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News Analysis: Grumbling All Around After Solar Panel Deal

July 28, 2013 by

HONG KONG — China’s victory over the weekend in its solar panel dispute with the European Commission has exposed glaring gaps in European unity on trade issues. And it casts a harsh light on the prospects for the United States and Europe to cooperate on trade policy.

On Saturday trade officials for Europe said they had reached a settlement over exports of low-cost solar panels that set a minimum price for sales of Chinese panels in the European Union. The agreement staved off punishingly high tariffs that the European trade commissioner, Karel De Gucht, had threatened to impose, beginning early next month.

But though Mr. De Gucht described it on Saturday as “an amicable solution,” very few others seem happy about the outcome.

The case underscores the difficulties of hammering out trade accords in an increasingly global marketplace, when even the parties on the same side of the bargaining table may have conflicting goals and agendas.

European makers of solar panels were furious at what they considered a capitulation to China and vowed to sue the European Commission to void the deal. The agreement sets a minimum price for Chinese panels of €0.56, or $0.74, per watt. That is actually 25 percent lower than what the products were selling for last year when the industry complained to the commission that the Chinese makers, heavily subsidized by state-owned banks, were dumping them on the market at prices below their actual cost.

The European settlement also undermined Obama administration officials, who have taken a tough stance toward China on solar trade and have been trying for several months to persuade European leaders to side with them. Nearly a dozen U.S. makers of solar panels have gone bankrupt or closed factories, unable to compete with low-cost Chinese imports.

The Obama administration issued a thinly veiled criticism late Saturday afternoon of Europe’s decision to cut its own deal. “We believe there needs to be a global solution, consistent with our trade laws, that creates stability and certainty in the various components of the solar sector,” Michael Froman, the U.S. trade representative, said in a statement.

The European Union’s retreat on solar panel trade with China could make it much harder for the United States to negotiate a trans-Atlantic trade agreement with Europe, for which talks began this month. The European Commission is supposed to negotiate on behalf of all member countries. But in the solar case, it was pressure from Germany that derailed Mr. De Gucht’s tariff plans. That suggests that individual countries in Europe may also have the power to undo any concessions that Brussels might make in the complex bargaining needed for a broad U.S.-Europe trade agreement.

Even among the dozens of companies in China that make solar panels, the deal will be divisive. It is likely to benefit only the few big players, like Trina, that can compete globally on the quality of their products and the warranties they can afford to offer, while making things even more difficult for the many more smaller, struggling companies with little to distinguish themselves other than low prices they will no longer be able to legally offer to European customers.

China has captured close to 80 percent of the European market for solar panels over the past several years, with exports reaching $27 billion in 2011, before the trade battle began. Industry executives expect China’s market share to fall to between 60 and 70 percent as a result of the deal struck Saturday.

The politics of the solar trade case within Europe had been highly unusual from the start. In most European trade cases against an imported product, the main country in Europe that makes the same product will push for protection from subsidized imports. Other European countries, meanwhile, tend to like the low-cost imports and are less enthusiastic about imposing tariffs.

For solar panels, many of the main European manufacturers are German. As China expanded its solar panel industry from almost nothing in 2007 to more than two-thirds of world production by last year, financed by big low-interest loans from state-owned banks and other incentives from government agencies, Germany’s solar industry crumbled.

Article source: http://www.nytimes.com/2013/07/29/business/global/grumbling-all-around-after-solar-panel-deal.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

News Analysis: A ‘Cyprexit’ Might Not Hurt Euro Zone Much

March 21, 2013 by Leave a Comment

A messy Cyprus exit from the euro currency union would have a devastating effect on the country’s citizens, who are among the most indebted in the euro zone. And for European unity and diplomacy, the Cyprus debacle has already been at least a short-term disaster.

But for the broader financial system in Europe, the losses resulting from a Cypriot banking collapse and the country’s return to its own currency would be minimal compared with the havoc that Greece would have created had it not been bailed out and instead returned to the drachma last year.

And that, economists and investors contend, is precisely why Germany and its Dutch stalking horse, Jeroen Dijsselbloem, the uncompromising leader of Eurogroup of finance ministers were so adamant that depositors — large and small, Cypriot and Russian — contribute €5.8 billion, or $7.5 billion, toward the €10 billion bailout of Cyprus’s largest banks.

Greece may well have been too big to fail last year, but Cyprus, which creates less than one-half percent of the euro zone’s gross domestic product, is certainly not.

