NEWS,26.11.2012

Obama drafts Geithner to crack budget

US President Barack Obama has made Treasury Secretary Timothy Geithner lead White House negotiator in budget talks with Congress aimed at averting the fiscal cliff, a report said Monday The Wall Street Journal said Geithner was viewed on Capitol Hill as a straight-shooter who had a better chance of brokering a deal than Jacob Lew, Obama's former budget chief who has burnt his bridges with some Republicans.If no deal is reached before the end of the year, a poison pill law of tax hikes and massive spending cuts, including slashes to the military, comes into effect with potentially catastrophic effects for the fragile US economy.The report said Geithner, who is preparing to leave his post as treasury secretary early in Obama's second term, has spent months already preparing for the fiscal talks, which will begin this week in earnest in Washington.Geithner will be joined by White House budget and tax experts, including Lew, now Obama's chief of staff, and National Economic Council Director Gene Sperling, the Wall Street Journal said.They will try to hammer out an elusive compromise with congressional aides but final decisions will be made by political leaders such as Obama and Republican House Speaker John Boehner, the report said.In recent days, several leading Republicans have indicated a willingness to accept a deal that includes more revenue from ending loopholes in the tax code in return for cuts in funding to Democrats' beloved welfare programs.Geithner, 51, is not affiliated with any party and has spent his career in government finance and on the political sidelines.He first joined the Treasury at age 27. When George W. Bush became president in 2001, he went to work for the Council on Foreign Relations and the International Monetary Fund.At 42, he was tapped to be head of the Federal Reserve Bank of New York, considered the Fed's second-most influential post because the New York bank interacts directly with a powerful constituency that includes Wall Street.Despite holding high office in the years leading up to the 2008 financial collapse, when regulatory authorities are accused of having been asleep at the wheel, he was tapped by Obama to lead the recovery.Upon assuming office in early 2009, he was charged with overseeing two major bailout packages worth more than $1.5 trillion and aimed at shoring up the country's distressed banking sector.The administration has said that the stimulus, while costly, averted another Great Depression, while conservative critics have branded it a costly expansion of government that has failed to revive the economy.

 

Medvedev does not rule out Kremlin return

Prime Minister Dmitry Medvedev said he is not ruling out a return to the Kremlin after his 2008-2012 single term as Russian head of state but was happy working as premier under his mentor Vladimir Putin."If I have sufficient strength and health, if our people trust me in the future with such a position, then of course I do not rule such a turn of events," Medvedev said in an interview with Agence France-Presse and Le Figaro when asked if he had the ambition for another Kremlin term.Medvedev, who on Monday embarks on a working visit to France, served as president after Putin stepped aside following the maximum two consecutive terms allowed by the constitution after his 2000-2008 stint.But Putin, aged 60, stayed on as a powerful prime minister and Medvedev, aged 47, never fully emerged from the shadow of his fellow Saint Petersburg native, an impression strongly reinforced when Putin returned to the Kremlin in May 2012.Medvedev, who in turn was then appointed prime minister in May, failed to bring about lasting change through a much-trumpeted modernisation programme in his one term as president.But in his interview with AFP, he revealed he had not lost his political ambition. "This returning to the presidency depends on a whole range of factors." "Never say never, especially as I swam in that river once and this is a river that you can swim in twice," he said.Russia will only go to the polls to vote for a president again in March 2018 and in the next half decade society is expected to see major change as the middle class grows and internet use explodes. Putin has also not ruled out standing again.This year's tightly choreographed job swap was criticised for being played out far from the public, and frustration over the return of Putin to the Kremlin fuelled the opposition protests that rocked Russia in the last year.Medvedev acknowledged the protests that began last December had shown a transformation in Russian society that the authorities could no longer ignore."Our society changed, it had become more active and the authorities needed to take account of this and react," said Medvedev, saying the government had done this by introducing electoral reform.Some of Medvedev's supporters who saw him as a possible champion of a refreshed, innovative and more pro-Western Russia were hugely disappointed by his apparent surrender of the Kremlin back to Putin.But Medvedev played up the tight links between the two men, saying he would find it impossible to work under anyone else."I would hardly have become prime minister under another president, I cannot imagine it at all," he said."If there is someone you can work with comfortably as prime minister after being president it is just one person, Vladimir Putin."However Medvedev has distanced himself from Putin on some issues, notably the case of feminist punk rockers Pussy Riot, two of whom have been sent to prison camps for performing a song against the Russian strongman in a church.Reaffirming his belief that they should be released, he said: "I think they have already tasted what prison is... So further punishment in the form of prison is not necessary. This is my personal position."On the case of Russia's best known prisoner, the former tycoon Mikhail Khodorkovsky, Medvedev said court decisions had to be respected but noted that the convict had never made a bid for clemency from the Kremlin.Medvedev admitted that his modernisation drive had so far fallen short but expressed hope there was still time to put his ideas into place."It's true that for the moment modernisation has not turned into a national idea and there has been no kind of radical progress reached."

