MADRID – Spain's Socialist government is seeing its political power erode as it struggles to chart a path out of deep financial trouble, failing so far to satisfy conflicting demands to cut its budget and stimulate job creation.
The coming months could bring far more problems as Prime Minister Jose Luis Rodriguez Zapatero reforms the country's labor market, risking national strikes and the loss of support from trade unions, a core source of his center-left party's strength.
Zapatero's minority government is already running into serious trouble, although there appears to be no immediate threat of it falling.
A package of austerity measures passed by only one vote in parliament's lower chamber Thursday and the Fitch Ratings agency downgraded Spanish debt on Friday. Opposition parties have called for new elections.
A poll published Saturday in the northeastern newspaper Periodico de Catalunya said the conservative opposition Popular Party would win up to 42 more seats than the Socialists in the 350 member parliament — coming close to an overall majority — if elections were held now.
The austerity package aims to cut spending by euro15 billion ($18.4 billion) over two years by freezing pensions and cutting civil servants' wages.
But investors and lenders such as the International Monetary Fund are demanding that Spain reform its labor market, overhauling hiring and firing rules and moving to find jobs for the long-term unemployed and the young.
The government plans to begin negotiating with unions and hopes to arrive at an agreement about the changes by the end of May.
Union leaders have said if the government implements labor reforms without union approval, they will call for a general strike that could paralyze the country and cause deep unease in global markets.
The conservative newspaper El Mundo, which supports the opposition, said Saturday that Zapatero's government was trapped, caught between its growing unpopularity and the financial realities that have forced it to back politically unappealing austerity measures.
"The government is cornered," the paper wrote.
After winning a second term in the 2008 election, Zapatero insisted on trying to keep the economy ticking through stimulus packages, but the depth of the international recession dragged Spain into eight consecutive months of recession.
Europe's top job creator only two years ago, Spain now has the highest unemployment rate — just over 20 percent — of the 16 nations that share the euro currency.
In late April, credit agency Standard & Poor's lowered Spain's rating by one notch to AA, citing fears that the government would find it hard to reduce a deficit that totaled 11.2 percent of GDP last year.
The resulting austerity package, nicknamed the "scissors action" by Spanish media, was welcomed by the European Union and the IMF, which said Spain's "ambitious fiscal consolidation is under way to reach the three percent GDP deficit target by 2013."
The cuts were heavily criticized at home as a major about-turn in the Socialists' plans to stimulate the economy with targeted public spending, with the General Workers union labeling them as "unjust, wrong and sterile."
Apart from the deficit, Spain's overriding concern is unemployment following the virtual collapse of its once-buoyant construction sector.
Unemployment has risen from 1.76 million in the second quarter of 2007 to 4.6 million in the first quarter of 2010, with more than 40 percent of Spain's available under-25s unemployed.
The IMF, saying "the labor market is not working," asked for a "radical overhaul" including lowering severance payments, boosting wage flexibility and altering the collective bargaining system.
The Fitch Ratings agency interpreted the cuts approved Thursday as likely to slow economic growth and job creation and also reduced Spain's credit rating to AA.
The government on Friday then recalculated its GDP forecasts and said while growth would remain at minus 0.3 percent in 2010, it would only reach 1.3 percent in 2011 instead of the 1.8 percent previously expected. It also revised growth figures downward for 2012 and 2013.
"The adjustment will weigh down job creation and the rhythm of growth," said the normally supportive center-left El Pais newspaper.
At nearly every step since the Deepwater Horizon exploded more than a month ago, causing the worst oil spill in U.S. history, rig operator BP PLC has downplayed the severity of the catastrophe in the Gulf of Mexico.
On almost every issue — the amount of gushing oil, the environmental impact, even how to stop the leak — BP's statements have proven wrong. The erosion of the company's credibility may prove as difficult to stop as the oil spewing from the sea floor.
"They keep making one mistake after another. That gives the impression that they're hiding things," said U.S. Sen. Bill Nelson, a Florida Democrat who has been critical of BP's reluctance to publicly release videos of the underwater gusher. "These guys either do not have any sense of accountability to the public or they are Neanderthals when it comes to public relations."
Take one of the most obvious questions since the April 20 explosion: How much oil is leaking? Official estimates have grown steadily — first the word was none, then it was 42,000 gallons, then 210,000 gallons. And now a team of scientists say the leak may well be five times that, making the spill worse than the Exxon Valdez.
All the while, BP has been slow to acknowledge the leak was likely much worse than the public had been told.
The oil giant's behavior has led to accusations that it has been motivated to keep the leak estimate low because under federal law the size of eventual fines is tied to the size of the leak.
Nelson said that he believes BP has delayed release of everything from the actual flow rate to the videos because of a federal law that allows the government to seek penalties of $1,000 to $4,300 per barrel — 42 gallons — of oil spilled in U.S. waters. "And so naturally they want to minimize what people were thinking they were going to spill."