From a financial standpoint, what is most noteworthy is that the combined debt of the Cypriot people, companies and government is 2.6 times the size of the country’s gross domestic product. Only Ireland, still struggling to recover from the banking collapse that required an international bailout in 2010, has a higher debt-to-G.D.P. ratio among euro zone countries.

As debts in Europe mount in inverse proportion to the ability of its citizens, companies and governments to make good on them, the view is forming in Berlin and Brussels that — especially in the wake of the latest Greek rescue — a signal must be sent that for the euro zone to survive in the long run, citizens and investors must start accepting losses.

“There have been too many bailouts in Europe; it’s time to remove the air bags,” said Stephen Jen, a former economist at the International Monetary Fund who runs a hedge fund based in London. “This is not a Lehman,” he said, referring to the disastrous chain reaction triggered by the collapse of Lehman Brothers in 2008.

With Cyprus, “the links are psychological, not mechanical,” Mr. Jen said. “In Greece the links were both mechanical and psychological.”

Eric Dor is a French economist who has studied in detail the mechanics of how a country might remove itself from monetary union. By his calculations, the euro zone — via its central banking system and its national banks — has just €27 billion in outstanding credit exposure to Cyprus. That is a mere rounding error compared with the overall euro zone G.D.P. of €9.4 trillion.

Estimates of the potential cost if Greece had been forced into a disorderly euro exit have ranged from €200 billion to €800 billion, given the much larger exposure that the E.C.B. and European banks had to the country.

“This explains why Germany and others are putting so much pressure on Cyprus,” said Mr. Dor, head of research at the Iéseg School of Management in Lille, France. “They are saying we can take the risk of pushing Cyprus out of the euro zone, and that Europe can take the losses without going broke.”

Mr. Dor notes that the current euro zone-wide system of insuring bank deposits up to €100,000 was put in place following the financial panic that followed the Lehman collapse. Those deposits are supposed to be insured by national governments.

So when the president of Cyprus admitted this week that his country did not have the funds to backstop the €30 billion of guaranteed bank deposits — a figure greater than the Cypriot economy itself — a crucial bond of trust between a government and its citizens was snapped.

“It is the first time ever that the leader of a euro zone country has admitted that he could not afford to pay the guarantee,” Mr. Dor said.

By that reckoning, whatever grievances the Cypriot people have toward the euro zone finance ministers might be better directed toward their own national leaders who have failed to protect their savings.

Article source: http://www.nytimes.com/2013/03/22/business/global/a-cyprexit-might-not-hurt-euro-zone-much.html?partner=rss&emc=rss

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News Analysis: In Europe, Focus Begins to Shift to Speed of a Recovery

December 30, 2012 by Leave a Comment

A year ago, many people seriously doubted whether the euro would still exist by now. On the threshold of 2013, the debate is more about how long it will take for the euro zone economy to recover and what must be changed to avoid future crises.

Europe still has plenty to worry about. Economic output is shrinking in nine of the 17 nations that use the euro. European banks remain weak, and many have yet to confront their problems decisively.

Many businesses in Spain, Italy and other distressed countries cannot obtain credit, hampering a recovery.

On top of that, with national elections coming in Italy in February and Germany in September, leaders there may be more focused on the narrow concerns of their voters than the cause of European unity.

“At the moment the crisis seems to have calmed down somewhat,” Jens Weidmann, president of the Bundesbank, the German central bank, said in an interview with the Frankfurter Allgemeine newspaper published on Sunday. “But the underlying causes have by no means been eliminated.”

But consider some of the doomsday situations that did not occur in 2012. Greece did not leave the euro zone or set off a financial disaster like the one sparked by the collapse of Lehman Brothers. Spanish and Italian bond yields, rather than succumbing to contagion from Greece, retreated from levels that had threatened their governments with bankruptcy. And nowhere did populist, anti-euro political parties gain the upper hand.

All of these things could still happen, but the probability of catastrophe has fallen substantially because of a fundamental change in the way that European leaders are dealing with the crisis.

Under its president, Mario Draghi, the European Central Bank has promised to buy the bonds of countries like Spain, if needed, to control their borrowing costs.

That vow, which cooled the crisis fever of late summer, bought time for elected officials to begin creating the superstructure needed to make the euro more credible, including a permanent fund for rescuing stricken member countries and a unified system for overseeing banks.

“In 2012, the euro area leaders finally got the diagnosis right,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. “It wasn’t about Greek debt or Irish banks. It was about some very fundamental design flaws that needed to be fixed. That’s what markets were looking for.”

