:00:20. > :00:28.after a snapper election. Time for World Business Report.
:00:28. > :00:36.Europe's airlines emissions trading scheme comes into force this Sunday.
:00:36. > :00:40.Data shows that China's factories are starting to slow.
:00:41. > :00:50.Austerity on the agenda for Spain. The government tries to bring its
:00:51. > :00:52.
:00:52. > :00:58.finances under control and revive its economy.
:00:58. > :01:04.This Sunday, the EU brings into force its controversial carbon tax
:01:04. > :01:09.for airlines. Every airline that flies over EU airspace will have to
:01:09. > :01:14.purchase carbon credits to compensate for its emissions. The
:01:14. > :01:20.US and China are angry that the EU is daring to tax their airlines and
:01:20. > :01:28.both are threatening reprisals. Is this the beginning of a trade war
:01:28. > :01:33.in the skies? Over 20 years, the EU has been
:01:33. > :01:37.looking for a solution. It is making airline's purchase credits
:01:37. > :01:44.when they fly in European airspace to compensate for the carbon-
:01:44. > :01:52.dioxide they in it. By 2020, they hoped to reduce carbon emissions by
:01:52. > :01:57.500,000 tonnes per day. What is not universally accepted is the
:01:57. > :02:07.application of the mandate. The US says that the EU is going beyond
:02:07. > :02:08.
:02:08. > :02:17.its powers. The judges of the European Court of
:02:17. > :02:23.Justice rejected the case of American Airlines. The industry is
:02:23. > :02:29.worried about the beginning of a damaging trade war. They are damned
:02:29. > :02:33.if they do and damned if they don't. This is an impossible situation.
:02:33. > :02:38.There is a distinct possibility that the US will take action
:02:38. > :02:44.against the EU Airlines because of the action being taken against
:02:44. > :02:47.their airlines by the EU. China is also weighing in against
:02:47. > :02:52.the EU with trade delegates complaining that the scheme would
:02:52. > :02:58.cost of their operators $100 million per year. They say that
:02:58. > :03:02.there airlines could be put at a disadvantage in comparison to the
:03:02. > :03:07.well established airlines of Europe on the intercontinental routes if
:03:07. > :03:12.they have to pay the EU surcharge. The majority of the world's
:03:12. > :03:21.airlines have condemned the EU scheme. The EU says that its scheme
:03:21. > :03:24.will go ahead as planned despite for exemptions. But it says it will
:03:24. > :03:31.expand the airline of any nation that comes up with a comparable
:03:31. > :03:38.carbon tax of its own. Europe is facing a bleak economic
:03:38. > :03:45.outlook for 2012. A recession is being widely predicted in the
:03:45. > :03:53.region next year. 10% of respondents suggest that the single
:03:53. > :04:00.currency will not be around in the eurozone for much longer. One of
:04:00. > :04:07.the participants in this survey joins us now. Welcome to the
:04:07. > :04:11.programme. Not a good picture in the eurozone next year? That is
:04:11. > :04:17.correct. It is important to remember that America and Asia are
:04:17. > :04:24.still growing and so the European story is not the entire picture but,
:04:24. > :04:29.yes, the anticipation is that the first half of 2012 could see at the
:04:29. > :04:33.least a mile the downturn in Europe. Can we therefore assume that
:04:33. > :04:38.interest rates will stay low? Official interest rates are likely
:04:38. > :04:46.to stay at their current emergency levels but it is worth mentioning
:04:46. > :04:50.that market interest rates are already beginning to increase. If
:04:50. > :04:56.banks must compete for limited funding, they will charge higher
:04:56. > :05:00.rates to savers. What about the single currency?
:05:00. > :05:08.There is talk about a break up but there is no mechanism to allow that
:05:08. > :05:09.to happen. And that would have catastrophic consequences in any
:05:09. > :05:19.case. The likelihood of a disintegration
:05:19. > :05:22.
:05:22. > :05:27.of the euro, that is still a very unlikely outcome. One must separate
:05:27. > :05:32.the default of a government, the most likely one being Greece, from
:05:32. > :05:36.the actual disintegration of the eurozone. There is an entire
:05:36. > :05:43.network of contacts that connect these countries and for any one of
:05:43. > :05:49.them to break those contracts would be a devastating outcome, for
:05:49. > :05:53.example, for French and German banks. There is a powerful system
:05:53. > :06:00.holding all of this together. They are is more evidence that
:06:00. > :06:05.Europe's crisis is beginning to affect China. There are great
:06:05. > :06:13.concerns about the eurozone crisis in that part of the world.
:06:13. > :06:20.That is correct. China's factories are beginning to slow down possibly
:06:20. > :06:26.because of what is happening in the eurozone. This is a preliminary
:06:26. > :06:29.reading of the purchasing managers' index, which is compiled by HSBC,
:06:29. > :06:39.and is released before the official government purchasing managers'
:06:39. > :06:39.
:06:39. > :06:44.index data. The report also showed that export orders are falling for
:06:44. > :06:49.the first time in the three months to December mainly due to the
:06:49. > :06:54.sluggish global demand for China's products particularly from Europe.
:06:54. > :07:04.That is likely to lead to more monetary easing policy is by
:07:04. > :07:05.
:07:05. > :07:15.Chinese authorities. Last month's initiative to
:07:15. > :07:16.
:07:16. > :07:22.encourage more lending was the first since 2008. The reserve ratio
:07:22. > :07:28.is still 21% for many of the largest banks in China. Despite the
:07:28. > :07:32.dismal figures, HSBC is still forecasting strong industrial
:07:32. > :07:37.growth for China between 12% and 13%.
:07:37. > :07:43.2012 is set to be a year of austerity for Spain as its
:07:43. > :07:47.government struggles to bring down one of Europe's largest budget
:07:47. > :07:54.deficits. The Prime Minister of Spain says that his Cabinet will
:07:54. > :08:01.pass legislation today in order to implement conservative fiscal
:08:01. > :08:06.measures. Getting ordinary people to accept these measures will be
:08:06. > :08:10.difficult. Mariano Rajoy wants to slash the
:08:10. > :08:16.deficit by 16 billion euros in 2012 but he has been tight-lipped about
:08:16. > :08:22.how he intends to do that. He will announce economic measures today to
:08:22. > :08:32.fill in some of those blanks. One prospect is of a frieze of the
:08:32. > :08:36.minimum wage. The country's main unions oppose it. TRANSLATION: This
:08:36. > :08:43.will not contribute to economic recovery and will aggravate the
:08:43. > :08:49.fall in consumption and investment. In cutting the deficit from over 6%
:08:49. > :08:55.to a target of 4.2% next year, Mariano Rajoy must tread carefully.
:08:55. > :09:01.He has promised not to touch pensions, for example. If areas
:09:01. > :09:05.like education and healthcare are affected, he is likely to face
:09:05. > :09:09.resistance. His Conservative Party has a majority in Congress but the
:09:09. > :09:16.economic challenges are daunting. Spain has the highest unemployment
:09:16. > :09:21.rate in Europe and the economy is still shrinking. The new government
:09:21. > :09:26.says that creating jobs is a priority and that a labour market
:09:26. > :09:31.reform is in the pipeline. His economic plans will become clearer