NEWS,04.01.2013

US jobs ease on fiscal cliff angst

The pace of hiring by US employers eased slightly in December, pointing to a lackluster pace of economic growth that was unable to make further inroads in the country's still high unemployment rate.Payrolls outside the farming sector grew 155 000 last month, the labour department said on Friday. That was in line with analysts' expectations and slightly below the level for November.Gains in employment were distributed broadly throughout the economy, from manufacturing and construction to health care.That should reinforce expectations that the economy will grow about 2% this year, unlikely to quickly bring down the unemployment rate or make the US Federal Reserve rethink its easy-money policies, which have been propping up the recovery."It's not a booming economy, but it is growing," Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York, said before the data was released.The jobless rate held steady at 7.8% in December, down nearly a percentage point from a year earlier but still well above the average rate over the last 60 years of about 6%. The labour department raised its estimate for the unemployment rate in November by a tenth of a point to 7.8%, citing a slight change in the labour market's seasonal swings.Most economists expect the US economy will be held back by tax hikes this year as well as by weak spending by households and businesses, which are still trying to reduce their debt burdens.Friday's data nonetheless gave signals of growing momentum in the labour market's recovery from the 2007/9 recession. Many economists had expected December's payroll gains to be padded by one-time factors like the recovery from a mammoth storm that hit the East Coast in late October.The government had said last month the storm had no substantial impact on the November data, and many economists expected the government to recant by revising downward in Friday's report its estimate for payroll gains in November. Instead, the government revised its estimate for November payrolls upward by 15 000. "There is some evidence that underlying jobs growth has improved," Paul Dales, an economist at Capital Economics in London, said before the report was released. Austerity's biteDespite the signs of some momentum in hiring, a wave of government spending cuts due to begin around March loom over the economy. Many economic forecasts assume the cuts which would hit the military, education and other areas will ultimately be pushed into next year as part of a deal sought by lawmakers to reduce gradually the government's debt burden.Initially, the cuts were planned to have begun this month as part of a $600bn austerity package that also included tax hikes. Hiring in December may have been slowed by uncertainty over the timing of the austerity, economists say. Congress this week passed legislation to avoid most of the tax hikes and postpone the spending cuts.Even with the last-minute deal to avoid much of the fiscal cliff, most workers will see their take-home pay reduced this month as a two-year cut in payroll taxes expires. That leaves the Fed's efforts to lower borrowing costs as the main program for stimulating the economy.The Fed has kept interest rates near zero since 2008, and in September promised open-ended bond purchases to support lending further. On Thursday, however, minutes from the Fed's December policy review pointed to rising concerns over how the asset purchases will affect financial markets.Analysts ahead of the report expected some of the strength in job creation in December would be due to the Fed's policies."Despite the end-of-year angst over the fiscal cliff, financial conditions remained supportive of job growth in December," economists at Nomura said in a note to clients earlier in the week.

Aid for Sandy victims falls short

US lawmakers finally approved emergency disaster aid for victims of Hurricane Sandy on Friday, but only after a delay that sparked East Coast Republican outrage against their own party leadership Lawmakers voted 354-67 to provide the Federal Emergency Management Agency with $9.7bn to pay the flood insurance claims of thousands of victims of the killer October storm that devastated coastal communities.The bill now goes to the US Senate, where it could pass as early as Friday before the two chambers go into recess, but the sum falls short of what was originally promised and bitter debate is likely top continue.The Senate had approved a comprehensive $60.4bn Sandy aid package last week, but House Speaker John Boehner, stung by fractious negotiations over the deal to avert the fiscal cliff crisis, refused to bring it to the floor."It's been 70 days and many have been living in misery and heartache," Republican congressman Rodney Frelinghuysen of New Jersey told the House, describing the vote as "the first step of what we need to do to rebuild lives."Democrats again attacked the Republican leadership for what congressman Rob Andrews of New Jersey called the "inexcusable and unjust" delay in getting a bill to the House floor.And, while Boehner has pledged to bring the remaining $51bn in aid to a vote on January 15 as a two-part package, Andrews said it would be "meaningless" unless the Senate turned around and quickly approved the aid.Boehner had scrambled to tamp down fury over the delay on aid to victims of the storm, which killed 120 people and destroyed tens of thousands of homes and businesses in New York, New Jersey and neighbouring northeastern states.President Barack Obama, instrumental in cobbling together the $60bn package, joined New Jersey's outspoken Republican Governor Chris Christie in leading the charge against Boehner's delay.Christie offered a blistering critique of his own party's congressional leadership, calling Boehner's delay "absolutely disgraceful."Fuming Republican congressman Peter King of New York also tore into his own leadership, saying the delay was "a knife in the back of New Yorkers and New Jerseyans."The outrage quickly gained the national spotlight, and Boehner wasted little time announcing the two-part vote."This is not a handout, this is not something we're looking for as a favor," King told the House. "What we're asking for is to be treated the same as victims (from) other natural disaster victims have been treated."Some Republicans including Senator Marco Rubio from Florida, a hurricane-prone state which has received billions in federal disaster aid, voted against the Sandy bill in the Senate, claiming it was stuffed with "pork" funding for projects or elements unrelated to Sandy relief.Darrell Issa, the powerful Republican chairman of the House Oversight Committee, continued in that vein Friday, saying "we need to get the pork out" and pointing to funding in the Senate bill that went to programs in Alaska, more than 3 000 miles (4 800 kilometers) from the Sandy disaster zone.He said he was hopeful the re-written legislation due for a vote January 15 would be a "clean bill" focused exclusively on Sandy relief."I believe today we are buying a little bit of time, but for the people on the Eastern Seaboard who are suffering, time is running out," he said.FEMA has announced it will soon run out of flood insurance funding without the $9.7bn increase.

