NEWS,16.10.2012

More 'energetic' Obama predicted for debate

President Barack Obama's camp is promising that the American public will see a more energised and visionary incumbent in the second presidential debate later today.Republican challenger Mitt Romney's campaign got a much-needed shot in the arm two weeks ago when the Republican came out swinging in the first matchup between the two candidates, while Obama appeared passive and tongue-tied at times.The strong debate performance helped Romney reverse his slide in the polls, and recent surveys put the race for the White House at a virtual dead heat just three weeks ahead of the November 6 election.In a Ipsos daily tracking poll on Tuesday, Obama gained ground on Romney for the third straight day, leading 46% to 43%."I think you'll see somebody who will be strong, who will be passionate, who will be energetic, who will talk about... not just the last four years but what the agenda is for the future and how we continue to move... our economy forward," Obama's senior campaign adviser Robert Gibbs said.The 90-minute debate at Hofstra University in New York begins at 9pm EDT (2pm today NZT).Velvet glove Both men will have to deal with a more intimate town hall format, which often inhibits political attacks as the candidates focus on connecting with the voters asking the questions.It also offers an element of uncertainty as the candidates cannot predict what the audience of undecided voters might ask, which could range from tax policy to job creation to foreign policy."Almost all of the pressure will be on Obama this time, given how poorly he performed in the first debate and how much that seemed to help Romney and change the race," said political scientist Andrew Taylor of North Carolina State University.The town hall format lets the candidates "talk directly to people and look them in the eye and try to connect, which has not been a strength for either of them," Taylor said."But you can still make strong points with a velvet glove."Repairing damage During the first debate, Obama was widely criticised for not challenging Romney on exactly how he plans to give Americans a big tax cut without adding to the deficit, and for not calling attention to the more moderate views Romney appeared to present during the matchup.A Gallup/USA Today poll published on Tuesday showed the two had similar favorable ratings from registered voters. But the survey showed Romney ahead of Obama by four percentage points among likely voters in the 12 battleground states.The Reuters/Ipsos poll that gave Obama an edge showed the number of undecided voters had increased, indicating a drop of support for Romney among the coveted voting bloc.The online survey of 1,846 likely voters was conducted between October 12 and October 16.The precision of the poll is measured using a credibility interval, which is plus or minus 2.6 percentage points for likely voters.For Obama, trying to repair damage from the last debate, the challenge will be to confront Romney on the issues without seeming nasty or too personal.Romney, a wealthy former private equity executive often accused of failing to connect with ordinary people, would be happy with a steady performance to keep up his momentum.Economy The economy is expected to be a dominant topic. Obama is able to tout the latest jobs report, which showed that the unemployment rate unexpectedly dropped to 7.8% in September and reached its lowest level since Obama took office.Romney has countered that the labor market is not healing fast enough.Glenn Hubbard, one of Romney's top economic advisers, told Reuters that the Republican candidate was prepared to question Obama's record on the economy."His objective is to continue the conversation with voters about what the right economic policies are for the country," Hubbard said on the sidelines of an economic conference in New York. "He did that really well last time and I'd be stunned if he doesn't do it well tonight."Since the last debate, both sides have also focused on new lines of attack that are likely to come up in today's debate. Romney was expected to stay on the offensive over the administration's handling of diplomatic security in Libya before the attacks there that killed the US ambassador and three other Americans.The debate comes a day after Secretary of State Hillary Clinton assumed responsibility for the lack of security that failed to protect against the deadly attack."It's a matter of leadership; it's a matter of straight answers," Republican National Committee chairman Reince Priebus."I just get a feeling that this president hasn't been straight with the American people."Democrats, hoping to make more inroads with women voters, have hit Romney and his running mate Paul Ryan for their opposition to abortion rights.

