NEWS,03.12.2012

Europe canes Israel over settlements

Four European nations summoned their Israeli ambassadors on Monday to denounce Israel's latest settlement construction push, deepening the rift between the Jewish state and European allies that has cracked open over the Palestinians' successful UN statehood bid.Although Europe considers all Israeli settlement construction illegal, the summoning of ambassadors in France, Britain, Sweden and Spain to accuse Israel of undermining already troubled peace efforts was an unusually strong expression of displeasure. It came at a time when Israel was already smarting over Europe's failure to back the Jewish state in its campaign against the statehood move.The Europeans were furious over Israel's announcement Friday that it would move ahead on plans to build 3,000 settler homes to punish the Palestinians for winning UN recognition of a state of Palestine in territories Israel captured in 1967.Israel also said it would begin planning work on an especially sensitive piece of land outside Jerusalem that it has refrained from developing because of US pressure. A meeting with developers and other interested parties was to take place on Wednesday, though officials have stressed that it could be years before actual construction begins.After a flurry of angry phone calls from European capitals to Israel over the weekend, France summoned the Israeli envoy to Paris late on Monday morning.France, the first major European country to announce support for the Palestinian statehood effort, also sent a letter to the Israeli government, calling the settlement decision "a considerable obstacle to the two-state solution."Britain, which abstained in the UN vote, urged Israel to reverse the decision as it summoned Israeli Ambassador Daniel Taub to the Foreign Office. Swedish Foreign Minister Carl Bildt told parliament that "together with other EU countries we will discuss other potential steps," but he would not elaborate.British officials said London was looking to Washington to take the lead, and that British diplomats were meeting with American counterparts on Monday.None of the four European governments openly threatened any concrete measures to punish Israel."Our ambassadors were called in and the countries protested about the announcement about the intention to do further construction in settlements," Israeli Foreign Ministry spokesperson Paul Hirschson said.Israel's Haaretz newspaper reported earlier on Monday that Britain and France were considering recalling their ambassadors to Israel in a symbolic but potent expression of dissent. Hirschson said no such intention had been communicated to Israel, and French and British officials denied the report.Palestinian President Mahmoud Abbas met on Monday with the consul general of France in the West Bank and asked that France exert pressure on Israel to halt settlement activity, according to the official Palestinian news agency, Wafa.Senior Palestinian official Nabil Shaath praised the Europeans for taking action."We've been expecting this kind of behaviour for a long time," Shaath said. "For this to come from France and England is very beneficial to us. We highly appreciate it and we are hoping the US will follow their lead."US Secretary of State Hillary Clinton said on Friday that the settlement activities "set back the cause of a negotiated peace," but nothing harsher has emerged from Washington, the only world power to side with the Israelis against the Palestinians' statehood measure.Germany, which abstained in the UN vote, expressed concern on Monday over the Israeli move but wouldn't say whether it had taken any direct measures in response. Israeli Prime Minister Benjamin Netanyahu is due in Berlin on Wednesday for a previously scheduled meeting with Chancellor Angela Merkel.Steffen Seibert, Merkel's spokespeson, said Germany took a "very negative view" of the settlement announcement, which he said undermined peace efforts.The growth of settlements, now home to half a million Israelis, is at the heart of the four-year breakdown in negotiations.The Palestinians view continued settlement expansion as a show of bad faith and refuse to return to talks unless construction is frozen. Netanyahu notes a 10-month settlement slowdown in 2010 failed to jump-start negotiations, and rejects calls for a new construction freeze.The UN General Assembly voted overwhelmingly on Thursday to recognize a Palestinian state in the West Bank, east Jerusalem and the Gaza Strip, territories Israel captured in the 1967 Mideast war. Israel still occupies those first two territories and restricts access to Gaza, though it withdrew all settlers and soldiers in 2005.Netanyahu rejects a return to Israel's 1967 lines. His government campaigned against the UN measure, saying only direct negotiations could produce a Palestinian state.But in a stinging diplomatic defeat, just eight other countries, including the US, opposed the Palestinian bid. Israel's closest allies in Europe, including Germany, Italy, France and Britain, either abstained or voted with the Palestinians in what amounted to a sweeping condemnation of Israeli settlements. Israel retaliated by announcing the next day that it would start drawing up plans to build 3 000 settlement homes in the West Bank and east Jerusalem. More explosively, from the Palestinian point of view, it said it would begin planning work for a chunk of land east of Jerusalem known as E1.Building there would sever the link between the West Bank and east Jerusalem, which the Palestinians claim for a future capital. It would also cut off the northern part of the West Bank from its southern flank.The Palestinians say construction in that territory would kill any hope for establishing a viable state of Palestine. Successive US governments have agreed, and under intense American pressure, Israel has avoided building settlements in the area. It has, however, developed roads and infrastructure and built a police station.On Wednesday, Israel's planning and construction committee for the area is scheduled to hold a first-ever meeting to discuss developing the E1 area, a defence official said.The session, described by the official as a "very, very preliminary" step, would be open to Jewish politicians in the West Bank and developers, as well as Palestinians with any claims to parts of the land. This would be the first step in a planning process that could take months, if not years, before ground is actually broken. The official spoke on condition of anonymity because he was not authorized to discuss the project.Actual settlement construction remains far from certain and may have been announced by Netanyahu to appeal to hawkish voters ahead of Israel's 22 January election.

