NEWS,10.03.2013

Questions over stress test scores

The newest stress tests for US banks produced scores that are at odds with other measures of lenders' safety, in another sign that some institutions may be too big for regulators to understand and executives to manage.For example, Citigroup, which has been bailed out multiple times by the US government, showed up on the score sheets posted by the Federal Reserve on Thursday as being clearly safer than JPMorgan Chase & Co.That conclusion is at odds with the views of investors, bond analysts and credit-rating agencies, as well as when measured by a yardstick regulators themselves want to use in the future."At the end of the day, there is a legitimate question about the ability of regulators to fully evaluate $2 trillion institutions because of the complexity and exposures they have," said Fred Cannon, director of US research at Keefe, Bruyette & Woods.On Thursday, the Federal Reserve reported the latest results of the tests that began after the 2007-2009 financial crisis to determine if banks have enough capital to withstand a severe economic crisis. The Fed concluded that the banks are in "a much stronger position" than before the financial crisis in 2008.While experts are not arguing with the fact that the banks are better capitalised now and that the system is safer than it was in the run-up to the financial crisis, some of the numbers the regulators published left analysts and bank executives groping for explanations. The test raises questions about the ability of regulators to head off the next big threat to the financial system because of the complexity of the institutions.The results are also important as they will help the Fed decide how much capital banks can return to investors.The report showed that Citigroup's capital, as tracked by the Tier 1 common capital ratio, would dip to 8.3% during two years of hypothetical stress. JPMorgan's would fall to 6.3%. Both numbers are better than the 5% minimum under current regulations, but they show Citigroup having a bigger cushion to weather losses.That does not make a lot of sense to Kathleen Shanley, a bond analyst at GimmeCredit, a research service for institutional investors."I wouldn't say that Citi is safer than JPMorgan, for a variety of reasons, including its track record," Shanley said.Citigroup has lower credit ratings than JPMorgan, and prices for credit default swaps show the market views JPMorgan as safer. Citigroup is the third-biggest US bank by assets and JPMorgan is the biggest.A Federal Reserve spokesperson declined to comment, as did representatives for Citigroup and JPMorgan.Citigroup's score came out better partly because it started the test with a better Tier 1 common ratio, 12.7% compared with JPMorgan's 10.4%.The starting ratios were based on the banks' financial statements at the end of September. They were calculated based on a set of international regulations known as Basel 1, which the Federal Reserve intends to replace as inadequate with a pending new set known as Basel 3.Under the expected Basel 3 rules, Citigroup has estimated its ratio was 8.6% at the end of the third quarter, about the same as the 8.4% JPMorgan estimated.Among the reasons that Citigroup's ratio will fall so much under Basel 3 from the Basel 1 level is that the new rules will not treat as favourably Citigroup's deferred tax assets.Citigroup expects those assets to allow it to pay lower taxes on future profits because it lost so much money when the financial crisis and recession hit. Also, Basel 3 will reduce the benefits of stakes Citigroup has in joint ventures, such as its brokerage with Morgan Stanley.The Federal Reserve did not publish stress scores for the banks under Basel 3 because the regulators have not finalised those rules yet.Analyst Cannon said there was one reason to think of Citigroup as being safer: its capital markets business is smaller than JPMorgan's. Regulators regard capital markets operations as riskier than consumer banking businesses.The Fed's scoring is also at odds with results some of the banks calculated for themselves under the same scenarios, which shows there is room for subjectivity in the testing.JPMorgan, for example, found that its ratio would fall to 7.6%, significantly better than the 6.3% reported by the Fed. Goldman Sachs Group determined its low during the hypothetical stress period would be 8.6%, compared with the 5.8% reported by the Fed, with some of the difference related to its extensive capital markets activities.Goldman declined to comment.Wells Fargo & Co pegged its low at 8.3% compared with the Fed's 7%.Wells Fargo said in a statement that it could not fully explain the difference because the Fed does not disclose all of the models it uses to score the banks. The bank said that for some securities, it takes into account more risk factors than the regulators do."It is primarily model-driven assumptions that will drive the differences," said Fernando De La Mora, who leads PricewaterhouseCoopers' banking and capital markets risk.Last year, differences between scores by the banks and by the regulator were not disclosed, but people in the industry knew of significant disagreements over expected losses in some portfolios, said De La Mora.This year, the Fed told the banks that it "will focus on the robustness" of each bank's testing.For Citigroup, the Fed's ratio this year of 8.3% was nearly as high as the 8.4% the bank tallied for itself.