 

Euro zone to seek Greek aid deal without write-off

Euro zone finance ministers and the International Monetary Fund made their third attempt in as many weeks to agree on releasing emergency aid for Greece today, with policymakers saying a write-down of Greek debt is off the table for now.Greek Finance Minister Yannis Stournaras said he was confident the ministers would reach a deal after Greece fulfilled its part of the deal by enacting tough austerity measures and economic reforms."I'm certain we will find a mutually beneficial solution today," he said on arrival for what was set to be another marathon meeting.Greece, where the euro zone's debt crisis erupted in late 2009, is the currency area's most heavily indebted country, despite a big "haircut" this year on privately-held bonds. Its economy has shrunk by nearly 25% in five years.EU Economic and Monetary Affairs Olli Rehn said it was vital to disburse the next 31 billion euro tranche of aid "to end the uncertainty that is still hanging over Greece". He urged all sides to "go the last centimetre because we are so close to an agreement".Negotiations have been stalled over how Greece's debt, forecast to peak at 190-200% of GDP in the coming two years, can be cut to a more sustainable 120% by 2020.Without agreement on how to reduce the debt, the IMF has held up payments to Athens because there is no guarantee of when the need for emergency financing will end.The key question is: Can Greek debt become sustainable without the euro zone writing off some of the loans to Athens?IMF Managing Director Christine Lagarde said on arrival that the solution must be "credible for Greece".A source familiar with IMF thinking said the global lender was demanding immediate measures to cut Greece's debt by 20 percentage points of GDP, with a commitment to do more to reduce the debt stock in a few years if Greece fulfills its programme.Under the source's scenario, Greece's debt could be reduced to around 125% of GDP by 2020 using a variety of methods including a debt buyback, reducing the interest rate on loans and returning euro zone central bank 'profits' to Greece, but further steps would still be needed to hit the 120% goal.The ministers took an extended break in mid-afternoon while experts worked on how to formulate a link between short-term measures and a credible assurance of eventual debt relief.Germany and its northern European allies have so far rejected any idea of forgiving official loans to Athens.German Finance Minister Wolfgang Schaeuble told reporters on arrival that a debt cut now was legally impossible, not just for Germany but for other euro zone countries, if it was linked to a new guarantee of loans."You cannot guarantee something if you're cutting debt at the same time," he said. That might not preclude debt relief at a later stage if Greece has completed its adjustment programme and no longer needs new loans.The source familiar with IMF thinking said a loan write-off once Greece has established a track record of compliance would be the simplest way to make its debt viable, but other methods such as foregoing interest payments, or lending at below market rates and extending maturities could all help.The German banking association (BDB) said a fresh "haircut" or forced reduction in the value of Greek sovereign debt, must only happen as a last resort.Two European Central Bank policymakers, vice-president Vitor Constancio and executive board member Joerg Asmussen, said debt forgiveness was not on the agenda for now.Asmussen told Germany's Bild newspaper the package of measures would include a substantial reduction of interest rates on loans to Greece and a debt buy-back by Greece, funded by loans from a euro zone rescue fund.So far, the options under consideration include reducing interest on already extended bilateral loans to Greece from the current 150 basis points above financing costs.How much lower is not yet decided - France and Italy would like to reduce the rate to 30 basis points (bps), while Germany and some other countries insist on a 90 bps margin.Another option, which could cut Greek debt by almost 17% of GDP, is to defer interest payments on loans to Greece from the EFSF, a temporary bailout fund, by 10 years.The European Central Bank could forego profits on its Greek bond portfolio, bought at a deep discount, cutting the debt pile by a further 4.6% by 2020, a document prepared for the ministers' talks last week showed.Not all euro zone central banks are willing to forego their profits, however, the German Bundesbank among them.Greece could also buy back its privately-held bonds on the market at a deep discount, with gains from the operation depending on the scope and price. Officials have spoken of a 10 billion euro buy-back at around 30 cents on the euro, that would retire around 30 billion euros of debt, although since the idea was raised the potential gain has fallen as prices have risen.But the preparatory document from last week said that the 120% target could not be reached in 2020, only two years later, unless ministers accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount.The latest analysis for the ministers showed the debt could come down to 125% of GDP in 2020, one euro zone official with insight into the talks said.

