NEWS,08.12.2012

US 'fiscal cliff' fear may push investors to sell

Investors typically sell stocks to cut their losses at year end. But worries about the 'fiscal cliff' and the possibility of higher taxes in 2013 - may act as the greatest incentive to sell both winners and losers by December 31.The $US600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual.Tax-related selling may be behind the weaker trend in the shares of market leader Apple, analysts said. The stock is down 20% for the quarter, but it's still up nearly 32% for the year.Apple dropped 8.9% in this past week alone. For a stock that gained more than 25% a year for four consecutive years, the embedded capital gains suddenly look like a selling opportunity if one's tax bill is going to jump sharply just because the calendar changes."Tax-loss selling is always a factor but  tax-gains selling has been a factor this year," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont."You have a lot of high-net-worth individuals in taxable accounts, and that could be what's affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual."Of this year's top 20 performers in the S&P 1500 index, which includes large, small and mid-cap stocks, all but four have lost ground in the last five trading sessions.The rush to avoid higher taxes on portfolio gains could cause additional weakness.The S&P 500 ended the week up just 0.1% after another week of trading largely tied to fiscal cliff negotiation news, which has pushed the market in both directions.Next week's Federal Reserve meeting could offer some relief if policymakers announce further plans to help the lackluster US economy. The Federal Open Market Committee will meet on Wednesday and Thursday.The policy statement is expected on Thursday after the conclusion of the meeting - the Fed's last one for the year.The jobs report showing non-farm payrolls added 146,000 jobs in November eased worries that Superstorm Sandy had hit the labor market hard."After the FOMC meeting, I think it's going to be downhill from there as worries about the fiscal cliff really take center stage and prospects of a deal become less and less likely," said Mohannad Aama, managing director of Beam Capital Management LLC in New York."I think we are likely to see an escalation in profit-taking ahead of tax rates going up next year," he said.Volume could increase as investors try to shift positions before year end, some analysts said.While most of that would be in stocks, some of the extra trading volume could spill over into options, said J.J. Kinahan, TD Ameritrade's chief derivatives strategist.Volatility could pick up as well, and some of that is already being seen in Apple's stock."The actual volatility in Apple has been very high while the market itself has been calm. I expect Apple's volatility to carry over into the market volatility," said Enis Taner, global macro editor at RiskReversal.com, an options trading firm in New York.Shares of Apple, the largest US company by market value, registered their worst week since May 2010. In another bearish sign, the stock's 50-day moving average fell to $US599.52 - below its 200-day moving average at $US601.38."There's a lot of tax-related selling happening now, and it will continue to happen. Apple is an example, even (though) there are other factors involved with Apple," Aama said.While investors may be selling stocks to avoid higher taxes in 2013, companies may continue to announce special and accelerated dividend payments before year end.To be sure, the big sell-off in stocks following the November 6 election was likely related to tax selling, making it hard to judge how much more is to come.Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said there's a decent chance that the market could rally before year end."Even with little or spotty news that one would put in the positive bucket regarding the cliff negotiations, the market has basically hung in there, and I think it's hung in there in anticipation of something coming," he said.

Jobless Benefits Should Be Included In Fiscal Cliff Deal, Democrats Say

 

Hovering in the background of the "fiscal cliff" debate is the prospect of 2 million people losing their unemployment benefits four days after Christmas."This is the real cliff," said Sen. Jack Reed, D-R.I. He's been leading the effort to include another extension of benefits for the long-term unemployed in any deal to avert looming tax increases and massive spending cuts in January."Many of these people are struggling to pay mortgages, to provide education for their children," Reed said this past week as President Barack Obama and House Speaker John Boehner, R-Ohio, rejected each other's opening offers for a deficit deal.Emergency jobless benefits for about 2.1 million people out of work more than six months will cease Dec. 29, and 1 million more will lose them over the next three months if Congress doesn't extend the assistance again.Since the collapse of the economy in 2008, the government has poured $520 billion an amount equal to about half its annual deficit in recent years into unemployment benefit extensions.White House officials have assured Democrats that Obama is committed to extending them another year, at a cost of about $30 billion, as part of an agreement for sidestepping the fiscal cliff and reducing the size of annual increases in the federal debt."The White House has made it clear that it wants an extension," said Michigan Rep. Sander Levin, the top Democrat on the House Ways and Means Committee.Republicans have been relatively quiet on the issue lately. They demanded and won savings elsewhere to offset the cost of this year's extension, requiring the government to sell some of its broadcasting airwaves and making newly hired federal workers contribute more toward their pensions.Boehner did not include jobless benefits in his counteroffer response this past week to Obama's call for $1.6 trillion in new taxes over the next decade, including raising the top marginal rates for the highest-paid 2 percent.Long-term unemployment remains a persistent problem. About 5 million people have been out of work for six months or more, according to the Bureau of labor Statistics. That's about 40 percent of all unemployed workers.The Labor Department said Friday that the unemployment rate fell to 7.7 percent from 7.9 percent, the lowest in nearly four years. But much of the decline was due to people so discouraged about finding a job that they quit looking for one.Democrats have tried to keep a flame burning under the issue. Ending the extended benefits would "deal a devastating blow to our economy," 42 Democratic senators wrote Senate Majority Leader Harry Reid, D-Nev., this past week.The Congressional Budget Office said in a study last month that extending the current level of long-term unemployment benefits another year would add 300,000 jobs to the economy. The average benefit of about $300 a week tends to get spent quickly for food, rent and other basic necessities, the report said, stimulating the economy.The liberal-leaning Economic Policy Institute found that extended unemployment benefits lifted 2.3 million Americans out of poverty last year, including 600,000 children.States provide the first 20 weeks to 26 weeks of unemployment benefits for eligible workers who are seeking jobs. When those are exhausted, federal benefits kick in for up to 47 more weeks, depending on the state's unemployment rate.The higher a state's unemployment rate, the longer state residents can qualify for additional weeks of federal unemployment benefits. Only seven states with jobless rates of 9 percent or more now qualify for all 47 weeks.Congress already cut back federal jobless benefits this year. Taken together with what states offer, the benefits could last up to 99 weeks. Cutting the maximum to 73 weeks has already cut off benefits to about 500,000 people.Opponents of benefit extensions argue that they can be a disincentive for taking a job."Prolonged benefits lead some unemployed workers to spend too much time looking for jobs that they would prefer to find, rather than focusing on jobs that they are more likely to find," said James Sherk, a labor policy analyst at the conservative Heritage Foundation.But Sen. Tom Harkin, D-Iowa, noted that unemployment checks add up to about $15,000 a year. "That's poverty level," he said. "This is not something people just want to continue on, they want to get jobs."

