May 26, 2017

Canadian Steps In to Lead Bank of England

It was Mark J. Carney, who was then the more or less anonymous head of Canada’s central bank. An increasingly influential, if not discreet, troubleshooter on global financial matters, Mr. Carney had become an active participant at Downing Street’s crisis huddles in late 2008. He argued that giant entities like Royal Bank of Scotland posed a danger not only to their home country but the financial system as a whole.

Mr. Carney’s advice was to consider the institutions those banks were borrowing from and lending to, recalled Alistair Darling, who was the British chancellor of the Exchequer, or finance minister, at the time. “It gave us a bigger picture that the supervisory authorities did not have at the time,” Mr. Darling said.

Britain would later become the first major country to inject capital directly into its ailing banks. And while full credit for the decision goes to Mr. Darling and the prime minister at the time, Gordon Brown, Mr. Carney played a crucial role.

On Monday, Mr. Carney, 48, will no longer be an adviser but the man in charge. He is to step into the Bank of England’s palatial home on Threadneedle Street to take on one of the biggest roles in the future of Britain’s economy and banking sector.

Mr. Carney, who is Canadian, is succeeding Mervyn A. King as the governor of the Bank of England and is hailed as the first non-British governor in the bank’s 319-year history. But as Mr. Carney prepares to take on his new role some question if the task at hand may be beyond him, or any central banker, for that matter.

Sluggish demand for goods from the troubled euro zone, Britain’s largest export market, is keeping many companies from investing in new machinery or hiring staff. And the austerity measures prescribed by the current chancellor, George Osborne — which are likely to continue through 2018, much longer than initially planned — have squeezed disposable income as consumer prices keep rising. At the beginning of the year, Britain barely avoided a triple-dip recession.

“We’re not exporting enough and not consuming enough, and monetary policy alone can’t fix that,” said Robert Wood, an economist at Berenberg Bank. “Mr. Carney has been built up as Superman, but clearly there’s no way he can live up to the hype,” Mr. Wood said. “He can’t single-handedly rescue the economy.”

Mr. Carney declined an interview request.

Young and dynamic — he was a goalie on Harvard University’s varsity hockey team — Mr. Carney brings with him attributes not usually found among the dowdy breed of central bankers. While Mr. King once said his ambition was for monetary policy to be boring, Mr. Carney has been overheard using phrases like “monetary activism” and “escape velocity.”

An ability to make himself seem indispensable lies at the root of Mr. Carney’s extraordinary rise, accomplished in just under 10 years, from a position as a midlevel investment banker at Goldman Sachs to the top of the Bank of England.

It was not until March 2008, when Mr. Carney became the first central banker to aggressively lower interest rates in his country, that his current reputation as the Superman of central bankers began to take form. He then pledged to keep rates low for a year — at 0.25 percent — providing some certainty to borrowers in the chaos of the financial crisis.

For Mr. Osborne, it was that combination of style and substance that made Mr. Carney “simply the best, most experienced and most qualified person in the world” to lead the Bank of England. So eager was Mr. Osborne to hire Mr. Carney, who has a doctorate from the University of Oxford, that he chased him across continents to ask him more than once and to promise by far the highest pay package of any central banker in the world — £480,000, or $730,000, in salary, plus a generous housing allowance.

Under Mr. King, the Bank of England injected money into the economy by buying £375 billion in assets, mainly government bonds. To get banks to lend again, the central bank started to offer cheap credit to banks, but that stimulus move had little result. Mr. King, arguing that more needs to be done to revive growth, has been voting for more asset purchases on the monetary policy committee but has been outvoted every month since February.

Article source: http://www.nytimes.com/2013/07/01/business/global/01iht-carney01.html?partner=rss&emc=rss

Europe Agrees on New Banking Rules

Instead of putting those losses on states, and taxpayers, the new system specifies the order in which banks’ investors and creditors, and then their uninsured depositors, will face losses.

“For the first time we agreed on a significant bail-in to shield taxpayers, to break the vicious circle of sovereigns and banks, and to induce banks to behave more responsibly,” Jeroen Dijsselbloem, the Dutch finance minister, said in a statement.

Margrethe Vestager, the Danish economics minister, reinforced the agreement on Twitter, writing that there was a “general political agreement” on “crisis management of banks.”

The agreement to “bail in” rather than bail out failing banks represented a revolution in the way that the European Union addresses the kinds of crises that have in recent years crippled places like Cyprus and Ireland and threatened to sink the euro.

