NEWS,30.11.2012

US 'fiscal cliff': No deal in sight

Washington politicians have one month to step back from the so-called "fiscal cliff," across-the-board tax hikes and austerity-driven spending cuts likely to return the country to recession, and a top Republican declares there has been no real progress after two weeks of talks between President Barack Obama and a divided Congress. The president has called for settling the issue before Christmas and headed on Friday to Pennsylvania to campaign for his demand that any deal include higher tax rates on US couples earning more than $250,000 a year. He also wants to keep in place the smaller tax burden that lower income earners have had for about a decade. But Republican House Speaker John Boehner, after receiving details of the Obama plan in a private meeting on Thursday with Treasury Secretary Tim Geithner, said "no substantive progress has been made" in negotiations since Congress returned to work after the 6 November election. "Much to my disappointment, it wasn't a serious one," Boehner said on Friday of the proposal. Democrats have said that any delay was the fault of Republicans who refuse to accept Obama's call to raise tax rates on the richest Americans."There can be no deal without rates on top earners going up," White House press secretary Jay Carney said Thursday. The austerity measures that automatically would take effect 1 January unless a deal is made is the looming punishment for Washington's inability, or unwillingness, in recent years to deal decisively with the country's spending far more than it has been taking in. Politicians in both major US parties are showing no signs of giving up on the deep partisan divisions that have crippled legislative action in Washington despite Obama's strong victory for a second White House term.White House officials believe Obama's trip on Friday would build momentum for his case, even as Republicans describe it as an irritant and an obstacle to productive talks. Obama insists on higher taxes for the top 2% of earners and casts Republicans as an obstacle to a deal. Republicans have said they are open to new tax revenue but not higher rates. Obama said both sides need to "get out of our comfort zones" to reach an agreement. Obama toured and spoke at the Rodon Group manufacturing facility, showcasing the company as an example of a business that depends on middle-class consumers during the holiday season. The company manufactures parts for K'NEX Brands, a construction toy company.The uncertainty over whether the US can resolve the critical budget deadlock is beginning to increase jitters in stock markets in Europe, where eurozone countries have already returned to recessionary economies. European investor sentiment had been buoyed this week by upbeat reports on the US economy, including economic growth and consumer confidence. But markets failed to sustain their rally on Friday as trading became increasingly focused on the difficult talks between the White House and Congress.Economists warn that sending the US economy over the "fiscal cliff" would trigger a recession and cause a spike in already stubbornly high unemployment.To avoid the danger, Obama and Congress are hoping to devise a plan that can reduce future deficits by as much as $4 trillion in a decade, cancel the tax increases and automatic spending cuts and expand the government's ability to borrow beyond the current limit of $16.4 trillion.Officials on Thursday said the White House is seeking $1.6 trillion in higher taxes over a decade and an immediate infusion of money to aid the jobless and help hard-pressed homeowners.In exchange, the officials said, Obama would support an unspecified amount of spending cuts this year, to be followed by legislation in 2013 producing savings of as much as $400bn from popular benefit programs over a decade.In political terms, the White House proposal are nearly opposite what Republicans earlier lay down as their first offer, including a permanent extension of income tax cuts at all levels.Senate Majority Leader Harry Reid told reporters, "We're still waiting for a serious offer from Republicans."The White House also circulated a memo that said closing tax loopholes and limiting tax deductions a preferred Republican alternative to Obama's call to raise high-end tax rates would be likely to depress charitable donations and wind up leading to a middle-class tax increase in the near future.

