NEWS,04.01.2013

US jobs ease on fiscal cliff angst

The pace of hiring by US employers eased slightly in December, pointing to a lackluster pace of economic growth that was unable to make further inroads in the country's still high unemployment rate.Payrolls outside the farming sector grew 155 000 last month, the labour department said on Friday. That was in line with analysts' expectations and slightly below the level for November.Gains in employment were distributed broadly throughout the economy, from manufacturing and construction to health care.That should reinforce expectations that the economy will grow about 2% this year, unlikely to quickly bring down the unemployment rate or make the US Federal Reserve rethink its easy-money policies, which have been propping up the recovery."It's not a booming economy, but it is growing," Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York, said before the data was released.The jobless rate held steady at 7.8% in December, down nearly a percentage point from a year earlier but still well above the average rate over the last 60 years of about 6%. The labour department raised its estimate for the unemployment rate in November by a tenth of a point to 7.8%, citing a slight change in the labour market's seasonal swings.Most economists expect the US economy will be held back by tax hikes this year as well as by weak spending by households and businesses, which are still trying to reduce their debt burdens.Friday's data nonetheless gave signals of growing momentum in the labour market's recovery from the 2007/9 recession. Many economists had expected December's payroll gains to be padded by one-time factors like the recovery from a mammoth storm that hit the East Coast in late October.The government had said last month the storm had no substantial impact on the November data, and many economists expected the government to recant by revising downward in Friday's report its estimate for payroll gains in November. Instead, the government revised its estimate for November payrolls upward by 15 000. "There is some evidence that underlying jobs growth has improved," Paul Dales, an economist at Capital Economics in London, said before the report was released. Austerity's biteDespite the signs of some momentum in hiring, a wave of government spending cuts due to begin around March loom over the economy. Many economic forecasts assume the cuts which would hit the military, education and other areas will ultimately be pushed into next year as part of a deal sought by lawmakers to reduce gradually the government's debt burden.Initially, the cuts were planned to have begun this month as part of a $600bn austerity package that also included tax hikes. Hiring in December may have been slowed by uncertainty over the timing of the austerity, economists say. Congress this week passed legislation to avoid most of the tax hikes and postpone the spending cuts.Even with the last-minute deal to avoid much of the fiscal cliff, most workers will see their take-home pay reduced this month as a two-year cut in payroll taxes expires. That leaves the Fed's efforts to lower borrowing costs as the main program for stimulating the economy.The Fed has kept interest rates near zero since 2008, and in September promised open-ended bond purchases to support lending further. On Thursday, however, minutes from the Fed's December policy review pointed to rising concerns over how the asset purchases will affect financial markets.Analysts ahead of the report expected some of the strength in job creation in December would be due to the Fed's policies."Despite the end-of-year angst over the fiscal cliff, financial conditions remained supportive of job growth in December," economists at Nomura said in a note to clients earlier in the week.

Aid for Sandy victims falls short

US lawmakers finally approved emergency disaster aid for victims of Hurricane Sandy on Friday, but only after a delay that sparked East Coast Republican outrage against their own party leadership Lawmakers voted 354-67 to provide the Federal Emergency Management Agency with $9.7bn to pay the flood insurance claims of thousands of victims of the killer October storm that devastated coastal communities.The bill now goes to the US Senate, where it could pass as early as Friday before the two chambers go into recess, but the sum falls short of what was originally promised and bitter debate is likely top continue.The Senate had approved a comprehensive $60.4bn Sandy aid package last week, but House Speaker John Boehner, stung by fractious negotiations over the deal to avert the fiscal cliff crisis, refused to bring it to the floor."It's been 70 days and many have been living in misery and heartache," Republican congressman Rodney Frelinghuysen of New Jersey told the House, describing the vote as "the first step of what we need to do to rebuild lives."Democrats again attacked the Republican leadership for what congressman Rob Andrews of New Jersey called the "inexcusable and unjust" delay in getting a bill to the House floor.And, while Boehner has pledged to bring the remaining $51bn in aid to a vote on January 15 as a two-part package, Andrews said it would be "meaningless" unless the Senate turned around and quickly approved the aid.Boehner had scrambled to tamp down fury over the delay on aid to victims of the storm, which killed 120 people and destroyed tens of thousands of homes and businesses in New York, New Jersey and neighbouring northeastern states.President Barack Obama, instrumental in cobbling together the $60bn package, joined New Jersey's outspoken Republican Governor Chris Christie in leading the charge against Boehner's delay.Christie offered a blistering critique of his own party's congressional leadership, calling Boehner's delay "absolutely disgraceful."Fuming Republican congressman Peter King of New York also tore into his own leadership, saying the delay was "a knife in the back of New Yorkers and New Jerseyans."The outrage quickly gained the national spotlight, and Boehner wasted little time announcing the two-part vote."This is not a handout, this is not something we're looking for as a favor," King told the House. "What we're asking for is to be treated the same as victims (from) other natural disaster victims have been treated."Some Republicans including Senator Marco Rubio from Florida, a hurricane-prone state which has received billions in federal disaster aid, voted against the Sandy bill in the Senate, claiming it was stuffed with "pork" funding for projects or elements unrelated to Sandy relief.Darrell Issa, the powerful Republican chairman of the House Oversight Committee, continued in that vein Friday, saying "we need to get the pork out" and pointing to funding in the Senate bill that went to programs in Alaska, more than 3 000 miles (4 800 kilometers) from the Sandy disaster zone.He said he was hopeful the re-written legislation due for a vote January 15 would be a "clean bill" focused exclusively on Sandy relief."I believe today we are buying a little bit of time, but for the people on the Eastern Seaboard who are suffering, time is running out," he said.FEMA has announced it will soon run out of flood insurance funding without the $9.7bn increase.

