NEWS,22.08.2012

Russia finally joins WTO

After 18 years of negotiation, Russia on Wednesday entered the World Trade Organization, which restricts import duties and subsidies in an attempt to create a level playing field for international trade.Analysts and politicians hope that Russia, which has long proven a formidable market to foreign investors because of its byzantine bureaucracy and protectionist tariffs, would be transformed by its entry into the WTO. Russia is one of the last major global economies to enter the group, which has long included other developing nations like China.While consumers here will benefit from the lower cost of imported goods, some worry that struggling industries long coddled by state subsidies, such as agriculture or the automobile industry, will suffer from foreign competition.Russians often complain about the burdensome cost of Western-imported consumer products, which range from refrigerators to jeans. With its entry into the WTO, the country will cut its average import tariff by 5.9%, making those imports cheaper.M. Video, one of Russia's largest electronics retailers whose shelves are packed with foreign-made CD players and American movies, said Russia's entry into the WTO would bring more customers into their stores."We believe that (entry into the WTO) is going to be a very good decision for our customers in the future, because they will be able to purchase goods with prices harmonized with other economies," said Enrique Fernandez, chief commercial officer of the company.But uncompetitive domestic goods, which have long been propped up by Soviet-style subsidies, could be threatened by the invasion of higher-quality imports. Nearly 100 major business leaders and industry groups including dairy and meat producers signed a petition earlier this summer addressed to the ruling United Russia party, asking that its deputies vote against ratification of the WTO treaty.Agriculture, the automobile industry, and Soviet-style "Monogorods," or towns which revolve around a single factory or industry, are bound to suffer next to foreign competition unless they can reform quickly. These industries are based in regions that have often displayed the most support for President Vladimir Putin, but could easily turn into a hotbed for protest if already fragile industries were to collapse.At a car dealership in Moscow, 63-year-old engineer Alexei Tarakanov said he doubted that low-quality Russian cars could win on an open market."I already have a negative attitude towards our (Russian) cars," said Tarakanov, who was buying a Renault. "I doubt that they can win the preference of the modern buyer."Because state-subsidized industries proved such a pivotal issue in Russia's WTO negotiations, financial aid to struggling sectors will be gradually phased out, rather than abruptly cut off,over the course of seven years."The industry will not collapse immediately, (major Russian car-maker) AvtoVaz is going to continue steadily producing its 700 000 cars per year," said Ovanes Oganisyan, an analyst at the Moscow-based investment bank Troika Dialog. "But eventually there's going to be more competition, and if AvtoVaz doesn't change in seven years it will have to go out of business."In addition to the challenges faced by unreformed industries, the Russian government expects to take a short-term financial hit from the loss of income from import duties and taxes. But the government emphasizes long-term gains, and the World Bank has estimated that WTO membership could increase Russia's GDP by an extra 3.3% a year in the next three years.While the WTO will significantly open up the Russian market to foreign producers, the U.S. faces the threat of paying higher tariff rates than other WTO members to sell goods in Russia, leaving American producers at a competitive disadvantage compared to European or Asian industries.The reason for the disparity is the Jackson-Vanik Amendment, a law passed by Congress during Soviet times that denies Russia normal trade relations with the U.S.The U.S. president has been granting Russia annual waivers since 1992, but Moscow insists it will not lower its tariffs for the U.S. as much as for other countries until the law is scrapped."The last thing that America needs right now is for foreign companies to have lower tariff rates than American companies," said Andrew Somers, President and CEO of the American Chamber of Commerce.Vice President Joe Biden lobbied for the repeal of Jackson-Vanik in 2011, as have previous presidential administrations, but Congress has so far proven intransigent to executive pleas.Congress has increasingly taken fire at the Russian administration for its human rights record. In June, the U.S. House of Representatives passed the Justice for Sergei Magnitsky Act, a bill named for a Russian lawyer who died in a Russian prison last year after allegedly being abused at the hands of Russian authorities.This week, President Barack Obama expressed his disappointment after the three participants of Pussy Riot, a punk band who sang an anti-Putin prayer in Moscow's Cathedral of Christ the Savior, were convicted to two years in prison."Business hates uncertainty," said Somers, "If the Jackson-Vanik Amendment remains on the books and the U.S. continues not to have normal trade relations with Russia, who knows what will happen."