High-end estimates by BP, the Coast Guard and the National Oceanic and Atmospheric Administration reached 588,000 gallons per day in late April, BP spokesman David Nicholas acknowledged Friday to The Associated Press after weeks of the company sticking with the lower estimate. But it wasn't until Thursday that officials had conceded that the leak was considerably larger than the 210,000-gallon-a-day figure that had been floated as the best estimate for the prior four weeks.
Even before the accident, there were indications that BP could vastly underestimate an oil spill's likely size. In its regional spill response plan for the Gulf, the formula BP proposed to use to estimate the volume of oil in a surface sheen was smaller by a factor of 100 from the accepted international standard, which is also the basis for estimates by NOAA, the federal agency tasked with such calculations.
Nicholas said he doesn't know where the numbers in BP's plan "were derived, but they were not used" in calculating the amount of oil that had reached the Gulf's surface since the accident. He also emphasized that the official estimates were not BP's alone, but rather a collaboration with government agencies.
With criticism continuing to mount, when he was pressed Friday about BP's perceived lack of transparency, Chief Operating Officer Doug Suttles said: "We're trying to provide as much data as we can. We're in the middle of this operation. ... There's a tremendous amount of transparency here."
Asked late Friday why BP had downplayed so may issues related to the spill and why BP had been wrong on so many issues, Nicholas did not answer directly, saying, "This event is unprecedented; no company, no one, has ever had to attempt to deal with a situation such as this at depths such as this before. BP, the Unified Command, the federal authorities and the hundreds of companies and thousands of individuals engaged on this effort, are doing everything we can to bring it under control and make it good."
Nicholas said only Friday that daily estimates from April 27 through April 30 were based on two scientific standards. The "low end" was always around 42,000 gallons per day, the "best guess" was between 210,000-252,000 gallons per day, and the "high end" varied from 504,000-to-588,000 gallons per day, he said.
The 210,000-gallon estimate that became the official talking point for weeks turned out to be wrong, too. A team of scientists from the government and academia said Thursday that the leak is really spewing somewhere between 500,000 and a million gallons a day.
The new estimates were between 12 and 24 times greater than what was first offered, and instantly made the Deepwater Horizon spill the worst in U.S. history. Even using the low end of the estimates, nearly 18 million gallons have spilled so far. At the high end, the well could have gushed as many as 39 million gallons.
Even President Barack Obama has voiced his frustration, laying the blame squarely on BP for the often incorrect assessment of the spill's size.
"Their interest may be to minimize the damage and, to the extent that they have better information than anybody else, to not be fully forthcoming," Obama told reporters Thursday. "So my attitude is, we have to verify whatever it is they say about the damage."
To be sure, experts say there's no easy way to measure a leak 5,000 feet deep. Some estimates were based on satellite images or flyovers. The federal government has worked closely with BP, and Obama has acknowledged shortcomings, but it's BP that controls much of the technology, like underwater robots that capture video of the leak.
Obama noted that BP kept video of the leak and didn't make it public.
"At that point, BP already had a camera down there, but wasn't fully forthcoming in terms of what did those pictures look like? And when you set it up in time-lapse photography, experts could then make a more accurate determination. The administration pushed them to release it," Obama said. "But they should have pushed them sooner. But there was a lag of several weeks that I think, that I think shouldn't have happened."
BP's Nicholas said the government "has had access to the video since the incident started."
Perhaps if BP, one of the wealthiest companies in the world, had released the video to the public and independent experts, it would have led to more accurate assessments of the spill's size early on.
"I'm disappointed in BP," said Plaquemines, La. Parish President Billy Nungesser. "BP can't see the forest through the trees."
Nungesser said Friday that he hoped a meeting with Obama would result in the federal government giving BP more direction on how to save the state's wetlands.
Then there are the attempts, unsuccessful so far, to stop the oil. On Thursday morning, BP and federal officials said on morning TV talk shows that the so-called "top kill," a procedure to pump heavy mud into its blown-out well in hopes of stopping the leak, was going well. Yet hours later, BP said the company had actually paused the procedure the night before. A spokesman told AP on Friday that stops and starts are normal, in part to analyze progress.
BP's downplaying of the situation may have began with a phone call, some 16 hours after the rig exploded and killed 11 workers, leaving behind an inferno that burned for two days and has been leaking at least ever since the rig sank.
In a low-key tone, a man who identifies himself as BP employee Carlos Moreno notified Louisiana authorities that oil was unlikely to reach their shores. He emphasized that BP wanted to give a "heads up" about the sheen spotted floating near the crippled rig 50 miles off the Louisiana coast.
At first, the Coast Guard said there was no leak from the vast reservoir of oil more than a mile below the Gulf's surface. Then, after analyzing images taken underwater by remote-controlled cameras, the Coast Guard estimated 42,000 gallons a day were leaking. A week after the explosion, that rose to 210,000 gallons.
"You're never comfortable with estimating at the beginning of the oil spill," Coast Guard Rear Admiral Mary Landry told AP.
The shift in spill estimates — and the other downplayed details from BP — have caused environmental activists like Lorraine Margeson of St. Petersburg, Fla., to question whether other details are lowballed, as well. Margeson wonders if the numbers of dead animals and birds are being accurately reported by BP and other officials.