The Euro: Bad Idea, Poorly Executed, Hard to Fix

When the Norwegian Nobel Committee awarded the 2012 Peace Prize to the European Union (EU), they cited advances in "peace, democracy, and human rights." The common currency zone we call the Euro Area isn't mentioned, unless it's implied by the phrase "grave economic difficulties." If the EU has been a success, the European Monetary Union (EMU) is revealing itself to be the opposite. One might argue that the euro was a mistake from the start, that the history of fixed exchange systems is littered with failure. We have some sympathy with that view, but we'd like to make two different points. First, flaws in the design and implementation of the EMU have made the crisis worse. Second, the decentralized decision-making process of the EU, with political power concentrated in countries rather than Europe, makes effective crisis management nearly impossible. The euro crisis combines, in our view, a sovereign debt crisis and a banking crisis, with mutually adverse feedback between the two. But design flaws in the system magnified their impact and feedback. The most important flaws were: Inadequate fiscal discipline. Limits on debt and deficits (the Stability and Growth Pact) failed early on when France and Germany ignored them. That paved the way for countries with weaker fundamentals, including Greece and Portugal, to issue more debt than they could support. When the crisis struck, the no-bailout clause of the Maastricht Treaty also proved to be vacuous. Compare that to the federal system in the United States. Fiscal difficulties in Illinois or New Jersey come with clear precedent against bailouts and have little impact on other states, the federal government, or the monetary system. . Symmetric treatment of sovereign debt. National bank regulators regulation remains a national activity, not a European one decided to treat the debt of Euro Area members as risk-free for capital requirements. The European Central Bank compounded the mistake, accepting all such debt as collateral on similar terms until recently. It's not hard to imagine this made the debt of weak states more attractive and allowed them to issue debt on better terms than their fundamentals indicated. These policies further weakened the credibility of the no-bailout commitment. National regulation, deposit insurance, and bank resolution. Consider a system with no limit on cross-border capital flows, but with national responsibility for regulation, deposit insurance, and resolution of insolvent banks. Add regulatory tolerance of home-country bank risk and sovereign debt problems and you have the perfect environment for a cross-border credit expansion followed by an international bank run. Add national guarantees of banks and you have a feedback amplifier linking banks and sovereigns. The feedback intensifies when bank and fiscal consolidation hit the economy. Leaks in the payments system. The Euro Area payments system (TARGET2) allowed weak banks to borrow from the European Central Bank to replace their evaporating deposit base. While this avoided a collapse of the euro, it subsidized weak banks, delayed their recapitalization, and reinforced the ongoing disintegration of the Euro Area financial market. Official funds continue to flow on a large scale from the ECB to banks in weak countries. When they buy home-country debt, the financial system becomes riskier, fragmentation more permanent, and market discipline on sovereigns less effective. The enormous growth of TARGET2 balances also makes the creditor countries worry about their exposure to a potentially fragile union. As of September, the Bundesbank's TARGET2 claims was nearly 700 billion euros. No exit strategy. The authors of the Maastrict Treaty suggested that membership in the Euro Area was irreversible: there were no provisions for exit or expulsion. The threat to leave, however, gives weak countries more leverage than strong ones. They threaten contagion to others, whose membership is revealed to be revocable, and ask for financial help to void the threat. Consider the contrasting situation of Ecuador, which decided to use the US dollar as its currency. Ecuadorians made this decision on their own, and they can change it any time they wish, with no perceivable impact on the U.S. or any other country. None of these features of European Monetary Union were essential to a common currency system. They were, in a sense, implementation details, but details or not, they made the crisis worse. We see the results now all over Europe. On top of this, the decentralized nature of political power in Europe makes it extremely difficult for anyone to respond effectively to the crisis. Political power, particularly the power to raise revenue, still resides in countries, not in Europe or a euro-area agency. Many important decisions require unanimous approval of the member states. That leads to concerns about whether (say) Finland will approve a measure to deal with the crisis. The best minds of Europe have come up with some creative workarounds, but it shouldn't have been this hard. The political structure has taken a difficult problem and made it nearly impossible. That was always the inherent tension at the heart of the system: collective monetary policy vs. national political power. It was never a good combination. If you could do it over again, you wouldn't do it this way. Where will this lead? Maybe Greece will leave, maybe it won't, but the rest probably will continue to muddle along from crisis to crisis. Even if the system holds together for a time, the cost is likely to be an extended period of poor economic performance  in our view, more extended than it has to be. I would love to be wrong.

