March 28, 2024

Euro Treaty to Require Only 9 Nations for Ratification

The treaty is intended to help improve confidence in the euro by tightening the coordination of the 17 euro zone economies, requiring nations to balance their budgets and cut debt.

The outline of the plan was agreed to by most European leaders a week ago, with the exception of Britain. European officials hope to reach agreement on the eight-page draft of the treaty within weeks, with Britain being offered observer status in discussions.

The treaty will enter into force “on the first day of the month following the deposit of the ninth instrument of ratification by a contracting party whose currency is the euro,” the draft states.

That means that if one country held a referendum on the treaty and did not approve it, the decision would not block others from putting it in place once nine other nations ratified it. The terms of the treaty will, however, apply to each country only when the country ratifies it.

If a euro nation fails to ratify the treaty, it would be in an “uncomfortable position” politically, said one European official who spoke on condition of anonymity.

The draft makes it clear that countries outside the euro will not be forced to abide by the treaty before joining the currency alliance, but they can opt to do so.

That makes the treaty easy for most of the nations not using the euro to accept, said one diplomat from a country not using the currency who spoke anonymously because he was not authorized to speak publicly.

Because the agreement is an intergovernmental one, rather than an amendment of a European Union treaty, any moves to make sanctions easier to impose on nations that break deficit and debt limits are complex.

Under the proposed treaty, nations would agree to abide by tougher rules than those currently laid down in the European Union treaty. If broken, that agreement could not be enforced by the European Court of Justice, though national courts could be able to do so, officials said Friday.

The treaty would require nations to write debt brakes into their national law. Summit meetings of euro zone leaders would take place at least twice a year.

Jean-Claude Juncker of Luxembourg, who leads the group of euro zone finance ministers, said he was confident that Europeans would meet a Dec. 19 deadline for arranging 200 billion euros ($260 billion) in loans to the International Monetary Fund to help bolster emergency financing for vulnerable nations that use the euro. Euro zone countries are expected to provide 150 billion euros ($198 billion), while it was hoped that nations not using the euro would contribute around 50 billion euros ($66 billion).

“Countries have to say within 10 days what’s happening, and we’re collecting this at the moment,” Mr. Juncker said Friday in Luxembourg, according to Bloomberg News. Asked if the European Union would meet this deadline, he said, “I think so.”

Article source: http://feeds.nytimes.com/click.phdo?i=fe7de911e15f8981c8f79ccdf0e9eaff

Greece and Italy Sink Under Turmoil as Euro Crisis Widens

The prospect of a new transitional, technocratic government in Greece, and signs that Silvio Berlusconi’s resilient hold on power in Italy was weakening, did little to reassure investors that either country was prepared to grapple with the deep structural changes that investors are demanding to restore growth and reduce deficits. In both places, it is not only the economy that is on trial, but also the ability of democratic government to make highly unpopular choices.

The crisis gripping Mr. Berlusconi’s government deepened as interest rates on the country’s debt rose on Monday to over 6.6 percent, the highest since the introduction of the euro more than a decade ago and nearing levels that have led to bailouts elsewhere. Financial markets advanced early in the day on word that the prime minister was negotiating his exit, but lost ground after he denied the reports.

In Greece, where political chaos last week threatened to plunge the euro zone into crisis, doubts remained about the capacity of the political class to form a coalition government to push through reforms it has agreed to in return for a financial lifeline. So strong is the distrust that Europe’s finance ministers refused to release the next $11 billion in aid for Greece until the two leading political parties signed a letter affirming their commitment to meeting the conditions of the loan deal reached last month with European lenders.

Greece and Italy have famously complex political cultures, but today they are both driven by a simple dynamic: no established parties want to assume the full political cost of pushing through unpopular austerity measures and changes to the labor market. And they are jockeying for positions in a new political constellation after eventual elections — as well as for greater bargaining power with the European Union.

“It’s a big mess,” said Roberto D’Alimonte, a political science professor at Luiss Guido Carli University in Rome. “I don’t think it’s that the markets are too strong, but that democracy is weak.”

Forceful leadership also now seems to be in short supply. In Greece, Prime Minister George A. Papandreou agreed to step down to make way for a new unity government after his proposal for a referendum on the debt deal cost him support within his own Socialist coalition (and with European leaders). In Italy, some members of Mr. Berlusconi’s center-right coalition would readily bring him down and replace him with a technocrat — Mario Monti, a former European commissioner, is commonly mentioned— but others want elections and a new political formation.

