MARBELLA CLUB

In a country in which prostitution is legal, the bill will allow brothels, escort agencies and prostitutes to advertise online and in classified adverts in the print media. There are estimated to be between 200,000 and 400,000 prostitutes operating in Spain, 90 per cent of whom are believed to be trafficked meaning that only a small proportion are actually local.

It’s a far cry from the early retro crime novels of Spanish writer Manuel Vázquez Montalban whose central character, private investigator Pepe Carvalho, has a prostitute girlfriend and hangs out in a Barcelona populated by pimps, Spanish whores and racketeers.

These days, it is mostly foreign women from an assortment of countries -Nigeria, Eastern Europe and South America topping the list- who eke out a patchy living selling their bodies, often under the control of sinister pimps and gangs. Many clients are sex tourists, in the main crossing nearby borders although Spaniards also avail themselves of those touting ‘the world’s oldest profession’. In a United Nations report39 per cent of Spanish men admitted to having visited a prostitute at least once.

In the town of La Jonquera in Catalonia which borders with France, Club Paradise, one of Europe’s largest brothels, claims to have 80 to 100 women working on its premises. The women are supposedly independent operators and pay a weekly rent for use of a bedroom and board.

There have been calls for prostitution to be outlawed in Spain but many women’s groups believe that such a move would force it underground meaning that fewer trafficked women would be able to seek help. Despite various crackdowns on traffickers in the country there have been precious few convictions with only 202 suspects prosecuted in 2010 of whom 80 were convicted.

While the Spanish government might think that lifting the ban on advertising for brothels and prostitutes will bring in some much needed cash for its ailing economy, one wonders exactly how much in the light of the recent €100 billion bailout. A drop in the ocean perhaps or as one of the country’s bemused prostitutes might quip, a quick fix?

Only a few years ago, Spain’s banks were seen in some policy-making circles as a model for the rest of the world. This may be hard to fathom now, considering that Spain is seeking $125 billion to bail out its ailing lenders. But back in 2008 and early 2009, Spanish regulators were riding high after their country’s banks seemed to have dodged the financial crisis with minimal losses. A big reason for their success, the regulators said, was an accounting technique called dynamic provisioning. About Jonathan Weil Jonathan Weil joined Bloomberg News as a columnist in 2007, and his columns on finance and accounting won Best in the Business awards from the Society of American Business Editors and Writers in 2009 and 2010. More about Jonathan Weil By this, they meant that Spain’s banks had set aside rainy- day loan-loss reserves on their books during boom years. The purpose, they said, was to build up a buffer in good times for use in bad times. This isn’t the way accounting standards usually work. Normally the rules say companies can record losses, or provisions, only when bad loans are specifically identified. Spanish regulators said they were trying to be countercyclical, so that any declines in lending and the broader economy would be less severe. What’s now obvious is that Spain’s banks weren’t reporting all of their losses when they should have, dynamically or otherwise. One of the catalysts for last weekend’s bailout request was the decision last month by the Bankia (BKIA) group, Spain’s third-largest lender, to restate its 2011 results to show a 3.3 billion-euro ($4.2 billion) loss rather than a 40.9 million-euro profit. Looking back, we probably should have known Spain’s banks would end up this way, and that their reported financial results bore no relation to reality. Name Calling Dynamic provisioning is a euphemism for an old balance- sheet trick called cookie-jar accounting. The point of the technique is to understate past profits and shift them into later periods, so that companies can mask volatility and bury future losses. Spain’s banks began using the method in 2000 because their regulator, the Bank of Spain, required them to. “Dynamic loan loss provisions can help deal with procyclicality in banking,” Bank of Spain’s director of financial stability, Jesus Saurina, wrote in a July 2009 paper published by the World Bank. “Their anticyclical nature enhances the resilience of both individual banks and the banking system as a whole. While there is no guarantee that they will be enough to cope with all the credit losses of a downturn, dynamic provisions have proved useful in Spain during the current financial crisis.” The danger with the technique is it can make companies look healthy when they are actually quite ill, sometimes for years, until they finally deplete their excess reserves and crash. The practice also clashed with International Financial Reporting Standards, which Spain adopted several years ago along with the rest of Europe. European Union officials knew this and let Spain proceed with its own brand of accounting anyway. One of the more candid advocates of Spain’s approach was Charlie McCreevy, the EU’s commissioner for financial services from 2004 to 2010, who previously had been Ireland’s finance minister. During an April 2009 meeting of the monitoring board that oversees the International Accounting Standards Board’s trustees, McCreevy said he knew Spain’s banks were violating the board’s rules. This was fine with him, he said. “They didn’t implement IFRS, and our regulations said from the 1st January 2005 all publicly listed companies had to implement IFRS,” McCreevy said, according to a transcript of the meeting on the monitoring board’s website. “The Spanish regulator did not do that, and he survived this. His banks have survived this crisis better than anybody else to date.” Ignoring Rules McCreevy, who at the time was the chief enforcer of EU laws affecting banking and markets, went on: “The rules did not allow the dynamic provisioning that the Spanish banks did, and the Spanish banking regulator insisted that they still have the dynamic provisioning. And they did so, but I strictly speaking should have taken action against them.” Why didn’t he take action? McCreevy said he was a fan of dynamic provisioning. “Why am I like that? Well, I’m old enough to remember when I was a young student that in my country that I know best, banks weren’t allowed to publish their results in detail,” he said. “Why? Because we felt if everybody saw the reserves, etc., it would create maybe a run on the banks.” So to sum up this way of thinking: The best system is one that lets banks hide their financial condition from the public. Barring that, it’s perfectly acceptable for banks to violate accounting standards, if that’s what it takes to navigate a crisis. The proof is that Spain’s banks survived the financial meltdown of 2008 better than most others. Except now we know they didn’t. They merely postponed their reckoning, making it inevitably more expensive. Someday maybe the world’s leaders will learn that masking losses undermines investor confidence and makes crises worse. We can only hope they don’t manage to blow up the whole financial system first.

