luis Rodriguez Zapatero resumed his vacation in the southern part of the country, his office said in a text message yesterday evening.

Less than a day after first heading out on vacation, Zapatero returned to his office on Aug. 3 to remain in close contact with European leaders as the country’s borrowing costs approached the 7 percent mark that heralded bailouts of Greece, Portugal and Ireland.

Also yesterday, Zapatero spoke to French President Nicolas Sarkozy and agreed to implement accords adopted at the European Union July 21 summit as soon as possible, according to a statement posted on the Spanish government website.

Zapatero spoke by telephone with Italian Prime Minister Silvio Berlusconi and both agreed that the strong fluctuations of recent days in sovereign debt markets make little sense.

“Markets want to see promises kept,” said Gonzalez-Paramo, referring to the July 21 European Union summit which empowered the rescue fund to buy bonds in the secondary market, offer precautionary credit lines and lend to recapitalize banks. Paramo said there are tensions in the market because the European rescue fund can only act in theory until the changes are implemented by European governments.

European finance ministers are likely to meet in early September to speed up the implementation process of the July 21 accords, Spanish Finance Minister Elena Salgado said yesterday to Spanish radio station RNE.

Spanish bonds rallied on speculation that policy makers may take more action to arrest the crisis. The yield on Spain’s 10- year bonds tumbled 25 basis points to 6.04 percent at 4:18 p.m. in London yesterday.

Euro dream threatens to become nightmare‎

Europe has dramatically scaled up its efforts to stanch its sovereign-debt crisis since the start of last year, but to no apparent avail as the turmoil threatened this week to overwhelm Spain and Italy.

Yet, governments still have some unused weapons in their armory—though the political cost of firing them will be high.

As the common currency of 17 nation states, the euro isn't like national currencies. Governments borrowing in their own currencies don't usually need bailouts, because, as a last resort, national central banks stand behind their banks and their governments.

The euro zone is different. The European Central Bank is prevented by treaty restrictions from lending to governments and has been a reluctant buyer of government bonds in the secondary market. Willem Buiter, chief economist at Citigroup, argues that this creates a "black hole" at the center of the euro zone that constitutes "a fundamental design flaw" of the currency union.

Euro-zone governments have tried to patch over this flaw by setting up bailout funds. Over the past 18 months, they have rescued Greece, Ireland and Portugal after they were shut out of financial markets.

But these steps haven't been enough to stop the much bigger economies of Spain and Italy from drifting into the debt vortex. One reason for this, according to analysts, is that the bailout funds haven't been big enough or flexible enough to handle large liquidity crises.

Euro-zone leaders made big strides boosting the tools available to the main rescue vehicle, known as the European Financial Stability Facility, at a summit July 21, which also set new aid for Greece.

The Italian state marked the 150th anniversary of its creation earlier this year. Its people did so with little celebration. Apart from Italy’s post-second World War decades of successful modernisation, most of this history has been one of underachievement and worse.

The Italian state’s first 50 years were marked by instability and weakness before two decades of fascist night descended over the country. Invasion, defeat and civil war in the 1940s left deep scars.

Now, the economy has been stagnating for almost two decades, with living standards barely rising and its once-vaunted industries – from textiles to autos – shrinking in the face of low-wage competition.

Italian entrepreneurialism and design flair succeeded in medium-tech industries when foreign competition was less intense, but success in high-tech sectors operating in a globalised context has been much harder to achieve.

One reason is schooling. Italy’s education system is ever more inadequate in preparing its young for the modern world of work and many of those who manage to do well are stymied in one of Europe’s least meritocratic societies.

Government influence on economies is often overstated, but it is important. Bad government in particular can have big negative effects on growth. The evidence that mismanaged public finances stifle growth is strong. And in this area Italy has long been a European leader – it is the only country to have a national debt bigger than its GDP uninterruptedly since the 1980s.

In the early 1990s the sweeping away of the cold war political parties and the jailing of many of the most corrupt politicians brought hope of better and cleaner government. Those hopes have long since been dashed.

The country’s long-time prime minister, Silvio Berlusconi, has dominated for most of that period. Even by the low standards of Italian politics, he has plumbed new depths. But however bad his actions, his inactions have been even more damaging.

Many of the reforms that could help spur the economy have gone unimplemented, despite his promises to shake the country up. Nor has he made much of a dent in Italy’s public debt mountain. His main appeal – that he could bring to the business of government the same get-things-done approach that made him one of Europe’s richest men – has proved baseless.

But Berlusconi will not lead Italy forever, and the country’s political class has shown that it can push through painful reform. Perhaps ironically, its biggest achievement in recent times was ensuring that Italy squeezed into the euro as a founding member. There is no such prize for taking radical action now. Instead, incentive comes from the need to avoid disaster. Italy’s politicians might yet rise to the challenge.

If Italy faces huge challenges, Spain’s are no less daunting.

Unlike the plodding Italian economy, Spain enjoyed a decade-long boom from the late 1990s. But the Iberian tiger, like its Celtic cousin, became engorged on credit. Property prices soared, construction boomed and competitiveness evaporated.

When the bubble burst the public finances went into a tailspin, the banks teetered and unemployment soared. It has suffered a much bigger shock than Italy and its economy is still on the floor, with consumers and households pinned down by huge mortgage debts.

Spain’s economy faces bigger challenges than Italy, with the exception of its government’s indebtedness.

