This "unprecedented decision" comes a month after the second reform of the banking sector and in the midst of a financial storm in Spain caused by doubts about whether Greece will remain in the euro zone. The business daily adds -

The Government needs to accept the truth that ... neither Europe nor the international markets trust Spanish banks, and put measures in place to support them.

The ECB audit, which will be completed in two months, has already reached its first conclusion, says the newspaper: it reflects the "deep mistrust of the role played by the Bank of Spain" in taking back the management of the banking sector reforms. However, it adds -

[In terms of] convincing institutions and investors of the seriousness of Spain’s efforts to clean up its act and ensure the solvency of its banking system, ECB cooperation may become a valuable asset rather than a constraint.

Spanish and Italian 10-year borrowing costs shot up to their highest levels this year, whilst German 10-year bonds yields hit a record low, exacerbating the differences in borrowing costs between European countries to a new high. European stock markets also suffered their largest one-day drop in three weeks.

Aggravating these problems, Moody’s downgraded 26 Italian financial institutions by one to four notches, on Monday night and the cost of insuring against Spanish default hit a record high.

The financial firewall – the European Stability Mechanism – is a  500bn rescue system set up by European leaders. Some analysts are questioning whether this will be sufficient to rescue the larger economies at risk, such as Spain and Italy. Luke Spajic, a senior fund manager at Pimco bond investors told the Financial Times –

It’s looking alarming right now. The market is effectively trying to price a disorderly exit for Greece.

The FT added that calls were mounting for decisive action from European policy makers to avoid more systemically important countries being "dragged down by concerns over Greece."

the Achilles heel of Spanish banks. Toxic assets due to real estate continue to rise, and there are more and more buildings on banks' balance sheets that have been acquired as a result of unpaid loans.

"Is Germany to blame for the housing bubble in Spain?" in turn asks ABC. The newspaper quotes a report from a Japanese bank, Nomura, which states that German and French banks had a role in the current situation-

the policy of low interest rates that the European Central Bank (ECB) applied in the years preceding the crisis has helped the moribund German economy to recover, but it was also a decisive factor that caused housing bubbles in peripheral European countries, [...] exacerbated by capital flows from the German and French banks.

To address the risk of bankruptcy of banks exposed to toxic assets related to real estate, the government "requires [the banks] to put aside larger provisions" for such credits, concludes El País.

This is the latest in a series of events in an "annus horribilis" for the royalty. It comes in addition to the suspicion of corruption weighing on the king's son-in-law, Iñaki Urdangarin, and to a recent shooting accident in which his 13-year old grandson shot himself in the foot. In Spain, children under 14 are not allowed access to firearms. Despite the government's silence, veiled criticism is rising in political circles and in the media. The paper also notes that -

... the impropriety of this royal trip was so clear, at a time when the country is undergoing very serious difficulties, that even those with staunch royalist convictions cannot hide their disarray.

El Periódico recalls the influential role played by Juan Carlos during the period of transition from the Franco era to democracy. But, the paper adds, if "the monarchy provided institutional stability for over three decades, [...] this affection and respect has weakened in recent years". El Periódico raises the issue of Juan Carlos' succession. The king is 74 and came to the throne at the age of 37 while Prince Felipe is already aged 44 -

It is objectively the worst time for Spain to get mired in a controversy that would call into question the monarchy [...] But the monarchy must renew itself.

For Catalan daily El Periódico, the "weak 'yes' in Rasquera" is for –

... a project inspired by the urgent need for city hall to find receipts to reduce its voluminous debt of 1.3 million euros for a population of barely one thousand inhabitants.

But the feasibility of the project remains unsure because it is contested in the courts by both regional and central government. "The debate over the legal vacuum surrounding the cultivation and possession of not-for-profit marijuana is swelling," adds El Periódico, for which the results of the referendum confirm that –

... society's view of soft drugs has changed towards a greater tolerance [as proven] by this modest, but significant, example of active democracy at a time when citizens are disenchanted with their political representatives.