Sturdy US job gains show economy growing

US employers added a greater-than-expected 236 000 workers to their payrolls in February and the jobless rate fell to a four-year low, offering a bright signal on the economy's health.The data from the Labour Department on Friday showed the economy gaining traction. The jobless rate fell 0.2 percentage point to 7.7%, the lowest since December 2008 as more people found work and others gave up the hunt.Economists welcomed the report, but worried that budget tightening in Washington could slow the recovery's momentum."We had already moved from a slog to a jog and we are on course to really get rolling. The risk here is, while the economy is gathering speed, the politicians are stepping on the brakes," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.A 2% payroll tax cut ended and tax rates went up for wealthy Americans on January 1, and $85bn in federal budget cuts started taking effect on March 1.The employment report, which showed broad-based job gains, was just the latest sign of the economy's fundamental health, and it added fuel to a rally in US stocks that had already propelled the Dow Jones industrial average to record highs.At the same time, the dollar raced to a 3-1/2 year high against the yen, while the yield on the benchmark 10-year US Treasury note hit an 11-month high.While payrolls growth beat economists' expectations for 160 000 jobs, it was not seen as a game changer for the Federal Reserve, which has pumped more than $2.5 trillion into the economy to foster faster growth."It's a first step down a long road before the Fed is convinced we are really seeing a substantial improvement in labour market conditions," said Michael Hanson, a senior economist at Bank of America Merrill Lynch in New York."They will want to see 200 000 job growth, not just in one month, but several months in a row. The unemployment rate is still too high."The central bank is buying $85bn in bonds per month and has said it would keep up asset purchases until it sees a substantial improvement in the labour market outlook. It is likely to remain leery of withdrawing its support too soon given the tightening of fiscal policy.Although December and January's employment data was revised to show 15 000 fewer jobs added than previously reported, details of the report were solid, with construction adding the most jobs since March 2007 and hours for all workers increasing.The pace of hiring in February marked an acceleration from the 195000 per month average of the prior three months, and it approached the roughly 250 000 jobs per month economists say are on a sustained basis to significantly reduce unemployment.Still, employment remains 3 million jobs below the peak reached in January 2008.Highlighting the need for faster employment growth, the share of the work age population with a job was unchanged at a historically low 58.6% for a third straight month a reminder of the immense slack that remains in the labour market.In addition, the report showed in February the jobless experienced longer periods of unemployment.In February, construction employment increased by 48 000 jobs after rising by 25 000 in January. The housing market has turned around decisively and employment is also being supported by rebuilding on the East Coast after the destruction by Superstorm Sandy in late October.Manufacturers also stepped up hiring. Factory jobs increased 14 000 last month after rising 12 000 in January.Retail employment increased by 23 700 jobs, an eighth straight monthly gain that defied a recent slowdown in sales.Healthcare and social assistance saw another month of solid job gains. The same was the case for leisure and hospitality.Government continued to shed jobs. Public payrolls dropped 10 000 last month after falling 21 000 in January.The sustained steady job gains are lending some stability to wages. Average hourly earnings rose four cents last month. That was the fourth straight monthly gain. Earnings were up 2.1% in the 12 months through February, rising by the same margin for a third month in a row."This provides a significant offset to the multitude of headwinds plaguing the consumer in the first quarter and suggests spending could do a bit better than anticipated," said Tom Porcelli, chief US economist at RBC Capital Markets in New York.

Coffee growers end strike

Striking Colombian coffee growers who have blocked roads for 11 days ended their protest Friday after winning a government subsidy to offset lower prices for their product on international markets. "We are going back to our land to continue producing the best coffee in the world," said Guillermo Gaviria, a protest leader, after the deal was signed with the government.The government concession is a subsidy of up to the equivalent of $80 per 125 kilos (£275) of coffee beans, the agriculture ministry said. But it will only be in effect for one year.Treasury Minister Mauricio Cardenas said it would cost the government the equivalent of $443m.In Colombia, some 560 000 families make their living growing coffee, and 95% of them are small-scale producers.This industry so key to Colombia's economy is going through hard times. Last year prices fell 35% on the international market and the Colombian peso appreciated 10%.

UK fiscal watchdog rebuffs Cameron

Britain's independent fiscal watchdog has criticised Prime Minister David Cameron for misrepresenting its position on the impact of measures aimed at cutting the national debt.In a speech on Thursday, Cameron said Britain's economy had been hurt not by the government's deficit-cutting agenda but by problems in the eurozone and higher oil prices - a view he claimed the independent watchdog endorsed.The claims were untrue, said Office for Budget Responsibility Chairperson Robert Chote."It is important to point out that every forecast published by the OBR since the June 2010 Budget has incorporated the widely held assumption that tax increases and spending cuts reduce economic growth," Chote wrote in an open letter published on Friday.The rebuke is embarrassing for the government which set up the watchdog shortly after it came to power in May 2010. The government uses the OBR's projections as the basis for its budget planning and has made much of the credibility of its forecasts.Chote's letter marks the first public clash between the watchdog and the prime minister, and will be seized upon by critics who blame the government's spending cuts and tax hikes agenda for the country's economic woes.Britain is perilously close to tipping into its third recession in four years and was stripped of its triple A credit rating by Moody's last month.