With debts of 60 per cent of GDP in 2010, Spain has some breathing space (in Italy the figure was 120 per cent and in Ireland almost 100 per cent).

With such a manageable debt burden Spain does not look close to being insolvent, as the bond market has been moving towards concluding in recent weeks. So why the panic?

One reason for the recent loss of confidence in the country has been because fears are rife that its banks are not coming clean on their property losses. So far, those admitted to have been a tiny fraction of Irish banks’ losses, despite a property collapse there that is much more than a fraction the size of ours. Another suspicion is that the country’s 17 big-spending regional governments are keeping liabilities hidden.

If either or both of these suspicions have some basis in truth, Spain’s true debt levels are higher than officially stated.

But one reason to be optimistic about Spain relative to Italy over the long term is its more effective political system. This has been in evidence since the crisis erupted, with the government earning praise for undertaking some bold reforms and for reining in its budget deficit.

Although the Spanish are sometimes called the Germans of the south, the more likely explanation for their better governance is not cultural but institutional. Whereas in Italy the executive is weak and unstable – famously, the government has changed on average once a year since the second World War – in Spain, since the return to democracy in the late 1970s, governments have been stable and more effective.

This did not happen by accident but by design, and was informed by the lessons the two countries learned from their respective decades of dictatorship. While Italy’s 1948 constitution deliberately created a weak centre to avoid a repetition of the abuses in Mussolini’s time when power was highly centralised, Spain’s 1978 constitution created a strong and stable executive because weak government was seen to be a big factor in Franco’s seizing power in the 1930s.

Spain’s better political system gives reason to believe that it can manage its public debt problems, but no government can magic away a huge private debt burden or restore at a stroke chronic economy-wide uncompetitiveness. Even with lots of luck Spain faces a long and painful struggle.

Europe is in a bad place now. It looks increasingly likely that the euro zone countries will have to throw their fiscal lot in together in order to avoid cataclysm in the short term. But this brings its own risks.

Northerners will not like it. If they feel they will permanently foot the bill for southern profligacy they may rise up against it. That could get very ugly. The longer Italy and Spain remain in a slump, the greater the chances of that happening.

Southerners may not take their medicine lying down either. If their economies don’t return to growth, their peoples may reach breaking point. If they come to believe that an uncaring and alien force is imposing its will on them resentments could boil over.

Travel to Spain for World Youth Day

As final preparations are made for World Youth Day 2011 in Madrid, Spain, 21 pilgrims from the Diocese of Sioux City are making final plans of their own.

Andrea Jenson, assistant diocesan director of youth and young adult ministry, will accompany, Father Brent Lingle and eight seminarians along with high school and college students and four chaperones on a pilgrimage from Aug. 11-25.

“Any time that we can get away from home and experience our faith is an opportunity for growth,” said Jenson. “World Youth Day in particular is known for miraculous things happening as well as deep conversions taking place, strengthening of faith, finding of someone’s vocation and an opportunity to see how universal the Catholic Church is.”

This will be a repeat trip to World Youth Day (WYD) for 25 percent of the group, she noted.

“Whether they went when it was in Denver, Canada or Australia, they are going for a second time,” said Jenson. “I think that speaks volumes to what a wonderful experience it is, if they are willing to spend the money to go on the pilgrimage again.”

FALL RIVER — Over 60 persons including teens, young adults and adults from the Fall River Diocese will be traveling to Spain this month to participate in the international celebration of World Youth Day in Madrid from Aug. 16-21.

Held usually every three years in different countries, World Youth Day is an opportunity for youth and young adults from around the globe to unite to celebrate and share their faith through a common experience of pilgrimage, prayer and worship. The weeklong schedule of activities includes catechetical sessions, liturgies, concerts, cultural events, sight-seeing and a prayer vigil and closing Mass with Pope Benedict XVI.

"It's the best experience of the universal Catholic Church that young adults can possibly have," said diocesan Youth and Young Adult Ministry Assistant Director Crystal-Lynn Medeiros who attended World Youth Day 2008 in Sydney, Australia. "There are no words to describe it; you just have to experience it."

She is heading to this year's World Youth Day as part of one local group that includes diocesan Faith Formation Director Claire McManus, two college-age parishioners and the faith formation director from Sacred Heart Parish in Fall River and two parishioners from St. Mary Parish in Mansfield. They will be joining a larger delegation from the Boston Archdiocese.

Other Fall River diocesan World Youth Day pilgrims will be traveling in two different groups.

Twenty-six young people, ages 14-24, from the St. Anthony Parish, New Bedford, Youth Group will be going accompanied by seven adult chaperones including their pastor, Father Roger J. Landry. Members of the youth group have been raising money since 2008 to cover the expense of the trip through bake and candy sales, pilgrimage walk-a-thons, parish breakfasts and other means.

There is also a contingent of 21 heading to Madrid from St. Patrick Parish in Wareham, including some members of that parish's youth group, the director of religious education, and parish parochial vicar Father Ron P. Floyd along with a few young persons from other parishes and three seminarians of the diocese.

First as a seminarian and then as their parish priest, Father Floyd has been working with the St. Patrick's Youth group for several years to plan and fund-raise for participation in World Youth Day 2011.

He described the majority of his group going to Madrid as preparing to enter college in September and believes that age to be right for the World Youth Day experience.

"World Youth Day is an intense time to think about what God is calling you to do, and college age is a great time to focus on that," he said.