Signs of hope for eurozone

Tentative signs the eurozone may have passed the worst of its downturn emerged in December but business surveys also suggested Britain's economy tipped back into contraction in the final months of 2012.Friday's purchasing managers indexes, which measure the activity of thousands of companies worldwide, brought mixed news from Europe.Activity in Britain's dominant services sector fell for the first time in two years and at a faster pace than predicted by any analyst polled by Reuters, while the speed of decline among French, Italian and Spanish firms slowed.Data from the United States due later on Friday are expected to show continued but modest jobs growth and a steady expansion of its services sector.With Chinese growth showing evidence of revival, that leaves Europe as the world's economic slowcoach going into 2013.In particular, economists were surprised by news the UK services PMI slipped to 48.9 in December from 50.2 last month, sagging below the 50 mark that divides from contraction for the first time in two years."The PMIs point to an economy that is contracting modestly," said Rob Wood, chief UK economist at Berenberg Bank. "The broader picture is that for some time the economy has been bouncing around the bottom ... and I think this is likely to stay with us for the next couple of quarters."Survey compiler Markit said the figures suggest Britain's economy shrank 0.2% in the final quarter of 2012, a slightly bigger drop than most other private-sector forecasts.The eurozone composite PMI hit its highest levels since last March, rising to 47.2 in December from 46.5 in November, although it remained rooted below the 50 mark for an 11th month."I think (the eurozone PMIs) are showing a decisive bottoming-out of activity," said James Nixon, chief European economist at Societe Generale."Now, the actual levels of the surveys are still consistent with GDP declining, but at least things aren't getting worse any faster."  Worst over?The decline eased among the services firms that make up the bulk of the eurozone's economy, ranging from banks to restaurants, but manufacturers endured an awful end to 2012.Survey compiler Markit warned that Friday's figures would probably fail to prevent the eurozone's recession deepening in the fourth quarter of last year, thanks to dismal figures in October and November."The surveys at least bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013," said Chris Williamson, chief economist at Markit.As with last year, the eurozone economy's fate hinges on the resolution of the sovereign debt crisis, which still smoulders despite the creation of financial firewalls by the European Central Bank and European Union.German Finance Minister Wolfgang Schaeuble said last week he thought the worst had passed for the debt crisis, although similar sentiments have been expressed by various European policymakers and politicians since mid-2010.Friday's European data followed news that China's services sector saw its slowest rate of expansion in nearly a year and a half in December, although the HSBC services PMI still pointed to a modest revival in economic growth.And economists expect the US ISM non-manufacturing survey, another PMI, to fall slightly to 54.2 in December from November's 54.7. While showing slowing growth, that would still signal a far brighter economic outlook for the US compared with its European peers.Analysts also predict the US economy added around 150 000 non-farm jobs in December, compared with 146 000 the previous month.

NEWS,29.11.2012

The Politics of Fear

To those who were surprised that the European Union received the Nobel Peace Prize, I say: "Think twice." This was not only a deserved award for Europe's contribution to bringing peace and stabilizing democracies in the recent past  the Nobel Committee was also sending a clear warning to contemporary leaders. I could almost hear them saying: "On this difficult odyssey, don't abandon ship. In today's world, the EU is too valuable to squander."It was an indirect but powerful rebuttal to the dangerous nationalist and populist rhetoric some politicians have adopted when describing the recent financial crisis.This message couldn't have come at a better time.Like ghosts from the past, we see political violence, xenophobia, migrants being scapegoated and extreme nationalism creeping into our public debates even into our parliaments. This is a Europe diverging from its founding principles. Principles that rendered nationalistic hatreds an anathema.But it is these politics of fear that seem to have incapacitated Europe. A Europe seemingly incapable of ending this crisis, a fractious Europe. This has undermined a sense of trust between us and in our European institutions. This climate does not inspire confidence either in our citizens or the markets. Nor will our retreat into a renationalization of Europe be the solution.My recent experience in dealing with the financial crisis in Greece and in Europe has confirmed my belief that this is a political crisis more than a financial one.I am convinced that, with the political will, we could have avoided much pain, squelched market fears and stabilized the euro, while at the same time reformed ailing, unsustainable economies such as ours in Greece. Despite media hype to the contrary, it is the Greek people who first and foremost have wanted this change. Instead, we allowed fear and mistrust to overcome us. And fear begets more fear and uncertainty. Instead of understanding, we have name-calling. Instead of collective, transparent action by our institutions, we have moved into a mode where the community method is undermined by makeshift intergovernmental decision-making, with the balance of power tipping dangerously towards the very large member states. Instead of real, necessary reform and fiscal responsibility, we are implementing an overdose of austerity dealing more with symptoms and less with the root causes of the economic woes of Europe. Instead of rewarding superhuman efforts, we are condemned for our shortcomings. More than anything else, it has been this political climate that has undermined our common efforts to deal with today's financial crisis. Whether it is banks or governments, we have adopted a passive, almost defeatist, attitude, which we cloak in the language of "caution and responsibility. "It is our responsibility to break this cycle of fear and mistrust now. We are vastly underestimating our own capacities as a union. Our capacity to calm markets or create jobs. We again need to believe in the great capacity of our peoples north and south, west and east. We must rekindle the spirit that united us in 1989 when the Berlin Wall fell. We know the difficulties we then faced. But we did not cower. We decided to invest in the potential Europe and our peoples had. And there is so much hidden or untapped potential in our youth, our experience, our diversity and our cultures.But this not simply an issue of political will. We must combine this will with an understanding of our real weaknesses. Over the decades we have become more and more interdependent in Europe. This was not by chance, this was by design -- from the days of Monnet and Schuman. It is this interdependence that has made the wars of the past unthinkable.But if interdependence is important to keep the peace, it is not enough to make us effective, adaptive, powerful on the global scene. Neither does interdependence guarantee the democratic empowerment of our citizens and the liberation of our peoples' potential.In fact, this interdependence today is seen by many as a straight jacket, hindering us rather than giving us the capacity to deal with new global challenges. The debate about the breakup of the euro, or even euro-exits, is a case in point.Our citizens, therefore, wonder whether this European structure is still useful or if we should go our own separate, independent ways. As in The Odyssey, the sirens are beckoning that we change course. However sweet their song, we know their purpose is that we crash on the shallow rocks. If we are to avoid these rocks, we need to radically rethink our governance structures and policy responses so that we capitalize on our strengths and neutralize our weaknesses.Three fundamental principles must underpin a more progressive Europe.First, we must strengthen Europe's institutional capacity. Priority today must be in the financial-economic sphere. The eurozone is the world's largest economy, the euro is the world's second reserve currency and on aggregate we have strong economic fundamentals; but we are not able to leverage our strengths due to weak or missing institutions. Despite significant progress such as:

- More robust fiscal monitoring;
- The European Stability Mechanism;
- The Six-Pack to strengthen governance and oversight; and
- A broader mandate for the European Central Bank, with the recent introduction of Outright
Monetary Transactions, we must go one step further. 