After denying reports about his imminent resignation, Mr. Berlusconi said he would face a vote on a state financing bill on Tuesday that could potentially take down his government, and in coming days would call for a confidence vote on austerity measures meant to quell market concerns about Italy.

“I want to look at those who want to betray me in the face,” he said.

With high debts, vast underground economies, low birth rates and more pensioners than workers, there is no doubt that Greece and Italy need structural changes to survive. But with deeply entrenched political patronage societies, governments in both countries have been unwilling or unable to carry out such changes, which would require striking the heart of their own constituencies.

Italy first proposed those austerity measures — including pension reform, changes to labor laws and privatization of state industry — in a letter to the European Central Bank the same day the European Union reached its debt deal with Greece and promised to pass them by Nov. 15. But the government has yet to draft the measures into a bill, let alone put the measure to Parliament.

Instead, it has been deadlocked for weeks, as the conflicting interest groups within Mr. Berlusconi’s center-right coalition refuse to budge. The powerful Northern League party, for one, has opposed raising the retirement age to 67 from 65.

The center-left opposition ranges from neoliberals to former Communists opposed to changes in labor laws, making it difficult to imagine how it could push through structural changes in a future political order.

In Greece, Mr. Papandreou’s Socialist government has passed radical legislation aimed at cutting the public sector, but implementation has been slow, even as the economy shrinks under tax hikes and wage cuts that are pushing the country to the brink.

Elisabetta Povoledo and Gaia Pianigiani contributed reporting from Rome, and Stephen Castle from Brussels.

Article source: http://www.nytimes.com/2011/11/08/world/europe/greece-and-italy-sink-under-turmoil-as-euro-crisis-widens.html?partner=rss&emc=rss

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Beattie: Me and Mrs. Nixon

What would it be like to be in the public eye, but also to vanish?

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Off the Charts: Up or Down, China Trade Surpluses Bear Watching

The countries that have benefited the most are the suppliers of major capital goods, particularly Germany, which have sold China rising amounts of machinery that can be used to produce manufactured goods, and the sellers of natural resources.

In addition, some Asian countries have prospered both as suppliers to China and as countries whose own, cheaper exports have replaced some more expensive Chinese products in other markets.

The accompanying charts show the changes in bilateral trade balances between China and 12 countries since 2007, the last full year before the United States and then most of the rest of the world went into recession. The charts are based on Chinese trade figures, including August statistics released this week.

Over the 12 months through August, China ran up a trade surplus in goods of almost $170 billion, about $10 billion less than in the previous 12 months and little more than half the record surplus, of $315 billion, reached during the 12 months through March 2009. Then, it was exporting $1.30 of goods for every dollar’s worth it imported. Now, the figure is down to $1.10.

Chinese trade figures provide some insights into the problems now being felt in the euro zone. Germany turned a $3.3 billion deficit in China trade in 2007 into a $12.7 billion surplus in the most recent 12 months, largely through the sales of capital equipment that helped China produce more products.

Some of those products replaced those that had been exported by countries like Italy. Over all, China’s trade surplus with members of the European Union other than Germany rose by $31 billion during the period, a little more than the $29 billion rise in China’s surplus with the United States.

For a time in 2009, China’s trade surplus with both the United States and Europe appeared to be declining. That now appears to have been a result of the plunge in world trade, which slowed both exports and imports. Once Western economies began to recover, even slowly, the appetite for Chinese imports increased.

Largely because of its appetite for natural resources, China imported $75 billion in products from Australia during the most recent 12 months, nearly three times the 2007 figure. But its sales to Australia did not even double, and a small Australian bilateral trade surplus of less than $8 billion in 2007 soared to more than $43 billion.

Among smaller countries, one of the sharpest turnarounds in Chinese trade came in Ireland. In 2007, China exported $4.4 billion in goods to Ireland, and bought just $1.9 billion in products. But after the collapse of its economy, Ireland bought just $2 billion in goods over the most recent 12 months for which data is available, while selling $3.5 billion in products to China.

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

Article source: http://feeds.nytimes.com/click.phdo?i=64899e6aeaafb63fce30f4528fe291a3

DealBook: Behind Google’s Huge Breakup Fee in Motorola Deal

Motorola MobilityTim Boyle/Bloomberg News

It is certainly big. But is there any chance that it will be paid? I’m talking about the $2.5 billion reverse termination fee that Google agreed to pay Motorola Mobility if its proposed takeover fails to obtain antitrust clearance. This fee is about 20 percent of the $12.5 billion deal value and is significantly higher than the $375 million Motorola Mobility must pay Google if it accepts another bid.