Berlusconi in comeback bid

Billionaire media baron Silvio Berlusconi, who resigned in disgrace with Italy tottering through the European debt crisis, announced on Saturday he was making a comeback and running for a fourth term as premier.Berlusconi, 76, reluctantly stepped down last year after pressure from international financial markets. He was later convicted of tax fraud and is on trial in Milan for alleged sexual misconduct and abuse of power when he was premier.An unelected government of technocrats, led by widely respected economist Mario Monti, was appointed to replace him. Opinion polls have seen the popularity of Berlusconi's Freedom People Party plunge to far below that of Italy's other large political force, the center-left Democratic Party.But Berlusconi professed confidence he can achieve victory."I'm running to win," Berlusconi told reporters outside the training facilities of his soccer team AC Milan.One of Monti's biggest backers in Parliament, centrist leader Pier Ferdinando Casini, bemoaned Berlusconi's bid to return to office."It has been a year that Italians are seriously sacrificing to try to avoid Greece's abyss, and, today, there's the re-emergence of Berlusconi, who wants to bring us back five years," Casini said on state TV.Since Monti took office, the retirement age for Italy's generous pensions has been raised, sales taxes have been hiked and a property tax on primary residences abolished by Berlusconi to fulfill one of his own campaign promises - has been reinstated.But while opinion polls of prospective voters find slumping support for Berlusconi's party, to lower than 15%, the media mogul might be betting on public impatience with those sacrifices.No date has been set for elections, linked to the end of Parliament's term in late April. But Berlusconi's decision earlier in the week to withdraw the support of his party Parliament's largest for Monti's anti-crisis government increased the likelihood that Italy's president would dissolve the legislature weeks early and elections ahead of schedule."It seems to me that 10 March has been indicated" as a possible date for early elections, "and that seems a date that's fine with me," Berlusconi said.Monti headed back from a conference in France for a meeting on Saturday evening at the presidential palace to take the pulse of political tensions. President Giorgio Napolitano has made clear he wants Parliament to at least pass a vital budget law later this month and avoid a "precipitous" demise amid mounting political uncertainty.When pressure from international financial markets forced Berlusconi to reluctantly step down in November 2011 at the height of sovereign debt worries, many pundits dismissed any prospects for a comeback bid for the combative businessman-turned-politician, who has led Italy's conservatives for nearly 20 years.Since Berlusconi resigned 18 months short of the end of his third stint in the premiership, he has been convicted of tax fraud. He is appealing, and in Italy, convictions don't become definitive until after two levels of appeals are exhausted.He is also on trial in Milan for allegedly having sex with an underage prostitute and using his office when premier to try to cover it up, charges he has denied. The young woman has also denied having sex with the then-premier. Berlusconi, whose convictions in previous trials on charges linked to his media empire's dealings have either been overturned or thrown out when statute of limitations expired, claims he is the victim of prosecutors he contends sympathize with the left.With financial markets rattled over the prospect that Monti might see his tenure in the premiership end before May if early elections are called, the premier insisted that the political crisis was "manageable." Monti contended his government, with its austerity agenda of spending cuts, higher taxes and pension reform, spared Italy and with it, other nations in the eurozone from succumbing to financial disaster.Standard & Poor's rating agency on Friday indicated it could lower Italy's rating if the recession endures well into 2013, and it cited "uncertainty" the next Italian government can stay the tough course of austerity Monti's nonpartisan government managed to move through Parliament, thanks to the wide support.Berlusconi declared "the campaign is already on" and insisted he's running "out of a sense of responsibility" toward recession-plagued Italy. For months, he had been coy about whether he would run again. But on Saturday he claimed that a search for a new leader, like the one he was when he burst into politics in the early 1990s, failed, and so "out of desperation" for lack of alternative, he was jumping into the race.Italian media have reported that Berlusconi was particularly irked by Monti's Cabinet approval, earlier in the week, of a measure that would ban from running for office anyone sentenced to more than two years in prison after convictions are definitely upheld in cases of terrorism, organized crime and offenses in public office, including corruption.Berlusconi's tax fraud conviction in October carries a four-year sentence, but the case could be dismissed if the statute of limitations runs out before all appeals are exhausted.Critics have contended that Berlusconi expended much of his efforts as premier to push through legislation tailor-made to help him in his legal woes, and any new term in the premier's office could offer a similar opportunity.Since his last election bid, in 2008, Berlusconi has lost the key support of its biggest coalition partner, the Northern League, which refused to support Monti's government. But the League, whose founder, Umberto Bossi, has been tarnished by scandal, hasn't ruled out forging a new election alliance with Berlusconi.

NEWS,07.12.2012

Ensuring Scotish Sovereignty: Exploring the Public Bank Option

 

The Royal Bank of Scotland (RBS) and the Bank of Scotland have been pillars of Scotland's economy and culture for over three centuries. So when the RBS was nationalized by the London-based UK government following the 2008 banking crisis, and the Bank of Scotland was acquired by the London-based Lloyds Bank, it came as a shock to the Scots. They no longer owned their oldest and most venerable banks.Another surprise turn of events was the triumph of the Scottish National Party (SNP) in the 2011 Scottish parliamentary election. Scotland is still part of the United Kingdom, but it has had its own parliament since 1999, similar to U.S. states. The SNP has rallied around the call for independence from the UK since its founding in 1934, but it was a minority party until the 2011 victory, which gave it an overall majority in the Scottish Parliament. Scottish independence is now on the table. A bill has been introduced to the Scottish Parliament with the intention of holding a referendum on the issue in 2014.Arguments in favor of independence include that it will allow the Scottish people to make decisions for Scotland themselves, on such contentious issues as having nuclear weapons in their seas and being part of NATO. They can also directly access the profits from the North Sea oil off Scotland's coast.Arguments against independence include that Scotland's levels of public spending (which are higher than in the rest of the UK) would be difficult to sustain without raising taxes. North Sea oil revenues will eventually decline.One way budgetary problems might be relieved would be for Scotland to have its own publicly-owned bank, one that served the interests of the Scottish people.  True economic sovereignty means having control over the national currency, credit and debt.It was in that context that I was asked to give a presentation on public banking at RSA Scotland (the Royal Society of Arts) in Edinburgh on Nov. 22.  Among other attendees were a special adviser and a civil servant from the Scottish government.  The presentation was followed by one by public sector consultant Ralph Leishman, director of 4-consulting, who made the public bank option concrete with specific proposals fitting the Scottish context.  He suggested that the Scottish Investment Bank (SIB) be licensed as a depository bank, on the model of the state-owned Bank of North Dakota. Lively debate followed. The SIB is a division of Scottish Enterprise (SE), a government economic development body. SE encourages economic development, enterprise, innovation and investment in business, which is achieved by the SIB through the Scottish Loan Fund. As noted in a September 2011 government report titled "Government Economic Strategy": Securing affordable finance remains a considerable challenge... Evidence shows that while many large companies have significant cash holdings or can access capital markets directly, for most Small and Medium-sized companies bank lending remains the key source of finance. Unblocking this is key to helping the recovery gain traction." The limitation of a public loan fund is that the money can be lent only to one borrower at a time.  Invested as capital in a bank, on the other hand, public funds can be leveraged into nearly ten times that sum in loans. Liquidity to cover the loans is provided by deposits, which remain in the bank available to the depositors. Any shortage in liquidity can be covered by borrowing at low interest from other banks or the money market.  As observed by Kurt von Mettenheim, et al., in a 2008 report  titled "Government Banking: New Perspectives on Sustainable Development and Social Inclusion from Europe and South America" (at page 196): "In terms of public policy, government banks can do more for less: Almost ten times more if one compares cash used as capital reserves by banks to other policies that require budgetary outflows."Leishman stated that the SIB now has investment funds of 23.2 million pounds from the Scottish government. Rounding this to 25 million pounds, a public depository bank could have sufficient capital to back 250 million pounds in loans.  For deposits to cover the loans, the Scottish Government has 125 million pounds on deposit with private banks, currently earning little or no interest. Adding just 14 percent of the General Fund cash and cash equivalent reserves held by Scotland's local governments would provide another 125 million pounds, reaching the needed 250 million pounds, with six times that sum in local government revenues to spare.My assignment was to show what the government could do with its own bank, following the model of the Bank of North Dakota (BND).  n the Saturday following the RSA event, The Scotsman published and article Alf Young that summarized the issues and possibilities so well that I'm taking the liberty of abstracting from it here.North Dakota is currently the only U.S. state to own its own depository bank. The BND was founded in 1919 by Norwegian and other immigrants, determined, through their Non-Partisan League, to stop rapacious Wall Street money men foreclosing on their farms.All state revenues must be deposited with the BND by law. The bank pays no bonuses, fees or commissions; does no advertising; and maintains no branches beyond the main office in Bismarck. The bank offers cheap credit lines to state and local government agencies. There are low-interest loans for designated project finance. The BND underwrites municipal bonds, funds disaster relief and supports student loans. It partners with local commercial banks to increase lending across the state and pays competitive interest rates on state deposits. For the past ten years, it has been paying a dividend to the state, with a quite small population of about 680,000, of some $30 million (18.7 million pounds) a year.Young writes:"Intriguingly, North Dakota has not suffered the way much of the rest of the U.S. -indeed much of the western industrialized world -- has, from the banking crash and credit crunch of 2008; the subsequent economic slump; and the sovereign debt crisis that has afflicted so many. With an economy based on farming and oil, it has one of the lowest unemployment rates in the U.S., a rising population and a state budget surplus that is expected to hit $1.6 billion by next July. By then North Dakota's legacy fund is forecast to have swollen to around $1.2 billion. With that kind of resilience, it's little wonder that twenty American states, some of them close to bankruptcy, are at various stages of legislating to form their own state-owned banks on the North Dakota model. There's a long-standing tradition of such institutions elsewhere too. Australia had a publicly-owned bank offering credit for infrastructure as early as 1912. New Zealand had one operating in the housing field in the 1930s. Up until 1974, the federal government in Canada borrowed from the Bank of Canada, effectively interest-free.From our western perspective, we tend to forget that, globally, around 40 per cent of banks are already publicly owned, many of them concentrated in the BRIC economies, Brazil, Russia, India and China. "Banking is not just a market good or service.  It is a vital part of societal infrastructure, which properly belongs in the public sector. By taking banking back, local governments could regain control of that very large slice (up to 40 percent) of every public budget that currently goes to interest charged to finance investment programs through the private sector. Recent academic studies by von Mettenheim et al., and Andrianova et al show that countries with high degrees of government ownership of banking have grown much faster in the last decade than countries where banking is historically concentrated in the private sector.  Government banks are also less corrupt and, surprisingly, have been more profitable in recent years than private banks.Young concluded his article: "As we left Thursday's seminar, I asked another member of the audience, someone with more than thirty years' experience as a corporate financier, whether the concept of a publicly-owned bank has any chance of getting off the ground here.'I've no doubt it will happen,' came the surprise response. 'When I look at the way our collective addiction to debt has ballooned in my lifetime, I'd even say it's inevitable.'"The Scots are full of surprises, and independence is in their blood. Recall the heroic battles of William Wallace and Robert the Bruce memorialized by Hollywood in the Academy Award-winning movie Braveheart.  Perhaps the Scots will blaze a trail for economic sovereignty in the EU, just as the North Dakotans did in the U.S.  A publicly-owned bank could help Scotland take control of its own economic destiny, by avoiding unnecessary debt to a private banking system that has become a burden to the economy rather than a pillar in its support.