05.01.2013

Fiscal Cliff Deal Brings Business Big Benefits Even As Execs Carp

In the wake of this week's last-minute deal to avoid the so-called fiscal cliff, executives at some of the nation's largest corporations have denounced the compromise, arguing that it does little to solve the nation's long-term debt woes."It's a missed opportunity to revive our economy," said Honeywell International chief executive David Cote, one of the leading corporate voices urging a congressional accord, in a statement Wednesday."I think it's a joke," said Dick Kovacevich, former chief executive and chairman emeritus of Wells Fargo.Yet many of the same executives calling for federal spending cuts and comprehensive tax reform are benefiting from billions of dollars in tax exemptions and carve-outs provided to major corporations. Executives who have banded together in recent months as part of the Campaign to Fix the Debt, a coalition of current and former politicians and business leaders, have at the same time been lobbying to preserve the tax perks their companies have enjoyed for years."They're rather hypocritical about their 'shared sacrifice,'" said Robert McIntyre, director of the progressive group Citizens for Tax Justice. "It's shared by anyone but them."Honeywell's Cote said any real debt proposal needs to include "meaningful entitlement and tax reform." He urged leaders in Congress to "put politics aside and work out a plan that will truly help to expand the U.S. economy over the long term."Over the past two years, industrial conglomerate Honeywell International has spent more than $14 million lobbying in Washington, including on "international taxation and repatriation." Many multinational corporations, including those whose executives have come together as part of the Campaign to Fix the Debt, enjoy a benefit that allows them to indefinitely put off paying U.S. taxes on interest income earned overseas. They have lobbied for more than 15 years to preserve the so-called active-financing exemption, and Congress has repeatedly extended it.This year was no exception. The active-financing exemption was one of the corporate tax benefits included in the fiscal cliff deal earlier this week. The exemption for overseas investment income is estimated to cost more than $11 billion over the next two years, according to the Joint Committee on Taxation.From 2008 to 2010, Honeywell paid an effective federal tax rate of minus 0.7 percent, according to an analysis from Citizens for Tax Justice and the Institute for Taxation and Economic Policy. A Honeywell spokesman did not respond to questions about corporate tax exemptions.General Electric, also part of the Fix the Debt coalition, has relied extensively on the overseas investment exemption through the years -- a factor that contributed to its famously low federal tax rate in 2010, the subject of a New York Times investigation. The exemption is important enough that G.E. identifies failure to extend the benefit as a "risk factor" in its annual securities filings. The company told investors that its tax rate would "increase significantly" if the exemption weren't extended by Congress.A spokesman for G.E., Seth Martin, wrote in an e-mail that the company's tax rate was low in 2010 because of losses in its finance wing during the economic crisis, but that rates have since increased. In the company's most recent annual filing, G.E. said its tax rate was minus 11.6 percent in 2009, 7.3 percent in 2010 and 28.5 percent in 2011. Those rates reflect income taxes paid in all countries, not just the United States.Martin said G.E. supports comprehensive tax reform, including lowering corporate tax rates but also closing loopholes, "even if it means higher taxes for companies like G.E." He said reforms would encourage domestic economic growth and encourage U.S. multinational companies to invest overseas earnings at home.The chief executives of major banks with international investments, including JPMorgan Chase's Jamie Dimon and Morgan Stanley's James Gorman, publicly pushed for a sensible resolution to the fiscal cliff. In November, Gorman sent an email to employees, urging them to contact members of Congress. "No issue is more critical right now for the U.S. economy, the global financial markets and the financial well-being of our clients," he wrote.Morgan Stanley and JPMorgan have lobbied for extensions of overseas tax benefits in recent years. Representatives from both banks did not respond to requests for comment on Friday.Another corporate tax benefit included in the fiscal cliff deal is a provision known as bonus depreciation, which allows companies that invest in costly equipment to account for depreciation expenses much faster than they otherwise could. In other words, companies can deduct more in expenses now, lowering their taxable income.Congress has extended the provision each year since 2008 in an effort to spur business investment during the economic downturn. Bonus depreciation is expected to cost $35 billion this year, according to the Joint Committee on Taxation, and those costs are predicted to rise significantly if Congress keeps extending the benefit. Yet a Congressional Research Service report from September found that accelerated depreciation is a "relatively ineffective tool for stimulating the economy."Verizon Wireless Communications, another Fix the Debt member, has spent more than $30 million lobbying over the past two years. The company lists bonus depreciation as a lobbying priority, along with taxation on foreign earnings.A spokesman for the Campaign to Fix the Debt, Jon Romano, said the group is not making specific recommendations to the White House and Congress on how to structure a long-term deficit reduction plan. He did not say whether coalition members would be willing to give up corporate tax exemptions, but he said the group believes in "reining in spending, raising revenues and real entitlement reform.""They all understand that no deal is going to be perfect and that people are going to have to make sacrifices," Romano said. "They've all said they're willing to do that. Everybody is going to have to give something up to get a debt deal that's good for the country."

