NEWS,16.09.2012

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

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

 

Iran's Nuclear Timeline

 

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

NEWS,14.07.2012

JPMorgan Traders May Have Hidden Losses, Could Face Criminal Charges

 

JPMorgan Chase & Co said its traders may have deliberately hidden losses that have since climbed to $5.8 billion for the year, in a development that may result in criminal charges against traders at the bank.The losses came from bets on corporate debt now known as the "London Whale" trades made at JPMorgan's Chief Investment Office. Chief Executive Jamie Dimon said that in the worst-case scenario the derivatives trades would lose another $1.7 billion, and that the bank has fixed the CIO problems.Investors cheered the bank for capping losses and taking steps to ensure it avoids similar bad bets in the future. JPMorgan's shares rose nearly 6 percent on Friday.Even with the trading losses, JPMorgan earned nearly $5 billion overall in the second quarter, thanks to its strong performance in areas such as mortgage lending.The trading losses may be mostly over, but with the disclosure that traders may have lied about their losses, regulatory and legal consequences will linger for some time. Blame for the problems at the CIO office may go further up the management chain to some of the most senior executives at the firm, lawyers said.A source said that federal criminal investigators are looking at people at JPMorgan in London, where the CIO's risky bets were placed. The criminal investigation began in earnest in the past few weeks after JP Morgan's internal investigation uncovered that CIO traders may have intentionally masked losses, the source said."I see little doubt that someone is going to get charged with fraud," said Bill Singer, a lawyer at Herskovits in New York who provides legal counsel to securities industry firms, and publishes the BrokeandBroker website.Authorities ranging from the FBI to the U.S. Securities and Exchange Commission are probing the bank. The SEC could charge JPMorgan with weaknesses in oversight and internal controls, said James Cox, a securities law expert at Duke University."I think the SEC will continue to look at 'What exactly did Jamie Dimon know and when did he know it?'" Cox said.An internal review found that some of the CIO traders appear to have deliberately ignored the massive size of their trades - and the difficulty in liquidating them - when valuing their positions. The result was not reporting the full declines in the value of positions, which is forcing JPMorgan to restate its first-quarter results. The bank is cooperating with authorities.The trading losses and possible deception from traders are a black eye for Dimon, who was respected for keeping his bank consistently profitable during the financial crisis. Dimon, who has criticized regulators for meddling too much with banks, has lost credibility because of difficulties in his own house."How do we know there are not more roaches in the kitchen?" said Paul Miller, an analyst at FBR Capital Markets, referring to the maxim that seeing a single roach typically means there are far more hiding in the woodwork.The Chief Investment Office became infamous in May when JPMorgan said bad derivatives bets had triggered about $2 billion of paper losses, a figure that turned into $4.4 billion of actual losses in the second quarter.One trader in the CIO, Bruno Iksil, took big enough positions in the credit derivatives markets to earn the nickname "The London Whale." He made at least some of the big bets that caused trouble for the bank, and has since left JPMorgan, a source said on Friday.Ina Drew, who headed the CIO, has also left, and offered to give back as much of her pay as the bank was contractually entitled take back, said Dimon, whose pay could be taken back as well. A spokesman for the bank said JPMorgan had accepted Drew's offer.The bank said it had moved the bad trades from the CIO, which invests some of the company's excess funds, to its investment bank. JPMorgan was one of the inventors of credit derivatives, and its investment bank is one of the biggest traders of the product on Wall Street.The CIO will now focus on conservative investments, JPMorgan said. The bank has taken a number of other steps to prevent these types of losses from repeating, including changing the way it limits risk taking in the CIO's office."People feel good that the loss is largely contained at this point," said Nancy Bush, a banking analyst at independent research firm NAB Research.JPMorgan said later on Friday that its former CIO risk officer, Irvin Goldman, had resigned. Goldman "behaved with integrity and we wish him well," JPMorgan said.JPMorgan's shares rose $2.03 to close at $36.07 on the New York Stock Exchange.THE TEMPEST LEAVES THE TEAPOT The bank posted second-quarter net income of $4.96 billion, or $1.21 a share, compared with $5.43 billion, or $1.27 a share, a year earlier.The derivative loss after taxes reduced earnings per share by 69 cents, the company said.JPMorgan said it expected to file new, restated first-quarter results in the coming weeks, reflecting a $459 million reduction of income because of bad valuations on some of its trading positions. The bank found material problems with its financial controls during the period.The bank said its internal investigation combed through over a million emails, tens of thousands of taped conversations, and other evidence. It learned that some traders may have intended not to value their trading positions at the proper levels.In particular, the traders recorded the value of their trades at current market prices, rather than prices they would get if they liquidated their large positions, in an effort to avoid reporting their full paper losses.The bank made trades that were intended to protect it against the credit markets tanking, but allowed those positions to morph into bets on credit markets getting better.Friday's financial report came three months to the day after Dimon, 56, told stock analysts that news reports about Iksil and looming losses in London were a "tempest in a teapot."That remark, which Dimon told Congress last month was "dead wrong," added to the damage the loss has done to his reputation and his argument that his bank is not too big to be managed safely.A host of international regulators and agencies are probing the trading mishap. Besides the FBI and the SEC, they the UK's Financial Services Authority, the U.S. Federal Deposit Insurance Corp, the U.S. Commodity Futures Trading Commission, the U.S. Treasury's Office for the Comptroller of the Currency, and the Federal Reserve Bank of New York.

