NEWS,04.07.2012

Monti: Italy does not need a bailout

• German Chancellor Angela Merkel and Italian Premier Mario Monti arrive for a bilateral meeting at Villa Madama in Rome, Wednesday, July 4, 2012. Merkel is traveling to Rome for a regular meeting of the senior officials from the two countries along with several of her top ministers, including the economy and finance ministers

Italian Premier Mario Monti insisted Wednesday the country doesn't need a European bailout because its public finances will improve, but acknowledges work still needs to be done to cut government spending, boost economic growth and create jobs.Monti spoke at a press conference with German Chancellor Angela Merkel after meeting about Europe's debt crisis. It was their first encounter since European leaders in Brussels last week agreed to use the continent's bailout fund to funnel money directly to struggling banks and let countries following budget rules apply for financial aid without stringent conditions attached.Monti, who had pressed for such a deal, insisted Italy didn't need a bailout to help it pay its government debt because its budget deficit was low compared with many other European countries and forecast to improve.As of the end of 2011, official European statistics put Italy's deficit at 3.9 percent, just above the EU limit of 3 percent. Spain's, by contrast, was much higher at 8.5 percent.Italy's big problem is the economy is in recession and it has a high public debt load equivalent to 120 percent of GDP. Investors fearing Italy may have trouble repaying that debt have been asking for high interest rates to lend to the country.The measures announced by European leaders last week have helped relieve the fear that Italy may default. In particular, making it easier for countries to access European bailout funds has convinced investors that Italy has a credible financial backstop should it run into trouble financing itself.Agreeing to loosen the conditions for bailouts was not easy, however, and was the source of heated debated between Monti and Merkel in recent weeks and at the summit.Going into the summit, Monti had issued a thinly-veiled jab at Merkel over her opposition to allowing European governments to share debt obligations. Sharing debt is another way to spread individual countries' debt risk across Europe, but Merkel continued to oppose them at the summit.With debt-sharing ruled out, Monti pushed for the European leaders at the summit to agree to other measures that might increase confidence in Italy's finances. Easing conditions for countries to take bailouts was one of them.Monti has lamented that Italians have endured the effects of government spending cuts and tax hikes, but that Italy's government borrowing rates remained high in financial markets.By Wednesday, the two leaders were downright chummy, with Monti calling Merkel by her first name and emphasizing their "excellent" relations.Merkel, for her part, praised the speed with which Monti's government has pushed through structural reforms and insisted that it was in Germany's interest to keep Italy from failing."If our neighbors in Europe aren't well, eventually we Germans won't be in good shape," she said.Monti nevertheless acknowledged a rough road ahead: the government is embarking on a program of public spending cuts after having pushed divisive labor market reforms through parliament last week.And new unemployment figures have made clear that the recession and the impact of austerity measures are hitting home: Monti termed "unacceptable" that youth unemployment had now hit 36 percent."Reducing the weight of the public sector in the markets, including the financial markets, will give us greater possibilities for productivity and work for young people," he said when asked how much more austerity Italians can take before growth measures kick in.Both leaders stressed the need for Italian and German companies to collaborate more, particularly in manufacturing, to boost economic growth.

 