NEWS,22.11.2012

Summit fatigue leads to bad decisions

The European Union may have won the Nobel Peace Prize this year, but to many EU leaders, officials, diplomats and even journalists, it can feel more like a torture chamber.Increasingly, Europe is governed at night by leaders in an advanced state of exhaustion, disregarding scientific evidence that this can lead to bad decisions, or non-decisions.Over the past three years, the EU has held 25 summits to try to tackle its debt crisis and related economic turmoil, with few of those meetings ending before 3 or 4 am, usually after 12 hours or more of near-fruitless negotiation. Add to that more than 40 finance ministers' meetings, the most recent of which ended at 5 am on Wednesday, again without agreement, and it is easy to see how a set of institutions designed to foster peace and stability in Europe can end up delivering frustration, angst and head-numbing pain."I'll put it this way: I woke up at 5 am or 5:30 am yesterday and we ended in the morning around 4 am," Slovak Prime Minister Robert Fico complained after the last, largely unsuccessful summit in October. "This is how all of us operate, we adopt very serious decisions under pressure," he said, referring to the EU's increasingly weary heads of state and government. The EU's 27 leaders gathered for another summit on Thursday and Friday, this time to try to hammer out an agreement on around €1 trillion ($1.3 trillion) of spending over the next seven years. It promises to be a bruising clash of national interests rather than the model of reconciliation and harmony commended by the Nobel committee, although it will still be "jaw, jaw" rather than "war, war". Gatherings to negotiate the long-term budget only happen every 6 or 7 years and are notorious for running over deadline and for being extremely hard-nosed and ill-tempered affairs. Former British Prime Minister Tony Blair described his experience of it in 2005 as the most difficult negotiation he handled while in office, tougher even than the 1998 Northern Ireland peace talks that led to the Good Friday agreement. Already EU officials are warning that these budget talks could run into Saturday and Sunday, making it what is known in diplomatic circles as a "four-shirt" summit.Staff at the European Council in Brussels, where EU leaders meet, have been told to be ready to work into Saturday at least. British Prime Minister David Cameron has cleared his schedule for the entire weekend, a spokesperson said. French President Francois Hollande has done the same. Journalists, around 1 500 of whom are accredited to cover the meeting, took up residence in the vast glass and steel entrance hall on Thursday morning and will stay encamped there until a deal is done, or negotiations break down. The effect on the EU's public image among its 500 million citizens is unedifying."It's not exactly glamorous and some would say it's downright torture," said one EU diplomat, a veteran of at least 30 EU summits. "Everyone gets extremely fed up."Sweden has organised extra bedding for its diplomats to take a rest in their delegation room if necessary.Bad decision making? The larger issue, though, is whether the pressure-cooker atmosphere and endlessly drawn-out negotiating schedule is conducive to good decision-making.Everyone knows that drivers should take a rest after four or five hours at the wheel to avoid accidents. Shouldn't the leaders of nation states take the same precaution lest they take a bad decision that might run their country off the road?A study published by three academics in the Proceedings of the National Academy of Sciences in the United States last year showed that a judge's willingness to grant parole can depend to a large extent on how tired he or she is and when they last ate.The study examined more than 1 000 parole decisions made by experienced judges over a 10-month period. It found that the more decisions judges have to make, the more difficult it becomes to stay consistent, they get decision fatigue."The theory determines that decision-making capacity is a limited resource, and when many decisions are made in sequence, the mental capacity diminishes," Professor Shai Danziger of Ben-Gurion University, one of the authors, said at the time.That could be a lesson for EU leaders and the political advisers, diplomats and hangers-on who have to help them make the right decisions time and again for days in a row.One experienced EU ambassador, a veteran of multiple foreign postings in high-pressure places, said a lesson could be drawn from how Israel handles Middle East talks.When the Oslo peace accords were being negotiated with the Palestinians in the mid-1990s, Israel would change its negotiating team every six hours or so to avoid fatigue and the risk of mistakes."No one can negotiate at full capacity for more than six hours at a time, you just can't concentrate that long," the ambassador said. "They wanted to make sure they had a fresh team that was at its sharpest."China has employed similar tactics in business and trade negotiations, officials say.By contrast, EU leaders will have at least 12 straight hours of negotiation on each of the next two days and more if the meeting drags on into the weekend.And if that isn't enough, there's another meeting of finance ministers starting on Monday evening.

Lessons of the Gaza War

Now that the cease-fire between Israel and Hamas has begun to take effect (at least for now), it's time to begin to assess the outcome of the war, and where we go from here.

1. The big star and game changer is the Iron Dome anti-missile defense system. Without it, there would have been many more Israeli casualties, and the Netanyahu government would undoubtedly have sent ground troops into Gaza. Look for the immediate hot topic in security circles to be anti-missile defense systems, and look for American aid to Israel to increase on this front. President Obama has already indicated his support.
2. Israel often has a hawkish reputation, but it is amazing that it has watched as Hamas and Hezbollah on its southern and northern borders gradually escalated missile capabilities. We Americans wouldn't have done that if some group developed much less of a capability on our Canadian or Mexican borders, let alone both. Look for Israeli hawks and doves to both argue that their analysis was correct, and recommend policies accordingly.
3. Hamas is a big winner. Even in the last hours of the conflict, it was still capable of attacking Israel. Look for an enhanced Hamas prestige among Palestinians and in the Arab world. More troubles for the U.S., Israel, and the Palestinian Authority.
4. But, at least in the short term, look for a longer term truce and the dramatic reduction of missiles from Gaza raining on Israel, and therefore a limit on Israeli retaliations. Look for both sides to declare victories; greater standing for Hamas, and enhanced deterrence for the Israelis.
5. The new Islamist Egyptian government performed well in becoming the main sponsor of the cease-fire agreement, but the Sinai -- the conduit for arms to Gaza -- has become more lethal than ever. Look for pressure to increase on Egypt to do something about Sinai, and for quiet discussions calling for the addition of western advisers to help to regain Cairo's control. Egypt's role in the cease-fire and its weakness in Sinai could and should actually enhance the Israeli-Egyptian peace treaty if it is handled properly.
6. Iran is a big winner. It managed to provide the missiles to Hamas via Sudan and through the Sinai that had the greatest psychological impact on both Israelis and Arabs alike by seeming to threaten Tel Aviv and even Jerusalem.
7. At the same time, the confrontation with Iran becomes more complex, as there will be mixed interpretations of the meaning of the Gaza War. On the one hand, there will be less enthusiasm for an attack on its developing nuclear weapons program among the already wary Israeli public and a significant number of security specialists, reinforced by American and European caution. On the other hand, others will argue that the Hamas arsenal suggests that a nuclear Iran would be even more dangerous. Look for intensified disputes in the months to come about a possible attack on Iran, even tougher sanctions, and more pressure on President Obama to both try to reach a negotiated settlement on that front and to consider American action.
8. Similarly, as suggested in the cease-fire agreement, there will be alleviation of the already-diminished Israeli blockade of Gaza. Look for much greater flexibility on civilian goods entering Gaza and much more attention to the passage of Libyan and Iranian arms (through Sudan to Egypt) to Hamas.
9. The Palestinian Authority under Mahmoud Abbas is a big loser. It will be more difficult than ever to bolster the Fatah leadership on the West Bank as Hamas grows in stature. The United States will be challenged to provide more economic aid and more diplomatic activity on the peace process. Look for much more attention to the Israeli-Palestinian peace process than at any time since mid-2011, when President Obama's initiative at the time quickly fizzled.
10. American efforts will be more complicated than ever because of the imminent Palestinian bid to become a non-member observer state at the UN. At least in the short term, membership will strengthen Abbas, but the missile war with Israel strengthens the possibility of Hamas leadership. The U.S. cannot afford Hamas, an ally of Iran, potentially representing Palestine at the UN, should Abbas weaken further. Look for the U.S. to try to square the circle by increasing its opposition to the Abbas UN initiative, and simultaneously attempting to strengthen Abbas through economic aid and the resumption of diplomacy on the peace process front. That might have the chance of some success if the conflict over the UN bid, now presumed to trigger diminished aid to Abbas, can somehow be resolved.