Libor Scandal May Hit U.S. Banks Harder Than Their British Counterparts

 

Barclays Plc and other UK banks may escape lighter than their U.S. rivals if shareholders seek damages in the wake of an interest rate-rigging scandal, because such cases are costlier and harder to win in Britain.Cases pursued in America by investors alleging they suffered a loss because of the wrongdoing of a financial institution, will often be deemed ineligible to be heard in U.S. courts when the bank in question is foreign, legal experts said.But if investors opt to take their cases to UK courts, they will find Britain's legal structures make such claims harder to win, costlier and riskier."Would we like to sue Barclays in the New York courts weknow well and we're very good at prosecuting in? Sure. But we're not going to because this is a UK situation," said Dominic Auld, a litigation expert at U.S. law firm Labaton Sucharow.Since Barclays admitted its role in manipulating the London interbank offered rate (Libor), lawyers on both sides of the Atlantic are taking calls from investors."I did take a call this morning from an institutional investor who is interested in looking at litigation both from a UK perspective and the U.S ... I expect there will be a good deal of similar interest," said Owen Watkins, a barrister in the corporate department of London law firm Lewis Silkin.More than a dozen banks are being investigated for their roles in setting Libor, including Citigroup, JPMorgan Chase & Co, Deutsche Bank, HSBC Holdings Plc , UBS and Royal Bank of Scotland..Morgan Stanley analysts have calculated the litigation risk to each of the 16 banks involved in setting Libor, an estimate of the rate at which banks could lend to each other and a benchmark for setting many other types of loans, at between $60 million to $1.1 billion. But lawyers say that while it was once commonplace for European investors to issue proceedings in the States, this transatlantic "legal tourism" was brought to an effective end in 2010 by a Supreme Court ruling in the United States.In a case brought against National Australia Bank, the court ruled U.S. securities laws do not have jurisdiction over so-called "F cubed" cases involving foreign investors and a foreign company traded on a non-U.S. market In the case of Barclays, only about 4 percent of its market capitalisation is traded in the U.S. in the form of American Depository Receipts. Any pursuit of meaningful damages from investment losses related to falls in Barclays' share price caused by the scandal will have to be carried out in Britain."Bringing proceedings here is not easy because there are various questions about causation. But most importantly Barclays would fight hard and you take a substantial risk in relation to costs that you would have to pay if you lost," said David Greene, senior partner at London-based law firm Edwin Coe.Furthermore, proceedings by institutional investors are rare and run against the traditions of the City of London financial district which had in part prompted disgruntled investors to make claims in the United States until it was halted by the F-cubed ruling."I don't think that sort of thing would be held in a UK court. I think they would just say the nature of the capital markets is shares go down as well as up. It's the guiding principle here," said one institutional investor who declined to be named because he is a major Barclays shareholder.

NEWS,01.07.2012

Investors' eyes on European Central Bank

The month of June finished on a high note, with investors opting to trust that the most recent agreement by European leaders on dealing with the 2 1/2-year-old sovereign debt crisis will finally stem the bleeding for both the region's and the global economy.The European Central Bank this week might help sustain the momentum of optimism by opting to ease interest rates, already at a record low. Most economists polled by Reuters expect the central bank to lower borrowing costs at its meeting on Thursday.Investors will closely watch for the latest indicators on the strength of the US economy including the Labor Department's report on nonfarm payrolls in June, due on Friday, though expectations are low.Economists forecast an increase of 90,000 jobs and the US unemployment rate holding steady at 8.2%. Estimates in a Bloomberg survey of 59 economists ranged between 35,000 and 165,000 more jobs.Other US data due in the coming days include the Institute for Supply Management's manufacturing index and construction spending on Monday, as well as weekly jobless claims and mortgage data, ADP's private-sector payrolls report and the ISM's services-sector index on Thursday."We really need to see job creation pick up, which is the only thing that's going to get households spending on a sustained basis," Paul Dales, a senior US economist at Capital Economics in London, told Bloomberg News. "The economy isn't going to get exceptionally weak from here, but neither is it going to get much stronger."Wall Street will be closed on Wednesday, the Fourth of July, in observance of Independence Day.In the past five days on Wall Street, the Dow Jones Industrial Average advanced 1.9%, the Standard & Poor's 500 Index gained 2%, while the Nasdaq Composite Index rose 1.5%.For the month of June, the Dow gained 3.9% while the S&P 500 climbed 4% and the Nasdaq added 3.8%. In Europe, the Stoxx 600 Index posted a gain of 1.9% for the week, as national benchmark indexes advanced in all 18 western European markets. London rose 1%, Paris increased 3.4% and Frankfurt moved 2.4% higher in the past five days.Some analysts warned that the optimism and the gains might be short-lived."Investors have to be cautious because the market may be getting ahead of itself. We really don't have any details. The big question is still what direction the ECB takes [this] week," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, told Reuters. On Friday, euro-zone leaders agreed to allow their joint emergency funds to be tapped by the region's banks, aimed at reducing the pressure on sovereign debt. They also pledged to create a single banking supervisor for euro-zone banks based around the ECB in a move toward a European banking union."[The EU deal] is certainly not a silver bullet for the debt crisis, but the market is kind of acting like it is. It may set us up for another push down in the weeks ahead," Esiner said.Others agreed. "People had pretty low expectations of the summit and are a little bit more optimistic now," Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, told Bloomberg News. "The devil is in the details on most of this stuff."In the coming days, Spain and France will test investors' appetite for their debt again. Spain is set to auction three-year, four-year and 10-year bonds on Thursday, the same day as France who is planning to sell between 7 billion and 8 billion euros in long-term bonds.

ECB official: Greece must deliver '100 pct'

 

