Archives for October 2013

Democrats in Congress insist that Republicans, to prevent billions of dollars in scheduled cuts to military programs next year, must agree instead to raise new revenues by closing some tax breaks. But the White House, eager to end the arbitrary cuts known as sequestration for both military and domestic programs, has not linked taxes and Pentagon spending for a short-term budget deal covering a year or two.

By all accounts Mr. Obama still wants Democrats and Republicans to try yet again for a sweeping, long-term budget accord. Such a grand bargain would provide immediate spending for infrastructure, education and other public investments while reducing future annual deficits by trillions of dollars through both tax increases and reductions in the fast-growing entitlement programs, Medicare, Medicaid and Social Security. Time and opportunity for such legacy-making action is running out in his presidency, even as more baby boomers retire and begin drawing benefits.

But Democratic leaders in the House and the Senate have joined with their Republican counterparts to rule out any long-term deal — Republicans because they refuse to consider tax changes and Democrats because they will not consider changing the popular benefit programs without Republican concessions on revenues — especially with midterm congressional elections approaching in 2014. Mr. Obama is deferring to the Democratic leaders, Senator Harry Reid of Nevada and Representative Nancy Pelosi of California.

Any impetus for a bold deficit-reduction deal was further stifled within hours of the budget negotiators’ initial meeting when the administration announced that the federal deficit for the fiscal year that ended on Sept. 30 was a much lower-than-expected $680 billion. That sharp turnaround in the nation’s books, after four straight post-recession years in which annual deficits exceeded $1 trillion, is certain to reduce pressure on lawmakers to make hard choices.

The $680 billion shortfall for the 2013 fiscal year is equivalent to 4.1 percent of the country’s gross domestic product, down from a peak of 10.1 percent in 2009, months into Mr. Obama’s first year and at the height of the recession and financial crisis. Economists generally consider that growing economies can sustain annual deficits of about 3 percent of G.D.P.

According to Treasury Secretary Jacob J. Lew and the budget director, Sylvia Mathews Burwell, the trend of declining deficits reflects higher revenues from a recovering economy and savings from deficit reduction measures previously negotiated between Mr. Obama and congressional Republicans.

Those measures were projected to reduce annual deficits by about $2.7 trillion over 10 years. Roughly a quarter of that is from higher taxes on the wealthy, effective this year. The spending cuts are affecting nearly all federal programs, domestic and military, but not the entitlement benefit programs like Medicare whose growth is driving economists’ projections that annual deficits will begin increasing again by the end of this decade, ultimately unsustainably.

The sequestration cuts, which took effect in March when the two parties could not reach a broader agreement on entitlement programs and tax breaks, are coming on top of the earlier spending reductions, and have forced cutbacks and closures in national parks, scientific research, education, military training exercises and much more.

If sequestration were to remain in place for a full nine years, the spending reductions would reduce deficits in that time by another $1.2 trillion — and lower spending for the affected programs from agriculture to transportation to the lowest levels on record. But neither party intended sequestration to take effect; they devised the idea in 2011 as a threat that would drive both parties to compromise on alternative savings — taxes and entitlement changes — to reduce future deficits.

Article source: http://www.nytimes.com/2013/10/31/us/politics/budget-negotiations-open-with-signs-of-conciliation.html?partner=rss&emc=rss

Even before representatives of the Democratic-controlled Senate and the Republican-run House sat down to their first official budget reconciliation meeting on Wednesday, it was hard to find anybody in Washington who believed a deal could be reached to bridge the chasm between the two parties’ tax and spending plans.

Republicans might be chastened, their popularity at rock bottom. But they seem as unwilling as ever to retreat from their position that the budget deficit must be reined in via spending cuts alone. The deficit, said Senator Charles E. Grassley, Republican of Iowa, is a “one-sided problem” of overspending. Both the White House and Senate Democrats remain adamant that new tax revenue should play a part in closing the gap.

A modest bargain might be within reach to undo a small slice of the indiscriminate spending cuts that befell the discretionary budgets for military programs and domestic agencies, which are on schedule to scale back government spending by about $1 trillion over a decade. This could be paid for over the long term by, say, raising Medicare premiums for high-income Americans. But that is about the best Congress can probably do.

“The very least this conference should be able to do,” said Senator Patty Murray, Democrat of Washington and chairwoman of the Senate Budget Committee, “is find a way to come together around replacing sequestration and setting a budget level for at least the short-term.”