Israeli minister wants Palestinian leader's ouster

Israel's foreign minister urged the international community to help oust Palestinian President Mahmoud Abbas whose policies he called "an obstacle to peace" in a letter released Wednesday.Foreign Minister Avigdor Lieberman wrote to the Quartet of Mideast mediators  the U.S., the U.N., the EU and Russia this week calling for new elections in the Palestinian Authority in order to replace Abbas, accusing the Palestinian Authority of being "a despotic government riddled with corruption.""Despite Mr. Abbas' delays, general elections in the Palestinian Authority should be held and a new, legitimate, hopefully realistic leadership should be elected" he wrote. "Only such a leadership can bring progress with Israel. We must maximize the holding of new elections in the PA alongside the tremendous changes in the Arab world, in order to bring a serious change between Israel and the Palestinians."Abbas' spokesman, Nabil Abu Rdeneh, rejected Lieberman's statement, calling it an "incitement to violence" that "doesn't contribute in any way to an atmosphere of peace." He urged Israel and the international community to condemn the letter.Elections for new Palestinian leadership were scheduled for 2010, but have repeatedly been delayed because of the bitter dispute between Abbas' Fatah and the militant Hamas, bitter rivals who had a violent falling out in 2007 and now separately govern the West Bank and Gaza Strip respectively.Israeli Prime Minister Benjamin Netanyahu also sought to quickly disassociate himself from the letter. An official in the prime minister's office, who spoke on condition of anonymity because of the sensitivity of the issue, said the letter does not represent the government's position."While Abbas has created difficulties for restarting negotiations, the government of Israel remains committed to continuing efforts to restart a dialogue with the Palestinians,"he said.Lieberman, who leads a hardline party in Israel, is known for inflammatory rhetoric that has at times agitated his partners in government.He embarrassed Netanyahu in the past by expressing skepticism over the chances of reaching peace with the Palestinians. In a high-profile speech at the United Nations General Assembly in 2010, he contradicted a goal set by President Barack Obama of reaching a final peace deal in the coming year.Lieberman wrote that Abbas should be replaced so that peace talks that collapsed in 2008 could be revived.Abbas has refused to resume talks as long as Israel refuses to stop settlement construction in the West Bank and east Jerusalem, areas Palestinians want as part of their future state. Israel rejects the calls for a halt to settlement building, and instead has called for peace talks to resume, saying that the settlement issue should be resolved along with other core disputes through negotiations.Lieberman listed in his letter a number of gestures Israel recently has made to the Palestinians  including agreeing for an additional 5,000 Palestinians to work in Israel and reducing the number of roadblocks and accused Abbas in return of "encouraging a culture of hatred, praising terrorists, encouraging sanctions and boycotts and calling into question the legitimacy of the state.” Due to Abbas' weak standing, and his policy of not renewing the negotiations, which is an obstacle to peace, the time has come to consider a creative solution in order to strengthen the Palestinian leadership," Lieberman said In Washington, U.S. State Department spokeswoman Victoria Nuland said the U.S. has "a good working relationship with President Abbas. And so we expect to be able to continue to work well with him."She also noted that Netanyahu had "clarified that the foreign minister's letter doesn't reflect his position and that he (Netanyahu) has responsibility for these issues." 
 