We have already pooled our risks, now we must pool our strengths. Eurobonds and a federal banking union are vital tools to safeguard the EU from similar crises and set our economy on a more stable footing. Second, we need to liberate and reenergize Europe's human capacity. High unemployment needs to be offset by investment in our human capital, education, research, green growth and the necessary infrastructure for green energy and a knowledge society. In our race towards competitiveness, we are emulating models that have little to do with our traditions. In many emerging markets, a lack of collective bargaining and democratic accountability, low wages, substandard working conditions and denigration of the environment combined with tax havens which have robbed countries of huge revenues up to 11 billion euros per year in Greece alone may offer a temporary comparative advantage. But in seeking growth, we cannot race to the bottom. We must base our competitiveness on quality, not inequality. Third, we must strengthen our democratic capacity. We need innovative democratic institutions that will empower our citizens and strengthen the legitimacy of our decisions .The EU's complex decision-making process has been an outcome of a delicate historical balance between member states. Today, however, people feel they are sidelined by these decisions. In trying to confront its fiscal deficit, Europe has run up a democratic deficit. As we take the next steps towards European integration, we must give ownership of this process to the people. Policies imposed on citizens without their active consent are doomed to fail. Already, a frustrated, educated but unemployed younger generation is losing faith in our European institutions and values. This vacuum has created fertile ground for populism and extremism. When our citizens feel disempowered, they will turn to saviors or target scapegoats as they do not participate through dialogue and responsible deliberation to understand and solve common problems. Europe can regain the confidence of the markets, but first we must regain the confidence of our citizens. That is why I called for a referendum in Greece, so that people could debate and decide on their own future. There is nothing wrong with European countries ceding sovereignty in the interest of creating a stronger Europe. Indeed, they already have. But as we do so, we need to rethink how our representatives in the Union are elected and how decisions are made. An EU president, elected by a European Parliament (or even a directly elected president), European-wide referenda, forms of more direct citizen participation and the use of social media are ideas already ripe to explore. This new Europe, as I see it, will not be the product of one grandiose decision, dictated by an elite minority of powerful nations or some anonymous bureaucrats in Brussels. Small, incremental but complementary steps -made by each of us individually and all of us together -will build the values and the foundations for the Europe that we want. Democracy and education will give new capacity to our citizens and that, in the end, will empower Europe and reinforce its legitimacy in our societies and around the world. We do have a choice. Either we empower Europe and its citizens and become a catalyst for humanizing our global economy, or globalization will dehumanize our societies and undermine the European project. As a citizen of Europe, I vote for the first choice.

 

EU outlines stop-gap 2013 budget

European Union negotiators have provisionally agreed to fix the bloc's spending at nearly 133 billion euros ($209 billion) in 2013, as part of a deal that adds 6 billion euros to spending this year.The agreement which must now be approved by EU governments and the European Parliament ensures stable funding for EU programmes next year.It also guarantees the continuation of several employment, education and research programmes this year that had been threatened with cancellation because of a funding gap."There was an agreement on the draft package for the 2013 budget that will be submitted to the European Council and Parliament in the coming days," a spokesman for the European Commission said in a statement.But one EU official warned that the approval of governments and lawmakers was far from guaranteed. "I'm not sure that everyone is going to be happy with this package, particularly among some MEPs," said the official, speaking on condition of anonymity. A successful conclusion to the 2013 budget row would allow governments and officials to focus on the far thornier subject of the bloc's next long-term budget, for 2014-2020.EU leaders failed to reach a deal on that 1 trillion euro ($1.57 trillion) budget at a summit in Brussels last week, and are expected to try again early next year.As part of Thursday's deal, EU payments next year will be limited to a maximum of 132.84 billion euros ($US208.97 billion).That would have represented an increase of 2.9% compared with this year far below the rise of 6.8%demanded by the European Parliament and the executive Commission, and only a small real increase after inflation is taken into account. But the extra 6 billion euros agreed for this year means that spending in 2012 will now amount to 135 billion euros the highest level ever and as a result, the budget will actually fall by 1.6% next year. During previous rounds of talks, the Commission had insisted that an extra 9 billion euros was needed to fill the 2012 funding shortfall. But at Thursday's meeting, the EU's executive said it could forgo some of the extra funds while it checked whether all the conditions for payment had been met.About three-quarters of the EU's annual budget is spent on farm subsidies and funding for new motorways, bridges and other public infrastructure projects in poorer eastern and southern European member countries.

BoE urges UK banks to boost capital

British banks need to act now to bolster their defences against financial shocks, as many have underestimated the cost of loans going sour and future fines for misconduct, the Bank of England (BoE) has said.Underlining a growing sense of urgency about capital defences, outgoing BoE Governor Mervyn King said that while the problem was "manageable", he wanted the banks' regulator to report back by March on what steps banks were taking, and warned that he did not want them to cut lending."Our primary concern has been to ensure that UK banks have sufficient capital ... so that they are on a solid footing to support economic growth," King told a news conference."The problem is manageable, and is already understood at least in part by markets. But it does warrant immediate action," he added.King made the comments as he presented the half-yearly report by the BoE's Financial Policy Committee, which from next year will take charge of British bank regulation.He said that the government would not need to put extra money into Royal Bank of Scotland or Lloyds Banking Group, the two banks in which it has held controlling stakes since the financial crisis. Instead, he said banks could raise funds by issuing contingent debt that converts into equity in a crisis, or by restructuring actions - often a euphemism for asset sales. The BoE said that British banks' true capital position was probably worse than relatively healthy official numbers imply, and this was already hurting investors. "Progress by banks in raising capital has slowed and investor confidence remains low," the BoE said in its half-yearly Financial Stability Report. "Market concerns are likely to reflect in part uncertainty about bank capital adequacy."he BoE has repeatedly urged British banks to raise capital levels, and November's report marks a stepping up of these recommendations, despite a slight reduction in the risks facing the financial system due to an easing in euro zone tensions. "UK banks' capital buffers, available to cushion losses and maintain the supply of credit following realisation of a stress scenario, are not as great as headline regulatory capital ratios imply," it said.King also confirmed the new effort would apply to international banks with British subsidiaries which are regulated by the Financial Services Authority.The BoE identified three main areas where banks were over-optimistic about how much capital they had.First, information from supervisors suggested some British banks would suffer bigger losses on loans than they had made provision for, according to the report.Second, it said banks had also persistently underestimated the scale of fines they would face for past misconduct, adding that external analysts had suggested further costs of 4 billion to 10 billion pounds ($7.8 billion to $31 billion) for missold payment protection insurance and the LIBOR rate-rigging scandal. Finally, the BoE criticised the "complex and opaque" system banks use to calculate the riskiness of its assets, with the amount of capital that banks estimated they needed sometimes varying threefold between banks for the same type of assets.The report also revealed muted results from the BoE's June effort to get banks to boost lending, by paving the way for up to 500 billion pounds of liquidity reserves held by the banks to be run down.But it noted that just 31 billion pounds had been released and that it was mostly used to repay debt rather than provide direct support to credit growth.The BoE cautioned that it was "too early" to judge the impact of the initiative.

