Spain announced deep cuts to its central government budget on Friday as it battles to convince European partners and debt markets it can rein in its budget deficit.

The government said it would make savings of 27 billion euros for the rest of 2012 from the central government budget, equivalent to around 2.5% of gross domestic product. The figure includes tax rises and spending cuts of around 15 billion euros announced at the end of December.

The cuts come despite popular resistance  a general strike on Thursday disrupted transport, halted industry and on occasion erupted into violence – and against a grim economic backdrop; Spain is thought to have fallen back into recession in the first quarter and has the highest unemployment rate in the European Union.

“Everyone knows the difficult problem we face in this country, and it calls for special efforts in fiscal consolidation and structural reforms to grow and create employment,” Deputy Prime Minister Soraya Saenz de Santamaria said after the weekly cabinet meeting on Friday.

The government, which swept to power in November with the largest Parliamentary majority in 30 years, has already passed labour market and banking sector reforms to improve competitiveness and reduce wage costs.

Brussels has agreed to let Prime Minister Mariano Rajoy aim for a 2012 deficit equal to 5.3% of gross domestic product, a less demanding goal than the original 4.4% but a substantial improvement on last year’s 8.5%.

The government said it was aiming for a central government deficit equivalent of 3.5% of GDP, a regional deficit of 1.5% of GDP and a balanced social security budget.

The regions announced a deficit of 2.9% of GDP in 2011, meaning they would have to cut around 15 billion euros to meet the 2012 target.

Scarce Details

Details were scarce, with the government due to set the budget to Parliament on Tuesday, but some economists are concerned that deep austerity measures could hurt already weakened growth and further danger the deficit targets.

Total cuts of over 42 billion euros between the central administrations and the regional authorities could be tough for an economy struggling to grow, economists warn.

“This is as austere as it gets. It’s a tightening of fiscal policy until the pips squeak. There can be no doubting the government’s willingness to curb Spain’s excessive budget deficits,” said Nicholas Spiro at Spiro Sovereign Strategy.

Prime Minister Mariano Rajoy cannot afford to upset nervous bond markets that pushed the yield premium for Spanish 10-year debt on Thursday close to their highest levels since early January, though that eased slightly on Friday.

Markets fear the government, which took power at the end of last year, will fail to deliver the budget cuts even though the European Union has softened the deficit targets.

“We will have to see how the details later stack up, with nothing much to say about the first run of headlines, but the general story remains one of substantial fiscal slippage over 2011-2012, additional pressure on growth from adjustment, and a fair amount of doubt about whether even the revised targets will be met under sharply negative growth projections,” said Ben Levett, analyst at consultancy 4Cast.

Holders of participatory notes, or P-notes, will have no tax liability and a clarification on these notes will be issued in due course, finance minister Pranab Mukherjee said on Friday.

“The Indian tax authorities would examine the tax liability of the said financial institutional investors (FIIs). However, the tax authorities would not go beyond the FIIs to check any further detail about the participatory notes holders,” Mukherjee told reporters.

“Accordingly, the question of liability for tax in India of participatory note holders would not arise.”

P-notes are issued by foreign portfolio investors registered with the Indian market regulator, or by their sub-accounts, to investors overseas and they offer the buyer anonymity.

A lack of clarity on taxation of P-notes has contributed to the recent volatility in the domestic share market.

China’s National Development and Reform Commission (NDRC), the country’s top economic planner, said foreign-funded banks are allowed to borrow as much as USD 24 billion of medium and long-term external debt this year.

The approval of foreign banks’ issuing external debts aims to open up China’s banking sector to the outside world and let foreign banks play an active role in attracting overseas investment to help Chinese enterprises to go global, the NDRC said.

HSBC, Deutsche Bank, JPMorgan Chase, Citibank, Sumitomo Mitsui Banking Corporation and the Bank of East Asia are chosen to carry out the pilot scheme to issue external debts.

According to the NDRC, foreign banks must report to the commission about the size, tenure and overseas creditors of yuan-denominated funds whose terms are one year or above.

