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.

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 were 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.The 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.

Italy upbeat at end of 2012

Italy is ending 2012 on an upbeat note, with renewed financial market confidence and optimism among analysts that the worst of the financial crisis is over, despite expectations of political uncertainty in the run-up to a general election in February.The Treasury's borrowing rates were slightly higher at short, medium and long-term debt auctions last week, but were well below levels seen at the end of 2011, when Prime Minister Mario Monti took over from Silvio Berlusconi as Italy teetered on the brink amid the eurozone debt crisis.In late November 2011, the country was paying a 7.56% rate for its benchmark ten-year bonds, sparking widespread concerns it might have to ask for a bailout.On Friday, that rate stood at 4.48%.As 2012 draws to a close, "even if public debt has breached the two trillion euros mark, Italy's ability to finance itself is no longer in doubt," said Enrico Marro in Italy's Il Sole 24 Ore financial daily."For 2013, optimism reigns," he concluded.The turnaround is principally the result of two factors: the European Central Bank's promise to buy sovereign debt issued by eurozone member states without limit if necessary if they meet certain strict conditions, and Monti's decisive reforms which have restored Italy's credibility internationally. Experts have forecast a couple of months of volatility on the markets in the lead up to the February 24 and 25 elections, but the worst appears to be over. Italian bank Intesa Sanpaolo said "the fever should drop off in 2013 compared with 2012."The bond spread a key measure of the difference between Italian and German 10-year bond yields has also dropped sharply over the year, dipping below 300 basis points in early December from double that figure at its peak. While European leaders congratulated Monti on restoring calm to the markets, Berlusconi's announcement at the start of December that he is running again for prime minister sparked panic and the spread began to inch up again.The media magnate has dismissed the spread measure as "a trick and an invention" used to bring down his government. Investors will be watching closely in the coming weeks to see if Berlusconi's large-scale media campaign for re-election wins him potential votes from Italians tired of Monti's austerity packages and record unemployment levels.Renewed confidence in financial markets contrasts sharply with official forecasts for economic growth over the coming year, as Italy struggles to pull itself out of a recession.Despite Monti's "Grow Italy" plan, the economy is not expected to return to growth before the end of 2012 or the beginning of 2014."Business and household sentiment does not appear to have benefited from the easing market tension," Intensa Sanpaolo said.The government has forecast a 0.2% contraction of the country's gross domestic product in 2013 an outlook considered overly optimistic by Italy's business association Confindustria, which expects GDP to shrink by 1.1% next year.One figure is on the rise however: the number of people on Twitter following Monti, who is drumming up support for a reform-led electoral campaign. Monti, who resigned last week after Berlusconi's People of Freedom party pulled support from the government, has said he is keen to lead the country again after the elections a message welcomed by the markets, European leaders and Italy's Catholic Church alike.

 