Motorola filed a copy of the acquisition agreement between it and Google on Wednesday that spells out the exact terms when this fee is required to be paid. There are two circumstances:

1. The agreement is terminated because a government authority (e.g., a federal court or European Union antitrust authorities) issues a final, non-appealable order blocking the transaction on antitrust grounds.

2. If by Feb. 15, 2013, the transaction has not closed because it is being blocked by the authorities or has not cleared antitrust review, either party can terminate the agreement and transaction. The fee is then payable if two more conditions are met:

a) The transaction could otherwise close but for the failure to obtain antitrust clearance or the government blocking the deal.

b) Google willfully failed to use its reasonable best efforts to complete the deal or otherwise willfully breached the requirements in the agreement to obtain antitrust approval.

Basically, these provisions can be boiled down to an agreement that if the transaction is blocked on antitrust grounds, then Google is on the hook for $2.5 billion. But as long as Google complies with the agreement, it will have to fight such a government action in court, and a final disposition of the action has to occur by Feb. 15, 2013.

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People close to Google have said they do not believe there are antitrust problems. So why is the fee so big?

The fee’s driver is that Google has become what Microsoft was a few years ago, a natural target for European and American antitrust regulators. For the foreseeable future, any significant transaction Google engages in will really be all about antitrust in terms of getting it done.

Absent this factor, the antitrust risk on this deal seems low. There is not substantial overlap between the company’s businesses. Google, the Internet search engine giant, also produces Android phone software, while Motorola Mobility manufactures cellphones and other wireless devices. Since there is virtually no horizontal overlap, the deal is known as a case of vertical integration. This is where two companies combine whose products are usually made separately but can be used in each others’. An example might be if General Motors bought a steel maker.

In the case of vertical integration, the antitrust authorities would have to show that competition would be reduced to challenge the transaction. This is a hard thing to do in the case of vertical integration because the impact on competition is much harder to measure.

This big fee, however, may not be a signal that there is an antitrust risk that the deal will be blocked, but a statement to the market of the opposite: that there is no such risk. By agreeing (or perhaps even proposing) such a large fee, Google is saying this is not a problem. And antitrust authorities are now put on notice that if they decide to give Google a hard time, the company is not only going to fight this but will be willing to pay for the fight to the tune of $2.5 billion.

This fee may therefore be a statement by Google that the antitrust authorities should tread carefully in examining and challenging this deal.

There is precedent for this. When Microsoft agreed to buy aQuantive in 2007 for $6 billion, it agreed, likely for similar reasons, to a $500 million reverse termination fee, or just over 8 percent of the deal value.

Typically, merger agreements have provisions that also spell out the procedures and steps the parties will take to obtain antitrust clearance. If you look at these provisions in the Google-Motorola Mobility acquisition agreement, they support the theory that this is all about Google making a statement to the antitrust authorities.

The provisions provide Google complete control over the antitrust process. In addition, the agreement does not obtain any species of a “hell or high water” provision. This provision, commonly seen in deals with antitrust risk, requires the buyer to take steps like asset divestitures or licensing of technology to satisfy antitrust regulators and obtain antitrust clearance. But there is no such provision in the Google-Motorola Mobility transaction agreement. This is a boon for Google, because regulators will look at such a provision as an easy way to force concessions. Google does not want to provide antitrust regulators any low-hanging fruit.

To some extent, the high reverse termination fee functions as a form of hell-or-high-water provision, though it is different in an important way. Without this provision, Google can arguably refuse to take any steps to satisfy regulators and simply pay the fee. If there were a hell-or-high-water provision, Google would first have to offer up concessions.

Again, making the fee higher benefits Google. If it were smaller, say only a couple of hundred million dollars, regulators might strong-arm the company into simple concessions, thinking this was chump change to Google. By setting it higher, Google has sent a warning: If you come after us, you better be serious and we are not going to give.

Here, the actual terms specifying when Google has to pay the fee also benefit it. Because so much is at stake, Google will fight any antitrust action and is unlikely to breach the agreement. This would only leave a final order blocking the merger as the way such a fee is payable, meaning a long fight for regulators.

