NEWS,08.10.2012

Venezuela's Chavez revels in convincing election win

Venezuelan President Hugo Chavez pledged to deepen his socialist revolution after a comfortable election victory that could extend his divisive leadership of the OPEC nation to two decades.The new six-year term clears the way for Chavez to consolidate state control over Venezuela's economy, possibly with more nationalisations, and continue his support for left-wing allies in Latin America and around the world.The victory also cements his status as a dominant figure in modern Latin American history and an icon of the political left. But the slimmer margin of victory - 10 percentage points, down from 25 points in 2006 - reflected growing frustration among Venezuelans at day-to-day problems such as crime and blackouts, which Chavez will be under pressure to tackle.Tens of thousands of ecstatic supporters celebrated in the streets around the presidential palace in downtown Caracas overnight, pumping fists in the air after the former soldier was re-elected with 1.5 million more votes than younger rival Henrique Capriles."This has been the perfect battle, a democratic battle," the 58-year-old Chavez thundered from the palace balcony around midnight, holding up a replica of the sword of independence hero Simon Bolivar."Venezuela will continue along the path of democratic and Bolivarian socialism of the 21st century."It was an extraordinary victory for a leader who just a few months ago feared for his life as he struggled to recover from cancer. Turnout was a record 80 percent of registered voters, boosting Chavez's democratic credentials despite critics' depiction of him as an autocrat who tramples on private enterprise and silences political foes.Supporters dripping with sweat strained to catch a glimpse of Chavez from the street below the palace while dancing and drinking rum. "Chavez, the people are with you!" they chanted."He will keep protecting the poor, the defenseless and the elderly," said teacher Gladys Montijo, 54, weeping with joy.In a nod to the opposition's strong showing, Chavez struck a conciliatory note and promised to be more focused in his new term beginning on January 10."Today we start a new cycle of government, in which we must respond with greater efficacy and efficiency to the needs of our people," he said. "I promise you I'll be a better president."Despite Chavez's anti-capitalist rhetoric, Venezuelan bonds are among the most-traded emerging market debt on Wall Street because they offer high yields. But Chavez's victory pushed prices lower on Monday as investors unwound bets that Capriles would pull off an upset.All eyes on Chavez A retired lieutenant colonel who first won fame with a failed 1992 coup, Chavez has become Latin America's main anti-US agitator, criticizing Washington while getting close to its adversaries, including Syria and Iran.A decade-long oil boom has given him tens of billions of dollars for social spending that ranges from free health clinics to new apartment complexes, helping him build a strong following among the poor that no other politician in Venezuela can match.It has also allowed him to dispense aid to ideological allies from Bolivia to Cuba, where Chavez's victory was met with relief. Cuban leader Raul Castro was among the first foreign leaders to congratulate Chavez, calling the vote a resounding endorsement of the Venezuelan leader's "Bolivarian Revolution."Chavez sends discounted oil to more than a dozen Central and South American countries. Communist-led Cuba, for example, receives more than 100,000 barrels a day of Venezuelan crude.Venezuela is often repaid for the oil in services Cuba sends doctors to Venezuelan slums, others sometimes pay in food and livestock - which puts strain on the finances of state oil company PDVSA.With the election out of the way, all eyes are on what Chavez will do next. After his landslide win in 2006, he ordered takeovers in the telecommunications, electricity and oil sectors. Some worry he could now extend nationalisations to other corners of the economy, including the banking, food and health industries.Any recurrence of the pelvic cancer that has already forced him to undergo three operations in Havana since June 2011 could derail his plans.The constitution states that if an incumbent steps down in the first four years of a six-year term, a new vote would be called - meaning that under such a scenario Capriles or another opposition candidate would have another crack at power.Chavez, who has looked rejuvenated in recent weeks after a sluggish start to the election campaign, was expected to hold a news conference later on Monday.Opposition leaders were crushed by the loss. It followed nearly a month of euphoria among Capriles supporters as the 40-year-old polished his stump speeches, held increasingly fervent rallies and appeared to be gaining ground in the polls.The youthful state governor put on a brave face in his concession speech, hailing his "house-by-house" campaign as the start of a long road to changing the direction of the country.On Monday, Capriles bared his soul in a flurry of emotional Twitter messages, and urged his followers not to give up."I know a lot of people are sad, but we need to bounce back and keep believing that we can and will build a better country," he said.State elections loom Capriles and other leaders of the Democratic Unity coalition must now prepare for state governor elections in December, when they will hope at least to increase the opposition's influence. They were hugely disappointed at winning a majority vote in only three of Venezuela's 24 states on Sunday.The US State Department congratulated the Venezuelan people for the high turnout and generally peaceful voting."We believe that the views of the more than 6 million people who voted for the opposition should be taken into account going forward," said State Department spokesman William Ostick.Though Capriles was indisputably the strongest candidate to face Chavez since the leftist leader was first elected in 1998, few in the opposition thought the fight was fair.Chavez made ample use of state television and spent 47 hours in "chain" broadcasts that forced other local television stations to carry speeches peppered with political commentary.He also handed out houses and pensions financed with state funds, often in ceremonies that glorified his administration, while warning that the opposition would cancel such programs.The spending spree has weakened Venezuela's finances and may force a currency devaluation in early 2013, which would likely spur inflation that has been a top complaint among voters.Relations with Washington are also likely to remain on edge, though Venezuelan oil has continued to flow to the United States over the years despite diplomatic tensions.