 

North Korea warned against second rocket launch

Russia urged North Korea today not to go ahead with a plan for its second rocket launch of 2012, saying the launch would violate restrictions imposed by the UN Security Council."We urgently appeal to the government[of North Korea to reconsider the decision to launch a rocket," the Russian Foreign Ministry said in a statement. North Korea's state news agency on Saturday announced the decision to launch another space satellite and reportedly told neighbours it would take a similar path to a failed rocket launch in April. Echoing its criticism of the April launch, Russia said Pyongyang had been warned not to ignore a UN Security Council resolution that "unambiguously prohibits [North Korea] from launching rockets using ballistic technology."North Korea says its rockets are used to put satellites into orbit for peaceful purposes. The Russian statement said North Korea would be allowed only to exercise its right to peaceful activity in space if the UN-imposed restrictions were lifted.Russia has often balanced criticism of Soviet-era client state North Korea's nuclear activities and missile launches with calls on other powers to refrain from belligerent actions against Pyongyang, which it says can be counterproductive.Russia is a permanent member of the UN Security Council and is upset by any defiance of council resolutions. Past launches by Pyongyang have caused concern among Russians living near the country's border with North Korea.

 

Euro rises to six-week high against US dollar

 

The euro rose to a six-week high against the US dollar after Greece offered to buy back 10 billion euros of bonds in what is seen as a sign of progress in tackling its debt mountain.As talks in Washington aimed at averting the fiscal cliff appear stalled, a chink of light has flowed into markets from Europe. The euro traded recently at $US1.3065 from $US1.3006 in late New York trading on Friday. The Dollar Index, which tracks the greenback against six major currencies, fell to 79.819, the lowest since late October.Greece's Public Debt Management Agency is offering a maximum purchase price of 34.1% bonds maturing from 2023 to 2042, higher than expected.Greek bonds rose on the news, pushing the 10-year yield below 15 percent for the first time since March.The February 2023 bond price is at 39.31% of face value, according to Bloomberg.The buyback will be via a swap into six- month bills from the European Financial Stability Facility, which last week had its provisional debt rating cut to (P)Aa1 from (P)Aaa with a negative outlook by Moody's Investors Service.It is part of plans to reduce Greece's debt to 124 % of gross domestic product by 2020.The buyback was one of the conditions of the financial aid approved by euro zone finance ministers and the International Monetary Fund last week and comes as German Chancellor Angela Merkel appears to be softening her stance on conditions for a bailout, saying her country may accept a write-off of Greek debt."If Greece one day can rely once again on its own revenue, without having to borrow, then we'll have to look at this situation and make an evaluation," Merkel said in an interview with Germany's Bild newspaper. Equity markets were generally higher in Europe though they pared gains after an unexpectedly weak US manufacturing report.The Stoxx Europe 600 Index rose 0.1%, Germany's DAX 30 climbed 0.4% and France's CAC 40 rose 0.3%."If Greece can manage the buyback and get a new tranche of aid, then the Greece problem will be out of the way until the end of 2013," Philippe Gijsels, head of fixed-income research at BNP Paribas Fortis in Brussels, told Bloomberg. Manufacturing in the US unexpectedly contracted last month.The Institute for Supply Management's factory index fell to a three-year low of 49.5 in November from 51.7 in October, surprising economists who had expected manufacturing to expand. Manufacturing in the euro zone was also weaker, shrinking for a 16th straight month for a reading of 46.2.Stocks on Wall Street weakened after the manufacturing data.The Dow Jones Industrial Average was recently 0.3% lower, with manufacturers such as DuPont and General Electric leading the decline.The Standard & Poor's 500 Index was down 0.1%.Adding to America's economic woes, Fitch Ratings said warned that the $US607 billion of tax increases and federal spending cuts that kick in on January 1 are the biggest threat to the credit rating of US states in 2013."The risk that the fiscal cliff presents to the overall economy is the biggest concern for state credit, as state revenue systems quickly reflect changing economic conditions," Fitch managing director Laura Porter said in a statement yesterday. US Treasury Secretary Timothy Geithner told CNN's State of the Union that Republicans will "own the responsibility for the damage" to the US economy if they don't cede ground and agree to tax hikes for the wealthiest Americans.