Ailing Egypt seeks $4.8 billion IMF loan

Egypt formally asked the International Monetary Fund for a $4.8 billion loan on Wednesday, seeking a desperately needed rescue package for its faltering economy but raising the possibility of painful restructuring in a country still reeling since its revolution more than 18 months ago.The loan deal, which Egypt says it will reach by the end of the year, presents a major test to the Muslim Brotherhood-rooted president, Mohammed Morsi, the country's first ever freely elected leader, brought to power after the fall of Hosni Mubarak.The IMF has avoided making specific conditions for a loan but it seeks a cohesive government plan for restarting economic growth and reducing a deficit that has grown to $23.6 billion, some 8.7 percent of gross domestic product.A key part of that will likely be reducing subsidies that suck up a third of the government budget every year. Touching those subsidies, however, could bring social upheaval, since they keep commodities like fuel and bread cheap for a population of around 82 million, some 40 percent of whom live near or below the poverty line."The government will have to take urgent measures, at the top of them cutting energy subsidies," said Mohammed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE. The biggest subsidies are those on fuel including gasoline and cooking gas costing the government some $16 billion a year.Egypt's upheaval since the 18-day uprising that led to Mubarak's ouster on Feb. 11, 2011, has pushed its economy toward the brink. Amid near constant instability since, foreign investment has dried up. Revenues from tourism one of the country's biggest money makers and employers fell 30 percent to $9 billion in 2011 and the industry is only making a meager recovery.Meanwhile, the government has been burning through its foreign currency reserves, which have plummeted by more than half, to prop up the Egyptian pound and prevent a devaluation that could spur inflation.The government also faces mounting demands to increase salaries for the millions of civil servants and public sector workers and boost social spending. Infrastructure has crumbled, with electricity and water outages pervasive this summer, bringing angry complaints, some directed at Morsi.Egypt's hope is that the IMF package its first loan from the organization in nearly 20 years would provide not only a cash boost but, more importantly, a seal of approval that will bring back international investment.Morsi, his Prime Minister Hesham Kandil and other Egyptian officials met Wednesday with IMF chief Christine Lagarde in Cairo. State TV said Egypt requested a $4.8 billion loan, up from the $3.2 billion proposal discussed earlier this year. Finance Minister Momtaz el-Said told the state-run Al-Ahram newspaper that the increase was needed because the deficit had grown with the drop in income from investment and tourism.Lagarde's visit "gives a positive message to Egypt and the whole world that Egypt is stabilizing and that the economy is heading to a recovery," Kandil said. He said he expects a final agreement by December.Kandil said his government has drawn up a comprehensive economic recovery plan for the IMF that includes strategies to counter the deficit, encourage investment and ensure that subsidies reach those most in need. He did not provide details.Lagarde said "Egypt faces considerable challenges." An IMF team would start talks in September with the government over its recovery plan and the loan, she said."Getting the country's economy back on track and raising the living standards for all will not be an easy task," she said. "The Egyptian people have legitimate expectations for a better life aAbdel-Hafiz el-Sawy, a chief economist with the Muslim Brotherhood who met with earlier delegations from IMF, acknowledged that "the government is facing a mountain of problems, and whenever it gets out of one trap to fall in the next.""The IMF loan is small but its impact is in the fact that it gives Egypt a certificate that improves the country's economic prospects," he said.Initial talks over a $3.2 billion loan stalled earlier this year amid wrangling between the military generals who ruled the country since Mubarak's ouster and Islamists who won the majority in the now-dissolved parliament. The Brotherhood had opposed letting the interim, military-appointed government sign a deal putting financial burdens on the next government. The IMF insisted on political consensus before approving the loan.Since then, Morsi was inaugurated in late June and a month later formed the Kandil-led Cabinet, and the military handed over authority.The plan presented to the IMF appears to be more or less similar to the previous government's plan, which the Islamist-led parliament had opposed, according to el-Said, the finance minister who also served in the former government, in an interview with el-Shorouk daily.Now Morsi faces the tough task of economic reform. Already, the government has reduced fuel subsidies to energy-intensive factories which were seen as giving a bonus to the wealthy and increased taxes on Egyptians whose income exceeds 10 million a year.But still remaining is the question of how to deal with subsidies that keep prices dirt cheap for gasoline and for butane fuel that many rely on for cooking. The gasoline subsidies are widely seen as inefficient because wealthier drivers benefit from them as much as or more than the poor.The government is studying alternatives, such as distributing to the poor coupons for gas and fuel, while restructuring the tax system.El-Said, the finance minister, also ruled out a devaluation of the pound suggesting that the government hopes that an IMF will bring enough local liquidity to keep the currency strong without infusions from the state's reserves.The IMF loan will not be enough to cover all Egypt's financing needs. IMF officials said earlier that the country needs a total of $10 billion to $12 billion in outside funding over the next 12 to 15 months.Qatar has delivered around $500 million of $2 billion it has promised Egypt. Saudi Arabia promised to deposit $1.5 billion in Egypt's Central Bank. But other aid packages from the European Union, the oil-rich Arab Gulf states and other sources will heavily depend on Cairo's ability to secure the IMF loan.