PM Mario Monti attempted to dispel fears and blamed Spain’s enduring economic troubles and weak international growth. According to the Turin daily, he has also privately lashed out at the Italian entrepreneurs’ association, which has shaken the government by criticising its labour reform for being too watered down and compliant to trade union demands. Writing in La Stampa, Bill Emmot, former editor in chief of The Economist, says -

It would be wrong to pay too much attention to daily or weekly market movements, as they have more to do with animal psychology. [...] But behind them lies a substantial truth: neither Europe nor Italy’s sovereign debt problems have been solved. If recession in Italy or Spain is slightly worst than expected, they will fall short of their deficit reduction targets. That will call into question the issue of political will. [...] Monti’s reforms have been huge compared to those of previous governments, but not are not adequate to the task he faces. He started a modest liberalisation program, gave a mild stimulus to the forces of competitivity, and launched a labour reform that will not make history. No bond buyer could get the feeling that Italy’s growth perspectives have been radically transformed.

The cuts will affect spending in all jurisdictions. Ministries will see their budgets reduced by at least 17 percent on average compared to 2011 (at least 10 billion euros), and officials will have their salaries frozen for the second year in a row.

In total, the central government is to cut 17.5 billion euros from its deficit, the regions 15.6 billion, and the municipalities one billion. The social sector is also being affected, as Social Security is to save around one billion euros.

Added to this are new tax revenues: getting rid of tax deductions for companies and bringing higher VAT for certain goods and services. For El País, “the goal seems to be within reach, but the recession complicates everything” –

The question is whether the cuts have reached their limit. If this is the case, radical changes in the administrative structure should be undertaken. We must also compensate for the increase in spending caused by the interest payments on the public debt [...] The key to success remains in how we spread the burden.

There is no comparable adjustment in contemporary economic history [...] Spain is at a diabolical crossroads: the deficit, which has swollen, forces us to make cuts that will sicken the already ailing economy [...] If the deadline is not extended, experts say, Spain will be unable to meet its objectives.

A “snip of the scissors” of 55 billion euros through to the end of 2013 will start with the launch of the 2012 budget on Friday, March 30. El País suspects Spain is stepping onto a rocky road –

The recent disagreement between the Commission and Madrid and the outcry provoked in Spain by the austerity mantra of the most orthodox countries is making any easing off on the deficit targets all the more difficult.

As El Mundo announces, the party of Angela Merkel intends to examine the reforms Spain has initiated, and on 2 April a delegation of parliamentarians from the CDU will travel to Madrid –

Altering Spain’s deficit target has raised suspicions in Germany and in Merkel's party [...]  The goal of the visit is twofold: to ensure that after the general strike of March 29 the reform programme will not shed a single gramme, and to verify that the change in the objective of the deficit is not a ruse to gain time, but a sign the country is doing its utmost.

The European partners are insisting on the credibility of the policy of budget cuts to calm the interminable euro crisis. Europe has made it clear that there is nothing more important than austerity [...] and responded to the challenge of Rajoy. [...] Spain is the new frontier of fear in the EU: too big to fail, too big to be bailed out and too big for the markets to forgo a lynching for violation of 2012’s deficit targets. [...] The punishment is in line with the challenge: everyone was expecting a reprimand [while acknowledging the target of 5.8%], and the Commission has demonstrated that it will not make concessions.

For its part, daily El Mundo interprets Eurogroup’s decision as “Olli Rehn’s revenge". The Commissioner for Economic and Monetary Affairs “had set a course for Spain” –

For the bureaucrats in Brussels, it was particularly abominable that [Rajoy’s] announcement came on the day of the signing of the fiscal compact. [Rehn] has sought to reaffirm his authority in the prism of the new budgetary rules, and that is the argument that he presented to member states to convince them to demand a Solomon-like division of the deviation announced by Rajoy. The result is yet another makeshift solution made in Brussels [...] We were surprised by Eurogroup’s urgent insistence on a further 0.5% cut in Spain, at a time when the 2012 budget has not yet been drafted.