EU set to fight internet tax at summit

European Union member states are preparing to fight as a bloc alongside the United States to prevent a move by Russia and countries in Africa to impose a levy on internet traffic and make it easier to track users' activities.The showdown over the policing and administration of the internet will take place at a meeting of the International Telecommunications Union in Dubai from Dec. 3-14, when the ITU's 193 member countries will meet to debate new net rules.The EU's 27 states are staunchly opposed to sweeping plans to regulate the internet, including proposals from Africa, Asia and the Middle East that governments should be able to trace the flow of Web-based traffic and introduce a tax on companies such as Google and Yahoo! if they deliver content to networks abroad.The United States, which plays a dominant role in administering the internet via ICANN, the Internet Corporation for Assigned Names and Numbers, is firmly opposed to any new restrictions, which it fears will limit innovation and commerce.It is backed in its stance by the EU, Canada, Australia, New Zealand, Mexico and other ITU-member countries. As well as having support from African countries, officials say Russia has backing for some of its proposals from China."The EU believes that there is no justification for such proposals," the European Commission, the EU's executive, said on Friday, saying it was the view of all 27 member states.Neelie Kroes, the European commissioner responsible for internet policy, says some of the proposals being made ahead of the ITU conference risk damaging the internet's evolution as a critical piece of global commercial infrastructure and a network for the free flow of information and data."The European Union's firm view is that the internet works," she said this week. "If it ain't broke, don't fix it."Leaked drafts of a proposal from Russia show it would like to have more say over internet traffic entering its networks, a proposal the United States has said is most troubling to them."Member states shall have the sovereign right to regulate... the national internet segment," Russia's proposal says.The US ambassador to the ITU, Terry Kramer, said Moscow's plans would give governments "the right to route traffic, to review content, and say that's all a completely national matter", a potentially profound limitation on speech and trade.Any agreements which would allow governments to shepherd traffic at their will threaten US business interests because most content on the internet either originates from, is stored in or routed via the United States.With some of the world's biggest and most innovative Web-based companies, from Google to Facebook, Twitter and Yahoo!, based in the United States, the country has the most to lose.While countries like Russia cite cyber attacks as a reason to monitor traffic, the EU see it as an excuse. "Some countries treat this as a euphemism for controlling freedom of expression," said a commission official.The EU is also alarmed by proposals to make content providers pay for having their services delivered abroad.As traditional phone revenues decline and internet access prices remain high, some countries argue that Google, Skype and Facebook ought to pay to have their traffic routed to that country, helping them fund the expansion of their networks.A leaked proposal from Cameroon says traffic reaching a network operator would incur "full payment." Kramer said some Arab states were also favourable to the idea.However, such proposals, known as 'sender party pays', are a potential boon to European telecoms companies, some of which annnounced in October that they supported such fees. Some European telecoms operators have or would like to have operations in developing countries such as Cameroon.The German operator Deutsche Telekom tried to promote the principle by comparing it to the first postage stamp. But in practical terms, extending the way the postal service makes money to the internet could mean that Google would pay each time someone in Cameroon read their Google-based email. Critics say such proposals are unworkable because traffic usually crosses half a dozen networks in several countries before it lands in a person's browser."The idea that you trace and bill all of this is ludicrous," said James Waterworth of the Computer and Communications Industry Association, a US group whose members include Facebook and Microsoft and which has an office in Brussels.Internet activists say such fees would 'Balkanise' the internet and cause an information black out in poorer countries."Who would be interested in providing content, if they have to pay for doing so?" said Markus Kummer of the Internet Society, a think-tank with offices in Geneva."And developing countries might be shooting themselves in the foot, as reversing the economic internet model might cut them off from accessing vital information."

Unemployment hits 19 million Europeans

Eurozone joblessness has reached a new high and the poor state of the economy is reducing inflation to near two-year lows, raising the prospect of further interest cuts by the European Central Bank. As the eurozone sinks into its second recession since 2009, the number of people out of work in the eurozone rose by 173 000 people in October to almost 19 million people unemployed, the EU's statistics office Eurostat said on Friday. That pushed joblessness to the highest level since the euro was introduced in 1999, at 11.7% of the working population, illustrating the human impact of a public debt and banking crisis that has reverberated across the world. Struggling companies and indebted households have also lost the confidence to spend and invest, evident in the annual consumer price inflation reading for November, which dropped to 2.2% in November from 2.5% in October. Consumer price inflation was at its lowest level since December 2010. One of the smallest rises in energy price inflation in a year helped to bring inflation to near the ECB's target of near, but just under 2%, opening the door to more rate cuts by the bank. The ECB last cut its main refinancing rate in July, to a record low of 0.75%, and economists in a Reuters poll this week were more divided than ever on whether there will be another rate cut early next year. "The outlook is still bleak," said Thomas Costerg, an economist at Standard Chartered in London, who sees an ECB rate cut in the first three months of next year. "We think that ECB President Mario Draghi will leave the door open for more stimulus in the coming months," he said. The cost of borrowing for banks and households in the eurozone is already at a record low of 0.75% and economists question whether further rate cuts will do much good, because of a lack of confidence among banks to lend. The central bank may decide to postpone a rate cut until after its next meeting on December 6 as it tries to keep markets focused on the benefits of its recently-announced plan to buy the bonds of governments in distress and keep their borrowing costs down. The bond-buying programme has calmed nervy investors who predicted the break-up of the eurozone just a few months ago and many are moving back into Italian and Spanish bond markets. But the eurozone's economic reality is one of a slowing German economy, stagnation in France, recession for Italy and Spain and an outright depression in Greece, with no signs of a quick recovery. Many economists blame the spending cuts implemented by almost all governments in the past three years to try to bring down their deficits that ballooned over the past decade. Portugal, for instance, shed more than one in 20 public sector jobs in the first nine months of 2012. But in a shift in tone, the International Monetary Fund and the European Commission say now that they may have been too aggressive in pushing for government cutbacks. The Commission is now advocating "growth-friendly fiscal consolidation". Draghi, speaking on French radio on Friday, tried to sound cautiously upbeat and has avoided the word "recession" in his public comments in recent weeks. "The recovery for most of the eurozone will certainly begin in the second half of 2013," he told Europe 1 radio. Yet even the European Commission's forecast of 0.1% growth next year looks optimistic and many banks, from Citigroup to Standard Chartered, expect the recession to continue and unemployment to keep rising. There are also wide divergences in unemployment in the eurozone, with the jobless rate at around 4% in Austria, 16% in Portugal and above 25% in Spain and Greece. "The number of unemployed, which better captures the shorter-term dynamics, is showing little sign of abating," said JP Morgan economist Greg Fuzesi. "Even with our expectation of a modest recovery next year, the unemployment rate could reach 12% quite soon," he said.