NEWS,20.07.2012

12 killed, 59 wounded in Colorado theater shooting

A gunman in a gas mask barged into a crowded Denver-area theater during a midnight showing of the new Batman movie Friday, hurled a gas canister and then opened fire, killing 12 people and injuring at least 50 others in one of the deadliest mass shootings in recent U.S. history.When the smoke began to spread, some moviegoers thought it was a stunt that was part of the "The Dark Knight Rises," one of the most highly anticipated films of the summer. They saw a silhouette of a person in the haze near the screen, pointing a gun at the crowd and then shooting."There were bullet (casings) just falling on my head. They were burning my forehead," Jennifer Seeger said, adding that the gunman, dressed like a SWAT team member, fired steadily, stopping only to reload."Every few seconds it was just: Boom, boom, boom," she said. "He would reload and shoot and anyone who would try to leave would just get killed."The suspect was taken into custody near a car behind the theater and was identified by federal law enforcement officials as 24-year-old James Holmes.Holmes was studying neuroscience in a Ph.D. program at the University of Colorado-Denver, university spokeswoman Jacque Montgomery said. Holmes enrolled a year ago and was in the process of withdrawing at the time of the shootings, Montgomery said.Authorities gave no motive for the attack. The FBI said there was no indication of ties to any terrorist groups.Police said 71 people were shot. Another 59 adults and children were wounded. Aurora police Chief Dan Oates said the suspect wore a gas mask, a ballistic helmet and vest as well as leg, groin and throat protectors. He said he had an AR-15 military-style, semi-automatic rifle, a shotgun and two pistols.FBI agents and police used a hook and ladder fire truck to reach Holmes' apartment in Aurora, Oates said. They put a camera at the end of a 12-foot pole inside the apartment and discovered the unit was booby-trapped. Authorities evacuated five buildings as they tried to figure how to disarm the flammable and explosive material."It's something I've never seen before," Oates said.At least 24 people were being treated at Denver-area hospitals, some of them for chemical exposure apparently related to canisters thrown by the gunman. Some of those hurt were children, including a 4-month-old baby, who was treated a hospital and released.Police released a statement from Holmes' family: "Our hearts go out to those who were involved in this tragedy and to the families and friends of those involved."The movie opened across the world Friday with midnight showings in the U.S. The shooting prompted officials to cancel the red-carpet premiere in Paris, with workers pulling down the display at a theater on the Champs-Elysees. Around the U.S., police and some movie theaters stepped up security for daytime showings of the movie, though many fans waiting in line said they were not worried about their safety.President Barack Obama said he was saddened by the "horrific and tragic shooting," pledging that his administration was "committed to bringing whoever was responsible to justice, ensuring the safety of our people, and caring for those who have been wounded."It was the worst mass shooting in the U.S. since the Nov. 5, 2009, attack at Fort Hood, Texas. An Army psychiatrist was charged with killing 13 soldiers and civilians and wounding more than two dozen others.In Colorado, it was the deadliest since the Columbine High School massacre on April 20, 1999, when two students opened fire in the Denver suburb of Littleton, killing 12 classmates and a teacher and wounding 26 others before killing themselves. Columbine High is about 12 miles from the theater.Friday's attack began shortly after midnight at the multiplex theater.The film has several scenes of public mayhem  a hallmark of superhero movies. In one scene, the main villain Bane leads an attack on the stock exchange and, in another, leads a shooting and bombing rampage on a packed football stadium.The gunman released a gas that smelled like pepper spray from a green canister, Seeger said. "I thought it was showmanship. I didn't think it was real," she said.Seeger said she was in the second row, about four feet from the gunman, when he pointed a gun at her face. At first, "I was just a deer in headlights. I didn't know what to do," she said. Then she ducked to the ground as the gunman shot people seated behind her.She said she began crawling toward an exit when she saw a girl of about 14 "lying lifeless on the stairs." She saw a man with a bullet wound in his back and tried to check his pulse, but "I had to go. I was going to get shot."Witness Shayla Roeder said she saw a teenage girl on the ground bleeding outside the theater. "She just had this horrible look in her eyes. .... We made eye contact and I could tell she was not all right," Roeder said.Police, ambulances and emergency crews swarmed on the scene after frantic calls started flooding the 911 switchboard. Officers came running in and telling people to leave the theater, Salina Jordan told the Denver Post. She said some police were carrying and dragging bodies.Hayden Miller told KUSA-TV that he heard several shots. "Like little explosions going on and shortly after that we heard people screaming," he told the station. Hayden said at first he thought it was part of a louder movie next door. But then he saw "people hunched over leaving theater."

Bank bailout fails to ease fears for Spain

 