… a crucial instrument to guarantee a fair contribution from the financial sector to the cost of the financial crisis.

The initiative is not unprecedented. The European Commission already proposed a duty on transactions involving shares, derivatives and other financial products last September, which met with immediate opposition from the United Kingdom and Sweden. This time around, the ministers point out that they are willing to seek “alternatives” if a solution has not been planned within the next six months – a remark, which SZ believes is evidence of an important development "if you read between the lines” –

The nine signatories send a very clear message: we can go it alone. [According to the provisions of EU treaties] states can enter into agreement for reinforced cooperation if they come together in a group of no less than nine. That is why this short letter reads almost like a heavy-handed threat to colleagues who have yet to make up their minds. All those concerned have been warned: the overwhelming likelihood is that the tax will be introduced.

Finally the daily notes that the letter will also have an internal impact on signatory countries, notably France and Germany: it will enable Nicolas Sarkozy to aspire to more votes in presidential elections in April and May, and give Angela Merkel something to offer the Geman opposition, which made the introduction of a Tobin tax a condition for its endorsement of the fiscal compact.

For Der Standard, this “bizarre conspiracy” is evidence of European conservative leaders awareness that their political dominance is on the verge of collapse. A harsh critic of Angela Merkel, the Viennese daily points out –

All of this is perfectly clear, and this initiative is bound to fail. The Chancellor could not devise a strategy to better assist Hollande. The French have grown weary of Sarkozy’s broken promises and obsequious gestures. And that is not to mention the overwhelming majority of voters who have no desire to see Berlin decide on the issue of their president.

The fact that Merkel is depending on support from Cameron (who regularly gives her the brush-off on the euro) and Rajoy (who has just announced a major increase in the Spanish deficit) shows how weak she has become. To deliberately ignore the next possible president of her most important partner country highlights a lack of political instinct the like of which has not been seen for decades.

In Paris, Libération notes that this development coincides with a poll which found that 41% of French voters consulted believe that Germany “is using the crisis to strengthen its economy on the back of other populations…” If François Hollande is elected, “we will have to begin by picking up the pieces”, notes the daily which cites political analyst Sabine von Oppeln. The latest news is all the more significant when considering that in 2007, two months before the last French presidential vote, Angela Merkel held an official meeting with socialist candidate Ségolène Royal, which was followed by a joint press conference and a handshake in front of the cameras.

Co-signed by their counterparts from nine countries (Estonia, Latvia, Finland, Ireland, Czech Republic, Slovakia, Poland, Sweden, and Spain), the document outlines the broad outlines of a plan to ward off a recession caused by austerity: opening up the internal market for services, establishing a common energy market in 2014 and a digital market in 2015, beefing up research and development, opening up to global markets such as India, easing rules for small and medium enterprises, including more women and youth in the labour market, opening closed professions and creating a “robust and dynamic” financial sector.

The signatures of two leaders are missing: Angela Merkel and Nicolas Sarkozy. “The part of Europe seeking stimulus is standing up to be counted,” confirms El Mundo, which considers this letter to be –

... the most coordinated response in the EU to the policy of keeping deficits in check as defended by Angela Merkel…. The letter comes at a key moment, when the EU economy is nearly in recession and unemployment is rising. This initiative must be taken under consideration, provided of course that the EU ascertains that governments are doing their homework on controlling the deficit and lowering their debts. Merkel should heed this coordinated rebellion.

The government cannot and must not back down on this issue because it would endanger its credibility towards the European Union and financial markets which demand that Spain put an end to the strict labour laws that make it difficult for businesses to adapt to adverse economic conditions thus leading to higher unemployment than would be desirable.

For El País, however, "the success of yesterday's demonstrations is a warning that the government would be wrong to ignore". The paper approves the trade unions' "correct and moderate strategy" -

The question is whether this reform, imposed by Brussels and the markets, is the most adequate. What is clear, is that is has generated a climate of insecurity within large sections of the population.