Signs of hope for eurozone

Tentative signs the eurozone may have passed the worst of its downturn emerged in December but business surveys also suggested Britain's economy tipped back into contraction in the final months of 2012.Friday's purchasing managers indexes, which measure the activity of thousands of companies worldwide, brought mixed news from Europe.Activity in Britain's dominant services sector fell for the first time in two years and at a faster pace than predicted by any analyst polled by Reuters, while the speed of decline among French, Italian and Spanish firms slowed.Data from the United States due later on Friday are expected to show continued but modest jobs growth and a steady expansion of its services sector.With Chinese growth showing evidence of revival, that leaves Europe as the world's economic slowcoach going into 2013.In particular, economists were surprised by news the UK services PMI slipped to 48.9 in December from 50.2 last month, sagging below the 50 mark that divides from contraction for the first time in two years."The PMIs point to an economy that is contracting modestly," said Rob Wood, chief UK economist at Berenberg Bank. "The broader picture is that for some time the economy has been bouncing around the bottom ... and I think this is likely to stay with us for the next couple of quarters."Survey compiler Markit said the figures suggest Britain's economy shrank 0.2% in the final quarter of 2012, a slightly bigger drop than most other private-sector forecasts.The eurozone composite PMI hit its highest levels since last March, rising to 47.2 in December from 46.5 in November, although it remained rooted below the 50 mark for an 11th month."I think (the eurozone PMIs) are showing a decisive bottoming-out of activity," said James Nixon, chief European economist at Societe Generale."Now, the actual levels of the surveys are still consistent with GDP declining, but at least things aren't getting worse any faster."  Worst over?The decline eased among the services firms that make up the bulk of the eurozone's economy, ranging from banks to restaurants, but manufacturers endured an awful end to 2012.Survey compiler Markit warned that Friday's figures would probably fail to prevent the eurozone's recession deepening in the fourth quarter of last year, thanks to dismal figures in October and November."The surveys at least bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013," said Chris Williamson, chief economist at Markit.As with last year, the eurozone economy's fate hinges on the resolution of the sovereign debt crisis, which still smoulders despite the creation of financial firewalls by the European Central Bank and European Union.German Finance Minister Wolfgang Schaeuble said last week he thought the worst had passed for the debt crisis, although similar sentiments have been expressed by various European policymakers and politicians since mid-2010.Friday's European data followed news that China's services sector saw its slowest rate of expansion in nearly a year and a half in December, although the HSBC services PMI still pointed to a modest revival in economic growth.And economists expect the US ISM non-manufacturing survey, another PMI, to fall slightly to 54.2 in December from November's 54.7. While showing slowing growth, that would still signal a far brighter economic outlook for the US compared with its European peers.Analysts also predict the US economy added around 150 000 non-farm jobs in December, compared with 146 000 the previous month.

NEWS,01.01.2013

'Fiscal cliff' plan goes to Republican House

A legislative fix to patch up America's fiscal crisis will be taken up by lawmakers in the Republican-controlled House of Representatives on Tuesday after passing the Senate overnight.The White House and top Republicans struck a deal after dramatic 11th-hour negotiations to avert huge New Year tax hikes and postpone automatic spending cuts that had threatened to send the US economy back into recession.If the legislation passes the House as expected, it will represent a win for President Barack Obama as it raises taxes on the richest Americans albeit above an income threshold higher than he and other Democrats had wanted.But the victory will be hollow as it fails to tackle the deep spending cuts needed to resolve America's austerity crisis, setting up the prospect of another bitter Washington battle at the start of Obama's second term.After months of agonising over the crisis, weeks of debate about a possible solution, and days of intense, closed-door bartering, the US Senate voted overwhelmingly 89-8 early Tuesday to pass a controversial bill that averts the so-called "fiscal cliff".Hiked tax ratesAlthough the midnight deadline was technically missed, any serious impact on the world's biggest economy will be avoided as long as legislation passes the House of Representatives in the coming days.Obama issued a statement shortly after the 02:00 (07:00 GMT) Senate vote, urging lawmakers in the Republican-controlled House to "pass it without delay." A vote could come as early as Tuesday.If the measure is agreed by both chambers of Congress, tax rates will be hiked on households earning over $450 000 a year but remain where they are for everyone else.While not matching Obama's campaign threshold of $250 000, it would represent a major concession from Republicans who have stuck solidly to a pledge of no higher taxes since then president George HW Bush failed to win re-election in 1992 after breaking a promise not to raise rates"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," Obama said in his statement.he deal puts off $109bn in budget cuts across the government for two months, setting the stage for a new showdown between Obama's Democrats and Republicans in dysfunctional Washington at the end of February, just weeks after the president is sworn in for his second term.Winning over RepublicansHad no deal been struck, experts warned that the fragile US economy could have been sent spinning back into recession due to the $500bn combined whack of spending cuts and tax hikes.It remains for Republican House Speaker John Boehner to rally his restive conservative coalition around the pact, which will likely need some Democratic votes in the House to pass.For two decades, Republicans have fought any attempt to raise taxes. So White House officials will see vindication in a deal that enshrines one of Obama's top pledges in his re-election campaign.In a terse statement, Boehner said his chamber would pick up the legislation if it passed the Senate."Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members and the American people have been able to review the legislation," he said.‘Deal better than the alternative’Democrats suggested that the deal, like many congressional bargains, was not perfect, but that it was preferable to the alternative."It's not that this proposal is regarded as great or is loved in any way. But it's a lot better than going over the cliff," Senator Chuck Schumer told reportersWorld stock markets, expected to be thrown into turmoil by a failure to beat the deadline, are closed New Year's Day, so lawmakers have a few extra hours of breathing room to get the deal concluded.The legislation will also extend tax credits for clean energy firms and unemployment insurance for two million people that had been due to expire.And it includes an end to a temporary two percent cut to payroll taxes for Social Security retirement savings - meaning all Americans will pay a little more - and changes to inheritance and investment taxes.Relief seemed to course through the Senate during and after the vote, but both sides were already gearing up for the next legislative showdown, over the need to lift the government's statutory borrowing limit of $16.4trillion, reached on Monday.The Treasury will take extraordinary measures to keep the government afloat for an undisclosed period of time until the ceiling is raised. Republicans are already demanding spending cuts in return.That fight will now be doubled as it is likely to coincide with the new deadline for the two-month sequester postponement set up by the fiscal cliff agreement.