US stocks and euro sell-off on Boehner comments

US stocks and the euro sold off after US House Speaker John Boehner said there had been "no substantive progress" in talks to avoid the fiscal cliff.Republican Boehner made the comments after speaking with President Barack Obama and Treasury Secretary Timothy Geithner, saying there was a real danger no agreement would be reached to avoid $US607 billion of automatic tax increases and spending cuts that kick in on January 1. Democrats had "yet to get serious about spending cuts," Boehner said.There was no mention of the optimism he cited 24 hours ago that gave a boost to Wall Street and was echoed around the globe.The Congressional Budget Office has warned that falling off the fiscal cliff could drive the US jobless rate back up to 9.1% by the end of 2013 and send the world's biggest economy back into recession.The dollar pared its decline against the euro, which traded recently at $US1.2967, having early touched $US1.30.US stocks did recover some ground after the selloff.The Dow Jones Industrial Average was up 0.2% and the Standard & Poor's 500 Index up 0.4%."One minute the portents for a deal on the fiscal cliff are negative, the next minute they are positive," Mike Mason, a senior trader at Sucden Financial Private Clients in London, told Reuters."This is likely to be the pattern all the way up to the deadline on January 1. Equities are sure to remain volatile and trading subdued until there is any concrete outcome to these negotiations."Economic data in the US was mixed, though the revised reading for gross domestic product in the third quarter was 2.7%, up from the 2% pace previously published.That just missed the estimate in a Bloomberg survey of 2.8% and marks an acceleration from the second quarter's 1.3% growth.Consumers, though, were subdued. Household spending rose a revised 1.4%, down from the first reading of 2%, according to the Commerce Department. Economists were hoping the revision would only be down to 1.9%.Yet the US trade deficit shrank for revised to US$US403 billion from an initial estimate of $US413.7 billion and inventories turned positive.And an index of pending home resales beat estimates by rising 5.2%, according to the National Association of Realtors, while the number of Americans applying for jobless benefits fell 23,000 to 393,000 last week, according to the US Labor Department.Stocks in the UK rallied, as did equity markets across Europe, which closed before Boehner made gloomier noises about the US fiscal cliff.The FTSE 100 advanced 1.2%, with Rio Tinto up 5.1%. Germany's DAX 30 climbed 0.8% and France's CAC 40 was up 1.5%.In the UK, Lord JusticeLeveson's long-awaited report into media ethics that followed the phone hacking scandal at Rupert Murdoch's News Corp called for a new independent media regulator to stamp out unethical behaviour.UK Prime Minister David Cameron, who himself was tarnished by associations with Murdoch's lieutenants in Britain, have a tepid welcome to the report while saying he wouldn't support new law to enshrine such a body.

NEWS,19.11.2012

Global shadow banking hits $67 trillion

The system of so-called shadow banking blamed for aggravating the global financial crisis grew to $67 trillion globally last year, a new high, amid calls from the world's top policymakers for greater control of the sector.A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policy makers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and their activities.Officials at the European Commission in Brussels see closer control of the sector as important in preventing a repeat of the financial crisis that toppled banks over the past five years and rocked the euro zone.The study by the FSB, set up by the world's top economies (G20) to police global finance, said shadow banking around the world more than doubled to £62 trillion in the five years to 2007 before the crisis struck.But the size of the total system had risen to $67 trillion in 2011, more than the total economic output of all the countries in the study.The multi-trillion dollar activities of hedge funds and private equity companies are often cited as examples of shadow banking.But the term also covers investment funds, money-market funds and even cash-rich firms that lend government bonds to banks, and which in turn use them as security when taking credit from the European Central Bank Even the man credited with coining the term, former investment executive Paul McCulley, gave a catch-all definition.McCulley said he understood shadow banking to mean "the whole alphabet soup of levered up non-bank investment conduits, vehicles and structures", such as the special investment vehicles that many blamed for the financial crisis.The United States had the largest shadow banking system, said the FSB, with assets of $23 trillion in 2011, followed by the euro area with $22 trillion and the United Kingdom at $9 trillion.The US share of the global shadow banking system has declined in recent years, the FSB said, while the shares of the United Kingdom and the euro area have increased.The FSB warned that tighter rules that force banks to hoard more capital reserves to cover losses could bolster shadow banking.It advocates better controls, although cautions that shadow banking reforms should be dealt with carefully because the sector can also be a source of credit for business and consumers.Forms of shadow banking can include securitisation, which can transform bank loans into a tradeable instrument that can then be used to refinance credit, making it easier to lend.In the run-up to the crisis, however, banks such as Germany's IKB stored billions of euros of such instruments in off-balance sheet vehicles, which later unravelled. Another example is a repurchasing agreement, or repo, where a player such as a hedge fund could sell government bonds it owns to a bank, agreeing to repurchase them later.The bank may then lend those bonds onto another hedge fund, taking a position on the government debt. Such agreements are used by banks to lend and borrow. A risk could arise if one of the parties in the chain collapses.The European Commission is expected to propose EU-wide rules for shadow banking next year.

 

Stocks, commodities rise on fiscal cliff hopes

World share markets and commodities surged yesterday as traders focused on politicians' indications that they are ready to compromise to avoid the US "fiscal cliff".Wall Street stocks climbed more than 1%, extending a rally that began on Friday, while crude oil was up more than 2%.US lawmakers indicated compromises were possible in negotiations to avert US$600 billion in tax increases and spending cuts due to start in January - the "fiscal cliff" that threatens to send the US economy back into recession.Democratic Senator Dick Durbin said on CNN: "What I hear is a perceptible change in rhetoric from the other side."Also appearing on CNN, Republican Representative Tom Price said: "Every member of our caucus appreciates that this fiscal crisis, this challenge that we have, is ever closer."Opinion polls show that Republicans would shoulder more of the blame if the country goes over the fiscal cliff.MSCI's world equity index jumped 1.8%, in one session erasing the 1.8% drop it posted last week. Monday was the best day for the index since September 14."Stocks could rise substantially if US policymakers can negotiate a 'grand bargain' that credibly addresses long-term tax, spending, and entitlement reforms," said Jonathan Golub, strategist at UBS in New York.The Dow Jones industrial average was up 160.54 points, or 1.28% , at 12,748.85. The Standard and Poor's 500 Index was up 21.22 points, or 1.56%, at 1,381.10. The Nasdaq Composite Index was up 46.39 points, or 1.63%, at 2,899.52.Optimism in Europe over the prospects of a deal this week to release much-needed aid for Greece also lent support.European officials are expected to discuss a two-year funding plan for Athens at a meeting on Tuesday, which would postpone any longer-term solution until after a September 2013 German general election.European Central Bank policymaker Joerg Asmussen said last weekend that the ministers were likely to agree to the deal and leave resolution of a longer-term debt stabilisation plan for Greece, at the heart of a disagreement with the IMF, until later.The euro rose 0.56% to $1.281, well above the two-month low of $1.2661 hit last week and near the top end of its recent range, suggesting the foreign exchange market expects an agreement on Greece."This message from the ECB would tell me that, yes, what we are heading to this week is an agreement that would keep Greece out of trouble for the next year or so," said Gilles Moec, senior European economist at Deutsche Bank.European share markets rebounded from last week's lows, mainly on the growing optimism over the US political negotiations.The FTSE Eurofirst 300 index of top European shares closed 2.3% higher, led by sectors tied to the pace of economic growth. Banks climbed 3.6% , with US shares of Barclays up 5.6% to $15.82.In the region's main centres, London's FTSE 100, was up 2.4%, while Frankfurt's DAX and Paris' CAC-40 rose more than 2%.Safe-haven bond markets reflected the stronger risk appetite, with the 10-year US Treasury down 10/32 to yield 1.6165%.The 10-year German government bond fell and its yield rose to 1.362% from 1.326% on Friday. Traders said there was room for yields to rise if euro zone policymakers reached an agreement at their meeting on Tuesday.In the currency markets, the dollar briefly extended its gains against the yen on expectations a new Japanese government will push the central bank to taking aggressive monetary stimulus measures to boost growth after next month's elections.The greenback was slightly lower against the yen at 81.24. Earlier, it rose to its highest level since April 25.The Bank of Japan began a two-day meeting on Monday but was not expected to take any new policy steps before the December 16 vote.The rising hopes of a deal on closing the US budget gap, which has clouded the outlook for global growth, spread through commodity markets, lifting oil, copper and gold.Copper rallied 2.6% to $7,803.5 a ton on the London Metal Exchange, and gold rose $19.52 to $1,733.2 an ounce.A 0.5% drop in the dollar index, which had eased from a two-month high hit on Friday, added to demand by making commodities priced in the greenback more affordable for buyers holding other currencies.Brent crude rose above $110 a barrel as the escalating violence between Israel and the Palestinians fuelled concern about supplies from the Middle East.Investors fear the conflict may draw in other countries and possibly disrupt energy exports from the region, which supplies more than a third of the world's crude.Brent crude for January delivery was up 2.5% and U.S. crude futures added 2.8%.