American economy and the Rationalization of Inequality

 

Republicans love touting the benefits of trickle-down economics and are still doing it in the big debate over tax cuts for the wealthy. The idea is simple: The more money the people on top make, the more the people below will benefit from the dripping down of that prosperity. The hidden agenda here, of course, is the rationalization of inequality. By linking the welfare of working-class Americans directly to the prosperity of the rich, the Republicans can protect the insulated interests of corporations and the wealthy without the fear of backlash. In reality, however, the only thing that trickles down in the Republican universe is you-know-what. Our economy is actually a trickle "up" economy instead, based on a lopsided pyramid scheme that ensures the rising up of prosperity rather than the dripping down. Consider the example of investment banking, a white-collar profession that raises money for companies and provides advice for mergers, divestitures, and other strategic alternatives. I chose this example because the pyramid structure illustrated by it is magnified a thousand times in blue-collar environments, the retail industry, and other sectors where wage inequality between rank-and-file workers and senior management is even higher, and so it is telling that even in a relatively upscale business like investment banking, the contrasts are so extreme. The investment banking hierarchy is essentially a large bureaucracy. At the bottom (ignoring maintenance staff like janitors and security guards) are the administrative assistants, who support several bankers at one time and make about $35,000 a year. Above them are the analysts, a cadre of college graduates whose life consists of 120-hour work weeks and an endless stream of menial tasks for $65,000 to $90,000 a year. Next up, and supported by the analysts, are the associates freshly minted MBAs with more than a $100,000 in school loans hanging over them who can look forward to taking home between $100,000 and $175,000 a year. If these young men and women, who work 90-hour weeks while trying to juggle a family, survive long enough to become vice presidents, their compensation can rise to $200,000-$300,000 per year. So far so good, but here is where the gravy train takes a sharp turn towards the absurd. Above the vice presidents are the directors, which is a training zone for the next pay grade (or a graveyard for those who don't have what it takes). Directors rely on the workers below them to do all the grunt work, including research, financial analysis, and client presentations, while they mainly babysit clients and occasionally come up with ideas to pitch to them. Their pay for these relatively cushy tasks ranges from $350,000 to $500,000 per year; but even this is meager compared to what their superiors make. Managing directors, who work even less and spend more time golfing instead, can make anywhere from a million to several million dollars a year. Finally you have the really big fish the CEOs, presidents, executive vice presidents, and others who manage the entire circus, think deep thoughts, and schmooze with politicians to get regulations loosened. What makes these gigs so coveted is not just the fact that few ever manage to leapfrog into that echelon but that the pay scale can jump to tens of millions of dollars (and for celebrity executives, even hundreds) per year for work that is only moderately more challenging than that of the managing directors. It may be lonely at the top, but it's pretty lucrative too.It should be clear from the above that the wealth generated in these organizations gathers mainly at the top of the pyramid, while the people at the bottom, who do a lot of the heavy lifting and are instrumental in building that wealth, receive only a fraction of those riches. Sure, the pay scales in investment banking are pretty good by the standards of other industries, but it is the proportional difference between the compensation at the top and the bottom that makes a difference. This large income gap leads to an exponentially faster accumulation of wealth in a few hands, which in turn widens the prosperity gap even more. In other words, prosperity is not really trickling down but trickling up.The problem with this is obvious. The more wealth trickles up in our system, the more it frustrates those at the bottom without whose efforts that wealth could not be created in the first place. Moreover, since money is a finite resource, disproportionately large compensation for senior executives is ultimately paid for not just by other employees, but by customers (whose pockets that money comes from) and shareholders (who receive less benefit from their investment) as well. In a true trickle-down economy, the benefits of productivity and innovation would be shared fairly by all stakeholders, not just the select few with authority to dictate compensation and how the profits of a company are distributed. So while the idea of such a system might be appealing conceptually, it is not the way our economy really works, and if the Republicans really believe in trickle down, they should stop trying to whitewash the exploitative pyramid schemes of their wealthy donors and come up with a real model for equality instead.