IMF, EU push for softer deficit cuts

The International Monetary Fund and European Commission officials have encouraged France and its eurozone partners not to fixate on deficit reduction targets if it would exacerbate the bloc's debt crisis.The head of an IMF mission in France, Edward Gardner, urged officials in Paris last week to consider their 2013 budget targets "in a broader European context."The IMF and the EU Commission expect the French public deficit to amount to 3.5% of gross domestic product (GDP) next year.They do not believe France can reach its 3.0% goal, the eurozone limit, without additional measures that could aggravate an already tenuous economic situation."The credibility of the medium term orientation policy" was more important than a specific deficit target, Gardner told reporters.Loosening the criteria would "be more effective, more credible in a coordinated fashion" across the 17-nation eurozone, he suggested.In Portugal the public deficit fell at the end of the third quarter to 5.6% of GDP from 6.7% at the same point a year earlier, while neighbouring Spain has promised to slash its deficit to 3.0% by 2014 from a blowout shortfall equal to 9.4% of output last year. Germany expects its budget to be in balance this year, two years ahead of schedule, but IMF head Christine Lagarde has suggested that Berlin ease up a bit in its drive for healthy finances. "Germany ... and others ... can allow themselves to go a little more slowly than others in the push to straighten out their public finances," Lagarde told the German weekly Die Zeit in comments published last week.Her call echoed other European voices that are now arguing for greater emphasis on growth rather than austerity measures."The IMF is beginning to understand that the French situation has become dangerous," economist Marc Touati at the ACDefi consulting group said. Unemployment is climbing and the economy is still struggling, he pointed out.The IMF was "trying to prepare public opinion" for missed government targets, Touati suggested."This is not really a new position," Frederique Cerisier at the French bank BNP Paribas said of Lagarde's recent remarks. She acknowledged however that some international institutions were "placing added emphasis" on the need to cut deficits more gradually.On Tuesday, the EU's 'fiscal compact,' a hard-won step towards tighter economic coordination agreed as part of efforts to tame the debilitating debt crisis, takes effect.Finalised in March, 25 of the 27 EU member states accepted a 'balanced budget rule' in the compact to ensure that governments would no longer run the massive budget deficits which drove the debt crisis and nearly sank the euro.But as the European debt crisis drags on and economies flounder, the idea of allowing governments more time to straighten out their finances has gained ground.European Economic Affairs Commissioner Ollie Rehn said last week that France needed more reforms rather than more austerity."Once you have a credible medium-term budget strategy, backed up by reforms, you can have a slower adjustment," he told French daily Le Monde.If a 3.0% French deficit remains a valid reference, "what needs to be taken into account above all is the structural budget adjustment effort which France is making with remarkable intensity," the EU official said.French officials nevertheless seem determined to stick by their targets. They insist that the public deficit will be brought down to 3.0% of GDP next year from 4.5% in 2012, based on a 2013 growth estimate of 0.8% that economists consider overly optimistic.Friday's third-quarter growth figures gave them little comfort: official statistics revised growth over that period down from 0.2% to 0.1%.French Finance Minister Pierre Moscovici wrote in the German business daily Handelsblatt that France had a duty to reverse years of budget deficits."In the past 30 years, France has not been able to pass a balanced budget. State debt rose to an unacceptable €1.7 trillion in 2011. It is our duty to reverse this," Moscovici said. On Friday he reaffirmed the goverment's 2013 growth target.Cerisier at BNP Paribas warned that France, which is nowbenefitting from exceptionally low borrowing rates, must be careful how it communicates to markets, if it wants to maintain its credibility.But, she added: "The fact that we can begin to discuss all that is proof that countries have become more credible with respect to their economic targets."

 

France's 75% tax on rich struck down

France's top constitutional body on Saturday struck down a 75% upper income tax rate, dealing a major blow to Socialist President Francois Hollande, who had made it his centrepiece tax measure.The government vowed to push ahead with the tax rate, which would apply to incomes over a million euros a year, and propose a new measure that would conform with the constitution.The tax rate had angered business leaders and prompted some wealthy French citizens to seek tax exile abroad, including actor Gerard Depardieu who recently took up residency in Belgium. The Constitutional Council said in its ruling that the temporary two-year tax rate, due to take effect next year, was unconstitutional because unlike other forms of income tax it applied to individuals instead of whole households. As a result, the council said, the tax rate "failed to recognise equality before public burdens".Though largely symbolic it would have applied to only about 1 500 individuals the Socialists said the tax rate was aimed at making the ultra-rich contribute more to tackling France's budget deficit.The move was welcomed by the French Football League (LFP) which had expressed concern at the impact on top footballers such as Paris Saint Germain's Swedish star striker Zlatan Ibrahomovic. LFP chairperson Frederic Thiriez said if the measure had reached the statute book there could have been an "exodus of the best players" in the French league.The 75% tax rate was a flagship promise of the election campaign that saw Hollande defeat right-winger Nicolas Sarkozy in May. Prime Minister Jean-Marc Ayrault said the ruling was a "symbolic but not severe censure" and pledged to ensure the measure was adopted." The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council. It will be presented in the framework of the next Finance Act," he said in a statement. "We want to maintain" the measure "because it symbolises the need for the effort to be more fairly shared," he added.The Constitutional Council also rejected new methods for calculating a separate wealth tax, striking down a provision that would have increased the amount of taxable revenues and capital gains. Other new measures in the budget were approved, however, including an increase in some upper tax rates to 45% and the addition of capital gains to taxable income. Finance Minister Pierre Moscovici said the ruling "does not compromise" budget efforts and said the council had approved "the essential" of the government's economic policies.But government critics hailed the ruling as proof the Socialists are pursuing unfair tax policies. "While the whole world watched us in dismay, Francois Hollande deceived the French into believing that 'taxing the rich' would be enough to solve our country's problems," said the head of the right-wing opposition UMP, Jean-Francois Cope."In reality, discouraging entrepreneurs and punishing the most wealthy until they leave our country inevitably puts the tax burden on the middle class. This moral error was sanctioned today. "France is struggling to plug a €37bn hole in its public finances to meet its target of reducing the budget deficit to the EU ceiling of 3% in 2013.The 2013 budget included €12.5bn in spending cuts and €20bn in new taxes on individuals and businesses. Critics have said the new tax measures will stifle economic growth, with the French economy already expected to contract by 0.2% in the final quarter of this year. The 2013 budget is based on a government forecast of 0.8% economic growth next year a figure many economists consider too optimistic. Hollande has seen his popularity plummet in recent months as the economy stagnates and unemployment mounts.