The breakthrough allows leaders of the European Union’s 27 member states to endorse the deal at a summit meeting, which begins Thursday afternoon and is their last scheduled meeting before the summer hiatus.

The deal also avoids another impasse that would have reinforced the growing sense that Europe’s economic project has become unmanageable, even as the bloc is about to expand to 28 countries with the admission of Croatia next Monday.

It was the second time in the space of a week that ministers held a marathon, late-night meeting to reach a deal to curtail recourse to public money for bank rescues.

At the previous session last week in Luxembourg, ministers were divided sharply over how, and whether, to give countries discretion to protect certain classes of creditors. France, Britain and Sweden favored such flexibility.

But Germany and the Netherlands were wary of giving governments such wide discretion, fearing that it could induce risky behavior if bankers were overly confident of relying on mechanisms like national bailout funds to come to their rescue.

Germany was also wary of endorsing new rules that could eventually mean the use of shared European funds before national elections in September.

The banking effort by the ministers was aimed at curtailing the so-called doom loop, in which struggling governments take their states deeper into debt to shore up their banking systems. The initiatives under discussion could become important building blocks for the banking union, including establishing a single supervisor to oversee about 150 of the bloc’s largest lenders.

The uncertainty over the outcome — and the failure by leaders to live up to their stated commitment to agree on ways to further integrate the management of their economies — had been clouding the agenda for the meeting, which begins later on Thursday. Herman Van Rompuy, the president of the European Council, who sets the agendas for meetings of the bloc’s leaders, said on Wednesday that he planned to focus much of the attention on curbing high youth unemployment. Unemployment is more than 12 percent across the euro area, while youth unemployment is close to 60 percent in Spain and Greece.

During their meeting, the leaders are expected to discuss spending 6 billion euros, or $7.9 billion, over the next two years to fight youth joblessness, instead of over a seven-year period, according to a draft copy of the leaders’ conclusions. That money would help pay for what is described as a youth guarantee, which ensures that people under age 25 who lose their jobs, or do not find work after leaving school, get more education or training within four months.

Leaders, though, must reach a final deal with the European Parliament on the seven-year budget that is supposed to be source of that money. Even then, analysts say, they are skeptical about the leaders’ ability to significantly change the arc of youth joblessness during their two-day session in Brussels. In a bleak assessment, Marie Diron, a senior economic adviser at Ernst Young, forecast that euro area unemployment would peak at 20.5 million during the first quarter of next year, up from the current level of 19.4 million.

In Europe, “there is probably little that can be done that would significantly reduce youth unemployment in the short-term,” Ms. Diron wrote in a research note. The best medicine would be “better and wider use of apprenticeships” and “encouraging labor mobility between countries,” she wrote.

Article source: http://www.nytimes.com/2013/06/27/business/global/europe-agrees-on-new-banking-rules.html?partner=rss&emc=rss

Unable to Reach Deal, Europe Plans New Talks on Bank Rescues

“We ran out of time,” Michael Noonan, the Irish finance minister, told reporters as he left the meeting here. “There are still core issues outstanding, so we’ll need a full meeting next week, and there’s no guarantee it will reach conclusion.”

Diplomats said the next attempt to reach a deal was scheduled for Wednesday — a day before the leaders of the European Union’s 27 member states gather for a summit Brussels, their last scheduled meeting before the summer. The leaders had been expected to endorse the finance ministers’ decision.

The failure to reach a deal could further unsettle investors who were already jittery about the lingering recession in the euro zone, turbulence on global markets, renewed political instability in Greece, and hints that Cypriot leaders were balking at their bailout agreement. 

The marathon effort, involving 18 hours of talks beginning Friday morning, was aimed at breaking the so-called doom loop, in which struggling governments take their states deeper into debt to save their banking systems, only to face sky-high sovereign borrowing costs.

The rules would specify the order in which investors and creditors have to absorb losses so taxpayers do not have to bear the burden.

A deal could also help prevent a recurrence of the chaos that ensued during a bailout for Cyprus in March, when governments and international lenders argued over how to impose losses on investors in the country’s troubled banks.

The tools would become important building blocks in the future for a possible banking union, which includes a single supervisor under the European Central Bank overseeing about 150 of the bloc’s largest lenders. It is supposed to go into force in the middle of next year.