Even though European political leaders seem to argue endlessly, they have made enough progress to keep speculators at bay. Investors surveyed by UBS recently ranked the chances of a breakup of the euro zone well behind the potential danger from a combination of spending cuts and tax increases scheduled to take effect in the United States next month or a hard landing by the Chinese economy.

“There is more of a perception that nobody is better off if this thing breaks up,” said Richard Barwell, senior European economist at Royal Bank of Scotland.

The question in 2013 will be whether a fragile calm in Europe holds long enough for economic growth to resume, for banks to rebuild their balance sheets and for leaders to make progress creating a more durable currency union.

Here are some of the main things to watch:

ECONOMIC PERFORMANCE The euro crisis, arguably, will be over the day that all of the stricken countries are generating economic growth. Ireland, one of the first countries to get into debt trouble back in 2008, might already have turned the corner. Its gross domestic product grew 0.2 percent in the third quarter from the period a year earlier.

Spain, Italy and Portugal are still deep in recession, and Greece is in a de facto depression. But there are some signs of progress in one crucial measure: trade balances. All of the distressed countries have increased exports this year and reduced trade deficits. That is a sign their products have become more competitive on world markets.

Article source: http://www.nytimes.com/2012/12/31/business/global/in-europe-debate-slowly-shifts-to-speed-of-a-recovery.html?partner=rss&emc=rss

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Merkel Urges Change to Fix Euro Crisis, Calls Effort a ‘Marathon’

December 2, 2011 by Leave a Comment

Mrs. Merkel was speaking to the German Parliament as Europe’s leaders prepare for yet another round of talks on the issue, which has roiled markets across the continent and forced the collapse of governments in Greece, Italy and elsewhere. Mrs. Merkel spoke in sober and serious tones, and her words drew sustained if not overly enthusiastic applause from lawmakers.

She advocated quick agreement on changes in treaties that would prevent overspending — an important contributor to the debt crisis threatening the euro’s future. But she also said “resolving the sovereign debt crisis is a process, and this process will take years.”

Marathon runners believe that their efforts become particularly difficult after the “35 kilometer mark,” she said, adding, “but they also say that you can get to the finish if you are conscious of the magnitude of the task from the very start.”

“The future of the euro is inseparable from European unity. The journey before us is long and will be anything but easy,” she said. “But I am convinced that we are on the right path. It is the right path to take to reach our common goal: a strong Germany in a strong European Union that will benefit the people in Germany, in Europe.”

Mrs. Merkel’s assessment of what was needed appeared to be well received by European financial markets, which had been strengthening this week anyway, partly on hope that European leaders would address the problem. The Stoxx 600 index, a broad barometer, rose 1.2 percent for the day and 9 percent for the week, its biggest gain in three years, Bloomberg News reported. The euro was trading at $1.348 , vs. $1.346 on Thursday.

Mrs. Merkel mixed her sober appraisal of the challenge with some words of encouragement, sounding like the European stateswoman her position as the leader of the largest economy in the bloc makes her, and not just the German chancellor. She touched on the sacrifices made in Spain, Portugal and “above all in Greece” and as such their contributions to the stability of the euro.

“We are not only talking about a stability union, but we are beginning to create it,” she said. “We in Europe have already come extremely far.”

Later on Friday, President Nicolas Sarkozy of France met in Paris with British Prime Minister David Cameron — whose country is not part of the single currency but belongs to the European Union and whose economy is heavily dependent on continental trade.

“We need the euro zone to resolve their crisis. We need the countries of the euro to stand behind their currency,” George Osborne, Britain’s chancellor of the Exchequer, said shortly before Mr. Cameron traveled to Paris. “We do need the countries of the euro to work more closely together to sort out their problems.”

“Britain doesn’t want to be a part of that integration — we’ve got our own national interests — but it is in our economic interest that they do sort themselves out. The biggest boost that could happen to the British economy this autumn would be a resolution of the euro crisis,” Mr. Osborne said.

Mr. Cameron’s discussions in Paris came in advance of talks between Mr. Sarkozy and Mrs. Merkel on Monday to be followed by a summit of European leaders in a week’s time.

Mrs. Merkel’s speech came after Mr. Sarkozy said on Thursday night that Europe could be “swept away” by the euro crisis if it does not change. He said that Europe would “have to make crucial choices in the next few weeks,” and that France and Germany together were supporting a new treaty to tighten fiscal discipline and promote economic convergence in the euro zone.

The European Union needs “an overhaul,” Mr. Sarkozy said, to remain relevant and competitive, but he was vague about the details of what needs to be done.

“If Europe does not change quickly enough, global history will be written without Europe,” he said. “Europe needs more solidarity, and that means more discipline.”