 

Obama warns Republicans on debt ceiling

US President Barack Obama on Saturday warned congressional Republicans against what he called a "dangerous game" with the country's economy as lawmakers prepared for a new battle over the national debt ceiling."As I said earlier this week, one thing I will not compromise over is whether or not Congress should pay the tab for a bill they've already racked up," the president said in his weekly radio and internet address."If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic," he pointed out.Obama recalled that the US economy "suffered" and congressional Republicans clashed over national debt in 2011, a row that resulted in a downgrade of the US credit rating."Our families and our businesses cannot afford that dangerous game again," the president said.The United States reached its legal borrowing limit of $16.4 trillion on Monday. Now Congress has about two months to raise the debt ceiling to allow more government borrowing or risk causing the government to default on its bills and financial obligations.Demand for concessionsA bipartisan "fiscal cliff" deal passed by Congress later in the week did not address the debt ceiling issue.Republicans, who accepted this deal without any significant spending cut, are now demanding concessions on expenditures in return for allowing the ceiling to rise.House Speaker John Boehner has warned the Republicans will ask for "significant spending cuts" and reforms of expensive programmes like Social Security and Medicare that provide pensions and healthcare services for the nation's seniors.Obama said he was for spending cuts without shortchanging things like education, job training, research and technology."But spending cuts must be balanced with more reforms to our tax code," he said. "The wealthiest individuals and the biggest corporations shouldn't be able to take advantage of loopholes and deductions that aren't available to most Americans."

