NEWS,12.03.2013

British manufacturing output slumps

Britain's manufacturing output slumped by 1.5% in January compared with December, official data showed on Tuesday, dealing a fresh blow to the country's hopes of avoiding a fresh recession.The wider measure of industrial production - which includes mining and quarrying, electricity, gas and water supply dropped by 1.2% in January from December, the Office for National Statistics added in a statement.Analysts' consensus forecast had been for manufacturing and industrial output to have each grown by 0.1% in January month-on-month, according to a survey by Dow Jones Newswires.Industrial output fell as suspended production at the Schiehallion oil platform in the North Sea hit oil and gas extraction."January’s figures do little to ease fears that GDP may still be contracting and that the economy could therefore be in a triple-dip recession," said Capital Economics analyst Samuel Tombs.Recent official data showed that British gross domestic product (GDP) shrank by 0.3% in the final quarter of 2012, compared with the previous three months.Another contraction in the current first quarter of 2013 would place the British economy in its third technical recession since the 2008 global financial crisis."Industrial production measure fell 1.2% month-on-month in January, a far worse outturn than expected," said Royal Bank of Scotland economist Ross Walker."The slump in January leaves a decline in first-quarter GDP looking more likely than not."In a separate data release on Tuesday, the ONS also revealed that Britain's trade-in-goods deficit narrowed at the start of the year.The deficit shrank to £8.2bn in January from £8.7bn in December.That beat analysts' forecasts for a January deficit of £8.9bn.However, IHS Global Insight economist Howard Archer argued that the improvement masked a worrying trend."On the face of it, the sharply reduced trade deficit in January is better news for hopes that the economy can grow in the first quarter," Archer said."But even here the headline figure masks some worrying trends as the reduced deficit occurred because UK imports fell more than exports. This indicates that UK exporters are currently still finding life very tough while domestic demand is weak."

Eurozone crisis not over - ECB's Weidmann

The euro zone crisis is not over and governments must tackle the roots of their troubles with reforms, Bundesbank chief Jens Weidmann said on Tuesday, adding that France's reform drive seems to have gone off track."The crisis is not over despite the recent calm on financial markets," Weidmann, a member of the European Central Bank's policymaking governing council, told a news conference to present the Bundesbank's 2012 results.There was uncertainty about the reform course in Italy and Cyprus, he said, adding: "The reform course in France seems to have floundered".

Judge blocks NY ban on giant fizzy drinks

New York judge blocked mayor Michael Bloomberg's planned ban on giant sodas Monday, dealing a setback to his public health agenda just hours before curbs on selling such drinks were due to begin.Judge Milton Tingling ruled that measures to restrict soda servings to a maximum of 16 ounces (470 milliliters) in restaurants and other venues, were "arbitrary and capricious," and he was barring the plan "permanently."Bloomberg has made health issues a key plank of his administration, banning smoking in restaurants, bars and other public places. He quickly denounced the judge's decision on sodas as "clearly wrong," and said the city would appeal."I am trying to do what is right to save lives. Obesity kills," a visibly angry Bloomberg told reporters, noting that 5 000 New Yorkers and 70 000 US citizens would fall victim to the disease this year."Sugary drinks are a leading cause of obesity. We have a responsibility as human beings to do something, to save each other," he added.But Bloomberg's super-sized soda ban, which would have been a first for a US city, sparked frenzied debate, with petitions and media campaigns from both sides.Some supported Bloomberg's arguments, emphasizing that 30 years ago the average soda serving was just six ounces, but that these days, it's not rare to see young Americans with giant fizzy drinks of more than a litre (33 ounces).Opinion polls over the summer indicated that a majority of New Yorkers opposed the limited ban, with some suggesting the mayor was impinging on civil liberties and others arguing the rules would not be effective.Industry lobby groups led by the American Beverage Association (ABA) and the National Restaurant Association took the court action that led to Monday's judgment, and they praised the decision."The court ruling provides a sigh of relief to New Yorkers and thousands of small businesses in New York City that would have been harmed by this arbitrary and unpopular ban," the ABA said in a statement.As well as the thousands who die each year from obesity-linked problems, one in eight adult New Yorkers has diabetes, which can be aggravated by sugar consumption, and studies have shown that sodas, which often cost less than bottled water, are a contributing factor."Remember, for many years, the standard soda size was six ounces - not 16, it was six, then it was 12 ounces and people thought that was huge. Then it became 16, then 20 ounces," Bloomberg said."We believe it's reasonable to draw a line and it's responsible to draw a line right now," he added.The New York Board of Health approved the measures last September and they were due to come into force on Tuesday in restaurants and places of public entertainment, such as stadiums.In a boost for the soda limits, the newly-built basketball stadium for the Brooklyn Nets had said it would immediately adopt the rules.But under the measures put forward by the city there was nothing to stop people from buying as much soda as they like by refilling smaller containers.Also, the ban did not extend to drinks sold in supermarkets or any dairy or fruit drinks, many of which also contain huge quantities of sugar.Diet and alcoholic drinks were also exempted under the city's plan."The exclusion of all alcoholic beverages from the ban is completely irrational. Beer and soda have nearly the same calories per ounce," the legal complaint said.And "the application of the ban to some business establishments but not others is arbitrary and capricious," it argued.Bloomberg previously acknowledged that the plan would fall short of ending over-consumption of sugary drinks, but he said the disappearance of mega-sized cups would at least make people more aware of what they were consuming.