On Friday, Mrs. Merkel again appealed for a strengthening of fiscal cooperation across the euro zone in what she called a “union of stability” able to enforce controls on individual European economies.

“Where we today have agreements, we need in the future to have legally binding regulations,” she said.

Mrs. Merkel said it was time to fix the “mistakes of construction” in the euro zone. “We must strengthen the foundations of the economic and monetary union in a sustainable way.”

Evoking the spirit of German leaders past, from Konrad Adenauer to Helmut Kohl, Mrs. Merkel said Germany wanted to “avoid divisions” by creating a two-speed Europe split between those inside the euro zone and those outside it.

She again ruled out so-called euro bonds backed by all 17 members of the existing currency union, which embraces many different levels of economic strength ranging from struggling Greece to the export-driven German economy which is seen as the powerhouse of Europe. She called the idea of euro bonds “unthinkable.”

Germany, she said, did not wish to dominate Europe. “That is far-fetched,” she said.

“Germany and European unity are two sides of the same coin,” she said. “That is something we will never forget.”

Frank-Walter Steinmeier, parliamentary leader of the opposition Social Democrats, accused Mrs. Merkel of “talking past the heart of the matter” and said her “tactical approach was not making things stable.”

But Rainer Brüderle, the head of the parliamentary group of Mrs. Merkel’s junior coalition partner, the Free Democrats, offered an important token of support, saying Mrs. Merkel was “fighting for the future of Europe and we stand behind her.”

Nicholas Kulish reported from Berlin, and Alan Cowell from London. Steven Erlanger contributed reporting from Paris, and Victor Homola from Berlin.

Article source: http://www.nytimes.com/2011/12/03/world/europe/angela-merkel-germany-speech-euro-zone-debt-crisis.html?partner=rss&emc=rss

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Resignation at European Central Bank Reveals Split

September 10, 2011 by Leave a Comment

Stock markets swooned in Europe and the euro fell against the dollar after the bank announced the resignation of Jürgen Stark, a German who is the central bank’s de facto chief economist and also a member of its policy-setting governing council, and the sell-off continued in the United States, with the major indexes all falling more than 2 percent.

Although the central bank said that Mr. Stark was leaving for personal reasons, the impression was that Mr. Stark’s departure was connected to his well-known opposition to the bank’s buying of government bonds to ease pressure on countries like Greece, Italy and Spain.

Mr. Stark’s resignation, nearly three years before his term was up, is widely viewed as another fissure in the edifice of European unity, which has suffered as wealthier countries like Germany have been asked to underwrite poor performers like Greece.

“It’s a very bad sign,” said Daniel Gros, director of the Center for European Policy Studies in Brussels. “It means that the split within the E.C.B. that we thought was far down the road is here now.

“It puts a shadow over the E.C.B. and risks financial markets asking, ‘How long can they go on buying these Italian bonds?’ This indicates that the answer is, ‘Not as long as I had thought.’ ”

The government debt crisis among the 17-nation euro union’s weaker members continues to weigh on markets, and any sign of a deepening in the rift between rich and poor countries could further spook investors.

There is a chance that Mr. Stark’s departure could give the central bank a freer hand. Mr. Stark was an inflation hard-liner very much in the German tradition, and his dissent created an impression that the bank suffered internal divisions. Mr. Stark declined a request for comment.

But if, as expected, a German replaces him, that new member of the bank board is very likely to be as mindful as Mr. Stark of the fierce opposition that the bank’s policy has generated in Germany.

Germany’s finance minister declined to comment on reports that his country would recommend Jörg Asmussen, a deputy finance minister, to replace Mr. Stark, who was the only German on the six-member executive board. Mr. Asmussen has been a central figure in negotiations with other euro zone countries on how to deal with the sovereign debt crisis.

While Mr. Asmussen’s views on monetary policy are not well known, he comes from the same tradition of German economics as Mr. Stark — one that puts an emphasis on price stability and is skeptical of efforts to help countries that run up too much debt. So it is not clear if he would be any more receptive to the central bank’s bond buying than Mr. Stark has been.

When the Bundesbank, the German central bank, was Europe’s most powerful monetary authority before the advent of the euro union in 1999, it made controlling prices its mission. There are mounting concerns in Germany and elsewhere that the European Central Bank has overstepped its bounds in trying to fight the current crisis by acting as the buyer of last resort for Italian and Spanish bonds to prevent those countries from slipping closer to insolvency.

