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European Union Officials Accept Nobel Peace Prize

December 11, 2012 by Leave a Comment

The prize ceremony, held in Oslo’s City Hall and attended by 20 European leaders as well as Norway’s royal family, brought a rare respite from the gloom that has settled on the European Union since the Greek debt crisis exploded three years ago, unleashing doubt about the long-term viability of the euro and about an edifice of European institutions built up over more than half a century to promote an ever closer union.

Unemployment — now at over 25 percent in Greece and Spain — and sputtering economic growth across the 27-nation bloc are “putting the political bonds of our union to the test,” Herman Van Rompuy, president of the European Council, said in his acceptance speech. “If I can borrow the words of Abraham Lincoln at the time of another continental test, what is being assessed today is whether that union, or any union so conceived and so dedicated, can long endure.”

The European Union, said Mr. Van Rompuy, will “answer with our deeds, confident we will succeed.”

“We are working very hard to overcome the difficulties, to restore growth and jobs,” he continued.

Aside from economic misery, the most serious threat to the bloc so far is growing pressure in Britain for a referendum on whether to pull out of the union. The British prime minister, David Cameron, did not attend the ceremony, but most other European leaders showed up, including Chancellor Angela Merkel of Germany and the French president, François Hollande, who sat next to each other and whose countries, once bitter enemies, have been the main motors driving European integration.

Mr. Van Rompuy’s comparison of the European Union to the United States is likely to irritate critics of the European Union, who reject efforts to push European nations to surrender more sovereignty in pursuit of what champions of a federal European state hope will one day be a United States of Europe.

Just how far Europe is from such a goal, however, was made clear by the presence of three Union presidents in Oslo. In addition to Mr. Van Rompuy, whose European Council represents the leaders of the union’s member states, there was José Manuel Barroso, president of the European Commission, the bloc’s main administrative and policy-making arm, and Martin Schulz, president of the European Parliament.

Instead of the customary Nobel lecture delivered by the winner, Mr. Van Rompuy and Mr. Barroso each read parts of what Thorbjorn Jagland, chairman of the Norwegian Nobel Committee, described as “one speech but two chapters.”

Hailing the European Union for helping bring peace to Europe after repeated wars, Mr. Jagland said, “What this continent has achieved is truly fantastic, from being a continent of war to becoming a continent of peace.”

Mr. Barroso spoke of the horrors of past wars and tyranny and Europe’s efforts to overcome them through the building of supranational institutions, which began in 1951 with the establishment of the European Coal and Steel Community by France, Germany and four other countries. But he also cited the current conflict in Syria, describing it as a “stain on the world’s conscience” that other nations have “a moral duty” to address. The European Union’s member states are themselves divided about how far to go in supporting opponents of Bashar al-Assad, the Syrian president.

The decision to honor the European Union with the Nobel Peace Prize stirred widespread criticism in Norway, whose citizens have twice voted not to join the union. On the eve of Monday’s award ceremony, peace activists and supporters of left-wing political groups paraded through the streets of Oslo, carrying flaming torches and chanting, “The E.U. is not a worthy winner.”

Many peace activists say they have no problem with European integration but question whether the union has lived up to conditions laid down by Alfred Nobel, the 19th-century Swedish industrialist who bequeathed the peace prize and four other Nobel Prizes.

Article source: http://www.nytimes.com/2012/12/11/world/europe/european-union-officials-accept-nobel-peace-prize.html?partner=rss&emc=rss

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Luxembourg Banker Named to E.C.B. Board

November 24, 2012 by Leave a Comment

BRUSSELS — European Union leaders have appointed Yves Mersch of Luxembourg to the executive board of the European Central Bank despite opposition from some lawmakers who wanted a woman to fill the post.

Mr. Mersch, head of the Luxembourg central bank, will take his seat Dec. 15 for an eight-year term after a decision late Thursday at a summit meeting in Brussels, where European Union leaders were seeking to negotiate a long-term budget for the bloc.

Mr. Mersch, known for his hawkish stance on inflation and for views in line with those of German central bankers, was nominated by euro zone finance ministers in July to succeed José Manuel González-Páramo of Spain on the six-person board.

But the post had remained vacant amid a debate over diversity on the board, opposition from Spain and skepticism about some of Mr. Mersch’s views. The European Parliament rejected the nomination last month, saying it was fed up with having only men in top jobs at the central bank.

Even though the Parliament does not have the power to require that women be considered, its decision carried weight in a period of heightened concern about making European institutions more democratically accountable.