Australia unveils media shake-up

Australia's centre-left Labour government unveiled a shake-up of media laws on Tuesday, introducing a public interest test for mergers but stopping short of press regulation asfeared by the industry.Communications Minister Stephen Conroy said the reforms, drafted after an inquiry into Australia's media following the phone-hacking scandal in Britain, were aimed at modernising the industry and guarding fairness and diversity.If passed into law, the changes would bring a public interest test to "nationally significant" mergers and acquisitions, which Conroy said was not the same as the "fit and proper person" test seen in Britain.It would be monitored by a new statutory authority called the Public Interest Media Advocate, which would oversee a robust self-regulation model, the minister said, stressing that the government would have no role."The government will not fund or oversee press standards bodies, they will be run, funded and operated by the print media themselves," he said.Proprietors, most vocally Rupert Murdoch's dominant local arm News Limited, had feared official regulation of the press, but Conroy said the present model of self-regulation would continue, although it would be tightened.Conroy added that the government would be seeking a "more transparent and open process" on appointments to regulatory bodies such as the current Press Council and better enforcement of existing press standards.The Press Council could apply to be authorised under the new framework, but Conroy said it would be  expected to be "transparent, open and independent" of proprietors, not just the government, to address community concerns."In Australia there is a real risk that over time there will be fewer and fewer organisations owning and controlling sources of news and commentary," Conroy told reporters."There are two existing mechanisms that address this risk: competition law and foreign ownership restrictions. But these alone do not reflect the full question of public interest in media diversity."Conroy said the government would not barter on the legislation, which he believed had enough backing in parliament."If these reforms do not garner sufficient support to pass the parliament by the end of next week then the government will not proceed with the bills containing them," he said.

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.