Big Banks Release 'Living Wills,' Say They Can Be Broken Up Without Bailouts

Nine of the largest global banks on Tuesday expressed confidence they can be salvaged or dismantled without taxpayer bailouts if they became insolvent, as U.S. regulators released public portions of these banks' "living wills".The documents, required by the 2010 Dodd-Frank financial reform law, aim to end too-big-to-fail bailouts by mapping out ways that, in theory, mortally-wounded banks could go out of business without wrecking the financial system.If regulators find that the resolution plans are not credible, they could force the banks to sell off business lines and restructure to become less complex.But some experts doubt how hard regulators will push the banks for changes or how useful hypothetical resolution plans will be in major financial crisis.The public portions released on Tuesday and are a few dozen pages per bank summarizing thousands of pages submitted confidentially to regulators.The banks argued in the public documents that their resolution plans will work, with no cost to taxpayers or great consequence to the financial system. They used technical generalities in their conclusions without specifically addressing the unpredictable and vicious nature of a credit crisis.Bank of America Corp, for example, said in its plan that "certain assets and liabilities would be transferred to a bridge bank that would, subject to certain assumptions, emerge from resolution as a viable going concern."JPMorgan Chase & Co concluded that its plan "would not require extraordinary government support, and would not result in losses being borne by the US government." And, Goldman Sachs Group Inc said it would find a broad range of potential buyers for its assets, including global financial institutions, private equity funds, insurance companies or sovereign wealth funds.The other banks which submitted wills were Barclays , Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley and UBS.The Federal Reserve and Federal Deposit Insurance Corp released the plans without commenting on them.Other large banks will have until July and December of next year to hand in their plans, according to the FDIC. Eventually about 125 banks are expected to submit plans.The first plans come almost four years after the financial crisis unleashed a panic in which no institution seemed safe from a bank run and markets withdrew credit in what appeared to be inexplicable fashion. The U.S. government, in quick order, arranged a fire sale of investment bank Bear Stearns to JPMorgan and then allowed Lehman Brothers to fail, touching off a global market meltdown. Blanket government guarantees for the financial system and a $700 billion taxpayer bailout followed to ease the panic.The disclosures on Tuesday give a glimpse of the kind of the kind of interconnections and complicated corporate structures that could still make governments fear letting big banks fail.JPMorgan named 25 "material" legal entities and 30 "core business lines," as required by Dodd-Frank and listed 18 clearing or financial settlement systems in which it is a member or participant, half of which are outside of the United States.The full-length plans are believed to include the most comprehensive maps of the insides of bank holding companies ever created. They are intended to give regulators confidence that they understand enough of the consequences of bank failures to allow more to happen.WOULD PLANS WORK?Bert Ely, a banking consultant in Alexandria, Virginia, said he is skeptical that the overall process could work because there would likely be a lot of turmoil in the markets when the plans were needed, raising doubt about who might buy any assets."The presumption of a one-off event is not realistically valid," he said. "You can have one company blow itself up, but more often than not there are systemic problems."Banks emphasized that they did not believe the resolution plans would ever have to be used. Morgan Stanley said that its "hypothetical failure" would have to be caused by "an idiosyncratic stress" that might occur while the economy and financial markets are under severe stress.Guggenheim Partners financial policy analyst Jaret Seiberg said he doubts regulators will use their reviews of the plans to force big changes on the institutions."Our initial review suggests there is little real risk that regulators could reject one of these plans," Seiberg said in a note. "That is important because regulators could break up a financial firm that fails to submit a credible plan."The regulators plan to give feedback to the banks on the initial plans by September.Congress called for the plans in Dodd-Frank to ease concerns that some banks are so big and interconnected that taxpayers will inevitably bail them out to avoid a threat to global markets.The FDIC gained new powers in Dodd-Frank to use the plans to dismantle failing financial giants if the bankruptcy process would not work.Citigroup found a special reason to argue that its resolution planning would work: its wrenching experience in the 2007-2009 financial crisis.To recover from the crisis, Citigroup separated businesses to be sold or gradually liquidated from those it is keeping as its "core" pursuits. The company said that process meant its "personnel would be well equipped to assist regulators" if the company had to be divided up into pieces to be sold or closed."Citi is today a fundamentally different institution than it was before the crisis: smaller, leaner, safer, sounder, and completely focused on our core mission," it said in the summary of its resolution plan.Bank of America, used its 42-page public document to emphasize steps it has taken in recent years to streamline the company, build capital and improve risk management."Bank of America has strengthened its risk culture as evidenced by improvements in consumer and commercial credit quality and decreases in market and counterparty risk," it said.Bank of America has lagged its rivals in recovering from the financial crisis, largely due to mortgage losses tied to its 2008 Countrywide Financial purchase.INTERNATIONAL FRAMEWORKSome of the foreign banks outlined resolution strategies for both home and U.S.-based regulators.Deutsche Bank imagined high levels of international cooperation, noting it could be dismantled "in an orderly manner with minimal systemic disruptions, and that any cross-border issues arising from financial, operational or other interconnections could be adequately addressed without significant difficulties," it said.Barclays said effective resolution plans are "an integral component of eradicating 'too big to fail' for the largest global financial institutions."It also noted how critical cooperation will be among international regulators.Barclays submission, dated July 2012, was already out of date. It listed Marcus Agius as chairman and Robert Diamond as CEO. Both have resigned in response to a Libor interest rate rigging scandal.Mitchell Glassman, a director at Deloitte Consulting who has worked with big banks on the living will issue, said he was impressed how much senior executives and directors were involved in preparing the plans. Still, he said, the question remains whether the plans on paper would work effectively in real-life."Will this help Main Street? Will we be better off with this approach than we were in the last crisis?" Glassman said.

