NEWS,03.12.2012

Europe canes Israel over settlements

Four European nations summoned their Israeli ambassadors on Monday to denounce Israel's latest settlement construction push, deepening the rift between the Jewish state and European allies that has cracked open over the Palestinians' successful UN statehood bid.Although Europe considers all Israeli settlement construction illegal, the summoning of ambassadors in France, Britain, Sweden and Spain to accuse Israel of undermining already troubled peace efforts was an unusually strong expression of displeasure. It came at a time when Israel was already smarting over Europe's failure to back the Jewish state in its campaign against the statehood move.The Europeans were furious over Israel's announcement Friday that it would move ahead on plans to build 3,000 settler homes to punish the Palestinians for winning UN recognition of a state of Palestine in territories Israel captured in 1967.Israel also said it would begin planning work on an especially sensitive piece of land outside Jerusalem that it has refrained from developing because of US pressure. A meeting with developers and other interested parties was to take place on Wednesday, though officials have stressed that it could be years before actual construction begins.After a flurry of angry phone calls from European capitals to Israel over the weekend, France summoned the Israeli envoy to Paris late on Monday morning.France, the first major European country to announce support for the Palestinian statehood effort, also sent a letter to the Israeli government, calling the settlement decision "a considerable obstacle to the two-state solution."Britain, which abstained in the UN vote, urged Israel to reverse the decision as it summoned Israeli Ambassador Daniel Taub to the Foreign Office. Swedish Foreign Minister Carl Bildt told parliament that "together with other EU countries we will discuss other potential steps," but he would not elaborate.British officials said London was looking to Washington to take the lead, and that British diplomats were meeting with American counterparts on Monday.None of the four European governments openly threatened any concrete measures to punish Israel."Our ambassadors were called in and the countries protested about the announcement about the intention to do further construction in settlements," Israeli Foreign Ministry spokesperson Paul Hirschson said.Israel's Haaretz newspaper reported earlier on Monday that Britain and France were considering recalling their ambassadors to Israel in a symbolic but potent expression of dissent. Hirschson said no such intention had been communicated to Israel, and French and British officials denied the report.Palestinian President Mahmoud Abbas met on Monday with the consul general of France in the West Bank and asked that France exert pressure on Israel to halt settlement activity, according to the official Palestinian news agency, Wafa.Senior Palestinian official Nabil Shaath praised the Europeans for taking action."We've been expecting this kind of behaviour for a long time," Shaath said. "For this to come from France and England is very beneficial to us. We highly appreciate it and we are hoping the US will follow their lead."US Secretary of State Hillary Clinton said on Friday that the settlement activities "set back the cause of a negotiated peace," but nothing harsher has emerged from Washington, the only world power to side with the Israelis against the Palestinians' statehood measure.Germany, which abstained in the UN vote, expressed concern on Monday over the Israeli move but wouldn't say whether it had taken any direct measures in response. Israeli Prime Minister Benjamin Netanyahu is due in Berlin on Wednesday for a previously scheduled meeting with Chancellor Angela Merkel.Steffen Seibert, Merkel's spokespeson, said Germany took a "very negative view" of the settlement announcement, which he said undermined peace efforts.The growth of settlements, now home to half a million Israelis, is at the heart of the four-year breakdown in negotiations.The Palestinians view continued settlement expansion as a show of bad faith and refuse to return to talks unless construction is frozen. Netanyahu notes a 10-month settlement slowdown in 2010 failed to jump-start negotiations, and rejects calls for a new construction freeze.The UN General Assembly voted overwhelmingly on Thursday to recognize a Palestinian state in the West Bank, east Jerusalem and the Gaza Strip, territories Israel captured in the 1967 Mideast war. Israel still occupies those first two territories and restricts access to Gaza, though it withdrew all settlers and soldiers in 2005.Netanyahu rejects a return to Israel's 1967 lines. His government campaigned against the UN measure, saying only direct negotiations could produce a Palestinian state.But in a stinging diplomatic defeat, just eight other countries, including the US, opposed the Palestinian bid. Israel's closest allies in Europe, including Germany, Italy, France and Britain, either abstained or voted with the Palestinians in what amounted to a sweeping condemnation of Israeli settlements. Israel retaliated by announcing the next day that it would start drawing up plans to build 3 000 settlement homes in the West Bank and east Jerusalem. More explosively, from the Palestinian point of view, it said it would begin planning work for a chunk of land east of Jerusalem known as E1.Building there would sever the link between the West Bank and east Jerusalem, which the Palestinians claim for a future capital. It would also cut off the northern part of the West Bank from its southern flank.The Palestinians say construction in that territory would kill any hope for establishing a viable state of Palestine. Successive US governments have agreed, and under intense American pressure, Israel has avoided building settlements in the area. It has, however, developed roads and infrastructure and built a police station.On Wednesday, Israel's planning and construction committee for the area is scheduled to hold a first-ever meeting to discuss developing the E1 area, a defence official said.The session, described by the official as a "very, very preliminary" step, would be open to Jewish politicians in the West Bank and developers, as well as Palestinians with any claims to parts of the land. This would be the first step in a planning process that could take months, if not years, before ground is actually broken. The official spoke on condition of anonymity because he was not authorized to discuss the project.Actual settlement construction remains far from certain and may have been announced by Netanyahu to appeal to hawkish voters ahead of Israel's 22 January election.

 

North Korea warned against second rocket launch

Russia urged North Korea today not to go ahead with a plan for its second rocket launch of 2012, saying the launch would violate restrictions imposed by the UN Security Council."We urgently appeal to the government[of North Korea to reconsider the decision to launch a rocket," the Russian Foreign Ministry said in a statement. North Korea's state news agency on Saturday announced the decision to launch another space satellite and reportedly told neighbours it would take a similar path to a failed rocket launch in April. Echoing its criticism of the April launch, Russia said Pyongyang had been warned not to ignore a UN Security Council resolution that "unambiguously prohibits [North Korea] from launching rockets using ballistic technology."North Korea says its rockets are used to put satellites into orbit for peaceful purposes. The Russian statement said North Korea would be allowed only to exercise its right to peaceful activity in space if the UN-imposed restrictions were lifted.Russia has often balanced criticism of Soviet-era client state North Korea's nuclear activities and missile launches with calls on other powers to refrain from belligerent actions against Pyongyang, which it says can be counterproductive.Russia is a permanent member of the UN Security Council and is upset by any defiance of council resolutions. Past launches by Pyongyang have caused concern among Russians living near the country's border with North Korea.

