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E.U. States Win Leeway on Deficits

May 29, 2013 by Leave a Comment

But the Brussels-based European Commission also cautioned against the temptations of debt-fueled economic stimulus, stressing in its annual review of economic policy recommendations that Europe instead needs to dismantle rigid labor regulations and remove other “structural” obstacles to growth.

The mixed message marked Europe’s latest response to an economic crisis that has led to six consecutive quarters of negative growth, left even previously robust northern economies battling recession and pushed overall unemployment to nearly 12 percent and to more than twice that in Spain and Greece.

“The fact that more than 120 million people are at risk of poverty or social exclusion is a real worry,” said José Manuel Barroso, the president of the European Commission, at a news conference. “There is no room for complacency,” he said, describing the situation in some countries as a “social emergency.”

Addressing concerns that Europe has pushed too hard for spending cuts, Mr. Barroso — using an economists’ euphemism for austerity — said “we now have the space to slow down the pace of consolidation.” But he also warned that “growth fueled by public and private debt is not sustainable.” This, he added, is “artificial growth.”

He complained that a bitter policy debate that has often cast austerity as the enemy of growth “has been to a large extent futile and even counterproductive.”

Five year after the global financial crisis swept in from the United States, most European countries, with the notable exception of Germany, are still stuck in economic doldrums and show scant sign of even the modest recovery achieved by the United States and Japan, which have both opted for more government-funded stimulus than Europe.

This dismal record has put champions of fiscal rigor at the European Commission under intense pressure to back off unpopular budget cuts and instead follow the prescriptions of John Maynard Keynes, the late British economist who urged that government spending be ramped up in times of crisis.

The policy recommendations announced Wednesday in Brussels don’t suggest any U-turn in policy but they do confirm a slow but steady shift away from swiftly limiting deficit spending. Olli Rehn, the commission’s senior economic policy maker, announced that seven countries would be given more time to reach a deficit target of 3 percent of gross domestic product.

France, Poland, Slovenia and Spain, he said, will be given an extra two years, while Belgium, the Netherlands and Portugal will each get an extra year.

Mr. Rehn said that Europe still needs “fiscal consolidation” in the long-run but added that its pace this year would be “half what it was last year and to some extent it will be slowed further.” The decision to give France more time, he said, was based on expectations that its socialist president, François Hollande, would push through long-stalled reforms to cut the cost of hiring workers and boost the country’s flagging competitiveness. A key part of this, Mr. Rehn said, is pension reform.

Mr. Hollande responded angrily to the commission’s proposals, particularly those concerning the pension system. “The European Commission cannot dictate to us what we have to do,” French media quoted the president as saying. Mr. Hollande insisted that the shape of any pension reform, a highly contentious issue in France, “is up to us, and to us alone.”

France’s legislature earlier this month enacted a modest trim of labor regulations but Mr. Hollande, under fire from within his own party and deeply unpopular with the public at large, faces an uphill struggle to implement reforms that, when attempted by his predecessors, led to large street protests and labor unrest.

The extension granted to France and others immediately raised eyebrows among some analysts, who said these countries might use them as an excuse to relax their reform efforts. “Countries are going to interpret these recommendations in self-serving ways,” said Mujtaba Rahman, the director for Europe for the Eurasia Group, a research group. “The commission argues its rules are being applied intelligently, but countries such as France will use this to argue they have prevailed on Europe to end austerity.”

Wrangling over how to best address Europe’s crisis has created deep splits, dividing richer countries from poorer ones and triggering a widespread public backlash against the European Union and established political elites in individual countries. It has also divided policymakers in Brussels.

In a remarks published Wednesday by German media, the energy commissioner, Gunther Oettinger, scoffed at assurances that France is working to get its economic house in order and said “too many in Europe still believe that everything will be fine.” France, he said, “is completely unprepared to do what’s necessary,” while Italy, Bulgaria and Romania “are essentially ungovernable.” The European Union, he added, “is ripe for an overhaul.”

Mr. Barroso, the commission president, declined to comment on Mr. Oettinger’s remarks.

Andrew Higgins contributed reporting.

Article source: http://www.nytimes.com/2013/05/30/business/global/eu-proposes-giving-countries-time-to-cut-deficits.html?partner=rss&emc=rss

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In Europe, a Fed President Urges Quantitative Easing

May 22, 2013 by Leave a Comment

James Bullard, president of the Federal Reserve Bank of St. Louis and a voting member of the Fed’s policy-setting open markets committee, said Europe’s central bank should consider quantitative easing similar to that undertaken by the Fed — large bond purchases meant to drive down market interest rates.

The public comments were highly unusual. While central bankers from different countries frequently confer in private and offer advice and criticism to their peers behind closed doors, it is rare for any official to go public with even the mildest criticism of another central bank.

But with official interest rates in almost every advanced economy already close to zero, Mr. Bullard said, central bankers must reach for stronger tools to avoid getting trapped in economic doldrums.

“The lesson of Japan is that once you get stuck, it’s very hard to get out,” Mr. Bullard told an audience at Goethe University in Frankfurt. “One way to get stuck would be not to take aggressive action.”

Mr. Bullard sent a message to Wall Street not to expect the Fed to begin rolling back its own quantitative easing program soon, saying that there was no sign of inflation risk, and that even if there were, the central bank could deal with it.