VP: Chavez could be sworn in by court

Venezuela's vice president said on Friday that President Hugo Chavez could be sworn in by the Supreme Court later on if he's not able to take the oath of office next week before lawmakers because of his struggle with cancer.Vice President Nicolas Maduro made the comment in a televised interview on Friday night, dismissing the argument by some opposition leaders that new elections must be called if Chavez doesn't take office as scheduled on Thursday.His stance appeared likely to generate friction between the government and opposition over the legality of putting off the swearing-in, which the constitution says should occur on Thursday before the National Assembly.Maduro says Chavez, as a re-elected president, remains in office beyond the inauguration date stipulated in the constitution, and could be sworn in if necessary before the Supreme Court at a date to be determined."The formality of his swearing-in can be resolved before the Supreme Court of Justice, at the time (the court) deems in coordination with the head of state, Commander Hugo Chavez," Maduro said.As for the opposition, Maduro said, "they should respect our constitution". The vice president held up a small copy of the constitution and read aloud passages relating to such procedures.Opposition leaders have demanded that the government provide more specific information about Chavez's condition, and say that if the president doesn't return to Venezuela by inauguration day, the president of the National Assembly should take over the presidency on an interim basis. But Maduro echoed other Chavez allies in suggesting the inauguration date is not a hard deadline, and that the president should be given more time to recover from his cancer surgery if needed."Maduro's comments are not surprising. The government holds all the cards in the current situation, particularly given the compassion for Chavez's serious illness. It has interpreted the constitution loosely, to its own political advantage," said Michael Shifter, president of the Inter-American Dialogue think tank in Washington. "In this way Maduro is able to buy some time, assert his authority, and rally support within Chavismo. He puts the opposition on notice and throws it off balance."As for Chavez, Maduro reiterated that the president is fighting a "complex" health battle but expressed hope that eventually "we'll see him and we'll hear him"."He has a right to rest and tranquillity, and to recuperate," Maduro said on state television, speaking with Information Minister Ernesto Villegas."The president right now is the exercising president. He has his government formed," Maduro said. He read a portion of the constitution detailing procedures for declaring an "absolute absence" of the president, which would trigger a new election within 30 days, and declared that "none of these grounds can be raised by the Venezuelan opposition."The Venezuelan Constitution says the presidential oath should be taken January 10 before the National Assembly. It also says that if the president is unable to be sworn in before the National Assembly, he may take the oath office before the Supreme Court, and some legal experts have noted that the sentence mentioning the court does not mention a date.Others disagree. Ruben Ortiz, a lawyer and opposition supporter, argued that Maduro is wrong and that under the constitution the inauguration date can't be postponed.If Chavez is not in Caracas to be sworn in on Thursday, Ortiz said in a phone interview, "the president of the National Assembly should take charge". He added that "there is a formal separation between one term and the other".But Shifter said the opposition is on the defensive, with its only tactic being to insist that Jan. 10 is the established date."Chavez controls all the key institutions, and it's doubtful that most Venezuelans will get too upset about defying what seems a fairly minor constitutional provision," Shifter said. "Attacking the government because it has no objection to the Supreme Court swearing in Chavez after Jan. 10 is not exactly a winning political strategy for the opposition."As for the government, he said it appears to be playing its cards for its purposes. "The government wants more time, whether to see if Chavez gets better, or to consolidate their ranks and further splinter and demoralize the opposition," Shifter said.Opposition 'will be defeated'Venezuelan lawmakers will meet on Saturday in a session that could shed more light on what steps Chavez's allies plan to take.Legislators will choose a president, two vice presidents and other leaders of the National Assembly, which is controlled by a pro-Chavez majority. Whoever is elected National Assembly president could eventually end up being the interim president of Venezuela under some circumstances.Brewing disagreements over how to handle a possible transition of power could be aired at the session, coming just five days before the scheduled inauguration day specified in the constitution."If the opposition thinks it will find a space in the National Assembly to conspire against the people, it's mistaken once again. It will be defeated," National Assembly President Diosdado Cabello said in a message on Twitter on Friday, saying the legislature will stand with Chavez.The government revealed this week that Chavez is fighting a severe lung infection and receiving treatment for "respiratory deficiency" more than three weeks after undergoing cancer surgery in Cuba.Chavez hasn't spoken publicly or been seen since his December 11 operation in Cuba, and the latest announcement suggests a deepening crisis for the 58-year-old president.But Maduro criticised rumours surrounding Chavez's condition, saying: "He has a right to his privacy, and to recover."The government's account of Chavez's complications raised the possibility that he might be breathing with the assistance of a machine. But the government did not address that question and didn't give details of the president's treatment.Potentially dangerous turnIndependent medical experts consulted by The Associated Press said the government's account indicated a potentially dangerous turn in Chavez's condition, but said it's unclear whether he is attached to a ventilator.Dr Gustavo Medrano, a lung specialist at the Centro Medico hospital in Caracas, said he has seen similar cases in cancer patients who have undergone surgery, and "in general it's very bad, above all after a surgery like the one they performed on him"."I don't know the magnitude of the infection he has, how much of his lungs have been compromised, how much other organs are being affected. That's not clear," Medrano said."What's most likely is that he's on mechanical ventilation," Medrano added. However, he said, while respiratory deficiency means there is an abnormally low concentration of oxygen in the blood, depending on the severity it can be treated in various ways.Dr Michael Pishvaian, an oncologist at Georgetown University's Lombardi Cancer Centre in Washington, agreed that such respiratory infections can run the gamut from "a mild infection requiring antibiotics and supplemental oxygen to life-threatening respiratory complications.""It could be a very ominous sign," Pishvaian said. He said it's possible Chavez could be on "life support," but added it's impossible to be sure without more details.Opposition leaders have blamed vague information coming from the government for the persistent rumours about Chavez's condition, and demanded a full medical report.Chavez has undergone four cancer-related surgeries since June 2011 for an undisclosed type of pelvic cancer. He also has undergone chemotherapy and radiation treatment.He was re-elected in October to another six-year term, and two months later announced that the cancer had returned. Chavez said before the operation that if his illness prevented him from remaining president, Maduro should be his party's candidate to replace him in a new election.'Information vacuum'The Venezuelan newspaper El Nacional criticised what it called an "information vacuum" in an editorial on Friday, saying Venezuelans are in the dark because "no one speaks clearly from the government". The newspaper called the situation reminiscent of secrecy that surrounded the deaths of Josef Stalin in the former Soviet Union and Mao Zedong in China.State television repeatedly played video of a song in which rappers encourage Venezuelans to pray, saying of Chavez: "You will live and triumph." A recording of a speech by Chavez appears during the song, saying: "I will be with you always!"This week, Cabello and the president's elder brother Adan joined a parade of visitors who saw Chavez in Havana.Brazil's state-run Agencia Brasil news agency reported Friday that President Dilma Rousseff's top international adviser, Marco Aurelio Garcia, also made a one-day visit to Cuba and spoke with Venezuelan and Cuban officials about Chavez's health. It was unclear if Garcia actually saw Chavez.