Greece must fulfill the targets of its austerity and reform program "100 percent" to stay in the euro, a top European Central Bank official said Sunday offering little hope of substantial wiggle room for Athens and questioning whether it can be given more time to comply.Greece's new government wants to lower some taxes, freeze public sector layoffs and extend by two years the mid-2014 deadline for austerity measures demanded by creditors in exchange for loans that are keeping the country afloat, conditions that are hugely unpopular in the country.But ECB executive board member Joerg Asmussen told Germany's ARD television that there can be no departure from the aims of consolidating Greece's budget and restoring its competitiveness."The so-called mix of measures in other words, how do I reach the target one can talk about that," he said. But that, he added, means that "if the government intends to lower a tax, it will have to increase another tax by the same amount."Asked whether Greece would get more time to comply, Asmussen replied: "I don't think so." He noted that any extension would lead to a need for more external financial help "that means that the other 16 eurozone states and the IMF would then have to provide more financing."The ECB is part of the so-called "troika" of debt inspectors overseeing the Greek program, along with the European Commission and the International Monetary Fund. On Monday, the inspectors are expected to start their review of the country's finances and meet with the new government. Their conclusions will be critical to whether Greece will be able to renegotiate parts of its international bailout conditions."My preference and the preference of the ECB is very clearly that Greece remain in the eurozone," Asmussen said. "For that, the country must implement 100 percent the program targets that were agreed."An exit, he said, would make things economically difficult not just for the country leaving the eurozone but also for all the others.Other eurozone countries in particular Germany, the bloc's biggest economy have appeared cool to giving Greece much of a break on its targets or timeline."From Germany's point of view, a substantial loosening of the program, of the reform agreements, does not come into consideration," Foreign Minister Guido Westerwelle said Sunday. He insisted that Greece must implement those agreements "step by step, solidly and reliably."At a European Union summit last week, German Chancellor Angela Merkel made concessions to Italy and Spain notably agreeing to allow countries that pledge to implement reforms demanded by the EU's executive Commission to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece.But officials insist that help to struggling countries and banks will still come with strings attached, and that Germany has no intention of agreeing to share government debt through jointly issued eurobonds in the foreseeable future. Berlin fears that would cut struggling countries' borrowing costs at its expense and also take pressure off them to get their finances and economies in order.Westerwelle, a member of the pro-market Free Democrats the junior partner in Merkel's coalition insisted Sunday that eurobonds should stay off the table permanently."Too little solidarity endangers Europe, but too much solidarity does not endanger Europe any less," he said."Even if we already lived in a European federal state, I would be strictly against us Germans taking on liability for all debts in all of Europe."

NEWS,27.06.2012

Europe's leaders at odds before summit

 

European leaders sound unusually divided before a high-stakes summit, with Germany's Angela Merkel saying total debt liability would not be shared in her lifetime and giving little support to Italian and Spanish pleas for immediate crisis action. Rome and Madrid have seen their borrowing costs spiral to a level which for Spain at least would not be sustainable as it battles to recapitalise banks ravaged by a burst property bubble and cut a towering government deficit. Spanish Prime Minister Mariano Rajoy said on Wednesday he would ask other European Union leaders to allow the bloc's bailout funds or the European Central Bank (ECB) to stabilise financial markets. Speaking in parliament before a meeting of European heads in Brussels on Thursday and Friday, Rajoy warned that Spain would not be able to finance itself indefinitely with 10-year bond yields near 7%. "The most urgent issue is the one of financing. We can’t keep funding ourselves for a long time at the prices we’re currently funding ourselves,” he told parliament. Even when there are profound disagreements, EU leaders have been burned by the markets enough times to generally make sure they sound united before major gatherings. But divisions have been exposed by the ousting of Nicolas Sarkozy by socialist Francois Hollande as French president and the fact that Rome and Madrid have muscled into the traditional Franco-German axis. The leaders held an unusually discordant news conference in Rome on Friday. Hollande said there must be more solidarity in Europe before countries hand over more sovereignty over their national budgets, while Merkel said she would not accept extra liabilities without overarching budget control. The pair will have a working dinner in Paris on Thursday evening, an opportunity to repair the damage. An initial attempt to smooth over differences came at a meeting of the four countries' finance ministers late on Tuesday after which nothing was said. In Rome, Italian Prime Minister Mario Monti said he would not simply rubber stamp conclusions at the EU summit and said he was ready to go on negotiating into Sunday evening if necessary to agree on measures to calm markets. With Hollande's support, Monti is pushing for the eurozone’s rescue funds to be used to help limit the spreads over German Bunds on bonds issued by countries that respect EU budget rules. Rajoy would settle for that or the ECB doing the same job by reviving its bond-buying programme. The proposal has run into stiff opposition from Germany, the largest economy in the EU and the bloc’s effective paymaster, and has been rejected by Jens Weidmann, the powerful head of the German central bank, the Bundesbank. Stock markets perked up last week on the hope that the 20th EU summit since the bloc’s debt crisis exploded into the open in Greece would come up with dramatic measures. Investors have since thought better of that view. European shares edged up on Wednesday and the euro was flat, with many investors out of the markets before the Brussels meeting. “People are waiting for the inevitable - which is that policymakers will probably fail to do what is necessary,” said Neil Mellor, currency analyst at Bank of New York Mellon.Borrowing costs Merkel stomped on the idea of mutualising debt - favoured by France, Italy and Spain - at a meeting of lawmakers from her Free Democratic coalition partners in Berlin on Tuesday, according to people who attended the closed-door session. “I don’t see total debt liability as long as I live,” she was quoted as saying, a day after branding the idea of euro bonds “economically wrong and counterproductive”. The words may have been carefully chosen and do not at face value rule out mutualising some portion of eurozone members’ debts as the end point of a drive towards fiscal union. Merkel finds herself in a dwindling minority but holds the eurozone’s purse strings and therefore nearly all the cards. German opposition SPD leader Sigmar Gabriel told the Financial Times that urgent measures were needed to lower eurozone sovereign borrowing costs, otherwise the currency bloc could “simply explode”. Italy and Spain argue that they are stretching every sinew to cut their debt mountains and need some support from their currency area peers to keep the markets at bay. Monti won the first two of four confidence votes on Tuesday called to accelerate the passage of his labour reform that has been criticised by both by labour unions and the business establishment. The final two votes, and definitive approval, are due on Wednesday. Spain which has been offered loans of up to €100bn to recapitalise its banks but is determined not to ask for a sovereign bailout - is considering raising consumer, energy and property taxes. Spanish Economy Minister Luis de Guindos said he had talked with the finance ministers of Germany, France and Italy already on Wednesday with further discussions planned. Eurozone finance ministers will also hold a conference call on the bailout of Spanish banks and this week’s request for aid from Cyprus, EU officials said. The request made Cyprus the fifth of the eurozone’s 17 states to seek aid from EU rescue funds after Greece, Ireland, Portugal and Spain. Underlining the parlous state of Spanish finances, figures showed the central government’s deficit had already reached 3.41% of annual gross domestic product through just the first five months of the year, close to its target for the whole year of 3.5%. Spain’s central bank said on Wednesday it expected recession to deepen in the second quarter of the year. The Brussels summit is expected to agree on a growth package pushed by France worth around €130bn in infrastructure project bonds, reallocated regional aid funds and European Investment Bank loans. Leaders will also discuss proposals for a banking union, but while they are likely to agree to give the ECB power to supervise big cross-border banks, Merkel is resisting any joint deposit guarantee or common bank resolution fund.

