05/01/2012 World Business Report

landslide struck. Those are the latest headlines. For

the latest financial news it is time for World Business Report.

The headlines: Austerity set to bite even harder in Spain as the

new government shows its determination with a new round of

cuts. France faces the markets. It tries

to raise up to 9 billion euros amid warnings it could be stripped of

its AAA credit rating. China's airlines will not pay the

fee you carbon tax on flights to and from the region, setting the

stage for a global trade battle. The leaders of the eurozone's most

indebted countries are talking tough in a bid to drive through

painful austerity measures. On Wednesday Greece's Prime Minister

raised the stakes when he told union leaders the country faced an

UN controlled default on its debt as soon as much unless they except

more cuts. Spain will hope to carve -- calmed the nerves in the market

with tax hikes and spending cuts announced days ago. Spain's

government is keen to show it is determined to act quickly to shore

up its finances. It is sale season and many shoppers are making the

most of the low prices. It is still officially the holiday period here,

but for most Spaniards there is little to celebrate. The new

government is expected to reveal a second round of austerity measures

on Thursday. This is less than one week after announcing a 15 billion

euros package of cuts. The government has justified the move

by pointing to a deficit that Sears is around 7% GDP. On taking office

just before Christmas, the Prime Minister says Spain must restore

its credibility in order it to escape the debt crisis. Slashing

the deficit to 4% of GDP this year is a priority. This week the

country's regional accounts started showing strain with the local

government of violence here confirming it had delayed a debt

payment. -- Valencia. They also have the highest jobless rate in

the West. Unemployment rose for the 5th straight month in December.

TRANSLATION: The cuts will not help generate work. They are tightening

up on us. They increase taxes so power earnings go down. In recent

days the government has been busy preparing a labour market reform

that it hopes will improve the situation. Thursday's measures are

unlikely to be the last of the year. Spaniards are expected to face more

austerity in the spring when the delayed Budget will be presented.

As you can imagine all of these have had quite an impact on the

markets, particularly the comments from the Prime Minister who was

speaking late yesterday. This is how the euro is trading right now.

It is at an 11-year low against the Japanese yen.

Everybody thinks the US dollar is the best place to put their cash,

as well as the Japanese young -- Japanese yen. There is a lot of

concern over the European debt crisis. France is hoping to raise

seven attack 8 billion euros in an auction of long-term debt now.

Let's talk about that with a senior economic adviser to Ernst and Young.

There is so much going on right now that it is hard to digest. Can we

talk about that on sale in France. Presumably it will go OK, but there

are so many sales of sovereign debt in the early part of this year, the

appetite will soon run out. That is right. It has been aided recorded

here for several reasons. One is that governments in the eurozone

need to refine that -- refinancing a lot of debt. A lot of it was in

the first few months in the year. So far we have had fairly

successful sales in Italy and Germany. It is quite positive.

There seems to be some demand there. As far as France is concerned, when

you are buying our government ones, you are buying into the French

government story. They have an election in April. It is not clear

what the outcome will be. There is uncertainty. There is the political

context. There is the fact that ratings agencies have put France on

watch. Investors buying French bonds do not know yet what affects

this will have. This is an added uncertainty. We do expect the sale

to go relatively well. But as we go is through the next few months,

there will probably be a lot of volatility and some of the options

might not go as well as the government want them to. Do you

think France will lose its AAA credit rating? Election is

happening in a few months' time and the Socialist opposition party

leader is putting forward quite interesting ideas in terms of what

he might do. That is right. It is possible that France will lose it

is AAA rating. Credit agencies are aware of the consequences not only

for France, but for the eurozone. The political uncertainty adds to

this. We have to distinguish between a political statement and

what will be implemented in the future. There is a clear trend

towards fiscal consolidation. terms of what is happening with

Spain, they are pushing ahead with further austerity measures.

Greece's prime minister is telling trade unions they have to accept a

cut in income. All of these measures are tough to implement.

And there is nothing to fuel growth. That is the key issue. It risks

undermining growth and could result in fiscal outcomes that are not so

good. There needs to be a growth agenda. This is something that the

Spanish government has talked about in terms of labour market reforms.

That is clearly going in the right direction. Governments are torn

between the emergency of reducing deficits and the need for growth.

Thank you for putting that in perspective. We will keep you up-

to-date with all of these announcements when we get them.

Chinese airlines say they will refuse to pay a charge on carbon

emissions imposed by the European Union. This has sparkehas sparkerow

over the so-called pap and trade scheme. Rico Hizon is in Singapore.

Can you talk us through what is happening.

It is a very serious issue, because Chinese airlines are not budging.

They have made a final decision and they are refusing to pay it any

carbon tax under the European Union's permission trading scheme.

The China Travel Association said they would not co-operate with the

EU because such an initiative would impact the financial position of

its carriers. The industry group estimates this scheme will cost its

airlines more than 120 US dollars in the first year and will more

than a trickle by 2020. The transport group which represents

the country's four major carriers says they are refusing to pay and

are also considering retaliation measures against the European Union.

To give you some background, this was launched about six years ago.

The law also allows some flexibility, giving countries the

option of alternative ways to offset carbon emissions.

Sepoy. The head of Switzerland's central bank will give a press