 

NEWS,17.4.2012

 New US anti-drug policy stresses treatment, prevention

 

The White House unveiled a new drug policy strategy Tuesday that veers away from imposing heavy prison sentences for illicit drug use and focuses instead on prevention and treatment.Officials said the new approach looks at drug addiction as a treatable disease rather than a crime."Outdated policies like the mass incarceration of nonviolent drug offenders are relics of the past that ignore the need for a balanced public health and safety approach to our drug problem," said Gil Kerlikowske director of the National Drug Control Center in a statement."The policy alternatives contained in our new strategy support mainstream reforms based on the proven facts that drug addiction is a disease of the brain that can be prevented and treated and that we cannot simply arrest our way out of the drug problem," he said.The announcement of a revised administration drug policy approach comes just days after a regional summit in Cartagena, Colombia, where leaders from across the Americas agreed to consider alternatives to the US-led "War on Drugs," which over the decades has claimed tens of thousands of lives, but yielded only meager results.Obama at last weekend's summit told his counterparts from Mexico, Central and South America that he opposed legalising drugs, but agreed for the first time to direct talks on the thorny issue of rampant drug consumption in the United States -- the world's most voracious consumer of cocaine.The US leader also agreed to ramped up US efforts to stem the flow of money and arms toward Latin America.His administration's revamped drug policy accelerates administration efforts to divert non-violent drug offenders into treatment instead of incarceration, while imposing stiffer penalties on major drug traffickers.Officials said the new anti-drug strategy also puts a greater emphasis on the healthcare system and youth outreach.The overall goal is to break "the cycle of drug crime, incarceration and arrest," said Charles Ramsey, chief of police in the city of Philadelphia and one of the key partners from the field of law enforcement in the effort."Policing in the 21st century means being tough but smart in how we address our nation's drug problem," he said."Those of us in law enforcement understand that too often drug addiction is the underlying cause of crime," he said, adding that enforcement can play a vital role in breaking the vicious cycle.Officials said they also would ramp up efforts to secure America's southern border with Mexico, increase US antidrug cooperation with overseas partners and target violent international drug gangs.The policy shift comes at a time when illicit drug use in the United States is on the decline.The administration said drug abuse currently is only about one-third the rate it was in the late 1970s.

 

Barak says Israel never ruled out attacking Iran

Israeli Defence Minister Ehud Barak on Tuesday said his country has never promised the United States it would hold off from attacking Iran while nuclear talks were taking place. The comments, in which Barak said that a diplomatic push to reach a compromise with Iran was a waste of "precious time," further exposed a rift between Israel and the US over how to deal with the Islamic Republic and its nuclear programme. Israel, arguing that a nuclear Iran would pose an existential threat, has said it will not allow Tehran to acquire a nuclear weapon. It cites Iranian calls for Israel's destruction, Iran's support for Arab militant groups and its development of long-range missiles capable of striking the Jewish state. Fearing that Iran is moving quickly toward nuclear capability, Israel has repeatedly threatened to attack if the country's uranium enrichment program continues to advance. Enrichment is a key process in developing weapons, and Israel says Iran is closely approaching a point where it can no longer be stopped. The US favours diplomacy and economic sanctions, and has said military action on Iran's nuclear facilities should only be a last resort if all else fails. Officials from the United States, Russia, China, Britain, France and Germany met with Iran in Istanbul last weekend to discuss the country's nuclear programme. The talks were described as positive, and they agreed to meet again on May 23 in Baghdad. Barak told Israel's Army Radio he did not believe the talks would prevent Iran from developing a nuclear weapon. "We regret the time being lost. This is precious time," he said. Earlier this week, Israeli Prime Minister Benjamin Netanyahu previously said Iran got a "freebie" from the international community, saying the May meeting gave the Iranians an additional five weeks to continue uranium enrichment without any restrictions. He said Iran should be forced to stop this immediately. Netanyahu was publicly rebuked by President Barack Obama who said the US had not "given anything away" in the talks. Iran insists its nuclear program is for peaceful purposes and says it does not seek a bomb. But the US and its allies do not take the promise seriously. The Obama administration has urgently sought to hold off Israeli military action, which would likely result in the US being pulled into a conflict as well.

NEWS,08.01.2012

The battle for the Pacific

 America's shift in defence strategy to focus on the Far East has momentous significance for Europe and Asia. 