NEWS,11.10.2012

Spain comfortable with waiting game on aid

Spain is comfortable putting off an international aid request for weeks or even months as it waits out German political obstacles, analysts and sources say.In the meantime, Spanish Prime Minister Mariano Rajoy is focusing on measures such as intensifying labour market reforms, as well as pushing for a European banking union that would help rebuild confidence in Spain's tarnished banking sector.Spain's borrowing costs spiked in July, the yield on the benchmark 10-year bond jumped over an unsustainable 7%, but tumbled after ECB head Mario Draghi unveiled a bond-buying scheme to lower Spanish borrowing costs.Spain must first sign up for a European rescue plan to trigger the bond buying. Given its debt position, the Spanish government still sees that step as inevitable but pressure has eased as investors are less willing to bet against Spain with the ECB waiting in the wings.Germany has sent Spain strong signals that it should hold off because German Chancellor Angela Merkel is wary of presenting a fresh aid request to her parliament, euro zone sources say.Sources familiar with Rajoy's thinking say he also wants the ECB to indicate exactly what it will achieve with the bond-buying. "We will end up there, with ECB action, but the ECB is still designing the instrument in more accurate terms," said a source close to the government. "The markets understand that we have the fire extinguisher. We'll see how it evolves in the coming weeks."Turmoil over Greece, a fresh spike in Spanish yields or a credit rating downgrade to junk status for Spanish government bonds could accelerate the process, but for now Madrid is comfortable taking it slow, the source said.Spanish officials see more risks to moving ahead quickly without assured German backing, than in delaying a request.Meanwhile, they think things are moving in the right direction. For example, criticism of Draghi's plan has died down after strident objections from European Central Bank Governing Council Member Jens Weidmann, who heads the German Bundesbank."We think that the current period of vacillation might last for several months if events don't intervene," Alex White, an economist with JP Morgan in London, wrote in a research note.White said he saw little on the horizon to change Germany's desire to avoid a Bundestag vote on Spain in the near-term.Then there is Rajoy's personality to consider."Rajoy has infinite patience to put up with tension where others would break down," said a senior banker in Spain.Although Rajoy has said he is studying conditions for seeking European aid, there is no mystery over what the European Commission would demand of Spain in terms of structural reforms and spending cuts.Euro zone sources have said conditions are likely to be largely in line with measures the country has already taken, since Spain would not be applying for a full rescue programme that would cover all of its financing needs.The International Monetary Fund has sent a strong message to European policymakers to focus on growth even as they try to correct deficits, a line Spain applauds.With the economy in a deep recession and unemployment close to 25 percent, Spanish officials point out that ECB intervention might bring liquidity, but won't revive economic growth."With or without liquidity we have a growth problem globally, that we must start discussing," said the source close to the government.Banking reform Rajoy has concentrated on moving forward with banking union - under which the ECB would supervise European banks and the region would set up a deposit guarantee fund - which he sees as key to improving Spanish banks' access to liquidity.After meeting French President Francois Hollande on Wednesday the two leaders called for rapid progress toward banking union at a European leaders' summit next week. However, Germany and others do not expect agreement even on cross-border supervision for a year or more.Originally, Spain was pushing for the banking union because it would have allowed the ESM rescue fund to directly recapitalise Spanish banks, keeping the cost of a financial sector rescue off the country's public accounts.However, Spain is less concerned about that impact now, since it estimates it will use only 40 billion euros of the 100 billion euros of bank rescue funds lined up, equivalent to only 4 points of gross domestic product.Treasury Minister Cristobal Montoro calculated the deficit would swell to 7.4% of GDP this year when taking the bank rescue into account, but he said the European Commission would not consider that as non-compliance with targets, since it is a one-off.But banking union is still paramount for Spain since it would foster some confidence in its financial sector, which was crippled by a decade-long building boom that collapsed four years ago leaving the banks with 184 billion euros of bad debt.Rajoy has announced 65 billion euros in budget savings by the end of 2014 to try to bring Spain's deficit down drastically, in line with European Union targets.But rising unemployment, falling tax revenue and the recession are undermining his efforts.The Spanish government is acutely aware that next door, Portugal's severe spending cuts have failed to revive the economy.In Madrid, the source close to the government said under European rules if the government misses is deficit target because of recession, the European Commission would not apply sanctions for a missed deficit.

S&P downgrades Spain two notches

Standard & Poor's cut Spain's sovereign debt rating on Wednesday by two notches to just above junk level, citing the deepening recession and strains from the country's troubled banks.S&P cut the rating to BBB- from BBB+, just one level above "speculative" or "junk" grade debt, which could have sent Madrid's borrowing costs skyrocketing to untenable levels."The downgrade reflects our view of mounting risks to Spain's public finances, due to rising economic and political pressures," S&P said."The deepening economic recession is limiting the Spanish government's policy options," it said, adding that rising joblessness and tighter spending will likely intensify social conflict and tensions between the country's regions and Madrid.Moreover, S&P expressed doubts that all of the eurozone governments will give their backing to the bloc's effort to recapitalize Spain's banks, leaving more of the burden at least on the Spanish government and forcing its debt burden to balloon."Against the backdrop of a deepening economic recession, we believe that the government's resolve will be repeatedly tested by domestic constituencies that are being adversely affected by its policies," S&P said."Accordingly, we think the government's room to maneuver to contain the crisis has diminished."The ratings agency also attached a "negative outlook" to the rating, a warning of a possible further downgrade over the medium term.Such a downgrade would come, S&P said, if political support for the government's reform agenda weakens, if eurozone support fails to prevent Spain's borrowing costs from jumping above sustainable levels, or if debt tops100 percent of economic output or debt payments surpass 10% of general government revenues.