There is a risk that such a deal would not hold for long, opening the door for a return of the politically motivated crises that have been battering the economy every few months.

But the modest objectives carry a silver lining: taking a timeout from the inside-the-Beltway obsession with gouging government programs to rein in the nation’s budget deficit could save the economy from a lot of harm.

Let’s stipulate that the current deficit is big and the accumulation of debt, if left unimpeded, imposes a future threat to the economy. But the assumption that the nation’s biggest problem today is too much borrowing is flawed.

For one thing, it ignores the large-scale budget cutting already in place. And it plays down the costs of steep deficit reduction in an economy that remains far short of its potential. If anything, the bigger problem is the exact opposite: severe budget cutting is shrinking the federal government too much for it to do its necessary jobs.

Budget cutters are walking tall around the world. In Germany, the finance minister, Wolfgang Schäuble — chief enforcer of austerity along the euro zone’s periphery — argued that “the world should rejoice” at Europe’s belt-tightening. In Britain, the government of Prime Minister David Cameron has welcomed the economy’s incipient turnaround as vindication of an austerity strategy now in its fourth year. An editorial in The Financial Times declared that George Osborne, the chancellor of the Exchequer, “won the political argument.”

But few countries can match the speed with which the United States has embraced fiscal austerity. In 2013, the federal deficit shrank at its fastest pace in more than four decades, dropping to 3.9 percent of the nation’s gross domestic product, from 6.8 percent the year before, according to the Congressional Budget Office.

According to the International Monetary Fund, the general government deficit of the United States, which includes states and municipalities, will fall by about two-thirds as a share of G.D.P. from 2009 to 2014. Most of the decline will come from reductions in spending.

Not even Britain has trimmed its budget as steeply. Only Greece, Ireland and Portugal — cornered into austerity by creditors in Berlin and in Brussels demanding a cleanup from past excesses — have shrunk government spending more sharply.

Yet for all the cuts already in the bag, calls in Washington for further retrenchment remain strong. “None of us can be proud of the way we spend the money,” the Oklahoma Republican Tom Coburn said the other day from the Senate floor.

Such fiscal virtue comes at a cost. Considering the depth of the cuts, it is remarkable that the American economy did not fall off a cliff. In a sign that the United States is still much more resilient than most other advanced nations, its $16 trillion economy has managed to trundle along, overcoming austerity, the government shutdown and a brief flirtation with default. If I.M.F. forecasts hold, the American economy will grow by roughly 1.6 percent this year and add about 1.5 million jobs, significantly better than Europe and Japan.

But that hardly means no harm was done. A recent analysis by the research firm Macroeconomic Advisers estimated that cuts to discretionary government spending — roughly everything the government spends money on except for Social Security and Medicare — trimmed growth by seven-tenths of a percentage point a year since 2010, and cost some 1.2 million jobs.

The costs are mounting across the Atlantic, too, despite the contentment in London and Berlin. A study by an economist from the European Commission published this month concluded that spending cuts put in place by governments from Greece to Germany since 2011 had stalled the economic turnaround of the entire euro area.

A host of economic analyses over the last three years by researchers from different corners of the world — including Roberto Perotti at Milan’s Bocconi University, Alan Taylor and Òscar Jordá at the University of California, Davis and researchers at the I.M.F. — have concluded almost invariably that budget cutting in a depressed economy is counterproductive.

By cutting teachers or raising taxes, reducing government transfers or trimming public purchases of goods and services, austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt.

When interest rates are at or near zero — as they are today in much of the developed world — there is little central bankers like Ben S. Bernanke and Mario Draghi can do to compensate for the declining business.

As Lawrence H. Summers, the former Treasury secretary under Bill Clinton and architect of President Obama’s initial economic program, pointed out in congressional testimony last May, the sequestration’s $64 billion in cuts this year might reduce federal debt by 0.39 percent of G.D.P. But if the G.D.P. shrinks by 0.6 percent, as estimated by the Congressional Budget Office, it will make the debt burden heavier, not lighter.

Here’s how Simon Wren-Lewis, a professor of economics at Oxford University put it: arguing that the tiny amount of economic growth Britain has recently achieved after a years-long downturn proved austerity to be the right policy is tantamount to saying that global warming skeptics had “won the climate change argument because of recent heavy snow.”