At the conclusion of World Youth Day the group will travel to Fatima for a spiritual retreat and then to Lisbon.

Father Landry explained that both young and adult travelers from St. Anthony's have been preparing for their pilgrimage by studying the sites they'll see, the saints whose tombs they'll visit, and previous papal World Youth Day messages. Their expanded itinerary will begin in Lisbon and Fatima and continue on to several Christian shrines in other regions of Spain before their arrival in Madrid. Throughout their journey, youth group members will share their experiences and photos via their online blog at www.saintanthonyyouthgroup.blogspot.com.

"All of us are getting very excited and counting down the days," said Landry. "We've worked hard for three years. Now all the fundraising is over, and we've turned our focus not only to packing but to preparing ourselves spiritually for the graces God in his goodness has been planning from all eternity to give us during this pilgrimage. The theme of the World Youth Day is 'Planted and Built Up in Jesus Christ, Firm in the Faith,' and we're going conscious of the fact that Jesus wants to build us all up in faith, hope and love so that we can return better equipped to help him build up our parish and the Church."

As of mid-July almost a half million young persons were registered to attend World Youth Day with over 29,000 coming from the U.S.

Pope Benedict, who convened the gathering, will pray with and speak to youth at an evening vigil on Saturday, Aug. 20 and then preside over the closing "Mass of Sending" the next morning. These events will take place at the Cuatro Vientos, an air base large enough to accommodate the 1.2 million expected at the closing Mass. Most World Youth Day pilgrims will walk the approximate 5-mile distance to the air base on Saturday morning and remain there overnight for the Sunday Mass.

Madrid denies suspension of bond auction due to market turbulence

MADRID — Spain was forced to pay sharply higher interest rates in a pair of bond auctions, reflecting raised investor fears over the country’s ability to handle its debts and avoid a bailout.

The Spanish Treasury says it sold €2.2 billion ($3.2 billion) in three-year notes carrying interest rates of 4.81 percent, and €1.1 billion of three-and-a-half year notes with a rate of 4.98 percent.

t the last comparable bond auction on July 7, three-year bonds had an interest rate of 4.3 percent.

Demand for Thursday’s sale was more than twice supply.

Spanish 10-year yields have jumped about 70 basis points to a high of 6.46 per cent since a euro region leaders’ summit on July 21st failed to convince investors the spread of the debt crisis can be halted by a so-called selective default for Greece.

Spanish 10-year bonds yielded 6.07 per cent after the auction as the spread, or difference, between Spanish and German bonds of that tenor narrowed to 362.6 basis points. However, yields rose again in the afternoon, rising to 6.284 per cent at the close, with the spread rising to 399 basis points.

Demand for the three-year bonds yesterday was 2.14 times the amount sold, compared with 2.29 times in July.

The sale will likely be Spain’s only bond auction this month.

“The Spanish treasury has decided to follow the precedent of the previous two years and not summon a long-term auction on August,” it said in a statement.

Elena Salgado, Spanish finance minister, on Wednesday night insisted that the auction would go ahead in spite of nervousness in the bond markets, in order to show that Spain was capable of raising the money it needed to repay maturing debt and finance its budget deficit. Spain had never cancelled an auction even in turbulent times, she said.

Speaking after an emergency meeting with prime minister José Luis Rodríguez Zapatero to discuss the crisis and jump in debt yields, she acknowledged the volatility was worrying but attributed turmoil this month to thin volume because of the holiday season.

“I don’t think this is a response to the market turbulence, I think this is a summer thing. During the crisis it has been usual for a number of countries to cancel their auctions. But considering the crisis, it’s possible to interpret anything however you like,” interest rate strategist at RBS Harvinder Sian said.

Spain still needs to sell about €38 billion in debt by the end of the year and has completed 60 per cent of its 2011 financing, less than the euro-area average of 67 per cent, according to a report by UniCredit.

Atletico Madrid faces Guimaraes in Europa League

LONDON: Atletico Madrid, the 2010 Europa League winners, will face Vitoria Guimaraes in a play-off to advance to the group stage this season.

Last season’s runner-up Braga play Switzerland’s Young Boys, and the 2006 and ‘07 winners Sevilla are away in the first-leg against Hannover.

Schalke, Champions League semifinalists last season, were drawn away to HJK Helsinki.

Tottenham travel first to Scotland’s Hearts and AS Roma host Slovan Bratislava.

Big-spending Paris Saint-Germain are away to Olympiakos Volos, although UEFA could disqualify the Greek club that is involved in a match-fixing investigation.

Elsewhere, 2010 Europa League finalists Fulham were handed a tricky-looking draw against Ukrainian club Dnipro Dnipropetrovsk, who are coached by former Sevilla, Spurs and Real Madrid boss Juande Ramos.

Birmingham City will meet Nacional of Portugal, while Stoke City meet Swiss club FC Thun.

Scottish champions Rangers, who were eliminated from the Champions League third qualifying round by Malmo, will meet another Champions League dropout in Maribor of Slovenia.

Last season's runner-up Braga plays Switzerland's Young Boys, and the 2006 and '07 winner Sevilla is away in the first leg against Hannover.

Schalke, a Champions League semifinalist last season, was drawn away to HJK Helsinki.

Tottenham travels first to Scotland's Hearts and AS Roma hosts Slovan Bratislava.

Big-spending Paris Saint-Germain is away to Olympiakos Volos, although UEFA could disqualify the Greek club that is involved in a match-fixing investigation.