A day earlier, as part of the effort to address the banking issue, the 17 ministers from the euro area agreed to allow a rescue fund, the European Stability Mechanism, or E.S.M., to pump money directly into failing banks during the second half of next year.

But on the second day of talks, as ministers from the 10 remaining non-euro countries in the European Union joined the meeting, there was a deadlock over how to stop disorderly bank bailouts from turning into national fiascos.

One of the most sensitive issues was a divide between countries using the euro, and those remaining outside the single currency, was where losses should fall when banks fail, said Mr. Noonan. “Those countries which aren’t in the euro need greater flexibility because they haven’t access” to the shared rescue fund.

France and Germany, which are both members of the euro group of countries, were also divided on that issue. France sought more leeway to access the shared European mechanism while Germany resisted, said diplomats who spoke on condition of anonymity.

The German stance, which was shared by the Dutch, underlined how some northern European countries want to ensure that bank bailouts remain a national responsibility as much as possible, and how they remain determined to resist creating a lender of last resort that could expose them to losses incurred by other parts of the bloc.

For much of the day, ministers were divided over how, and whether, to allow countries discretion to protect certain classes of creditors.

The worry among some countries like Britain was that automatic losses for some creditors could set off fears of losses at other institutions, which could start bank runs. But countries like Spain wanted to ensure that bank investors do not flee to more prosperous countries like Germany, where mechanisms for resolving bank problems might be better capitalized and could be used to shield creditors from losses.

A proposal put forward by the Irish delegation during the negotiations would have given countries the flexibility to choose where losses would fall, as long as 8 percent of a failing bank’s total liabilities were wiped out first.

But that proposal failed to gain sufficient traction. Sweden protested that the figure was too high. The Dutch and the Germans said the Irish figure was too low, and they complained it still could induce risky behavior if bankers were overly confident of relying on mechanisms like national bailout funds to come to their rescue.

Article source: http://www.nytimes.com/2013/06/22/business/global/lots-of-talk-but-little-agreement-on-how-europe-should-rescue-banks.html?partner=rss&emc=rss

Greek Tax Crackdown Yields Little Revenue

Politicians, business executives and bankers are being raked through the headlines or incarcerated in a white-collar crackdown as the Greek government goes after people suspected of tax dodging. Those under questioning include the former finance minister George Papaconstantinou, in a highly charged parliamentary investigation into his handling of a list of Greeks with foreign bank accounts.

“Why do you think they are catching all these people?” Mr. Papaconstantinou said in a recent interview, in the suffer-no-fools manner that defined his two years as finance minister until the current government took power last June. “Because we changed the laws to allow the government to do this.”

But those changed laws, and the populist pursuit of supposed deadbeat fat cats, have yielded little in additional tax revenue.

Tax evasion lies at the heart of the Greek financial collapse, which has resulted in international bailout loans exceeding 205 billion euros, or $266 billion, the size of Greece’s depressed economy. In fact, Greece’s international creditors have made revamping its notoriously lax tax system a primary condition for any additional bailout financing.

But even after an overhaul of Greece’s tax collection apparatus — and a politically charged campaign to pursue delinquents — government officials have collected only a tiny fraction of what is owed and potentially collectible.

Rather than capture a lot of extra money, the crusade seems mainly to have captured prominent quarry. The net cast by newly empowered prosecutors has snared the former mayor of Salonika, the leader of the Greek national statistical agency and several former cabinet members.

Lawyers and tax officials estimate that hundreds of people have been locked up in the last year, suspected of tax evasion. Under the new laws, someone who owes the government more than 10,000 euros in taxes can be arrested on the spot and given the choice between paying up or being put behind bars. While held, the suspect can wait as long as 18 months before the prosecutor decides on a formal charge.

Despite those efforts, of the estimated 13 billion euros that government officials say is owed by Greece’s 1,500 biggest tax debtors, only about 19 million euros has been collected in the last two and a half years.

Among the few to benefit from the crackdown have been criminal defense lawyers specializing in tax law. Among them is Michalis A. Dimitrakopoulos, who represents many of the top political and business figures under government investigation or behind bars. His clients include the daughter and the former wife of Akis Tsohatzopoulos, a former defense minister and Pasok party official, all of whom are on trial on charges of money laundering and taking kickbacks.

Mr. Dimitrakopoulos, who proudly shows visitors to his office a wall covered with framed clippings of his courtroom exploits, says business has never been better. But he also says he has clients with many billions of euros overseas who will never bring their money back to Greece as long as — as he contends — killers have better legal rights than tax offenders.