Concerns about Spain's crippling financial problems flared again Friday as even news that the country had been given the final go-ahead for a bank bailout loan of up to €100 billion ($122.9 billion) failed to take the sting out of a further round of bad economic news.Earlier Friday, finance ministers from the 17 countries that use the euro unanimously approved the terms for a bailout loan for Spain's banks, which have been struggling under the weight of toxic loans and assets from the collapse of the country's property market. Investors have been fighting shy of Spain for months, worried that the country could not keep control of its deficit during a recession while supporting its stricken financial sector.Spain is the 17-country eurozone's fourth-biggest economy and many market-watchers fear that if it asked for a bailout, the rest of the region could not afford to foot the bill. The country and its banks were also locked in a vicious debt spiral, where the shaky banking system has been propped up by the indebted government so that the banks could buy more government debt. The loan facility agreed to on Friday was designed to break that spiral.The bank agreement came as Spain cut its growth forecast and one of the country's heavily indebted regions asked for help. The news sent the country's borrowing costs soaring and its stock prices plummeting. In afternoon trading, Spain's main IBEX index was down almost 6 per cent while the interest rate on the country's 10-year bond an indicator of investor confidence in a country's ability to manage its debt was at 7.2 percent. This is a rate that many market-watchers consider is too high a price for a country to pay in the long term.Treasury Minister Cristobal Montoro on Friday forecast Spain's recession will drag on into 2013, although the economy will not be quite as weak as it now. According to the latest figures, the country's gross domestic product is expected to contract 0.5 percent in 2013,compared with the previous forecast for it to grow by 0.2 percent.Unemployment, which is now at 24.4 percent, will remain about the same next year, Montoro said.Meanwhile, the economy will shrink 1.5 percent this year, a slight improvement from the 1.7 percent drop previously predicted, he added.Also Friday, the region of Valencia that it would become the first to tap a fund designed to help out Spain's 17 semi-autonomous regions. Many Spanish regions are so heavily in debt due to overspending and the burst real estate bubble that they cannot raise money at affordable rates. As a result, they are struggling to repay creditors and settle contract bills.The fund for the regions was created only last Friday and will have €18 billion ($22 billion) in capital. A third of that is a loan from the state-owned company that runs Spain's many lotteries.The government this week passed painful austerity measures tax hikes and cuts to benefits, salaries and pensions  to reduce state debt and strengthen confidence in its finances.Spaniards staged massive anti-austerity protests in 80 cities and towns across the country Thursday night. Police say 15 people were arrested and 39 people injured overnight in central Madrid after tens of thousands of people took part in a demonstration.Across Europe, markets tumbled on concerns about Spain. In France, the CAC 40 index dropped 2.14 per cent while the German DAX index was off 1.9 percent. The euro fell to a two-year low of $1.2165.

Here is a round-up of what else is happening around Europe:

BRUSSELS

Finance ministers from the 17 countries that use the euro unanimously approved the terms for a bailout loan for Spanish banks of up to €100 billion ($122.9 billion).

As part of the deal the "eurogroup" of ministers called Friday for strict monitoring of the banks that receive the aid. It also requires the Spanish government to present this month plans to reduce its budget deficit to under 3 percent of the country's €1.1 trillion ($1.34 trillion) gross domestic product by 2014."The eurogroup is convinced that the reforms attached to this financial agreement will contribute to ensuring a return of all parts of the Spanish banking sector to soundness and stability," the finance ministers said in a statement.Christine Lagarde, the head of the International Monetary Fund, welcomed the agreement."The implementation of these measures will contribute to significantly strengthen Spain's financial system, an essential step in restoring growth and prosperity in the country," she said in a statement.The agreement, which will be signed in the next few days, calls for an initial disbursement of €30 billion ($36.9 billion) this month. The full amount of money needed to shore up Spain's banks will not be known until September, after individual banks have been assessed."The aim of this program is very clear: to provide Spain with healthy, effectively regulated and rigorously supervised banks, capable of nurturing sustainable economic growth," Olli Rehn, the European monetary affairs commissioner said in a statement.

FRANCE

France's corporations and wealthy people were in the line of fire Friday, when the country's lower house of parliament passed a revised 2012 budget on Friday to raise €7.2 billion ($8.8 billion) in new revenue.The bill, drawn up by President Francois Hollande's Socialists, reverses many of the measures passed under the former conservative president, Nicolas Sarkozy, including: tax breaks on overtime, a lower wealth tax and a reduction in the social charges that employers pay into the state benefit system.The measures were necessary if Hollande's administration is going to stick to a strict schedule for reducing the deficit while growth continues to slip. The amendments assume the country will grow just 0.3 percent this year. The Socialists have said they are committed to reducing the deficit to 4.5 percent of France's gross domestic product this year and 3 percent next.France's €2 trillion ($2.4 trillion) economy is the second largest after Germany's among the 17 countries that use the euro.

ITALY

Italy's Premier Mario Monti admitted Friday that the eurozone debt crisis had spread to Italy and that the country must try to avoid taking a bailout.He emphasized that Italy does not need further budget measures to raise revenue and shore up public finances.Monti was asked to form a government late last year after weeks of market turmoil over Italy's stagnant growth and high public debt  which at €1.9 trillion ($2.6 trillion) is nearly 120 percent of GDP  forced the previous Prime Minister, Silvio Berlusconi out of office.Italy's borrowing costs have risen steadily in recent weeks due to fears that the government will not be able to handle this high debt load as the country's economy stagnates.Many of the country's debts are due soon, with Italy having to roll over more than €300 billion ($410 billion) of its debts next year alone. On Friday, the 10-year bond yield was up 0.25 percentage points at 6.15 percent, while the FTSE MIB stock index dropped 4.38 percent.