Activists release anti-North Korea leaflets

South Korean activists launched balloons carrying anti-Pyongyang leaflets across the border on Tuesday as North Korea joined a global party by greeting the New Year with fireworks.About 30 activists released seven balloons carrying 28 000 leaflets in the northern border town of Gwanjeonri in Cheorwon County, shouting "Down with North Korea's dynastic dictatorship!"The launch sparked scuffles with ten local residents who voiced fear of North Korean reprisals, but there were no injuries thanks to quick intervention by police.The launch went ahead despite repeated threats from Pyongyang of military strikes against such exercises.The leaflets launched on Tuesday urged North Koreans to rise up against their new leader Kim Jong-Un and included pictures of overthrown strongmen like Iraq's Saddam Hussein and Libya's Muammar Gaddafi.Kim, in his late 20s, came to power after his father and long-time leader Kim Jong-Il died in December 2011.In Pyongyang, the new leader started the New Year by watching a musical performance and fireworks, according to the official Korean Central News Agency."Fireworks were displayed to beautifully decorate the nocturnal sky above Pyongyang and bells rang on the New Year," it said.

Venezuelans pray as Chavez health worsens

Backers of Venezuelan President Hugo Chavez prayed and called off New Year's Eve festivities on Monday as the cancer-stricken leftist leader took a turn for the worse, fuelling doubts about his political future.Venezuelans prayed in church and a downtown square after the government announced that Chavez suffered "new complications" from a respiratory infection following his fourth cancer-related surgery on 11 December in Cuba.His vice president and political heir, Nicolas Maduro, broke the news from Havana on Sunday night, saying the condition of the 58-year-old leader was delicate and that he faced an uphill battle.Maduro decided to stay in Cuba for "the next few hours" to check on the ubiquitous "Comandante," the face of the Latin American left and fierce critic of the United States who has led the oil-rich nation for 14 years.RumoursJorge Arreaza, Venezuela's science and technology minister as well as the president's son in law, took to Twitter to try to tamp down rampant social media speculation that the end might be near, or had already come."My fellow countrymen: do not believe ill-intentioned rumours. President Chavez has spent the day calmly and stable, with his children at his side," said Arreaza who is in Cuba with other family members.Back in Caracas, crews took down the stage of a downtown concert site while Information Minister Ernesto Villegas invited Venezuelans to gather at Plaza Bolivar to "pray with joy and optimism" for Chavez."I deeply love him and would give my life for him. There should be millions like Chavez," Haydee Dominguez, a 50-year-old secretary, said at the gathering led by Villegas.Others teared up at the San Francisco church while several ministers attended a special mass for Chavez at the Miraflores presidential palace at midday.At a meeting point for Chavez followers in Plaza Bolivar, "Chavistas" choked up as they contemplated the health of their leader."We are all praying for the health of our comandante," said Miriam, one of the people gathered at the square. "There can't be any party here."Election Chavez had declared himself cancer free in July, more than a year after being diagnosed with the disease in the pelvic region. The exact nature of the cancer has never been made public.He was re-elected in October but announced a relapse earlier this month and rushed to Cuba for another operation.On Monday on Twitter, hashtags translating into expressions such as "Chavez will live and conquer" and "I love Chavez" were numerous, while others speculated about his health.One of the people discussing Chavez's health was Jose Rafael Marquina, a Venezuelan doctor who lives in the United States and has claimed in the past to have reliable sources informing him about the president."The respiratory failure continues without any improvement and the kidney function continues to deteriorate," he wrote on Twitter.The government has denied such rumours.OppositionChavez is scheduled to be sworn in on January 10 but the government has indicated that the ceremony could be postponed if the president is not fit by then.Opposition leader Henrique Capriles, who lost to Chavez in the 7 October election, predicted on Monday that there would be "big changes" in 2013.The opposition coalition, Democratic Unity Table, called for dialogue with the government to deal with what it called an "emergency".Veppex, a Miami-based association of 25 000 Venezuelans living outside their country as refugees or political exiles, insisted the constitution must be respected verbatim and new elections held if Chavez is indisposed.Under Venezuela's constitution, a presidential election must be held within 30 days if the head of state is incapacitated or dies before his inauguration or within the first four years of his term.Swearing inThe government is trying to work out how to "resolve that obstacle", said Luis Vicente Leon, head of pollsters Datanalisis, who said it was clear now that Chavez was in a critical condition.As the constitution says he must be sworn in on 10 January, "anything else will be hard to sell without it being construed as an institutional coup", Leon said.But Maduro and parliament speaker Diosdado Cabello have left the door open for Chavez to be sworn in at a later date by the Supreme Court.Cabello has even said that new elections will not be convened on 10 Januar, nor will he himself take over temporarily, as the constitution stipulates, if Chavez is out of the picture.

US fiscal cliff facts

The so-called fiscal cliff is a combination of dramatic spending cuts and tax increases mandated to take effect beginning in January if President Barack Obama and Republicans cannot bridge their differences on how best to reduce the nation's budget deficit and debt.To add to a drama that could reverse the slow US recovery and impact the global economy, the United States is also about to reach its borrowing limit, so Congress will also be asked to raise the government's debt ceiling.

What is the fiscal cliff?

The Budget Control Act of 2011 codified in law a grudging political compromise forcing the government to slash spending by $1.2 trillion over 10 years from January 1 2013. Next year's cuts, called "sequestration," would be about $109bn.Also on that date, a package of tax reductions and an extension of unemployment benefits will expire, meaning taxes will rise significantly for most Americans.

Why will this happen?