 

Euro rises to six-week high against US dollar

 

The euro rose to a six-week high against the US dollar after Greece offered to buy back 10 billion euros of bonds in what is seen as a sign of progress in tackling its debt mountain.As talks in Washington aimed at averting the fiscal cliff appear stalled, a chink of light has flowed into markets from Europe. The euro traded recently at $US1.3065 from $US1.3006 in late New York trading on Friday. The Dollar Index, which tracks the greenback against six major currencies, fell to 79.819, the lowest since late October.Greece's Public Debt Management Agency is offering a maximum purchase price of 34.1% bonds maturing from 2023 to 2042, higher than expected.Greek bonds rose on the news, pushing the 10-year yield below 15 percent for the first time since March.The February 2023 bond price is at 39.31% of face value, according to Bloomberg.The buyback will be via a swap into six- month bills from the European Financial Stability Facility, which last week had its provisional debt rating cut to (P)Aa1 from (P)Aaa with a negative outlook by Moody's Investors Service.It is part of plans to reduce Greece's debt to 124 % of gross domestic product by 2020.The buyback was one of the conditions of the financial aid approved by euro zone finance ministers and the International Monetary Fund last week and comes as German Chancellor Angela Merkel appears to be softening her stance on conditions for a bailout, saying her country may accept a write-off of Greek debt."If Greece one day can rely once again on its own revenue, without having to borrow, then we'll have to look at this situation and make an evaluation," Merkel said in an interview with Germany's Bild newspaper. Equity markets were generally higher in Europe though they pared gains after an unexpectedly weak US manufacturing report.The Stoxx Europe 600 Index rose 0.1%, Germany's DAX 30 climbed 0.4% and France's CAC 40 rose 0.3%."If Greece can manage the buyback and get a new tranche of aid, then the Greece problem will be out of the way until the end of 2013," Philippe Gijsels, head of fixed-income research at BNP Paribas Fortis in Brussels, told Bloomberg. Manufacturing in the US unexpectedly contracted last month.The Institute for Supply Management's factory index fell to a three-year low of 49.5 in November from 51.7 in October, surprising economists who had expected manufacturing to expand. Manufacturing in the euro zone was also weaker, shrinking for a 16th straight month for a reading of 46.2.Stocks on Wall Street weakened after the manufacturing data.The Dow Jones Industrial Average was recently 0.3% lower, with manufacturers such as DuPont and General Electric leading the decline.The Standard & Poor's 500 Index was down 0.1%.Adding to America's economic woes, Fitch Ratings said warned that the $US607 billion of tax increases and federal spending cuts that kick in on January 1 are the biggest threat to the credit rating of US states in 2013."The risk that the fiscal cliff presents to the overall economy is the biggest concern for state credit, as state revenue systems quickly reflect changing economic conditions," Fitch managing director Laura Porter said in a statement yesterday. US Treasury Secretary Timothy Geithner told CNN's State of the Union that Republicans will "own the responsibility for the damage" to the US economy if they don't cede ground and agree to tax hikes for the wealthiest Americans.

World economy in deep trouble

The global economy is on edge - and that's without the US "fiscal cliff." Among rich nations, the US outlook remains the least troublesome. But given a recession in the eurozone and a recent contraction in Japan, that's not saying a lot. At the same time, many emerging markets are hurting. India is likely to log its weakest growth in a decade this year and Brazil's economy is also sputtering. Luckily, growth in China appears to be firming. In the United States, the economy faces growing challenges even without the ongoing political wrangling over the $600bn in government spending reductions and expiring tax cuts set to kick in at the start of next year.The coming week brings a slew of reports expected to show the US economy struggling. Data on Friday will likely show employment growth slowed to just 100 000 jobs last month from 171 000 in October, according to a poll of economists. US manufacturing data this week is also likely to suggest a fourth-quarter slowdown is at hand. Indeed, some worry the fourth quarter, which has been affected by the impact of superstorm Sandy, will bring the world's largest economy remarkably close to stall speed. "The risk of seeing a negative sign in front of fourth-quarter GDP is nontrivial, to say the least," said Tom Porcelli, economist at RBC Capital Markets. Following figures showing consumer spending fell in October for the first time in five months, Porcelli revised down his forecast for fourth-quarter US GDP growth to a 0.2% annual pace from 1%t.The United States' travails come against a troubling global backdrop. Europe is still a mess. Greece's latest debt deal quelled immediate concerns of a financial market meltdown, with terms of the country's bond buy-back plan likely to be announced early this week. But the country remains mired in a deep depression, with little prospect for recovery, and not everyone is convinced it will be able to remain a part of the single currency. "We expect the euro to come under pressure again soon, and continue to forecast that the exchange rate against the dollar will tumble to parity next year as Greece eventually leaves the eurozone," said John Higgins, economist at Capital Economics in London. The attention of financial markets has also quickly returned to Spain, where the economy continues to worsen despite an improvement in credit market conditions prompted by hopes of eventual help from the European Central Bank. Spanish retail sales plunged 9.7% in October, pointing to a further sharp contraction for a country that has been in recession for more than a year. The trouble for Spanish Prime Minister Mariano Rajoy is that ECB help, in the form of purchases of Spanish bonds, will not come unless Spain formally applies for sovereign aid, a highly unpalatable choice politically. Still, it is one the government may eventually have to stomach, as evidenced by its willingness last week to break with a key campaign promise and forego inflation adjustments for retirees' pensions in order to meet its deficit targets. Other global engines of growth also look to be softening. Not only did growth slow in India and Brazil in the third quarter, but it braked in Canada as well. China now may be the exception, with a gauge of factory activity hitting a seven-month high in November. Hovering over this rather dispiriting global scene, Washington's bickering appears to be nowhere near over, with both Democrats and Republicans holding firm to their positions. US House Speaker John Boehner, the top Republican in Congress, said on Friday that talks were at a stalemate. In an interview that aired on Sunday, he dismissed a proposal presented by the Obama administration last week as "nonsense." The biggest sticking point is whether to extend low tax rates on household income above $250 000 established under former President George W. Bush. Boehner said Republicans still oppose raising tax rates on any income group. Hopes for a deal now hinge on the growing number of Republicans in the House, including a handful of Tea Party-backed conservatives, who have begun signaling greater flexibility than their leaders in softening their opposition to higher taxes for the wealthy. Obama is hoping to appeal to more potential renegades to get a deal to avoid the budget crunch that economists say would tip the economy back into recession.