Spain then blocked the appointment of Mr. Mersch this month, saying it would have preferred a Spaniard in the post.

There have been no women on the board since 2011, when Gertrude Tumpel-Gugerell of Austria left her post at the end of an eight-year term.

But the reasons for opposition to Mr. Mersch went beyond gender.

Some members of the European Parliament were uncomfortable with some of Mr. Mersch’s economic ideas, in particular his wariness of inflation. Others, including the Spanish, would have preferred that someone from Southern Europe had been selected.

The decision by European leaders to appoint Mr. Mersch met with criticism immediately from one of the members of the European Parliament who had fought to give women more prominence in central banking.

“The E.C.B. now has a member on its highest board without a democratically established mandate,” said Sharon Bowles, chairwoman of the economic and monetary affairs committee.

Ms. Bowles called on European leaders to make good on promises to establish a plan for greater diversity at central banks.

The dispute over Mr. Mersch is part of a broader push to advance the role of women in business in Europe that has met with opposition.

This month, Viviane Reding, the European justice commissioner, had to drop plans to penalize companies that did not have at least 40 percent of their board seats filled by women.

Facing resistance from Britain and other countries, Ms. Reding said sanctions would apply only in cases where noncompliant companies did not establish adequate selection procedures.

That proposal still needs the approval of national governments and the European Parliament to become law.

Article source: http://www.nytimes.com/2012/11/24/business/global/despite-objections-luxembourg-banker-named-to-ecb-board.html?partner=rss&emc=rss

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France and Germany Warn Greece on Bailout

January 10, 2012 by Leave a Comment

The leaders of the European Union’s two largest countries met in the German capital to discuss their next steps in combating the sovereign-debt crisis that has destabilized the Continent and threatened the common currency. Even as Mrs. Merkel and Mr. Sarkozy promised quick action to stem the crisis, investors signaled the depth of their continuing concern over the instability that has spread from Greece to the very heart of the euro zone, by purchasing German debt at a negative interest rate for the first time ever.

Mr. Sarkozy, speaking at a news conference after the two leaders met at the chancellery building here, acknowledged the uncertainty in the markets, saying, “The situation is very tense, very tense.”

There are increasing signs that Greece will fail to make the structural changes to its economy that its leaders have promised. Greece’s prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.

Mr. Sarkozy said that “our Greek friends must live up to their commitments,” while Mrs. Merkel said that if those commitments were not met by the Greek government, “it will not be possible to pay out the next tranche” of the bailout money.

The holidays may have created a lull in the action, but the new year promised to be just as hectic as the old for European leaders and Mrs. Merkel in particular. The head of the International Monetary Fund, Christine Lagarde, will arrive Tuesday evening for talks with the German chancellor. Italy’s prime minister, Mario Monti, is scheduled to come to Berlin on Wednesday.

Mrs. Merkel and Mr. Sarkozy are scheduled to travel to Rome on Jan. 20 for negotiations with the Italian government ahead of the next European Union summit in Brussels on Jan. 30.

“Everyone would like a grand design rather than a series of small steps going forward, some going backwards,” said André Sapir, an economist and senior fellow at Bruegel, a research group based in Brussels. “Sometimes there doesn’t seem to be a design at all, and that has been unnerving investors being asked to refinance debt both private and public.”

A drumbeat of bad economic news lately has led many economists to predict the imminent return to recession for many of the countries that use the euro. At the same time, European countries and financial institutions need to raise about $2.4 trillion in 2012.

Asked whether she feared that more European nations might be downgraded by ratings agencies, further spooking markets, Mrs. Merkel replied coolly, “Fear does not motivate my political actions.”

The gap between the countries with sound finances, and those like Italy and Spain that are forced to pay high rates, has widened to a chasm of five percentage points or more. Germany on Monday joined the likes of the Netherlands and Switzerland as perceived safe havens where buyers of short-term debt are willing to lose money in return for shelter from upheaval and the possibility of even greater losses.

Mrs. Merkel called the plan to stabilize the euro “an ambitious but attainable goal.” She hit several familiar themes, emphasizing that there were no quick solutions to the euro crisis and that Greece was an exception when it came to debt write-downs, often known as a “haircut,” for private investors.

“Our intention is that no country must withdraw from the euro area,” Mrs. Merkel said.

She and Mr. Sarkozy both voiced their determination to press ahead with a tax on financial transactions opposed by Britain, but they appeared to diverge on the timing. Mr. Sarkozy, facing a strong left-wing challenge in his bid for re-election in May, suggested France might go it alone and challenge other countries to follow suit.