Greece's biggest company flees

Greece's biggest company, Coca Cola Hellenic, is leaving the country, the drinks bottler announced today. The immediate material impact on Greece is limited - its Greek plants stay open and CCH said the small portion of it activity that the world's second-ranked Coke bottler has in Greece will be unaffected. But analysts quickly saw it as bad news for a nation struggling to compete inside the euro zone.CCH, which has said it fears the Greek crisis could disrupt its multinational business, said in a bourse filing in Athens that shareholders, most of whom are abroad, will exchange their stock for shares in Coca Cola HBC AG, based in Switzerland and effectively shorn of the Greek tag "Hellenic".That stock will be primarily quoted on London's LSE."A primary listing on Europe's biggest and most liquid stock exchange reflects better the international character of Coca Cola Hellenic's business activities and shareholder base," the company said in its regulatory statement.The firm, in which The Coca-Cola of the United States has a 23% stake, bottles Coke and other produce in 28 countries from Russia to Nigeria. About 95% of its shareholders and business activity are outside Greece."This transaction makes clear business sense," chief executive Dimitris Lois told analysts in a conference call. An overwhelming majority of shareholders have already accepted moving a company which has long complained about Greek taxes.Analyst Manos Hatzidakis of Beta Securities in Athens said that the move made sense for the firm, which follows Greek dairy group FAGE this month in seeking a low-tax, low-volatility haven for its corporate base - in FAGE's case Luxembourg."The Greek bourse is losing a very good company and the London Stock Exchange is gaining a very important group," said Hatzidakis. "It's very bad news for the Greek economy and bourse."For brokers on the stock exchange, losing a stock that made up 8% of daily turnover this year will be unwelcome - especially since total volumes are down by half since last year.For the Greek treasury, the loss of tax revenue is unclear. Though CCH officials did not detail tax savings from moving the registered office to Switzerland, it has complained of high - and increasingly unpredictable - taxation in crisis-hit Athens.But the move may further discourage investment in Greece.Trade unionists saw the corporate exodus as immoral and one, Stathis Anestis, spokesman for the biggest labour group GSEE, suggested a boycott of Coke: "This is unacceptable," he said."CCH and FAGE are speculating at the most crucial moment for the Greek economy and the Greek people. Consumers should use their power to punish these companies."Country risk One analyst said CCH, which rose to the top of corporate rankings as the values of Greek banks collapsed, was out to rid its share price of such risks associated with Greece; the country is mired in recession and facing mass discontent as its leaders slash budgets to meet international creditors' terms for loans intended to keep Athens inside Europe's single currency."This is a healthy company that does not want to suffer from Greece's high country risk," said the analyst, who spoke on condition of anonymity.Foreign investors have been steadily reducing their investment in the Athens Stock Exchange since the country was engulfed by the sovereign debt crisis in 2009. Greece's future in the 17-nation euro zone still remains in doubt.Aided by the fact that it is doing most of its business outside Greece, CCH consistently outperformed the general Athens stock market index, which has slumped to 20-year lows.CCH has become the country's biggest firm by market value with a capitalisation of around 6 billion euros, representing about a fifth of the Athens bourse's total.The company, which last year made net profit of 330 million euros on sales of 6.85 billion, has complained of taxes imposed under Greek government austerity measures.A US filing shows it paid about 20 million euros in both 2009 and 2010 for one-off "social responsibility" levies in Greece.Profits at operating units in other countries are generally taxed locally. The Greek parent company reported 32 million euros in Greek taxes in 2010 and none last year. New withholding tax on dividends in Greece might have affected CCH in future.In its US filing for 2011, the company said: "Greece, which accounted for approximately 6% of our unit case sales volume and approximately 8% of our net sales revenue in 2011, is currently facing a severe economic crisis resulting from significant government fiscal deficits and high levels of government borrowing.""The ... Greek government debt crisis may have impacts on our liquidity that currently cannot be predicted."CCH said it would delist from the Athens Stock Exchange and then seek to re-enter that bourse with a secondary listing.Coca Cola Hellenic shares closed down 4.9% at 15.66 euros in Athens. Analysts explained the drop by the low cash price of 13.58 euros the company is offering to those shareholders who refuse the offer of new Swiss shares.