Tough talk as US 'fiscal cliff' looms

A sense of deja vu gripped Washington on Monday as Democrats and Republicans locked in who-blinks-first brinkmanship over taxes and spending, with pundits warning of economic chaos unless a deal is struck.The White House will not budge on tax hikes and Republicans call the president's opening gambit ridiculous, but without a deal by the year's end the fragile US economy will plunge off what is being called "the fiscal cliff.""I think we're going over the cliff," grimly predicted Republican Senator Lindsey Graham of South Carolina.He said he was ready to consider closing tax loopholes for the richest Americans, but only in conjunction with entitlement reform aimed at saving such programs as Medicare, Medicaid and Social Security from bankruptcy.But Graham insisted that the president's plan when it comes to entitlement reform "is just, quite frankly a joke."In April 2011, there were less than two hours to go to avert a government shutdown when the same protagonists, Democratic President Barack Obama and Republican House Speaker John Boehner, struck a tentative budget deal.The hard-fought accord that eventually raised the debt ceiling later that summer came too late to prevent Standard & Poor's from downgrading the credit rating of US government bonds for the first time in the country's history.Despite international criticism then for playing a dangerously irresponsible game of chicken, both sides are at it again refusing to compromise and counting down the clock as financial disaster looms.The debt ceiling deal signed into law in August 2011 included a poison pill provision that would usher in across-the-board spending cuts unless Congress passed a $1.2bn deficit reduction bill by the end of 2012.Combined with the expiry on December 31 of a raft of tax cuts, including reduced Bush-era rates for nearly all Americans and Obama's two percent cut in payroll taxes, the risk of a new recession is very real.The point of the "fiscal cliff" provision was to force a fiercely divided Congress and White House to stop kicking the can down the road and get serious about tackling the $16.3 trillion public debt and arcane tax laws.Obama called in the tough-talking Timothy Geithner to be his pointman on the crisis, hoping the outgoing Treasury secretary had enough respect on Capitol Hill and economic expertise to get the job done.But, if the Republican leadership is to be believed, things got off to a rocky start when Geithner got negotiations rolling on Thursday by laying out Obama's initial offer.It called for nearly $1.6 trillion in new tax revenue over the next decade and $600bn in spending cuts, including from programs Democrats cherish like Medicare, which covers health insurance for the elderly."I was flabbergasted. I looked him and said, 'You can't be serious,'" Boehner told .""I've just never seen anything like it. You know, we've got seven weeks between election day and the end of the year. And three of those weeks have been wasted with this nonsense."Republicans said the offer doubled the amount of revenue Obama had been asking for, included new stimulus spending to offset the spending cuts, and made no specific commitments to slash costly government welfare programs. They also balked at a provision that would see a permanent end to congressional control over federal borrowing limits, the issue that set this crisis in motion.Boehner, whose party controls one of the chambers through which any crisis-solving bill must pass, dismissed the notion that Congress would give up powers to vote on future debt limit increases as "silliness. ""They must have forgotten Republicans continue to hold a majority in the House," he said, adding bitterly: "The president's idea of a negotiation is: roll over and do what I ask."Budget negotiations go right to the heart of ideological differences between Democrats and Republicans on the size and scope of government. The biggest sticking point has been on tax rates for high-earners. Obama won re-election on a platform of raising taxes on individuals who make more than $200 000 per year and on families that rake in more than $250 000, as a way of raising extra revenue to tame the deficit.Republicans insist that raising taxes on the wealthy would hurt small business owners, slow economic growth and dampen job creation."There's not going to be an agreement without rates going up. There's not," Geithner told . Republicans say they are ready to extract more revenue from wealthy Americans, but want to do so by closing tax loopholes and limiting deductions rather than by raising income tax rates.Besides resisting tax hikes, Republicans want action on Medicare and Social Security. Geithner insisted that Social Security, which provides government funds to the elderly, the disabled, widows and the poor, should not be on the table in the current negotiations.

 

Greece to unveil terms of bond buy-back

 

Greece will unveil details of a bond buy-back crucial to efforts by foreign lenders to trim the country's ballooning debt, hoping the terms will draw enough investors and unblock vital aid. Since plans for the buy-back were announced on Tuesday, questions have swirled about whether it will tempt enough bondholders to cut Greek debt by a net €20bn. Under the plan, Greece aims to cut its overall indebtedness by spending €10bn from its rescue package to buy back about €30bn of bonds for less than it would have to pay if its creditors held them to maturity. A senior government official said Athens would unveil the terms of the deal on Monday before a meeting of eurozone finance ministers, at which Greek minister Yannis Stournaras would brief his counterparts. "There will be a debriefing by the Greek minister on the steps he will have taken by then," said a senior EU official. "On Monday you will see it all." Eurozone officials said the bloc hoped Greece would be able to repurchase at least €40bn of its own bonds. The price that Athens will offer bondholders is likely to vary depending on the bond rather than be a uniform rate for all holders, a senior Greek finance official has told. On the secondary market, Greek bonds eligible under the buy-back ranged from 25.15 to 34.41 cents in the euro at the close of trading on November 23,data showed. Greece's lenders agreed this week that the bonds, which have a nominal value of €63bn, would not be purchased for more than the closing price on that date. The offer goes in theory also to holders of about €4bn of old Greek bonds, who refused to take part in a debt cut scheme in March. A  calculator on the buy-back shows that if the buy-back price was set at the November 23 closing prices, even a 50% participation rate would be enough for a successful deal - in this instance, Athens would have to spend just €8.7bn to buy back debt worth €31.5bn. For Athens to spend €10bn, it would have to buy back around 60% of the outstanding bonds. This could save Greece €39bn gross on the face value of the bonds and the interest payments due on them. Athens has pressed its banks which hold nearly €17bn of the bonds to take part in the deal, saying it was the "patriotic duty" of Greeks to ensure the buy-back is a success. "The buy-back must succeed. It's our patriotic duty to succeed, it is important for the country's credibility," Stournaras said last week. Despite fears that Greek banks already battered by the country's deep economic crisis would be forced to book losses from the buy-back there have been growing indications they are likely to participate. Prime Minister Antonis Samaras said Greek banks would benefit from the voluntary debt buy-back which is crucial to unlocking aid that will largely be used to recapitalise them since they held Greek bonds at lower prices on their books. "They won't lose any of their capital but will end up with more liquidity," he was quoted as saying in an interview with Sunday's Proto Thema newspaper. The deal is seen as a golden opportunity for hedge funds which have bought the bonds at rock-bottom prices. Athens must complete the buy-backs by December 13 to receive more than €30bn in bailout payments. Greek pension funds holding more than €8bn of the bonds will not take part, Samaras said. "The debt buy-back does not concern the pension funds," he said. "We wouldn't erase the debt even if we took the funds' bonds. These are seen as arrears of the state to itself."  

Greece launches bond buyback offer

Greece said on Monday it would buy back bonds through a Dutch auction as part of efforts to cut its ballooning debt, allowing it to assess the level of demand before setting a final price for the deal. The bond buyback is central to the efforts of its foreign lenders to put Greece's debt back on sustainable footing, and its success will pave the way for the country to get long-delayed funding to avoid bankruptcy. Since plans for the buyback were announced last week, questions have swirled about whether it will tempt enough bondholders to cut Greek debt by a net €20bn - the target set by eurozone finance ministers and the International Monetary Fund. The buyback will be conducted through a modified Dutch auction that allows it to introduce an element of competition among investors to get the best price.Greece set a price range to buy back each of its 20 series of outstanding bonds with a spread of two percentage points - from a minimum of 30.2 to 38.1% and a maximum of 32.2 to 40.1% depending on the bond maturities. In such an auction, if a bondholder tries to get a price close to the upper limit there is a risk he or she may be left out if the buyback amount is filled at lower prices. There will be one settlement price for each series of bonds. Greek bonds eligible under the buy-back ranged from 25.15 to 34.41 cents in the euro at the close of trading on November 23, data showed. Athens said it would not spend more than €10bn on the buyback. Investors must declare their interest by December 7 and the expected settlement date is December 17. Eurozone officials said the bloc hoped Greece would be able to repurchase at least €40bn of its own bonds. Athens unveiled the structure of the buyback before a meeting of eurozone finance ministers, at which Greek Finance Minister Yannis Stournaras will brief his counterparts. Greece's lenders agreed last week that the bonds, which have a nominal value of €63bn, would not be purchased for more than the closing price on that date. The offer goes in theory also to holders of about €4bn of old Greek bonds, who refused to take part in a debt cut scheme in March. A  calculator on the buy-back shows that if the buy-back price was set at the November 23 closing prices, even a 50% participation rate would be enough for a successful deal  in this instance, Athens would have to spend just €8.7bn to buy back debt worth €31.5bn. For Athens to spend €10bn, it would have to buy back around 60% of the outstanding bonds. This could save Greece €39bn gross on the face value of the bonds and the interest payments due on them.

NEWS,11.11.2012

What did they learn?