First-leg matches are played Aug. 18 and return games on Aug. 25.

The 48-team group stage is drawn Aug. 26 in Monaco.

Madrid march against police

Thousands of people marched into Madrid's Puerta del Sol square Friday to protest police use of force on demonstrators who had rallied at the interior ministry a day earlier to protest the closure of the square.

The central plaza has become a symbolic site for “Los Indignados,” a movement that has been protesting Spain's high unemployment and the government's handling of the nation's economic crisis.

The rally took place one day after riot police clashed with protesters who had massed outside the interior ministry after trying unsuccessfully to gain access to the square for several days. At least 20 people were injured during Thursday's confrontation.

Spaniards angered about the economic situation have been staging regular protests in Madrid since May 15. The movement later spread to other parts of the country.

Protesters have been gathering in the square since May to protest about issues arising from Spain’s economic crisis and rising unemployment.

The protesters yesterday regained access to the square - a symbol of their movement. Several wore badges that read “very fragile.”

"This square belongs to the people. We have much to celebrate today. We won this battle," a spokesman for the movement said.

Oriol, a 33-year-old whose arm was broken during the conflict on Thursday told the AFP, "I had my back to the police and they struck me three times, once in my arm. The riot police hit everyone, women, old people."

The protests in Madrid began on 15 May and spread to other Spanish cities via Facebook and Twitter.

Spain's unemployment rate is the highest in the EU, at 21.3%, and is particularly high among the under-25s, at 44.6%.

Plaza de Colón Madrid

Plaza de Colón (Columbus Square, in English) is located in the Alonso Martínez district of Madrid, Spain. This plaza and its fountain commemorate the explorer Christopher Columbus, whose name in Spanish was Cristóbal Colón.

Monuments

The plaza, originally called "Plaza de Santiago" (St. James Square), was renamed "Plaza de Colón" in 1893 to honour Christopher Columbus. The square contains two monuments.

On the Paseo de la Castellana (Promenade of the Castilian) side there is a monument to Columbus built in 1885. This is a statue of Columbus standing at the pinnacle of a tall column. He appears to be pointing west, indicating the route he would take towards the islands of the Caribbean.

The second monument on the Serrano Street. side consists of concrete macro-sculptures by Joaquín Vaquero Turcios. The concrete blocks are decorated with inscriptions by philosophers and indigenous leaders.

Other features

The gardens in the plaza are known as the "Jardines del Descubrimiento" (Gardens of Discovery), where the Royal Mint was located until 1970.

At the base of the Columbus monument is a large fountain with a broad cascade of water. There are steps leading under the cascade and beneath the plaza, where the roar of the fountain is amplified. Under the plaza along with the Centro Cultural de la Villa de Madrid (Madrid City Cultural Centre) lies a stop for a special shuttle that takes passengers to Barajas Airport.

At the other side of the Plaza are the twin Torres de Colón.

Protesters Return to Madrid Square

MADRID — Thousands of Spain's "indignant" protesters reoccupied Madrid's main square a day after riot police swooped down on demonstrators who rallied at the interior ministry to protest its closure.

Police stood by late Friday as the demonstrators entered the Puerta del Sol square, the symbol of their movement against the government's handling of Spain's economic crisis.

"This square belongs to the people. We have much to celebrate today. We won this battle," a spokesman for the movement said through a megaphone to applause and cheers.

The protesters set up a huge banner at the entrance to the square that read "Welcome Dignity" and sat on the ground to hold a "popular assembly" to discuss future protest action.

At least 20 people were injured when riot police late Thursday charged demonstrators who had gathered outside the ministry after trying unsuccessfully to gain access to Puerta del Sol square for the third straight day.

Seven of the injured were policemen. It was the most serious incident since the "indignant" movement began in mid-May in the square against Spain's economic crisis, soaring unemployment and political corruption.

Television images showed several protesters with blood on their faces being surrounded by police or being loaded into ambulances.

The protesters, many wearing orange stickers that read "Very Fragile", chanted "Shame! Shame! Shame!" as they passed the interior ministry, protected by more than 50 riot police who stood side by side outside the entrance.

Oriol, a 33-year-old whose arm was broken during the police charge on Thursday, tried to give a white carnation to the head of the riot police.

The policeman refused to accept the flower but shook hands with the protester after a brief chat.

"I asked them to be more respectful of the protesters. My goal was to show that it does not matter if they hit us, we are not afraid. I think this movement deserves the people's support," he told AFP, refusing to provide his last name.

"I had my back to the police and they struck me three times, once in my arm. The riot police hit everyone, women, old people.

The central plaza has become a symbolic site for “Los Indignados,” a movement that has been protesting Spain's high unemployment and the government's handling of the nation's economic crisis.

The rally took place one day after riot police clashed with protesters who had massed outside the interior ministry after trying unsuccessfully to gain access to the square for several days. At least 20 people were injured during Thursday's confrontation.

Spaniards angered about the economic situation have been staging regular protests in Madrid since May 15. The movement later spread to other parts of the country.

Spain's unemployment rate of about 21 percent is the highest in the 17-nation euro zone. The country also has one of Europe's highest public debts. Prime Minister Jose Luis Zapatero has tried to reduce the debt by cutting government spending, raising the retirement age and making it easier for companies to fire employees.

Many citizens blame inept politicians for the country's economic crisis.