World economy in deep trouble

The global economy is on edge - and that's without the US "fiscal cliff." Among rich nations, the US outlook remains the least troublesome. But given a recession in the eurozone and a recent contraction in Japan, that's not saying a lot. At the same time, many emerging markets are hurting. India is likely to log its weakest growth in a decade this year and Brazil's economy is also sputtering. Luckily, growth in China appears to be firming. In the United States, the economy faces growing challenges even without the ongoing political wrangling over the $600bn in government spending reductions and expiring tax cuts set to kick in at the start of next year.The coming week brings a slew of reports expected to show the US economy struggling. Data on Friday will likely show employment growth slowed to just 100 000 jobs last month from 171 000 in October, according to a poll of economists. US manufacturing data this week is also likely to suggest a fourth-quarter slowdown is at hand. Indeed, some worry the fourth quarter, which has been affected by the impact of superstorm Sandy, will bring the world's largest economy remarkably close to stall speed. "The risk of seeing a negative sign in front of fourth-quarter GDP is nontrivial, to say the least," said Tom Porcelli, economist at RBC Capital Markets. Following figures showing consumer spending fell in October for the first time in five months, Porcelli revised down his forecast for fourth-quarter US GDP growth to a 0.2% annual pace from 1%t.The United States' travails come against a troubling global backdrop. Europe is still a mess. Greece's latest debt deal quelled immediate concerns of a financial market meltdown, with terms of the country's bond buy-back plan likely to be announced early this week. But the country remains mired in a deep depression, with little prospect for recovery, and not everyone is convinced it will be able to remain a part of the single currency. "We expect the euro to come under pressure again soon, and continue to forecast that the exchange rate against the dollar will tumble to parity next year as Greece eventually leaves the eurozone," said John Higgins, economist at Capital Economics in London. The attention of financial markets has also quickly returned to Spain, where the economy continues to worsen despite an improvement in credit market conditions prompted by hopes of eventual help from the European Central Bank. Spanish retail sales plunged 9.7% in October, pointing to a further sharp contraction for a country that has been in recession for more than a year. The trouble for Spanish Prime Minister Mariano Rajoy is that ECB help, in the form of purchases of Spanish bonds, will not come unless Spain formally applies for sovereign aid, a highly unpalatable choice politically. Still, it is one the government may eventually have to stomach, as evidenced by its willingness last week to break with a key campaign promise and forego inflation adjustments for retirees' pensions in order to meet its deficit targets. Other global engines of growth also look to be softening. Not only did growth slow in India and Brazil in the third quarter, but it braked in Canada as well. China now may be the exception, with a gauge of factory activity hitting a seven-month high in November. Hovering over this rather dispiriting global scene, Washington's bickering appears to be nowhere near over, with both Democrats and Republicans holding firm to their positions. US House Speaker John Boehner, the top Republican in Congress, said on Friday that talks were at a stalemate. In an interview that aired on Sunday, he dismissed a proposal presented by the Obama administration last week as "nonsense." The biggest sticking point is whether to extend low tax rates on household income above $250 000 established under former President George W. Bush. Boehner said Republicans still oppose raising tax rates on any income group. Hopes for a deal now hinge on the growing number of Republicans in the House, including a handful of Tea Party-backed conservatives, who have begun signaling greater flexibility than their leaders in softening their opposition to higher taxes for the wealthy. Obama is hoping to appeal to more potential renegades to get a deal to avoid the budget crunch that economists say would tip the economy back into recession.