NEWS,06.12.2012

Obama tough on fiscal cliff

President Barack Obama and Republicans crept closer to negotiations on avoiding a recession-threatening package of automatic tax increases and spending cuts, but the White House reaffirmed it would not budge on demands for higher taxes on the wealthy.With a new AP-GFK poll showing clear support for Obama's position and dwindling backing for cutting government services to curb the climbing US budget deficit, the president and House of Representatives Speaker John Boehner spoke by telephone on Wednesday for the first time in days about a way to avoid the so-called fiscal cliff which would occur on 1 January.The telephone contact, disclosed by a Boehner spokesperson, raises the possibility that negotiations could soon resume on heading off what some economists warn could be a serious blow to an economy still recovering from the Great Recession.So far, Republican leaders have said they would only agree to higher tax revenues by closing loopholes or reducing tax breaks, not by raising rates as demanded by Obama. The opposition has struggled, however, to remain united and find its footing in talks with a president emboldened by his November election victory and unified congressional Democrats.While insisting that tax rates go up on the top 2% of American earners, Obama, too, has called for government spending cuts but by less than the Republicans want.Obama, addressing business leaders on Wednesday, said the White House and Republicans could reach an agreement "in about a week" if the Republicans drop their opposition to raising taxes on families making more than $250 000 a year."If we can get the leadership on the Republican side to take that framework, to acknowledge that reality, than the numbers actually aren't that far apart," Obama said.Administration officials are hardening their warnings that Obama is willing to risk going over the cliff. Treasury Secretary Timothy Geithner said on Wednesday that the Obama administration is "absolutely" ready for that risky step.Geithner said in an interview on CNBC the administration thinks budget deficits are so large that they can't be closed without boosting tax rates on the wealthiest 2% of Americans. He also said that the administration would reject a budget plan that didn't include an increase in the federal borrowing limit, which is expected to expire early next year. However, Geithner said he still thinks progress is being made in the budget negotiations and that the outlines of an agreement are becoming clearer."They look inevitable," he said.Speaking to business chieftains Wednesday, Obama warned Republicans not to inject the threat of a government default into negotiations over the fiscal cliff as a way of extracting concessions on spending cuts. "It's not a game I will play," he said, recalling the brinkmanship of last year in which a budget standoff pushed the Treasury to the edge of a first-ever default and led to a downgrade of the US credit rating.While saying he is willing to accept some reductions in government programs such as Medicare, the highly popular federal health insurance programmes for older Americans, he flatly rejects Republican contentions that they can raise about $800bn in additional government revenue over a decade by closing loopholes and narrowing tax deductions on the wealthy, rather than raising income tax rates. The opposition argues increasing rates from 35% to 39.6% as Obama wants would impose a particularly harmful impact on the economy and job creation at a time when the country is still struggling to recover fully from the deepest recession in decades.The White House has ridiculed the Republican plan as "magic beans and fairy dust."

 

US jobless claims fall

The number of Americans filing new claims for unemployment benefits fell for a third straight week last week, dropping back to their pre-superstorm Sandy range.Initial claims for state unemployment benefits dropped 25 000 to a seasonally adjusted 370 000 in the week ended Dec. 1, the Labor Department said on Thursday.Last week's drop brought them back to their pre-storm's 360 000-370 000 range, which economists said suggested there had been no marked weakening in the labor market. They had forecast claims falling to 380 0000."We could reasonably assume there is no underlying deterioration or acceleration in the labor market before the storm," said Pierre Ellis, senior global economist at Decision Economics Inc. in New York."We should still have a relative poor payroll reading tomorrow, but we should have some confidence that payrolls would bounce back in December."The four-week moving average for new claims, a better measure of labor market trends, rose 2 250 to 408 000, reflecting the impact of the late October storm. That was the highest level since October last year.Last week's claims data has no bearing on Friday's employment report. Economists estimate the monster storm, which slammed into the densely populated East Coast, could subtract between 25 000 and 75 000 jobs from November's nonfarm payrolls.The closely watched report is expected to show payrolls increased only 93 000 last month after advancing 171 000 job in October, according to survey of economists. The unemployment rate is seen holding steady at 7.9%.A Labor Department official said there was nothing unusual in the state-level data, but noted claims tend to post their largest percentage increase in the last week of November, catching up from the Thanksgiving holiday.In addition, seasonal layoffs in sectors like construction, start picking up this time of the year. This will make claims a less useful gauge of labor market conditions in the weeks ahead.A separate report from consultants Challenger, Gray & Christmas showed planned layoffs at US firms rose nearly 20% in November to their highest level in six months.The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid dropped 100 000 to 3.21 million in the week ended Nov. 24.

 

ECB cuts euro-zone growth for 2013

The euro weakened against the US dollar and the yen after European Central Bank President Mario Draghi said the euro-zone was expected to stay in recession next year, reversing an earlier forecast for a recovery in economic growth.The downgrade to the outlook for gross domestic product came as the ECB left its benchmark interest rate at a record low 0.75%.Draghi said that there had been wide discussion on interest rates within the ECB, which taken together with the weaker growth track has stoked speculation the central bank may cut rates next year.The euro fell 0.9% to $1.2954 and dropped 1% to 106.64 yen after the statement."By the second part of the next year, we should see the beginning of a recovery" in Europe, as the global economy picks up pace, Draghi said.The ECB forecasts the region's economy will shrink 0.5% this year, worse that the 0.4% contraction it forecast three months ago. The economy would shrink 0.3% in 2013, compared to an earlier forecast of 0.5% growth.The ECB lowered its forecast for inflation in 2013 to 1.6% from 1.9% and said inflation would be even weaker in 2014 at 1.4%. Separately, the Bank of England kept its key interest rate at a record low 0.5% while maintaining its quantitative easing programme.Euro-zone GDP shrank 0.1% in the third quarter, the European Union confirmed, following a 0.2% contraction in the second quarter."The underlying reason for euro weakness is still there, and the ECB's warnings of continued weakness over the next year could be the catalyst for a continued euro drop," Neal Gilbert, market strategist at GFT. The ECB's first monetary policy decision in 2013 "could include another cut in interest rates."Equity markets were broadly stronger across Europe, though sentiment was driven by optimism the US Congress will find a way to avert the fiscal cliff which could plunge the US economy back into recession next year.Germany's DAX 30 rallied 1.1% to 7,534.54, the highest since January 2008, as figures showed factory orders in Europe's biggest economy jumped 3.9%, seasonally adjusted, in October. The Economy Ministry revised the previous month's decline to 2.4% from 3.3%.France's CAC 40 rose 0.3%. The Stoxx Europe 600 Index rose 0.7% to its highest close since May last year.Cracks are showing within Republican ranks over hiking taxes for the wealthiest Americans, a move that House Speaker and senior Republican John Boehner has refused to budge on in negotiations with President Barack Obama.Some 80 members of the US Congress, including Republicans and Democrats, have signed a letter calling for an exploration of "all options" in to end a deadlock between Obama and Boehner, Bloomberg reported, citing a spokeswoman for Representative Mike Simpson of Idaho, a republican who has signed the letter.US stocks were little changed. The Dow Jones Industrial Average fell 0.15 and the Standard & Poor's 500 Index was up 0.025. The Nasdaq Composite rose 0.3%.