NEWS,02.08.2012

 ECB signals bond-buying stint

The European Central Bank indicated today it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key German member disappointed markets.In the latest move to contain the eurozone crisis, ECB President Mario Draghi indicated that any intervention would not come before September - and only if governments activated the euro zone's bail-out funds to join the ECB in buying bonds."The Governing Council ... may undertake outright open market operations of a size adequate to reach its objective," Draghi told a news conference after the central bank's monthly meeting, using the central bank's code for bond-buying.The ECB kept euro zone interest rates at a record low 0.75 percent but Draghi said the council did consider a further rate cut on Thursday amid signs that an economic recession in peripheral European countries is spreading across the continent.A poll of nearly 50 economists after Draghi spoke found t hat most expect the ECB to start buying Italian and Spanish bonds in September and to cut rates t o 0.50 percent. .Draghi was under intense pressure from investors, European leaders and the United States to deliver on a pledge he made last week to do whatever it takes to preserve the euro by bringing high borrowing costs down.But shares and the euro fell after the ECB chief's remarks, and Spanish and Italian bond yields jumped, with Spain's 10-year paper vaulting over the 7 percent danger level."It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians," said Ioan Smith, strategist at Knight Capital.Draghi said t hree ECB committees would now work on detailed methods of intervention and a decision on whether to go ahead would be taken at a later stage.If the central bank did step in to buy bonds, it would act to assuage investors' concerns raised when it asserted seniority over private bondholders by refusing to join a writedown on Greek debt this year, Draghi said. He did not say how.The ECB would also consider other "non-standard" measures to rein in the euro zone crisis, he said, hinting it might move to quantitative easing - or printing money - by not withdrawing all the money it creates to buy bonds.Unlike the U.S. Federal Reserve and the Bank of England, which have engaged in QE since 2008 by creating money to buy securities, the ECB has so far "sterilised" all its purchases by taking in an equivalent amount in interest-bearing deposits.The bank has already spent 210 billion euros buying bonds under its now dormant Securities Markets Programme (SMP) since May 2010, with limited effect, but Draghi said the new effort would be different in scope and conditionality.Any new ECB action would be focused on shorter-term debt and was conditional on euro zone governments using their bailout funds first, and on beneficiaries accepting conditions."Governments must stand ready to activate the ESM/EFSF in the bond market when exceptional financial market circumstances and risks to financial stability exist," he said.Italian Prime Minister Mario Monti said after talks with his Spanish counterpart Mariano Rajoy in Madrid that Draghi's statement marked "several steps forward", bu t it was premature to say whether Rome would apply for such help.Rajoy called the ECB decisions positive but repeatedly declined to say whether S pain would request an assistance programme, which he has so far resisted.The Washington-based International Monetary Fund said it welcomed the ECB's willingness to act."As we have also emphasised, monetary policy alone cannot solve the problems facing the euro area. But further monetary easing and unconventional support would ease tensions as other policies are implemented and take effect," an IMF official said.The ECB chief repeated that the euro was "irrevocable" and warned markets it was pointless to bet against the 17-nation single European currency. He also said the central bank was determined to counter any risk of "convertibility" - code for a possible break-up of the euro.But analysts were underwhelmed by his announcement of possible future action subject to conditions.Marchel Alexandrovich, senior vice president at Jefferies, added: "What Draghi has basically indicated is that the problem in the bond markets has to get considerably worse before the ECB steps in to help."The outcome of Thursday's ECB meeting mirrored Wednesday's U.S. Federal Reserve policy-setting meeting, which also dashed expectations of immediate new measures to revive the economy.The Fed stopped short of offering new monetary stimulus, though it signalled more strongly that further bond-buying could be in store to help a U.S. economic recovery that it said had lost momentum this year.ECB action is hamstrung by European treaty rules forbidding it from financing governments. Draghi said an ECB legal opinion had ruled out another possible "big bazooka" - giving the ESM bailout fund the right to tap ECB funds to boost its firepower.The ECB also has to find a way to get any measures past Germany, the euro zone's largest economy and its principal paymaster. The Bundesbank issues regular reminders of inflationary dangers stemming from bond purchases and the limits central banks face.Draghi said all members of the Governing Council endorsed Thursday's statement with one exception and he took the unusual step of mentioning Weidmann by name as the dissenter, suggesting he was prepared to outvote the German if necessary."It's clear and it's known that (Germany's) Bundesbank have their reservations about the programme of buying bonds. The idea is we now have the guidance, the monetary policy committee, the risk committee and the markets committee will work on this guidance and then (we) will take a final decision and the votes will be counted."Council members who have voted with Weidmann in the past, such as the Dutch and Luxembourg central bank chief and the German member of the ECB's executive board, did not side with him this time, suggesting the Bundesbank chief was isolated.But his acquiescence in ECB policy is widely seen as vital to preserve public support for the euro zone in Germany.

 

ECB Responds To Europan Recession, Debt Crisis By... Doing Nothing

Another day, another central bank failure.