The French prime minister, François Fillon, said Monday in Paris that France might present a bill on such a tax in February, hoping that other countries do the same. “Someone has to be the first to jump in the water,” Mr. Fillon said.

Mrs. Merkel expressed support for Mr. Sarkozy’s goal of moving quickly on the financial-transaction tax, saying that European Union finance ministers should make a formal proposal by March. Although an agreement between the 27 members of the union was preferable, one among the 17 members that use the euro was acceptable.

“If Sarkozy loses the election, which is entirely possible, the Socialists would certainly be a more difficult partner for Merkel,” said Frank Decker, a political scientist at the Institute for Political Sciences and Sociology at the University of Bonn. “As a result, she looks for ways that she can strengthen his position.”

Steven Erlanger in Paris contributed reporting.

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Off the Charts: The Year That Governments Lost Their Credibility

December 31, 2011 by Leave a Comment

Then Europe announced its second plan to rescue Greece, the first one, reached more than a year earlier, having turned out to be completely inadequate. That’s when 2011 became exciting and the losses began to pile up.

The summit meeting of European leaders on July 21 in Brussels called for private investors to take losses of 21 percent on some Greek bonds, but for a rescue package to keep losses from being worse. At first markets reacted with enthusiasm, but that deal did not last long enough to even write out the details.

The European leaders had drastically underestimated the problem and misunderstood the risk that fears of default would spread to other countries.

Within weeks, it became clear that 2011 would be remembered as the year that governments lost their credibility. Markets, which had always assumed that major Western governments would honor their obligations, struggled to learn to adjust to a new world where that was not so certain.

At the same time Europe was failing to come to grips with its problems, President Obama was in negotiations with Congressional Republicans over a possible deal to raise the debt ceiling and avoid an American default. In the end, there was no default, but the fact that some politicians seemed to think one was a good idea was unsettling to investors. In August, Standard Poor’s cut the country’s credit rating from AAA to AA-plus.

Oddly, the downgrade of the United States seemed to help its financial markets. Whatever a rating agency might think, the United States seemed to be a bastion of safety and relative certainty. Treasury bond prices rose and yields fell. And the American stock market, while it became extremely volatile, more than held its own. Depending on what index is used, American stocks rose a little or fell a little during the year, although they ended lower than they had been when the European leaders announced their Brussels agreement. The MSCI index for the United States ended with a 2 percent rise.

Late in the year, Europe tried again to find a way out of its financial morass, and may have done a better job. The European Central Bank offered unlimited three-year loans to European banks, which seemed to be willing to take the money — at a 1 percent interest rate — and buy government securities that will mature before the central bank’s loan must be repaid. In the final week of the year, Italian debt auctions produced rates of 3.2 percent on six-month bills, but more than double that for 10-year-bonds. European share prices seemed to stabilize.

The accompanying charts document the trend in share prices for the world and for 12 stock markets, using MSCI indexes to assure comparability, and document how the investment world changed as it became clear that the July 21 Brussels accord had accomplished little. The indexes include reinvested dividends, and are all calculated in dollars. The countries shown are six nations in the euro zone, the area most directly affected by the European deliberations, and six other major markets around the world.

On July 22, the day after the Brussels accord, the MSCI world index — which includes markets in all developed economies but not in emerging markets like China — was up 7.1 percent since the end of 2010. Even poor Greece had a stock market that was almost even for the year, thanks to a 7.5 percent rise on that day.

As the year neared an end, the Greek market was down more than 60 percent. From its 2007 high, the market has lost 92 percent of its value. From top to bottom during the Great Depression, the Dow Jones industrial average fell just 89 percent.

The pain was also intense in other European countries. In all of the other five euro zone countries shown — Germany, France, Italy, Spain and Portugal — prices declined significantly after that July meeting. Germany, the dominant economy in Europe, and the one that did the most to keep the bailout packages from growing too large, suffered the most. Italy, down 19.5 percent after the meeting, did the best.

Outside the euro zone, the loss of confidence also echoed. India’s stock market lost nearly a third of its value after the summit meeting, and China’s fell by nearly 20 percent. The losses in the United States, Britain and Japan were smaller.

The rise in volatility was even more impressive. The charts show the proportion of trading days in each market in which prices either rose or fell at least 2 percent during the day. For the world as a whole, the proportion went from 1 percent in the months before the summit meeting to more than a quarter of the days after that. In Germany, about one day in two exceeded that threshold after the meeting.