NEWS,08.11.2012

Draghi open to ECB rate cut

The euro zone economy shows little sign of recovering before the year-end despite easing financial market conditions, European Central Bank President Mario Draghi said today, leaving open the possiblity of an interest rate cut in the months ahead.But after keeping rates on hold, Draghi said the ECB cannot do much more to help Greece with its debt burden and gave Spain none of the assurance it wants that ECB bond buying will lower its borrowing costs."The ECB is by and large done," Draghi told his monthly news conference when asked what the bank could do for Greece.The euro zone is grappling to find a formula to make Greek debt sustainable, with Germany and the International Monetary Fund at odds over the need for governments and the ECB to take a "haircut" on Greek bonds they hold to make the numbers add up.The ECB agreed earlier this year to hand over to euro zone governments profits on its Greek bonds but has refused to take a hit on the value of the paper, saying that would be "monetary financing" which it is prohibited from doing.The ECB held its main rate at 0.75%, deferring any cut while it waits for a cue to use its new bond-purchase plan. That wait may be prolonged after Spain completed its 2012 funding at affordable rates on capital markets on today.A  poll had given an 80% chance the ECB would hold its main rate, but most of the 73 analysts polled expect it will be cut to a new record low of 0.5% within the next few months.Draghi said ECB monetary policy is "very accommodative". He declined to comment when asked whether markets were right to expect a rate cut next month and said the policymaking Governing Council had not discussed what it would do next year.Economist Howard Archer at IHS Global Insight said: "Draghi appeared to ease open the door to a cut in interest rates over the coming months and potentially as soon as December." Not everyone expects a cut that soon. "Our sense is that the ECB is firmly on hold," said JP Morgan economist Greg Fuzesi, though he added: "Next year, the ECB will act if growth disappoints more fundamentally." Describing "a picture of weaker economies" in the euro zone, Draghi said this would influence new ECB economic forecasts due next month. Inflation would remain above the ECB's target for the rest of the year, before falling below 2% in 2013."We certainly continue monitoring economic activity and we stand ready to act," he said." We stand ready to act with OMT (bond-purchase plan) once the prerequisites are in place. We also stand ready to act with the rest of standard, normal monetary policy instruments. "Recent survey evidence gave no sign of improvement towards the year-end and the risks surrounding the euro area remain on the downside, Draghi said. As he spoke, the euro fell against the dollar and hit a session low in early New York trade.Gloomy data this week indicated the euro zone economy will shrink in the fourth quarter, which the ECB could eventually respond to by cutting rates.Before making any decision to cut rates further, the ECB will focus on making sure that its looser policy reaches companies and households across the euro zone, a mechanism that has been broken by the bloc's debt crisis.The new bond-purchase plan - dubbed Outright Monetary Transactions (OMTs) is the ECB's designated tool for this but can only be activated once a euro zone government requests help from the bloc's rescue fund and accepts policy conditions and strict international supervision.So far no request has been made, but the announcement of the policy alone has calmed markets."We are ready to undertake OMTs which will help to avoid extreme scenarios, thereby clearly reducing concerns about the materialisation of destructive forces," Draghi said.Asked whether he could imagine an extreme scenario in which the bank began buying bonds without conditions, he said the answer was 'no'.Investors and euro zone policymakers have been urging Spain to seek aid but Prime Minister Mariano Rajoy has so far held off a request, saying he wants assurances that ECB intervention would bring down Spain's debt costs.Draghi gave Rajoy no comfort."The Governing Council will take the final decision in total independence," he said of any decision on whether to use the OMT programme."In so doing, it cannot give any assurance ex ante".Spain sold 4.8 billion euros of debt including its first longer-term issue in 18 months on Thursday, enough to complete its 2012 financing programme and begin raising funds for next year. So there is little immediate pressure on that front.Yields on Spanish government bonds have dropped by around 2 percentage points since Draghi said in late July the ECB was ready to do "whatever it takes to preserve the euro" - a pledge that heralded the bond-buying plan.

