Governments aim at economic “soft-landing”

Lawyers new emphasis on projects and finance

With concerns about the continuing dynamism of the world economy, in line with the prolonged fall-out of the global credit crunch, there is now more open comment among Iberia´s lawyers about the potential for a regional economic slow down– a consequence of the liquidity issues that are still impacting on the health of the dominant real estate sector.

Proposals by the Spanish and Portuguese governments to assist a so-called economic “soft-landing” have met with mixed responses from members of Iberian Lawyer´s Group of Experts.

The Spanish Government has recently approved a range of measures, including tax reductions, to stimulate the economy and an anticipated monthly VAT rebate valued at over €6bn in total. Further measures will include an increase of €2bn in the Treasury’s guarantee line for small and medium companies and, in order to stimulate further foreign investment, an increased exemption on public debt and other fixed-income securities issued in Spain for all non-residents.

Con cierta preocupación respecto a la dinámica de la economí­a mundial y a raí­z de la crisis crediticia, parece haber ahora un reconocimiento generalizado entre los abogados ibéricos sobre el potencial de una crisis regional y su impacto. Mientras nuevas propuestas en relación con proyectos de infraestructura -de los gobiernos portugués y español- tienen como objetivo asistir en lo que llaman recesión, se han encontrado con respuestas variadas por parte de los miembros del Iberian Group of Experts.

In line with increasing EU commitments to alternative energy sources under the Kyoto Protocol, the Spanish and regional governments are also looking to stimulate national and foreign investments in renewable energy sources.

But it will be months before the impact of such measures will be felt, says José Ignacio Monedero of DLA Piper in Madrid, and their success remains dependent upon the response of the financial markets and the evolution of the global economy.

The situation in Portugal is quite different, says José Miguel Jíºdice of PLMJ. “For the time being the Portuguese government has yet to define initiatives with the dimension seen in Spain,” although, he notes, plans are now underway for a wide range of new public works, lower indirect taxation, and more attractive conditions for industrial investment.

“Spain and Portugal are different markets with different problems,” believes João de Macedo Vitorino of Macedo Vitorino & Associados. Undoubtedly, he says, the new Portuguese infrastructure projects – such as the high speed rail links between Lisbon and Elvas, Porto and Vigo, 10 new hydro-power projects, completion of the highways programme, and the new Lisbon airport – will give a boost to the economy, but the government’s response is limited by the still significant public deficit. “These will not, however, directly increase our national productivity,” he adds.

It is no surprise, therefore, that law firms are expecting an increase in projects and infrastructure work, which will be realised in areas such as public law and finance. However some Group of Experts members, commenting “off-the-record”, believe that the problem in Spain and Portugal is currently too much and not too little government intervention.

“In my modest view, the only measure that will help to stimulate further economic growth is less government intervention, including lower taxes, and more economic freedom,” says Javier Fernandez-Samaniego at Bird & Bird in Madrid.

How far will the measures proposed by the Spanish and Portuguese governments help to stimulate further economic growth across the Iberian Peninsula?

Banks, construction companies, and certain service providers (among them law
firms) will benefit from these investments. They will not, however, help the small and medium companies, which are the main fabric of our economies. These entities would rather see measures to increase priv
ate consumption: a significant VAT rate reduction and a reduction of our ISP (tax on oil derivatives) that could level us with Spain, or generous corporate and personal income tax cuts, for instance.”
João de Macedo Vitorino, Macedo Vitorino & Associados

“I am not aware of any deep or credible measures proposed
by the Spanish or Portuguese governments to stimulate
further economic growth across the Iberian Peninsula.”
Javier Fernandez-Samaniego, Bird & Bird

“I doubt that the economic measures proposed by the gov
ernment are by themselves going to stimulate growth in Spain. The national economy is extremely
reliant on external factors such as the cost of oil and increase of the Euribor rate. In
these circumstances, it will be very difficult to control inflation only with tax rebates
or redevelopment schemes. So we have to face the prospect of no economic growth
for the next twelve months or so.”
Francisco Guijarro, Hammonds

“We believe the Spanish measures are not sufficient to cheer the economy up. From 2010 we would predict a slow recovery in the economy but, in any case, reaching any increase bigger than GDP 3% before 2011 does not seem probable.”
Antonio Hierro, Cuatrecasas

“The scope of governments to act is very limited as, notably in Portugal, public finances are weak. The measures announced are symbolic only. I believe that, at the moment, we are sleep-walking through a spiralling financial, economic and confidence crisis, and to which the economic
crisis (that worries me most) contributes just a little part.”
Nelson Raposo, Raposo Bernardo &

Which practice areas in your firm do you expect to benefit from these initiatives, if any?

“The impact of the proposed measures will be in the mid-term only. If the liberalisation of some infrastructures proceeds at a good pace and the increased infrastructure spending is confirmed, we may see some opportunities for our projects and infrastructure practices.”
José M. Balañá, Lovells

José Miguel Jíºdice, PLMJ“We expect our projects, utilities, tax and public law areas to benefit. The crisis will raise also opportunities for some medium size M&A, turnaround operations, and also disputes. Therefore, we feel that M&A, labour, litigation and arbitration are increasing on last year.”
José Miguel Jíºdice, PLMJ

“If the market rules are allowed to play we expect to benefit in all areas of work. But the main impact we are expecting is in some of the areas in which we are already more active: banking (project finance), projects (public contracts awards), corporate and commercial (consortia negotiation and contracts) and possibly energy (in connection with renewables and energy efficiency).”
João de Macedo Vitorino, Macedo Vitorino & Associados

“The following practice areas are benefiting, corporate recovery and insolvency, litigation, employment and public law'¦ and have been displaying a dramatic rise in activity since the middle of 2007, which we would expect to continue until 2009-2010.”
Antonio Hierro, Cuatrecasas

José Ignacio Monedero, DLA Piper“Our firm expects an increase of business in project finance, due to the need for financial aid in the new investments.”
José Ignacio Monedero, DLA Piper

“We don’t feel a slowdown in any practice areas. On the contrary, we have noticed a significant increase in tax, litigation, employment, cross-border markets and renewable energy issues. I think that beyond these areas, there will be an increase in other areas, such as M&A, restructuring and insolvency.”
Nelson Raposo, Raposo Bernardo & Associados

“Considering the increase of oil prices and the government´s push for renewables the energy work will increase. This would involve real estate, finance and corporate work. Also the need for refinancing in many projects will drive additional work, linked to the extra work that is expected in insolvency and employment if the economy continues to slow and refinancing needs are not solved.”
Francisco Guijarro, Hammonds