When the euro was created in 1999, Europeans voiced hope that a common currency would help the Continent reassert its economic influence in the world. In 2011 that happened, although not in the way the creators of the euro had envisioned.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

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Strategies: Why Investors Should Look Beyond Europe — Strategies

December 11, 2011 by Leave a Comment

Whether the latest agreement of European leaders brings a final resolution to the euro crisis won’t be clear for some time, but few people are betting on it. And a reprieve from euro jitters might just focus attention on another trouble spot: Washington, where a Congressional supercommittee failed to reach a budget-cutting compromise last month and measures to extend the payroll tax cut are stuck in political gridlock. A long impasse could weaken the already none-too-strong economy.

“If Congress and the White House continue to be unable to get anything done,” said Lisa Shalett, the chief investment officer at Merrill Lynch Wealth Management, then “we are playing with fire.” In short, continued bipolar stress is most likely — with market anxiety swinging back and forth across the Atlantic.

These problems certainly loom large. But Jim O’Neill, the chairman of Goldman Sachs Asset Management, says they aren’t really the most important prospects on the horizon. In his view of the world, developments in Brazil, Russia, India and China — enormous and rapidly growing economies, which he labeled as the BRIC’s 10 years ago — will prove “far more important to investors” than the issues now weighing down the United States and the 17 countries of the euro zone.

Because the euro crisis is of “obsessive interest” around the world, he said in a telephone interview last week, European policy makers need to “make it clear that they’re not going to let the euro area implode.” That, he said, should help make people “a bit more relaxed and a bit more balanced.” And instead of focusing primarily on “tail risk” — on hedging against the extreme damage that a euro collapse could wreak — it may be possible for more people to realize that we are in the middle of an exciting economic transformation, he said.

Mr. O’Neill has a new book, “The Growth Map: Economic Opportunity in the BRICs and Beyond.” In it, he says that Brazil, Russia, India and China, as well as — Indonesia, South Korea, Mexico and Turkey — are economic powerhouses and should no longer be called emerging markets. He prefers the term “growth markets” for them, a name that may help investors “to understand the scale of the opportunity here, and for policy makers to grasp what is changing in the world.”

All these countries, he says, enjoy “largely sound government debt and deficit positions, robust trading networks and huge numbers of people all moving steadily up the economic ladder.” Their governance in some cases may leave much to be desired — he cited Russia as an example — but their economies compare favorably in many respects with the developed nations that are having so much trouble these days.

The eclectic countries comprising the growth markets all have relatively large populations tilted toward a young demographic — South Korea is the smallest but most prosperous of the group, per capita — and have already begun to grow at a very rapid pace.

The growth of China, the economic heavyweight among them, is likely to slow from an annual rate in the double digits to 7 or 8 percent, he said. At that pace, China should surpass the United States as the world’s largest economy by 2027, which, he said, was a very conservative estimate.

He acknowledges that Brazil, India, Russia and China have relatively little in common. That’s one reason, he says, that they are unlikely to be an enduring and cohesive political bloc. But what they shared in 2001, he says, “was that they all appeared increasingly eager to engage on the global stage,” and each, he says, has actually prospered mightily from world trade over the last decade.

In the intervening years, they have accounted for roughly a third of the growth of the world economy. To put that into perspective, he says, their combined increase in G.D.P. was “more than twice that of the United States, and it was equivalent to the creation of another new Japan plus one Germany, or five United Kingdoms.”

In the last year alone, he says, the economies of the four BRIC countries have almost expanded enough to “add another Italy” to the size of the world economy. And barring disasters, he says, this kind of growth is likely to continue.

As for the United States, whose strongest rising export markets are China, Brazil and Mexico, he says, “this is a fantastic opportunity” to help re-engineer the economy.

Will this mean more jobs moving offshore? Mr. O’Neill, a fervent advocate of free trade and globalization, allows that it may, in some manufacturing industries. But as the growth markets become more affluent and labor costs rise, wages in the United States will become more competitive, he says, and some jobs are likely to return. For the growth markets to fulfill their potential, he adds, restrictions on trade and currency controls in countries like China will need to be liberalized.

They will all need to avoid “disastrous setbacks,” he says, and many of them will need to combat “corruption.” Russia, in particular, needs to ensure that its government is more responsive to the desires of its citizens, he says. But the net effect of truly free trade, he maintains, is always positive over the long run.

AMONG the developed nations, he says, the United States is in a comparatively good position for sustained growth over the next few decades, partly because its population is relatively young compared with that of Europe and Japan, and because it will retain many of its current advantages, especially its strength in innovation.