José Luis Rodríguez Zapatero

José Luis Rodríguez Zapatero, born 4 August 1960 is a Spanish politician and member of the Spanish Socialist Workers' Party (PSOE). He was elected for terms as Prime Minister of Spain in the 2004 and 2008 general elections. On 2 April 2011 he announced he will not stand for re-election in 2012.

The main actions taken by the Zapatero administration include the withdrawal of Spanish troops from the Iraq war, which resulted in long term diplomatic tension with the George W. Bush administration; the increase of Spanish troops in Afghanistan; the idea of an Alliance of Civilizations, co-sponsored by Turkish Prime Minister Recep Tayyip Erdoğan; the legalisation of same-sex marriage; reform of abortion law; a controversial attempt at peace negotiation with ETA (a proscribed terrorist organisation); the increase of tobacco restrictions; and the reform of various Autonomous statutes, particularly the Statute of Catalonia.

Personal life,Family background

José Luis Rodríguez Zapatero was born in Valladolid, Castile and León to Juan Rodríguez y García-Lozano (b. 1928), a lawyer, and María de la Purificación Zapatero y Valero (Valladolid, 1927 - Madrid, 30 October 2000). He grew up in León, where his family originated.

His paternal grandfather, Juan Rodríguez y Lozano (28 July 1893 - Puente Castro, León, 18 August 1936), was a Republican captain executed by Franco's National army a month into the Spanish Civil War for refusing to fight with them. He was betrayed and his whereabouts were revealed by certain PSOE people in Valladolid, before Rodriguez Zapatero was born. On the other hand, his maternal grandfather supported the coup d'état of Franco and he was killed by Republicans during the war. The dictatorship of Franco compensated his widow as it did all the widows of murdered Franco supporters.

His maternal grandfather, Faustino Zapatero y Coronel, was a paediatrician and middle class liberal who died in 1978. His maternal grandmother María de la Natividad Valero y Asensio (Zamora, 9 December 1902 - Valladolid, 28 June 2006) was a right-wing conservative and died at age 103. Zapatero was born in Valladolid not only because of his mother's attachment to her family, who lived there, but also because of the medical profession of her father.

Zapatero has said that, as a youngster, "as I remember it, I used to participate in late night conversations with my father and brother about politics, law or literature". However, he did not get on very well with his father at times. Sources say that his father refused to let him work or take any part in his buffet, and this scarred him for life. He says that his family taught him to be tolerant, thoughtful, prudent and austere.

The memory of Republican Captain Rodríguez y Lozano was also kept alive by his last will, handwritten 24 hours before facing the firing squad, and which can be considered a final declaration of principles. The will comprised six parts, the first three bestowing his possessions on his heirs; the fourth, in which he asked for a civil burial and, the fifth, in which he requested his family to forgive those who had tried and executed him and proclaiming his belief in the Supreme Being. In the sixth, Zapatero's grandfather asked his family to clear his name in the future as his creed consisted only in his "love for peace, for good and for improving the living conditions of the lower classes.

Studies and teaching

He studied Law at the University of León, graduating in 1982. His performance as a student was above average before his pre-University year. His grades later in the year and in the University were essentially mediocre. According to his brother Juan: "He didn't study much but it made no difference, he continued successfully".

After graduating, Zapatero worked as a teaching assistant in constitutional law at the University of León until 1986 (he continued working some hours a week without pay until 1991). It was subsequently found that he had been appointed by his department without the usual selection process involving interviews and competitive examinations, which if true, constitutes a case of political favouritism. He has declared that the only activity that attracts him besides politics is teaching or, at most, academic research.

Rodríguez Zapatero met his wife, Sonsoles Espinosa in León in 1981. They married on 27 January 1990 and have two daughters named Laura (b. 1993) and Alba (b. 1995).

In October 1991, his contract was cancelled by the new rector of the University of León, Julio César Santoyo, after the University's legal advisers considered Zapatero's posts as a teaching assistant and an MP to be incompatible (he had been elected in 1986). The Spanish Parliament's counselors, however, had considered the contract valid.

Zapatero did not do the military service which was compulsory in Spain: he received successive deferments because of his conditions as a university student and a teaching assistant. As an MP he was finally exempted.

Zapatero enters politics

Zapatero attended his first political rally, organized by the Spanish Socialist Workers' Party (PSOE) in Gijón in 1976. Some political parties had been legal since 21 July 1976, but the PSOE was not legalized until February 1977. The speech of Felipe González, the PSOE leader and future Prime Minister of Spain, who took part in the rally, exerted an important influence on Zapatero. He said, among other things, that "the Socialists' goal was the seizure of power by the working class to transform the ownership of the means of production" and that "the PSOE was a revolutionary party but not revolutionarist or aventurist , as it defended the use of elections to come to power".

Zapatero and his family had been traditionally attracted to the Communist Party as it was the only party really organized before Francisco Franco's death in 1975. But, after the famous political rally in Gijón, they, and especially Zapatero, started to believe that the Socialist Party was the most probable future for the Spanish left. At that time the Socialist Party was rebuilding its infrastructure in the province of León after having been outlawed following the Spanish Civil War.

In 1977, the year of the first democratic elections after Franco's death, Zapatero supported both the Communist and Socialist parties. He pasted posters of both parties.

He eventually joined the PSOE on 23 February 1979. The impression Felipe González had caused on him in 1976 played a fundamental role in his decision to join the party. In 1979, the PSOE had not yet renounced Marxism as its ideological base (that happened later in 1979). He said nothing about this at home, because he was afraid his parents would discourage him, considering him too young to join a political party.