Adopted on February 10, the reform will slash severance pay from 45 days per year worked in the firm to 33 days and only 20 days for those business that are in trouble, which is currently true of most Spanish businesses. Other provisions include tax breaks for businesses that hire and a one year trial period during which an employee can be fired without severance pay. It allows local labour agreements at the company level to override agreements made at the industry-level.

... facilitates imports that interest the northern countries as consumers, because they increase supply and drive prices lower – and it also helps them export their own cereal, seed oils, milk products and meat to Morocco. Spain is the country that will come off the worst.

Mate criticises the attitude of the EU, which, on December 14, refused to renew its fishing agreement with Morocco because the Moroccans failed to take the interests of the people of Western Sahara into account. The decision forced sixty Spanish ships back to port, angering Madrid -

Beyond the concerns about human rights issues or the problems of the Sahara, the political reasons have been imposed to support the Moroccan friend as the gateway to Europe – and Europe’s shield [...] The economic interests of the countries north of the Pyrenees have prevailed.

The conviction also divides the Spanish press.

“The Supreme Court finishes with Garzón,” leads the centre-left newspaper El País on its front page. Challenging the decision, the paper writes that its purpose was to

neutralise Judge Garzón. [The decision] involves the expulsion from the judiciary of a judge who, whatever the opinion one may have of him, has rendered important services to society in the fight against terrorism, drug trafficking and organised crime, and one who has played a remarkable role in applying universal justice to the defence of human rights violated by dictatorships.

For its part, El  Mundo points out the unanimity of the Supreme Court judges’ decision, which in its view is “very important, because it confirms that there were no ideological divides, but a shared legal criterion, which is reflected in the decision.” The conservative daily goes on to criticise Garzón for publishing a statement in which he called the decision “unjust and predetermined“:

At the height of paranoia, he argues that the Court's decision "eliminates all possibility of investigating corruption," as if the only way to do so would be by infringing constitutional guarantees. The statement exposes the megalomania of this man, who believes himself to be the victim of a universal conspiracy and permits himself the luxury of despising and insulting the Supreme Court.

The opinion is shared by another conservative daily, ABC:  

Garzón has paid for his excesses: he has been his own victim. Believing that the end justified the means, he violated a sacred rule of the right of law, turning the investigation into an inquisitorial procedure. [...] It is now the turn of the Strasbourg Court, as he will now allow himself to exploit the international reputation that he has built so assiduously, more by means of spectacle than by his work as a judge [referring to a possible appeal to the European Court of Human Rights, to which Garzón may apply as a last resort].

Público, finally, concludes on its front page that Garzón has been “executed”. The daily sums up the split in opinion in a single sentence:

The left criticised the decision, and the right applauded it.

The migration bubble that grew during the last decade of [economic] splendour has suddenly burst, becoming a wave that has triggered a massive exodus of some half a million citizens.

According to a report released on 16 January by the National Statistics Institute (INE), net migration is negative (-50,090) for the first time in ten years, with  62,611 nationals and 445,130 non-nationals leaving in 2011. The main destinations for migrants are Morocco, Ecuador and Bolivia, followed by Brazil, France, Argentina, Germany, the United Kingdom and China.

The conservative daily blames part of Spain’s population decline to a declining birthrate, at 1.4 children per woman -

2011 was also the year that for the first time saw the average age for having a first child go over the barrier of 31.

With one million Britons living in Spain and some 50,000 UK resident in Portugal –

The Foreign Office is concerned that expats who have invested savings in their adopted countries could be left stranded, unable to withdraw cash and facing losing their homes if the banks call in loans.

Foreign Office sources said it was planning for a “nightmare scenario” with thousands of penniless Britons sleeping at airports with no money and no means of getting home.

Among the plans being discussed are the sending of planes, ships and coaches to the region, as well as extending small loans to those stranded. Although Spain and Portugal have a bank deposit guarantee scheme where clients are covered for up to €100,000, “banks limit withdrawals to stop people removing all their money and leaving the country.”

According to a Foreign Office source, the plans are-

… drawing on experiences of other mass evacuations, such as during the 2006 war between Hezbollah and Israel where the UK sent warships to evacuate expats from Lebanon.