NEWS,06.07.2012

Cyprus urges fair eurozone debt-sharing

 

Financially troubled Cyprus, which this week took over the EU helm, complained on Friday of falling "unfairly" foul to Europe's debt crisis and urged eurozone nations to share debt according to size.Speaking days after applying for an EU-IMF bailout, Finance Minister Vassos Shiarly complained that his tiny island nation went into the red only after paying "a very heavy price" to enable Greece to write off more than 100 billion euros of debt owed to private banks.The March "haircut" deal, known as private sector involvement (PSI), was negotiated in months of talks among private, public and global players to slice around 50% off monies owed by Greece to the banks, to lighten its crippling debt.Because Cypriot banks held massive amounts, Cyprus lost €4.2bn euros, amounting to 24% of its gross national product, Shiarly said."This was not a fair way to deal with it," the minister told a news conference held as the country takes the six-month rotating presidency of the European Union."It was a European problem," he added. "I believe we should have shared that loss fairly on a level playing field."Given that Cyprus accounts for 0.2% of the total economies of the 17 nations sharing the euro, the country would have lost only 200 million euros under a fair share-out, amounting to "petty cash," he said.The minister said he would likely raise this issue in talks to negotiate an EU-IMF loan for the country.Shiarly refused to put a figure on a rescue being sought by Cyprus from the eurozone bailout fund until the completion of an inquiry in Cyprus by the "men-in-black" inspectors of the European Commission, European Central Bank and International Monetary Fund.He denied that Cyprus had officially asked for loans from Russia or China but confirmed it had been in contact and said: "If and when it comes we will discuss it with our parTners in Europe and deal with it then."President Demetris Christofias said this week that the country was looking at loans both from Russia and the eurozone to see it through tight times.He also suggested that a loan from Moscow was likely to come with far more favourable conditions than any rescues agreed by the EU and IMF, which come with assorted demands for economic change and reform.The finance minister brushed aside worries that the troika could demand Cyprus increase its attractively low 10 percent corporate tax to levels practised in other eurozone nations, in exchange for a loan.Recalling that Ireland, one of four other eurozone nations to call for a rescue, had managed to maintain its corporate tax rate at 12.5 percent, Shiarly said "I'm very confident that no such requirement or conditionality will be raised."He also voiced confidence that the troika would take into account Cyprus's huge PSI loss and denied that it faced a short-term cash crunch, saying it could refinance short-term treasury bills using local funds.Asked who might be the next victim of Europe's debt crisis, which has claimed Greece, Portugal, Ireland, Spain and Cyprus, Shiarly said "there should be no stigma" attached to asking for help from the eurozone's bailout funds, the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM)."One should not demonise an application," he said. "Specially not to a fund like the ESM or EFSF, which is a fund to which all countries contribute."

Finland will not cover the eurozone debt tab

Finland has no intention of footing the bill to cover the debt of other countries in the eurozone, Finnish Finance Minister Jutta Urpilainen said in a newspaper interview on Friday."Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for," Urpilainen told financial daily Kauppalehti.The newspaper interpreted her comments as an indication that Finland would consider leaving the eurozone instead of agreeing to pay down the debt of other countries in the currency bloc."Finland will not hang itself to the euro at any cost and (is) prepared for all scenarios," Kauppalehti wrote.Urpilainen's spokesman Matti Hirvola rejected that interpretation, insisting to AFP that "all claims that Finland would leave the euro are simply false."Urpilainen herself stressed in Friday's interview that "Finland is committed to being a member of the eurozone, and we think that the euro is useful for Finland."However, amid the deepening debt crisis in the bloc, she told Kauppalehti that Finland, one of only a few EU countries to still enjoy a triple-A credit rating, would not agree to an integration model in which countries are collectively responsible for member states' debts and risks.She also insisted that a proposed banking union would not work if it was based on joint liability.Urpilainen acknowledged in an interview with the Helsingin Sanomat daily on Thursday that Finland "represents a tough line" when it comes to the eurozone bailouts."We are constructive and want to solve the crisis, but not on any terms," she said.As part of its tough stance, Finland has said it will begin negotiations with Spain next week in order to obtain collateral in exchange for taking part in a bailout for ailing Spanish banks.And last year, Finland created a significant stumbling block for the eurozone's second rescue package for Greece, only agreeing to take part after striking a collateral deal with Athens in October 2011.