By any measure, that is hyperbole.

Legal specialists note, for example, that Mr. Papaconstantinou, the former finance minister, is awaiting the outcome of the parliamentary inquiry in his case from the comfort of his suburban Athens home. They say it is unlikely he will ever serve time.

Mr. Papaconstantinou declined to discuss the allegations against him: that he doctored the so-called Lagarde list, named for Christine Lagarde. Ms. Lagarde, now managing director of the International Monetary Fund, was the French finance minister in 2010 when she gave Mr. Papaconstantinou a computer disk containing the names of Greeks who had Swiss accounts with HSBC Bank. The file had been stolen by a French former employee of the bank and ended up in the hands of France’s government.

Article source: http://www.nytimes.com/2013/05/13/business/global/greek-tax-crackdown-yields-little-revenue.html?partner=rss&emc=rss

Slovenia Falls From Economic Grace, Struggling to Avert a Bailout

The rewards of success included an imposing mountainside retreat and frequent mention of his name as a possible future finance minister of this small, idyllic Alpine country.

Now, though, Mr. Kordez stands convicted of forgery and abuse of office for financial dealings as Merkur struggled under a mountain of debt.

“My mistake and the mistake of the banks was to vastly underestimate the risk,” Mr. Kordez, 56, said in a recent interview at his home near the picturesque town of Bled, with a view of Slovenia’s highest peak. He awaits a decision later this month on an appeal of his conviction, which could send him to prison for five years.

As fears grow that Slovenia could follow Cyprus and become the sixth euro zone country to seek a bailout, his rise and fall have come to symbolize the way easy and cheap credit, combined with Balkan-style crony capitalism and corporate mismanagement, fueled a banking crisis that has unhinged a country previously praised as a regional model of peaceful prosperity.

The recent bailout of Cyprus at a cost of €10 billion, or $13 billion, which included stringent conditions forcing losses on bank depositors, has focused minds in Ljubljana, the Slovenian capital. Slovenia’s struggling banking sector is saddled with about €6.8 billion worth of nonperforming loans, about one-fifth of the national economy. Slovenia is now in recession, and the gloom across the euro zone shows little sign of abating. A European Commission forecast released Friday said that France, Spain, Italy and the Netherlands — four of the five largest euro zone economies — will be in recession through 2013.

Last Thursday, Slovenia bought time by borrowing $3.5 billion on international markets. That was two days after Moody’s Investors Service cut the country’s credit rating to junk status, citing the banking turmoil and a deteriorating national balance sheet. Analysts said the bond sale would probably enable the government of the new prime minister, Alenka Bratusek, to stay afloat at least through the end of the year.

The Cypriot debacle has shown how bailing out even a small country can damage the credibility of the euro currency union. But Slovenia, with two million people, insists that it is not Cyprus and will not seek emergency aid.

“For the time being, I have a sound sleep,” Ms. Bratusek, the 42-year-old prime minister, said in a recent interview.

This week, on Thursday, Ms. Bratusek, only a little more than a month in office, is expected to present a financial turnaround plan to the European Commission, the executive arm of the European Union. She said that privatizing Slovenia’s largely state-owned banking sector was a priority, along with creating a “bad bank” to take over nonperforming loans.

Her government, she said, will also unveil plans by July to sell the country’s second-largest bank, Nova Kreditna Banka Maribor, along with two large state companies that she declined to specify. The sales could raise up to €2 billion, she said.

Ms. Bratusek, who once headed the state budget office at the Finance Ministry, said Slovenia’s government debt, which analysts say rose from about 54 percent of gross domestic product to around 64 percent with last week’s bond sale, still ranked at the lower end of that scale in the euro area.

But the 6 percent interest rate Slovenia offered on the 10-year bonds in last week’s debt sale, at a time when some euro zone countries are enjoying historically low borrowing costs — Germany’s equivalent bond is trading below 1.2 percent — might only add to the country’s financial problems.

Mujtaba Rahman, director of Europe at Eurasia Group, a political risk consulting firm, said the new financing could backfire if it lulled the government into laxity about making vital structural changes.

“The new financing was not a vote of confidence in the Slovenian government or in the economy, but rather reflects investors attracted by high bond yields,” Mr. Rahman said. “A bailout could still prove inevitable.”