The 2012 presidential election shattered spending records, further polarised a divided country and launched a thousand hashtags. The race appeared to be a nail-biter going into Tuesday night but in the end, it came down to the state that most had been saying for weeks that it would Ohio.

Here are five things we learned from Tuesday:

1. The GOP has a Latino problem

"If we don't do better with Hispanics, we'll be out of the White House forever," says Republican strategist and CNN contributor Ana Navarro, who was the national Hispanic co-chair of Senator John McCain's 2008 presidential campaign.

"The big issue Republicans are going to have to wrestle with is the Hispanic issue," adds Republican strategist and CNN contributor Ari Fleischer, who served as former president George W Bush's first press secretary. "Republicans are going to have to find a different way forward."

The national exit polls tell the story. Latinos are the fastest growing-segment of the population. Their share of the vote expanded from 9% in 2008 to 10% in this election. The president won 67% of the vote four years ago. He increased that to 71% this year.

Latinos were crucial in helping Obama win the battleground states of Colorado and Nevada, and in putting the president in the lead for Florida's 29 electoral votes. And they were just as important in turning the former swing state of New Mexico into what appears to be an increasingly safe state for the Democrats.

If the current trend continues, Arizona and Texas could turn from red to purple.

The 2012 election is a loud wake-up call for the GOP to change its stance on illegal immigration.

And that's being acknowledged by arguably the best known Latino Republican senator.

"The conservative movement should have particular appeal to people in minority and immigrant communities who are trying to make it, and Republicans need to work harder than ever to communicate our beliefs to them," said Senator Marco Rubio of Florida in a statement on Tuesday night.

2. The youth vote came up big and the white vote got smaller

A big question heading into Election Day was whether younger voters would show up at the polls.

More of them did than last time.

According to national exit polls, 18-29 year olds increased from 17% to 18% of the electorate from 2004 to 2008. They made up 19% of the electorate this time around. That jump in size from four years ago made up for the president's drop in capturing the youth vote, from 66% in 2008 to 60% in 2012.

It wasn't just age, but also race, that worked in the president's favor.

Obama's share of the white vote dropped from 43% four years ago to 39% this year. But that was negated by the shrinking of the white vote from 74% of the electorate four years ago to 72% now. And the African-American percentage of the electorate stayed steady at 13%. Some GOP strategists said that the white vote needed to be 74% for Romney to win.

"The youth vote and the black vote turned out once again and that's to the president's credit," Fleischer said.

3. The auto bailouts helped drive Obama to victory in Ohio

For months, the Obama campaign touted the taxpayer bailouts of General Motors and Chrysler, and they were given prominent prime-time placement during the Democratic National Convention in early September.

It's a strategy that the Obama campaign thought could be the difference in Ohio, a major base for the auto industry that eventually decided the election.

"The American auto industry is back on top," Obama said campaigning last week in the Buckeye State.

The bailouts were started under President George W Bush in 2008 but Obama grabbed the keys to the programme the next year, managing and funding the assistance.

Romney opposed the bailout and pushed for a privately financed and managed bankruptcy of the two automakers. The Obama campaign and other Democrats have attacked Romney over his opposition to the federal intervention, which aided the companies through their eventual bankruptcies.

And in the final weeks leading up the the election, the Obama campaign highlighted pushback by General Motors and Chrysler to a Romney TV ad and a radio spot this past week that claimed both domestic auto makers were sending US jobs to China.

It seemed to work. Nearly six in 10 Ohio voters said they approved of the federal government's role in helping the troubled domestic automakers, and according to exit polls, the president won three quarters of those voters.

4. Romney wasn't able to expand the map

Much was made of campaign visits by Romney and his running mate, Representative Paul Ryan, to Pennsylvania in the final weekend before the election, and Romney's return to the Keystone State on election day.

The Romney campaign and allied super PACs supporting the GOP nominee flooded Pennsylvania airwaves in the final weeks with a flurry of TV ads.

To a lesser degree, there was a similar push in Minnesota, another solidly Democratic state where public opinion polls tightened last month.

There was talk by Romney campaign officials of being on offense and of expanding the electoral map.

It didn't pan out.

While Romney performed stronger than 2008 Republican nominee John McCain in Pennsylvania and Minnesota, it wasn't enough. And of the swing states that swung blue four years ago, it appears Romney was only able to turn Indiana and North Carolina red again.

Romney's 'all' proved not enough

5. What will $6bn get you?

We had a Democratic president, a Republican House of Representatives, and Democratic Senate going into the 2012 election. And we'll have a Democrat in the White House, with a Republican House and a Democratic Senate after the election.

When all the bills are in, total spending for the 2012 election (all federal and state races) could top a record-breaking $6bn. And what did all that money buy?

Some would argue ... nothing.

 

Greece votes on budget to unlock aid

Parliament in Athens are preparing to vote on an annual budget that will cut spending and raise taxes yet again but which the government insisted will kill off talk of Greece being forced out of Europe's currency union.An anti-austerity demonstration called by major trade unions mustered thousands of protesters outside during the debate but a spokesman for conservative prime minister Antonis Samaras's coalition reflected confidence the government majority would see the 2013 budget bill pass, probably around midnight."With today's vote, we put an end to the Grexit talk," Simos Kediglou told a Greek television channel, using the term coined for the possibility Greece might force to exit the euro zone.The measure, following a separate package of belt-tightening approved last week, should ensure Athens receives further credit from international lenders and so avoid imminent insolvency.However, many of the 10 million Greeks, driven to despair by five years of debt-laden economic slump, fear attempts to cut the public deficit will only deepen the crisis and many poorer citizens say living standards in a country where unemployment is running at 25% are becoming hard to bear."All those measures throw us back 50 years," said Thymios Marvitsas, 75, during a communist protest march to parliament during the budget debate. "Our pensions and wages are cut. My life is getting harder and harder."Police estimated the crowd outside parliament at 13,000.Arguments about the wisdom of cutting spending have also divided the political establishment and today's vote poses a test of confidence in Samaras's three-party coalition.It managed to pass Wednesday's austerity and reform package by only a narrow majority after the smallest of the partners, Democratic Left, abstained. However, its leaders have said the party will vote for the 2013 budget and, with Samaras having nominal support from 168 of the 300 members, it should pass.Hours later, euro zone finance ministers meet in Brussels for talks likely to be dominated by the Greek crisis though a final decision on extended more credit is not expected.Securing both pieces of budget-cutting legislation has been a condition of renewing bailout funding and unlocking more than 30 billion euros in financing from the International Monetary Fund and European Union later this month.The government, formed after a tumultuous election in June, has ignored sliding poll numbers and occasionally violent street protests in pursuit of favour with its creditors."Today we must demand sacrifices so there is hope for future generations," Finance Minister Yannis Stounaras told parliament on Saturday. "Re-establishing our credibility is our only passport to recovery."For the opposition, Panagiotis Lafazanis of the leftist SYRIZA party, responded: "For three years you have been going from bailout to bailout, rescue to rescue."You've already bankrupted the Greek people."According to the budget draft, the Mediterranean state's economy will shrink for its sixth year running, by 4.5%.The budget deficit will be 5.2% of gross domestic product (GDP), down from 6.6% expected this year. But once the cost of paying interest on its huge debt is removed, Greece will show a tiny surplus for the first time in decades.These deficit figures assume Athens's lenders will extend a deadline for it to narrow its fiscal shortfall by two years in exchange for the new belt-tightening package.The biggest cost-reductions next year are pension cuts of up to 15% for almost half the total 9.4 billion euros in budget savings and public wages cuts of 1.2 billion.Greece's fiscal adjustment has hit workers more than the wealthy elite. This has become a sore point in a nation where media have published lists of bankers, lawyers and shipping magnates who they say have moved cash to Switzerland."It's always the same. The poor pay and no one touches the rich and the tax evaders. Winter is coming and I can't afford heat," said 41-year-old housewife Angeliki Petropoulou.