2003 local elections

On 25 May 2003, the first local and regional elections since Zapatero's appointment as leader of the Socialist party took place. The Socialist Party received a larger popular vote (which prompted Zapatero to claim his party had been the winner) but the People's Party obtained more posts in councils and regional governments. In general, there were not many changes in the results compared to those of the previous Elections held in 1999. The Socialists lost the Balearic Islands but got enough votes in Madrid to govern through a coalition with the communists of the United Left. The last "victory" was welcomed by Zapatero as the winner in Madrid had always won the next general election. However, an unexpected scandal, the so-called Madrid Assembly Scandal, negatively affected the socialist expectations of a victory in 2004.

After the Madrid election, the People's Party lacked two seats to obtain an absolute majority. This seemed to allow an alliance of Socialists and the United Left to seize power. But an unexpected event happened. Eduardo Tamayo and María Teresa Sáez, two Socialist MPs angry at the distribution of power in the future regional government between the United Left and the Socialist Party started a crisis that led to a re-run of the Election in Madrid in October 2003 with the subsequent victory of the People's Party.

Zapatero did not accept the account of the Socialist MPs and tried to explain it as a conspiratorial plot caused by speculative interests of the house building industry that would have bribed the MPs to prevent a left-wing government.[citation needed] The People's Party, on the other hand, defended the theory that the anger of the two Socialist MPs was caused by Zapatero's broken promise about the referred distribution of power within the Madrid section of the Socialist Party. That promise would have been made some months before the crisis in exchange of support for one of his more immediate collaborators (Trinidad Jiménez), who wanted to become the Socialist candidate for mayor of Madrid (the Spanish capital).

It was known that Eduardo Tamayo had played an active role in Zapatero's appointment as Secretary General of the party (See Zapatero's years as an opposition leader#Appointment as Secretary General), together with José Luis Balbás, the leader of the internal faction to which Eduardo Tamayo belonged, who was also expelled from the party because of the scandal.

2004 General Election,Election campaign

The campaign for the General Election started a fortnight before 14 March 2004. Polls favoured the People's Party, with some polls predicting a possible repeat of their absolute majority.[citation needed]

Previously, on 8 January 2004, Zapatero had created a Committee of Notables composed of 10 highly qualified experts with considerable political weight. Its mission was to help him to become prime minister. Among its members: José Bono (his ex-rival for the Secretaryship of the party and later appointed Minister of Defence), Juan Carlos Rodríguez Ibarra (president of the regional government of Extremadura and one of the most important socialist leaders), Miguel Ángel Moratinos (his minister of Foreign affairs 2004-2010), Gregorio Peces-Barba (later appointed by him High Commissioner for the Victims of Terrorism, although he has already made public his resignation), Carmen Calvo (later appointed Minister of Culture), etc.

Ten days later, on 18 January 2004, Zapatero announced that he would only become prime minister if the Spanish Socialist Workers Party received a plurality, renouncing possible parliamentary alliances in advance if that situation did not happen after the election. Minority parties (especially United Left, a communist party) criticized the decision, for they considered it an attempt to attract their own voters, who would rather ensure a defeat of the People's Party even at the expense of voting for an unfavorable party.

Campaign promises

180,000 new houses every year to buy or to rent

Preservation of a balanced budget with no deficit but with a more flexible approach than that of the People's Party

Bilingual education (English and Spanish, together with the official regional language in the areas where it existed)

A computer for every two students

A two year maximum for legal processes or financial compensation

Further investment in research and development

Make the state-owned television company more independent from the government by making its director answerable to parliament, etc.

During the campaign, Zapatero harshly criticized the People's Party for its management of the Prestige crisis, its attitude towards the invasion of Iraq and the high cost of housing. Mariano Rajoy, the new leader of the People's Party after Aznar's voluntary retirement, on his part, attacked Zapatero's foreseeable future alliances with parties like United Left or Republican Left of Catalonia (a pro-Independence Catalan party).

One of the most important points of friction was the absence of televised debates between the candidates. Zapatero was the first to propose a debate to Mariano Rajoy. Rajoy accepted on the condition that Zapatero could not be alone but accompanied at least by two of his potential allies after the election: Gaspar Llamazares (the leader of United Left) and Josep-Lluís Carod-Rovira (leader of Republican Left of Catalonia). Rajoy justified his decision on the grounds that, in his opinion, he was not running against the Socialist Party but against a "coalition" of forces opposed to the People's Party's policies.

Madrid Bombings

On 11 March 2004 the most deadly peacetime attacks in Spanish history took place. Several commuter trains were bombed, causing 191 deaths and outrage all over Spain. The attacks took place three days before the General Election and all electoral activities were suspended. The common sorrow, instead of promoting unity among Spaniards, increased the already bitter tone of the campaign.

The People's Party government and Zapatero (who accused ETA in a radio statement broadcast at 8:50 a.m.), initially claimed the attacks to be the work of ETA, an armed Basque nationalist separatist organization. Later, after an audiotape in Arabic was found in a van near a railway station where the perpetrators boarded one of the trains, Aznar declared that all of the possibilities were being investigated. The government was accused of manipulating information about who was responsible for the attacks to avoid the consequences of public anger at a bombing motivated by its foreign policy - Aznar personally phoned the editors of the four national daily newspapers to tell them that ETA were responsible, whilst Minister of the Interior Ángel Acebes attacked those who believed that responsibility lay elsewhere, despite not offering any evidence for ETA's culpability, and the state broadcaster TVE initially failed to report the protest outside the Popular Party's headquarters which ran through the night before the day of the election.