 

European stocks make biggest rebound in 10 weeks

European equities have rebounded from multi-month lows to post their biggest daily gain in 10 weeks, thanks to signs of progress in US talks to avoid a budget crisis.Leading Democratic and Republican lawmakers voiced confidence over the weekend that a deal would be reached to avoid the so-called "fiscal cliff" of some US$600 billion of tax hikes and spending cuts which threatens to plunge the United States into recession in 2013.An unexpected rise in US existing home sales for October added to the brighter sentiment towards the world's biggest economy on Monday, which has become a significant source of growth for European companies as their domestic region stagnates."The news about the fiscal cliff over the past few days has been much more positive," said Donald Huber, portfolio manager at Franklin Templeton Investments, which has about US$750 billion in assets under management.The FTSEurofirst 300 index provisionally closed up 2.3% to 1,091.50 points, while the EuroSTOXX 50 rose 2.8% to 2,495.19 points -- both posting their biggest one-day gain since early September and rebounding from multi-month lows.The rebound comes after EuroSTOXX 50 dipped into technically oversold territory on the seven-day relative strength index (RSI) on Friday for the first time in nearly two months.Then, a big rally followed but ran out of steam after two sessions, and this time too analysts were doubtful about the sustainability of the gains unless the fiscal cliff problem is actually resolved rather than just postponed."We had the lows and the market is oversold... so it is just short-covering," said Vincent Guenzi, chief strategist at Cholet Dupont."That [progress in negotiations] was the catalyst for the short-term gain of the market. That could help the market maybe gain 1% or 2% more, but to really have the end of the downtrend of the last weeks we need something real."Monday's broad-based rally took all the STOXX 600 sector indexes into positive territory, led by economically sensitive ones like autos, banks, construction, technology and basic resources.Healthcare, which is less dependent on economic cycles for demand, lagged with a rise of 1%.Nokia was a top gainer among individual stocks, with reports of its Lumia 920 selling out in Germany fuelling hopes of strong demand for the new smartphone.Shares in the Finnish cellphone maker added 9% on Monday, but are still down 39% since the start of 2012.Nokia is the most shorted company in EuroSTOXX 50, with 19.7% of outstanding shares on loan according to data from Markit, potentially making it vulnerable to sharp short-covering rallies on any sentiment improvement or positive news.That gives Nokia a utilisation rate - shares borrowed versus the total number available for loan - of 93.5%, against just 6.2% for EuroSTOXX 50 as a whole.

NEWS,12.11.2012

Brazil Violence: At Least 140 Murdered In Sao Paulo Over Past Two Weeks

 

At least 140 people have been murdered in South America's biggest city over the past two weeks in a rising wave of violence, Sao Paulo's Public Safety Department says.Killings in Sao Paulo began sharply increasing in September, a month in which 144 people were killed, the department's website says. It says a total of 982 homicides took place in the city during the first nine months of the year.The victims included 90 police officers, most of them gunned down while off duty.A Public Safety Department official said Saturday that the killings of police have been ordered by imprisoned leaders of an organized crime group called the First Capital Command in reprisal for a crackdown on the drug trade. The official spoke on condition of anonymity because he was not authorized to speak to the press.The First Capital Command is one of Brazil's most notorious organized crime groups. Based in Sao Paulo state prisons, the group allegedly was behind several waves of attacks on police, government buildings, banks and public buses in 2006. Those assaults and counterattacks by police in the slums killed more than 200 people.With the latest violence, shops and schools in some Sao Paulo districts closed early this past week as rumors of gang-imposed curfews spread. "In view of the wave of violence in the city's south zone, the school's directors decided to send staff and students home early so as to assure their safety," Eliane Valerio de Souza, administrative assistant at a professional training school, told the newspaper Folha de S. Paulo.Sao Paulo state authorities last week said incarcerated leaders of the First Capital Command suspected of using smuggled cellphones to order attacks and coordinate drug sales, murders of rival gang members and the purchase of weapons, would be transferred to a maximum security federal prison outside the state.On Thursday, one of the gang's lower echelon leaders was sent go a federal penitentiary in northern Brazil. Others are expected be transferred by the end of the month.