The United States does face a fiscal challenge. The C.B.O. predicts that along the current policy path, public debt will start rising as a share of G.D.P. toward the end of the decade and exceed 100 percent of the size of the economy in about 25 years.

There is time to fix that, gradually, especially as long as interest rates remain low.

But if current tax and spending policies remain in place, the civilian government’s entire discretionary budget — which pays for things like worker training, research at the National Institutes of Health, border security and much more — will shrink by 2023 to just 2.6 percent of G.D.P., the equivalent of about $420 billion in today’s economy. That’s less than at any point in decades.

This is the money that helps pay for child care and education; that maintains our roads and bridges; funds the National Parks. Its decline deserves the American political system’s undivided attention. Fat chance.

There was a time when the White House and Congress could hammer out a deal to broadly increase spending on the kind of short-term investments prosperity depends on and pay for it gradually over time — judiciously raising taxes and sensitively adjusting the entitlements expected to swell as the population ages in decades to come.

Not today, though. In the present, the least damaging path may be to postpone the big decisions and sweat the small stuff instead.

Email: eporter@nytimes.com; Twitter: @portereduardo

Article source: http://www.nytimes.com/2013/10/31/business/cutting-the-deficit-by-cutting-programs-is-risky.html?partner=rss&emc=rss

Even before representatives of the Democratic-controlled Senate and the Republican-run House sat down to their first official budget reconciliation meeting on Wednesday, it was hard to find anybody in Washington who believed a deal could be reached to bridge the chasm between the two parties’ tax and spending plans.

Republicans might be chastened, their popularity at rock bottom. But they seem as unwilling as ever to retreat from their position that the budget deficit must be reined in via spending cuts alone. The deficit, said Senator Charles E. Grassley, Republican of Iowa, is a “one-sided problem” of overspending. Both the White House and Senate Democrats remain adamant that new tax revenue should play a part in closing the gap.

A modest bargain might be within reach to undo a small slice of the indiscriminate spending cuts that befell the discretionary budgets for military programs and domestic agencies, which are on schedule to scale back government spending by about $1 trillion over a decade. This could be paid for over the long term by, say, raising Medicare premiums for high-income Americans. But that is about the best Congress can probably do.

“The very least this conference should be able to do,” said Senator Patty Murray, Democrat of Washington and chairwoman of the Senate Budget Committee, “is find a way to come together around replacing sequestration and setting a budget level for at least the short-term.”

There is a risk that such a deal would not hold for long, opening the door for a return of the politically motivated crises that have been battering the economy every few months.

But the modest objectives carry a silver lining: taking a timeout from the inside-the-Beltway obsession with gouging government programs to rein in the nation’s budget deficit could save the economy from a lot of harm.

Let’s stipulate that the current deficit is big and the accumulation of debt, if left unimpeded, imposes a future threat to the economy. But the assumption that the nation’s biggest problem today is too much borrowing is flawed.

For one thing, it ignores the large-scale budget cutting already in place. And it plays down the costs of steep deficit reduction in an economy that remains far short of its potential. If anything, the bigger problem is the exact opposite: severe budget cutting is shrinking the federal government too much for it to do its necessary jobs.

Budget cutters are walking tall around the world. In Germany, the finance minister, Wolfgang Schäuble — chief enforcer of austerity along the euro zone’s periphery — argued that “the world should rejoice” at Europe’s belt-tightening. In Britain, the government of Prime Minister David Cameron has welcomed the economy’s incipient turnaround as vindication of an austerity strategy now in its fourth year. An editorial in The Financial Times declared that George Osborne, the chancellor of the Exchequer, “won the political argument.”

But few countries can match the speed with which the United States has embraced fiscal austerity. In 2013, the federal deficit shrank at its fastest pace in more than four decades, dropping to 3.9 percent of the nation’s gross domestic product, from 6.8 percent the year before, according to the Congressional Budget Office.

According to the International Monetary Fund, the general government deficit of the United States, which includes states and municipalities, will fall by about two-thirds as a share of G.D.P. from 2009 to 2014. Most of the decline will come from reductions in spending.

Not even Britain has trimmed its budget as steeply. Only Greece, Ireland and Portugal — cornered into austerity by creditors in Berlin and in Brussels demanding a cleanup from past excesses — have shrunk government spending more sharply.

Yet for all the cuts already in the bag, calls in Washington for further retrenchment remain strong. “None of us can be proud of the way we spend the money,” the Oklahoma Republican Tom Coburn said the other day from the Senate floor.