During the Gaza War, President Obama was traveling in Southeast Asia, as part of the administration's vaunted "pivot" to Asia. It's a good policy, but the Middle East followed him there. As the president contemplates new appointments in the foreign policy arena, he will have to consider that just as the U.S. necessarily begins to pay more attention to the Asian front, the conflicts and problems of the Middle East will stubbornly remain. We will be stuck with a very complex region we cannot ignore for a very long time to come.

NEWS,15.08.2012

U.K. Recession Drives More Than 1,000 To Suicide: Study

 

A painful British economic recession, rising unemployment and biting austerity measures may have driven more than 1,000 people in England to commit suicide, according to a scientific study published on Wednesday.The study, a so-called time-trend analysis which compared the actual number of suicides with those expected if pre-recession trends had continued, reflects findings elsewhere in Europe where suicides are also on the rise."This is a grim reminder after the euphoria of the Olympics of the challenges we face and those that lie ahead," said David Stuckler, a sociologist at Cambridge University who co-led the study, published in the British Medical Journal (BMJ).The analysis found that between 2008 and 2010 there were 846 more suicides among men in England than would have been expected if previous trends continued, and 155 more among women.Between 2000 and 2010 each annual 10 percent increase in the number of unemployed people was associated with a 1.4 percent increase in the number of male suicides, the study found.The analysis used data from the National Clinical and Health Outcomes Database and the Office of National Statistics.Keith Hawton, a professor at the Centre for Suicide Research at Oxford University who was not involved in the study, said its findings were "of considerable interest and certainly raise concerns", but that they must be interpreted carefully."It is also important that they are not over-dramatised in a way that might increase thoughts of suicide in those affected by the recession," he said in an emailed comment.Stuckler, who worked with researchers from Liverpool University and the London School of Hygiene and Tropical Medicine, stressed while this kind of statistical study could not establish a causal link, the power of the associations was strong. Its conclusions were strengthened by other indicators of rising mental health problems, stress and anxiety, he added.He also pointed out the study showed a small reduction in the number of suicides in 2010 which coincided with a slight recovery in male employment.A survey of 300 family doctors published by the Insight Research Group on Tuesday found that 76 percent of those questioned about the effects of the economic crisis said they thought it was making people unhealthier, leading to more anxiety, abortions and alcohol abuse.Data this month from the government's Health and Social Care Information Centre showed the number of prescriptions dispensed in England for antidepressants rose 9.1 percent in 2010.A study published last July, also by Stuckler, found that across Europe, suicide rates rose sharply from 2007 to 2009 as the financial crisis drove unemployment up and squeezed incomes.The countries worst hit by severe economic downturns, such as Greece and Ireland, saw the most dramatic increases in suicides.In Britain, there's little doubt times have been getting harder. The economy has shrunk for the last nine months and now produces 4.5 percent less than before the economic crisis.Many Britons have had the worst squeeze in living standards for 40 years and the crisis has hit young people hard, with youth unemployment soaring above 20 percent.Stuckler's BMJ study found that the number of unemployed men rose on average across Britain by 25.6 percent each year from 2008 to 2010, a rise associated with a yearly increase in male suicides of 3.6 percent."Much of men's identity and sense of purpose is tied up with having a job. It brings income, status, importance..." Stuckler said in a telephone interview."And there's also a pattern in the UK where men are three times more likely to commit suicide than women, while women are much more likely to report being depressed and seek help."Hawton noted that increases in suicides at times of economic recession had been reported before - for example in the Great Depression of the 1930s and in the economic downturn in South-east Asia during the 1990s.The World Health Organisation estimates that every year, almost a million people die from suicide - a rate of 16 per 100,000, or one every 40 seconds. It also estimates that for every suicide, there are up to 20 attempted ones.