Single euro zone budget gains momentum

Debate about the idea of creating a separate budget for euro zone countries is intensifying in the run-up to an EU summit later this month, with less opposition to the proposal than many officials first expected, diplomats say.At a private dinner held last week among the EU ambassadors of several northern European countries, including Britain, Denmark, the Netherlands and Finland, those present were surprised to find a fair degree of consensus on the proposal."I wouldn't say that there was strong support for it, but there was certainly a feeling that this is an idea that should be explored in more detail," said one diplomat briefed on the discussion that took place at the gathering.The single budget proposal was first sketched out by Herman Van Rompuy, the president of the European Council, in a paper circulated in September as part of an effort to stimulate debate about how Europe's monetary union should be improved.In the paper, Van Rompuy said a "fully fledged fiscal union" among the 17 countries that share the euro could involve the creation of a single treasury office and "a central budget whose role and functions would need to be defined".Those suggestions have since been refined into guidelines that will form the basis of discussion among EU leaders at the summit on October 18-19. The idea will also be explored among euro zone finance ministers at a meeting in Luxembourg on Monday.There is still no clear definition of what a single, central budget would entail, but Germany strongly supports the idea and France is on board too, which in terms of euro zone decision-making means it has substantial momentum.Britain's support, underlined by Prime Minister David Cameron on Sunday, is also significant, even if it stems more from a desire to distance Britain from the problems of the euro zone than from any solidarity with the single currency club."There will come a time when you need to have two European budgets, one for the single currency, because they are going to have to support each other more, and perhaps a wider budget for everybody else," Cameron told the BBC on Sunday, the first day of his Conservative Party's annual conference."I don't think we will achieve that this time, but it is an indicator of the way that Europe is going," he said.Single euro zone budget While conceptually it may make sense for the countries that share one currency to also create a single budget, it immediately raises thorny questions about sovereignty, budget discipline and long-term ambitions.Germany's precise ideas about how a single budget would be financed, managed and employed are likely to be vastly different from Portugal's, Estonia's, Italy's or France's once leaders and finance ministers get into the nitty-gritty of the concept.Yet there are already some broad proposals doing the rounds, including the idea backed by France that the budget could be financed by revenue from a financial transactions tax (FTT).Germany and France are already driving an initiative to establish an FTT among nine euro zone, the minimum number permitted to do it alone. There is already support from eight countries and a ninth could come on board as soon as next week, giving added impetus to the plan.But other euro zone countries that might like a single budget, such as Finland, are lukewarm on the idea of an FTT, underscoring just how complex negotiations could become.There are also differences of opinion about why a single budget is desirable. Germany sees it as a means of building solidarity and tightening budget rules without moving to the more extreme suggestion of mutualising all euro zone debt.France sees a single budget more as a means of ironing out divergences in social and employment policy, arguing that it could be used to help underwrite unemployment benefits in a country suffering from much higher joblessness than the rest.While many countries are voicing quiet support for the idea, it is also clear that most have a conflicting take on what it would involve if it were ever to become a reality.Some have hinted that it could involve each country setting aside a fraction 0.3 or 0.5% of their GDP - for a communal budget, others dismiss that suggestion out of hand."The modalities are completely unknown," said one EU official when asked how a single budget might work.What's more, even if momentum is growing and it is likely to be a core part of discussions at the October 18-19 summit, it could be years before it becomes reality even if everyone supports it.Such a fundamental change to how the euro zone is administered would more than likely require a change to the EU treaty, a long, complex and divisive process.The treaty has already been tinkered with since the debt crisis began and there is a reluctance to open it up again.Even if German Chancellor Angela Merkel were to support treaty change, it is unlikely she would want to do it until after Germany holds elections in September next year.But there are also European Parliament elections in June 2014 and most analysts of euro zone politics do not expect it to be possible to drive through substantial treaty change until after that, meaning it may only happen in late 2014 or 2015.