Greece Racist Attacks Increase Amid Financial Crisis

 

The attack came seemingly out of nowhere. As the 28-year-old Bangladeshi man dug around trash bins one recent afternoon for scrap metal, two women and a man set upon him with a knife. He screamed as he fell. Rushed to the hospital, he was treated for a gash to the back of his thigh.Police are investigating the assault as yet another in a rising wave of extreme-right rage against foreigners as Greece sinks further into economic misery. The details vary, but the cold brutality of each attack is the same: Dark-skinned migrants confronted by thugs, attacked with knives and broken bottles, wooden bats and iron rods.Rights groups warn of an explosion in racist violence over the past year, with a notable surge since national elections in May and June that saw dramatic gains by the far-right Golden Dawn party. The severity of the attacks has increased too, they say. What started as simple fist beatings has now escalated to assaults with metal bars, bats and knives. Another new element: ferocious dogs used to terrorize the victims."Violence is getting wilder and wilder and we still have the same pattern of attacks ... committed by groups of people in quite an organized way," said Kostis Papaioannou, former head of the Greek National Commission for Human Rights.As Greece's financial crisis drags on for a third year, living standards for the average Greek have plummeted. A quarter of the labor force is out of work, with more than 50 percent of young people unemployed. An increasing number of Greeks can't afford basic necessities and healthcare. Robberies and burglaries are never out of the news for long.With Greece a major entry point for hundreds of thousands of illegal migrants seeking a better life in the European Union, foreigners have become a convenient scapegoat.Some victims turn up at clinics run by charities, recounting experiences of near lynching. Others are afraid to give doctors the details of what happened and even more afraid of going to the police. The more seriously hurt end up in hospitals, white bandages around their heads or plaster casts around broken limbs."Every day we see someone who complained of (some form) of racist violence," said Nikitas Kanakis, president of the Greek section of Doctors of the World, which runs a drop-in clinic and pharmacy in central Athens that treats the uninsured.Racist attacks are not officially recorded, so statistics are hard to come by. In an effort to plug that gap and sensitize a population numbed by three years of financial crisis, a group of rights groups and charities banded together to document the violence.They registered 87 cases of racist attacks between January and September, but say the true number runs into the hundreds."Most of the time the victims, they don't want to talk about this, they don't feel safe," Kanakis said. "The fear is present and this is the bigger problem."Frances William, who heads the tiny Tanzanian community of about 250 people, knows the feeling well."People are very, very much afraid," he said, adding that even going next door to buy bread, "I'm not sure I'll be safe to come back home."The community's cultural center was attacked several weeks ago, with amateur video shot from across the street showing a group of muscled men in black T-shirts smashing the entrance. Earlier that day, children standing outside during a birthday party were threatened by a man brandishing a pistol, William said.The recent elections showed a meteoric rise in popularity of the formerly marginalized Golden Dawn, which went from less than half a percent in 2009 elections to nearly 7 percent of the vote and 18 seats in the country's 300-member parliament in June.Campaigning on a promise to "clean up the stench" in Greece, the party whose slogan is "blood, honor, Golden Dawn" has made no secret of its views on migrants: All are in the country illegally and must be deported. Greece's borders must be sealed with landmines and military patrols, and any Greeks employing or renting property to migrants should face punishment.The party vehemently denies it is involved in racist attacks."The only racist attacks that exist in Greece for the last years are the attacks that illegal immigrants are doing against Greeks," said Ilias Panagiotaros, a burly Golden Dawn lawmaker who divides his working time between Parliament and his sports shop, which also sells military and police paraphernalia.His party is carrying out a "very legitimate, political fight . through parliament and through the neighborhoods of Athens and of Greece," he said.The party's tactics handing out food to poor Greeks, pledging to protect those who feel unprotected by the police are working. Recent opinion polls have shown Golden Dawn's support rising to between 9 and 12 percent.In late August, the conservative-led coalition government began addressing the issue of illegal immigration by rounding up migrants. By early November, they had detained more than 48,480 people, arresting 3,672 of them for being in the country illegally.Rights groups also warn that what started as xenophobic attacks is now spreading to include anyone who might disagree with the hard-right view. Greek society must understand that the far-right rise doesn't just concern migrants, said Kanakis."It has to do with all of us," he said. "It's a problem of everyday democracy."

U.S. To Become World's Largest Oil Producer, Exceeding Saudi Arabia, By 2020: International Energy Agency

 

The United States will become the world's largest oil producer by around 2020, temporarily overtaking Saudi Arabia, as new exploration technologies help find more resources, the International Energy Agency forecast on Monday.In its World Energy Outlook, the energy watchdog also predicted that greater oil and natural gas production thanks partly to a boom in shale gas output as well as more efficient use of energy will allow the U.S., which now imports around 20 percent of its energy needs, to become nearly self-sufficient around 2035. That is "a dramatic reversal of the trend seen in most other energy-importing countries," the Paris-based IEA said in its report. "Energy developments in the United States are profound and their effect will be felt well beyond North America and the energy sector."Rebounding U.S. oil and gas production is "steadily changing the role of North America in global energy trade," the IEA said.For example, oil exports out of the Mideast will increasingly go to Asia as the U.S. becomes more self-sufficient. That will increase the global focus on the security of strategic routes that bring Middle East oil to Asian markets. Tensions between Iran and Western powers have raised concerns that oil exports from the Persian Gulf could be blocked in a potential conflict over Tehran's alleged plan to develop nuclear weapons.The IEA added that global trends in the energy markets will be influenced by some countries' retreat from nuclear power, the fast spread of wind and solar technologies and a rise in unconventional gas production.The agency concluded that despite the rising use of low carbon energy sources, huge subsidies will keep fossil fuels "dominant in the global energy mix.""Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path," the IEA said.Global energy needs are forecast to increase by a third by 2035, with 60 percent of the additional demand coming from China, India and the Middle East.

NEWS,16.09.2012

JPMorgan, Bank Of America Probed Over Money-Laundering Allegations: New York Times

Regulators are investigating whether several major U.S. banks failed to monitor transactions properly, allowing criminals to launder money, according to a New York Times story. The newspaper cited officials who it said spoke on the condition of anonymity.The Office of the Comptroller of the Currency, the federal agency that oversees the biggest banks, is leading the money-laundering investigation, according to the Times. The report said the OCC could soon take action against JPMorgan Chase & Co., and that it is also investigating Bank of America Corp. Money laundering allows people to make money often obtained illegally appear like it came from another source.The OCC, JPMorgan and Bank of America declined to comment.The financial industry is struggling to mend its public image. Four years after the financial crisis, banks are getting closer scrutiny. And regulators are under pressure to show that they're not missing any questionable activity.This summer, British bank Barclays PLC settled charges that it had manipulated a key global interest rate. Standard Chartered PLC, also based in the U.K., agreed to settle charges that it had improperly processed money for Iran, brought by the New York Department of Financial Services after the bank voluntarily informed regulators that it was reviewing relevant practices. In the spring, JPMorgan surprised shareholders with an unexpected trading loss.If the OCC takes action, it could be similar to a cease-and-desist order that it filed against Citigroup in April. At the time, the OCC said that Citi had deficient internal controls and anti-money laundering procedures. In bank regulation, a cease-and-desist order doesn't mean that a bank has to shut down, but it is a serious sanction that requires a bank to change its practices. Citi had already told the regulator that from 2006 to 2010, it had "failed to adequately monitor" some of its transactions connected to "foreign correspondent banking."The order in April didn't make any new, specific accusations. But it did instruct Citigroup to tighten its rules so it could improve compliance with the Bank Secrecy Act and related regulations. The act requires financial institutions to report suspicious activity and to put rules in place to try to make money laundering impossible for customers.Last year, JPMorgan paid $88 million to settle charges from the Treasury that it had unlawfully processed money for Cuba, Iran, Sudan and Liberia.At the time, JPMorgan said it had had no intent to violate regulations. It pointed out that it oversaw "hundreds of millions of transactions and customer records per day, and annual error rates are a tiny fraction of a percent."It's not expected that banks would be accused of trying to show support for countries like Cuba and Iran. It's more likely that they would be accused of faulty oversight that made any unlawful transactions possible. The industry has maintained that such violations are almost always unintentional.According to the Times, the Justice Department and the Manhattan district attorney's office are also involved. The Manhattan U.S. attorney's office and the Manhattan district attorney's office declined to comment.