Democrats and Republicans have long been deadlocked over whether to address a $1 trillion-plus annual budget gap with higher taxes or lower spending.The Budget Control Act was a poison pill deal designed to force them to find a less austere compromise, but political wrangling and dysfunction meant no deal was done, and the deadline is now looming.

What happens if the cliff is not avoided?

Together, higher taxes and lowered spending could slice the $1.1 trillion deficit racked up in fiscal 2012 (ended September 30) by almost $500bn next year, according to the Congressional Budget Office, vastly improving the government's financial picture .But the CBO estimates the shock treatment would send the country back to recession and push the unemployment rate to 9.1%.Deep cuts would come to both defence and non-defence spending. Government suppliers and contractors would lose business, and temporary furloughs could be in store for tens of thousands of federal employees.Taxes and automatic paycheck deductions would increase for most Americans, reducing the cash they have for spending, and taxes on capital gains and dividends would rise, hitting investors.

What is the debt ceiling?

The US government will hit its statutory $16.39 trillion debt limit on Monday, according to Treasury Secretary Timothy Geithner. The limit is set by Congress, and if it is not raised, the United States will not be able to borrow any more money and would, in theory, be forced to slash spending to make ends meet. Possible, but desperate, remedies would include halting pay to the military, retirement health benefits, social security, and failing to pay government debts.

Will the US default on its debt?

Not immediately. The Treasury has various extraordinary measures in its armory, including halting the issuance of securities to state and local governments, which could buy about two months of leeway.

What would a default mean?

No one is sure: the dollar, and Treasury bonds, are the primary currency of global finance, and holders do not really have any alternatives. And most believe that eventually the US government would make good on its debts. However, the country's credit rating could be further downgraded, likely pushing up its borrowing costs over the medium term and possibly diminishing the dollar's cachet in world finance.

What will Congress do?

Eventually, Congress is likely to raise the debt ceiling but Republicans who run the House of Representatives will use the showdown as leverage to demand spending cuts from Obama in return. It is uncertain how high the raised borrowing limit will be, and any resolution will likely trigger a new confrontation between Obama and Republicans the next time around.

Talks stall as fiscal cliff looms

Two days of last-gasp talks produced no deal on Sunday between US political leaders struggling to averting a fiscal calamity due to hit the American and world economy within hours.Party leaders in the US Senate groped for a compromise to head-off a punishing package of spending cuts and tax hikes that is due come into force on January 1 and which could roil global markets and plunge the US into recession.Senate Republican minority leader Mitch McConnell warned that, despite through-the-night talks, negotiators were still a long way from success, as they raced against the ebbing 2012 calendar in search of a compromise.McConnell said he received no response to a "good faith offer" to Senate Democrats and had spoken twice by telephone with his old friend and sparring partner Vice President Joe Biden in the hope of breaking the stalemate.Senate Democratic Majority Leader Harry Reid agreed that talks were at a standstill, and warned that Americans could ring in the New Year with no deal to avert a budget disaster known as the "fiscal cliff.""There is still significant distance between the two sides, but negotiations continue," Reid told the Senate, after huddling for nearly two hours with his Democratic caucus on one of the latest December Senate workdays in 50 years."There is still time left to reach an agreement, and we intend to continue negotiations," he said, as he ordered the Senate back into session at 11:00am (16:00 GMT) Monday, New Year's eve and the last day before the deadline.Reid said Democrats were unwilling to brook talk of social security cuts."This morning, we have been trying to come up with some counteroffer to my friend's proposal," Reid told the Senate. "We have been unable to do that."The already tense mood on Capitol Hill had soured during Sunday's confusing hours, when some lawmakers tossed out varying versions of what may or may not be in Democratic and Republican offers. "I'm incredibly disappointed we cannot seem to find common ground. I think we're going over the cliff," Republican Senator Lindsey Graham said on Twitter.Moderate Democrat Clair McCaskill was also pessimistic."This is definitely not a kumbaya moment," she said.Earlier, President Barack Obama accused Republicans of causing the mess, saying they had refused to move on what he said were genuine offers of compromise from his Democrats."Now the pressure's on Congress to produce," Obama said, in an interview with NBC's "Meet the Press" that was recorded on Saturday, a day after he expressed modest optimism that a deal could be reached.Obama said it had been "very hard" for top Republican leaders to accept that "taxes on the wealthiest Americans should go up a little bit, as part of an overall deficit reduction package."But Republicans were irked by Obama's tone. "I don't know if this is the president saying $250 (thousand) or 'Go to hell'," Graham told reporters, referring to Obama's insistence that taxes rise on households income greater than a quarter million dollars per year.The Senate's number two Democrat, Dick Durbin, said Republicans want the tax threshold be raised to $550 000 per household and that Democrats might counter with $450 000, considerably higher than the president's $250 000.But Reid warned: "We're still left with a proposal they've given us that protects the wealthy and not the middle class. I'm not going to agree to that"If no deal is reached, a package of tax cuts for all Americans that was first passed by then-president George W. Bush will expire on January 1.All American workers will see their own paycheck hit and the broader economy will suffer from massive automatic spending cuts across the government.Experts expect the US economy to slide into recession if the standoff is prolonged, in a scenario that could cause turmoil in stock markets and hit prospects for global growth in 2013.The president won re-election partly on a platform of raising taxes on the rich, but Republicans who run the House of Representatives oppose tax hikes as a point of principle and claim Obama is addicted to runaway spending.Any deal must pass the Senate, before going to the House, where such is the power of the conservative bloc of the Republican Party, it is unclear whether any solution backed by Obama can win majority support.If leaders fail to find agreement, Obama has demanded a vote on his fallback plan that would preserve lower tax rates for families on less than $250 000 a year and extend unemployment insurance for two million people.Republicans admitted such an option could emerge on Monday.

