NEWS,22.01.2013

Fresh fears over Spain deficit

Fresh worries surfaced Tuesday over Spain's public finances as the EU warned of missed deficit targets on the day 11 eurozone countries got the go-ahead to work on taxing financial transactions.The leaders of Germany and France promised new moves to strengthen the eurozone, as the currency club that has laboured so hard to stabilise its debt-laden reputation on money markets settles down under a new Dutch chairmanship. The eurozone is currently labouring under a record unemployment rate of almost 12%, but even Greece is doing its bit, actually beating a deficit target set with its EU-IMF creditors over the course of 2012.However, the new Eurogroup chair, Jeroen Dijsselbloem, cannot yet expect an easy ride during his 30-month initial mandate compared to that of his predecessor, Luxembourg Prime Minister Jean-Claude Juncker. Headaches including the tricky nature of negotiating over a bailout request made last summer by Cyprus, and a request by Portugal for a longer repayments schedule on its bailout - which it hopes, like Ireland, can help it get back into commercial finance markets even this year. Irish Finance Minister Michael Noonan said the 17 eurozone countries had agreed to Portugal's request, and EU Economic Affairs Commissioner Olli Rehn acknowledged that a successful return to the markets for these two countries "is both in the interests of themselves and, indeed, certainly in the interests of the entire European Union". But Spain remains the biggest active threat, not least as Dijsselbloem's sole candidacy to head the Eurogroup was opposed by Spain in the overnight vote.Spain, a member of the eurozone, is now Europe's youth unemployment black spot, with a rate of about 57%.And the European Commission warned on Tuesday that the country's 2012 and 2013 public deficit targets are again veering off target. Spain was supposed to keep the 2012 figure to within 6.3 percent of gross domestic product, but a Commission report said this would "probably not" be achieved. Brussels publishes full economic forecasts for the whole European Union on February 22, but expects Spain to register a deficit of 8.0% in 2012 and 6.1% again this year.The previous target for 2013 was 4.5%.However there was good news from Greece, which said it had narrowed its public deficit to 8.1% in 2012, marking a rare improvement over targets pledged to its EU-IMF creditors. Portugal also said it had met its 2012 public deficit target of 5.0%.Spanish Finance Minister Luis De Guindos said the "complaint" over Dijsselbloem was simple, moaning that Madrid is "under represented in the European institutions" and that this was "unjust". Almost all the top eurozone posts are now held by nationals of members which hold top triple-A credit ratings. The Netherlands, though, is sitting out the moves to launch a tax on financial transactions. However, the 27 European Union ministers voted as a whole to give 11 countries led by Germany and France the green light to continue work on the scheme, although not yet to legislate for it. Diplomats said that Britain was relaxed about the issue, and technically abstained even though it has long argued forcibly against the tax. "It is a milestone for EU tax policy, as it paves the way for more ambitious member states to progress on a tax file, even when unanimity could not be achieved," said the EU's tax commissioner Algirdas Semeta. The plans progress under a scheme first used in the field of divorce law and was last year approved a second time in the field of patents.The Financial Transactions Tax (FTT) was initially proposed by France and Germany, then joined by Austria, Belgium, Greece, Portugal and Slovenia, and later by Italy, Spain, Slovakia and Estonia.The European Commission will now begin drafting legislation sure to stir up more controversy.