The European Central Bank on Thursday stared a recession and financial crisis in the face and decided to do absolutely nothing about it. It was a page right out of the Federal Reserve's playbook, which on Wednesday stared a slowing economy and high unemployment in the face and decided to do absolutely nothing about it.Both banks hinted strongly at some sort of action coming after August, when Europeans come back from vacation. But then they have been hinting at action for months now, without taking any, so you can excuse financial markets for being a little disappointed."The lack of action from either the Fed or the ECB this week stands in stark contrast with their dour economic assessments," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a note. "The assessment and action will be brought into line, but not as soon as investors want."Just last week, for example, ECB chief Mario Draghi said his central bank would do whatever it took to save the euro. Apparently he just didn't mean they'd do it in a hurry or anything.The ECB kept its target interest rate on hold at 0.75 percent, or about half a percentage point higher than the Federal Reserve's own target rate. At a press conference, Draghi said the bank was preparing a plan to buy more European sovereign bonds to help ease funding pressures on Spain and Italy. But it also said those governments would have to ask for it first, preferably saying pretty please, with sugar on top. Spain and Italy could use the help sooner rather than later. At last check, Spanish 10-year bond yields had jumped back above 7 percent, a sort of Death Zone for government borrowing costs. You can't stay above that level for very long without needing a bailout. Italy's 10-year bond yield jumped above 6 percent, uncomfortably high.Investors fear the enormous economies of Spain and Italy will soon need bailouts, which could put a strain on all of Europe's finances. Such worries have brought manufacturing around the world, including in the U.S., to nearly a screeching halt.The response by policy makers has been noticeably lacking, marked by "Coordinated inaction by the world's leading central banks: The Fed, the ECB, the Bank of England, [Peoples Bank of China]," Wharton economics professor Justin Wolfers tweeted.In the Fed's possible defense, it has already slashed interest rates to nearly zero and launched multiple rounds of bond-buying. Some on the Fed worry the risks of further action outweigh the benefits. The ECB, meanwhile, is handcuffed by a single mandate, to worry endlessly about inflation, even when said inflation is non-existent. And the ECB has Germany, the continent's paymaster, looking over its shoulder and constantly pushing back against aggressive action.Draghi tried to put the ball back in the courts of the European politicians, all of whom are currently on vacation. Maybe while they're on the beach they're thinking hard about a dramatic fix to their problems, but history offers little reason to hope.Similarly, the U.S. Congress could take steps right now to help the U.S. economy, but again, history offers little hope.The only policy makers with free rein to do anything right now are the central banks, and they have taken the rest of the summer off.

Spain debt auction a success

Spain passed a key test on Thursday by easily selling €3.1bn of debt despite investors doubts that the European Central Bank will be in a position to help struggling eurozone economies when it holds its monthly meeting later in the day.Although the Treasury was forced to pay the second highest yield on its 10-year paper since the launch of the euro in 1999, analysts said the auction was solid in the current context. The cost of borrowing was nearly a full percentage point below the peak yield in the secondary market last week.The results lifted market sentiment, with the premium which investors pay to hold Spanish over German debt falling after the auction.Spanish bond yields, which had hit euro-era highs due to the possibility that Madrid would have to be bailed out, fell last week after President Mario Draghi said the ECB would do whatever it takes to save the common currency, within its mandate.But concerns that the ECB will now fail to meet the market's expectations when Draghi announces decisions of the Governing Council's monthly meeting at 12:30 GMT sent them up again in the last two days."The auctions were good, with better demand at the shorter maturities which looks to me like the auctions were driven by more short-covering demand," said Peter Chatwell, rate strategist at Credit Agricole in London."Certainly there is still a lot of doubt whether the ECB has the mandate to do anything which structurally tightens Spanish or Italian spreads."Sources have told Reuters that bold action - such as the ECB resuming controversial purchases of government debt issued by the most troubled eurozone economies to curb their borrowing costs - is at least five weeks away. However, Draghi may offer some clues on what is in the offing. On Thursday, Spain sold €.1bn of bonds, beating its target of €2bn to €3bn, though it paid higher rates than the last time the bonds were sold at a primary auction.The Treasury raised €1bn of the longer-dated, benchmark bond, due January 31, 2022, at an average yield of 6.647% compared to 6.43% when it was last sold in the primary market on July 5. The yield in the secondary market had reached 7.639 on July 24, before Draghi spoke last week.Demand was lower than the previous auction, with the bid-to-cover ratio at 2.4 compared to 3.2 a month earlier.A bond due July 30, 2014 sold €1.1bn at a yield of 4.774% and bid-to-cover ratio of 3.0. The same bond was last sold at a primary auction in March, 2011, at an average yield of 3.592%.A bond maturing October 31, 2016 sold at a yield of 5.971%, after 5.536% July 5. The Treasury sold €1bn of the paper which was 2.7 times subscribed compared to 2.6 times last month.