A boom in the growth markets won’t mean profit for investors if the price isn’t right, he says, and without deep knowledge of a country, it’s easy to lose your way. It’s possible to reap many of the benefits of direct investment by holding shares in multinational corporations based in the United States. Over the long haul, he says, “America should learn to love the BRIC’s.”

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Merkel and Sarkozy Call for European Treaty Changes

December 5, 2011 by Leave a Comment

Mr. Sarkozy said he hoped the treaty changes would be ready for the ratification process as early as March.

The leaders met over lunch at the Élysée Palace to prepare joint proposals to be offered to the full membership of the European Union in Brussels on Thursday night. They agreed to propose automatic penalties for countries that exceed European deficit limits as well as the creation of a monetary fund for Europe. They also backed monthly meetings of European leaders.

But Mr. Sarkozy said the answer did not lie in issuing bonds backed by all the euro zone members.

“We want to make sure that the imbalances that led to the situation in the euro zone today cannot happen again,” the French leader said at a news conference after the lunch.

“Therefore we want a new treaty, to make clear to the peoples of Europe, members of Europe and members of the euro zone, that things cannot continue as they are,” he said.

The overall deal European leaders seek this week will not be one transformative leap. The various goals are to show resolve to protect Italy and Spain, revise the economic governance of the euro zone and prevent further debt crises, according to officials involved in the talks over the deal.

The meeting in Brussels, beginning Thursday and extending into Friday, is considered a last chance this year to set the euro right, even as some investors and analysts are beginning to predict its collapse.

“The survival of the euro zone is in play,” one senior European official said. “So far it’s been too little, too late.”

The emerging solution is being negotiated under great pressure from the markets, the banks, the voters and the Obama administration, which wants an end to the uncertainty about the euro that is dragging down the global economy.

In the process, European leaders will begin to change the fundamental structure of the union, creating a form of centralized oversight of national budgets, with sanctions for the profligate, to reassure investors that this kind of sovereign-debt crisis is finally being managed and should not happen again.

The immediate focus of worry is on Italy and Spain, which have been buffeted by market speculation even as they move to fix their economies. That process took an important step on Sunday, as Italy’s cabinet agreed to a package of austerity measures to put the country in line for aid that would improve its financial stability.

The new euro package, as European and American officials describe it, is being negotiated along four main lines. It combines new promises of fiscal discipline that will be embedded in amendments to European treaties; a leveraging of the current bailout fund, the European Financial Stability Facility, to perhaps two or even three times its current balance; a tranche of money from the International Monetary Fund to augment the bailout fund; and quiet political cover for the European Central Bank to keep buying Italian and Spanish bonds aggressively in the interim, to ensure that those two countries — the third- and fourth-largest economies in the euro zone — are not driven into default by ruinous interest rates on their debt.

After consecutive, expensive failures to stabilize the markets and protect the euro, the broad plan emerging this week may have a better chance at succeeding, analysts say, in part because it weaves together measures that deal with the various issues of the euro, particularly the provision of a central authority that can monitor and override national budget decisions if they break the rules.

Still, even if all the parts are agreed upon in the meetings, which are bound to be fraught, the fundamental imbalances in the euro zone between north and south and between surplus countries and debtor ones will not go away. The euro will still be a single currency for 17 disparate nations in the European Union.

One dividing line is that the Germans, along with the Dutch and the Finns, remain adamantly opposed to what some consider the simplest solution: allowing the European Central Bank to become the euro zone’s lender of last resort and to buy sovereign bonds on the primary market, in unlimited amounts. Mrs. Merkel is also dead-set for now against collective debt instruments, like “eurobonds,” that would put taxpayers, particularly German ones, on the hook for the debt of others, which her government regards as illegal.

So Mr. Sarkozy and other European leaders are working on a less elegant and more phased way to create a pool of bailout money that is large enough to convince the markets there is little chance of a default on Italian and Spanish bonds, which should drive down rates to sustainable levels, European and American officials say.

Mrs. Merkel says it is time to get the euro’s fundamentals right. She is insisting on treaty changes to promote more fiscal discipline, including a limit on budget deficits, with outside supervision and surveillance of national budgets before they become dangerous, and clear sanctions for countries that fail to adhere to the firmer rules. Berlin wants the new standards backed up by the European Court of Justice or perhaps the European Commission, with the power to reject budgets that break the rules and return them for revision.

Article source: http://www.nytimes.com/2011/12/06/world/europe/leaders-piece-together-an-effort-to-keep-the-euro-intact.html?partner=rss&emc=rss

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daily-stock-market-activity

December 5, 2011 by Leave a Comment

Stocks and the euro rose on Monday, although they lost some of their gains after a media report said Standard Poor’s Corp. was about to warn Germany and other euro zone nations that their credit ratings were being assessed for a possible downgrade.