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Spain’s long-term borrowing costs soared to their highest level since the country joined the euro zone. Investors have apparently concluded that the rescue is potentially a much better deal for the banks and their shareholders than for the government, its taxpayers and bondholders.

Many details of the banking bailout remain to be resolved — including which of Europe’s rescue funds will supply the money. The one thing that is clear is that even though the money will be funneled to the banks, the government in Madrid will ultimately be responsible for guaranteeing that $125 billion, adding to the Spanish government’s already rising debt load.

That fact, more than any other, probably explains why there was heavy selling of Spanish government bonds on Monday and Tuesday. The yield on Spain’s 10-year bonds — an indicator of the government’s borrowing costs and the risk of holding that debt — rose Tuesday to as high as 6.8 percent. That is approaching the level that led to bailouts for Ireland, Portugal and Greece.

With its banking industry in trouble, Spain probably would eventually have had no choice but to seek a rescue. And by not having to cede autonomy over its government budgets or spending, Madrid attained a much better deal than other governments have with their bailouts.

And yet, critics are noting that any upside from the arrangement will go to the banks and their investors. The potential downside will be the Spanish people’s to bear.

“Unfortunately Spain didn’t manage to reach one of its main goals in the negotiations, which was to have Europe bear part of the risk of rescuing the financial sector, without letting it fall instead directly onto the shoulders of the Spanish taxpayer,” said Luis Garicano, a Spanish economist who teaches at the London of School Economics. “Ultimately, those who lent to our financial system were the banks and insurance companies of Northern Europe, which should bear the consequences of these decisions.”

The full bailout loan would add 10 percentage points to Spain’s debt, raising it to about 90 percent of gross domestic product this year.

And Fitch, the credit rating agency that downgraded Spain’s government debt nearly to junk status last week, warned Tuesday, that even if Spain used only 60 billion euros of the bailout loan, that would put Spain’s debt “on a trajectory to peak at 95 percent of G.D.P. in 2015.” As recently as April, Luis de Guindos, the economy minister, had forecast that debt would rise to 78 percent of G.D.P. this year.

On Tuesday, despite the bailout plan, Fitch downgraded the credit ratings of 18 Spanish banks. That included Bankia, the troubled mortgage lender the government nationalized in early May.

Some analysts are questioning the rush by European finance ministers to push for Spain to accept a bailout before Greek elections on Sunday. Those elections could create deeper turmoil for the euro zone.