Brics eye $240bn forex reserves pool

Leading emerging market countries are discussing pooling up to $240bn in foreign exchange reserves to protect themselves from short-term liquidity pressures, according to documents outlining plans by the five Brics nations.Brics countries China, Russia, India, Brazil and South Africa announced a working group in June to look into jointly pooling reserves and creating a new development bank to fund infrastructure projects in the developing world.According to the documents, the pool of central bank money would be available to Brics facing balance of payments difficulties. Some, however, are also pushing for a precautionary credit line, similar to the IMF's that provides countries with insurance against outside economic shocks.The move is part of growing frustration among the Brics and other developing countries with the continued dominance by the United States and European countries of global institutions like the International Monetary Fund and World Bank.Brics officials meeting on the sidelines of a recent G20 summit of finance ministers from developed and developing nations sought to advance their plans ahead of a Brics leaders' summit in South Africa in March.Planned currency swap arrangements would also give Brics the ability to lend to each other to keep markets liquid. fficials at the G20 Brics meeting, who spoke on condition of anonymity, said China had emphasised that the size of the reserve pool needed to be sufficiently big to be taken seriously by markets.Officials believe that the Brics reserve pool should be similar in size to the Chiang Mai Initiative of southeast Asian countries, which was doubled to $240bn in May to boost their protection against external shocks. The Chiang Mai program, first agreed in 2000, has never been put to use because it would require the country to request a program from the IMF, which was blamed for insufficient bailouts during the Asian currency crisis of 1998.Eswar Prasad, a Cornell University economics professor and senior fellow at the Brookings Institution in Washington, said the proposed plan for pooling resources posed a "strong and serious challenge to existing global monetary arrangements.""Irrespective of the logic and possible complications of these schemes to pool their funds, these proposals from the Brics may have the salutary effect of prodding global monetary reforms along at a faster pace," Prasad said.Countries like China are keen to see its currency, the yuan, added to the IMF basket of currencies, currently including the pound, yen, euro and dollar, that make up the IMF unit of account, the Special Drawing Right.   While a number of the Brics believe disbursements from the reserve pool should be made in US dollars, others preferred to use the SDR. "In terms of disbursement, the preference would be to use the US dollar or other reserve currencies, but the view was also expressed that part of the disbursements could be made available in Brics national currencies," according to the documents.Discussions are also looking at what conditions should be attached to the reserve pool. One question is whether the scheme should be linked to an IMF program, which could be a bitter pill to swallow for any of the Brics. Some Brics are arguing for a partial link to the IMF, with an initial quick disbursement subject to rules of the pooling. The Brics are also considering creating a new development bank to support financing of long-term infrastructure projects for emerging and developing economies, to meet the pressing need for roads, railways, ports and electricity.The Brics bank would be in competition with the World Bank and other multilateral development banks, which also provide loans for infrastructure projects. However, countries like India are already facing limits on its borrowing from the World Bank.The Brics documents noted that existing multilateral development banks are under-capitalised compared to the growing needs of emerging economies and developing countries.The new bank would initially issue non-concessionary project-linked finance to members, meaning that the financing would be at a higher cost. A small window of low-cost loans could be considered as the bank expanded, the documents said.The World Bank and other institutions have long insisted that lending to poor countries should involve low-interest loans to avoid pushing up their debts to unsustainable levels.

NEWS,16.10.2012

More 'energetic' Obama predicted for debate

President Barack Obama's camp is promising that the American public will see a more energised and visionary incumbent in the second presidential debate later today.Republican challenger Mitt Romney's campaign got a much-needed shot in the arm two weeks ago when the Republican came out swinging in the first matchup between the two candidates, while Obama appeared passive and tongue-tied at times.The strong debate performance helped Romney reverse his slide in the polls, and recent surveys put the race for the White House at a virtual dead heat just three weeks ahead of the November 6 election.In a Ipsos daily tracking poll on Tuesday, Obama gained ground on Romney for the third straight day, leading 46% to 43%."I think you'll see somebody who will be strong, who will be passionate, who will be energetic, who will talk about... not just the last four years but what the agenda is for the future and how we continue to move... our economy forward," Obama's senior campaign adviser Robert Gibbs said.The 90-minute debate at Hofstra University in New York begins at 9pm EDT (2pm today NZT).Velvet glove Both men will have to deal with a more intimate town hall format, which often inhibits political attacks as the candidates focus on connecting with the voters asking the questions.It also offers an element of uncertainty as the candidates cannot predict what the audience of undecided voters might ask, which could range from tax policy to job creation to foreign policy."Almost all of the pressure will be on Obama this time, given how poorly he performed in the first debate and how much that seemed to help Romney and change the race," said political scientist Andrew Taylor of North Carolina State University.The town hall format lets the candidates "talk directly to people and look them in the eye and try to connect, which has not been a strength for either of them," Taylor said."But you can still make strong points with a velvet glove."Repairing damage During the first debate, Obama was widely criticised for not challenging Romney on exactly how he plans to give Americans a big tax cut without adding to the deficit, and for not calling attention to the more moderate views Romney appeared to present during the matchup.A Gallup/USA Today poll published on Tuesday showed the two had similar favorable ratings from registered voters. But the survey showed Romney ahead of Obama by four percentage points among likely voters in the 12 battleground states.The Reuters/Ipsos poll that gave Obama an edge showed the number of undecided voters had increased, indicating a drop of support for Romney among the coveted voting bloc.The online survey of 1,846 likely voters was conducted between October 12 and October 16.The precision of the poll is measured using a credibility interval, which is plus or minus 2.6 percentage points for likely voters.For Obama, trying to repair damage from the last debate, the challenge will be to confront Romney on the issues without seeming nasty or too personal.Romney, a wealthy former private equity executive often accused of failing to connect with ordinary people, would be happy with a steady performance to keep up his momentum.Economy The economy is expected to be a dominant topic. Obama is able to tout the latest jobs report, which showed that the unemployment rate unexpectedly dropped to 7.8% in September and reached its lowest level since Obama took office.Romney has countered that the labor market is not healing fast enough.Glenn Hubbard, one of Romney's top economic advisers, told Reuters that the Republican candidate was prepared to question Obama's record on the economy."His objective is to continue the conversation with voters about what the right economic policies are for the country," Hubbard said on the sidelines of an economic conference in New York. "He did that really well last time and I'd be stunned if he doesn't do it well tonight."Since the last debate, both sides have also focused on new lines of attack that are likely to come up in today's debate. Romney was expected to stay on the offensive over the administration's handling of diplomatic security in Libya before the attacks there that killed the US ambassador and three other Americans.The debate comes a day after Secretary of State Hillary Clinton assumed responsibility for the lack of security that failed to protect against the deadly attack."It's a matter of leadership; it's a matter of straight answers," Republican National Committee chairman Reince Priebus."I just get a feeling that this president hasn't been straight with the American people."Democrats, hoping to make more inroads with women voters, have hit Romney and his running mate Paul Ryan for their opposition to abortion rights.