US lawmakers seek last-gasp fiscal deal

After weeks of failed haggling, the fiscal cliffhanger is at hand as US lawmakers convene Sunday in a bid to strike a year-end deal that avoids huge tax hikes and possibly spending cuts set to kick in January 1.With the clock ticking ever closer to the New Year's time bomb, the suddenly alarmed Senate and House were holding special sessions 36 hours before the year-end deadline for a plan that would keep America from tumbling off the so-called fiscal cliff. The stakes in the game of holiday-interrupting brinkmanship are enormous. Economists agree the $500bn in fiscal pain due to hit when the new year starts would stifle the US economic recovery and send the country back into recession, spelling bad news for the global economy as well. Aides to both sides' leaders in the Democrat-controlled Senate worked feverishly behind closed doors Saturday to fashion a deal palatable to Democrats as well as to Republicans, who control the House of Representatives. The Senate convenes Sunday at 1:00 pm (18:00 GMT) while the House goes into session an hour later, with no votes expected before 23:30 GMT. Both chambers would have little time to debate and then pass a deal that has eluded the White House and Congress for weeks. President Barack Obama, who called congressional leaders to the White House on Friday, will address the crisis once more when he gives an interview on NBC's Sunday morning talk show "Meet the Press. "Amid the tense negotiations, Obama pressed lawmakers to clinch a deal, even if they must reach a compromise that lacks the significant deficit-reduction measures both sides had sought. If lawmakers fail, "every American's paycheck will get a lot smaller," the president warned. "Congress can prevent it from happening, if they act now. "Obama, sensing a mandate from his re-election last month, wants to raise taxes on the rich. Republicans want only to close tax loopholes to raise revenue and demand significant spending cuts in return, notably to federal benefit programs like Social Security. But if nothing is done by the deadline, all taxpayers will see an increase. Following the White House talks, the Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell are heading efforts to craft a deal. But any agreement would also have to pass the House, where there is doubt that an Obama-backed deal would win favor with restive conservatives in the Republican caucus. While each side must for the sake of appearances be seen to be seeking a deal, one way out is to go over the cliff, then fix the problem in the first days of next year. Under that scenario, Republicans who are philosophically opposed to raising taxes could vote to lower the newly raised rates on almost all Americans without formally hiking taxes. Lawmakers, while ruing the inability to work out a multi-trillion-dollar grand bargain in time, have said a pared down version dealing mainly with taxes was within reach. Citing unnamed people briefed on the talks, The Washington Post said one version under consideration would protect nearly 30 million taxpayers from paying the higher, alternative minimum tax rate for the first time and maintain unemployment benefits for two million people.The plan also would halt a steep cut in Medicare reimbursements for doctors and preserve popular tax breaks for both businesses and individuals, such as those for research and college tuition, the report said.But the two sides were still at odds over where to set the limits of wealthy - at $250 000 or $400 000 of annual income and over taxes on inherited estates. Nor has there been agreement on spending cuts so sought after by Republicans, who say excessive government spending is the main driver of US debt. Obama warned that if an agreement was not reached in time, he would ask the Senate to hold an up-or-down vote on a basic package that protects the middle class from a tax hike, extends unemployment insurance, and "lays the groundwork for future... deficit reduction. "In a weekly Republican address, Senator Roy Blunt expressed some optimism, saying that "going over the fiscal cliff is avoidable. "But he criticised Democrats for focusing mainly on taxes while setting aside government spending, arguing that such inaction "shouldn't be an option."