The markets were generally higher earlier in the day when an agreement between leaders of France and Germany boosted optimism that European leaders would reach a credible solution to their debt crisis.

At the close of trading, the Standard Poor’s 500-stock index was up 1 percent, the Dow Jones industrial average rose 0.7 percent and the Nasdaq gained 1.1 percent.

S.P. would not confirm the report, which said that the rating agency would place the credit of all 17 euro zone nations on a watch list for possible downgrade.

French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed on a master plan for imposing budget discipline across the region, saying the European Union treaty needs to be changed. The leaders said their proposal included automatic penalties for governments that fail to keep their deficits under control and an early launch of a permanent bailout fund for euro states in distress.

The proposal will be sent to E.U. officials on Wednesday, ahead of a key summit on Friday.

Even so, analysts were wary that the optimism would prove overdone.

“We are far from an easy consensus that it’s a done deal,” said Marc Pado, United States market strategist at Cantor Fitzgerald Co. in San Francisco. “But we are further along in the negotiations than we’ve been and we are focused on the right things now.”

An agreement could pave the way for an accelerated implementation of the euro zone’s rescue plan to help ensure debt-ridden countries have a vehicle to tap for funds, while encouraging bondholders to buy euro zone bonds.

The euro was up versus the dollar at $1.3399, holding above last week’s low of around $1.3230.

European stocks rose, with the FTSE 100 up 0.3 percent, building on last week’s biggest weekly gain since late 2008. Euro zone stocks as measured by the Euro Stoxx 50 were up 1.2 percent.

Market sentiment also got an early boost after Italy unveiled a 30-billion-euro package of austerity steps and the Irish government said it would do something similar in a new budget to be announced later in the day.

The positive mood drove Italian bond yields further below the worrying 7 percent level at which they are seen as unsustainable, and the cost of insuring Italian debt against default also fell.

But global data highlighted the precarious economic situation. Purchasing manager surveys for November showed the euro zone’s economy may be shrinking more quickly than previously thought, while growth in China’s services sector sagged to a 3-month low.

While the United States economy is expected to avoid another recession, growth in the services sector slowed in November, and new orders declined in October for a second straight month.

“This is the first disappointing indicator we’ve seen in the last couple of weeks,” said Cary Leahey, managing director at Decision Economics in New York. “The economy has improved — it is still not growing very quickly.”

The week ahead features a series of high-profile meetings among European leaders seen as crucial to the future of the 17-nation euro zone.

On Tuesday, Treasury Secretary Timothy Geithner kicks off a visit to the region in Germany, where he will meet European Central Bank President Mario Draghi and government officials.

 

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Emergency Decree Puts in Place More Cuts in Italy

December 5, 2011 by Leave a Comment

The measures are meant to slash the cost of government, combat tax evasion and step up economic growth, so the country can eliminate its budget deficit by 2013. Mr. Monti took the steps in an emergency decree, which means they will take effect before he presents them to Parliament for formal approval.

Delivered ahead of a crucial summit meeting of European leaders this week, the new measures are aimed at showing that Italy — which is seen as both too big to fail and too big to bail out should it default on its immense debts — is committed to getting its finances in order.

The hope is that they will take some of the market pressure off Italy, whose borrowing costs have been pushed up in recent weeks to levels that have led other European countries to seek bailouts; once Italy has shown it is committed to austerity, the European Union can move ahead with broader plans to shore up the euro.

“If you want, call these the ‘Save Italy’ measures,” Mr. Monti said in a news conference after a cabinet meeting on Sunday, less than three weeks after taking office. “I wanted to give you a message of grave concern but also of great hope,” he told Italians, adding that he would work to spread the sacrifices with “equity” across the society.

A former European commissioner with no experience in the trenches of the Italian Parliament, Mr. Monti is expected to present the measures to both houses on Monday. Though the Parliament voted confidence in his government of technocrats by a wide margin last month, many legislators are reluctant to push through measures that might hinder their chances for re-election.

There are other hurdles as well. Labor unions are opposed to raising the retirement age, and industrialists say the measures are weighted too heavily toward tax increases that could stifle growth.

Mr. Monti, who is both prime minister and finance minister, faces the challenge of satisfying the demands of European leaders while making clear to Italians that they must take responsibility for solving the country’s longstanding structural problems.