The Euro: Bad Idea, Poorly Executed, Hard to Fix

When the Norwegian Nobel Committee awarded the 2012 Peace Prize to the European Union (EU), they cited advances in "peace, democracy, and human rights." The common currency zone we call the Euro Area isn't mentioned, unless it's implied by the phrase "grave economic difficulties." If the EU has been a success, the European Monetary Union (EMU) is revealing itself to be the opposite. One might argue that the euro was a mistake from the start, that the history of fixed exchange systems is littered with failure. We have some sympathy with that view, but we'd like to make two different points. First, flaws in the design and implementation of the EMU have made the crisis worse. Second, the decentralized decision-making process of the EU, with political power concentrated in countries rather than Europe, makes effective crisis management nearly impossible. The euro crisis combines, in our view, a sovereign debt crisis and a banking crisis, with mutually adverse feedback between the two. But design flaws in the system magnified their impact and feedback. The most important flaws were: Inadequate fiscal discipline. Limits on debt and deficits (the Stability and Growth Pact) failed early on when France and Germany ignored them. That paved the way for countries with weaker fundamentals, including Greece and Portugal, to issue more debt than they could support. When the crisis struck, the no-bailout clause of the Maastricht Treaty also proved to be vacuous. Compare that to the federal system in the United States. Fiscal difficulties in Illinois or New Jersey come with clear precedent against bailouts and have little impact on other states, the federal government, or the monetary system. . Symmetric treatment of sovereign debt. National bank regulators regulation remains a national activity, not a European one decided to treat the debt of Euro Area members as risk-free for capital requirements. The European Central Bank compounded the mistake, accepting all such debt as collateral on similar terms until recently. It's not hard to imagine this made the debt of weak states more attractive and allowed them to issue debt on better terms than their fundamentals indicated. These policies further weakened the credibility of the no-bailout commitment. National regulation, deposit insurance, and bank resolution. Consider a system with no limit on cross-border capital flows, but with national responsibility for regulation, deposit insurance, and resolution of insolvent banks. Add regulatory tolerance of home-country bank risk and sovereign debt problems and you have the perfect environment for a cross-border credit expansion followed by an international bank run. Add national guarantees of banks and you have a feedback amplifier linking banks and sovereigns. The feedback intensifies when bank and fiscal consolidation hit the economy. Leaks in the payments system. The Euro Area payments system (TARGET2) allowed weak banks to borrow from the European Central Bank to replace their evaporating deposit base. While this avoided a collapse of the euro, it subsidized weak banks, delayed their recapitalization, and reinforced the ongoing disintegration of the Euro Area financial market. Official funds continue to flow on a large scale from the ECB to banks in weak countries. When they buy home-country debt, the financial system becomes riskier, fragmentation more permanent, and market discipline on sovereigns less effective. The enormous growth of TARGET2 balances also makes the creditor countries worry about their exposure to a potentially fragile union. As of September, the Bundesbank's TARGET2 claims was nearly 700 billion euros. No exit strategy. The authors of the Maastrict Treaty suggested that membership in the Euro Area was irreversible: there were no provisions for exit or expulsion. The threat to leave, however, gives weak countries more leverage than strong ones. They threaten contagion to others, whose membership is revealed to be revocable, and ask for financial help to void the threat. Consider the contrasting situation of Ecuador, which decided to use the US dollar as its currency. Ecuadorians made this decision on their own, and they can change it any time they wish, with no perceivable impact on the U.S. or any other country. None of these features of European Monetary Union were essential to a common currency system. They were, in a sense, implementation details, but details or not, they made the crisis worse. We see the results now all over Europe. On top of this, the decentralized nature of political power in Europe makes it extremely difficult for anyone to respond effectively to the crisis. Political power, particularly the power to raise revenue, still resides in countries, not in Europe or a euro-area agency. Many important decisions require unanimous approval of the member states. That leads to concerns about whether (say) Finland will approve a measure to deal with the crisis. The best minds of Europe have come up with some creative workarounds, but it shouldn't have been this hard. The political structure has taken a difficult problem and made it nearly impossible. That was always the inherent tension at the heart of the system: collective monetary policy vs. national political power. It was never a good combination. If you could do it over again, you wouldn't do it this way. Where will this lead? Maybe Greece will leave, maybe it won't, but the rest probably will continue to muddle along from crisis to crisis. Even if the system holds together for a time, the cost is likely to be an extended period of poor economic performance  in our view, more extended than it has to be. I would love to be wrong.

 

Chinese Warships Off Japan Cross Near Island Of Yonaguni

 

Japanese military officials said they closely watching seven Chinese warships spotted in waters off a southern island Tuesday. It was unclear whether the ship movements were related to a territorial dispute that has prompted both countries to show off their maritime muscles.The Chinese ships were sighted about 49 kilometers (30 miles) from the island of Yonaguni, in Japan's Okinawa prefecture (state), according to Japan's Defense Ministry. They were about 200 kilometers (125 miles) from a chain of small islands that have sparked a heated dispute between Japan and China.The ships were believed to be returning to China after training in the Pacific.Defense Minister Satoshi Morimoto said Japan is monitoring the ships' movement. Japan considers the area part of its contiguous waters, but it is not illegal for foreign vessels to transit them.It is not unusual for the Chinese navy to transit waters around Okinawa en route to the Pacific, but this is the first such operation observed this year, according to public broadcaster NHK. The ships included frigates, a guided missile destroyer, a refueler and two submarine rescue vessels.It was unclear if their mission was directly related to the territorial issue, or whether they were trying to avoid an approaching typhoon.China's Defense Ministry said the ships were on a scheduled cruising exercise and were acting in a manner that was "appropriate and legal."Underscoring China's sharper stance, it also protested the scrambling of a Japanese military plane in the direction of the disputed islands, calling that a "gross violation" of Chinese sovereign rights."The Chinese military is closely following the actions of the Japanese side and demands Japan halt all actions complicating or escalating the situation," the ministry said in a short statement on its website.Japan angered China last month by nationalizing part of the chain of uninhabited East China Sea islands called Senkaku in Japanese and Diaoyu in Chinese. The move sparked violent protests in China.Chief Cabinet Secretary Osamu Fujimura said Tokyo has urged Beijing to "avoid any actions that would go counter to the mutual benefit."Nearby Taiwan also claims the islands, which are uninhabited but surrounded by rich fishing grounds and possibly lucrative undersea energy deposits.China and Japan have recently stepped up naval activities in the area around Okinawa because of the dispute, but there have been no clashes between their warships, which have generally stayed away from the islands themselves.Wary of missteps that could lead to a sudden escalation of tensions, the countries have instead sent less threatening coast guard ships. Over the past week, however, both have made a point of showing off their naval prowess.Chinese websites were abuzz Monday with photographs of navy pilots practicing touch-and-go landing exercises on China's first aircraft carrier. It wasn't clear when the pictures were taken, and they did not appear on the Defense Ministry's website or in official media.The carrier was launched last month without aircraft or an accompanying battle group, and actual flight operations could be years away. But it is widely seen as a symbol of China's ambitions to be a leading Asian naval power, especially as it faces sharpening territorial conflicts with Japan and other countries.Japan's navy, meanwhile, marked its 60th anniversary with a major exercise on Sunday. Japan also plans to hold a joint exercise with the U.S. military later this year, reportedly using a scenario of taking a remote island back from a foreign intruder.Asked how China sees the reported scenario, Chinese Foreign Ministry spokesman Hong Lei said, "To maintain the peace and stability of Asia-Pacific is beneficial to all sides." He added: "Increasing tension is against the bigger trends of regional security, peace and the buildup of political and security trust. We reserve the right to take further action."Defense Minister Morimoto declined to confirm the scenario or give other details.In Sunday's exercise, about 40 ships – including state-of-the-art destroyers, hovercraft able to launch assaults on rough coastlines and new conventionally powered submarines took part in Fleet Review 2012, the maritime equivalent of a military parade.About 30 naval aircraft, mostly helicopters, also participated. For the first time, Japan's navy was joined by warships from the United States, Singapore and Australia. Representatives from more than 20 countries, including China, attended the event staged in waters south of Tokyo.