Italy to pass new labour laws ahead of EU forum

Italy’s Parliament is on Thursday set to approve a controversial labour market reform so Prime Minister Mario Monti can go to a key Brussels summit with it in hand to reassure his EU partners.The reform, which Mr Monti’s government says is key to restarting growth in the recession-hit economy, was to get final approval the day before the summit, as Italy races to prove it is doing what it takes to stave off the debt crisis. The summit starts on Thursday, June 28.Rome had called on Parliament to make sure the reform is approved in time, but Prime Minister Monti whose technocratic government depends on the support of bickering coalition parties has had to compromise on the details.Addressing Parliament on Wednesday, he said it was “important that Italy arrives at the summit with the force of a parliament-government tandem.”The project, which was unveiled in March after months of bitter disputes with trade unions, is based on the Danish “flexicurity” model, which aims to ensure both flexibility and security in the labour market.It includes incentives for employers to hire workers but also eases the procedure for letting them go in case of a downturn, and will help young people get jobs though apprenticeships, in a country hit by high youth unemployment. Workers will also all be eligible for a modernised welfare scheme from 2017.Greater labour flexibility is one of the so-called structural reforms that the European Commission, International Monetary Fund and Organisation for Economic Cooperation and Development have long advised Italy to adopt to invigorate its economy.Watered downBut Mr Monti’s original package was watered down as parties, trade unions and employer groups fought to defend their turf, leaving many economists fearing the reform is too timid to shake up the labour market.The centre-right insisted businesses be left wiggle room to give people shorter-term contracts, while the left demanded greater measures be included to protect workers.The country’s biggest union, the left-wing CGIL, says the reform risks increasing unemployment, while the Confindustria association says it does not go far enough in strengthening employers’ rights.

NEWS, 06.06.2012.

European lender plants onus on euro zone governments

 

The European Central Bank today put the onus firmly on euro zone governments to solve the bloc's debt crisis, dashing expectations it could take near-term action despite saying the currency area's economy was under increasing threat.After the ECB left interest rates at 1%, President Mario Draghi said the bank was not open to trading with governments on the policy response to the crisis.Increasingly alarmed by signs Spain's banking crisis is opening a new front in the debt crisis, some in financial markets had hoped Draghi would signal a readiness for the ECB to take fresh action if euro zone governments take bolder action.Instead, Draghi said it was wrong for the ECB to fill a policy vacuum created by others and that there would be no quid pro quo between the central bank and governments."There is no sort of horse trading here," he told a news conference."Some of these problems in the euro area have nothing to do with monetary policy ... and I don't think it would be right for monetary policy to fill other institutions' lack of action."The respite the ECB bought the euro zone early this year by injecting over 1 trillion euros into its banking system with twin 3-year loan operations (LTROs) has faded, with borrowing costs for troubled countries such as Spain soaring again.Draghi played down prospects of any imminent third round of long-term money creation, saying LTROs and the ECB's dormant bond-buying programme were instruments that are in place but temporary and "not infinite"."The issue now is whether these LTROs would actually be effective," he said when asked about another round.Draghi said the decision to leave rates unchanged was taken by "broad consensus". He said a few members, but not many, of the bank had wanted a rate cut.The ECB has never before lowered its main refinancing rate below 1%. Berenberg Bank economist Holger Schmieding said it was an open question whether the ECB would cut rates in July."In addition, the ECB offered no hint today that it may re-activate its two most important non-standard measures, that is the 3-year long-term refinancing operations (LTROs) and the purchases of sovereign bonds," Schmieding said."This suggests that it would take a major further escalation of financial tensions for the ECB to go beyond a possible rate cut in July," he added.Draghi said markets tensions had not returned to the levels of late last year, when the ECB offered the 3-year LTROs, and stressed the euro zone was far from facing a situation like the one after the collapse of Lehman Brothers in September 2008.Although flagging the increasing threat to the currency area's economy, new ECB growth forecasts for 2012 were unchanged - in a -0.5 to 0.3% range. The prediction for the following year was barely changed either."The economic outlook for the euro area is subject to increased downside risks relating in particular to a further increase in the tensions in several euro area financial markets and their potential spillover to the euro area real economy," Draghi said.Markets were unsure how the ECB would react to a recent wave of weak economic data, knowing that the bank also wants to keep the pressure on euro zone leaders to tackle the crisis more effectively.The euro was steady at $1.25 after the decision, Europe's benchmark stock market was up 2% after a recent steep fall.Dilemma Jolted into action by Spain's banking crisis, EU leaders have started considering the form of economic union needed to make the bloc durable as well as more immediate measures to help Madrid.But that end-game is still months or years away and in the meantime investors view the ECB as the institution with the firepower to keep the crisis in check."For the time being, the ECB is sitting on its hands as the bloc's economy and financial markets deteriorate further," said Nicholas Spiro, managing director of Spiro Sovereign Strategy.