ECB depicts bleak 2013

The euro zone economy is likely to shrink next year as it has in 2012, the European Central Bank predicted on Thursday, sharply downgrading its outlook after holding interest rates at a record low 0.75%.The bank's new staff projections put gross domestic product in a range of falling by 0.9% to growing by just 0.3% next year, suggesting contraction is far more likely than not. ECB President Mario Draghi said downside risks prevailed.In September, the ECB's staff had pencilled in a significantly higher range of -0.4% to +1.4% for the euro area economy."Economic weakness in the euro zone is expected to extend into next year," Draghi told a news conference after the central bank's monthly policy meeting."Later in 2013, economic activity should gradually recover as global demand strengthens and our accommodative monetary policy stance and significantly improved financial market confidence work their way through the economy."The Governing Council's decision to leave its main interest rate unchanged matched economists' expectations, which also showed opinion was split down the middle over the chances of a cut early next year."The Governing Council continues to see downside risk to the economic outlook for the euro area," Draghi said. "These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area."A political impasse over the United States' fiscal policy, which could presage steep tax hikes and budget cuts if a deal is not reached, could also dampen sentiment for longer, he said.The level of uncertainty was reflected in the ECB's first attempt to forecast 2014, for which it pencilled in growth of between 0.2% and 2.2%. The midpoint forecast for 2012 was pushed slightly lower to -0.5%.Draghi said rates were not lowered because of high indirect taxes and increasing energy prices in some euro zone countries."There was a wide discussion ... but the consensus was to leave the rates unchanged," he said, a hint that opinions differed about what course to take.He also said the policymakers discussed setting a negative rate on the ECB's deposit facility in an attempt to encourage banks not to hoard cash at the ECB but lend it into the real economy instead.German Bund futures rose in response to that and the euro came under pressure.The ECB will also continue to supply eurozone banks with all the liquidity they ask for in the central bank's refinancing operations at least until July 2013, Draghi said.While financial markets have calmed since the European Union and the International Monetary Fund put in place further steps to help Greece, and the ECB promised to do what it takes to preserve the euro, the bloc's economy has sunk into recession from which it shows few signs of emerging soon.An inflation forecast of 1.1% to 2.1% next year compared with the ECB's target of close to but below two percent there would appear to be plenty of room to cut rates further.But recent policymakers' comments have suggested the ECB is unlikely to do so in the near future and the central bank is wary of taking any action that could see the bloc's governments soft-pedal on budget consolidation efforts.Also, market interest rates vary greatly across the 17-country bloc and the ECB is focused on fixing what it calls the 'transmission mechanism' for passing on its rates to all corners of the euro area before contemplating lowering official borrowing costs.The most obvious mechanism for doing that would be the ECB's yet to be used new bond-buying scheme, which could drive down government borrowing costs.The ECB has not yet bought any sovereign debt under its new programme dubbed Outright Monetary Transactions (OMT) because Spain, which is seen as most likely to become the first country to make use of the new support measure, has not yet fulfilled the precondition of asking for help from the euro zone's rescue fund.Pressure for the ECB to intervene is building.Spain auctioned fewer bonds than it hoped to on Wednesday as investors fret over the timing of an expected aid request by the government.

Europe needs to tackle tax avoidance

European governments should coordinate their efforts to root out tax avoidance costing them around €1 trillion every year, the European Union's executive body said on Thursday.The European Commission said member states need to share information better, introduce an EU-wide tax identification number and devise common criteria for blacklisting tax havens.The proposals were part of an action plan detailed by EU taxation policy commissioner Algirdas Semeta on Thursday to deal with inventive and increasingly common tactics used by big companies and others to reduce their tax bills."Tax competition must not open the door to fraudulent or abusive tax practices," Semeta said. A new framework would result in profits being taxed in the state where the "actual economic activity takes place".The Commission intends to present its action plan to EU finance ministers next year but is not aiming to persuade member states to pass binding legislation.The impetus to deal with the problem has grown as several European countries try to increase tax revenues and cut spending to rein in heavy debts.A number of high-profile examples have hit headlines in recent months, including one involving coffee chain Starbucks .A recent examination of Starbucks' accounts showed that the company had reported 13 years of losses at its UK unit, even as it told investors the operation was profitable and among the best performing of its overseas markets.The chain's UK unit paid no corporation tax on its income in the last three years for which figures were available.Starbucks said on Thursday it could pay up to $32.18m more in tax as it announced plans to change its accounting practices, surrendering to criticism from lawmakers, campaigners and the media.Examination of Amazon's accounts showed how the world's biggest online retailer had minimised corporate taxes by setting up in Luxembourg, and channelling sales through its units there.In effect, Amazon used inter-company payments to form a tax shield for the group, behind which it has accumulated $2bn to help finance its expansion. Amazon declined to answer questions about its tax affairs.BusinessEurope, the lobby group that represents companies, said it supported the Commission's initiative, but also called for a simplification of the tax system across European Union.Semeta suggested part of the blame lay on tax regimes "artificially designed to steal tax bases or encourage aggressive tax planning".He rounded on non-EU state Switzerland as one country whose policies encourage aggressive tax avoidance."I can openly say that we consider that several tax regimes in Switzerland, according to our estimations, do not meet criteria of the code of conduct on business taxation," he said.

Prada shrugs off slowdown concerns

Italian fashion house Prada SpA beat forecasts with a 30% rise in third-quarter net profit, shrugging off concerns about a slowdown in demand for luxury goods.The Hong Kong-listed company, popular for its coloured Miu Miu dresses and leather handbags and shoes, has outperformed its sector so far, helped by its retail expansion in new markets."The group has continued to grow at a rate that has exceeded our expectations but great care has still been paid to cost control and working capital management," Patrizio Bertelli, chief executive, said in a statement.The company, led by trend-setting designer Miuccia Prada and her husband Bertelli, posted a net profit of €122.1m in the third quarter, boosted by wealthy spenders from Asia and other emerging markets.That compares with an average forecast from analysts SmartEstimate of €110m and with €93.6m a year earlier.Wealthy tourists from Asia and Russia have shielded the fashion house from a sluggish growth in Italy, being felt by domestic peers such as Tod's.Milan-based Prada also says it still has plenty of room for growth because it has a limited presence in fast-growing markets including Asia, compared with rivals such as LVMH and Salvatore Ferragamo.Prada shares have soared 80% so far this year, outperforming the benchmark Hang Seng Index which is up 21% over the same period.Global sales of luxury goods are expected to grow 5% this year, stripping out currency effects, from 13% last year, according to a report by Bain and Italy's luxury goods trade body Altagamma.

Brazil launches port investment program

Brazil's government launched a $26bn port investment program on Thursday to reduce the high costs and notorious delays in shipping goods in and out of the major commodities exporter.The plan to modernize port infrastructure announced by President Dilma Rousseff seeks to increase investment in Brazil's ports through partnership with private companies.The bidding process that will open next year will favor tenders that offer the lowest tariffs for handling the greatest volume of cargo, moving away from a prior model of granting concessions to the highest bidder."Our objective is the greatest movement of cargo possible at the lowest possible cost," Rousseff said."We want to increase the efficiency of Brazilian ports with this partnership, which will make our exports more competitive and increase production," she said. "We want an explosion of investment through this partnership with the private sector."The bulk of the investment would be made between 2014 and 2017, Ports Minister Leonidas Cristino said.The ports slated for modernization include Santos, which is Latin America's largest port by value of goods moved, Rio de Janeiro, Paranagua, Porto Alegre, Espiritu Santo, Itaqui, Pecem and Suape. Rousseff said Brazil's ports handle 95% of Brazil's foreign trade. The country is the world's top exporter of coffee sugar and citrus and a major grains exporter. It is also one of the world's biggest exporters of iron ore used to make steel.

