NEWS,08.11.2012

Draghi open to ECB rate cut

The euro zone economy shows little sign of recovering before the year-end despite easing financial market conditions, European Central Bank President Mario Draghi said today, leaving open the possiblity of an interest rate cut in the months ahead.But after keeping rates on hold, Draghi said the ECB cannot do much more to help Greece with its debt burden and gave Spain none of the assurance it wants that ECB bond buying will lower its borrowing costs."The ECB is by and large done," Draghi told his monthly news conference when asked what the bank could do for Greece.The euro zone is grappling to find a formula to make Greek debt sustainable, with Germany and the International Monetary Fund at odds over the need for governments and the ECB to take a "haircut" on Greek bonds they hold to make the numbers add up.The ECB agreed earlier this year to hand over to euro zone governments profits on its Greek bonds but has refused to take a hit on the value of the paper, saying that would be "monetary financing" which it is prohibited from doing.The ECB held its main rate at 0.75%, deferring any cut while it waits for a cue to use its new bond-purchase plan. That wait may be prolonged after Spain completed its 2012 funding at affordable rates on capital markets on today.A  poll had given an 80% chance the ECB would hold its main rate, but most of the 73 analysts polled expect it will be cut to a new record low of 0.5% within the next few months.Draghi said ECB monetary policy is "very accommodative". He declined to comment when asked whether markets were right to expect a rate cut next month and said the policymaking Governing Council had not discussed what it would do next year.Economist Howard Archer at IHS Global Insight said: "Draghi appeared to ease open the door to a cut in interest rates over the coming months and potentially as soon as December." Not everyone expects a cut that soon. "Our sense is that the ECB is firmly on hold," said JP Morgan economist Greg Fuzesi, though he added: "Next year, the ECB will act if growth disappoints more fundamentally." Describing "a picture of weaker economies" in the euro zone, Draghi said this would influence new ECB economic forecasts due next month. Inflation would remain above the ECB's target for the rest of the year, before falling below 2% in 2013."We certainly continue monitoring economic activity and we stand ready to act," he said." We stand ready to act with OMT (bond-purchase plan) once the prerequisites are in place. We also stand ready to act with the rest of standard, normal monetary policy instruments. "Recent survey evidence gave no sign of improvement towards the year-end and the risks surrounding the euro area remain on the downside, Draghi said. As he spoke, the euro fell against the dollar and hit a session low in early New York trade.Gloomy data this week indicated the euro zone economy will shrink in the fourth quarter, which the ECB could eventually respond to by cutting rates.Before making any decision to cut rates further, the ECB will focus on making sure that its looser policy reaches companies and households across the euro zone, a mechanism that has been broken by the bloc's debt crisis.The new bond-purchase plan - dubbed Outright Monetary Transactions (OMTs) is the ECB's designated tool for this but can only be activated once a euro zone government requests help from the bloc's rescue fund and accepts policy conditions and strict international supervision.So far no request has been made, but the announcement of the policy alone has calmed markets."We are ready to undertake OMTs which will help to avoid extreme scenarios, thereby clearly reducing concerns about the materialisation of destructive forces," Draghi said.Asked whether he could imagine an extreme scenario in which the bank began buying bonds without conditions, he said the answer was 'no'.Investors and euro zone policymakers have been urging Spain to seek aid but Prime Minister Mariano Rajoy has so far held off a request, saying he wants assurances that ECB intervention would bring down Spain's debt costs.Draghi gave Rajoy no comfort."The Governing Council will take the final decision in total independence," he said of any decision on whether to use the OMT programme."In so doing, it cannot give any assurance ex ante".Spain sold 4.8 billion euros of debt including its first longer-term issue in 18 months on Thursday, enough to complete its 2012 financing programme and begin raising funds for next year. So there is little immediate pressure on that front.Yields on Spanish government bonds have dropped by around 2 percentage points since Draghi said in late July the ECB was ready to do "whatever it takes to preserve the euro" - a pledge that heralded the bond-buying plan.