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. 

NEWS,24.12.2012

US fiscal cliff deal on a knife-edge

The wheels could come off the US economy even before it has shifted out of second gear unless politicians reach a last-minute deal to avoid $600bn in tax rises and spending cuts that kick in next month.The rest of the world would be unable to avoid the pile-up if America does fly off the so-called fiscal cliff.That is why, even in a holiday-shortened week, eyes will be peeled for signs that Democratic President Barack Obama and his divided Republican opponents can bury the hatchet.The White House on Friday tried to rescue the stalled talks, but there was little headway to resolve what Alan Blinder, an economics professor at Princeton University, called the biggest near-term risk facing the global economy.Seen from abroad, US policymakers were looking "clownish", the former vice-chairman of the Federal Reserve said: "This will do us a tremendous amount of damage."Until last Thursday, markets had assumed a compromise would be struck, averting the risk of a relapse into recession. The slow-motion car crash had been so well signaled that surely the drivers would swerve in time?But after Republicans abandoned a fix proposed by House of Representatives Speaker John Boehner, businesses and households head into the year-end knowing the clarity they crave on tax and spending plans could be weeks away."The longer uncertainty persists, the greater the negative impact on the economy," Lewis Alexander, chief US economist at Nomura, told clients."It may take the imminent threat of a breach of the debt limit in February, or March at the latest, to force an agreement," he added, referring to the Congressional approval that the Treasury will need to extend its borrowing authority.By sapping consumer confidence, the political brinkmanship could already be enough to sap short-term US growth.If America then does tumble over the cliff for more than a few days, triggering fiscal tightening that could reach 4% of GDP, the repercussions would be felt around the world via trade and financial links."If our economy goes into a recession, especially a serious recession, a deep recession, that's going to hit imports from the rest of the world. And to the extent that it messes up financial markets, that has a contagion effect," said Martin Feldstein, an economics professor at Harvard University.Like Blinder, he was speaking on a conference call organised by Foreign Affairs magazine. Indeed, the resulting turbulence in financial markets could end the period of relative calm enjoyed by the eurozone, said Christian Schulz, an economist at Berenberg Bank in London.Failure to put the US budget on a more sustainable path could well crush hopes that the world's largest economy is finally shaking off the effects of the financial crisis and returning to a path of steadier if not spectacular growth.Credit Suisse on Friday raised its forecast for fourth-quarter GDP growth to an annualised pace of 1.8% from 1.1% after consumer spending in November rose at the briskest rate in three years.A recovery in housing is an increasingly important motor of growth, and figures on Thursday are expected to show new home sales rose to 380 000 in November from 368 000 in October, according to economists polled by Reuters.Two of the top trading recommendations for 2013 by economists at Goldman Sachs are premised on a deepening housing market recovery. Existing homes changed hands in November at the quickest pace in three years, while confidence among home builders rose to a 6-1/2-year high in December.Edward Jamieson, chief investment officer in Franklin Templeton's equity group, said housing was benefiting from record-low interest rates, a gradual reduction in household debt and significant pent-up demand."Higher home prices have also helped reduce the number of individuals with negative equity in their homes while also providing a strong wealth effect, which we think bodes well for continued improvement in the housing sector," he said in a report.That markets in the last days of 2012 should be held hostage to events in Washington is fitting in one sense: this has been a year in which politics has shaped economic developments more than ever.In the eurozone, a commitment by paymaster Germany to keep bailing out backsliding Greece, building on a pledge by European Central Bank President Mario Draghi to do whatever it takes to preserve the euro, largely allayed market doubts about the imminent disintegration of the single currency.In Japan, Prime Minister-elect Shinzo Abe, whose cabinet will be sworn in on Wednesday, campaigned on a platform of more aggressive monetary and fiscal policy to jolt the economy out of two decades of anaemic growth and gently falling prices.The yen has weakened and Japanese stocks have risen in response even though many are sceptical that Abe will introduce the reforms Japan needs.The Bank of Japan, sensing which way the political winds are blowing, duly relaxed policy last week, and inflation figures on Friday are likely to reinforce expectations that there is more to come from the central bank. Economists polled by Reuters expect core prices to have fallen by 0.1% nationwide in the year to November and by 0.5% in Tokyo in the year to December."We expect quantitative easing to continue aggressively in the first half of 2013, especially after a new governor takes the helm from the April 26 monetary policy meeting," Izumi Devalier, an economist with HSBC, wrote in a report.