NEWS,05.07.2012

European Central Bank cuts rates to new low

 

The European Central Bank cut its key interest rate by a quarter percentage point Thursday to a record low 0.75 percent to try to help ease Europe's financial crisis and boost its sagging economy.The action, which was widely expected, is meant to make it cheaper for businesses and consumers to borrow and spend money. But experts said that fear over the economy was so high in Europe that the cut might only have limited effect.In a more surprising move, the ECB cut the interest rate it pays banks on overnight deposits by a quarter percentage point to zero. This pushes banks to lend the money, rather than sock it away with the ECB.ECB President Mario Draghi said the eurozone economy would recover only gradually. Some of the risks foreseen from the debt crisis had already materialized, pushing the bank to act, he said.Analysts warned the rate cut might do little to jolt the eurozone economy back to life, however. Borrowing rates are already low, but businesses and households are not spending money because they are afraid of the economic outlook.Draghi said there is more the ECB could do to stimulate growth "we still have all our artillery ready" and that low inflation gives the bank more wiggle room. However, he suggested no further actions were imminent.Stock markets initially rose after the news, but the gains faded as investors worried about a slowdown in the global economy. Germany's DAX stock index fell 0.5 percent and the Dow 0.2 percent. The euro was down 1.1 percent at $1.2380."Today's ECB interest rate cut does little to alter the bleak economic outlook," said Jennifer McKeown, analyst at Capital Economics.She said the ECB is likely to now wait and see how the financial markets and the economy react to the rate cut and to the new emergency measures announced by European leaders last week.The leaders agreed to make it easier for troubled countries and banks to receive rescue loans from Europe's bailout fund and also signaled greater willingness to use emergency funds to purchase government bonds. The goal would be to drive down troubled countries' borrowing costs. They also agreed to create a single Europe-wide banking regulator to prevent bank bailouts from wrecking individual cuntries'government finances.Collectively, the moves sent a message to financial markets that leaders from the 17 countries that use the euro could work together to fix their problems. They also helped lower the high borrowing costs for financially stressed countries such as Italy and Spain, the euro region's third- and fourth-largest economies.Lending activity in the eurozone has remained weak because businesses are not asking for credit because of the slow economy and out of fear that the eurozone may suffer a further financial calamity. Concerns remain that bankrupt Greece could eventually leave the euro, causing more turmoil, or that Spain and Italy could need bailouts that would strain the resources of donor countries.Joerg Kraemer, chief economist at Commerzbank, said the cut wouldn't fix what was wrong. The reason the eurozone economy is weak is not because of "high ECB rates but because of uncertainty stemming from the sovereign debt crisis. This can't be cured by lower rates."The cut to the refinancing rate will give some further relief to banks by lowering the rate they pay on the €1 trillion in cheap emergency loans they took from the ECB Dec. 21 and Feb. 29, the bank's chief emergency measure. The rate on that money is the average refinancing rate over the life of the loan, which can be up to three years. Lower costs on that money means they can earn more when they use it to buy higher yielding investments such as gThe cut in the deposit rate is meant to push banks to stop using the ECB as a safe haven by parking money there overnight. Before the debt crisis exploded, banks would deposit about €50 billion with the ECB overnight. That ballooned as the crisis made banks wary of investing or lending money. On Wednesday, banks had placed €790 billion with the ECB overnight.There are other safe havens for banks to place their money government bonds of financially strong countries like Germany, for example. But a central bank is considered the ultimate safe haven since it can print money at will.The eurozone crisis has battered investor confidence for 2 ½ years. It has seen Greece, Ireland and Portugal need bailouts from the other eurozone countries and the International Monetary Fund to keep paying their debts and covering their budget deficits. Spain has asked for as much as €100 billion in rescue loans for its banks.Earlier in the day, the central banks of China and Britain took action to stimulate their economies.The Bank of England decided to purchase another 50 billion pounds in government bonds from financial institutions. The hope is that the banks will use the extra cash to lend to businesses and households.China's central bank, meanwhile, cut interest rates for the second time in a month to shore up its economy, the second-largest in the world. Interest on a one-year loan was reduced by 0.31 percentage points to 6 percent effective Friday. Chinese authorities have rolled out a series of stimulus measures since March after economic growth slowed to a nearly three-year low of 8.1 percent in the first quarter.In the U.S., weak economic indicators have raised speculation that the U.S. Federal Reserve may also have to do more to keep the U.S. economy growing. Some think the Fed might carry out a third round of bond purchases aimed at driving down interest rates on business and consumer loans.The Fed took more limited action at its meeting ending June 17, extending its so-called Operation Twist effort in which it sells short-term bonds and buys longer-dated issues to push down long term interest rates. The Fed meets next Aug. 1.

NEWS, 10.06.2012.