HSBC gives US staff details for tax probe

Global bank HSBC has handed over details of current and former employees to the US authorities, it confirmed today, as part of a tax probe that almost sank rival bank UBS in 2009.As a result the bank could now face legal action from individuals whose details have been revealed, lawyers representing them said.In a letter to them seen by Reuters, the bank said it had passed on documents, in which their names appear, on the request of US authorities looking to hunt down US citizens with untaxed money held in Swiss accounts.After passing on a first set of documents earlier this year, HSBC has sent the new batch to the US Department of Justice and the Securities and Exchange Commission in an effort to reach a settlement over the investigation.HSBC lawyer Lenz & Staehelin has told lawyers acting for these employees that the documents included the minutes of executive, board and audit committee meetings, client visit reports, emails and other correspondence "We have submitted further information to the US authorities but it concerns the initial enquiry from December 2011. Client information has clearly not been submitted," HSBC Private Bank spokesman Medard Schoenmaeckers said by telephone.Banks including HSBC, Credit Suisse and Julius Baer have already passed on about 10,000 employee names in an attempt to avoid the fate of private bank Wegelin, which broke up in January under threat of indictment, bank employees and lawyers said.Credit Suisse said its cooperation with the US authorities was also in the interests of the bank and its employees. Baer declined to comment.Lawyer Douglas Hornung, who has filed a complaint against HSBC on behalf of its former chief legal counsel, said banks who handed employee names to US authorities infringed the criminal code and Swiss privacy laws.HSBC has avoided breaching strict Swiss banking secrecy laws by redacting from the documents any information that could lead to the identification of clients, said Lenz & Staehelin in a letter to lawyers acting for current and former employees of the bank.In 2009 the Swiss authorities reached a deal for UBS to pay a fine of $780 million to avert criminal charges, and ultimately agreed to allow the bank to reveal details of around 4,450 clients.Hornung said banks that hand over employee data to US officials are hoping to reduce the potentially huge fines they might face if they are found to have helped US clients avoid tax."HSBC could face a much higher fine than UBS, $1.3 to 1.4 billion would be logical. In cooperating HSBC can expect the fine to be lowered significantly," said Hornung.The benefit of such a reduction for cooperating would far outweigh anything the banks would have to pay for breaching obligations to employees in Switzerland, where the maximum fine is 5 million Swiss francs ($5.15 mln) and there are no punitive damages, Hornung said.A spokeswoman for the Swiss Attorney General confirmed that a legal complaint against HSBC had been received and said it was considering whether to open an investigation.A former HSBC employee, who asked not to be named, told Reuters he had never dealt with US clients and only realised US officials had his name during a background check when he was shortlisted for a new banking job.He was not offered the job."It can be difficult to inform former employees because as a company we don't keep records of their whereabouts. If they contact us, then we do inform them," Schoenmaeckers said.But Hornung, a partner at Geneva-based Hornung Avocats, said allegations of professional damage might be hard to prove."I have spoken to five or six people in the same situation, which means there is some chance of demonstrating a direct link between being on the list and difficulties in finding further employment," said Hornung.Bruno Seeman, a lawyer from small but locally renowned Zurich law firm Anwaltsbuero Landmann who is representing another former HSBC employee, said those wishing to sue the bank were unlikely to get any help from the largest law firms."The big five in Switzerland are all employed by the large banks, all the big commercial law firms with the capacity and know-how to act against big Swiss organisations cannot do so because it would be a conflict of interest," Seemann said."The effect is to prevent employees from approaching them because these law firms can't act against existing clients."

NEWS,28.6.2012

Europe's greatest threat

Financial markets slide towards disaster, scarcely pausing to celebrate the "success" of the Greek election or the deal to recapitalise Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank (ECB) – has been vetoed by Germany, and this pattern looks likely to be repeated next week. Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany's unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbours in any political structure ruled purely by national interests. Yet it isn't big and powerful enough to dominate its neighbours decisively, as the US dominates North America or China will dominate the Far East. Wise German politicians recognised this inherent instability after 1945 and abandoned the realpolitik of national interest in favour of the idealism of European unification. Instead of trying to create a "German Europe" the new national goal was to build a "European Germany". Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel's stated goal is now to create a "German Europe", with every nation living, working and running its government according to German rules. Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to "do their homework" and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe's leaders must therefore sart considering a previously unmentionable question, perhaps as soon as the current summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past. To be specific, the euro's only chance of survival now depends on a decisive move towards political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to "do whatever it takes to save the euro" but vetoes anything that might actually work, claiming deference to German public opinion or national interests. Europe must now call this bluff. At the summit, France, Italy and Spain can turn the tables on Merkel by presenting her with an ultimatum. Led by President Hollande, who has abandoned president Sarkozy's Gaullist pretensions of parity with Germany, the big three Mediterranean countries could agree on a programme that really might save the euro: a banking union, followed by jointly issued eurobonds and backed by ECB quantitative easing. If Merkel tried to block these policies, the others could politely invite her to leave the euro, since Germany's political pressures evidently made membership impossible on terms its partners could accept – essentially the proposition Merkel put last month to Greece. Without Germany, the eurozone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve. Merkel would probably insist on Germany's legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: to reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than seven votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations. Germans will almost certainly support the political concessions that might give the euro a chance of survival, including fiscal transfers and some mutualisation of debts, once they realise that their only alternative is isolation from the rest of Europe. But before they agree to a European Germany, voters may need to be reminded that trying to create a German Europe always leads to disaster. 