"The message from today's ECB meeting is a worrying one: any mutualisation of euro zone debt is a long way off yet credible interim measures to shore up confidence will not be forthcoming for the time being," Spiro added.In the run up to today's meeting, International Monetary Find chief Christine Lagarde said the bank had room to cut rates. Spain and other hard hit parts of the euro zone would also like the ECB to revive its bond buying programme to provide them with cover while they undertake planned repairs to their economies.Euro zone unemployment stood at a record 11% in April, business confidence has slumped and surveys of manufacturing have hit three-year lows, adding to conviction that the bloc's economy is set to drop back into recession.The bank's dilemma is that if does too much, pressure for government action falls. Yet if it does nothing, troubled sovereign debtors could find it harder and harder to finance themselves or maintain confidence in the banks that have bought much of their debt.Draghi said the ECB would continue to supply euro zone banks with all the liquidity they ask for at least until January 15 next year. It had said in October it would give euro zone bank unlimited access to central bank funding at least until July 10.Before the crisis, the ECB allotted a certain amount in its refinancing operations for which banks had to put in bids. Since the crisis began, the ECB has extended the maturity of such operations to as long as 3 years and has lifted funding limits.Most ECB watchers had expected it would keep its powder dry until after June 17 Greek elections and a crunch summit of EU leaders at the end of June, which Draghi and his colleagues hope will dispel any doubts about Europe's commitment to the euro.There are also growing signs that a decision on a bailout for Spain's debt-laden banks will have been taken by the end of the month.

 

EU seeks to shield taxpayers from bank failures

 

European officials proposed Wednesday a new system of financial regulations that aims to keep bank failures from costing taxpayers billions and bankrupting governments.Because many European governments are already overburdened with debts, rescuing their failed banks risks bankrupting some of them. Ireland has had to ask for an international bailout for that reason and investors fear Spain may be next.The banks, in turn, own huge amounts of their governments' bonds, which drop in value when investors lose confidence in the country's financial future. The result is that any fall in confidence in either the banks or the government tends to create a downward spiral requiring foreign financial aid.Under the European Commission's proposal, banks that posed no systemic risk to the stability of financial markets would simply be allowed to fail. Those whose failure did threaten to become unmanageable would be propped up in part by having unsecured creditors of the bank, such as bondholders and shareholders, take losses rather than having governments give them taxpayer money."We're going to break the link between banking crises and public budgets," said Michel Barnier, the European commissioner responsible for the internal market, as he outlined the measures in Brussels. "We don't want taxpayers to have to pay."If he ever achieves that, however, it will be too late to alleviate the current banking crisis afflicting Europe and one of its biggest economies, Spain, where banks are sitting on huge losses that the government cannot afford to plug. The Spanish government's borrowing rates are at painfully high levels around 6.25 percent on fears it will go bankrupt saving the banks.The Commission's complex proposal is not scheduled to take effect fully until 2018. In any event, it also needs the approval of the European Council, composed of the leaders of the 27 EU countries, and the European Parliament, and may be significantly altered in the process of gaining approval.At the moment in Europe there is no central regulator with the power to step in and force weak banks to ask investors for more capital to strengthen finances, or to break them apart and restructure them. There is also no central deposit insurance backstop, making it more likely that a bank failure would exhaust one country's fund to compensate depositors.In the United States, by contrast, state and federal banking regulators have the power to shut down failing banks. The Federal Deposit Insurance Corp. takes over the failed banks and sells their loans and deposits to stronger banks or private investor groups.And unlike in Europe, the FDIC guarantees deposits up to $250,000 per account. That prevents bank runs because depositors are protected if a bank fails.Barnier was at pains to emphasize that he had been working on the proposals for years, and they were not a response to the banking crisis in Spain or other recent bank bailouts.While Barnier said the new rules are necessary because so many banks operate across borders, he did not propose setting up a powerful central banking authority, as the Commission had suggested a weak earlier.Many analysts say Europe needs such a central banking authority, which would have the financial power to bail out banks anywhere in the eurozone, bypassing national governments that are often reluctant to admit the extent of problems in their domestic financial systems. It would also spread the cost of bailouts across multiple countries.The importance of such a measure was made clear in the U.S. bank bailouts in recent years. Insurer AIG, for example, failed financially and had to be rescued. Although it was incorporated in Delaware and headquartered in New York, neither state had to go bankrupt paying for the rescue. The burden was shouldered by the U.S. Treasury.Germany remains opposed to such a measure, however, fearing it will end up paying the bulk of bank rescues.Barnier's proposal is more likely to be welcomed in Berlin. He said it would strengthen the ability of national authorities to hopefully head off bank failures before they happen and to deal with them decisively when they do."If we're going to avoid in the future banking crises, each member state has to be equipped with the appropriate tools to take action in time, not when it's too late," Barnier said.All the national banking authorities would be operating with the same rules rules that would enable them to intervene early, require banks to draw up recovery plans, and even to dismiss the bank's management.If a bank was about to fail, national authorities would have the power to sell or merge the businesses, to create a temporary "bridge bank" to carry out essential functions, to separate good assets from bad ones, and to write down the bank's debts."The resolution tools will ensure that essential functions are preserved without the need to bail out the institution, and that shareholders and creditors bear an appropriate part of the losses," the commission said in an explanatory statement on the proposal.This last part having the bank's unsecured creditors take losses is being termed a "bail-in" in contrast to a taxpayer-funded bailout.Barnier acknowledged that the proposal would not have an immediate effect, but he said EU officials need to take both short-term and long-term actions to regain financial stability.Other measures that senior European officials have floated recently include creating a central deposit insurance scheme to reassure savers across the continent that their money will not disappear in case a bank runs into trouble. A key worry is that rumors of a bank failure might trigger a bank run, fueling panic that could spread across countries.

 

NEWS, 31.05.2012.