NEWS,27.06.2012

Europe's leaders at odds before summit

 

European leaders sound unusually divided before a high-stakes summit, with Germany's Angela Merkel saying total debt liability would not be shared in her lifetime and giving little support to Italian and Spanish pleas for immediate crisis action. Rome and Madrid have seen their borrowing costs spiral to a level which for Spain at least would not be sustainable as it battles to recapitalise banks ravaged by a burst property bubble and cut a towering government deficit. Spanish Prime Minister Mariano Rajoy said on Wednesday he would ask other European Union leaders to allow the bloc's bailout funds or the European Central Bank (ECB) to stabilise financial markets. Speaking in parliament before a meeting of European heads in Brussels on Thursday and Friday, Rajoy warned that Spain would not be able to finance itself indefinitely with 10-year bond yields near 7%. "The most urgent issue is the one of financing. We can’t keep funding ourselves for a long time at the prices we’re currently funding ourselves,” he told parliament. Even when there are profound disagreements, EU leaders have been burned by the markets enough times to generally make sure they sound united before major gatherings. But divisions have been exposed by the ousting of Nicolas Sarkozy by socialist Francois Hollande as French president and the fact that Rome and Madrid have muscled into the traditional Franco-German axis. The leaders held an unusually discordant news conference in Rome on Friday. Hollande said there must be more solidarity in Europe before countries hand over more sovereignty over their national budgets, while Merkel said she would not accept extra liabilities without overarching budget control. The pair will have a working dinner in Paris on Thursday evening, an opportunity to repair the damage. An initial attempt to smooth over differences came at a meeting of the four countries' finance ministers late on Tuesday after which nothing was said. In Rome, Italian Prime Minister Mario Monti said he would not simply rubber stamp conclusions at the EU summit and said he was ready to go on negotiating into Sunday evening if necessary to agree on measures to calm markets. With Hollande's support, Monti is pushing for the eurozone’s rescue funds to be used to help limit the spreads over German Bunds on bonds issued by countries that respect EU budget rules. Rajoy would settle for that or the ECB doing the same job by reviving its bond-buying programme. The proposal has run into stiff opposition from Germany, the largest economy in the EU and the bloc’s effective paymaster, and has been rejected by Jens Weidmann, the powerful head of the German central bank, the Bundesbank. Stock markets perked up last week on the hope that the 20th EU summit since the bloc’s debt crisis exploded into the open in Greece would come up with dramatic measures. Investors have since thought better of that view. European shares edged up on Wednesday and the euro was flat, with many investors out of the markets before the Brussels meeting. “People are waiting for the inevitable - which is that policymakers will probably fail to do what is necessary,” said Neil Mellor, currency analyst at Bank of New York Mellon.Borrowing costs Merkel stomped on the idea of mutualising debt - favoured by France, Italy and Spain - at a meeting of lawmakers from her Free Democratic coalition partners in Berlin on Tuesday, according to people who attended the closed-door session. “I don’t see total debt liability as long as I live,” she was quoted as saying, a day after branding the idea of euro bonds “economically wrong and counterproductive”. The words may have been carefully chosen and do not at face value rule out mutualising some portion of eurozone members’ debts as the end point of a drive towards fiscal union. Merkel finds herself in a dwindling minority but holds the eurozone’s purse strings and therefore nearly all the cards. German opposition SPD leader Sigmar Gabriel told the Financial Times that urgent measures were needed to lower eurozone sovereign borrowing costs, otherwise the currency bloc could “simply explode”. Italy and Spain argue that they are stretching every sinew to cut their debt mountains and need some support from their currency area peers to keep the markets at bay. Monti won the first two of four confidence votes on Tuesday called to accelerate the passage of his labour reform that has been criticised by both by labour unions and the business establishment. The final two votes, and definitive approval, are due on Wednesday. Spain which has been offered loans of up to €100bn to recapitalise its banks but is determined not to ask for a sovereign bailout - is considering raising consumer, energy and property taxes. Spanish Economy Minister Luis de Guindos said he had talked with the finance ministers of Germany, France and Italy already on Wednesday with further discussions planned. Eurozone finance ministers will also hold a conference call on the bailout of Spanish banks and this week’s request for aid from Cyprus, EU officials said. The request made Cyprus the fifth of the eurozone’s 17 states to seek aid from EU rescue funds after Greece, Ireland, Portugal and Spain. Underlining the parlous state of Spanish finances, figures showed the central government’s deficit had already reached 3.41% of annual gross domestic product through just the first five months of the year, close to its target for the whole year of 3.5%. Spain’s central bank said on Wednesday it expected recession to deepen in the second quarter of the year. The Brussels summit is expected to agree on a growth package pushed by France worth around €130bn in infrastructure project bonds, reallocated regional aid funds and European Investment Bank loans. Leaders will also discuss proposals for a banking union, but while they are likely to agree to give the ECB power to supervise big cross-border banks, Merkel is resisting any joint deposit guarantee or common bank resolution fund.