NEWS,05.12.2012

Euro zone downturn eases slightly

The euro zone's economic slump was a little less pronounced in November than previously thought, although there are few signs the region will emerge from recession any time soon, business surveys showed on Wednesday. Markit's Euro zone Composite PMI, which gauges business activity across thousands of companies, rose in November to 46.5 from 45.7 in October markedly higher than the preliminary reading of 45.8 reported 10 days ago.The PMI has lingered below the 50 mark that divides growth and contraction for all but one of the last 15 months and with no economic stimulus in the pipeline, there is little reason to expect a rebound.Survey compiler Markit said there was no single reason for the upward revision to the PMI from the mid-month flash estimate, which could simply be down to a stronger end to the month for businesses.France, Spain and Italy were the biggest drags on the euro zone economy through last month. Germany performed better. Overall, however, the survey still pointed to a deepening recession this quarter, following the economy's 0.1% decline in the third quarter."The (upward revision) is good news as it might be a sign that activity has bottomed out in Q3," said Annalisa Piazza, economist at Newedge Strategy in London."Nevertheless, we see no signs of improvement that suggest that the EMU economy might recover any time soon. Further contraction in GDP remains our baseline scenario at least until Q1 2013."The euro hit a seven-week high on Wednesday and European shares continued their recent rally, although that was mainly due to comments from China's new leader which boosted expectations for global growth. Monday's manufacturing PMI's told a similar story to Wednesday's composite and services numbers. The composite new orders index saw a sharp upward revision to 45.0 from 44.1 in the preliminary data but still showed company order books declining at a fast rate.Service sector businesses like banks, hotels and restaurants that account for the vast bulk of the euro zone's private economy, also saw activity decline at the slowest rate in three months.The final services PMI was revised up a full point from the flash reading, to 46.7 and compared with October's 46.0.Prices charged for products fell again in November, at a similar rate to the previous month, giving further weight to the view that inflation would pose little impediment to the European Central Bank if it wanted to further ease monetary policy.The ECB ends its monthly policy meeting on Thursday. While only a handful of economists polled by Reuters think it will cut interest rates at the meeting, overall they are split on whether the bank will do so early next year. "The improvement in the services sector purchasing managers' survey further reduces the likelihood that the ECB will cut interest rates on Thursday," said Howard Archer, chief UK and European economist at IHS Global Insight."Nevertheless, we believe a cut from 0.75% to 0.50% remains likely in the early months of 2013 as the euro zone continues to struggle to grow and underlying inflationary pressures are muted."

EU imposes record cartel fine on Philips

The European Commission imposed the biggest antitrust penalty in its history on Wednesday, fining six firms including Philips, LG Electronics and Samsung SDI a total of €1.47bn for running two cartels for nearly a decade.The Commission said executives from the European and Asian companies met until six years ago to fix prices and divide up markets for TV and computer monitor cathode-ray tubes, technology now mostly made obsolete by flat screens.Between 1996 and 2006 they met in Paris, Rome, Amsterdam and in Asia for "green meetings", so-called because they often ended in a round of golf.The EU antitrust regulator imposed the biggest penalty, of €313.4m, on Dutch-based Philips for its role in fixing prices and carving up markets. LG Electronics of South Korea must pay the second biggest fine, set at €295.6m."These cartels for cathode-ray tubes are 'textbook cartels': they feature all the worst kinds of anti-competitive behaviour that are strictly forbidden to companies doing business in Europe," EU Competition Commissioner Joaquin Almunia said in a statement. Taiwanese firm Chunghwa Picture Tubes blew the whistle on the cartels in TV and computer monitors and escaped a fine.The Commission also fined Panasonic €157.5m, Samsung SDI €150.8m, Toshiba €28m, and French company Technicolor €38.6m.A joint venture between Philips and LG Electronics was penalised €391.9m while two Panasonic joint ventures were also sanctioned. Almunia said the violations were especially harmful for consumers, as cathode-ray tubes accounted for 50% to 70% of the price of a screen.Cathode-ray tubes have largely been replaced by more advanced display technologies such as liquid-crystal display (LCD), plasma display and organic light-emitting diodes. Philips said it would make a provision of €509m in the fourth quarter for the fine, but Chief Executive Frans van Houten also said the group would challenge what he called the disproportionate and unjustified penalty. Philips sold off the business which committed the infringement in 2001.ING analyst Fabian Smeets told ANP-Reuters that the sanction was significant, but expected. Philips' shares were down 0.2% to €20 in mid-session, erasing earlier gains after news of the fines. Technicolor said the fine, which will be booked as an exceptional item in its second-half accounts, would not affect its 2012 earnings and free cash flow targets.Until now, the Commission's biggest antitrust penalty had been a €1.38bn fine imposed on participants in a car glass cartel in 2008.The Commission's sanctions followed a total fine of €128.74m levied last year against four producers of the glass used in cathode-ray tubes.Chunghwa Picture Tubes, Samsung Electronics, LG Display and three other LCD companies were penalised a total €648m two years ago for taking part in a cartel.

Fiscal watchdog sees a million jobs lost

Britain's fiscal policy watchdog said on Wednesday that more than one million jobs would now be cut from the public sector by 2018 because of further government spending cuts.The independent Office for Budget Responsibility, which produces forecasts that underpin the government's economic policy, said gross domestic product would grow much more slowly than it forecast in March. According to the OBR, about 1.1 million general government jobs would be lost in total from the Conservative-Liberal Democrat coalition's austerity plans, which got underway in mid-2010, "reflecting the additional year of spending cuts pencilled in for 2017-18".In March, it had expected about 730 000 public sector jobs to be cut across the full period of austerity. There are roughly five and half million people employed in Britain's public sector.The watchdog predicted a 0.1% fall in GDP in the fourth quarter followed by growth of 0.3% in the first three months of 2013. In March, it had expected growth of 0.3% in the final three months of this year.It has also cut longer-term forecasts sharply. The economy will grow 1.2% next year and 2% in 2014, while 2015 and 2016 forecasts were revised down to 2.3% and 2.7% respectively.