Zapatero himself has repeatedly accused the Popular Party of lying about those who were responsible for the attacks. On the other hand, the book 11-M. La venganza by Casimiro Abadillo, a Spanish journalist who works for the newspaper El Mundo, claims that, before the General Election, Zapatero had told that newspaper's director, Pedro J. Ramirez, that two suicide bombers had been found among the victims (although the specialists that examined the bodies said they found no such evidence). When he was asked in December 2004 about the issue by the Parliamentary Investigative Committee created to find the truth about the attacks, he declared that he did not remember what he had said.

Election day

The campaign had ended abruptly two days before it was expected to convene as a result of the bombings. The day before the elections — in this case 13 March 2004 — is considered to be a "Day of Reflection" under Spanish electoral law, with candidates and their parties legally barred from political campaigning. Despite this prohibition, numerous demonstrations took place against the government of José María Aznar in front of the premises of the People's Party all over Spain. There were some claims that most of these demonstrations were instigated or orchestrated by the Socialist Party, through the use of SMS text messaging from mobile phones belonging to the Socialist Party. The Socialist Party publicly denied these accusations.

As the demonstrations escalated, Mariano Rajoy himself appeared on national TV to denounce the illegal demonstrations. In reply, both José Blanco and Alfredo Pérez Rubalcaba broke the silence from the Socialist Party's side, in separate appearances. In the end both sides accused each other of breaking the electoral law on reflection day.

Influence of the attacks on the election outcome

An important point of controversy is if the purpose of the Madrid attacks were to force a Socialist victory; at issue as well was that, if that was the case, whether they succeeded in altering the final result. This has been called the "4 March theory" (that is, if the election had been scheduled for 7 March, the attacks would have taken place on 4 March) by Aznar, among others. No definitive data exists in favour of that possibility but some facts have been used to support it. Thus, the first question Jamal Zougam (one of the first arrested suspects) made when he arrived at the Courthouse on 15 March 2004 was: 'Who won the election?'.

How the bombing influenced the results is widely debated. The three schools of thought are:

The attacks themselves might have changed the electoral winner. A sufficient number of voters suddenly decided to vote for the Socialist party because they thought that if it won, Islamist terrorism would be placated.

The handling of the attacks by the government, rather than the attacks themselves, might have changed the electoral winner. People who had the perception that the information about the attacks was being manipulated decided to vote the Socialist party as a response.

Premiership

In the Spanish media, Zapatero is sometimes portrayed as a mock superman called "soso-man" (Spanish for "dull man"). It reflects a popular image of the Premier as a politician devoid of any strong political convictions or marked personality traits. His style's defining word is (buen) talante, roughly "pleasantness", "niceness" or "good disposition", which is in brisk and carefully chosen contrast with the more confrontational and brusque premiership style of previous Prime Minister José María Aznar. Sometimes, however, the talante "appears to be a mere end in itself and has laid him open to the claim that what you see is what you get; a bland, soft-focus premiership that lacks precision, vision or strategic goals. Similarly, Zapatero has been quoted to shy away from adopting unpopular measures, having a "habit of showering public money on any problem" and, in all, being "averse to tough decisions".

Withdrawal from Iraq

One of the first measures he carried out as soon as he took office was to withdraw every Spanish soldier fighting in Iraq, which he did in less than a month. This drew criticism from the right, who held the view that he was ceding to the pressure of the terrorists who attacked Spain. However, it was a measure announced by him before the general elections and supported by the majority of Spanish population.

Domestic policy

Much of Zapatero's work has been on social issues, including gender-motivated violence and discrimination, divorce and same-sex marriage. The most recent social issue tackled has been the Dependency Law, a plan to regulate help and resources for people in dire need of them, and who cannot provide for themselves and must rely on others on a daily basis. Zapatero has also made it clear that he values funding of research and development and higher education and believes them to be essential for Spain's economic competitiveness. At the same time, he has increased the minimum wage and pursued other classically socialist policies. He has also announced his intention to undertake limited reforms to the Spanish Constitution, though no specifics have been made available.

Economic problems

Facing a recession and rising unemployment, ZP pledged to cut government spending by 4.5% and raise taxes, but not income taxes. The Popular Party contends that ZP lacked a coherent economic plan and stated "There is no tax increase capable of filling the hole that you have created,". On June 23, 2008 Zapatero announced 21 reforms designed to aid economic recovery in a speech pointedly avoiding popular terms of the period such as 'crisis'. Although government deficits are projected to increase to 10% of GDP, ZP promises to reduce it to 3% required by EU policy by 2012.

In January 2011 Spain's Unemployment Rate had risen to 20.33% exceeding Prime Minister Zapatero's target rate of 19.4 percent.

LGBT rights

The legalization of same-sex marriage in Spain on 1 July 2005 includes adoption rights as well as other rights that were previously only available to heterosexual couples. This caused a stir within the Catholic Church, which opposed the measures and supported a demonstration attended by some 166,000 (according to official figures) and one million people (according to the organisers) in Madrid.