What went wrong in Slovenia? The country, wedged between Italy, Austria, Hungary and Croatia, was considered the most promising among the 10 new European Union entrants when it joined in 2004. That was 13 years after it declared independence from Yugoslavia, avoiding a bloody Balkan war that had swept up other countries in the region.

Article source: http://www.nytimes.com/2013/05/06/business/global/06iht-slovenia06.html?partner=rss&emc=rss

In Europe, Growing Concern Slovenia Is Next to Need Bailout

The rewards of success included an imposing mountainside retreat and frequent mention of his name as a possible future finance minister of this small, idyllic Alpine country.

Now, though, Mr. Kordez stands convicted of forgery and abuse of office for financial dealings as Merkur struggled under a mountain of debt.

“My mistake and the mistake of the banks was to vastly underestimate the risk,” Mr. Kordez, 56, said in a recent interview at his home near the picturesque town of Bled, with a view of Slovenia’s highest peak. He awaits a decision later this month on an appeal of his conviction, which could send him to prison for five years.

As fears grow that Slovenia could follow Cyprus and become the sixth euro zone country to seek a bailout, his rise and fall have come to symbolize the way easy and cheap credit, combined with Balkan-style crony capitalism and corporate mismanagement, fueled a banking crisis that has unhinged a country previously praised as a regional model of peaceful prosperity.

The recent bailout of Cyprus at a cost of €10 billion, or $13 billion, which included stringent conditions forcing losses on bank depositors, has focused minds in Ljubljana, the Slovenian capital. Slovenia’s struggling banking sector is saddled with about €6.8 billion worth of nonperforming loans, about one-fifth of the national economy. Slovenia is now in recession, and the gloom across the euro zone shows little sign of abating. A European Commission forecast released Friday said that France, Spain, Italy and the Netherlands — four of the five largest euro zone economies — will be in recession through 2013.

Last Thursday, Slovenia bought time by borrowing $3.5 billion on international markets. That was two days after Moody’s Investors Service cut the country’s credit rating to junk status, citing the banking turmoil and a deteriorating national balance sheet. Analysts said the bond sale would probably enable the government of the new prime minister, Alenka Bratusek, to stay afloat at least through the end of the year.

The Cypriot debacle has shown how bailing out even a small country can damage the credibility of the euro currency union. But Slovenia, with two million people, insists that it is not Cyprus and will not seek emergency aid.

“For the time being, I have a sound sleep,” Ms. Bratusek, the 42-year-old prime minister, said in a recent interview.

This week, on Thursday, Ms. Bratusek, only a little more than a month in office, is expected to present a financial turnaround plan to the European Commission, the executive arm of the European Union. She said that privatizing Slovenia’s largely state-owned banking sector was a priority, along with creating a “bad bank” to take over nonperforming loans.

Her government, she said, will also unveil plans by July to sell the country’s second-largest bank, Nova Kreditna Banka Maribor, along with two large state companies that she declined to specify. The sales could raise up to €2 billion, she said.

Ms. Bratusek, who once headed the state budget office at the Finance Ministry, said Slovenia’s government debt, which analysts say rose from about 54 percent of gross domestic product to around 64 percent with last week’s bond sale, still ranked at the lower end of that scale in the euro area.

But the 6 percent interest rate Slovenia offered on the 10-year bonds in last week’s debt sale, at a time when some euro zone countries are enjoying historically low borrowing costs — Germany’s equivalent bond is trading below 1.2 percent — might only add to the country’s financial problems.

Mujtaba Rahman, director of Europe at Eurasia Group, a political risk consulting firm, said the new financing could backfire if it lulled the government into laxity about making vital structural changes.

“The new financing was not a vote of confidence in the Slovenian government or in the economy, but rather reflects investors attracted by high bond yields,” Mr. Rahman said. “A bailout could still prove inevitable.”

What went wrong in Slovenia? The country, wedged between Italy, Austria, Hungary and Croatia, was considered the most promising among the 10 new European Union entrants when it joined in 2004. That was 13 years after it declared independence from Yugoslavia, avoiding a bloody Balkan war that had swept up other countries in the region.

Article source: http://www.nytimes.com/2013/05/06/business/global/06iht-slovenia06.html?partner=rss&emc=rss

Afghan Government Faces Cash Crunch, I.M.F. Says

A confidential assessment of Afghan finances by the International Monetary Fund said the potentially severe cash crunch was caused by widespread tax evasion abetted by government officials, the increasing theft of customs revenues by provincial governors and softening economic growth.