Obama mulls new cabinet picks

US President Barack Obama, fresh from re-election and facing a new clash with congress, got back to work on Thursday, with an important item on his to-do list, stocking his new cabinet.Obama is expected to lose his heavyweights including Treasury Secretary Tim Geithner, Secretary of State Hillary Clinton and Defence Secretary Leon Panetta, for most if not all of his second four-year term.The president will also likely have to make changes to his White House staff with some senior aides, exhausted by a crisis-strewn four years, expected to move on and others shifting to different administration jobs.Speculation is already rife about who will replace Clinton, who has reiterated that she wants to reclaim a private life put on hold by decades in the spotlight of top level politics. Clinton has said she has no interest in another White House race, but the campaign blitz for Obama by her husband former president Bill Clinton, and the power couple's passion for politics, has sparked renewed speculation.Until Clinton makes her final decision known, the Democratic Party's other possible 2016 presidential candidates will likely hold their fire, as the former first lady would be a prohibitive favourite if she did run.UN ambassador Susan Rice, who has been close to Obama for years, has long been seen as a likely replacement for Clinton at the state department, despite being caught up in the furore over the raid in the US consulate in Benghazi.Another possible contender is John Kerry, chairperson of the senate foreign relations committee, whose stock rose in Obama world after he played Republican nominee Mitt Romney in Obama's practice dry runs for the presidential debates.Rice would be the second African American woman to hold the post after Condoleezza Rice, to whom she is not related. She is known at the United Nations for an assertive manner and not shy about pounding home the US point of view.A report in Russia's Kommersant newspaper on Thursday said that Moscow, with whom Rice has clashed heatedly over Syria, would prefer to see Kerry get the job, at a sensitive time between Obama and restored Russian President Vladimir Putin."It would be more difficult for Moscow to work with Washington" if Rice became secretary of state, the unnamed Russian official was quoted as saying.Kerry would have to step down from the senate, however, and there is concern that his Massachusetts perch could fall prey to Republican Scott Brown, who lost a race with Democrat Elizabeth Warren for the state's other senate seat.White House sources said that the usual timetable for replacing cabinet members  in plenty of time for confirmation by the Senate after the presidential inauguration in January could slip this time.Geithner and Panetta are key figures in the year-end budget and tax showdown looming with Republicans, and may not move on until the so-called "fiscal cliff" drama is resolved.Some insiders talk about White House chief of staff Jacob Lew, himself a budget specialist, as a possible successor for Geithner while others speculate that Obama may reach for someone with business credentials to improve his shaky standing with the corporate world.Panetta is expected to leave the administration at some point, but did not serve for the full four-year first term, having taken over just last year from Robert Gates, a holdover from the previous Bush administration.Also known as a budget specialist, Panetta may stay in place until expected spending reductions are factored in to the Pentagon's budgetary plan to return to his walnut farm in California's Carmel Valley.The current favourite to succeed him is Michele Flournoy, who served as under secretary of defence for policy early in Obama's first term.Her appointment may appeal to Obama's sense of history as she would be the first woman to hold the role.Should Flournoy not get the job, some defence analysts think that the current deputy defence secretary Ashton Carter could be in the frame.There may also be other cabinet departures. It is unclear whether Attorney General Eric Holder, a close associate of Obama who has had a bruising from Republicans, will stay on.Education Secretary Arne Duncan is expected to remain in place to pilot through congress Obama's reform programme, likely a highlight of his second term agenda.Obama may also have some shuffling to do at the White House, especially if Lew moves to Treasury. His political guru, David Plouffe, is expected to leave and there may be other high profile departures.The president sparked speculation on Tuesday when he said he wanted to sit down with Romney to work out how they could take the country forward.Obama's first term "Team of Rivals" approach of choosing former political foes like Clinton, modelled on that of his hero Abraham Lincoln, could apply in Romney's case, perhaps in a job like Commerce Secretary.However, it is unclear whether Romney would be prepared to swallow his pride and work for the man who vanquished him in a bitter White House campaign.

Iran not ruling out nuclear talks with US

Iran, reeling from international sanctions over its nuclear programme and facing four more years with Barack Obama as leader of arch-enemy the United States, does not rule out direct talks with Washington but says they will not come overnight.Obama's re-election drew an ambiguous response from President Mahmoud Ahmadinejad, who dismissed the US elections as a "battleground for the capitalists," at a forum on democracy in Indonesia.Without directly commenting on Obama's victory, he lambasted democracy in the West as having "turned into the rule of a minority over the majority".But behind the flamboyant rhetoric, senior regime figures have expressed cautious signs of interest in the election of Obama, who four years ago famously "extended his hand" to Tehran and may be preparing to do so again.Not overnight An influential cleric among the ruling conservatives, judiciary chief Ayatollah Sadeq Larijani, did not rule out Tehran and Washington coming "to the negotiating table" one day but warned it would not happen "overnight."Larijani said on Wednesday that "relations with the United States are not simple".The United States, which Tehran dubs the "Great Satan", severed diplomatic relations with Iran after the 1979 takeover of the US embassy in Tehran, and the two have been in a tense stand-off ever since."Four years ago, Obama was elected on a platform for change and said he was extending his hand for co-operation with Iran, but he acted otherwise and unprecedented sanctions were imposed," Larijani said.Obama has rallied US allies against Iran, toughening sanctions, with Tehran's oil exports and access to world financial systems being key targets.The United States and other world powers, including Tehran's arch-enemy Israel, accuse Iran of using its nuclear programme to mask a drive for atomic weapons. Tehran denies that, saying it is for purely peaceful purposes.The last offer called for Iran to cease enriching uranium to purities of 20% - technically not far from the 90% needed for a nuclear weapon. It also wanted Iran to close its Fordo enrichment facility and to export existing stockpiles of 20% purity uranium.Iran rejected that, saying it did not offer sufficient relief from sanctions that have begun to cause real economic problems.Larijani's brother and international affairs adviser, Mohammad Javad Larijani, reiterated that negotiating with Washington "is not taboo," but any decision to renew contact "is a prerogative of the supreme leader"."If the interest of the regime requires it, we are prepared to negotiate with the Satan in the pits of hell," he said on Wednesday.A Western ambassador in Tehran said the regime "gives the impression of being willing to be more realistic in its negotiations with major powers, providing they offer it an honourable way out of the crisis".This could include, according to many Western diplomats in Iran, the revival of bilateral contact with the United States.Another European ambassador said "both sides have shown some interest (in such a revival), but the question is what the Iranians are going to ask for, and if Washington is willing to give it."In recent months, Washington has repeatedly expressed readiness for direct talks with Iran. Tehran has declined, saying its conditions were not met.Foreign ministry spokesperson Ramin Mehmanparast has said Iran "respects the vote of the American people".But "the wall of mistrust can only be reduced if the US government respects the will and the rights of the Iranian people and changes its past mistaken policies".The second European ambassador sees hope nonetheless."Whether it's nuclear talks or a possible resumption of dialogue with Washington, the Iranians are insisting on what they call the recognition of their rights as well as mutual respect," he said."The wording is vague enough to allow solutions if both parties are open to it," he added. "The re-election of Obama in any case opens a window of a few weeks or months to overcome the crisis."As it stands, a new round of talks between Iran and six world powers, the first since June, is expected by the end of the year, or in early 2013, analysts say.Mark Fitzpatrick, nuclear expert at the International Institute for Strategic Studies in London, said "it's pretty clear that the United States and its European allies are gearing up to try again for diplomatic engagement. But the question is, what will be on the table? Iran won't be making concessions unless it gets some form of sanctions relief," he said.As put by Mark Hibbs, at the Carnegie Endowment for International Peace: "There is reason for some optimism, but it is guarded optimism because in the final analysis it depends on whether Iran will 'play.' If they won't, all bets are off."