NEWS,25.6.2012

Greek finance minister resigns, crisis deepens

Greece's new finance minister resigned because of ill health today, throwing the government's drive to soften the terms of an international bailout into confusion days before a European summit.Vassilis Rapanos, 64, chairman of the National Bank of Greece, was rushed to hospital on Friday, before he could be sworn in, complaining of abdominal pain, nausea and dizziness.Greek media said he had a history of ill-health.The office of Prime Minister Antonis Samaras, who himself only took office last Wednesday following a June 17 election, said Rapanos had sent a letter of resignation because of his health problems and it had been accepted.Samaras himself has only just emerged from hospital after undergoing eye surgery to repair a damaged retina.Both he and Rapanos had already said they would not be able to attend the June 28-29 European summit.It was a worryingly chaotic start for the new government, formed after the second election in a month, which faces a rocky road in responding to huge domestic opposition to a harsh international bailout in the face of steadfast European opposition to any watering down of its terms.Only hours before Rapanos's resignation, a hospital bulletin said he would be discharged tomorrow.He had undergone a gastroscopy and colonoscopy, an official at the Hygeia Hospital on condition of anonymity.The tests "showed everything is completely normal", it said.According to a source from one of the three parties in the new coalition government, Rapanos had been under heavy pressure from his family to turn down the stressful job because of his health problems.Earlier on Monday the three party leaders had announced a trans-Atlantic roadshow to try to persuade sceptical lenders to give them more time to repay the country's massive debt.Troika visit postponed The medical problems of Samaras and Rapanos had also forced a postponement of the first meeting between the new government and Greece's "troika" of international lenders, originally slated for Monday.Samaras's government, an unlikely alliance of right and left that emerged from the June 17 election, has promised angry Greeks it will soften the punishing terms of a bailout saving them from bankruptcy in exchange for deep economic pain.But euro zone paymaster Germany has strongly rejected major concessions.Berlin signalled on Monday that Europe would wait for the troika's report on Greece before taking any decisions on how to make adjustments to the bailout package to compensate for weeks of political paralysis and a deeper than expected recession.A new date for the troika visit has not been set.Samaras, 61, emerged from hospital on Monday with a bandage over one eye. He was under orders not to fly or make the long road trip to Brussels, doctors said.Speaking to Mega TV earlier, government spokesman Simos Kedikoglou had said Rapanos had told Samaras on Friday, after being offered the job, that he had a "chronic situation" that he had learned to live with and that it would not effect his ability to do the demanding and stressful job.Kedikoglou later said the government was not expected to name a replacement for Rapanos before Tuesday.The government said Samaras and the leaders of his two coalition allies - the Socialist PASOK and smaller Democratic Left would take their case for renegotiating the bailout conditions to Europe and the United States as soon as the prime minister was well enough.

Cyprus applies for EU bailout

Cyprus became today the fifth euro zone country to seek financial assistance from the EU's rescue funds, announcing it was applying for a bailout for its banking sector hit by exposure to the crisis in Greece.Tiny Cyprus needs to raise at least 1.8 billion euros - equivalent to about 10% of its domestic output - by June 30 to satisfy European regulators about the health of Cyprus Popular Bank, which saw its balance sheet hurt by bad Greek debt. It may seek more."The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill over effects through its financial sector, due to its large exposure in the Greek economy," a government announcement said.With its coffers emptying rapidly and hurtling towards an immovable deadline, the island suffered a further fiscal sovereign credit rating cut to non-investment, or junk, status by Fitch at BB .With a bailout widely viewed as all but inevitable, Cyprus has for weeks been trying to juggle its options between a bailout from Europe's rescue funds, the temporary EFSF and the permanent ESM, or a bilateral loan from either Russia or China.Cypriot President Demetris Christofias was scheduled to brief political leaders this afternoon, a statement from the presidency said.If Cyprus signs up for the EU rescue programme it will join the ranks of Greece, Ireland, Portugal and Spain.Christofias, the EU's only Communist leader, has been reluctant to accept the fiscal and regulatory conditions that might be attached to a European rescue.Weekend trips by government officials to China suggested Cyprus was still holding out hope for a bilateral loan from a third country.Commerce, Industry and Tourism Minister Neoklis Sylikiotis confirmed discussions in China were focused on a loan or a Chinese investment in the troubled Cyprus Popular Bank."We have had some contacts... We have requested an answer in coming days," Sylikiotis said in comments to the state broadcaster.Cyprus is fiercely protective of a corporate tax rate that is one of the lowest in the EU and eight months before a general election shows no appetite for the stringent spending cuts that any EU funding would tie it to."I think they want to avoid it (the EFSF) at least as the sole provider simply because they are afraid of the strings attached," said political analyst Hubert Faustman.Officials say any aid via the EFSF would likely be restricted to the banking sector and not to broader budgetary requirements.Cyprus, with just 1 million people, has a disproportionately large off shore financial sector that is heavily exposed to Greece, the larger neighbour with which it has close political links.Cyprus Popular needs a capital infusion urgently to satisfy regulators after writing off the value of Greek government bonds in a sovereign debt swap earlier this year.In its report, Fitch said the recapitalisation bill for Cypriot banks could potentially reach 4 billion euros. That amount, equivalent to 23% of GDP, would also take into account rising non-performing loans from the domestic market.Fitch said it saw a heightened possibility of the Republic needing both an EFSF bailout to recapitalise its banks and a bilateral loan from Moscow to cover gross budgetary financing requirements until the end of 2013.Moscow already provided Cyprus with 2.5 billion euros in a bilateral loan last year and has an interest in maintaining Cyprus as an offshore financial centre with low tax rates for Russian businessmen, who use it as a base to reinvest in Russia.However, seeking such large sums from Moscow or Beijing is controversial in Cyprus, where EU membership is a matter of national pride. It could be embarrassing for Brussels as well, as Cyprus assumes the bloc's rotating presidency on July 1.

NEWS,14.05.2012.

How Will the French and Greek Elections Change the Direction of Europe?

 

 