Such fiscal virtue comes at a cost. Considering the depth of the cuts, it is remarkable that the American economy did not fall off a cliff. In a sign that the United States is still much more resilient than most other advanced nations, its $16 trillion economy has managed to trundle along, overcoming austerity, the government shutdown and a brief flirtation with default. If I.M.F. forecasts hold, the American economy will grow by roughly 1.6 percent this year and add about 1.5 million jobs, significantly better than Europe and Japan.

But that hardly means no harm was done. A recent analysis by the research firm Macroeconomic Advisers estimated that cuts to discretionary government spending — roughly everything the government spends money on except for Social Security and Medicare — trimmed growth by seven-tenths of a percentage point a year since 2010, and cost some 1.2 million jobs.

The costs are mounting across the Atlantic, too, despite the contentment in London and Berlin. A study by an economist from the European Commission published this month concluded that spending cuts put in place by governments from Greece to Germany since 2011 had stalled the economic turnaround of the entire euro area.

A host of economic analyses over the last three years by researchers from different corners of the world — including Roberto Perotti at Milan’s Bocconi University, Alan Taylor and Òscar Jordá at the University of California, Davis and researchers at the I.M.F. — have concluded almost invariably that budget cutting in a depressed economy is counterproductive.

By cutting teachers or raising taxes, reducing government transfers or trimming public purchases of goods and services, austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt.

When interest rates are at or near zero — as they are today in much of the developed world — there is little central bankers like Ben S. Bernanke and Mario Draghi can do to compensate for the declining business.

As Lawrence H. Summers, the former Treasury secretary under Bill Clinton and architect of President Obama’s initial economic program, pointed out in congressional testimony last May, the sequestration’s $64 billion in cuts this year might reduce federal debt by 0.39 percent of G.D.P. But if the G.D.P. shrinks by 0.6 percent, as estimated by the Congressional Budget Office, it will make the debt burden heavier, not lighter.

Here’s how Simon Wren-Lewis, a professor of economics at Oxford University put it: arguing that the tiny amount of economic growth Britain has recently achieved after a years-long downturn proved austerity to be the right policy is tantamount to saying that global warming skeptics had “won the climate change argument because of recent heavy snow.”

The United States does face a fiscal challenge. The C.B.O. predicts that along the current policy path, public debt will start rising as a share of G.D.P. toward the end of the decade and exceed 100 percent of the size of the economy in about 25 years.

There is time to fix that, gradually, especially as long as interest rates remain low.

But if current tax and spending policies remain in place, the civilian government’s entire discretionary budget — which pays for things like worker training, research at the National Institutes of Health, border security and much more — will shrink by 2023 to just 2.6 percent of G.D.P., the equivalent of about $420 billion in today’s economy. That’s less than at any point in decades.

This is the money that helps pay for child care and education; that maintains our roads and bridges; funds the National Parks. Its decline deserves the American political system’s undivided attention. Fat chance.

There was a time when the White House and Congress could hammer out a deal to broadly increase spending on the kind of short-term investments prosperity depends on and pay for it gradually over time — judiciously raising taxes and sensitively adjusting the entitlements expected to swell as the population ages in decades to come.

Not today, though. In the present, the least damaging path may be to postpone the big decisions and sweat the small stuff instead.

Email: eporter@nytimes.com; Twitter: @portereduardo

Article source: http://www.nytimes.com/2013/10/31/business/cutting-the-deficit-by-cutting-programs-is-risky.html?partner=rss&emc=rss

The slowdown in private job growth was the latest signal that the labor market has taken a step back in recent months and the clearest indication yet that a 16-day federal government shutdown weighed on economic activity.

Fed officials stuck to their monthly $85 billion bond-buying pace at the end of a two-day meeting on Wednesday and said fiscal policy was restraining economic growth.

“It (data) suggests accommodative policy might be necessary for longer and more aggressive monetary policy might be needed to break the lack of momentum in the economy,” said Laura Rosner, an economist at BNP Paribas in New York.

Employers in the private sector added 130,000 new jobs to their payrolls this month, the ADP National Employment Report showed on Wednesday. That was the lowest reading since April and was below economists’ expectations for a gain of 150,000 jobs.