Spain faces €207bn headache in 2013

Spain defied the markets by averting a sovereign bailout this year but high interest rates could yet force Madrid to its knees as the nation confronts a €207bn financing headache in 2013.The eurozone's fourth-biggest economy has skirted a rescue so far even after slipping into a recession in mid-2011 that has sent the unemployment rate soaring to 25%, the highest in Spain's modern history.Prime Minister Mariano Rajoy's government reached out in June for a eurozone rescue loan of up to €100bn to fix the balance sheets of Spanish banks, crushed by bad loans since a 2008 property crash.But even as investors fled Spain, sending its 10-year-bond yield above 7% mid-year as they watched Madrid struggle to curb soaring public debt, Rajoy managed to swerve the politically costly option of pleading for international help.European Central Bank chief Mario Draghi gave decisive support in September when he announced the bank's readiness to buy an unlimited sum of bonds to curb borrowing costs for member states that accept strict conditions.The prospect of such intervention alone was enough to calm the selling of Spanish debt securities.A grateful Rajoy says he can get by for now without even seeking the ECB's bond-buying intervention.Spain's 10-year bond yields were trading below 5.3% in the past week.In his final news conference of the year, the prime minister warned that Spain's economy faced a "very tough" year ahead."Today we are not thinking of asking the European Central Bank to intervene to buy bonds on the secondary market but that is a very useful instrument that is available to all countries of the union," he added."If Spain and its government believe that it is necessary to use it, let there not be the least doubt that we will do so. But in principle today we are not thinking of doing it," the premier said on Friday.That could change, analysts say.Spain's budget for 2013 anticipates that the Treasury will have to issue €207.2bn in gross debt in 2013, almost all through bonds and bills, to cover debt repayments and new financing needs.That compares to the €186.1bn in gross debt that last year's budget previewed for 2012."The country is heading in the right direction in reducing its deficit. But in the end, it will all depend on the markets," said Rafael Pampillon, head of economic analysis at Madrid's IE Business School.Concern over a shift in Italian economic policy with February 24-25 elections on the horizon, and doubts over Spain's ability to finance its debts or meet its deficit-cutting targets could yet push up Spanish borrowing costs, he said.At one point in mid-summer, investors in Spanish 10-year bonds demanded a premium of 600 basis points in annual return over the safe-bet German equivalent. Since Monti's offer to intervene, that has fallen to around 400 points, still a significant extra cost.Most economists now believe Spain can skirt a rescue at least in the immediate future.A sovereign rescue is not impossible, said Edward Hugh, economist based near Barcelona in the northeastern region of Catalonia."But they will definitely put it off for as long as they can, and at the moment it seems that they can put if off for quite a long time," he added.In the meantime Spain still faces steep financing costs, said Jesus Castillo, economist at French investment bank Natixis.The Spanish 10-year bond yield affected not only the state's borrowing cost but also that of many households and businesses, Castillo said.The risk premium charged on Spanish debt, even now, was "not viable over the long term", he warned."If the Spanish economy is being strangled today it is because a high interest rate is killing off investment plans as they are born," he said.It is an argument that seems to plead for a bailout.If the ECB could bring down interest rates, some say, it would breathe new life into the economy, which is expected to shrink 1.5% this year. Next year, the government tips a further 0.5% slump and most private forecasters are expecting a much sharper decline.But Spaniards themselves seem to be divided over a bailout, even as they suffer an unprecedented programme of austerity measures designed to bring the public deficit under control.A survey by Madrid pollster InvyMark for a Spanish television channel this month found 54.5% of those asked believed Rajoy should not ask for a sovereign bailout, against 31.5% who were in favour.More than two-thirds - 69.1% - said they thought such aid from Europe would not be positive for hard-hit Spaniards.

Merkel challenger remarks spark outrage

Chancellor candidate Peer Steinbrueck was widely criticised on Sunday, even by his own centre-left Social Democrats (SPD), for saying German leaders are underpaid. Steinbrueck has struggled to gain ground against Chancellor Angela Merkel ahead of next September's election, in part due to lingering criticism over him earning €1.25m as an after-dinner speaker in the past three years.The remarks from the former finance minister about what he called the inadequate compensation for the chancellor drew speedy rebukes across the country's political spectrum, including from the last SPD chancellor Gerhard Schroeder."A German chancellor does not earn enough based on the performance that is required of her or him compared with the jobs of others who have far less responsibility and far more pay," Steinbrueck, 65, was quoted on Sunday by the Frankfurter Allgemeine Sonntagszeitung newspaper saying. "Nearly every savings bank director in North Rhine-Westphalia earns more than the chancellor does," Steinbrueck said of his home state. Merkel's pay is set to rise by €930 per month to €17 106 in 2013 along with pay rises for her ministers and members of parliament, increases that have been criticised by some for sending the wrong signal in an era of austerity. "Some of the debates kicked up by the 'guardians of public virtue' are grotesque and are harmful for anyone considering getting involved in politics," Steinbrueck said. ElectionThe SPD trails Merkel's conservatives by 10 points in opinion polls, but, with its Greens allies, it does have a chance of winning power in September because of the prolonged weakness of Merkel's Free Democrat (FDP) coalition partners. Steinbrueck, whose blunt talk makes him popular among some voters despite him never winning a major election and him being defeated as state premier in North Rhine-Westphalia in 2005, said there were times in his career when he was not as well off and admitted he was now a "wealthy Social Democrat". Schroeder, chancellor from 1998 to 2005, has endorsed Steinbrueck to lead his party against Merkel but distanced himself from Steinbrueck's views on pay."In my view politicians in Germany are adequately compensated," Schroeder told Bild am Sonntag newspaper. "I was certainly always able to live off the pay. And anyone who doesn't feel it's enough pay can always look for another job."Other SPD leaders indirectly criticised Steinbrueck. Dieter Wiefelspuetz, a top SPD member of parliament, said politicians were misguided if they compared their wages to private industry."To serve as chancellor is a fascinating job and the pay is definitely not shabby," he said.Steinbrueck was once seen as the centre left's best hope of winning back the chancellorship. He was popular as the no-nonsense finance minister and the SPD hoped he would siphon centrist voters away from the conservatives. But the controversy over his earning €1.25m for 89 speeches will not go away and his campaign has been marred by setbacks and awkward comments. Analysts say he is also struggling to win over female voters, many of whom are put off by his combative style. "Merkel is popular due to a 'woman's bonus' that she gets," Steinbrueck told the paper.