“The huge public debt of Italy isn’t the fault of Europe; it’s the fault of Italians, because in the past we didn’t pay enough attention to the well-being of the young and the future adults of Italy,” Mr. Monti said. Speaking of his proposals, he said, “We have had to share the sacrifices, but we have made great efforts to share them fairly.”

Among the new measures announced Sunday are sharp cuts to regional governments that could significantly change Italian politics by crimping the flow of patronage spending.

There appears to be little room now for traditional Italian political maneuvering. Though Italy’s economy is the third-largest in the euro zone, it has no forward momentum; economists expect it to contract in 2012 and stay flat in 2013. Meanwhile, the cost of servicing the country’s debts is claiming an ever larger share of its budget.

Mr. Monti must also convince risk-averse Italians that there is much at stake. Silvio Berlusconi, who was prime minister until a few weeks ago, repeatedly told his countrymen that the economy was fine, even though youth unemployment was high and rising, growth was flat and prices were outstripping wages.

“You will never hear me ask for a sacrifice because Europe asks for it, just as you will never hear me blame Europe for things that we should do and that are unpopular,” Mr. Monti said. “I would rather be considered unpopular, rather than Europe, because you can do without me, but not without Europe.”

Mr. Monti’s proposals include reintroducing an unpopular property tax that Mr. Berlusconi abolished in 2008 to fulfill a campaign promise. The new measures would also prohibit cash transactions above 1,000 euros ($1,340), in the hope of making tax evasion harder; raise the country’s value-added tax by two points to 23 percent starting in September; and give incentives to businesses to hire new workers.

The country’s new welfare minister, Elsa Fornero, a pension expert, choked with emotion at the news conference as she explained how Italians would be asked to sacrifice today in order to make the pension system less “arbitrary” and “more equitable” for future generations.

The standard retirement age, now 60 for many women and 65 for most men, would quickly rise to 62 and 66, with incentives to keep working until age 70; the standard age for women would eventually rise to match that for men. Pensions would be based on the number of years of contributions, not on the worker’s salary at the time of retirement, as is common now.

Before the cabinet meeting, Emma Marcegaglia, the president of the business organization Confindustria, called the austerity measures “heavy but indispensable,” adding that “the next 10 days will decide whether the euro will survive or not.”

But Ms. Marcegaglia added that her group had asked the government to recalibrate the mixture of tax increases and spending cuts once the measures have been passed.

The leader of the center-left Democratic Party, which supports the Monti government, called for more measures to fight tax evasion, a very widespread problem in Italy.

Susanna Camusso, the president of CGIL, Italy’s largest labor union, said the austerity measures “deal a very harsh blow to the incomes of pensioners.” Raising the retirement age would be “unsustainable for so many workers who would see their retirement prospects shaken and delayed by many years of work.”

Article source: http://feeds.nytimes.com/click.phdo?i=9685640bc33d70d60a7e3b73ce681cce

Filed Under: Business News Tagged With: , ,

It’s the Economy: Translating the European Financial Mess

December 1, 2011 by Leave a Comment

Yet the bottom line is simple: Europe’s problems are a lot like ours, only worse. Like Wall Street, Germany is where the money is. Italy, like California, has let bad governance squander great natural resources. Greece is like a much older version of Mississippi — forever poor and living a bit too much off its richer neighbors. Slovenia, Slovakia and Estonia are like the heartland states that learned the hard way how entwined so-called Main Street is with Wall Street. Now remember that these countries share neither a government nor a language. Nor a realistic bailout plan, either.

Lack of fluency in financialese shouldn’t preclude anyone from understanding what is going on in Europe or what may yet happen. So we’ve answered some of the most pressing questions in a language everyone can comprehend. Though the word for “Lehman” in virtually any language is still “Lehman.”

Q: Will the euro survive?

It’s a dangerous question to ask out loud. Suppose a credible rumor spread throughout Greece that, rather than accept the harsh terms of another bailout package, the government was plotting to revert to the drachma. Fearing the devaluation of their savings, Greeks would move their money somewhere safer, like a German bank. The Greek banking system would then, in all likelihood, implode.

But Greece’s economy is too small for an isolated collapse to cause any significant damage throughout the continent. (Even a collapse confined to Greece, Ireland and Portugal couldn’t take down Europe.) So the concern about a run on the Greek banking system is largely about whether a panic might spread to Spain or — worse — Italy, which could topple Europe’s financial system. Maybe that’s why the treaty that created the euro doesn’t say anything about a country’s abandoning the currency. Or why European leaders scarcely mentioned the possibility (not in public, at least) until this fall, two years into the crisis.