Senate approves $631bn defence budget

The US Senate unanimously passed the Pentagon's 2013 budget on Tuesday, despite a political impasse over debt reduction that could see huge cuts to military spending next year.After months of negotiations, lawmakers voted 98-0 to approve the $631bn National Defence Authorisation Act for Fiscal Year 2013, which began on 1 October.The sweeping measure, passed after five days of debate and hundreds of amendments, would tighten sanctions on Iran, restrict the president's authorisation in handling terrorism suspects, and prohibit the military detention of US nationals.The bill must be reconciled with a version passed earlier this year in the House of Representatives before going to President Barack Obama's desk for his signature, though the White House has threatened a veto.The two versions have major differences, but both Senate Armed Services Committee chairperson, Carl Levin, and ranking Republican, John McCain, expressed confidence in reaching consensus in conference.The administration "strongly objects" to sections of the bill that would, among other things, impose restrictions on the use of funds to transfer detainees held at the US Naval base at Guantanamo Bay, Cuba to foreign countries; and to the proposed trimming of civilian and contract workers."If the bill is presented to the president for approval in its current form, the president's senior advisers would recommend that the president veto the bill," the Office of Management and Budget said last week. Obama had sought $614bn, of which $89bn would go to the war in Afghanistan.The Senate however, hiked the total figure by $17bn, even as lawmakers and the president grapple with how to avoid hundreds of billions of dollars in automatic spending cuts that kick in next month if no deficit reduction deal is reached. Tuesday's legislation saw more than 140 amendments added to the bill, including a ban on the US government detaining American citizens or US permanent residents without charge, and tough new economic sanctions on Iran aimed at stalling the Islamic republic's nuclear programme.It also includes an amendment requiring the administration to report to Congress on the US military options available for degrading Syrian President Bashar al-Assad's use of air power against his own people, although it does not expressly authorise the use of US military force and is not to be construed as a declaration of war against Syria.The bill also provides a 1.7% pay raise for military personnel, strengthens the Pentagon's anti-sexual assault programmes, and improves the care and management of wounded warriors, McCain said.The bill also approves funding for the deployment of additional US forces to protect American embassies and diplomatic missions abroad a reaction to the September 11 attack on the consulate in Benghazi, Libya.Four Americans including ambassador Christopher Stevens were killed in the attack by Islamist militants, and several investigations are under way to determine possible security lapses that contributed to the incident.Tuesday's vote marked a rare moment of cooperation between the two parties. Democrats and Republicans are engaged in fierce negotiations on deficit reduction for the next 10 years; they have until the end of the month to forge a compromise, but as of Tuesday, the discussions seemed stalled."Our efforts demonstrate that when it comes to addressing the issues important to the men and women in uniform, the Senate can work together in a bipartisan manner," McCain said.

Saudi businesses fear impact of new fees

Glancing through the newspapers one morning last month Saudi Arabian businessperson Ihsan al-Naeem was stunned by a government announcement that he fears will threaten the survival of his family's 30-year-old contracting business.In the latest and most aggressive of a series of labour reforms, the government has started imposing fees on companies that hire more foreign than local workers. The requirement covers everyone from expat professionals to hospital workers and labourers on construction sites and is in addition to quotas already in place to limit foreign staff numbers.The new rule is aimed at reducing unemployment of 10.5% among Saudi nationals by getting them into jobs now performed by 8 million expatriates in the country, a long-term Saudi goal given fresh impetus by the uprisings in Arab countries last year that were partly driven by high unemployment. Labour Minister Adel al-Fakeih said in January that the largest Arab economy needed to create 3 million jobs for Saudi nationals by 2015 and 6 million by 2030, partly through "Saudi-ising" work now done by foreigners. However, in an economy in which imported labour fills nine in 10 private sector jobs, according to central bank data, many companies fear the new fees will hit their businesses hard by adding to their costs and shrinking the pool of available workers."There are no Saudis who can drill or operate heavy machinery ... Where will they work in the construction industry?" said Naeem, who employs more than 1,000 foreign labourers working on 17 government contracts. As of November 15, Naeem and other private sector employers who hire more foreigners than Saudis must pay a fee of 2 400 riyals ($640) a year for each additional expatriate when they renew an expat's one-year residency permit.The rule does not cover foreigners with Saudi mothers or nationals of other Gulf states. Businessmen protested outside Labour Ministry offices after the decision, threatening to raise their fees to cover the additional labour costs o r terminate existing government contracts. A Labour Ministry spokesperson said there were no plans to reverse or amend the decision. "The decision is based on detailed studies of the market mechanisms and it will hopefully increase the competitiveness of our local youth in a market that has no mercy, which has eight foreigners in every 10 employees of the private sector, who compete with our youth for their livelihood," the spokesperson, Hattab Alenezi, said. Businesses say the new system will not address the problem of Saudis unwilling to work in the private sector. Wages are much lower than in government jobs and in many cases people are better off on unemployment benefit, which pays 2 000 riyals a month for up to a year. A security guard in the private sector, for example, earns only around 1 500 riyals a month. After the 1970s oil boom, which propelled many Saudis into a lifestyle of wealth and luxury, locals viewed jobs requiring manual labour as menial and imported cheap foreign labour to build their cities and service their offices. Construction labourers from India, Pakistan, Bangladesh and the Philippines form the biggest group of foreign workers." I have never come across a Saudi willing to work as a labourer," Naeem said, estimating his medium-sized company will have to pay around 2.4 million riyals in annual fees. Businesses complain that the fees on foreign workers were introduced with immediate effect with no warning or consultation, and that they appear to contradict other recent reforms to encourage "Saudi-isation" that take account of different industries' requirements. Last year the Labour Ministry overhauled a crude quota system for Saudi and foreign employees to take account of a company's size and sector. Those who do not comply with the quotas, known as Nitaqat, face hiring restrictions. Before the overhaul the local quota was a flat rate of 30%. Now the rate varies depending on what sector a company is in and what size it is. A small construction company is allowed more foreigners than a large bank, for instance. The impact of the Nitaqat reform is not yet clear but some economists fear the introduction of fees on foreign staff fit an old pattern of ineffective measures that add costs for companies." I think that (the fee) is going to be treated as a tax by some companies rather than an incentive to employ additional Saudis. It doesn't really address the supply issue which is that Saudis need to be incentivised to take private sector jobs," said James Reeve, a senior economist at Samba Financial Group. There is no formal minimum wage despite government efforts to raise pay for Saudis in private companies. Under Nitaqat rules, construction and transport businesses only need employ one Saudi for 19 expatriates and fear the new fees will hit them particularly hard."Saudis can work in the administration, but there are only a few jobs there," said Mahfooz Bin Mahfooz, who owns a transport company and said he cannot find Saudis to work for him as truck drivers." I want a job in the field that I studied for. I did not go to college so I can work as a driver," said a 22-year-old unemployed Saudi in Jeddah w i th a computer science degree. Not all businessmen disagree with the fee. Some say it is important to achieve the kingdom's long-term goal of getting more Saudis into work. Mohammed al-Agil, head of the kingdom's largest listed retailer Jarir Marketing Co, said about 40 percent of his employees are Saudi although he accepted that it was easier to find local workers in his sector." I think it is a good initiative but I think they should have given enough notice," he said. Many newspaper commentators, however, have voiced vehement opposition."The first to be harmed by it are local business owners, and secondly consumers who will no doubt bear the brunt of rising prices," said Essam al-Ghafaily, a columnist in al-Watan daily newspaper. Even the price of bread could rise by as much as 7 percent as bakers expect to transfer the cost of the new fees onto consumers, said Ali al-Shehri, head of the Jeddah Chamber of Commerce bakers' committee, in remarks printed by al-Watan newspaper.Naeem, the contractor, said he feared missing out on important tenders because the price of his bids will have to rise."Coming from a medium-sized company I'm getting exhausted ... my activities internally may change and I may even look to shift business a b road," he said.