“The Europeans wanted to put a firewall between Greece and Spain, but they’ve accelerated things in a way that doesn’t at all give confidence to the markets,” said Xavier Sala-í-Martin, an economics professor at Columbia University. Instead, he said, the deal “leaves the impression that everything was just improvised rather than planned properly.”

Until last weekend, in fact, Mr. Rajoy’s government had resisted formally requesting a rescue package, saying it wanted first to establish exactly how much money was needed to keep its troubled banks afloat.

Madrid had already grossly underestimated the problems at Bankia when it seized the mortgage lender last month after giving it a 4.5 billion euro cash infusion. Less than two weeks later, the bank’s overseers said it would need an additional 19 billion euros ($23.88 billion) of new capital — a declaration that unsettled the markets and threatened to turn a steady outflow of investor money from Spanish banks into a torrent.

Two consulting firms hired by the government to conduct stress-test audits of the Spanish banking industry, Roland Berger and Oliver Wyman, are not scheduled to present their findings until June 21. Another four consulting firms are auditing the 14 largest Spanish financial institutions, with those results not expected before the end of July.

Still, the International Monetary Fund on Friday evening in Washington, ahead of a release scheduled for Monday, published its assessment of Spanish banks, providing a rationale for the weekend rescue deal. The I.M.F. said that Spanish banks would need at least 37 billion euros in extra capital. The European finance ministers decided to lend out nearly three times that amount.

“Everybody moved too fast, based on too little information,” Mr. Sala-í-Martin said. “The I.M.F. report comes out looking a little bit superficial, and certainly can’t be used to conclude exactly how much money needs to be put on the table.”

One thing the I.M.F. report did, however, is split Spanish banks into different risk categories, which in itself has fueled another debate within Spain’s banking industry. Some of the best-situated commercial banks are now resisting receiving any of the European loans.

Spain and its European partners have not yet drawn up a memorandum of understanding for the deal. Many basic aspects of the loan also remain under discussion, even though Mr. de Guindos, the Spanish economy minister, has already said that Spain will receive “very favorable” terms for the European loan.

Among the few certainties is that the emergency loan will be channeled to the banks through the Fund for Orderly Bank Restructuring, which Spain set up in 2009 and has already used to wipe out the losses of some smaller collapsed banks.

The Spanish deal comes at an awkward time because Europe is in transition to a new emergency funding program, making it uncertain exactly how and when the money will be disbursed to Spain. Some holders of Spanish bonds are worried that Europe’s loan will be given seniority over existing government debt. The new fund, known as the European Stability Mechanism, goes into effect next month and guarantees that its creditors have preferred status to other bondholders.

And even though Madrid obtained a much cheaper European lifeline for Spain’s troubled banks than it could have raised on the debt markets, opposition politicians are blaming Mr. Rajoy for letting the banking crisis spin out of control in the first place.

Mr. Rajoy, however, has turned down calls to answer such criticism before Parliament. His next scheduled appearance there is in the second week of July.

“What is there to make of somebody who has enough time to watch a soccer match but not to appear before Parliament?” asked Mr. Sala-í-Martin, the Spanish economist.

It is a view shared by many Spaniards.

“I don’t understand whether such a rescue will really save the banks, but what I do know is that the only ones who will be forced to tighten their belt again will be ordinary taxpayers,” Cristina Senac Amigo, a 42-year-old hairdresser, said Tuesday.

“And if you’re telling your people to prepare for a disastrous year, you don’t then leave to watch a game — however much we all love soccer and want Spain to win.”

Marbella has no money to pay its 3,400 workers in future months. The workers have been paid for May, but the Mayor, Ángeles Muñoz, has warned that they will see problems over the next few months as the council struggles to find the monthly wage bill of ten million €. It’s not the only Ayuntamiento with problems for paying its workers. Vélez-Málaga and Coín are both paying wages late, and the 600 workers in Manilva have had problems since the start of the year.