 Spain debt woes spur flight from risk

 

Asian shares and commodities slid while the euro fell to its lowest in almost two years against the dollar on Thursday, as surging borrowing costs in troubled Spain raised fears that it could fail to rescue its banks and may need to seek a bailout. Investors fled from risk assets to US government bonds, with the benchmark 10-year Treasury yield falling below 1.6% in early Asian trade on Thursday, its lowest in at least 60 years. The 10-year Japanese government bond yield  hit a nine-year low of 0.810%. The dollar and the yen were also beneficiaries of escalating risk aversion although gold, a traditional safe-haven asset, struggled in the face of the greenback’s strength.     MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled as much as 1.6%, and was set for its worst month in eight months with a drop of nearly 12%. The pan-Asia index was down 0.3% for the year.   The index was dragged down as some key Asian bourses - Hong Kong, Australia and Korea - temporarily fell to negative territory for t h e year. Japan’s Nikkei was down 1.4% on the day and  on track for its biggest monthly drop in two years. European shares were likely to tread lower, with spreadbetters predicting major European markets    would open down as much as 0.2%. US stock futures were nearly unchanged.   "The situation in Spain at the moment is untenable, not only is there concern over the state of its banking sector but there is little confidence its government will actually be able to bail them out,” said Michael Creed, an economist at the National Australia Bank. A caution by Spain’s central banker that Madrid will miss deficit targets for this year pushed Spanish 10-year yields  above 6.7%, close to 7%, a level seen as unsustainable and which could push Spain to seek a bailout just as Greece, Portugal and Ireland have done. The cost of insuring against a Spanish default scaled a record high near 600 basis points while Italy, which is also struggling with huge public debt, saw its 10-year yield  top 6% for the first time since January. Yields on all German bond maturities hit record lows on Wednesday, pushing the premium investors demand to hold Spanish debt over German debt to its highest since the launch of the euro at around 543 basis points. Firm dollar slams commodities Oil prices extended losses and copper hit 2012 lows near $7 422 a tonne on Thursday. US crude futures eased 0.3% at $87.59 a barrel and were set for their worst month since late 2008. Brent crude fell 0.3% at $103.15 a barrel, on track for its worst month in two years.     “Investors were already exposed to the problems in Spain, but what really disturbed the market were oil prices and US bond yields which broke out of range to hit long-period lows,” said Lee Seung-wook, an analyst at Kiwoom Securities. The dollar index, measured against a basket of major currencies, extended its rally to 83.11, its highest since September 2010.   The strong dollar and intensifying risk aversion sent the Thomson Reuters-Jefferies CRB index, a global benchmark for commodities, tumbling 1.7% to its lowest levels since September 2010 on Wednesday. A stronger dollar typically weighs on dollar-based commodities. The dollar index was on the verge of closing above its 100-month moving average at 81.82, which would generate a buy signal which in turn could spur a sustained period of dollar strength for the next couple of years to as high as 101.00-106.00, some analysts said. The index has in the past 30 years generated four successful buy signals which have resulted in significant dollar moves, they added.Euro under fire     The euro fell to a 23-month low of $1.2358 and a four-and-a-half month low against the safe-haven yen at ¥97.36. “There is no exit in sight currently for the euro to get out of this downtrend because there is no shortage of negative news,” said Hisamitsu Hara, chief FX manager at Bank of Tokyo-Mitsubishi UFJ. “Problems in Spain, a large eurozone economy, heighten fears while the risk of Greece leaving the euro bloc raises contagion concerns. The euro remains depressed, with players  cautiously testing the downside”. Hara added that the euro could weaken until support at the$1.19 level. The euro last dipped below $1.19 in June 2010. The yen rose to a three-and-a-half month high against the dollar at ¥78.71. Hara said wariness over Japanese authorities intervening to prop up the dollar was likely to prevent the US currency from falling sharply further.The European Commission threw Spain two potential lifelines, offering more time to reduce its budget deficit and offering direct aid from a eurozone rescue fund to recapitalise distressed banks. But any relief from the news was quickly offset by the latest Greece polls showing parties for and against a bailout neck-and-neck or very close to each another, ahead of a June 17 election that may decide whether Greece remains in the euro. Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 8 basis points.  

Oil prices extend losses

 

 Oil extended losses in Asian trade on Thursday, with prices hitting multi-month lows as Spain's banking woes intensified worries about the eurozone, analysts said.New York's main contract, West Texas Intermediate crude for delivery in July was down nine cents to $87.73 per barrel while Brent North Sea crude for July shed 29c to $103.18 in the afternoon.Prices had slumped Wednesday as the dollar rose to two-year highs against the European single currency, making dollar-priced oil more expensive and hurting demand.WTI crude had plunged $2.94 on Wednesday to its lowest level since October, while Brent declined $3.21, its lowest close since December 16."Right now, the market is wide open. There is still scope for more downside pressure on prices if the bearish sentiment about the eurozone's future keeps up," said Nick Trevethan, senior commodities strategist at ANZ Research.Spain's economic woes were sharply in focus as its 10-year borrowing rates approached the 7% mark considered too high for governments to be able to service their debts.Economists fear Madrid will have to seek an international bailout - following Greece, Ireland and Portugal - despite assurances from Prime Minister Mariano Rajoy.The European Commission weighed in on Wednesday, placing the debt-wracked country at the head of a critical list of 12 economies ordered to carry out sweeping reforms this year to try to stabilise the eurozone debt crisis."Concerns about a possible Greek exit and the risks of contagion from the periphery remain and in the absence of a policy response, oil prices are likely to remain under pressure," said Barclays Capital in a commentary.

NEWS,22.05.2012.

Deal on probe reached with Iran: UN

Despite some remaining differences, a deal has been reached with Iran that will allow the UN nuclear agency to restart a long-stalled probe into suspicions that Tehran has secretly worked on developing nuclear arms, the UN nuclear chief said on Tuesday.

 