Monti unveils 'change Italy' agenda

Italian Prime Minister Mario Monti unveiled an agenda to "change Italy, reform Europe" at a year-end presser on Sunday and said the country had managed to pull itself out of the eurozone debt crisis, without having to call for aid."The agenda focuses on avoiding very dangerous steps backwards", and will take the reforms already begun forward, said Monti, who stepped down on Friday after a year in which he dragged the eurozone's third largest economy out of a fiscal mire."The financial crisis has been overcome. . . I was always sure that Italy had all the resources needed to make it on its own, and so it was," said the former eurocrat, who many European leaders hope will play a role in any future government to keep the reform accomplished on track. Monti, who took over the reins of power after Silvio Berlusconi was ousted amid a sex scandal and the financial crisis, also commented that he was 'perplexed' by the ex-premier. "I am perplexed by my predecessor. I find it difficult to follow his line of thought," he said, referring to media magnate Berlusconi's frequent changes in position over the past few weeks, first supporting Monti then attacking him.Berlusconi has said he will run in February's general election and now seems to have settled on winning votes on the back of an anti-Monti drive.

China's wealthy buy 'Rolls-Royce' bikes

Rich Chinese are buying bicycles that cost more than the average citizen makes in three years, motivated by nostalgia for the days when two wheels were the primary means of transport.China is now the world's biggest auto market, but high-end bike sales are expected to grow by 10% a year as they become a status symbol for wealthy executives.Yu Yiqun, the creative director at an advertising company in the Chinese capital, cycles to work on his favourite bike - a 100 000 yuan ($16 000) hand-made Alex Moulton."It might be the only one in Beijing. It's like the Rolls-Royce of bicycles. Very classical, purely hand-made," said the 40-year-old Yu, who has about 35 high-end bikes."I remember my father used to ride me to the city in the winter - about 40km and minus 30 degrees centigrade. Back then, it was a means of transport that fulfilled your dream of travelling afar, which was relatively cheap but required brawn."Yu symbolises a new bike culture in China, where wealthy, health-conscious executives are upgrading their lifestyle, in some cases abandoning flashy cars and taking to the road on high-end bicycles that can cost more than a car."Demand for mainstream luxury items such as premium cars,watches has come to a point of saturation. High-income groups now turn to high-end bikes to show off the uniqueness in taste and healthy lifestyle," said Zhou Jiannong, general manager of Rbike Networks Ltd in ChinaAnalysts estimate about 10% annual growth in the Chinese bicycle market over the next few years, with the high-end segment forecast to grow by as much as 15% a year.Companies are also getting in on the act, with a Hong Kong-based supplier taking an order for 1 000 pricey bikes from a Chinese financial firm as a year-end bonus for employees."People are sick of conventional gifts such as wines and tobacco. For mainlanders, a bike is a great gift that shows your unique lifestyle," said Adam Wong, managing director at Hong Kong's Komda Bicycles.Wong declined to name the bank that had ordered the bikes, but he said they had an average price tag of 3,000 yuan ($480).Fashion statementFashion label Shanghai Tang, eager for a slice of this growing pie, teamed up with Dutch bike maker Colossi Cycling to make bicycles aimed specifically at China, where bike demand is estimated at about 28 million units a year"The high-end sector is going to be the major source of growth in the Chinese market. In China, bikes are more than just a means of transportation. It has become a fashion," said Terry Liu, an analyst at Fubon Research in Taiwan.It can cost up to HK$300 000 ($38,700) for an imported limited edition of expensive brands such as Italy's Colnago or France's Look, nearly 100 times the price of a Flying Pigeon, China's official bike since it was born in 1950.But the cost as no object for many high-income Chinese looking for the best two-wheeled vehicle."For businessmen, they are not looking at the price. They are looking at the quality. They assemble their bike with import components in accordance to their taste and needs," said Zhang Lei, a director of a Zhuhai paper products supplier, who plans to spend 10,000 yuan to upgrade his current bikeYu, the advertising executive in Beijing, has orders in for four more hand-made bikes, expanding his vast collection which includes brands such as Trek, Bianchi and Colnago.He and his wife have two cars but he says he doesn't drive."I always bring my bike when I go on a business trip," Yu said. "When I go to Harbin, I bring a small, folding bicycle since it's easier for me to get around the city. When I go to Dalian, I bring a bigger bike since it's a mountainous city."