It was sundowner time at the Cantina tapas bar in the picturesque village of Frigiliana, a few miles inland from the Costa del Sol town of Nerja. Inside, local men were watching bullfighting on television and smoking cigars in quiet contravention of the smoking ban. Outside, expatriate Britons were discussing the vagaries of living in Spain while downing glasses of tinto de verano, the popular summer drink of red wine and lemonade. Mark Jones, who runs his own gardening and pool maintenance company, had spent two days queuing at the local municipal office to renew his residence permit. "I got there at 9am on the first day and my number was 26; by lunchtime they were only up to number 6 and they close at 2pm," he complained. "You have to renew every bit of paper here every few years but I can't afford two days off to queue in an office. There are no staff now because of the cuts, so it all takes longer. It's like everywhere – as soon as the recession hits, it's the immigrants who cop it worst."  Conversation turned to a local couple, who are desperate to leave Spain but who can't because their house is still unsold after four years on the market - despite dropping the asking price from €1 million to €750,000. In 1992 the BBC spent millions of pounds launching an ill-fated soap opera, Eldorado, following the fortunes of British expats on the Costa del Sol. The project flopped and was cancelled a year later. Now, 20 years later, the real-life diaspora is experiencing an equally disastrous end to its Iberian dream. Times are desperate in Spain. More than a million people took the streets earlier this month to protest at budget cuts, 24 per cent unemployment and the rising cost of living. The price of milk and bread has risen by 48 per cent during the last year, according to a recent study, and of potatoes by 116 per cent. Electricity bills are up 11 per cent while property prices are in free fall; they have declined for 15 consecutive quarters and are 41 per cent lower than in 2006. Several of its banks are faltering: this weekend Spain's government is preparing to pump a further €19 billion into Bankia, the country's fourth-largest lender, in the biggest single bank bailout in the country's history. Trading in the bank's shares was suspended on Friday until negotiations over the rescue were complete. Santander, Europe's largest bank, was among 11 Spanish financial institutions to be downgraded by the credit rating agency Standard and Poor earlier this month; and there's no sign of anything like economic recovery on the horizon. Expats are finding life hard in a country where they once basked in a cheaper way of life. Around one million Britons spend part or all of the year in Spain, but thousands are now returning home – and more want to, but say they can't afford to because their property is no longer worth what they paid for it. For the first time since 1998, Spain recorded a drop in foreign residents last year, according to newly released figures. With its narrow cobbled streets, whitewashed houses and children riding horses down the main road, Frigiliana lives up to most tourists' idea of an authentic Spanish village. But appearances can be deceptive. Out of its 3,000-strong population, 1,280 are foreign nationals including 700 Britons, making the village one of the most expat-dominated in Spain. The school advertises itself as bilingual. The British population is so large that the local council pays Kevin Wright, a former travel rep from Leicestershire who has lived in Spain for more than 20 years, to run a "foreigners' department". He helps expats deal with everything from local business permits to burst pipes and land disputes with neighbours, and has noticed changes since the eurozone crisis began. "Before, I was getting 10 newbies a week moving here from the UK; now I get one," he said. "Some Brits have lived here for 20 years but now families move out here then six, eight months later pack up and go back because they can't find work, or didn't realise what the cost of living would be." Mr Wright says many Britons fail to learn Spanish or to assimilate, so that the community becomes dependent on itself – to its cost. "People think they can set themselves up doing business to other Brits, like finance or house sales and rentals, or pool maintenance, gardening and cleaning. "But the property market isn't there any more and people have cut back and do their own maintenance, so there's less work." In desperate economic times, the expat community is increasingly vulnerable to financial trickery. "The worst people for scamming you are other Brits," said Gary Smith, a builder, who emigrated two years ago. "You trust them more but they just take your money for an investment and you never see a penny." Elderly residents are particularly vulnerable. The exchange rate - still far less favourable than five years ago - has meant British pensions and other income in sterling do not stretch as far as they once did. Julia Hilling moved from the UK to Fuengirola, along the coast from Frigiliana, 20 years ago with her husband. They bought a spacious, three-bedroomed apartment with two balcony patios in an upmarket area, overlooking the town's castle. Six years ago, Mrs Hilling, by then a widow aged 83, was persuaded by an independent financial adviser to take out a full mortgage on the apartment. She was told the equity raised would be invested, risk-free, to provide an income, while the mortgage would help offset Spain's 34 per cent inheritance tax when she died. Now 89, Mrs Hilling has never seen any return on her money, owes more than €300,000 to Rothschild Bank on the mortgage and relies on handouts from her children to stay in Spain. "It's devastating," she said. "The man was British, very charming, and said there was no risk. My children said 'Mummy, please don't do this', but I needed the extra income. Now I'm fighting for my life and my home." She is one of more than 100 mainly elderly British expats who have banded together in a Spanish court action to have their mortgages voided, arguing they were mis-sold. Rothschild and several Scandinavian banks also named in the legal action claim the financial advisers are to blame; and the advisers, who are not regulated in Spain as they are in Britain, insist the risk was mentioned in the small print. In a country fighting for its own survival, Spanish politicians are not unduly concerned with the plight of British residents, particularly when many are retired so do not actively contribute to the national economy. Spain's government is currently involved in a dispute with Britain over extent of free health care for Britons under EU law and there are moves to force them to pay 10 per cent of their prescription costs. But for some, returning home remains unthinkable. Former fitness instructor and gym owner Jo Morrison, 49, moved to Spain from London with her partner Lloyd 11 years ago. In 2008 she sold her house in Putney so she could open a gym in Nerja but the project failed after her business partner pulled out, and then the global financial crisis erupted. She now works as a cleaner while renting a one-bedroom home. "Sometimes we've gone without food and I still can't believe that I don't have my house or any savings any more," she said. "But Spain is my home now. I'd rather sleep on the beach than go back to the UK."