As French and Greek voters make their feeling about spending cuts loud and clear, we ask ourselves: why has there been such a strong swing to anti-austerity/pro-growth, how does this threaten the survival of the euro and is a Greek default still possible? The deepening slump has dampened deficit reduction, the fiscal treaty hangs in the balance and patience is wearing thin. Crucially, according to voters and investors, time is running out.Growth vs. Austerity: Deepening Slump Dampening Deficit ReductionFrancois Hollande's victory in the French elections marks a significant change of focus in European politics. In contrast to the rhetoric delivered up to this point, Hollande wants emphasis of policy to be on growth instead of austerity. Why does he want this? Because the situation is deteriorating. Unless a country grows, their debt burden, as a percentage of a decreasing national output, grows and is therefore harder to manage. As iterated by French Socialist lawmaker Arnaud Montebourg, in an interview with BFMTV, "Austerity is everywhere and it's a complete shipwreck".Portugal and Spain are prime examples. While the Portuguese economy is expected to contract by 3.3% this year, the deepening slump is dampening deficit reduction. In fact, the deficit almost tripled in the first couple of months of this year alone. Spain, similarly, is struggling with a deteriorating debt situation. As almost 1 in 4 are without jobs, unemployment is boosting defaults. Bad loan ratios have reached a 17-year high. Survival of the Euro Threatened However, such a drastic change of attitude could damage the Franco-German Alliance, political progress and the very survival of the euro. This is because for Hollande to promote growth, he is threatening the fiscal treaty, perceived as crucial for keeping the euro together in its current form. The Treaty would create closer consolidation within the European union. Handing over authority for National Budgets to a Supra-National entity could ensure the various moving parts of the region interact better as a whole. However, Hollande disagrees with the primary focus on debt and deficit limits, without any pro-growth measures. Whilst the German Finance Minister Wolfgang Schaeuble is ready to discuss initiatives to boost economic growth, Merkel has said she will not renegotiate the pact. As her spokesperson asserted, it "has already been signed by 25 out of 27 EU countries." Instead the likelihood may be a growth pact attached to the fiscal pact. Nevertheless, the problems don't end there. Firstly, Hollande will have his work cut out for him in an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that keeps France vulnerable. Secondly, can both sides agree what they mean by growth?Growth by any other name... France and Germany disagree strongly on how to achieve growth. Merkel maintains it is through structural reforms -- making it easier to fire workers, which would encourage employers to hire, certainly a key aim for the Italian government. However, Hollande is hesitant and instead wants growth via infrastructure spending. But Germany won't agree to spending funded by borrowing -- exactly opposite to their deficit reduction targets. Therefore, again although rhetoric can be applauded, practical plans remain elusive. A Greece Default Still PossibleUncertainty continues to be a key challenge for Greece as voters in a similar move to the French, overwhelmingly rejected mainstream candidates supporting spending cuts. Crucially, these cuts were aimed at securing bailouts and avoiding a default. Instead, 70% of voterssupported parties that promised to tear up the bailout and attempts may be made to negotiate a gradual ''disengagement'' from the harshest austerity measures of Greece's €130 billion ($168 billion) bailout. This keeps the possibility of a Greek default firmly in the picture and until a coalition is formed, a new election next month is possible.Is time running out?Will there be enough time for political leaders to regain credibility and encourage Eurozone growth? As confidence wanes, borrowing costs rise and debt burdens risk becoming unsustainable. Worryingly, therefore, patience is running thin. Echoing Margaret Thatcher's thoughts on a unified Europe as "the vanity of intellectuals, an inevitable failure: only the scale of final damage is in doubt," the German paper Die Welt wrote after the French and Greek elections: "In the end the results are proof that Europe doesn't work."

NEWS,22.04.2012.

France votes as Sarkozy faces defeat after one term

France's incumbent President and right-wing ruling party Union for a Popular Movement (UMP) candidate for the French 2012 presidential election Nicolas Sarkozy smiles on April 22, 2012 as he leaves the polling booth before casting his vote for the first-round of the 2012 presidential election at a polling station in Paris.Tens of millions of French voters turned out Sunday for the first round of a presidential poll that is expected to see the left oust Nicolas Sarkozy after only one turbulent term in office.The left has not won a presidential election in a quarter of a century, but with France mired in low growth and rising joblessness, opinion polls predict Socialist challenger Francois Hollande will beat the right-wing incumbent.Turnout at 5:00pm (1500 GMT), with three hours of voting to go, was strong at almost 71 per cent, belying fears that a low-key campaign would be capped by mass abstentions in the vote itself.Polling organisation IFOP predicted an overall turnout of 80 per cent.Sunday's poll will whittle down the field from 10 to two and Hollande and Sarkozy are expected to face each other in the May 6 run-off to decide who runs France, a nuclear-armed power and Europe's second largest economy.Hollande says Sarkozy has trapped France in a downward spiral of austerity and job losses, while Sarkozy says his rival is inexperienced and weak-willed and would spark financial panic through reckless spending pledges.The eurozone debt crisis and France's sluggish growth and high unemployment have hung over the campaign, with Sarkozy struggling to defend his record and Hollande unable to credibly promise spending increases."I have never missed a vote, but this time I feel little enthusiasm for the election," said 62-year-old retired high school teacher Isabelle Provost as she emerged into bright Paris sunshine after casting her ballot."Economically there is little difference between the two main candidates," she said, echoning the sentiment of many other voters of the right and the left.If, as expected, Sarkozy polls second, he will be the only incumbent French president to lose a first round-vote in the history of the Fifth Republic, which came into being in 1958.Hollande voted in his stronghold, the country town of Tulle in the central Correze region, where he is the local member of parliament and heads the regional council. He was warmly greeted by officials and voters alike."I am attentive, engaged, but first of all respectful," he told reporters. "The day ahead will be a long one, this is an important moment."Sarkozy and his former supermodel wife Carla Bruni cast their ballots in Paris' plush 16th district, a stronghold of his right-wing UMP party.Hollande was to make a speech in Tulle minutes after polls close and official results estimates are announced on the prime-time 8:00 pm television news, while Sarkozy was to speak in Paris at around 9:00 pm.