Obama mulls new cabinet picks

US President Barack Obama, fresh from re-election and facing a new clash with congress, got back to work on Thursday, with an important item on his to-do list, stocking his new cabinet.Obama is expected to lose his heavyweights including Treasury Secretary Tim Geithner, Secretary of State Hillary Clinton and Defence Secretary Leon Panetta, for most if not all of his second four-year term.The president will also likely have to make changes to his White House staff with some senior aides, exhausted by a crisis-strewn four years, expected to move on and others shifting to different administration jobs.Speculation is already rife about who will replace Clinton, who has reiterated that she wants to reclaim a private life put on hold by decades in the spotlight of top level politics. Clinton has said she has no interest in another White House race, but the campaign blitz for Obama by her husband former president Bill Clinton, and the power couple's passion for politics, has sparked renewed speculation.Until Clinton makes her final decision known, the Democratic Party's other possible 2016 presidential candidates will likely hold their fire, as the former first lady would be a prohibitive favourite if she did run.UN ambassador Susan Rice, who has been close to Obama for years, has long been seen as a likely replacement for Clinton at the state department, despite being caught up in the furore over the raid in the US consulate in Benghazi.Another possible contender is John Kerry, chairperson of the senate foreign relations committee, whose stock rose in Obama world after he played Republican nominee Mitt Romney in Obama's practice dry runs for the presidential debates.Rice would be the second African American woman to hold the post after Condoleezza Rice, to whom she is not related. She is known at the United Nations for an assertive manner and not shy about pounding home the US point of view.A report in Russia's Kommersant newspaper on Thursday said that Moscow, with whom Rice has clashed heatedly over Syria, would prefer to see Kerry get the job, at a sensitive time between Obama and restored Russian President Vladimir Putin."It would be more difficult for Moscow to work with Washington" if Rice became secretary of state, the unnamed Russian official was quoted as saying.Kerry would have to step down from the senate, however, and there is concern that his Massachusetts perch could fall prey to Republican Scott Brown, who lost a race with Democrat Elizabeth Warren for the state's other senate seat.White House sources said that the usual timetable for replacing cabinet members  in plenty of time for confirmation by the Senate after the presidential inauguration in January could slip this time.Geithner and Panetta are key figures in the year-end budget and tax showdown looming with Republicans, and may not move on until the so-called "fiscal cliff" drama is resolved.Some insiders talk about White House chief of staff Jacob Lew, himself a budget specialist, as a possible successor for Geithner while others speculate that Obama may reach for someone with business credentials to improve his shaky standing with the corporate world.Panetta is expected to leave the administration at some point, but did not serve for the full four-year first term, having taken over just last year from Robert Gates, a holdover from the previous Bush administration.Also known as a budget specialist, Panetta may stay in place until expected spending reductions are factored in to the Pentagon's budgetary plan to return to his walnut farm in California's Carmel Valley.The current favourite to succeed him is Michele Flournoy, who served as under secretary of defence for policy early in Obama's first term.Her appointment may appeal to Obama's sense of history as she would be the first woman to hold the role.Should Flournoy not get the job, some defence analysts think that the current deputy defence secretary Ashton Carter could be in the frame.There may also be other cabinet departures. It is unclear whether Attorney General Eric Holder, a close associate of Obama who has had a bruising from Republicans, will stay on.Education Secretary Arne Duncan is expected to remain in place to pilot through congress Obama's reform programme, likely a highlight of his second term agenda.Obama may also have some shuffling to do at the White House, especially if Lew moves to Treasury. His political guru, David Plouffe, is expected to leave and there may be other high profile departures.The president sparked speculation on Tuesday when he said he wanted to sit down with Romney to work out how they could take the country forward.Obama's first term "Team of Rivals" approach of choosing former political foes like Clinton, modelled on that of his hero Abraham Lincoln, could apply in Romney's case, perhaps in a job like Commerce Secretary.However, it is unclear whether Romney would be prepared to swallow his pride and work for the man who vanquished him in a bitter White House campaign.