"From the get go, every aspect of the situation has been downplayed," she said. "This thing has been out of control in terms of informing the public and transparency from day one."
The AP National Investigative Team can be reached at investigate(at)ap.org.
NEW YORK – Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to get its low-price mojo back.
The sharp cuts, which came ahead of Memorial Day weekend, have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.
They're one of the boldest moves the world's largest retailer is making to turn around sluggish business at its U.S. namesake chain and win back shoppers from rivals. The cuts aren't across the store but target 22 foods and other essentials at an average savings of 30 percent — splashy enough to get attention and perhaps change perceptions.
The world's largest retailer is also restoring items like certain soups and laundry detergent it stopped carrying when it tried to declutter its stores. It's also pushing more basic clothing such as socks and underwear after putting too much focus on trendy items that didn't sell.
Wal-Mart was one of the few beneficiaries when the Great Recession began, as shoppers traded down to save money. Now it's having trouble keeping customers in a slowly recovering economy. Cash-strapped shoppers are looking elsewhere for better deals such as dollar stores and local grocery chains. And some wealthier customers, feeling more flush, are starting to head back to the mall.
Wal-Mart, which generated more than $400 billion in revenue in 2009, has blamed stubbornly high unemployment and tight credit for adding even more financial strain on its blue-collar customers, some of whom have limited access to financial services and are running out of unemployment benefits.
But it also takes part of the blame for four straight quarters of declines in revenue at Walmart stores open at least a year. That's a key indicator of a retailer's health.
"Wal-Mart is all about price, and they're all about one-stop shopping. Those are the key ingredients," said Bob Buchanan, a former retail analyst who now teaches finance at Saint Louis University. "Now, you kind of scratch your head and wonder if either of them are true."
"Wal-Mart has made a lot of noise, but customers want to see it in the stores," he continued. "This action is long overdue. They need to drive that message hard."
Deloris Harris, 72, of Ridgeway, S.C., said she pulled back from food shopping at Wal-Mart in the last year because chains such as Food Lion were offering even better deals.
"Some of the stuff isn't that cheap," said Harris, who picked up 10 ears of corn for $2 and hamburger rolls for 99 cents at Food Lion on Friday. But the 24-pack of Coke for $5 at Wal-Mart caught her attention Thursday night on a run to buy Tylenol. She grabbed it and planned to go back Friday to pick up deals on cleaning supplies.
Wal-Mart acknowledged during its latest conference call with investors that its moves to carry fewer items went too far. It's now replenishing 300 it had dropped. Analysts estimated that Wal-Mart pared up to 15 percent of its inventory, sending shoppers elsewhere in search of their favorite brands.
Wal-Mart is still making big profits. Its first-quarter net income rose 10 percent, fueled by cost-cutting and growth overseas. Wal-Mart's thinking: Lower costs let it lower prices, which in turn should drive up revenue and that money would be invested to yield more cost savings.
In fact, Wal-Mart is bearing the cost of some of the deep price cuts, not its suppliers, according to Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC, based on discussions with industry officials.
According to Pecoriello, on a basket of five food items, from Coke to Lay's potato chips, the total price was $11.23 at Wal-Mart, 24 percent less than it was a year ago. It's also almost 14 percent lower than Kroger and almost 26 percent lower than Safeway, according to Pecoriello's estimates. The firm gathers pricing data representing 15,000 stores across the country.
That doesn't include Wal-Mart's move to lower cans of name-brand Coke and Pepsi further in the past few days, from the announced discounted price of $5 to as low as $3.77 in certain markets. The original price was $6.98 for a 24-pack.
Pecoriello noted in his report that Target was selling 12 packs of soda for $2, roughly matching Wal-Mart's price, while Kroger was selling 12 packs for $2.50, less than a year ago.
Some Wal-Mart stores have sold out of the cans and suppliers are having trouble keeping up, Pecoriello said. He added he hasn't seen such low prices on soda in at least five years and estimates that the overall price of soda is down about 20 percent from a year ago.
Linda Blakley, a Wal-Mart spokeswoman, declined to comment on sales and said it has the lower-price 24-packs only where it faces "regional competitors."
PepsiCo declined to comment, and officials at Kroger Co., Safeway Inc., and Coca-Cola Co. didn't immediately return calls.
Though it sells all kinds of items, groceries are what keep customers coming back, and hits hard on the theme of splashy low prices in recent TV commercials. One shows a friendly associate walking down the store aisle placing the discounted items, from Heinz ketchup to Breyers ice cream. The ads put the splashy low prices, such as the $1 deal for a big, 40-ounce ketchup bottle, at center stage. The original price was $2.42.
Wal-Mart has returned to advertising some of its deals in newspapers, the first time since June 2006, according to Michael Exstein, an analyst at CreditSuisse. In addition to its store circulars, Wal-Mart advertises in newspaper inserts like Parade, which have lower costs and require a longer lead time, Exstein said.
"We are working hard to bring our customers the best prices on items they need right now; and to share the news of these price cuts aggressively," Blakley said.