Euro zone launches bailout fund

Euro zone finance ministers launched their permanent 500 billion euro bailout fund today but said Spain, the country widely expected to be first to draw on it, was taking steps to overhaul its economy and did not need a bailout for now.Arriving at a meeting in Luxembourg also set to discuss Greece and differences over how to recapitalise Europe's wobbly banks, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no assistance."Spain needs no aid programme. Spain is doing everything necessary, in fiscal policy, in structural reforms," he told reporters as he arrived for a gathering that will also discuss plans to establish a single supervisor for euro zone banks."Spain has a problem with its banks as a consequence of the real estate bubble of the past years," he said. "That's why Spain is getting (EU) help with banking recapitalisation."Luxembourg Finance Minister Luc Frieden took the same line but added that if Spain were to make a request for aid beyond the 100 billion euros already earmarked to recapitalise its banks, it would be examined.As well as Spain's broad financial needs, Monday's meeting was expected to discuss the budget goals presented by Madrid last month, which the European Commission has yet to endorse.The Commission will publish its twice-yearly economic forecasts on November 7 and some officials have indicated that it may conclude Spain cannot meet its budget targets, which are based on the economy contracting by just 0.5% next year.The IMF forecast of a 1.2% recession may be revised further downwards on Tuesday.Evidence that Spain can't meet the targets it has set is likely to undermine market confidence and drive up Madrid's borrowing costs, which are currently hovering around a manageable 5.75%. Yields on 10-year bonds above 6% for a sustained period could force a request for help."I think we should deal with such a request when it comes, but so far the Spanish government is undertaking reforms which go in the right direction," Luxembourg's Frieden said.Many in the financial markets are convinced Spain will not be able to meet its sovereign funding needs at an affordable cost without euro zone and European Central Bank support, especially with several regions requiring a bailout from Madrid.No moves on Greece As well as Spain, ministers will discuss the situation in Greece, where intense negotiations continue between the government and the 'troika' of inspectors from the Commission, the ECB and the IMF over budget cuts for 2013-2014.Jean-Claude Juncker, the chairman of the Eurogroup, said no developments were likely at least until the troika finishes a report on Athens' debt situation and whether it is survivable. That report is now expected in early November."I don't think that we will have any major decisions on Greece," Juncker said. Asked whether a decision on Greece could be expected soon, he replied: "Hope never dies."Monday's meeting will also discuss plans for the ECB to be given responsibility for supervising all eurozone banks and the idea of creating a single budget for eurozone countries, issues that will be discussed further by eurozone and EU leaders at a summit in Brussels on October 18-19.One of the trickiest issues - when the ESM rescue mechanism should be allowed to directly recapitalise banks and how it would work in practice - looked set to be left aside, however.At a summit on June 29, EU leaders agreed that the ESM should be permitted to pump capital into banks directly once a single supervisory mechanism under the ECB is in place, possibly as early as January next year.But the Netherlands, Finland and Germany disagree on how to interpret the June 29th agreement, saying that direct bank recapitalisation should only apply to future problems not "legacy" bad banking debts such as those in Ireland and Spain.Under such circumstances, direct recapitalisation would not help Madrid or Dublin since it would fail to break the link between indebted governments and their indebted banks.EU leaders will now have to re-evaluate their June 29th agreement when they meet on October 18-19. Most diplomats expect the original interpretation to stand, meaning the costs of a direct recapitalisation of Spain's banks would not accrue to the government's books, but details remain to be fought over.With the euro zone countries involved in a lengthy process of trying to define how best to overhaul the monetary union that binds them, meetings of finance ministers increasingly involve broad discussions rather than specific decision-taking.However, the one firm action taken on Monday was the unveiling of the European Stability Mechanism (ESM), a 500 billion euro rescue mechanism for the 17 euro zone countries.The ESM, which replaces the temporary EFSF, will be used to lend to distressed euro zone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track."The start of the ESM marks a historic milestone in shaping the future of the European monetary union," the fund's chief executive, Klaus Regling, told reporters"The euro area now is equipped with a permanent and effective firewall, which of course is a crucial component in our strategy to ensure financial stability in the euro zone."The fund's lending capacity will be based on 80 billion euros of paid-in capital and 620 billion of callable capital, against which the ESM will borrow money on the market to lend it on to governments cut off from sustainable market funding.From Monday it has a capacity of 200 billion euros. It will reach its full capacity gradually by 2014.