“It sounds like a scare-story, but it must be taken seriously,” writes El Mundo, on a scenario that “has sounded the alarm throughout our country’s British community, in Marbella and Malaga especially”.

Noting that the revelations coincide with the downgrading of ten Spanish banks by rating agency Standard & Poor’s, the Madrid daily writes that the majority of British expats in Spain are retirees who have sunk their savings in coastal residences which “took an enormous hit when the housing bubble burst.”

The European Commission wanted to renew the agreement for a year, while holding talks on a new compromise. However, the Madrid daily explains that "concerns over Western Sahara and the environment" were deemed more important by Strasbourg “which expressed scepticism on the issue of respect for Sahrawi rights."

The vote in parliament was largely based on a report by MEP Carl Haglund, who raised the question of the legality of an agreement that included fishing rights off the coast of Western Sahara, a terriory annexed by Morocco, which is not recognised by the EU, and the question of the benefit to the Sahrawi people. The liberal Finnish parliamentarian also expressed concern over the  “excessive exploitation of fishing resources” and the “poor cost-benefit outcome” of the agreement.

El País points out that the decision, which "goes against the opinion of the European Commission and EU member states," has prompted opposition from the Spanish government. Morocco immediately ordered all European boats to leave its territorial waters, including waters off the coast of Western Sahara.

After Greece, Ireland and Portugal, the deadly virus has spread to Italy. This week the over-indebted peninsula has had to borrow at exorbitant interest rates. On Friday, its creditors called for 7.8 % for a two-year bond, up 3.2 points from two months ago. [...] If the third-largest economy in the eurozone falls into insolvency, the monetary union will not survive much longer. [...] The tension is at its peak. On the eve of the weekend Standard & Poor's downgraded Belgium. Next Thursday, Paris hopes to sell between three and 4.5 billion euros in bonds – a real test, knowing that creditors have turned away from the still more desirable Germany. This week, Berlin wanted to raise six billion euros in the markets. It got only 3.6 billion. A surprise.

“The euro crisis and the debt crisis have reached a milestone destined to leave its mark on the European economy and even the constitutional structures of the continent,” writes Corriere della Sera:

In a few weeks, nothing will be as it was before, but no one has any certainty that everything will pass off as set out in the schedule being drawn up [...]. Tomorrow, Italy will have to face a very delicate issue of debt securities. On the same day, the Eurogroup will review the French and (primarily) German proposals on what German Chancellor Angela Merkel calls the fiscal union. [...] These changes – if all goes to plan – will be ratified at the EU summit of December 9. The day before then, the ECB will decide on offering unlimited liquidity for two or (more likely) three years to pump oxygen into the banks. At the same time, Italy’s prime minister Mario Monti should have presented his ministers with measures to stabilise Italy. Everything will be in place for the ECB to act. The bank could signal differential thresholds for sovereign debt securities [the difference between the lowest and highest interest rates on government bonds], beyond which the bank would make unlimited interventions in the markets. In any event, however, the thresholds will be high enough to compel the states to do their part in lowering rates. This is the way to get through the crisis. Europe is now preparing to do just that, knowing that it too often in the past it has got lost on the way.

Noting that Angela Merkel and Nicolas Sarkozy “want to bring Monti into the agreement to modify the EU treaties”, La Stampa leads with “Pact of Three for Europe: full support, but speed up reforms”. Writing in the Turin daily, the economist Franco Bruni finds that -

... the difficulties of the Italian debt seem to have become the main problem in the global economy. This may be an exaggeration. The excess of drama is typical of some phases of financial crises, especially when the adjustment measures and reforms face political and social hurdles. The excessive dramatisation also extends to the ongoing discussions about the end of the euro, where those talking don’t know what they’re talking about and don’t understand that this would solve nothing and hurt everyone.