In a statement Friday, Kurt Lauk, president of the economic council for the Christian Democrats — the party of Chancellor Angela Merkel of Germany — called the resignation “a dramatic alarm bell for the fact that the E.C.B. must be led back to the right path.”

As the debt crisis continues, the future of the euro union has become increasingly uncertain. Lawmakers and citizens in countries like Germany, the Netherlands and Finland, which are known for fiscal responsibility, are watching events in Athens and Rome with growing skepticism and even alarm.

Mr. Stark had warned of rising danger from public spending in a column to be published Monday in the Handelsblatt newspaper, Reuters reported. “We are in a situation in which the massive sustainability risks in public sector budgets are undermining financial stability,” he wrote.

Jack Ewing reported from Frankfurt and Nicholas Kulish from Berlin. David Jolly contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=d53b6a5ec2a2a6f6fe97adc22410cfca

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Resignation at European Central Bank Hints at Split

September 9, 2011 by Leave a Comment

Jürgen Stark, a German who is the E.C.B.’s de facto chief economist and also a member of its policy-setting governing council, will leave his post as soon as a replacement is named, the bank said.

The E.C.B. said that Mr. Stark was leaving for personal reasons, but analysts speculated that his departure was connected to his well-known opposition to E.C.B. purchases of government bonds, which are part of an effort to ease investor pressure on countries like Greece and Italy.

If so, Mr. Stark’s resignation would be another fissure in the edifice of European unity, which has suffered as wealthier countries like Germany have been asked to underwrite poor performers like Greece.

“It’s a very bad sign,” said Daniel Gros, director of the Center for European Policy Studies in Brussels. “It means that the split within the E.C.B. that we thought was far down the road is here now.

“It puts a shadow over the E.C.B. and risks financial markets asking, ‘How long can they go on buying these Italian bonds?’ This indicates that the answer is, ‘Not as long as I had thought.’ ”

Stock markets in Europe and the United States extended their losses as rumors that Mr. Stark would resign surfaced and then were confirmed by the bank. The euro also fell against the dollar. The sovereign debt crisis continues to weigh on markets and any sign of a deepening in the rift between rich and poor countries could further spook investors.

At the same time, Mr. Stark’s departure could give the E.C.B. a freer hand. Mr. Stark was an inflation hard-liner very much in the German tradition, and his dissent created an impression that the E.C.B. suffered internal divisions. Mr. Stark declined a request for comment.

Reuters reported that Germany would propose Jörg Asmussen, a deputy minister in the German Finance Ministry, to replace Mr. Stark, who is the only German on the executive board. Mr. Asmussen has been a central figure in negotiations with other euro zone countries on how to deal with the sovereign debt crisis.

Mr. Asmussen’s views on monetary policy are not well known, but he comes from the same tradition of German economics that puts an emphasis on price stability and is skeptical of efforts to help countries that run up too much debt. So it is not clear if he would be any more receptive to the bond buying.

Any German member of the E.C.B. board is likely to be mindful of the fierce opposition that bank policy has generated in Germany.

When the Bundesbank, the German central bank, was Europe’s most powerful monetary authority, it made controlling prices its mission. There are significant concerns by some in Europe that the E.C.B. has overstepped its bounds in trying to fight the crisis by acting as the buyer of last resort for Italian and Spanish bonds, efforts intended to hold down the borrowing costs for indebted governments and prevent them from slipping closer to insolvency.

In a statement, Kurt Lauk, president of the economic council for the Christian Democrats, the party of Chancellor Angela Merkel of Germany, called the resignation “a dramatic alarm bell for the fact that the E.C.B. must be led back to the right path.”

It was “an unmistakable signal that the E.C.B. must be freed from its role as supporter of incorrect political decisions,” he added.

“The hawks are all gone and now there’s nothing but doves,” said Frank Schäffler, a federal legislator and finance expert for the Free Democrats, the government’s junior coalition partner. “It’s also a clear sign that the internal tensions are much greater than has been publicly known.”

As the debt crisis continues, the future of the euro zone has come more and more into question. Lawmakers and citizens in countries like Germany, the Netherlands and Finland, which are known for fiscal responsibility, are watching events in Athens and Rome with increasing skepticism and even alarm.

Mr. Schäffler, who opposes bailouts for other debt-burdened European countries, said that it was time for Germany to find a way to stop the E.C.B. from purchasing bonds.

“All of the dams are breaking and there are no more red lines,” Mr. Schäffler said.

Nicholas Kulish reported from Berlin. David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2011/09/10/business/global/a-top-ecb-official-to-resign.html?partner=rss&emc=rss

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