 

Chinese Warships Off Japan Cross Near Island Of Yonaguni

 

Japanese military officials said they closely watching seven Chinese warships spotted in waters off a southern island Tuesday. It was unclear whether the ship movements were related to a territorial dispute that has prompted both countries to show off their maritime muscles.The Chinese ships were sighted about 49 kilometers (30 miles) from the island of Yonaguni, in Japan's Okinawa prefecture (state), according to Japan's Defense Ministry. They were about 200 kilometers (125 miles) from a chain of small islands that have sparked a heated dispute between Japan and China.The ships were believed to be returning to China after training in the Pacific.Defense Minister Satoshi Morimoto said Japan is monitoring the ships' movement. Japan considers the area part of its contiguous waters, but it is not illegal for foreign vessels to transit them.It is not unusual for the Chinese navy to transit waters around Okinawa en route to the Pacific, but this is the first such operation observed this year, according to public broadcaster NHK. The ships included frigates, a guided missile destroyer, a refueler and two submarine rescue vessels.It was unclear if their mission was directly related to the territorial issue, or whether they were trying to avoid an approaching typhoon.China's Defense Ministry said the ships were on a scheduled cruising exercise and were acting in a manner that was "appropriate and legal."Underscoring China's sharper stance, it also protested the scrambling of a Japanese military plane in the direction of the disputed islands, calling that a "gross violation" of Chinese sovereign rights."The Chinese military is closely following the actions of the Japanese side and demands Japan halt all actions complicating or escalating the situation," the ministry said in a short statement on its website.Japan angered China last month by nationalizing part of the chain of uninhabited East China Sea islands called Senkaku in Japanese and Diaoyu in Chinese. The move sparked violent protests in China.Chief Cabinet Secretary Osamu Fujimura said Tokyo has urged Beijing to "avoid any actions that would go counter to the mutual benefit."Nearby Taiwan also claims the islands, which are uninhabited but surrounded by rich fishing grounds and possibly lucrative undersea energy deposits.China and Japan have recently stepped up naval activities in the area around Okinawa because of the dispute, but there have been no clashes between their warships, which have generally stayed away from the islands themselves.Wary of missteps that could lead to a sudden escalation of tensions, the countries have instead sent less threatening coast guard ships. Over the past week, however, both have made a point of showing off their naval prowess.Chinese websites were abuzz Monday with photographs of navy pilots practicing touch-and-go landing exercises on China's first aircraft carrier. It wasn't clear when the pictures were taken, and they did not appear on the Defense Ministry's website or in official media.The carrier was launched last month without aircraft or an accompanying battle group, and actual flight operations could be years away. But it is widely seen as a symbol of China's ambitions to be a leading Asian naval power, especially as it faces sharpening territorial conflicts with Japan and other countries.Japan's navy, meanwhile, marked its 60th anniversary with a major exercise on Sunday. Japan also plans to hold a joint exercise with the U.S. military later this year, reportedly using a scenario of taking a remote island back from a foreign intruder.Asked how China sees the reported scenario, Chinese Foreign Ministry spokesman Hong Lei said, "To maintain the peace and stability of Asia-Pacific is beneficial to all sides." He added: "Increasing tension is against the bigger trends of regional security, peace and the buildup of political and security trust. We reserve the right to take further action."Defense Minister Morimoto declined to confirm the scenario or give other details.In Sunday's exercise, about 40 ships – including state-of-the-art destroyers, hovercraft able to launch assaults on rough coastlines and new conventionally powered submarines took part in Fleet Review 2012, the maritime equivalent of a military parade.About 30 naval aircraft, mostly helicopters, also participated. For the first time, Japan's navy was joined by warships from the United States, Singapore and Australia. Representatives from more than 20 countries, including China, attended the event staged in waters south of Tokyo.