Italy to pass new labour laws ahead of EU forum

Italy’s Parliament is on Thursday set to approve a controversial labour market reform so Prime Minister Mario Monti can go to a key Brussels summit with it in hand to reassure his EU partners.The reform, which Mr Monti’s government says is key to restarting growth in the recession-hit economy, was to get final approval the day before the summit, as Italy races to prove it is doing what it takes to stave off the debt crisis. The summit starts on Thursday, June 28.Rome had called on Parliament to make sure the reform is approved in time, but Prime Minister Monti whose technocratic government depends on the support of bickering coalition parties has had to compromise on the details.Addressing Parliament on Wednesday, he said it was “important that Italy arrives at the summit with the force of a parliament-government tandem.”The project, which was unveiled in March after months of bitter disputes with trade unions, is based on the Danish “flexicurity” model, which aims to ensure both flexibility and security in the labour market.It includes incentives for employers to hire workers but also eases the procedure for letting them go in case of a downturn, and will help young people get jobs though apprenticeships, in a country hit by high youth unemployment. Workers will also all be eligible for a modernised welfare scheme from 2017.Greater labour flexibility is one of the so-called structural reforms that the European Commission, International Monetary Fund and Organisation for Economic Cooperation and Development have long advised Italy to adopt to invigorate its economy.Watered downBut Mr Monti’s original package was watered down as parties, trade unions and employer groups fought to defend their turf, leaving many economists fearing the reform is too timid to shake up the labour market.The centre-right insisted businesses be left wiggle room to give people shorter-term contracts, while the left demanded greater measures be included to protect workers.The country’s biggest union, the left-wing CGIL, says the reform risks increasing unemployment, while the Confindustria association says it does not go far enough in strengthening employers’ rights.

NEWS,23.05.2012.

Euro zone to prepare for Greek exit scenario say sources

 

Each euro zone country will have to prepare a contingency plan for the eventuality of Greece leaving the single currency, euro zone sources said today.Officials reached the consensus on Monday afternoon during an hour-long teleconference of the Eurogroup Working Group (EWG).As well as confirmation from three euro zone officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.The EWG consists of officials who prepare meetings of finance ministers and also form the board of the temporary bailout fund, the European Financial Stability Facility (EFSF).It consists mostly of deputy finance ministers and senior treasury officials."The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro," said one euro zone official familiar with what was discussed on the call."Nothing was prepared so far on the euro zone level for now, for fear of leaks," the official said.A second official confirmed the EWG agreement. The situation in Greece, which faces elections on June 17, seems certain to be discussed at an EU summit later today.The Greek finance ministry denied in a statement that there was agreement to prepare contingency plans."The Ministry of Finance categorically denies the reports stating that during the teleconference of the Euro Working Group on May 21st 2012, it was agreed that each eurozone country should prepare contingency plans for the potential consequences of a departure of the Hellenic Republic from the single currency area," the statement said.But Belgian Finance Minister Steven Vanackere, asked by reporters ahead of the EU summit, said:"All the contingency plans (for Greece) come back to the same thing: to be responsible as a Government is to foresee even what you hope to avoid.""We must insist on efforts to avoid an exit scenario but that doesn't mean we are not preparing for eventualities. I believe many countries have their contingency plans for the things they want to avoid at all cost, like terrorist attacks, and to say that we don't have a contingency plan would be irresponsible," Vanackere said.The Greek election, the second in two months, is widely seen as a referendum on whether the debt-laden country should stay in the euro zone and undertake painful reforms and austerity, or leave and try its luck with its own currency.Polls suggest the vote could go either way.50-billion-euro goodbye? The document detailed the potential costs to individual member states of a Greek exit and said that if it came about, an "amiable divorce" should be sought.It also said that if Greece were to decide to leave, the EU/IMF could give it up to 50 billion euros to ease its path.The document said Athens would bear huge costs if it decided to abandon the currency, while other euro zone countries would have more limited costs.But the paper said that the risk of knock-on effects that could hit other euro zone countries under market scrutiny now was underestimated."The markets will definitively distrust the euro," the paper said.Germany's Bundesbank said yesterday a Greek exit from the euro would be "manageable".The German central bank also said euro zone states should have a say on further payments of aid to Greece under its 130 billion euro bailout programme.So far the euro zone has disbursed 38.4 billion euros from the second bailout programme to Greece.The emergency lending is linked to conditions of tough reforms, which most Greeks oppose.The euro zone also lent Greece 34.5 billion euros to help Athens complete a debt restructuring in which private investors had to write off almost three quarters of what Greece owed them."Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programmes," the Bundesbank said."This jeopardises the continued provision of assistance. Greece would have to bear the consequences of such a scenario."