NEWS,08.10.2012

Venezuela's Chavez revels in convincing election win

Venezuelan President Hugo Chavez pledged to deepen his socialist revolution after a comfortable election victory that could extend his divisive leadership of the OPEC nation to two decades.The new six-year term clears the way for Chavez to consolidate state control over Venezuela's economy, possibly with more nationalisations, and continue his support for left-wing allies in Latin America and around the world.The victory also cements his status as a dominant figure in modern Latin American history and an icon of the political left. But the slimmer margin of victory - 10 percentage points, down from 25 points in 2006 - reflected growing frustration among Venezuelans at day-to-day problems such as crime and blackouts, which Chavez will be under pressure to tackle.Tens of thousands of ecstatic supporters celebrated in the streets around the presidential palace in downtown Caracas overnight, pumping fists in the air after the former soldier was re-elected with 1.5 million more votes than younger rival Henrique Capriles."This has been the perfect battle, a democratic battle," the 58-year-old Chavez thundered from the palace balcony around midnight, holding up a replica of the sword of independence hero Simon Bolivar."Venezuela will continue along the path of democratic and Bolivarian socialism of the 21st century."It was an extraordinary victory for a leader who just a few months ago feared for his life as he struggled to recover from cancer. Turnout was a record 80 percent of registered voters, boosting Chavez's democratic credentials despite critics' depiction of him as an autocrat who tramples on private enterprise and silences political foes.Supporters dripping with sweat strained to catch a glimpse of Chavez from the street below the palace while dancing and drinking rum. "Chavez, the people are with you!" they chanted."He will keep protecting the poor, the defenseless and the elderly," said teacher Gladys Montijo, 54, weeping with joy.In a nod to the opposition's strong showing, Chavez struck a conciliatory note and promised to be more focused in his new term beginning on January 10."Today we start a new cycle of government, in which we must respond with greater efficacy and efficiency to the needs of our people," he said. "I promise you I'll be a better president."Despite Chavez's anti-capitalist rhetoric, Venezuelan bonds are among the most-traded emerging market debt on Wall Street because they offer high yields. But Chavez's victory pushed prices lower on Monday as investors unwound bets that Capriles would pull off an upset.All eyes on Chavez A retired lieutenant colonel who first won fame with a failed 1992 coup, Chavez has become Latin America's main anti-US agitator, criticizing Washington while getting close to its adversaries, including Syria and Iran.A decade-long oil boom has given him tens of billions of dollars for social spending that ranges from free health clinics to new apartment complexes, helping him build a strong following among the poor that no other politician in Venezuela can match.It has also allowed him to dispense aid to ideological allies from Bolivia to Cuba, where Chavez's victory was met with relief. Cuban leader Raul Castro was among the first foreign leaders to congratulate Chavez, calling the vote a resounding endorsement of the Venezuelan leader's "Bolivarian Revolution."Chavez sends discounted oil to more than a dozen Central and South American countries. Communist-led Cuba, for example, receives more than 100,000 barrels a day of Venezuelan crude.Venezuela is often repaid for the oil in services Cuba sends doctors to Venezuelan slums, others sometimes pay in food and livestock - which puts strain on the finances of state oil company PDVSA.With the election out of the way, all eyes are on what Chavez will do next. After his landslide win in 2006, he ordered takeovers in the telecommunications, electricity and oil sectors. Some worry he could now extend nationalisations to other corners of the economy, including the banking, food and health industries.Any recurrence of the pelvic cancer that has already forced him to undergo three operations in Havana since June 2011 could derail his plans.The constitution states that if an incumbent steps down in the first four years of a six-year term, a new vote would be called - meaning that under such a scenario Capriles or another opposition candidate would have another crack at power.Chavez, who has looked rejuvenated in recent weeks after a sluggish start to the election campaign, was expected to hold a news conference later on Monday.Opposition leaders were crushed by the loss. It followed nearly a month of euphoria among Capriles supporters as the 40-year-old polished his stump speeches, held increasingly fervent rallies and appeared to be gaining ground in the polls.The youthful state governor put on a brave face in his concession speech, hailing his "house-by-house" campaign as the start of a long road to changing the direction of the country.On Monday, Capriles bared his soul in a flurry of emotional Twitter messages, and urged his followers not to give up."I know a lot of people are sad, but we need to bounce back and keep believing that we can and will build a better country," he said.State elections loom Capriles and other leaders of the Democratic Unity coalition must now prepare for state governor elections in December, when they will hope at least to increase the opposition's influence. They were hugely disappointed at winning a majority vote in only three of Venezuela's 24 states on Sunday.The US State Department congratulated the Venezuelan people for the high turnout and generally peaceful voting."We believe that the views of the more than 6 million people who voted for the opposition should be taken into account going forward," said State Department spokesman William Ostick.Though Capriles was indisputably the strongest candidate to face Chavez since the leftist leader was first elected in 1998, few in the opposition thought the fight was fair.Chavez made ample use of state television and spent 47 hours in "chain" broadcasts that forced other local television stations to carry speeches peppered with political commentary.He also handed out houses and pensions financed with state funds, often in ceremonies that glorified his administration, while warning that the opposition would cancel such programs.The spending spree has weakened Venezuela's finances and may force a currency devaluation in early 2013, which would likely spur inflation that has been a top complaint among voters.Relations with Washington are also likely to remain on edge, though Venezuelan oil has continued to flow to the United States over the years despite diplomatic tensions.