ILO: World faces jobs crisis

Global unemployment rose by 4 million people last year to a total of 197 million, with another 5 million expected to raise the total to 202 million in 2013, the International Labour Organisation (ILO) said on Tuesday. The figures indicate that in these two years alone 9 million would have joined the ranks of people officially registered as unemployed, and that the cost so far of the financial crisis which began five years ago is an extra 28 million people officially without jobs. “This figure means that today there are 28 million more unemployed people around the world than there were in 2007,” before the crisis, ILO chief Guy Ryder said on Monday. Last year’s unemployment number inched up towards the all-time record of 199 million, reached at the epicentre of the crisis in 2009, but “we will beat that record in 2013“, said an expert for the ILO, which is the labour arm of the United Nations. Another 5.1 million people are expected to join the jobless ranks this year, bringing the total number to more than 202 million. That number is expected to rise by another 3 million in 2014 and should hit 210.6 million by 2017, ILO said, adding that the global unemployment rate was expected to stay steady at 6% until then. However, analysts often point out that official unemployment data reflects those people who satisfy the conditions for being registered as unemployed, and that official data does not necessarily capture large numbers of people who would like to have officially registered work but do not feature in any statistics. “The trends are very much (going) in the wrong direction,” Ryder said, lamenting a “noticable worsening of the unemployment situation around the world“. The impact of the economic crises on the global labour market had in many cases been worsened by incoherence between monetary and fiscal policies and “a piecemeal approach” to the problems, especially in the eurozone, the report said. “Weakened by faltering aggregate demand, the labour market has been further hit by fiscal austerity programmes in a number of countries, which often involved direct cutbacks in employment and wages,” it said. At the same time, “labour force participation has fallen dramatically... masking the true extent of the jobs crisis,” ILO said, pointing out that 39 million people dropped out of the labour market altogether last year as job prospects became increasingly gloomy. Young people have been especially hard-hit by the expanding jobless trend, the UN agency said, pointing out that there are currently some 73.8 million youth, aged 15 to 24, without work worldwide. “And the slowdown in economic activity is likely to push another half million into unemployment by 2014,” the report cautioned. Last year, the global youth unemployment rate stood at 12.6%, and it was expected to rise to 12.9% by 2017, according to the ILO. “The crisis has dramatically diminished the labour market prospects for young people, as many experience long-term unemployment right from the start of their labour market entry,” the UN agency said, adding that it had never seen anything similar during previous downturns. Today, about 35% of all young people on the dole in advanced economies have been out of work for six months or longer, up from just 28.5% in 2007, the report showed.

BoJ pledges unlimited easing

The Bank of Japan announced on Tuesday it’s most determined effort yet to end years of economic stagnation, saying it would switch to an open-ended commitment to buying assets next year and doubling its inflation target to 2%.It promised to reach the inflation goal "at the earliest possible time." The steps mark a break with an earlier policy of topping up a lending and asset buying programme launched in October 2010m and follow weeks of relentless pressure from new Prime Minister Shinzo Abe for a greater push to beat deflation and lift the economy out of recession. In a joint statement with the government, it affirmed a well-flagged move to commit to the inflation target. Consumer price inflation has reached 2% in only a handful of months since the late 1990s. But aware that markets had already factored in the new price goal and more asset buying and that merely meeting those expectations could trigger a negative reaction, central bankers took steps that several analysts thought would only come later. "This is very good news. For once, the BoJ has been more aggressive than the market expected," said Brian Redican, senior economist at Macquarie in Sydney. "The government is clearly forcing the pace of change, which is no bad thing." The central bank said that from 2014 it would switch to an open-ended approach of buying a certain amount of assets - ¥13 trillion - each month without setting a deadline for completing the purchases. The yen, which inched up ahead of the policy announcements, fell immediately after the decision, though later crept up higher. Several analysts pointed out, however, the BoJ could have done even more and there will be expectations that it will follow through with further steps mooted by politicians, economists and some central bank policymakers. One such step would be to scrap the 0.1% floor for short-term interest rates, while another would be for the central bank to buy longer-duration bonds. "There's still a lot of work to do, and still a lot of room for improvement," said Tadashi Matsukawa, head of fixed income at Pinebridge Investments in Tokyo. Abe, who led his Liberal Democratic Party to a landslide victory in a December 16 parliamentary election, made promises of aggressive budget and monetary stimulus a centrepiece of his campaign. His pledges to boost public spending and repeated calls for more BoJ action helped reverse a long-term rise in the yen and set off a stock market rally led by exporters and construction firms. But many economists have warned the stimulus could give the sluggish economy only a temporary jolt if the government fails to follow through with politically more difficult economic reforms such as deregulating its protected farming sector. They also warn that the push to reflate the economy could backfire if Abe's government fails to convince markets that it has a credible plan to get Japan's ballooning debt back under control. Seeking to address such concerns, the government said in the joint statement it would draw up a growth strategy and pursue structural reforms to help Japan escape deflation and pledged to maintain fiscal discipline. Economics Minister Akira Amari attended the BoJ meeting to represent the government's views. The yen has lost 13% against the dollar in the past two months to hit a two-and-a-half-year low on expectations of bolder central bank action. Tokyo stocks have gained a fifth on the view the weaker yen will boost the export earnings of the likes of Nissan and Canon. The yen's declines, however, have drawn complaints from countries like Russia and Germany, worried that it could set off destabilising currency devaluations. In a sobering reminder that Japan still faced an uphill battle in pulling out of more than a decade of low-grade deflation, the BoJ's updated economic forecasts showed core consumer prices inching down in the current fiscal year and up only 0.9% in the fiscal year ending in March 2015. "Headline says core inflation at only 0.9% in 2014 so when will they meet their inflation target of 2%?" asked Joseph Capurso, currency strategist at Commonwealth Bank of Australia in Sydney.