 

The Pentagon briefing room rarely hosts all of America’s service chiefs, let alone the president. Its use by Barack Obama to announce the conclusions of his defence review was designed to add a sense of drama – and the occasion certainly lived up to its billing. Future historians will probably conclude that this was the week when America’s entire foreign and defence strategy pivoted decisively away from Europe and towards the Pacific. More ominously, it might also mark the onset of a new, if concealed, arms race between the US and its aspiring rival, China. First things first: America’s military dominance will remain unchallenged for the foreseeable future. Mr Obama might have announced spending cuts of almost $500 billion over the next decade, but this amounts to a light trim for a defence machine with an annual budget of $650 billion, amounting to 45 per cent of all military expenditure in the world. America is not axing capabilities in the foolish fashion of British governments; rather, its power is being focused on the great strategic challenges of the next century. These can be simply summarised: the struggle for mastery in Asia, home of the world’s most populous countries and fastest-growing economies, and responding to sudden crises. To this end, the US will reduce its presence in Europe, cut 90,000 soldiers and bulk up in the Pacific, with new bases in Australia and elsewhere. As for other flashpoints, few will be surprised that the US policy stresses the goals of containing Iran and guaranteeing free passage through the Strait of Hormuz. On a purely military level, two points stand out. The US might be cutting its army, but it has ruled out reducing its fleet of 11 aircraft carriers, each of which packs more punch than the entire air forces of most countries. While China’s defence budget has recorded double-digit increases for the past decade, it has still launched only one carrier – an old Russian model of doubtful combat value. Second, Mr Obama stressed his determination to invest in “intelligence, surveillance and reconnaissance”. Put simply, the US will seek to extend its lead in the most advanced combat systems: where scores of troops – and hundreds of support staff – might once have been required to dispatch a senior al-Qaeda operative, now one unmanned drone can do the job. America’s new course could well be shifted by a strategic shock akin to the September 11 attacks. Nevertheless, this plan will have momentous consequences for Europe and Asia alike. For decades, the US has underwritten the security of the Atlantic as well as the Pacific, effectively allowing Europe a free ride and permitting a string of Nato members the luxury of running down their defence budgets. This era is rapidly coming to a close. Yet with a few honourable exceptions, such as Britain and France, European powers have failed to fund their armed forces adequately, or deploy them when needed. Germany, in particular, must overcome the burden of its history and face up to the responsibilities that go with being the Continent’s leading economic power.
Mr Obama’s address studiously refrained from mentioning China, the country that probably has most at stake. Beijing’s leaders will now have to make far-reaching choices of their own. As events in Burma have shown, China’s “peaceful rise” has alarmed many of its neighbours: for most countries in the region, American power and values remain far more appealing. Moreover, China has grown rich largely thanks to trade, not least with the US. Faced with the net of containment that America is quietly laying across the Pacific, China will search for the Achilles’ heel of the US Navy, perfecting a new generation of missiles capable of destroying aircraft carriers from hundreds of miles away, working out how to cripple the internet, and how to blind the US satellite network, on which all its military assets now depend. 

Iran starts uranium enrichment facility is going operational in a move likely to increase tension between the Islamic state and the West over Tehran's nuclear ambitions.

Kayhan daily, which is close to Iran's ruling clerics, said Tehran has begun injecting uranium gas into sophisticated centrifuges at the Fordow facility near the holy city of Qom. "Kayhan received reports yesterday that shows Iran has begun uranium enrichment at the Fordo facility amid heightened foreign enemy threats," the paper said in a front-page report. Kayhan's manager is a representative of Iran's Supreme Leader Ayatollah Ali Khamenei. Iran's nuclear chief Fereidoun Abbasi said full scale work would start "soon" at Fordow. It was impossible to immediately reconcile the two reports. "The Fordow nuclear enrichment plant will be operational in the near future - 20 per cent, 3.5 per cent and four per cent enriched uranium can be produced at this site," said Mr Abbasi.Iran has said for months that it is preparing to conduct uranium enrichment at Fordow, a protected site deep inside a mountain near the Shi'ite Muslim holy city of Qom in central Iran. The United States and its allies say Iran is trying to build bombs, but Tehran insists its nuclear programme is aimed at generating power.The inauguration of the site could block fresh nuclear talks with major powers aimed at resolving Iran's nuclear row through diplomacy. Iran has called for talks on its nuclear programme with the permanent members of the Security Council and Germany (P5+1), which have been stalled for a year.Diplomats said Iran was believed to have begun feeding uranium gas into centrifuges in Fordow in late December as part of final preparations to use the machines for enrichment.Iran is already refining uranium to a fissile purity of 20 percent - far more than the 3.5 percent level usually required to power nuclear energy plants - above ground at another location.Diplomats say it is moving this higher-grade enrichment to Fordow in an apparent bid to better protect the work against any enemy attacks. It also plans to sharply boost output capacity.The United States and Israel, Iran's arch foes, have not ruled out strikes against the Islamic state if diplomacy fails to resolve the dispute. Iran has been hit by four rounds of U.N. sanctions and the United States and the E.U. have imposed increasingly tight economic sanctions on Tehran over its nuclear programme.Iran disclosed the existence of Fordow to the IAEA only in September 2009 after learning that Western intelligence agencies had detected it.