It was the fourth straight month that private jobs growth slowed, according to the ADP data. There was a marked slowdown in hiring by small businesses, where payrolls increased 37,000 last month, well below the 68,000 new jobs created in September.

Mid-sized firms also hired fewer workers than in September.

“The government shutdown and debt limit brinkmanship hurt the already softening job market in October,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania.

Moody’s Analytics is a joint developer of the ADP report.

While the ADP data does not have a good track record of predicting the government’s more comprehensive non-farm payrolls count, it suggested that report will find weakness as well.

The government will publish its closely watched payrolls report on November 8. Payrolls gained 148,000 in September, with the unemployment rate hitting a near five-year low of 7.2 percent.

But if average monthly jobs growth continues at less than 150,000, where it has been over the last three months, that would make it difficult for the jobless rate to fall further.

In a separate report, the Labor Department said its Consumer Price Index increased 0.2 percent last month as a rebound in energy prices offset an unchanged reading in food costs. The CPI had edged up 0.1 percent in August.

In the 12 months through September, the CPI increased 1.2 percent, the smallest gain since April.

FED TO STAY THE COURSE FOR A WHILE

The weak labor market picture and benign inflation environment should allow the Fed to stay the course on its monthly bond purchases for a while as it tries to stimulate the economy through low interest rates.

The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below the CPI.

“We do not expect tapering (of bond purchases) to begin before January at the earliest,” said Michael Hanson, an economist at Bank of America Merrill Lynch in New York.

But traders read the Fed’s statement as being a bit hawkish. U.S. stocks fell in choppy trade, while the dollar advanced against a basket of currencies. Prices for U.S. Treasury debt surrendered early gains and were last trading lower.

There was no sign of underlying inflation pressures last month. The so-called core CPI – which strips out the volatile energy and food components – nudged up 0.1 percent. It rose by the same margin in August.

Last month’s rise took the increase in the core index over the past 12 months to 1.7 percent after advancing 1.8 percent in August.

This measure touched a two-year low of 1.6 percent in June and the slowdown last month could catch the attention of some Fed officials who are concerned about inflation being too low.

Last month, inflation was lifted by a 0.8 percent rise in energy prices, which accounted for about half of the rise in the CPI. Energy prices had dropped 0.3 percent in August.

Food prices were flat in September, producing the weakest reading since May.

Shelter and medical care costs accounted for most of the increase in the core CPI last month. Owners’ equivalent rent of primary residence rose 0.2 percent after rising 0.3 percent in August. It is the biggest single component in the CPI.

Medical care costs increased 0.3 percent, with hospital services rising 0.7 percent. Medical care, which makes up more than 9 percent of the core index, has been one of the key contributors to the low inflation early in the year.

Apparel prices recorded their biggest drop since March.

“Inflation remains tame, although the recent trend toward slowing still appears to have stopped, even with the dip in the change from a year ago in core in September,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics, in Valhalla, New York.

(Additional reporting by Luciana Lopez in New York; Editing by Dan Grebler)

Article source: http://www.nytimes.com/reuters/2013/10/30/business/30reuters-usa-economy-employment-adp.html?partner=rss&emc=rss

The stock market retreated on Wednesday after the Federal Reserve said the American economy still needed its stimulus program.

In its latest policy statement, the central bank said it would continue buying $85 billion in Treasury and mortgage-backed securities monthly and keep its benchmark short-term interest rate near zero. The bond purchases are intended to keep borrowing costs low to encourage hiring and investment.

The Fed said it would “await more evidence” that the economy was improving before reducing the stimulus.

The Fed’s announcement was expected by most investors. Since the Fed’s last meeting in September, the economy has been shaken by the 16-day partial shutdown of the federal government and the near breach of the nation’s borrowing limit.

The soonest the Fed can revisit its bond-buying program will be at its mid-December meeting. But Ben S. Bernanke’s term as Fed chairman ends in February and his successor, Janet L. Yellen, has yet to be confirmed by the Senate. Some analysts said Mr. Bernanke was unlikely to pull back on the stimulus with only months left in the position.

“We’re looking at March of next year at the earliest” before the Fed will start to pull back, said Dean Junkans, chief investment officer for Wells Fargo Private Bank.

On Wednesday, the Dow Jones industrial average lost 61.59 points, or 0.4 percent, to close at 15,618.76. The Standard Poor’s 500-stock index fell 8.64 points, or 0.5 percent, to 1,763.31. The Dow and S. P. 500 closed at nominal record highs on Tuesday.