Q: Why is it such a bad thing for a country to abandon the euro?

If a country did pull off a surprise euro exit — and get out before everybody could take their money out of the banks — there would still be a period of economic chaos. Exports and imports would shut down. Lending would collapse, which would send companies into bankruptcy. Ripple effects would be felt throughout Europe.

The problem is thorny enough that the British chief executive of Next, a European retailer, recently offered a £250,000 prize for the person who comes up with the best plan for countries to leave the euro without destroying the European economy. (Have a brilliant idea? Entries are due early next year.)

Q: Wait a minute: If leaving the eurozone would be so awful, why would anyone do it?

It’s not all bad. Leaving the euro would allow a country to ignore demands from the leaders of other European countries. It could simply refuse to pay its debt.

After the short-run pain, weaker European countries could also see a long-term benefit. If Greece or Portugal went back to the drachma or the escudo, the cost of their exports would fall. Because it would be cheaper for foreign travelers to stay in their hotels and eat in their restaurants, their tourism industries would get a bump, too. The alternative is to spend the next decade as poor countries tied to a rich one’s currency.

Q: Why exactly does Angela Merkel always look so woebegone?

For the euro to survive in the long run, Germany — the zone’s biggest economy — will most likely need to vouch for the debt of struggling eurozone members. And it will become more expensive to borrow money if bond investors fear the country is becoming overextended.

The Germans are also wary of the widespread calls for the European Central Bank to buoy Spain and Italy by buying their bonds. If they know the E.C.B. will bail them out, what will be their incentive to act responsibly in the future? Worse, Germans argue, printing money to pay off government debt (which is what the E.C.B. would essentially be doing) is the first step to hyperinflation.

Q: What happens to the European Union if the euro crumbles?

It turns out that a bunch of vastly different countries, each with control over its own budget but all bound to a common currency, is not a sustainable economic model. And that leaves Europe with two main, and painful, options.

Article source: http://feeds.nytimes.com/click.phdo?i=77258e500030baaca27d953d7c3f33ad

Filed Under: Business News Tagged With: , ,

Banks Build Contingencies for Euro Zone Breakup

November 26, 2011 by Leave a Comment

But some banks are no longer so sure, especially as the sovereign debt crisis threatened to ensnare Germany itself this week, when investors began to question the nation’s stature as Europe’s main pillar of stability.

On Friday, Standard Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk.

While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that.

“We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said.

Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. “The euro zone financial crisis has entered a far more dangerous phase,” analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, “a euro breakup now appears probable rather than possible,” the bank said.

Major British financial institutions, like the Royal Bank of Scotland, are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. United States regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis.

But banks in big euro zone countries that have only recently been infected by the crisis do not seem to be nearly as flustered.

Banks in France and Italy in particular are not creating backup plans, bankers say, for the simple reason that they have concluded it is impossible for the euro to break up. Although banks like BNP Paribas, Société Générale, UniCredit and others recently dumped tens of billions of euros worth of European sovereign debt, the thinking is that there is little reason to do more.

“While in the United States there is clearly a view that Europe can break up, here, we believe Europe must remain as it is,” said one French banker, summing up the thinking at French banks. “So no one is saying, ‘We need a fallback,’ ” said the banker, who was not authorized to speak publicly.

When Intesa Sanpaolo, Italy’s second-largest bank, evaluated different situations in preparation for its 2011-13 strategic plan last March, none were based on the possible breakup of the euro, and “even though the situation has evolved, we haven’t revised our scenario to take that into consideration,” said Andrea Beltratti, chairman of the bank’s management board.

Mr. Beltratti said that banks would be the first bellwether of trouble in the case of growing jitters about the euro, and that Intesa Sanpaolo had been “very careful” from the point of view of liquidity and capital. In late spring, the bank raised its capital by five billion euros, one of the largest increases in Europe.

Mr. Beltratti said that Italy, like the European Union, could adopt a series of policy measures that could keep the breakup of the euro at bay. “I certainly felt more confident a few months ago, but still feel optimistic,” he said.

European leaders this week said they were more determined than ever to keep the single currency alive — especially with major elections looming in France next year and in Germany in 2013. If anything, Mrs. Merkel said she would redouble her efforts to push the union toward greater fiscal and political unity.

Keith Bradsher contributed reporting from Hong Kong, Julia Werdigier from London, David Jolly from Paris and Elisabetta Povoledo from Rome.

Article source: http://www.nytimes.com/2011/11/26/business/global/banks-fear-breakup-of-the-euro-zone.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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