NEWS,29.12.2012

FEW DAYS AWAY DUE TO FLU, BACK ONLINE AGAIN

US fiscal cliff battle heats up

US President Barack Obama will host top congressional leaders including his bitter Republican rivals on Friday in a last-ditch bid to halt America's slide over the so-called "fiscal cliff."A White House official said he will meet his Republican foes House Speaker John Boehner and Senate Minority Leader Mitch McConnell and Democratic allies Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi.McConnell and Boehner's office also confirmed the meeting, which comes amid heightened political tensions and mounting pessimism in Washington over whether a convincing deal can be struck before a year-end deadline."We'll see what the president has to propose. Members on both sides of the aisle will review it, and then we'll decide how best to proceed," McConnell said on the Senate floor."Hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis."Senate rivals Reid and McConnell spent Thursday's public appearances blaming one another for the looming failure, with Reid warning that the US economy was more likely than not heading into 2013 without a deal on the books."I have to be very honest," Reid said on the Senate floor during a rare holiday week session. "I don't know time-wise how it can happen now."On Wednesday, the president called the congressional quartet - McConnell, Reid, Boehner and Pelosi - hoping to inch forward on a deal, but lawmakers and their aides have stressed there was little to no progress over the holidays.Obama cut short his Christmas vacation in Hawaii to return to the White House, where he ignored reporters' shouted questions about the crisis, four days before a deadline to agree a deal on tax and spending.He came back to a sharply divided Washington, where the mood has soured on a possible plan to prevent hundreds of billions of dollars in tax hikes and deep automatic spending cuts from kicking in from January 1.McConnell told the Senate he was "happy" to look at any Obama proposal, warning: "But the truth is we're coming up against a hard deadline here."The lawmaker insisted the Senate Democratic majority had yet to offer a viable solution and that if they did "members on both sides of the aisle will review it, and then we'll decide how best to proceed.Despite reports from some quarters that Obama had drawn up his own plan to offer lawmakers, there was no sign that the White House was ready to intervene.Lawmakers have refused to compromise and Reid blamed Republicans for the breakdown.Reid said Boehner was running a "dictatorship" in the House by refusing to put to a vote a Senate-passed bill which would prevent taxes from rising on all households making less than $250 000 per year.He also took Boehner to task for keeping his members on vacation while the Senate was hard at work.Without McConnell and Boehner "nothing can happen on the fiscal cliff - and so far they are radio silent," Reid said, urging them to "put the economic fate of the nation ahead of your own fate as speaker of the House."Boehner's office shot back with a curt message."Senator Reid should talk less and legislate more," Boehner spokesperson Michael Steel said, arguing the House has passed bills that would extend tax breaks for all Americans and replace the indiscriminate spending cuts."Senate Democrats have not," he added.House leaders eventually ordered members to return for a session on Sunday, warning that the House "may be in session through Wednesday, January 2."A new Congress convenes on January 3.The deadlock has spooked markets, left Americans wondering whether they will pay thousands more in taxes next year, and worried the Pentagon, which fears defense cuts could undermine the military.Complicating efforts to avoid disaster, Treasury Secretary Timothy Geithner has warned the nation will reach its $16.39 trillion debt limit on December 31 and his department take "extraordinary measures" to avoid a US default.Experts say a failure to strike a cliff compromise by New Year's Eve could plunge the world's biggest economy into recession, and wrangling over the debt ceiling will only exacerbate fiscal uncertainty.