Protests in Spain

 

 Thousands of people demonstrated in the streets of Barcelona on Saturday a day after the government announced cuts to public spending in health and education.Education unions which organised the demonstration said 30 000 turned out to voice their opposition to the cuts, to be carried out at the national and at the level of the local region, Catalonia. Police put the figure at 2 000.Rosa Canyadell, of the education USTEC said the authorities were in the process of dismantling state education."Education is the best way of overcoming the economic and social crisis, and public education is the only way we can guarantee social cohesion," said a statement by parents, unions and educational associations.Spain's ruling conservative Popular Party has vowed to cut the country's deficit, which reached 8.51% of GDP in 2011.On Friday it adopted an austerity budget designed slash spending by 10 billion euros ($13 billion) a year: three billion euros of those cuts will come from education.The measures include letting regional governments expand class sizes by 20% and raising university fees to an average 1 500 euros from 1 000 euros.Spain's main unions have called for a day of protests against the cuts in health and education spending on April 29.

NEWS,29.03.2012.

Spaniards strike against 'unstoppable' job reforms

Spanish workers have staged a general strike to protest against labour reforms which the government declared "unstoppable" but many ignored the action, fearing for their jobs in a country with the EU's highest unemployment rate.Factories across the nation were silent and ports closed, while television and transport were disrupted by the strike against the austerity policies of Prime Minister Mariano Rajoy - whom Spaniards elected by a landslide only four months ago.Police arrested a number of protesters in Madrid while small-scale violence flared in Barcelona, Spain's second city. Tourists were locked out of the Alhambra, a 14th-century Moorish palace in the southern city of Granada which is one of Europe's great cultural monuments.Strikers promised a wave of protests to confront Rajoy's conservative government over reforms making it cheaper for companies to fire staff and dismantling a nationwide system of collective pay bargaining."We don't have much hope, but this is just the beginning," said Trini Cuesta, a 58-year-old employee at a public hospital in Barcelona. "It's not just about labour reform, we're against policies that are provoking social and economic ruin. Social protests must rise."Spain is tipping into its second recession since the end of 2009 and some observers expect at least another million people to join already swollen unemployment lines. The jobless rate is already 23% and almost half of under 25-year-olds are out of work.Rajoy's government said it was committed to making labour reforms which it argues will help to reduce unemployment by making the labour market more efficient. "The agenda for reform is unstoppable," Labour Minister Fatima Banez said.Police presence was particularly heavy around parliament where politicians were putting in a longer work day than usual as Rajoy sought approval for five different measures, including funding for indebted local governments to pay suppliers.Spaniards have so far been tolerant of Rajoy's efforts to reform the labour market and meet strict European Union-imposed deficit goals to ensure it avoids a Greek-style debt crisis.But the general strike, the first since September 2010, showed that patience may be wearing thin. The largest union put support for the strike at 77% while the government said the work day was proceeding normally but gave no overall tally.Spain's blue chip index fell 0.87%, its eighth consecutive session of declines as concerns over the country's finances returned.There were pockets of violence in Barcelona, where protesters set garbage bins on fire and threw chairs from the famed outdoor cafes of Spain's second largest city onto the street, but no injuries were reported.Union members waving red flags gathered in major cities where they plastered stickers on shop windows reading "Closed for Strike", though many remained open for business.Police barricaded parliament and arrested 58 people in Madrid, many of whom were trying to stop people going to work.Many workers crossed the picket lines, saying they feared losing their jobs or unwilling to lose the average of around 100 euros which will be docked from the pay cheques of the strikers.While many Spaniards are fighting to preserve protection for their jobs, others are on short-term contracts of typically six months with little protection.These workers fear their employers could punish strikers by failing to renew their contracts when they expire, and give the job instead to one of the army of unemployed.Fewer than a fifth of Spanish employees are currently affiliated with the country's two biggest unions and many feel they don't represent the wider workforce."A lot of people actually blame the unions in part for the rigidity in the labour market and lack of competitiveness, so they aren't exactly in the position to rally a lot of people and the support for the strike reflects that," said David Bach, political analyst at IE business school in Madrid.

 However, union members are ready for a long fight. "This is the largest cut of (workers') rights since anyone can remember. There has to be a better way to get out of this crisis," UGT union employee Marta Lois, 40, said on Madrid's main street Gran Via, where protesters blocked traffic."Don't forget this is just the first major event of what is likely going to be a long year of demonstrations against government policies," Antonio Barroso, political analyst with Eurasia Group said.Rajoy said on Tuesday his administration would pass a "very, very, austere budget" on Friday. His goal of cutting the deficit this year to 5.3% of gross domestic product implies nominal cuts of at least 35 billion euros ($57 billion).The cuts are meant to keep borrowing costs down as well as working towards meeting the EU's 3% deficit limit next year, but some economists say they will deepen the looming recession.The strike halted overnight production at factories from Barcelona in the north to Cadiz in the south, with unions reporting full stoppages at General Motors Espana, Renault, ArcelorMittal and Acerinox.Transport employees provided a basic level of service, meaning one in four buses and about a third of metro and local trains were expected to run. Most domestic and European flights were grounded although long-haul services continued."We're offering the government a chance to start a different path (of reform) in search of wider consensus," Ignacio Fernandez Toxo, head of Spain's largest union Comisiones Obreras said. "If not there will be rising social conflict."Despite the promises to push on with reforms aimed at winning approval from Brussels, Rajoy's People's Party suffered a surprise setback in a regional election on Sunday, meaning he must measure his steps to avoid provoking wider discontent.A high turnout is expected at an evening march in Madrid that will end at the central Puerta del Sol square, cradle of last year's anti-austerity "Indignant" movement.National grid operator REE estimated electricity demand - a key indicator of economic activity - for Thursday as a whole would drop by 14.8% from Wednesday to 571 gigawatt-hours, a level comparable to a public holiday or a weekend.During the last general strike in September 2010, demand fell by 12.6% from the day before.