The news from International Atomic Energy Agency (IAEA) chief Yukiya Amano, who returned from Tehran on Tuesday, comes just a day before Iran and six world powers meet in Baghdad for negotiations and could present a significant turning point in the heated dispute over Iran's nuclear intentions. The six nations hope the talks will result in an agreement by the Islamic Republic to stop enriching uranium to a higher level that could be turned quickly into the fissile core of nuclear arms.Iran denies it seeks nuclear arms and says its reactors are only for power and medical applications.By compromising on the IAEA probe, Iranian negotiators in Baghdad could argue that the onus was now on the other side to show some flexibility and temper its demands. Although Amano's trip and the talks in Baghdad are formally separate, Iran hopes progress with the IAEA can boost its chances on Wednesday in pressing the US and Europe to roll back sanctions that have hit Iran's critical oil exports and blacklisted the country from international banking networks.Differences no obstacleIt was unclear, though, how far the results achieved by Amano would serve that purpose, with him returning without the two sides signing the deal, despite his upbeat comments.After talks in Tehran between Amano and chief Iranian nuclear negotiator Saeed Jalili, "the decision was made... to reach agreement" on the mechanics of giving the IAEA access to sites, scientists and documents it seeks to restart its probe", Amano told reporters at Vienna airport after his one-day trip to Tehran.Amano said differences existed on "some details", without elaborating but added that Jalili had assured him that these "will not be an obstacle to reach agreement". He spoke of "an almost clean text" that will be signed soon, although he could not say when.Western diplomats are sceptical of Iran's willingness to open past and present activities to full perusal, believing it would only reveal what they suspect and Tehran denies - that the Islamic Republic has researched and developed components of a nuclear weapons programme. They say that Tehran's readiness to honour any agreement it has signed is the true test of its willingness to co-operateThe United States is among those sceptics. In a statement released soon after Amano's announcement, Robert A Wood, America's chief delegate to the nuclear agency, said Washington appreciated Amano's efforts but remained "concerned by the urgent obligation for Iran to take concrete steps to co-operate fully with the verification efforts of the IAEA, based on IAEA verification practices".Good intentions"We urge Iran to take this opportunity to resolve all outstanding concerns about the nature of its nuclear programme," said the statement. "Full and transparent co-operation with the IAEA is the first logical step."German Foreign Minister Guido Westerwelle also urged Iran to put professed good intentions into action."Enduring and substantial co-operation by Iran with the International Atomic Energy Agency to clear up the open questions surrounding the Iranian nuclear programme would be an important and at the same time overdue step in the right direction," he said in a statement.
On the Baghdad talks, "the aim is to make progress not just atmospherically but also on substance," he said, reflecting Western views that the feel-good effect achieved at a previous round in Istanbul last month must now be built upon with concrete steps aimed at reducing international concerns over Tehran's nuclear agenda.For the six powers - the United States, Russia, China, Britain, France and Germany - a main concern is Iran's production of uranium enriched to 20%, which is far higher than needed for regular energy-producing reactors but used for one Iran says it needs for medical research.The US and its allies fear the higher-enriched uranium could be quickly boosted to warhead-grade material.Israel against concessionsUS officials have said Washington will not backpedal from its stance that Iran must fully halt uranium enrichment. But speculation is increasing that the priorities have shifted to block the 20% enrichment and perhaps allow Iran to maintain lower-level nuclear fuel production - at least for now.Iranian officials could package such a scenario as a victory for their domestic audience. In Israel, it would likely be greeted with dismay and widen rifts between President Barack Obama's US administration and Israeli officials who keep open the threat of military action against Iran's nuclear sites.Israeli Prime Minister Benjamin Netanyahu has warned against concessions, saying world powers should make "clear and unequivocal demands" that Iran stop all of its nuclear enrichment activity.
"Iran wants to destroy Israel and it is developing nuclear weapons to fulfil that goal," Netanyahu said at a conference in Jerusalem. "Against this malicious intention, leading world powers need to display determination and not weakness. They should not make any concessions to Iran."Jalili, Iran's top nuclear negotiator who met with Amano and will also be the lead envoy at the Baghdad talks, said his country hopes for a new beginning when the talks start on Wednesday."We hope that the talks in Baghdad will be a kind of dialogue that will give shape to ... co-operation," Jalili said after arriving in Baghdad late on Monday.More inspections As part of any agreement, Amano and his agency are focused on getting Iran to let agency experts to probe various high-profile Iranian sites, including the Parchin military complex southeast of Tehran, where the agency believes Iran in 2003 ran explosive tests needed to set off a nuclear charge. The suspected blasts took place inside a pressure chamber.
Iran has never said whether the chamber existed, but describes Parchin as a conventional military site. Iran, however, has blocked IAEA requests for access to sites, scientists and documents needed for its investigation for more than four years.Amano's talks included Jalili as well as Iran's foreign minister and other officials including the head of Iran's nuclear agency, Fereidoun Abbasi.Iranian lawmaker Heshmatollah Falahtpisheh saids on Monday that Tehran will likely accept more inspections of Parchin "if it feels there is good will within the [IAEA]".But Falahtpisheh warned that this new openness will likely come with expectations that the West would in return ease international sanctions on Iran.Flexibility"In opening up to more inspections, Iran aims at lowering the crisis over its nuclear case," he said. "But if the sanctions continue, Iran would stop this."A political analyst in Tehran, Hamid Reza Shokouhi, said Iran is carefully watching to see if the West shows more "flexibility and pays attention to Iranian demands" during Amano's trip."Then Iran will show flexibility, too," Shokouhi said.
But some Iranian media was critical of Amano and the IAEA, possibly reflecting internal divisions on how far to go compromise on nuclear issues.In a sign of ebbing market worries, oil prices have steadily fallen since Iran and world powers resumed talks in April in Istanbul. Fears of supply disruptions because of military conflict or Iranian shipping blockades helped drive prices above $106 a barrel earlier this year. Oil rose to slightly above $92 per barrel on Monday in New York.

NEWS,31.03.2012.