NEWS,04.12.2012

Steel reprieve comes at price for Hollande

Francois Hollande's bid to rescue steel furnaces in France's historic industrial heartland was to be the mark of a president on the side of the workers and a state with the courage to bring a multinational to heel.But the two-month stand-off over steel giant ArcelorMittal's  Florange plant in Lorraine has unnerved investors in the eurozone's second largest economy, confused France's unions and exposed his six-month-old government to international ridicule.The dispute began in September with reports that ArcelorMittal would shut the idled furnaces at the plant, the last survivor in the once bustling northeastern steel region. The government immediately ordered the company to restart the furnaces or put them up for sale. Hollande's Socialist allies have hailed as a victory a late-Friday compromise under which ArcelorMittal agreed to invest €180m to expand the site near the German border over five years and hold off making forced redundancies. But as the European steel sector struggles to cope with over-capacity, the furnaces themselves will remain shuttered for now, and questions remain over the exact fate of the some 630 workers employed there and further funding needed for expansion.With unemployment at 14-year highs of 10% and his popularity ratings at record lows for a president only half a year into his mandate, there was clear political advantage for Hollande to lock horns with Indian steel magnate Lakshmi Mittal.But the result is at best a no-score-draw, and the tactics used - anti-business rhetoric and the threat of nationalisation could damage his wider reform effort.While his pugnacious, micro-managing predecessor Nicolas Sarkozy led from the front, Hollande let his ministers lead the fight, creating confusion over who runs industrial policy.Arnaud Montebourg, the firebrand leftist industry minister who pushed the nationalisation option hardest, declared Mittal a persona non grata in France and revealed he had found an anonymous potential buyer ready to invest in the plant.That was lapped up by international critics including London mayor Boris Johnson, who told executives in New Delhi that the "sans culottes" revolutionaries had taken control in Paris and advised them to bring their investment rupees to Britain.Montebourg later retracted his personal attack on Mittal but then had to watch as aides of Prime Minister Jean-Marc Ayrault, who announced the final accord, briefed media that his putative investor was neither "credible or solid".Facing opposition calls to resign, Montebourg went on local television on Saturday to announce he had Hollande's support and insist he felt "not betrayed, merely let down" by the outcome.But worse than the damage done to the credibility of one of Hollande's most high-profile ministers, many fear the cacophony further shakes France's image as a place to do business just when it needs all the help it can get to avert recession. "It has been a disaster," a senior French banker said last week as the episode unfolded."Even for sophisticated investors who understand that in France there is a difference between the rhetoric and the reality, this is hugely unnerving."Elie Cohen, economist at the CNRS public research institute, told the commercial i Tele television network that by raising the option of nationalisation, Montebourg risked encouraging copy-cat demands by workers at other struggling sites.It is still too early to say whether the Florange wrangling will hurt foreign investment in France, which Bank of France data show has grown modestly since the 2008/2009 global turndown to hit €30bn or 1.5% of output last year.Barely noticed last week, US online giant Amazon  said it was opening a new distribution centre in northern France that will create up to 2 500 jobs - four times the number at the Florange furnaces and a reminder that 80% of France's economy is now in the services sector.Vital to France's long-term prospects is whether Hollande obtains in coming weeks the overhaul of the country's unwieldy and expensive labour regulations which he has tasked employers and unions to achieve in negotiations by year-end.For that, France's trade unions must make unprecedented concessions to allow business more flexibility in hiring and firing. But the government handling of the Florange tussle has left many labour leaders feeling betrayed."Until the last minute, basically, we were made to believe that temporary nationalisation was essentially a given," Edouard Martin, head of the Florange chapter of France's large CFDT union, told RTL radio. "We did not understand this last-minute fix-up in which Jean-Marc Ayrault unveils an option never before discussed ... We get the feeling he was lying to us all along."A big test now will be whether unions have been riled so much that they stonewall in the labour reform talks. It could also make some more prone to protest if the government makes the extra public spending cuts that analysts say could be needed next year to ensure France hits its deficit-cutting target.For now, both sides hope the battle of Florange is over. ArcelorMittal has welcomed a deal that includes commitments on voluntary redundancies and re-deployment of furnace workers elsewhere in its French activities that go little beyond what it would likely have offered without government intervention.Hollande's office concedes he did not manage to get the furnaces re-opened as he promised during his election campaign,  but argue the deal to expand activity in the current poor economic climate is a victory of sorts.Whether the accord goes ahead in its entirety partly depends on variables outside the two parties' control, including €400m worth of European Commission funding.It may not be quite the end of the story.Referring to the nationalisation threat, one Hollande aide noted: "We are still keeping that revolver on the table."

S Korea, US to 'maximise' bid to stop North

South Korea and the United States will "maximise" diplomatic efforts to stop North Korea's planned rocket launch, Seoul's top nuclear envoy said on Tuesday as he left for talks in Washington. Lim Sung-Nam's US trip will be dominated by Pyongyang's announcement on Saturday that it intends to launch a long-range rocket between 10 and 22 December. The United States and its key Asian allies South Korea and Japan have condemned the move as a disguised ballistic missile test that violates UN resolutions triggered by Pyongyang's two nuclear tests in 2006 and 2009.Lim told Yonhap news agency that his talks with US officials would seek to "maximise diplomatic efforts and the co-ordination between South Korea and the US to block North Korea's launch". Lim met in Seoul on Monday with ambassadors from China, Russia and Japan other members of the six-party talks on North Korea to discuss a common response. Pyongyang insists the launch is a "peaceful" and purely scientific mission aimed at placing a satellite in orbit. A previous attempt in April failed when the carrier exploded shortly after take-off. During his three-day visit to Washington, Lim will hold talks with his US counterpart, Glyn Davies, and other senior officials. China, the North's closest ally, has expressed "concern" at the launch plan, with the foreign ministry urging "relevant parties to act in a way that is more conducive to the stability of the Korean peninsula". Russia on Monday added its "regret" at Pyongyang's announcement and noted that North Korea was obliged to abide by UN resolutions. Analysts say the international community is running out of options for pressuring the impoverished but nuclear-armed North, which is already under layers of sanctions. The six-party, aid-for-denuclearisation talks have been at a standstill since Pyongyang walked of the forum in April 2009. It staged its second nuclear test a month later.

China's Xi vows to rule by law

China's newly appointed leader Xi Jinping pledged on Tuesday to implement rule of law, in comments that appeared aimed at rising social discontent over government corruption and police brutality.In a speech at the Great Hall of the People that marked the 30th anniversary of China's 1982 constitution, Xi spoke of curbing the near-dictatorial powers of the ruling party.His comments appeared to be the strongest yet by a Chinese leader on the need for legal restraints on the party and come amid a series of graft scandals and reports of the unbridled wealth of China's top communist families."We must firmly establish throughout society the authority of the constitution and the law and allow the overwhelming masses to fully believe in the law," Xi said in comments carried by China Central Television. "To fully implement the constitution needs to be the sole task and the basic work in building a socialist nation ruled by law."Xi was last month named as the head of the ruling Communist Party and is slated to take over the state presidency from current President Hu Jintao in March as part of China's once-a-decade leadership transition.This year's transition was badly rocked by the case of disgraced politician Bo Xilai, whose wife was convicted in August of murdering a British businessman, in a scandal that has revealed rampant graft and lawlessness at the pinnacle of political power.Bo is awaiting trial for corruption and abuse of power after allegedly using police in Chongqing city where he ruled to remove political opponents and dissidents, practices that are routine in China.Since becoming party head, Xi has repeatedly pledged to fight graft and on Tuesday he further vowed to rein in China's top leaders. "We must establish mechanisms to restrain and supervise power, power must be made responsible, power must be supervised, violations of law must be investigated," he said."We must ensure that the power bestowed by the people is constantly used for the interest of the people.""No organisation or individual has the special rights to overstep the constitution and law, any violation of the constitution and the law must be investigated."China's current constitution has enshrined the basic freedoms of speech, press, religious belief and association, but such rights are routinely sanctioned and violated, rights groups say.Xi also appeared to address such alleged rights violations."To ensure the implementation of the constitution, is to ensure the realisation of the basic rights of the people," he said."By defending the dignity for the law, we are defending the will of the party and the people for dignity."