“We just haven’t seen it so far,” Mr. Bullard said of inflation. And when it starts to appear, he added, “we know how to fight that problem — we can raise rates.”

Mr. Bullard spoke ahead of meetings in Frankfurt with some of his European counterparts, including Mario Draghi, the president of the European Central Bank. Mr. Bullard said he was speaking for himself and not the Fed or any other members of its policy committee.

Still, his remarks represented one of the strongest public statements yet from a Washington policy maker in response to increasing concern that European leaders were reacting too timidly to a spreading recession.

A sluggish European economy has global implications, Mr. Bullard said. “You have to be concerned,” he told the group. “The European Union as a whole is the biggest economy in the world.”

A move by the European Central Bank to buy government bonds on a grand scale would certainly face harsh opposition from the Bundesbank, the conservative and influential German central bank that, while officially under the European Central Bank, wields outsize influence because of its historical role as defender of the German currency and as Europe’s bastion of anti-inflation fervor.

The European Central Bank has given no signals that it is seriously considering quantitative easing.

There are also practical hurdles to emulating Fed policy in Europe. There is no pan-European government bond similar to United States Treasuries. Mr. Bullard said the solution would be to buy bonds of all 17 governments in the euro zone in proportion to their size.

With the official euro zone interest rate at a record low of 0.5 percent, below the rate of inflation, the central bank has been groping for ways to stimulate the slumping European economy. Mr. Draghi has floated the idea of a negative deposit rate — in effect charging banks to keep their reserves at the central bank as a way to prod them into lending more money to businesses and consumers.

Mr. Bullard said a negative deposit rate would be a “dead-end policy.” It would not have much effect and could be done only once, he said.

Article source: http://www.nytimes.com/2013/05/22/business/global/in-europe-a-fed-president-urges-quantitative-easing.html?partner=rss&emc=rss

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Budget Needs Let Fireworks Fly Lawfully

July 3, 2011 by Leave a Comment

Colorful pyrotechnics with names like “Untamed Retribution” and “Rain Fire” will paint the skies above backyards and beaches as consumers find it easier to buy fireworks and elected officials try to reap the benefits.

Desperate to find any source of untapped revenue, many cities, counties and states are scrapping decades-old restrictions on firework sales, trying to rescue budgets battered by several years of economic doldrums.

A 65-year-old ban on fireworks in Hawkins County, Tenn., was lifted in May after a county commissioner persuaded colleagues that the sales could generate as much as $200,000 in annual permit fees and sales tax revenue.

“Every penny helps,” said Shane Bailey, the county commissioner.

Still, dry conditions have led parts of the South to buck the trend, especially in Texas, where months of severe drought have prompted many counties to restrict or ban fireworks. Other states worried about wildfires, like Florida and Arizona, have imposed their own limitations.

But in many places, concerns about safety have been trumped by the need for more cash and an “if you can’t beat them, join them” mentality. Officials in some states, like Pennsylvania, have eased their worries by limiting firework sales for their own residents but allowing out-of-state customers to binge on a vast array of exotic offerings.

“I think the Pennsylvania lawmakers, if they are going to make it illegal for Pennsylvania residents to buy those heavy-duty fireworks, they should ban them completely,” said Harry Wyatt, the mayor of Phillipsburg, N.J., which is on the state line.

The fireworks industry generated $952 million in sales in 2010, a record, according to the American Pyrotechnics Association, and all signs point to big numbers in 2011 as well. Sales to consumers account for roughly two-thirds of the total.

Only four states continue to ban firework sales: New York, New Jersey, Massachusetts and Delaware. Julie L. Heckman, executive director of the American Pyrotechnics Association, a trade group, said that a decade ago, sales were permitted in only about half the states. Several, including New Hampshire and Kentucky, have loosened restrictions to allow merchants to sell a wider variety, she said.

One of the main reasons bans are being lifted is that residents can simply drive to the next town, or state, to buy fireworks.

“I’m tired of other counties sucking us dry,” said Mr. Bailey, the county commissioner in Tennessee, who said Hawkins County now had a dozen or so fireworks stands. “It’s a concern when our tax dollars fund services in surrounding counties and we need to improve infrastructure at home.”

In Nebraska, Jim Suttle, the mayor of Omaha, said his city lifted its fireworks ban because everyone was buying them anyway but driving to nearby towns to spend the money.

Even though fireworks were illegal, he said, “we just kind of turned our heads, and the whole city was alive with people having fun.” Since the ban has been lifted, he said, “the response has been very, very positive. I would say 92 to 95 percent of the population supports this.” Fireworks in Omaha are sold by charities.

The loosening of restrictions on consumer sales comes as some strapped local governments have cut back on large fireworks displays or eliminated them altogether to cut costs. Even in this, however, there is new light for the industry. Jim Souza, president of Pyro Spectaculars, which is producing 400 fireworks shows this Fourth of July, including New York City’s, said his business had stayed even after dropping 5 percent each of the last two years.

Governments are increasingly turning to community groups and private donations to help cover the costs of fireworks, industry officials say. The city of Laguna Beach, Calif., for example, held fund-raisers throughout the spring to pay for Monday’s celebration.

Article source: http://feeds.nytimes.com/click.phdo?i=695fbf80e54c69e5e5ebaf6c4d49b0ed

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