Single euro zone budget gains momentum

Debate about the idea of creating a separate budget for euro zone countries is intensifying in the run-up to an EU summit later this month, with less opposition to the proposal than many officials first expected, diplomats say.At a private dinner held last week among the EU ambassadors of several northern European countries, including Britain, Denmark, the Netherlands and Finland, those present were surprised to find a fair degree of consensus on the proposal."I wouldn't say that there was strong support for it, but there was certainly a feeling that this is an idea that should be explored in more detail," said one diplomat briefed on the discussion that took place at the gathering.The single budget proposal was first sketched out by Herman Van Rompuy, the president of the European Council, in a paper circulated in September as part of an effort to stimulate debate about how Europe's monetary union should be improved.In the paper, Van Rompuy said a "fully fledged fiscal union" among the 17 countries that share the euro could involve the creation of a single treasury office and "a central budget whose role and functions would need to be defined".Those suggestions have since been refined into guidelines that will form the basis of discussion among EU leaders at the summit on October 18-19. The idea will also be explored among euro zone finance ministers at a meeting in Luxembourg on Monday.There is still no clear definition of what a single, central budget would entail, but Germany strongly supports the idea and France is on board too, which in terms of euro zone decision-making means it has substantial momentum.Britain's support, underlined by Prime Minister David Cameron on Sunday, is also significant, even if it stems more from a desire to distance Britain from the problems of the euro zone than from any solidarity with the single currency club."There will come a time when you need to have two European budgets, one for the single currency, because they are going to have to support each other more, and perhaps a wider budget for everybody else," Cameron told the BBC on Sunday, the first day of his Conservative Party's annual conference."I don't think we will achieve that this time, but it is an indicator of the way that Europe is going," he said.Single euro zone budget While conceptually it may make sense for the countries that share one currency to also create a single budget, it immediately raises thorny questions about sovereignty, budget discipline and long-term ambitions.Germany's precise ideas about how a single budget would be financed, managed and employed are likely to be vastly different from Portugal's, Estonia's, Italy's or France's once leaders and finance ministers get into the nitty-gritty of the concept.Yet there are already some broad proposals doing the rounds, including the idea backed by France that the budget could be financed by revenue from a financial transactions tax (FTT).Germany and France are already driving an initiative to establish an FTT among nine euro zone, the minimum number permitted to do it alone. There is already support from eight countries and a ninth could come on board as soon as next week, giving added impetus to the plan.But other euro zone countries that might like a single budget, such as Finland, are lukewarm on the idea of an FTT, underscoring just how complex negotiations could become.There are also differences of opinion about why a single budget is desirable. Germany sees it as a means of building solidarity and tightening budget rules without moving to the more extreme suggestion of mutualising all euro zone debt.France sees a single budget more as a means of ironing out divergences in social and employment policy, arguing that it could be used to help underwrite unemployment benefits in a country suffering from much higher joblessness than the rest.While many countries are voicing quiet support for the idea, it is also clear that most have a conflicting take on what it would involve if it were ever to become a reality.Some have hinted that it could involve each country setting aside a fraction 0.3 or 0.5% of their GDP - for a communal budget, others dismiss that suggestion out of hand."The modalities are completely unknown," said one EU official when asked how a single budget might work.What's more, even if momentum is growing and it is likely to be a core part of discussions at the October 18-19 summit, it could be years before it becomes reality even if everyone supports it.Such a fundamental change to how the euro zone is administered would more than likely require a change to the EU treaty, a long, complex and divisive process.The treaty has already been tinkered with since the debt crisis began and there is a reluctance to open it up again.Even if German Chancellor Angela Merkel were to support treaty change, it is unlikely she would want to do it until after Germany holds elections in September next year.But there are also European Parliament elections in June 2014 and most analysts of euro zone politics do not expect it to be possible to drive through substantial treaty change until after that, meaning it may only happen in late 2014 or 2015.

Euro zone launches bailout fund

Euro zone finance ministers launched their permanent 500 billion euro bailout fund today but said Spain, the country widely expected to be first to draw on it, was taking steps to overhaul its economy and did not need a bailout for now.Arriving at a meeting in Luxembourg also set to discuss Greece and differences over how to recapitalise Europe's wobbly banks, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no assistance."Spain needs no aid programme. Spain is doing everything necessary, in fiscal policy, in structural reforms," he told reporters as he arrived for a gathering that will also discuss plans to establish a single supervisor for euro zone banks."Spain has a problem with its banks as a consequence of the real estate bubble of the past years," he said. "That's why Spain is getting (EU) help with banking recapitalisation."Luxembourg Finance Minister Luc Frieden took the same line but added that if Spain were to make a request for aid beyond the 100 billion euros already earmarked to recapitalise its banks, it would be examined.As well as Spain's broad financial needs, Monday's meeting was expected to discuss the budget goals presented by Madrid last month, which the European Commission has yet to endorse.The Commission will publish its twice-yearly economic forecasts on November 7 and some officials have indicated that it may conclude Spain cannot meet its budget targets, which are based on the economy contracting by just 0.5% next year.The IMF forecast of a 1.2% recession may be revised further downwards on Tuesday.Evidence that Spain can't meet the targets it has set is likely to undermine market confidence and drive up Madrid's borrowing costs, which are currently hovering around a manageable 5.75%. Yields on 10-year bonds above 6% for a sustained period could force a request for help."I think we should deal with such a request when it comes, but so far the Spanish government is undertaking reforms which go in the right direction," Luxembourg's Frieden said.Many in the financial markets are convinced Spain will not be able to meet its sovereign funding needs at an affordable cost without euro zone and European Central Bank support, especially with several regions requiring a bailout from Madrid.No moves on Greece As well as Spain, ministers will discuss the situation in Greece, where intense negotiations continue between the government and the 'troika' of inspectors from the Commission, the ECB and the IMF over budget cuts for 2013-2014.Jean-Claude Juncker, the chairman of the Eurogroup, said no developments were likely at least until the troika finishes a report on Athens' debt situation and whether it is survivable. That report is now expected in early November."I don't think that we will have any major decisions on Greece," Juncker said. Asked whether a decision on Greece could be expected soon, he replied: "Hope never dies."Monday's meeting will also discuss plans for the ECB to be given responsibility for supervising all eurozone banks and the idea of creating a single budget for eurozone countries, issues that will be discussed further by eurozone and EU leaders at a summit in Brussels on October 18-19.One of the trickiest issues - when the ESM rescue mechanism should be allowed to directly recapitalise banks and how it would work in practice - looked set to be left aside, however.At a summit on June 29, EU leaders agreed that the ESM should be permitted to pump capital into banks directly once a single supervisory mechanism under the ECB is in place, possibly as early as January next year.But the Netherlands, Finland and Germany disagree on how to interpret the June 29th agreement, saying that direct bank recapitalisation should only apply to future problems not "legacy" bad banking debts such as those in Ireland and Spain.Under such circumstances, direct recapitalisation would not help Madrid or Dublin since it would fail to break the link between indebted governments and their indebted banks.EU leaders will now have to re-evaluate their June 29th agreement when they meet on October 18-19. Most diplomats expect the original interpretation to stand, meaning the costs of a direct recapitalisation of Spain's banks would not accrue to the government's books, but details remain to be fought over.With the euro zone countries involved in a lengthy process of trying to define how best to overhaul the monetary union that binds them, meetings of finance ministers increasingly involve broad discussions rather than specific decision-taking.However, the one firm action taken on Monday was the unveiling of the European Stability Mechanism (ESM), a 500 billion euro rescue mechanism for the 17 euro zone countries.The ESM, which replaces the temporary EFSF, will be used to lend to distressed euro zone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track."The start of the ESM marks a historic milestone in shaping the future of the European monetary union," the fund's chief executive, Klaus Regling, told reporters"The euro area now is equipped with a permanent and effective firewall, which of course is a crucial component in our strategy to ensure financial stability in the euro zone."The fund's lending capacity will be based on 80 billion euros of paid-in capital and 620 billion of callable capital, against which the ESM will borrow money on the market to lend it on to governments cut off from sustainable market funding.From Monday it has a capacity of 200 billion euros. It will reach its full capacity gradually by 2014.