Euro zone agrees to lend Spain up to $162b

 

Euro zone finance ministers have agreed to lend Spain up to 100 billion euros ($162 billion) to save its stricken banks and try to avert a broader financial catastrophe.Fellow finance ministers in the 17-nation euro zone accepted a plea from Spain in a statement released after a conference call lasting around two and a half hours.The Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts."The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion euros in total," Eurogroup said in a statement.Spain said it wanted aid for its banks but would not specify the precise amount until two independent consultancies Oliver Wyman and Roland Berger - deliver their assessment of the banking sector's capital needs some time before June 21."The Spanish government declares its intention to request European financing for the recapitalisation of the Spanish banks that need it," Economy Minister Luis de Guindos told a news conference in Madrid.He said the amounts needed would be manageable, and that the funds requested would amply cover any needs.A bailout for Spain's banks, beset by bad debts since a property bubble burst, would make it the fourth country to seek assistance since Europe's debt crisis began.With the rescue of Greece, Ireland, Portugal and now Spain, the EU and IMF have now committed around 500 billion euros ($811b) to finance European bailouts.Washington, which is worried the euro zone crisis could drag the US economy down in an election year, welcomed the announcement."These are important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area," Treasury Secretary Timothy Geithner said.Heated debate Officials said there had been a heated debate over the International Monetary Fund's role in Spain's bank rescue, which Madrid wanted kept to a minimum. It will not provide any of the money.In the end it was agreed that the IMF would help monitor reforms in Spain's banking sector, while EU institutions would ensure Spain stuck to its broader economic commitments.IMF Managing Director Christine Lagarde said the euro zone's plan was consistent with the IMF's estimate of the capital needs of Spain's banks and should provide "assurance that the financing needs of Spain's banking system will be fully met".Sources involved in the talks said there had also been pressure applied on Madrid to make a precise request right away, but Spain had resisted.Euro zone policymakers are eager to shore up Spain's position before June 17 elections in Greece which could push Athens closer to a euro zone exit and unleash a wave of contagion. Spain's auditors could report back after that date.Nonetheless, analysts said financial markets may be calmed by the announcement when they reopen on Monday."The figure of up to 100 billion ($162 billion) is more encouraging and pretty realistic; it's an attempt to cap the problem," said Edmund Shing, European head of equity strategy at Barclays."The issue, however, is there is still a lack of detail about where the money's coming from, which is crucial. The market will treat it with some caution until they see how it will be funded."The Eurogroup said the funds could come from either from the euro zone's temporary rescue fund, the EFSF, or the permanent mechanism, the ESM, which is due to start next month. Finland said that if money came from the EFSF, it would want collateral.EU sources said there was a preference to channel money to Spain through the ESM, rather than the EFSF. Under the ESM, an approval rate of 90% or less is needed to trigger aid, and the fund also has more flexibility in how it operates."That's why it's so important that the ESM ... be ratified quickly," German Finance Minister Wolfgang Schaeuble said.The Spanish government has already spent 15 billion euros ($24b) bailing out small regional savings banks that lent recklessly to property developers. Spain's biggest failed bank, Bankia, will cost 23.5 billion euros ($38b) to rescue and its shareholders have been wiped out."Whatever the formula being used, we need to say two things: first the innocent should not suffer for the guilty, second public money should come back to public coffers," said Socialist opposition chief Alfredo Perez Rubalcaba after speaking with Prime Minister Mariano Rajoy on Saturday morning.Light conditions The race to resolve the banks' troubles comes after Fitch Ratings cut Madrid's sovereign credit rating by three notches to BBB, highlighting the Spanish banking sector's exposure to bad property loans and to contagion from Greece's debt crisis. It said the cost to the Spanish state of recapitalising banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between 60-100 billion euros ($97-162b). Italy could yet get dragged in too. Its industry minister, Corrado Passera, said the economic situation in Italy had improved since the end of 2011, but remained critical. "Europe was more disappointing than we had expected, it was less capable of tackling a relatively minor problem such as Greece," Passera told a conference on Saturday.While Spain would join Greece, Ireland and Portugal in receiving a European financial rescue, officials said the aid would be focused only on its banking sector, without taking the Spanish state out of credit markets.That would be crucial to avoid overstraining the euro zone's rescue funds, which would struggle to cover Spanish government borrowing needs for the next three years plus possible additional assistance for Portugal and Ireland.Conditions in the plan did not appear to add to the austerity measures and structural economic reforms which Rajoy's government has already put in place."Since the funds being asked for are to attend to financial sector needs, the conditionality, as agreed in the Eurogroup meeting, will be specifically for the financial sector," de Guindos said.EU and German officials have cited national pride in the euro zone's fourth largest economy as a barrier to requesting a full assistance programme.The European Commission and Germany both agreed in principle last week that Spain should be given an extra year to bring its budget deficit down below the EU limit of 3% of gross domestic product because of a deep recession.The Eurogroup also said money could be funnelled to Spain's FROB bank fund although the government would "retain the full responsibility of the financial assistance".Irish Finance Minister Michael Noonan said the funds would be provided through the EFSF or ESM at the same interest rates which apply to funds provided to other bailout countries.