 

Iran's Nuclear Timeline

 

Iran is nuclear capable. If Iran's leaders decided they wanted a nuclear bomb, they could build one. They have the material, the technical ability, and likely have a design. They have had these capabilities for at least five years, when they accumulated enough raw material that could be converted into the core of a bomb.But Iran does not have a bomb now. U.S. intelligence officials have high confidence that Iranian leaders have not made the decision to build a bomb. There is much confusion  some of it intentionally spread about how long it would take Iran to build a weapon.An outstanding team of seasoned national security experts has just published a clear, detailed explanation of Iran's nuclear timeline. The report of the Iran Project was endorsed by 34 security leaders, including Brent Scowcroft, Sam Nunn, Gen. Tony Zinni, Adm. James Fallon, Gen. Frank Kearney, Carla Hills, Anne Marie Slaughter, Chuck Hagel, Adm. Joe Sestak, Jessica Mathews, Zbigniew Brezinski, Nicholas Burns and this author.Here is an excerpt from the report (on p. 22) that provides a sound basis for debating what actions should be taken to convince Iran not to build nuclear weapons. This report is intentionally conservative. There may be serious technical problems that make the timeline much longer. I have highlighted in bold key phrases.While there are differences of opinion on this issue, we believe it would be extremely difficult for Iran to hide a nuclear program devoted to weapons development. No monitoring and detection system is failure-proof, but Iran has little reason to be confident that it could get away with creating a secret program to produce fissile material for a weapon.Were Iran to attempt to produce a single bomb's worth of highly enriched uranium (HEU), it would take at least one month (although some experts believe the timeline could be as long as four months or more). It is important to note that while the ability to build a single bomb is a somewhat useful theoretical construct, it has little or no correspondence to how nuclear weapons programs function in the real world.Historically, no country in the nuclear age has sought as its goal to build one nuclear weapon; nor has any country adopted a strategy of building one weapon knowing that as a consequence, its program would be exposed. The timeline for producing a single bomb's worth of HEU is subject to change, depending on the number and type of operational centrifuges available as well as the size of Iran's stockpile of already enriched uranium, particularly 20% enriched uranium. Conservatively, it would take Iran a year or more to build a military-grade weapon, with at least two years or more required to create a nuclear warhead that would be reliably deliverable by a missile.In short, it is likely that the United States would receive some warning and have at least a month to make a decision on action -- military or other. Understanding the difference between the one-month timeline of producing sufficient fissile material in order to produce a weapon, and the two-year timeline of creating a nuclear warhead, is critical when considering the likely success of military action.After a month, the weapons-grade uranium (WGU) could be reduced significantly in size (25 kilograms); if properly encased, it could be easily hidden and would be highly mobile. This would be a very hard target to detect and destroy. While it would take some additional time for Iran to translate the WGU into a meaningful military capability, the ability for the United States or others to launch preventive military strikes would be reduced. In contrast, the facility used to enrich the WGU is immobile and large and therefore an easier and somewhat vulnerable target (unless deeply buried)....The more apparent the decision to make a weapon, the more persuasive the justification for military action would be to the international community, including the United Nations Security Council. While Israel's more limited military capabilities and earlier "red line" create a closing window of opportunity to take military action, the U.S. could afford to wait for its red line to be crossed Iran undertaking a dedicated weapons program before deciding whether to take preventive military action....Given the deepening mutual distrust between the U.S. and Iran; congressional sympathy for Israel's perspective on a nuclear-capable Iran; and the conviction among some parties that Iran has already secretly decided to build a nuclear weapon, we believe the most likely military scenario is one in which preemptive, unilateral action against Iran is initiated by the U.S. and/or Israel, under conditions of some uncertainty about Iran's real intentions.

NEWS,07.08.2012

Why Financial Discipline Won't Save Europe and How Governance Change Might Do the Trick

 

The EU has taken a hesitant but crucial step towards its own integration and the survival of the Euro. Through the provision of bank guarantees, the vicious circle between latent currency instability and deposit runs may have been broken. Bankia may be relieved that it will not be run into the ground by Spaniards' fear of a Euro-exit.This solution might have been politically complicated, but it was not fundamentally difficult. And we all know that the deeper and more difficult issues remain. Press and politicians alike focus on fiscal integration and the need to revisit sovereignty and fiscal discipline. Some, mostly southerners, argue that an integrated Europe is worth the cost and adjustments. Others, mostly northerners, are concerned with the potential costs to themselves or the project's long-term viability and desirability. The European project risks becoming a zero-sum game edging towards disaster, and all seem to be forgetting an important point: The problems of the south are structural rather than fiscal.If we consult the OECD's statistics on hours worked per worker, we see that the country with the highest national average after Korea is none other than Greece, which has been steadily closing in on the top spot. The Netherlands comes last, with Germany just ahead. How can this be? Don't Greeks sip ouzo on the beach while the virtuous Germans build cars? According to the statistics, that is entirely wrong. If we look closely, we see that the real problem for Greeks  at least, those with jobs is not that they're work-shy. It's their monstrous public sector, which is inefficient, often corrupt, and prone to meddling with the allocation of productive effort in the private sector. In other words, Greece's problems are fundamentally structural. Its administration is bloated and hopelessly bureaucratic, unable to reform itself. The story of Greece is the story of a failure in governance.These structural problems, which cause tax evasion (and are often seen to justify it), are not unique to Greece. Spain's massive banking mess with the Cajas de Ahorros is due to local politicians' influence on banks, and their iniquitous links to property developers. Italy, too, suffers from nepotism, political clientelism and corruption. It is precisely this endemic southern European disease (most acute in Greece) that the EU can fix.The problem with structural reform is that it upsets established links, interests and routines. It goes against the grain of the political and administrative infrastructure. It is always part of political rhetoric, yet rarely translates into practice. So EU restructuring projects may offer the continent a unique opportunity to tackle this problem. In Greece, the troika (the EU, ECB and IMF) provide the ideal potential vehicle for something that the Greek public desires, but its politicians cannot (or will not) deliver. What Europe now needs is a union that helps reform the governance of weaker countries. It's not about wealth transfer, but about a set of changes that help us all. This might fly in the north, too. It's time to use the EU as an objective yet proactive arbiter who will help restructure weaker countries through greater transparency and the redesign of their administrations.The benefits are manifest, but change is alarmingly slow. Greece's story is a case in point. The last three years have seen little progress in structural reform, particularly in areas like administrative rationalization or tax evasion. Greece has been able to get away with disastrous "fiscally equivalent" measures where structural goals were not met, leaving the original problem intact. The EU task force is an overwhelmed and unwelcome band of mid-level European bureaucrats who speak Greek; what is needed is a focused group of senior change managers with a strong mandate. Neither resourcing nor expertise has been planned for administrative reforms. And while the troika now recognizes the problem, the new Greek government is poised to defend the crumbling public administration and its protégés. So what can be done? EU Task Forces such as those operating in Greece should not just support ministers with expertise. They should be empowered to identify governance issues, corruption and administrative failings and suggest solutions. They should be able to require for Key Performance Indicators to be published and support their digestible presentation. They should facilitate Greek-led initiatives to bypass or report corruption and cronyism, and their recommendations should not be merely consultative. But doing so not only requires Greek politicians play along and accept that mandate, but also means the EU has to change its ways and its people. Change managers and governance experts must replace polite bureaucrats with conservative reflexes.Europe has a future, and at the heart of it lies improving the governance of the south and borrowing from the achievements of the north. This will require a change of approach, so that we find those with the skill -- and the will -- to lead the change effort. Redesign and execution should be the target, and the World Bank's recent change of heart, now offering assistance to help rebuild Greece is welcome. Let's hope that northern European leaders will push in this direction. Southern Europe's citizens may eventually have something to be thankful for.