A “countdown” is also the image used by La Tribune:

Tick-tock, tick-tock.... The ticking clock that is measuring out the survival of the euro ticks implacably on. ... Officially, Germany remains opposed to a more extensive intervention by the ECB. At the rate the crisis is developing, this stubborn refusal resembles the behaviour of a firefighter who lets a house burn to teach children the dangers of playing with matches.

In Madrid, El Economista is wagering on a collapse of the euro area into two separate zones: one for the most virtuous countries, and one for the most fragile. It will be, moreover -

... Merkel [who] will select the nine countries that will create the ‘super-euro’. The Chancellor wants an agreement to be signed, country by country, on a new stability pact that will resemble the mechanism of the Schengen Agreement. The number nine, in fact, under EU rules, is the minimum number of countries that can reach agreements of enhanced cooperation amongst themselves. Merkel is satisfied with this formula for two obvious reasons: time and the simplicity of putting it into practice (…). The agreement could be in place by January or February 2012, a period that is positively meteoric in its brevity when compared to that required to change a treaty, which is never less than a year.... Italy and Spain would be included in the club. Having them in is vital to both countries, as they would then have the ongoing support of the ECB – not to mention that this would avoid a division between North and South.

In Berlin, Die Welt foresees “elite sovereign bonds” backed by Germany: “Six countries in the euro area with the highest credit rating (Triple A), will create common treasury bills, interest rates on which, in the most positive case, will be from 2.0% to 2.5%.” In its editorial the German daily takes the view that -

... the markets are demanding a credible sign that the euro-sinners will not be able to carry on as before.... The new agreements, whatever they look like, will get across that message. It’s Merkel’s iron hand holding sway in Europe now.

On the eve of the election, the Spanish economy sank into the bailout zone alongside Italy — yet another reason for outgoing Prime Minister Rodríguez Zapatero and his newly elected successor, Mariano Rajoy, to make a joint gesture, as early as Monday, which clearly shows that Spain can quickly and effectively adopt all of the necessary economic decisions before the return of further uncertainty about European debt,. ... A rapid deterioration of the political capital that voters have given to the new administration would not only be a worrying perspective for the PP, but also for the entire country, which has to contend with a crisis that will require significant sacrifices. Rajoy, who avoided mentioning these sacrifices during his campaign, stressed the virtues of a simple change of government. ... However, the gravity of the economic situation is such that he now has to put an end to any ambiguity by presenting his government’s programme and the team that he has designated to implement it.

Conservative daily El Mundo focuses on the unequivocal nature of Rajoy’s victory and the heavy defeat suffered by Rubalcaba:

The leader of the PP has been granted a level of power that is unprecedented in the history of our democracy. Not only has his party obtained 186 seats in the Congress of Deputies, but it also has control of virtually all of the autonomous regions and the vast majority of municipal governments. In other circumstances, such a concentration of power would be dangerous, but in a crisis like the current one, the government will need a free hand to take decisions. ... Rajoy will be obliged to introduce unpopular measures […], and to keep sight of the fact that his political capital will soon be eroded by the obligation to push through much needed reforms, which Zapatero lacked the courage to implement. ... The PSOE [socialist party] has been severely punished by the electorate, which gave it the lowest share of the vote in the history of our democracy. There is no denying that this was mainly in response to Zapatero and his team’s extremely poor management of the economy. But the socialist debacle is also in part due to their candidate’s lacklustre campaign, which was solely based on fear of the PP […]. The fact that 71% cast their votes amounts to a victory for democracy at a time when an entire fringe of society is disillusioned with Spain’s political class and its institutions. No one can now say: “they do not represent us”.

Catalonia’s La Vanguardia highlights what it terms a “deserved” victory for Mariano Rajoy, who,

... over the last four years, has succeeded in attracting voters disappointed by the socialists and restoring party policies […] that have given the PP the moderate positions it needed to reconquer the political centre.

Finally, conservative daily ABC draws attention to the urgency of the situation:

We will need to immediately embark on a comprehensive and intelligent transition, with direct PP participation in economic decisions taken by Rodríguez Zapatero’s outgoing government […]. The change that began yesterday will have to deliver concrete results as soon as possible.