US gun lobby to fight arms treaty

The leading US pro-gun group, the National Rifle Association, has vowed to fight a draft international treaty to regulate the $70bn global arms trade and dismissed suggestions that a recent US school shooting bolstered the case for such a pact. The UN General Assembly voted on Monday to restart negotiations in mid-March on the first international treaty to regulate conventional arms trade after a drafting conference in July collapsed because the US and other nations wanted more time. Washington supported Monday's UN vote.US President Barack Obama has come under intense pressure to tighten domestic gun control laws after the December 14 shooting massacre of 20 children and six educators at an elementary school in Newtown, Connecticut. His administration has since reiterated its support for a global arms treaty that does not curtail US citizens' rights to own weapons.Arms control campaigners say one person every minute dies as a result of armed violence and a convention is needed to prevent illicitly traded guns from pouring into conflict zones and fueling wars and atrocitiesIn an interview with Reuters, NRA president David Keene said the Newtown massacre has not changed the powerful gun lobby's position on the treaty. He also made clear that the Obama administration would have a fight on its hands if it brought the treaty to the senate for ratification. "We're as opposed to it today as we were when it first appeared," he said on Thursday. "We do not see anything in terms of the language and the preamble as being any kind of guarantee of the American people's rights under the Second Amendment. "The Second Amendment of the US Constitution protects the right to bear arms. Keene said the pact could require the government to enact legislation to implement it, which the NRA fears could lead to tighter restrictions on gun ownership.He added that such a treaty was unlikely to win the two-thirds majority in the senate necessary for approval."This treaty is as problematic today in terms of ratification in the senate as it was six months ago or a year ago," Keene said. Earlier this year a majority of senators wrote to Obama urging him to oppose the treaty.UN delegates and gun-control activists say the July treaty negotiations fell apart largely because Obama, fearing attacks from Republican rival Mitt Romney before the November 6 election if his administration was seen as supporting the pact, sought to kick the issue past the US vote. US officials have denied those allegation The NRA claimed credit for the July failure, calling it at the time "a big victory for American gun owners."NRA is "telling lies"The main reason the arms trade talks are taking place at all is that the US - the world's biggest arms trader, which accounts for more than 40% of global transfers in conventional arms reversed US policy on the issue after Obama was first elected and decided in 2009 to support a treaty.Supporters of the treaty accuse the NRA of deceiving the American public about the pact, which they say will have no impact on domestic gun ownership and would apply only to exports. Last week, Amnesty International launched a campaign to counter what it said were NRA distortions about the treaty."The NRA is telling lies about the arms treaty to try to block US government support," Michelle Ringuette of Amnesty International USA said about the campaign. "The NRA's leadership must stop interfering in US foreign policy on behalf of the arms industry."Jeff Abramson of Control Arms said that as March approaches, "the NRA is going to be challenged in ways it never has before and that can affect the way things go" with the government.The draft treaty under discussion specifically excludes arms-related "matters which are essentially within the domestic jurisdiction of any State".Among its key provisions is a requirement that governments make compliance with human rights norms a condition for foreign arms sales. It would also have states ban arms transfers when there is reason to believe weapons or ammunition might be diverted to problematic recipients or end up on illicit markets.Keene said the biggest problem with the treaty is that it regulates civilian arms, not just military weapons.According to the Small Arms Survey, roughly 650 million of the 875 million weapons in the world are in the hands of civilians. That, arms control advocates say, is why any arms trade treaty must regulate both military and civilian weapons.Keene said the NRA would actively participate in the fight against the arms trade treaty in the run-up to the March negotiations. "We will be involved," he warned, adding that it was not clear if the NRA would address UN delegates directly as the group did in July.The NRA has successfully lobbied members of Congress to stop major new gun restrictions in the United States since the 1994 assault weapons ban, which expired in 2004. It also gives financial backing to pro-gun candidates.Explosive issueEuropean and other UN delegates who support the arms trade treaty told Reuters on condition of anonymity they hoped Newtown would boost support for the convention in the US, where gun control is an explosive political issue"Newtown has opened the debate within the US on weapons controls in ways that it has not been opened in the past," Abramson said, adding that "the conversation within the US will give the (Obama) administration more leeway."Keene rejected the idea of bringing the Newtown tragedy into the discussion of an arms trade treaty"I find it interesting that some of the folks that advocate the treaty say it would have no impact whatever within the United States but that it needs to be passed to prevent another occurrence of a school shooting such as took place in Newtown," he said. "Both of those positions can't be correct."Obama administration officials have tried to explain to US opponents of the arms trade pact that the treaty under discussion would not affect domestic gun sales and ownership."Our objectives for the ATT (arms trade treaty) have not changed," a US official told Reuters. "We seek a treaty that fights illicit arms trafficking and proliferation, protects the sovereign right of states to conduct legitimate arms trade, and meets the concerns that we have articulated throughout." "In particular, we will not accept any treaty that infringes on the constitutional rights of US citizens to bear arms," the official added.Supporters of the treaty also worry that major arms producers like Russia, China, Iran, India, Pakistan and others could seek to render the treaty toothless by including loopholes and making key provisions voluntary, rather than mandatory.The US, like all other UN member states, can effectively veto the treaty since the negotiations will be conducted on the basis of consensus. That means the treaty must receive unanimous support in order to be approved in March.But if it fails in March, UN delegations can put it to a vote in the 193-nation General Assembly, where diplomats say it would likely secure the required two-thirds majority.

Recession batters Spain as protests grow

Battered by high unemployment and a banking crisis, Spain remains stuck in recession in the final quarter of 2012, the central bank said Friday.The eurozone's fourth-largest economy has been shrinking since mid-2011, pushing unemployment above 25%, and the outlook remains grim with a further contraction expected next year."The most recent data for the final quarter of the year, although still incomplete, points to a continuation of the fall in economic activity as a result of the contraction in domestic demand," the Bank of Spain said in a monthly report.The central bank pointed to indicators showing weak consumer confidence and retail sales, mixed fortunes in industry and a construction sector still reeling four years after a spectacular property market crash.Spain's gross domestic product, its total economic output, fell by 0.3% in the third quarter of the year, according to official data.The government is tipping an economic slump of 1.5% this year.It also forecasts a 0.5% contraction in 2013, but this is widely viewed as being optimistic. The European Commission and OECD, for example, say they expect Spanish economic output to tumble 1.4 percent next year.Protests are growing in Spain as people decry the economic slump, unemployment and a series of austerity measures adopted by Prime Minister Mariano Rajoy's right-leaning government. Massive aid to a bad-loan ridden and widely scorned banking sector has stirred further anger.

 

Italy keeps debt costs in check

 

Italy's debt costs rose only slightly at its last auction of long-term debt in 2012, drawing a solid response from investors yet to be unnerved by the risks surrounding February elections and the exit of its trusted technocrat government.The treasury sold €3bn of its 10-year bond paying a yield of 4.48%, up from 4.45% at a similar sale one month ago.It also placed €2.87bn of five-year bonds paying 3.26%, up from 3.23% at end-November sale.In very thin market conditions Rome was able to find decent demand for its bonds among investors searching for high returns, reflecting the easing of at least some concerns in the eurozone's debt crisis since August."It seems that the result was better than expected, with the yield on the 10-year lower than in the secondary market," said Emile Cardon, market economist at Rabobank in Utrecht. Markets are starting to focus on an uncertain Italian election campaign as the country approaches elections scheduled on 24-25 February.Investors, however, seem to be willingly to buy Italian debt while waiting for more clarity on domestic politics."The biggest fear for the market is that political turmoil in Italy will return. But this outcome shows (investors) still have confidence that Italy will do the right thing and I think this has something to do with the comeback of (outgoing Prime Minister Mario) Monti."The technocrat premier announced on Sunday he would consider seeking a second term as Italian prime minister if approached by allies committed to backing his austere brand of reforms. Monti resigned last week, just over a year after being appointed at the helm of an unelected government to save Italy from financial crisis. While it is still unclear which parties will support the outgoing premier, his commitment may bring economic reforms at the center of the political debate.Italy had planned to sell up to €6bn of both issues after having placed €11.75bn of short-dated debt on Thursday. 