Trading in shares in the Spanish lender Bankia have been suspended in Madrid. The market regulator CNMV said it was "due to circumstances that may affect the normal share trading". Bankia is reported to be due to ask the government for a bailout of more than 15bn euros ($19bn; £12bn) after a board meeting later on Friday. Bankia, which is Spain's fourth-largest bank, was part-nationalised two weeks ago because of its problems with bad property debt. Any extra government money would be on top of the 4.5bn euros in state loans that the government had to convert into shares in the group in the part-nationalisation process. Shares in Bankia's parent company Banco Financiero y de Ahorros (BFA) have also been suspended. Bankia was created in 2010 from the merger of seven struggling regional savings banks. It holds 32bn euros in distressed property assets.

Spain's prime minister voiced concern on Wednesday about the state's ability to finance itself as fears mounted over a spread of the euro zone debt crisis from Greece and a nationalised bank delayed publishing accounts amid talk of it needing more aid. With creditors spooked by Greece's difficulties further east along the Mediterranean, the cost of borrowing for Mariano Rajoy's government hit 6.5 percent on benchmark 10-year bonds, more than 500 basis points above German debt and a record in the 13 years the two states have shared the common currency. "It's a difficult and complicated situation," the premier told reporters in parliament as traders wondered whether Madrid might one day, like smaller Greece, Portugal and Ireland, need foreign help. "The risk premium has risen a lot and that means that it is difficult to finance yourself at a reasonable price."

Queen Sofia of Spain has cancelled a visit to the UK to mark Queen Elizabeth's Diamond Jubilee because of disputes over Gibraltar. A Spanish government statement said it was "hardly appropriate" for Queen Sofia, 73, to attend a lunch on Friday. The UK and Spain have been in dispute over fishing rights off Gibraltar, a UK territory which Spain also claims. Spain has also protested over a visit to Gibraltar by Queen Elizabeth's son Prince Edward and his wife Sophie. The prince and the Countess of Wessex are to visit Gibraltar on 11-13 June as part of the celebrations to mark the 60th anniversary of the Queen's reign. Complaint Spain continues to claim sovereignty over Gibraltar, which has been ruled by Britain since 1713 under the terms of the Treaty of Utrecht. Queen Sofia's husband, King Juan Carlos, had already declined his invitation to the lunch at Windsor Castle on Friday. He is recovering from surgery last month after he fell and broke his hip while hunting elephants in Botswana. In 1981, the Spanish royal couple declined an invitation to Prince Charles's wedding to Diana, Princess of Wales because they planned to visit Gibraltar as part of their honeymoon. And a visit by Princess Anne to Gibraltar in 2009 sparked an official complaint from the Spanish government. An additional cause of unhappiness for the Spanish royal household is the fact that the British regimental band of Gibraltar will be performing at the Diamond Jubilee, reports the Spanish news agency Efe. A spokesman for the UK Foreign Office told the AFP news agency: "The visit was a private commitment and we don't comment on private visits." Emperor Akihito and Empress Michiko left Japan on Wednesday for a five-day visit to the UK Sovereign's lunch Officials at Buckingham Palace have refused to confirm which monarchs are attending the lunch on Friday, but the BBC's royal correspondent Peter Hunt said Prince Albert of Monaco and the Emperor of Japan would be at Windsor Castle. Emperor Akihito, who is 78, underwent heart surgery in February and only returned to full official duties in April. Swaziland's King Mswati III, who critics accuse of leading a "lavish lifestyle" while his people starve, is among those attending. Protests were held outside the Savoy hotel in London on Wednesday by Swazis living in the UK, who claim two-thirds of people in Swaziland are living in extreme poverty. Our correspondent said the King of Bahrain, Sheikh Hamad bin Isa Al Khalifa, could also attend, despite public unrest in the country and accusations of human rights abuses.