Tough talk as US 'fiscal cliff' looms

A sense of deja vu gripped Washington on Monday as Democrats and Republicans locked in who-blinks-first brinkmanship over taxes and spending, with pundits warning of economic chaos unless a deal is struck.The White House will not budge on tax hikes and Republicans call the president's opening gambit ridiculous, but without a deal by the year's end the fragile US economy will plunge off what is being called "the fiscal cliff.""I think we're going over the cliff," grimly predicted Republican Senator Lindsey Graham of South Carolina.He said he was ready to consider closing tax loopholes for the richest Americans, but only in conjunction with entitlement reform aimed at saving such programs as Medicare, Medicaid and Social Security from bankruptcy.But Graham insisted that the president's plan when it comes to entitlement reform "is just, quite frankly a joke."In April 2011, there were less than two hours to go to avert a government shutdown when the same protagonists, Democratic President Barack Obama and Republican House Speaker John Boehner, struck a tentative budget deal.The hard-fought accord that eventually raised the debt ceiling later that summer came too late to prevent Standard & Poor's from downgrading the credit rating of US government bonds for the first time in the country's history.Despite international criticism then for playing a dangerously irresponsible game of chicken, both sides are at it again refusing to compromise and counting down the clock as financial disaster looms.The debt ceiling deal signed into law in August 2011 included a poison pill provision that would usher in across-the-board spending cuts unless Congress passed a $1.2bn deficit reduction bill by the end of 2012.Combined with the expiry on December 31 of a raft of tax cuts, including reduced Bush-era rates for nearly all Americans and Obama's two percent cut in payroll taxes, the risk of a new recession is very real.The point of the "fiscal cliff" provision was to force a fiercely divided Congress and White House to stop kicking the can down the road and get serious about tackling the $16.3 trillion public debt and arcane tax laws.Obama called in the tough-talking Timothy Geithner to be his pointman on the crisis, hoping the outgoing Treasury secretary had enough respect on Capitol Hill and economic expertise to get the job done.But, if the Republican leadership is to be believed, things got off to a rocky start when Geithner got negotiations rolling on Thursday by laying out Obama's initial offer.It called for nearly $1.6 trillion in new tax revenue over the next decade and $600bn in spending cuts, including from programs Democrats cherish like Medicare, which covers health insurance for the elderly."I was flabbergasted. I looked him and said, 'You can't be serious,'" Boehner told .""I've just never seen anything like it. You know, we've got seven weeks between election day and the end of the year. And three of those weeks have been wasted with this nonsense."Republicans said the offer doubled the amount of revenue Obama had been asking for, included new stimulus spending to offset the spending cuts, and made no specific commitments to slash costly government welfare programs. They also balked at a provision that would see a permanent end to congressional control over federal borrowing limits, the issue that set this crisis in motion.Boehner, whose party controls one of the chambers through which any crisis-solving bill must pass, dismissed the notion that Congress would give up powers to vote on future debt limit increases as "silliness. ""They must have forgotten Republicans continue to hold a majority in the House," he said, adding bitterly: "The president's idea of a negotiation is: roll over and do what I ask."Budget negotiations go right to the heart of ideological differences between Democrats and Republicans on the size and scope of government. The biggest sticking point has been on tax rates for high-earners. Obama won re-election on a platform of raising taxes on individuals who make more than $200 000 per year and on families that rake in more than $250 000, as a way of raising extra revenue to tame the deficit.Republicans insist that raising taxes on the wealthy would hurt small business owners, slow economic growth and dampen job creation."There's not going to be an agreement without rates going up. There's not," Geithner told . Republicans say they are ready to extract more revenue from wealthy Americans, but want to do so by closing tax loopholes and limiting deductions rather than by raising income tax rates.Besides resisting tax hikes, Republicans want action on Medicare and Social Security. Geithner insisted that Social Security, which provides government funds to the elderly, the disabled, widows and the poor, should not be on the table in the current negotiations.

 

Greece to unveil terms of bond buy-back

 