Of course, I am sure Motorola Mobility asked for a high fee and was happy to take it. But the acquisition dynamics play to both parties agreeing to this fee. This $2.5 billion fee is therefore different than the $3 billion fee that ATT agreed to pay T-Mobile if that deal does not obtain regulatory clearance. In the case of the ATT-T-Mobile deal, the fee is all about compensating T-Mobile if the deal collapses and assuring it on the risks involved, as well as incentivizing ATT to do what is needed to obtain this clearance in terms of regulatory concessions.

And for those wondering, the Microsoft-aQuantive deal closed without any significant antitrust scrutiny.


Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=066226b0b63fde955c98ced3d7b77a44

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Editorial: Some Sense in Europe

The European Union leaders have finally approved a bailout loan for Greece and others, but the economic crisis is far from over.

Article source: http://feeds.nytimes.com/click.phdo?i=8cd1eb7a20920634f906079fafc68ca6

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Opinion »

Editorial: Some Sense in Europe

The European Union leaders have finally approved a bailout loan for Greece and others, but the economic crisis is far from over.

Article source: http://feeds.nytimes.com/click.phdo?i=99370df7ede764aac7accb75a2bcb823

New Rescue Package for Greece Takes Shape

While the agreement for as much as €60 billion, or $86 billion, would, in theory address Greece’s need for cash this year and next, it puts off for the time being a restructuring, hard or soft, of Greece’s mammoth debt burden.

At the deal’s heart would be an informal understanding that the private sector holders of Greek government bonds might be persuaded to roll over their debts, or extend new loans at the time their older obligations come due.

By taking on more dubious Greek risk — backed by new funds from Europe and the International Monetary Fund — exposed banks would not just step back from the precipice of a “haircut,” or a forced loss on their bonds, they might also hope that in another two years, Greece will be in a better position to repay its debts in full.

The expectation that Europe will again come to Greece’s rescue bolstered both the euro and equity markets on Tuesday. Yields on Greek 10-year bonds have dropped sharply, to 15.7 percent Tuesday from a high of 16.8 percent last week.

“Restructuring is off the table,” said a senior official in the Greek Finance Ministry. “For now it is all about growth, growth, growth.” This person, who spoke on condition of anonymity while the talks continued, said an announcement from the European Union, the I.M.F. and the European Central Bank could come as soon as Friday or early next week.

Later in June, the E.U. first and then the I.M.F. would approve the additional financing, thus clearing the way for €12.5 billion to be disbursed to Athens at the end of the month.

The new loans, however, will only be forthcoming if more austerity measures are introduced.

Along with faster progress on privatization, Europe and the fund have been demanding that Greece finally begin cutting public sector jobs and closing down unprofitable entities.

They also have been pushing Greek politicians to unite behind the new austerity package to help ensure it sticks, and are discussing a decrease in the value-added tax as a concession to win support from the right-of-center opposition, which wants more tax relief to help the moribund economy.

A team of bankers and technical experts from the international institutions have been on the ground in Athens for close to a month, attempting to reconcile the essential conundrum of Greece’s financial condition.

Harsh austerity measures have taken a severe toll on the economy, resulting in missed financial targets and the need for more public money.

Adding to the urgency has been the persistent flow of deposits out of the banking sector. Since the crisis began, €60 billion in deposits have been withdrawn from Greek banks, about a quarter of the country’s output. Bankers in Athens said that outflows were particularly severe last Thursday and Friday following comments — later described as rhetorical — by a Greek politician about Greece leaving the euro.

With great reluctance, European governments have come to the conclusion that an additional €60 billion now, while politically unappealing, would be less costly than the unquantifiable public funds that would be needed if a restructuring of Greece’s debt produced a Lehman Brothers-like contagion that spread not just to Portugal and Ireland but possibly Spain and the financial system as a whole.

But how an economy already in free fall will generate the growth to produce the needed budgetary surplus to start paying down its debt remains unanswered.

“Greece’s G.D.P. is already declining and now the government will need to cut another €7 billion in spending,” said Jason Manolopoulos, who manages a hedge fund based in Athens and Geneva and is the author of “Greece’s ‘Odious’ Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community.”

“That is only going to make the debt to G.D.P. figures worse,” he said. “There is no getting around it: Greece is insolvent.”

With a debt of 150 percent of gross domestic product, or G.D.P., that may well be so. But while skeptics like Mr. Manolopoulos are keeping the cash levels in their funds high, convinced that Greece will be required to default sooner rather than later, such a sense of pressing gloom has not yet become contagious.

Article source: http://feeds.nytimes.com/click.phdo?i=ec01ab5fb2cc96bd0996a980b5631a48