Queen Sofia had earlier accepted the invite to Friday's celebration at Windsor Castle, but in a last minute snub by Spain's government she has been told not to attend because it would be "inappropriate in the current circumstances". Last week Spain's foreign ministry issued a formal complaint to Britain's Ambassador in Madrid over the planned visit in June of The Earl and Countess of Wessex to the disputed territory of Gibraltar to mark the Queen's Diamond Jubilee year. The Spanish government expressed its "upset and concern" over the visit by the Queen's youngest son and his wife to the territory, a tiny peninsula sitting at Spain's southwestern corner over which it still claims sovereignty. At the time however, it seemed unlikely to take the matter further. In fact, when asked if Queen Sofia would still be attending the Windsor Castle event, Jose Garcia-Margallo, Spain's foreign minister confirmed she would be free to do so in a "private capacity". However, in a sudden U-turn and with less than 48 hours until the lunch, Spain's royal household disclosed that the government had ordered Queen Sofia to reject the invitation to Windsor Castle, where kings and queens from around the world will convene to celebrate the Queen's 60 years on the throne.

Expats will be barred from playing poker with fellow English-speakers internationally, while those who enjoy virtual bingo are likely to be frustrated in Spain. From June 1, only companies with a Spanish government-issued licence and an .es domain will be allowed to run online gambling sites in the country. The previous Socialist Party government passed a new gambling law last year that introduced the new rules, but the implementation of this was delayed when they lost power to the Popular Party in November. The new law doesn’t, however, cover bingo, meaning those who’ve taken to substituting the UK’s bingo halls for a bit of a flutter online will be out of luck. It has not been banned but the legal assumption is that if it isn't on the list of regulated products, it isn't legal. While sports betting is permitted under the new law, live in-play betting has been excluded and there has been speculation that the regulation of betting exchanges — such as that run by Betfair — will be delayed.

The Spanish government is facilitating a potential merger between struggling lenders Banco Mare Nostrum, Liberbank, Unicaja, and Ibercaja, reports the Financial Times . The combined entity resulting from such a deal would wield a 270B euro balance sheet, making it Spain's fifth-largest by asset size. Bankia, Spain's last attempt at a similar arrangement (formed in December 2010 as a merger of 7 banks) was bailed out by the government to the tune of 4.5B euro last week when that amount of government-held debt was converted to equity. From the FT: Analysts have expressed concerns that the government could repeat the mistakes of Bankia, a merger of seven savings banks in which Spain took a €4.5bn stake last week – the country’s largest nationalisation since the crisis began. “Merging weak banks does not create a strong bank. That should be obvious by now,” said one banking analyst.

The ex Municipal Real Estate Assessor in Marbella Town Hall, Juan Antonio Roca, now at the centre of the Malaya case on corruption, has offered for properties in Marbella to pay Marbella Town Hall after being found guilty in another case, ‘Caso Saqueo’. He was sentenced to six years and ten months in the case and he and two others sentenced with him, José Luis Sierra who was judicial advisor to Jesús Gil, and the accountant Jorge Castel, have each to pay 23 million € compensation to Marbella Town Hall, in addition to whatever jail sentences they have been given. Reports say Roca wants to clear this debt so that he can benefit from improved conditions in jail. So far he has only paid 600,000 € and there talks with the Town Hall on the payment of the rest. The properties offered are the Finca La Caridad in San Pedro Alcántara, a half-built building next to the motorway and the Costa del Sol Hospital, and two plots of land in Urbanisation Las Brisas in Las Chapas, one of which has a heliport which he used to travel to Murcia and Huelva.