Greece will unveil details of a bond buy-back crucial to efforts by foreign lenders to trim the country's ballooning debt, hoping the terms will draw enough investors and unblock vital aid. Since plans for the buy-back were announced on Tuesday, questions have swirled about whether it will tempt enough bondholders to cut Greek debt by a net €20bn. Under the plan, Greece aims to cut its overall indebtedness by spending €10bn from its rescue package to buy back about €30bn of bonds for less than it would have to pay if its creditors held them to maturity. A senior government official said Athens would unveil the terms of the deal on Monday before a meeting of eurozone finance ministers, at which Greek minister Yannis Stournaras would brief his counterparts. "There will be a debriefing by the Greek minister on the steps he will have taken by then," said a senior EU official. "On Monday you will see it all." Eurozone officials said the bloc hoped Greece would be able to repurchase at least €40bn of its own bonds. The price that Athens will offer bondholders is likely to vary depending on the bond rather than be a uniform rate for all holders, a senior Greek finance official has told. On the secondary market, Greek bonds eligible under the buy-back ranged from 25.15 to 34.41 cents in the euro at the close of trading on November 23,data showed. Greece's lenders agreed this week that the bonds, which have a nominal value of €63bn, would not be purchased for more than the closing price on that date. The offer goes in theory also to holders of about €4bn of old Greek bonds, who refused to take part in a debt cut scheme in March. A  calculator on the buy-back shows that if the buy-back price was set at the November 23 closing prices, even a 50% participation rate would be enough for a successful deal - in this instance, Athens would have to spend just €8.7bn to buy back debt worth €31.5bn. For Athens to spend €10bn, it would have to buy back around 60% of the outstanding bonds. This could save Greece €39bn gross on the face value of the bonds and the interest payments due on them. Athens has pressed its banks which hold nearly €17bn of the bonds to take part in the deal, saying it was the "patriotic duty" of Greeks to ensure the buy-back is a success. "The buy-back must succeed. It's our patriotic duty to succeed, it is important for the country's credibility," Stournaras said last week. Despite fears that Greek banks already battered by the country's deep economic crisis would be forced to book losses from the buy-back there have been growing indications they are likely to participate. Prime Minister Antonis Samaras said Greek banks would benefit from the voluntary debt buy-back which is crucial to unlocking aid that will largely be used to recapitalise them since they held Greek bonds at lower prices on their books. "They won't lose any of their capital but will end up with more liquidity," he was quoted as saying in an interview with Sunday's Proto Thema newspaper. The deal is seen as a golden opportunity for hedge funds which have bought the bonds at rock-bottom prices. Athens must complete the buy-backs by December 13 to receive more than €30bn in bailout payments. Greek pension funds holding more than €8bn of the bonds will not take part, Samaras said. "The debt buy-back does not concern the pension funds," he said. "We wouldn't erase the debt even if we took the funds' bonds. These are seen as arrears of the state to itself."  

Greece launches bond buyback offer

Greece said on Monday it would buy back bonds through a Dutch auction as part of efforts to cut its ballooning debt, allowing it to assess the level of demand before setting a final price for the deal. The bond buyback is central to the efforts of its foreign lenders to put Greece's debt back on sustainable footing, and its success will pave the way for the country to get long-delayed funding to avoid bankruptcy. Since plans for the buyback were announced last week, questions have swirled about whether it will tempt enough bondholders to cut Greek debt by a net €20bn - the target set by eurozone finance ministers and the International Monetary Fund. The buyback will be conducted through a modified Dutch auction that allows it to introduce an element of competition among investors to get the best price.Greece set a price range to buy back each of its 20 series of outstanding bonds with a spread of two percentage points - from a minimum of 30.2 to 38.1% and a maximum of 32.2 to 40.1% depending on the bond maturities. In such an auction, if a bondholder tries to get a price close to the upper limit there is a risk he or she may be left out if the buyback amount is filled at lower prices. There will be one settlement price for each series of bonds. Greek bonds eligible under the buy-back ranged from 25.15 to 34.41 cents in the euro at the close of trading on November 23, data showed. Athens said it would not spend more than €10bn on the buyback. Investors must declare their interest by December 7 and the expected settlement date is December 17. Eurozone officials said the bloc hoped Greece would be able to repurchase at least €40bn of its own bonds. Athens unveiled the structure of the buyback before a meeting of eurozone finance ministers, at which Greek Finance Minister Yannis Stournaras will brief his counterparts. Greece's lenders agreed last week that the bonds, which have a nominal value of €63bn, would not be purchased for more than the closing price on that date. The offer goes in theory also to holders of about €4bn of old Greek bonds, who refused to take part in a debt cut scheme in March. A  calculator on the buy-back shows that if the buy-back price was set at the November 23 closing prices, even a 50% participation rate would be enough for a successful deal  in this instance, Athens would have to spend just €8.7bn to buy back debt worth €31.5bn. For Athens to spend €10bn, it would have to buy back around 60% of the outstanding bonds. This could save Greece €39bn gross on the face value of the bonds and the interest payments due on them.