The Nasdaq composite index fell 21.72 points, or 0.6 percent, to 3,930.62.

Bond prices also fell after the Fed’s announcement. The yield on the 10-year Treasury note rose to 2.54 percent from 2.50 percent late Tuesday, while its price declined 9/32, to 99 31/32.

Stocks of home construction companies fell after the Fed said, “The recovery in the housing sector slowed somewhat in recent months.” Last month, the Fed said housing “has been strengthening.”

KB Home fell 47 cents, or 3 percent, to $17.49. Toll Brothers fell 56 cents, or 2 percent, to $33.56, and PulteGroup fell 21 cents, or 1 percent, to $18.00.

Article source: http://www.nytimes.com/2013/10/31/business/daily-stock-market-activity.html?partner=rss&emc=rss

The output of the sprawling brick factory, formerly known as the Karl Marx chocolate works, has never before been so hard to sell in Russia. Since July, when Russian regulators banned all chocolate, cake, cookie and candy imports from its Ukrainian parent company, Roshen, ostensibly over health concerns, production at the plant here has plummeted 14 percent.

“It’s not pleasant at all to be in this situation,” Viacheslav Moskalevskyi, the president of Roshen, Ukraine’s largest confectionery company, said in an interview.

The Ukranian chocolate factory shares a problem with many businesses in the countries that lie between the European Union and Russia. It is caught in a no-man’s land for trade, a place increasingly precarious as each side tries to recruit countries into exclusive trade deals. The European Union wants Ukraine and Moldova to sign so-called Association Agreements while Russia wants these nations in its Customs Union.

Ukraine and Moldova must decide by a Nov. 28-29 summit meeting in Vilnius, Lithuania, whether to sign the Association Agreement.

And Russia is willing to play rough to ensure that does not happen. Russia banned wine from Moldova. This fall, after Russia banned milk imports from Lithuania as part of a struggle for economic influence, yogurt and kefir piled up at checkpoints. Lithuania is already in the E.U., but the Kremlin restricted dairy imports anyway, apparently in anger that the former client state was being a strong advocate of bringing in the other former Soviet states.

When Lithuanian authorities said they might complain to the World Trade Organization, Russia’s former chief sanitary inspector, Gennady Onischenko, replied that if that happened, the restrictions would remain in place “for an incredibly long time.” Members of the European Parliament expressed their solidarity with Lithuania by eating a type of Lithuanian sweetened cottage cheese dessert in front of photographers, but the economic dividing line in Europe is hardening.

It was this nearly same landscape that Winston Churchill in a 1946 speech heralded the Cold War, saying, “from Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the Continent.” The line of contact in this trade war has taken a twist on that name, sometimes being called the Milk Curtain.

The zone separating the European Union from the Russian-backed Customs Union, a mini-rival trade bloc, has become a hazard for businesses, as the case of Roshen indicates. The ban on Roshen chocolates is widely understood to have resulted from its owner, Petro Poroshenko, advocating for Ukraine’s integration with the European Union, rather than the Customs Union. The company had recently invested in a robotic assembly line for a crushed hazelnut and dark chocolate candy that is popular in Russia. But since the ruling, the line is underused, though still making reduced quantities of a devilish little sweet, called Evening in Kiev, only not for the Russians.

And all of Ukraine is stuck in the same sticky box. Moody’s, the bond rating agency, downgraded Ukraine’s sovereign debt rating last month, in part over concerns the country will not obtain a gas price discount from Russia while this trade war persists. Ukraine’s economy contracted in the first half of 2013.

Ukraine’s economic woes are deepening. Just on Tuesday, Aleksei B. Miller, the chief executive of the giant Russian energy company, Gazprom, appeared to escalate the standoff by threatening to invoke a clause in the Ukrainian gas contract demanding payment in advance for winter heating. “This is a dire state of affairs,” Mr. Miller said in a statement, whose tone recalled warnings that Gazprom had issued before shutting off gas to Ukraine in energy embargoes in 2006 and 2009.

This article has been revised to reflect the following correction:

Correction: October 29, 2013

An earlier version of this article incorrectly stated the number of nations in the European Union.  There are 28, not 27.

Article source: http://www.nytimes.com/2013/10/30/business/international/ukrainian-chocolates-caught-in-trade-war-between-europe-and-russia.html?partner=rss&emc=rss