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.