Holders of participatory notes, or P-notes, will have no tax liability and a clarification on these notes will be issued in due course, finance minister Pranab Mukherjee said on Friday.

“The Indian tax authorities would examine the tax liability of the said financial institutional investors (FIIs). However, the tax authorities would not go beyond the FIIs to check any further detail about the participatory notes holders,” Mukherjee told reporters.

“Accordingly, the question of liability for tax in India of participatory note holders would not arise.”

P-notes are issued by foreign portfolio investors registered with the Indian market regulator, or by their sub-accounts, to investors overseas and they offer the buyer anonymity.

A lack of clarity on taxation of P-notes has contributed to the recent volatility in the domestic share market.

Euro zone finance ministers will raise the combined firepower of the region’s two bailout funds to a potential 940 billion euros from 500 billion on Friday, a draft statement showed.

They will boost the EFSF/ESM safety net to at least 700 billion euros and pledge an extra 240 billion if required that could be used until mid-2013, according to the statement obtained by Reuters.

The likely decision, to be announced by the 17 ministers on Friday after a meeting in Copenhagen, is a compromise between Germany’s reluctance to pledge more money for euro zone bailouts and the need to reassure markets that money invested in euro zone bonds is safe.

Increasing the euro zone’s financial safety net is a pre-condition for most countries from the G20 group of the biggest developed and developing economies to contribute more money to the International Monetary Fund, to further calm markets.

The European Commission and several of the world’s biggest economies have been pushing to increase the bailout capacity as much as possible, in the belief that once investors see a wall of money supporting euro zone debt, confidence would return and the rescue funds would never have to be used.

But Germany, the euro zone’s dominant economy, has been against increasing the bailout capability in advance, saying it was ready to give more money when needed and noting markets have calmed down from the peak of the debt crisis.

But recent market concerns about Spain, which badly missed its budget deficit target in 2011 and negotiated a softer target for 2012 with euro zone ministers, have sent the country’s bond yields higher and put the bailout capability discussion back on the table.

The draft statement said that if any new bailouts were to be necessary from July they would be handled, as a rule, by the permanent European Stability Mechanism (ESM) which will can lend up to 500 billion euros to euro zone governments cut off from markets.

Its precursor, the temporary European Financial Stability Facility (EFSF), which can lend up to 440 billion, would only service the three bailouts it is already committed to — for Greece, Ireland and Portugal — which now together total almost 200 billion euros.

Together, the ESM and the existing EFSF programmes would therefore create a firewall of 700 billion euros.

At least 20 commodities traders, several senior, have left Goldman Sachs in the past months, dealing a blow to Wall Street’s long-time king of commodities as talent moves to better paying trading houses and hedge funds.

The departures, according to around a dozen insiders and trading sources, mirror the exodus of traders from rival banks over the past two years.

The outflow is driven by shrinking profits and tighter regulation of banking, which gives funds and trading houses greater scope to trade and to reward success.

Goldman said the departures will not have an impact on its standing in commodities.

“We are not downsizing our commodities business. It remains a core part of our franchise,” a spokesman for Goldman said. “The positions we need to refill, we will refill”.

A source at Goldman said the departures were a combination of resignations and regular annual headcount reductions, and were not specific to commodities but happening across all the bank’s businesses.

But insiders say some of the departures were triggered by unusually low bonuses at Goldman, widely recognised over the past 20 years as the most prestigious and well paying of the big five banks in commodities alongside JP Morgan , Morgan Stanley , Deutsche Bank and Barclays.

Earlier this month, Reuters reported that Goldman had ceded leadership in commodities trading revenues to JPMorgan, according to regulatory disclosures by the banks.

“Goldman held on to talent a little longer than other banks because it has a deeper pocket. It (the exodus) happened to other banks a lot earlier,” said one trader who recently left from a major bank to a trading house.

“It is definitely a part of regular turnover at any banks that happens after bonus every year. But indeed a large number of Goldman guys are jumping ship at the same time and going to non-banks,” he added. “What this means is even Goldman can’t do anything and even they can’t make money, because of regulations”.

Updated : 05.57am / 30th March