China launches rival GPS satellite system

China has launched commercial and public services across the Asia-Pacific region on its domestic satellite navigation network built to rival the US global positioning system. The Beidou, or compass, system started providing services to civilians in the region on Thursday and is expected to provide global coverage by 2020, state media reported. Ran Chengqi, spokesperson for the China Satellite Navigation Office said the system's performance was "comparable" to GPS, the China Daily said."Signals from Beidou can be received in countries such as Australia," he said.It is the latest accomplishment in space technology for China, which aims to build a space station by the end of the decade and eventually send a manned mission to the moon.China sees the multi-billion-dollar programme as a symbol of its rising global stature, growing technical expertise, and the Communist Party's success in turning around the fortunes of the once poverty-stricken nation.The Beidou system comprises 16 navigation satellites and four experimental satellites, the paper said. Ran added that the system would ultimately provide global navigation, positioning and timing services.The start of commercial services comes a year after Beidou began a limited positioning service for China and adjacent areas.China began building the network in 2000 to avoid relying on GPS. "Having a satellite navigation system is of great strategic significance," the Global Times newspaper, which has links to the Communist Party, said in an editorial."China has a large market, where the Beidou system can benefit both the military and civilians," the paper said."With increases in profit, the Beidou system will be able to eventually develop into a global navigation satellite system which can compete with GPS."In a separate report, the paper said satellite navigation was seen as one of China's "strategic emerging industries".Sun Jiadong, the system's chief engineer, told the 21st century Business Herald newspaper that as Beidou matures it will erode GPS's current 95% market share in China, the Global Times said.Morris Jones, an independent space analyst based in Sydney, Australia, said that making significant inroads into that dominance anywhere outside China is unlikely."GPS is freely available, highly accessed and is well-known and trusted by the world at large," he said. "It has brand recognition and has successfully fought off other challenges."Morris described any commercial benefits China gains as "icing on the cake" and that the main reason for developing Beidou is to protect its own national security given the possibility US-controlled GPS could be cut off."It's that possibility, that they could be denied access to GPS, that inspires other nations to develop their own system that would be free of control by the United States," he said."At a time of war you do not want to be denied" access, he said.The Global Times editorial, while trumpeting Beidou as "not a second-class product or a carbon-copy of GPS" still appeared to recognise its limitations, at least in the early stages."Some problems may be found in its operation because Beidou is a new system. Chinese consumers should ... show tolerance toward the Beidou system," it said.

Weak Japan data points to stimulus

Poor Japanese manufacturing data on Friday gave new Prime Minister Shinzo Abe more ammunition to push for big spending and easy money to salvage the world's third largest economy from decades of deflation and its fourth recession since 2000.Japanese voters and the financial markets have welcomed the Abe government's aggressive stance on pumping cash into the economy, pushing the benchmark Nikkei share average on Friday to its highest level since the March 2011 tsunami, despite the worse than expected drop in factory output.Opinion polls published by major newspapers on Friday showed half to two-thirds of the public supported Abe's conservative government, with the stagnant economy the top priority.Top officials of the new government, sworn in just two days ago after a landslide election victory, say Abe's administration is under pressure to achieve quick results."(Public support) will drop if speculation mounts that we are unable to deliver," Akira Amari, the minister in charge of reviving the economy, told a news conference after a Friday morning cabinet meeting.But many economists warn Abe's emphasis on stimulus, rather than underlying structural reforms to boost competitiveness, may have only short-term effects and could worsen bloated public debt, the worst among the industrial nations. The government is keeping up pressure on the Bank of Japan (BOJ) to step up its monetary stimulus, even after it loosened policy in December for the third time in four months.Finance Minister Taro Aso said he was paid a courtesy visit by BOJ Governor Masaaki Shirakawa on Friday in which the two agreed to hold talks on issues including coordinating policy.Abe has threatened to change the law which guarantees the central bank's independence if it does not pursue more aggressive easing.Potentially adding more pressure on the BOJ was Japanese factory output data on Friday that fell a steeper than expected 1.7% in November, more than triple the median market forecast for a 0.5% drop. That followed a 1.6% gain in October, the first rise in four months.Japanese manufacturing activity also put in a bleak performance in Friday's Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) for December, which declined at its fastest pace in more than three years.Japan's economy has slipped into a mild recession, hurt by weak global demand and slumping sales to China after a diplomatic row over disputed isles.Analysts expect growth to pick up early next year, although any recovery will likely be slow and modest.The industrial output data from the Ministry of Economy, Trade and Industry included a survey showing that manufacturers expect output to rise 6.7% in December and increase 2.4% in January."Today's data confirmed that the economy remained on a downward trend and this could be a reason for the government to adopt an expansionary fiscal policy," said Takeshi Minami, chief economist at Norinchukin Research Institute."But if you look at data closely, there are also signs the economy will probably be bottoming out, so the data could simply offer the government a pretext to use its stimulus plan to support the recovery."Under pressure from Abe, the central bank has also signalled it may set a higher inflation target at its January 21-22 meeting than the current 1% goal, although market participants doubt it will have the means to achieve it.Separate data released on Friday showed Japan's core consumer prices, which exclude volatile fresh food prices, edged down 0.1% in November from a year earlier, in line with the median market forecast.The markets have been focusing on the prospects for further monetary easing and its impact on the yen, which has backed off from its long-running strength against the dollar and slipped to its weakest in more than two years. The yen dropped to 86.64 to the dollar on Friday, its lowest since August 2010.This has helped to fuel a rally in the shares of Japanese exporters, which were hurt by the yen's strength. The Nikkei benchmark has risen more than 20% since mid-November and is on track for its best year since 2005.Bond yields have also perked up after being depressed, with the benchmark 10-year Japanese government bond yield capped at 0.8 percent since the start of the quarter.