Iran not ruling out nuclear talks with US

Iran, reeling from international sanctions over its nuclear programme and facing four more years with Barack Obama as leader of arch-enemy the United States, does not rule out direct talks with Washington but says they will not come overnight.Obama's re-election drew an ambiguous response from President Mahmoud Ahmadinejad, who dismissed the US elections as a "battleground for the capitalists," at a forum on democracy in Indonesia.Without directly commenting on Obama's victory, he lambasted democracy in the West as having "turned into the rule of a minority over the majority".But behind the flamboyant rhetoric, senior regime figures have expressed cautious signs of interest in the election of Obama, who four years ago famously "extended his hand" to Tehran and may be preparing to do so again.Not overnight An influential cleric among the ruling conservatives, judiciary chief Ayatollah Sadeq Larijani, did not rule out Tehran and Washington coming "to the negotiating table" one day but warned it would not happen "overnight."Larijani said on Wednesday that "relations with the United States are not simple".The United States, which Tehran dubs the "Great Satan", severed diplomatic relations with Iran after the 1979 takeover of the US embassy in Tehran, and the two have been in a tense stand-off ever since."Four years ago, Obama was elected on a platform for change and said he was extending his hand for co-operation with Iran, but he acted otherwise and unprecedented sanctions were imposed," Larijani said.Obama has rallied US allies against Iran, toughening sanctions, with Tehran's oil exports and access to world financial systems being key targets.The United States and other world powers, including Tehran's arch-enemy Israel, accuse Iran of using its nuclear programme to mask a drive for atomic weapons. Tehran denies that, saying it is for purely peaceful purposes.The last offer called for Iran to cease enriching uranium to purities of 20% - technically not far from the 90% needed for a nuclear weapon. It also wanted Iran to close its Fordo enrichment facility and to export existing stockpiles of 20% purity uranium.Iran rejected that, saying it did not offer sufficient relief from sanctions that have begun to cause real economic problems.Larijani's brother and international affairs adviser, Mohammad Javad Larijani, reiterated that negotiating with Washington "is not taboo," but any decision to renew contact "is a prerogative of the supreme leader"."If the interest of the regime requires it, we are prepared to negotiate with the Satan in the pits of hell," he said on Wednesday.A Western ambassador in Tehran said the regime "gives the impression of being willing to be more realistic in its negotiations with major powers, providing they offer it an honourable way out of the crisis".This could include, according to many Western diplomats in Iran, the revival of bilateral contact with the United States.Another European ambassador said "both sides have shown some interest (in such a revival), but the question is what the Iranians are going to ask for, and if Washington is willing to give it."In recent months, Washington has repeatedly expressed readiness for direct talks with Iran. Tehran has declined, saying its conditions were not met.Foreign ministry spokesperson Ramin Mehmanparast has said Iran "respects the vote of the American people".But "the wall of mistrust can only be reduced if the US government respects the will and the rights of the Iranian people and changes its past mistaken policies".The second European ambassador sees hope nonetheless."Whether it's nuclear talks or a possible resumption of dialogue with Washington, the Iranians are insisting on what they call the recognition of their rights as well as mutual respect," he said."The wording is vague enough to allow solutions if both parties are open to it," he added. "The re-election of Obama in any case opens a window of a few weeks or months to overcome the crisis."As it stands, a new round of talks between Iran and six world powers, the first since June, is expected by the end of the year, or in early 2013, analysts say.Mark Fitzpatrick, nuclear expert at the International Institute for Strategic Studies in London, said "it's pretty clear that the United States and its European allies are gearing up to try again for diplomatic engagement. But the question is, what will be on the table? Iran won't be making concessions unless it gets some form of sanctions relief," he said.As put by Mark Hibbs, at the Carnegie Endowment for International Peace: "There is reason for some optimism, but it is guarded optimism because in the final analysis it depends on whether Iran will 'play.' If they won't, all bets are off."

Greece passes crucial austerity bill

 

Greece's parliament passed a crucial austerity bill early on Thursday in a vote so close that it left the coalition government reeling from dissent.The bill, which will further slash pensions and salaries, passed 153-128 in the 300-member Parliament. It came hours after rioters rampaged outside parliament during an 80 000-strong anti-austerity demonstration, clashing with police who responded with tear gas, stun grenades and water cannons.Approval of the cuts and tax increases worth €13.5bn ($17bn) over two years was a big step for Greek efforts to secure the next installment of its international rescue loans and stave off imminent bankruptcy.The country's international creditors have demanded that the bill and the 2013 budget, due to be voted on Sunday, pass before they consider releasing an already delayed €31.5bn installment from Greece's €240bn bailout. Without it, Prime Minister Antonis Samaras says Greece will run out of money on November 16."Greece made a big decisive and optimistic step today. A step toward recovery," Samaras said, adding that he was "very happy" with the result.Development and growth for the country, which faces a sixth year of a deep recession in 2013, will come "only with a lot of work, with coordinated action, with investments," he said.But the close vote was a major political blow to the three-party coalition government, which holds a total of 176 seats in Parliament. The result shows support for continued austerity three years into Greece's financial crisis is dwindling fast."The government now has very little margin to take measures like this again," said Dimitris Mardas, associate professor of economics at the University of Thessaloniki. "But unless it takes various obvious actions like limiting the black economy, addressing tax evasion and improving the country's investment framework, we may end up needing new measures. And then things will be very difficult."Straight after the vote, two of the three coalition parties  Samaras' conservatives and former finance minister Evangelos Venizelos' socialists  expelled a total of seven dissenting deputies from their ranks.Lawmakers from the third, the small Democratic Left, mostly abstained from the vote in accordance with their party's line. Leader Fotis Kouvelis had said he could not back labour reforms included in the bill.During hours of acrimonious debate in parliament, Samaras acknowledged that some of the measures in the bill were unfair, but insisted they were vital to avoid bankruptcy and Greece being forced out of the euro zone and back to its old currency, the drachma."This (bill) will finally rid the country of drachmophobia," he said."Many of these measures are fair and should have been taken years ago, without anyone asking us to," Samaras said. Others are unfair cutting wages and salaries and there is no point in dressing this up as something else." But, he said, the alternative was bankruptcy that would trigger financial chaos as the country would likely have to leave the 17-country euro bloc.The measures are for next year and 2014, and include new, deep pension cuts and tax hikes, a two-year increase in the retirement age to 67, and laws that will make it easier to fire and transfer civil servants who are currently guaranteed jobs for life.The reforms aim to lower public debts but will in the process also hurt the economy, which is set to enter a sixth year of recession with unemployment at a record 25%."You are throwing people onto to the street, people who need a few more years till they get their pensions," said Panagiotis Lafazanis of the main opposition Syriza, or Radical Left, party. "What will happen to them? Will they starve?"