US to press on with Iran sanctions

President Barack Obama vowed today to forge ahead with tough sanctions on Iran, saying there was enough oil in the world market - including emergency stockpiles - to allow countries to cut Iranian imports.In his decision, required by a sanctions law he signed in December, Obama said increased production by some countries as well as "the existence of strategic reserves" helped him come to the conclusion that sanctions can advance."I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran," he said in a statement.Obama had been expected to press on with the sanctions to pressure Iran to curb its nuclear program, which the West suspects is a cover to develop atomic weapons but which Iran says is purely civilian.The overt mention of government-controlled stockpiles may further stoke speculation that major consumer nations are preparing to tap their emergency stores this year."I do think it was interesting that it was laid out there," said David Pumphrey, an analyst at the Center for Strategic and International Studies."It was sort of like a reminder that yes, this is part of the tool kit," said Pumphrey, a former Energy Department official.Oil markets remain tight, the White House said. Surging gasoline prices have become a major issue in the presidential election campaign."A series of production disruptions in South Sudan, Syria, Yemen, Nigeria, and the North Sea have removed oil from the market," the White House said in a statement.France is in talks with the United States and Britain on a possible release of strategic oil stocks to push fuel prices lower, French ministers said on Wednesday.Senior Obama administration officials told reporters that the United States views releasing emergency stocks as an option, but said no decision has been made on specific actions.Oil prices briefly rallied by about 70 cents on the announcement, but later reversed gains to end almost flat as traders turned mindful of the possible use of reserves."There's been a shift from focus on a threat (by Iran) to close the Strait of Hormuz to whether or not reserves are going to be released," said Dominick Caglioti, a broker at Frontier Trading Co. in New York.Going forward, Obama is required by law to determine every six months whether the price and supply of non-Iranian oil are sufficient to allow consumers to "significantly" cut their purchases from Iran.The law allows Obama, after June 28, to sanction foreign banks that carry out oil-related transactions with Iran's central bank and effectively cut them off from the US financial system."Today, we put on notice all nations that continue to import petroleum or petroleum products from Iran that they have three months to significantly reduce those purchases or risk the imposition of severe sanctions on their financial institutions," said Senator Robert Menendez, co-author of the sanctions law.Obama can offer exemptions to countries that show they have "significantly" cut their purchases from Iran, and recently exempted Japan and 10 EU countries from the sanctions.A senior administration official told reporters that talks continue with China, India, South Korea and other importers."Each day I think really we see a number of positive indicators from a broad range of countries," the official said, citing an announcement by Turkey today that it would cut imports of oil from Iran by 10% as an example.Obama faces a delicate balancing act on Iran, leading up to November US general election. On the one hand, he must show voters he is being tough on the Islamic state.But with oil and gasoline prices surging in response to geopolitical risks, he must also avoid steps that would unduly rattle oil markets. That could threaten the global economy and hurt voters already angered by the rising cost of fuel.Obama also faces pressure from some lawmakers in Congress who want to make sanctions on Iran even tighter. The House of Representatives has already passed additional sanctions, and a bill is pending in the Senate.Senior administration officials briefing reporters declined comment on the proposed new sanctions."We welcome the president's determination and applaud the administration's faithful implementation of the Menendez-Kirk amendment," said a spokesman for Senator Mark Kirk, a Republican who has pushed for additional measures."To build on this momentum, we hope the Senate will consider amendments to the pending Iran sanctions bill that would continue to increase the economic pressure on the Iranian regime," Kirk's spokesman said.

Spain announces deep cuts amid public protest

Spain has announced deep cuts to its central government budget as it battles to convince European partners and debt markets it can rein in its budget deficit in the face of growing complaints from the public.The government said it would make savings of 27 billion euros for the rest of 2012 from the central government budget, equivalent to around 2.5% of gross domestic product. The figure includes tax rises and spending cuts of around 15 billion euros announced in December.The cuts come despite popular resistance - a general strike on Thursday disrupted transport, halted industry and saw some minor violence - and against a grim economic backdrop; Spain is thought to have fallen back into recession in the first quarter and has the highest unemployment rate in the European Union."Everyone knows the difficult problem we face in this country, and it calls for special efforts in fiscal consolidation and structural reforms to grow and create employment," Deputy Prime Minister Soraya Saenz de Santamaria said after the weekly cabinet meeting.The centre-right government, which swept to power in November with the largest parliamentary majority in 30 years, has already passed labour market and banking sector reforms that it says can improve competitiveness and reduce wage costs.EU partners have agreed to let Prime Minister Mariano Rajoy aim for a total 2012 deficit at 5.3% of gross domestic product, a less demanding goal than the 4.4% originally suggested but substantially less than last year's 8.5%.Speaking in Copenhagen after an EU ministerial meeting, Spanish Economy Minister Luis de Guindos said the measures would be implemented as soon as possible, adding that any suggestions that Madrid needed emergency international funds was "absurd".Spain is trying to assure its EU partners that it is in control of slashing its deficit and to avoid needing a bailout package like that of smaller neighbour Portugal."What comforts markets are domestic policies. If we don't do what is needed, then there will be no rescue fund that is big enough," de Guindos said. Finance ministers agreed on Friday to increase a financial firewall to 700 billion euros to ward off fears the euro zone debt crisis could spill over to Spain or Italy, much larger economies than those bailed out previously.The Spanish government said it was aiming for a central government deficit equivalent of 3.5% of GDP, a deficit of 1.5% of GDP coming from Spain's regions and a balanced social security budget. Smaller local authorities expect a deficit equivalent to 0.3% of GDP.The regions announced a deficit of 2.9% of GDP in 2011, meaning they would have to cut around 15 billion euros to meet the 2012 target.Details were scarce, with the government due to set the budget before parliament on Tuesday, but some economists are concerned that deep austerity measures could hurt already weakened growth and further endanger the deficit targets.The government said it would slash spending by 16.9% across the ministries, with spending at the Foreign Ministry cut by more than half, and the Industry, Energy and Tourism Ministry taking a cut of more than 30%.Total cuts of over 42 billion euros, between the central administrations and the regional authorities, could be tough for an economy struggling to grow, economists warn."This is as austere as it gets. It's a tightening of fiscal policy until the pips squeak. There can be no doubting the government's willingness to curb Spain's excessive budget deficits," said Nicholas Spiro at Spiro Sovereign Strategy.Rajoy can ill afford to upset nervous bond market investors, who pushed the yield premium for Spanish 10-year debt on Thursday close to their highest levels since early January.The premium investors demand to hold Spanish over German debt dipped slightly after the budget announcement to around 356 basis points, suggesting a cautious welcome for the plan intended to improve Madrid's ability to service its debt.Investors fear, however, that the government may fail to deliver the budget cuts it is promising or will need to announce new measures before the end of the year which could hurt growth."I suspect that the government could be forced to implement further austerity measures later this year, with lingering economic downturn set to place additional strains on an already perilous budget deficit reduction plan," said IHS Global Insight economist Raj Badiani. "The main risk is that the government's tax revenue projections for 2012 look too optimistic."