In 2007, Zapatero's government was also responsible for a Gender Identity Law that allows transsexual persons the right to have their identity legally recognised, the criteria being one clinical evaluation and two years of treatment (generally hormone replacement therapy), and without demanding mandatory genital surgery or irreversible sterility. The law is, alongside with the legislation of some US states, one of the most simple and non-bureaucratic that currently exist in the world. Transsexual persons also have the right to marry persons of the opposite or same sex they have transitioned into, and to biologically parent children either before or after transitioning.

Regional territorial tensions

Zapatero has often declared that his government will not be "soft on terrorism" and will not allow regional nationalists to endanger Spanish unity. Some say that this comment was probably made for his party alliances with parties like Republican Left of Catalonia.

On 13 November 2003 in a rally in Barcelona during the election campaign that took Pasqual Maragall to power in the Generalitat, Rodríguez Zapatero gave a famous promise to approve the Statute of Catalonia:

I will support the reform of the Statute of Catalonia that the Parliament of Catalonia approves.

In October 2005, a controversial proposal to reform the Catalan statute arrived at the Spanish parliament after being passed in Catalonia. Zapatero, who had often expressed his support for a change of the statute (although he did not entirely support the draft passed by the Catalan Parliament), supported the reform.

Spanish Civil War remnants

In October 2004 Zapatero's government undertook the task of morally and legally rehabilitating those who were suppressed during and after the Spanish Civil War, by instituting a Memorial Commission chaired by Vice-Prime Minister María Teresa Fernández de la Vega.

On 17 March 2005, Zapatero's government ordered the removal of the last remaining statue of former dictator Francisco Franco that remained in Madrid.

Reform of the education system

Just after he took office, Zapatero repealed the law reforming the Education System passed by the previous government and, in November 2005, introduced his own reform bill. The bill was opposed by the People's Party, the Catholic Church, the Muslim community, The Catholic Confederation of Parents' Associations and an important part of the educational community, often for disparate reasons. Complaints against the reform include the limits it imposes upon parents' freedom to choose a school, the decrease in academic status of voluntary religious education, the introduction of a compulsory course ("Education for Citizenship") and a perceived ineffectiveness of the reform in terms of combating poor educational results. 

ETA's 2006 "permanent ceasefire"

ETA declared what it described at the time as a "permanent ceasefire" that began on midnight 23 March 2006. On 5 June 2007 ETA declared this ceasefire over. After the initial ceasefire declaration Zapatero informed the Congress that steps would be taken to negotiate with ETA in order to end its terrorist campaign while denying that there would be any political price paid to put an end to ETA. The PP grew concerned about the possibility of political concessions being made to the group to stop their ways, and actively opposed anything other than the possibility of an organized surrender and dismantling of ETA, refusing to support any kind of negotiation. On 30 December 2006 the ceasefire was broken when a car bomb exploded in Madrid's International Airport, Barajas and ETA claimed authorship. Following this, Zapatero gave orders to halt initiatives leading to negotiations with ETA. Demonstrations across Spain followed the next day, most condemning the attack, others condemning the Government's policies and a minority even questioning the authorship of the Madrid bombings.

A massive rally in Madrid followed on 25 February 2007 promoted by the Victims of Terrorism Association (AVT in Spanish acronym), rejecting what are perceived to be concessions from the government to the separatists.

On 10 March 2007 a new massive rally was held in Madrid gathering -depending on the source's relationships to the government- between 342,000 and over two million people. This demonstration was organized by the opposition party PP and backed by the AVT and several other associations of victims, to not allow Iñaki de Juana Chaos out of prison and accusing Zapatero's government of surrendering to terrorism.

Immigration

During the meeting of the European Union Justice and Home Affairs Ministers held in Tampere on 22 September 2006, some of the European ministers reprimanded the Spanish authorities for the aforementioned massive regularisation of undocumented immigrants which was regarded as too loose and opposed to the policies of other State members (on 2 September and 3 alone, during the height of the last illegal immigration wave, 2,283 people arrived illegally in the Canary Islands having shipped from Senegal aboard 27 pirogues).

Once they reach Spanish territory, the undocumented immigrants can travel freely -for the internal frontiers are basically open within the European Union (with the exception of the United Kingdom and the Republic of Ireland who maintain full border controls); thus, it is not unknown for some of them have other European countries as their final destinations. This started a short lived polemic between France's Nicolas Sarkozy and the Spanish premier Rodríguez Zapatero.

Areas of foreign policy action,Iraq

Before being elected, Zapatero opposed the American policy in regard to Iraq pursued by former Spanish Prime Minister Aznar. During the electoral campaign Zapatero had promised to withdraw the troops if control in Iraq was not passed to the United Nations after 30 June (the ending date of the initial Spanish military agreement with the multinational coalition that had overthrown Saddam Hussein). Zapatero declared that he did not intend to withdraw the Spanish troops before that date after being questioned about the issue by the People's Party's leader Mariano Rajoy in his inauguration parliamentary debate as Prime Minister.

On 19 April 2004 Zapatero announced the withdrawal of the 1,300 Spanish troops in Iraq.

The decision aroused international support worldwide, though the Bush administration claimed that terrorists could perceive it as "a victory obtained due to the 11 March 2004 Madrid train bombings". John Kerry, then Democratic party candidate for the U.S. Presidency, asked Zapatero not to withdraw the Spanish soldiers. Some months after withdrawing the troops, the Zapatero government agreed to increase the number of Spanish soldiers in Afghanistan and to send troops to Haiti to show the Spanish Government's willingness to spend resources on international missions approved by the United Nations.