Greece passes crucial austerity bill

 

Greece's parliament passed a crucial austerity bill early on Thursday in a vote so close that it left the coalition government reeling from dissent.The bill, which will further slash pensions and salaries, passed 153-128 in the 300-member Parliament. It came hours after rioters rampaged outside parliament during an 80 000-strong anti-austerity demonstration, clashing with police who responded with tear gas, stun grenades and water cannons.Approval of the cuts and tax increases worth €13.5bn ($17bn) over two years was a big step for Greek efforts to secure the next installment of its international rescue loans and stave off imminent bankruptcy.The country's international creditors have demanded that the bill and the 2013 budget, due to be voted on Sunday, pass before they consider releasing an already delayed €31.5bn installment from Greece's €240bn bailout. Without it, Prime Minister Antonis Samaras says Greece will run out of money on November 16."Greece made a big decisive and optimistic step today. A step toward recovery," Samaras said, adding that he was "very happy" with the result.Development and growth for the country, which faces a sixth year of a deep recession in 2013, will come "only with a lot of work, with coordinated action, with investments," he said.But the close vote was a major political blow to the three-party coalition government, which holds a total of 176 seats in Parliament. The result shows support for continued austerity three years into Greece's financial crisis is dwindling fast."The government now has very little margin to take measures like this again," said Dimitris Mardas, associate professor of economics at the University of Thessaloniki. "But unless it takes various obvious actions like limiting the black economy, addressing tax evasion and improving the country's investment framework, we may end up needing new measures. And then things will be very difficult."Straight after the vote, two of the three coalition parties  Samaras' conservatives and former finance minister Evangelos Venizelos' socialists  expelled a total of seven dissenting deputies from their ranks.Lawmakers from the third, the small Democratic Left, mostly abstained from the vote in accordance with their party's line. Leader Fotis Kouvelis had said he could not back labour reforms included in the bill.During hours of acrimonious debate in parliament, Samaras acknowledged that some of the measures in the bill were unfair, but insisted they were vital to avoid bankruptcy and Greece being forced out of the euro zone and back to its old currency, the drachma."This (bill) will finally rid the country of drachmophobia," he said."Many of these measures are fair and should have been taken years ago, without anyone asking us to," Samaras said. Others are unfair cutting wages and salaries and there is no point in dressing this up as something else." But, he said, the alternative was bankruptcy that would trigger financial chaos as the country would likely have to leave the 17-country euro bloc.The measures are for next year and 2014, and include new, deep pension cuts and tax hikes, a two-year increase in the retirement age to 67, and laws that will make it easier to fire and transfer civil servants who are currently guaranteed jobs for life.The reforms aim to lower public debts but will in the process also hurt the economy, which is set to enter a sixth year of recession with unemployment at a record 25%."You are throwing people onto to the street, people who need a few more years till they get their pensions," said Panagiotis Lafazanis of the main opposition Syriza, or Radical Left, party. "What will happen to them? Will they starve?"