Cuba's aging population will test economic reform

The scene at Havana's Victor Hugo Park is unfortunately typical, with a handful of boys kicking a soccer ball through trees while dozens of gray-haired seniors bend and stretch to the urgings of a government-employed trainer.So few children, so many elderly. It's a central dilemma for a nation whose population is the oldest in Latin America, and getting older.The labor force soon will be shrinking as health costs soar, just when President Raul Castro's government is struggling to implement reforms that aim to resuscitate an economy long on life support."We must be perfectly clear that the aging of the populace no longer has a solution," Castro's economic czar, Marino Murillo, told lawmakers in an alarmed tone last month. "It is going to happen, and that cannot be changed in the short term. ... Society must prepare itself."The aging of Cuba's population has its roots in some of the core achievements of Fidel Castro's revolution, including a universal health care system that has increased life expectancy from 69 years during the 1960s to 78 today, comparable with the United States.Abortions are free and it is estimated that half of Cuban pregnancies are terminated. High university graduation rates, generally associated worldwide with low fertility numbers, have Cuban women averaging 1.5 children, below the rate of replacement.Cuba's National Office of Statistics says about 2 million of the island's 11 million inhabitants, or 17 percent, were over 60 years old last year. That's already high compared to Latin America as a whole, where the rate is somewhere north of 9 percent, extrapolating from U.N. figures from 2000.That U.N. study shows Cuba's population is aging even faster than that of China, which has forbidden couples to have more than one child. Cuba's rate would be typical in a wealthy European nation. But Cuba lacks the wealth to cope with it.The trend is accelerating, with the number of seniors projected to nearly double to 3.6 million, or a third of the population, by 2035. During the same period, working-age Cubans are expected to decline from 65 percent to 52 percent.The future may look a lot like Emelia Moreno. Still vigorous at 75 years old, she lives alone in a small apartment in Central Havana and spends much of her time at a neighborhood senior center that provides 1,000 retirees with medical attention, meals and social activities such as singing and dance classes."Cuba is fighting so that people of a certain age don't feel too bad," she said.But her only child left for the U.S. a decade ago, and she knows that one day she'll be completely dependent on the government because she has no family to take care of her when she cannot."I had heard people talk about how they felt empty when a family member left, but I had no idea," Moreno said, caressing a photo of her daughter, Yeniset.The graying trend can be traced partly to the country's weak economy, resulting in the loss of people such as Yeniset, an outflow of 35,000 per year as people seek opportunity in the United States and elsewhere.Research shows emigrants are increasingly women of child-bearing age, which compounds the problem, according to Alberta Duran, who was among the first to examine the aging trend before retiring from her post at a Cuban sociological research institute."The aging population has been turning into Cuba's biggest demographic problem since the 1990s," Duran said.By 2021, more Cubans will be leaving the workforce than entering, according to government projections.The contracting labor pool presents a challenge for Cuba's goal of making the country more productive and efficient without abandoning its policy of providing for everyone's basic needs. Officials aim to eliminate 1 million redundant government jobs and grow a non-state sector that, it is hoped, will account for 40 percent of economic activity compared with about 15 percent today."Reform becomes more difficult due to emigration,"said Sergio Diaz-Briquets,a Washington-based expert on Cuban demographics. "Those who leave are the youngest, best-educated and most ambitious."And with the ranks of seniors increasing, Diaz-Briquets said, resources that could be used to stimulate the economic project inevitably will have to be diverted to care for the elderly.Demographers agree that Cuba's population has topped out around 11.2 million, and negative growth will be the rule for the foreseeable future.Murillo, the economic czar, said authorities are studying measures for next year to try to stimulate fertility rates, but he did not give details."We are going to have a serious problem with the availability of a labor force," Murillo acknowledged.In recent years Cuba has implemented a number of measures for the aging, including an expanded denture distribution program and establishing "grandparents' circles" of elderly citizens who get together for activities and help each other out when the relatives they live with are at work.Authorities recently asked seniors to keep active later in life by rolling the retirement age progressively back from 55 to 60 for women and from 60 to 65 for men. Raul Castro himself is already 16 years past his golden-watch moment, at 81.Cuba recently allowed retirees to return to work and still collect their pensions. They're also being encouraged to join the class of small-business owners setting up shop under Castro's reforms, though experts say that idea has limited potential.Aging populations present difficulties for countries around the world, and attempts to spur birth rates have produced meager returns, Diaz-Briquets said.But he suggested that if Castro's reforms can create more opportunities for private enterprise, Cuba might be able to woo immigrants from countries where extreme poverty is rampant and homicides are skyrocketing, places where the Communist-run island's free health care and relative public safety might seem a good alternative."The situation in Haiti and some Central American nations will continue to be even worse than in Cuba," Diaz-Briquets said, adding that a post-U.S.-embargo Cuba could be even more attractive to potential migrants from those countries. "The way things are going, and assuming some more positive scenarios for Cuba, the idea doesn't seem that outlandish."