China to crackdown on brand violations

China plans to change the law to crackdown on "malicious" trademark registrations, state media said on Monday, after a series of cases in which well-known international brands and individuals have had their names or copyright misused.Foreign governments, including the United States, have for years urged China to take a stronger stand against intellectual property rights violations on products ranging from medicines to software to DVD movies. Basketball legend Michael Jordan is one of the latest to accuse a company of using his name without permission, and French luxury group Hermes International SCA and Apple Inc have faced trademark problems too. The proposed amendment will offer protection to major international brands, giving copyright owners the right to ban others from registering their trademarks or from using similar ones, even if such trademarks are not registered, the official Xinhua news agency reported. "The draft is intended to curb the malicious registration of trademarks," Xinhua said.The country's legislature - which performs a largely rubber stamp role will discuss the amendment this week, it said, without saying when the new rules could be put in place or providing other details. The move comes after basketball star Michael Jordan filed a lawsuit in China in February against a Chinese sportswear company, accusing the firm of unauthorised use of his name. The Naismith Memorial Basketball Hall of Fame recipient and former Chicago Bulls star said that Qiaodan Sports, a company located in the southern Fujian province, had built its business around his Chinese name "Qiaodan" and jersey number without his permission. The lawsuit has yet to go to trial, Chinese media have reported. France's Hermes International SCA has also had problems in China with its trademark, and in July Apple Inc agreed to pay $60 million to Proview Technology (Shenzhen) to end a protracted legal dispute over the iPad trademark in China. China has insisted it is serious about tackling intellectual property violations. Incoming Japan PM to review Fukushima Japan's incoming pro-nuclear premier Shinzo Abe said on Sunday his government will again investigate the Fukushima atomic crisis, after which the country's reactors could be restarted, reports said.His comments will add to speculation that plans to ditch atomic power in disaster-scarred Japan will be shelved by his Liberal Democratic Party (LDP) when it takes power after scoring a landslide election win last week."We are yet to completely clarify what went wrong (in Fukushima)," he told a political show on Fuji TV on Sunday. "As a government, we want to once again analyse why Fukushima Daiichi failed," he said. He gave no further details and did not set out a timeframe for a probe."After that, I wish to think of next steps, including the restart of reactors," he said on the programme, according to broadcaster NHK."Could it have been avoided? Was it a man-made disaster? As a government, we must study that," said Abe, according to Jiji Press. He has previously derided the zero-nuclear goal of the ousted Democratic Party of Japan as unrealistic. All but two of Japan's 50 reactors remain switched off after the worst atomic accident in a generation and anti-nuclear sentiment has run high, but that failed to translate into support at the polls for anti-atomic parties.Several probes have already been conducted into the accident in March last year, which saw the Fukushima plant suffer meltdowns and explosions after being hit by an earthquake-triggered tsunami. A damning parliamentary report in July concluded that the Fukushima accident was a man-made disaster caused by Japan's culture of "reflexive obedience" and not just the tsunami that hit the plant. Shares in Fukushima operator Tepco have soared since Abe's election win.