The I.M.F. assessment, which has not been publicly released but was described by American and European diplomats who were recently briefed on its findings, estimated that Afghan revenue in the first quarter of the year was roughly 20 percent to 30 percent short of an informal target the fund had set for the government.

After a decade of steadily growing tax and customs revenue, the budget shortfall has caught Afghanistan’s international backers by surprise. Diplomats portrayed it as an unwelcome reminder that the Afghan government remains weak and corrupt — and years away from being able to pay its own expenses.

If the trend is not reversed, diplomats said, the Afghan government will be unable to pay salaries by midsummer, though Finance Minister Omar Zakhilwal disputed that assessment. He put the shortfall at no more than 20 percent.

No one here expects the Afghan government to actually run out of money. It is supposed to cover about 40 percent of its nonsecurity spending this year, projected to total roughly $5 billion, and it could raise money by cracking down on tax evaders or imposing new fees for services.

As a last resort, international donors could always fill the gap. They already pay nearly the entire cost of Afghanistan’s police force and army, and have agreed to cover roughly 60 percent of the government’s other spending this year.

For now, fear of instability still trumps the desire for good governance among Western donors, and aid commitments are likely to hold through the end of the NATO combat mission in 2014, diplomats said.

But the looming cash crunch comes at a delicate time. Kabul is negotiating a long-term security deal with the United States and is looking for other Western countries to make good on aid pledges that amount to tens of billions of dollars after 2014.

Smaller countries with little or no military commitment here are especially likely to reassess their aid spending at that point, diplomats said.

If Afghan officials “don’t have the confidence in their own country to find a way to pay for it themselves, than why should we?” said a European diplomat from one of those smaller countries. The diplomat and others spoke on the condition of anonymity to avoid angering Afghan officials.

For President Hamid Karzai, who has been pushing for greater control of Afghanistan’s affairs, the revenue problems strikes at a more fundamental issue: a country that cannot pay for itself is not its own master.

“Let us be honest,” Bernard Bajolet, the recently departed French ambassador, said at a farewell cocktail party. “Sovereignty won’t be effective as long as Afghanistan won’t be fully self-reliant financially.”

Afghanistan, to be sure, has made huge economic strides since 2001, and the signs of growing prosperity abound. Dozens of international flights a week arrive in Kabul, late-model cars crowd the congested streets of the capital, and cellphones have largely replaced the hand-held satellite phones that just over a decade ago were the sole way to make a call.

But the country will nonetheless need billions in financial aid through 2032 to cover its nonsecurity spending, never mind to pay for its army and police force, according to another I.M.F. review that was quietly released in February.

American and European officials rarely speak of horizons that long. The current aid pledges for nonsecurity spending, which are contingent on the Afghan government combating corruption, run only through 2016

— it is 2018 for security spending — with only vague assurances of what will come afterward.

   Alissa J. Rubin contributed reporting. 

Article source: http://www.nytimes.com/2013/05/03/world/asia/afghan-government-faces-cash-crunch-imf-says.html?partner=rss&emc=rss

I.M.F. Warns Against ‘3-Speed’ Recovery

This week, the I.M.F. released new economic forecasts lowering its estimates for global growth, while also citing dimished risks of a severe financial disruption in Europe or sharp fiscal policy adjustment in the United States.

Ms. Lagarde warned again of a ‘’three-speed’’ recovery, with developing nations growing apace, stronger advanced industrial economies like the United States healing and Europe continuing to suffer from insufficient demand and incomplete government policies.

‘’It’s not the healthiest recovery,’’ Ms. Lagarde said, but added, ‘’We’ve avoided the worst.’’

The news conference came shortly after news broke that a French court had ordered Ms. Lagarde to appear at a hearing regarding an inquiry during her time as finance minister in Paris.

Asked about the affair at the news conference, Ms. Lagarde said that she had known for years of the possibility that she would be interviewed by the investigative commission. ‘’There is nothing new under the sun,’’ Ms. Lagarde said, dismissing any concerns about the investigation.

Ms. Lagarde gave her blessing to recent actions taken by the Bank of Japan to help bolster growth. She also said the European Central Bank had more room to aid a recovery in Europe, where many countries are still undergoing economic contraction, unemployment continues to rise and the credit markets remain broken.

‘’Of all the major central banks in the world, the E.C.B. is the only one who clearly still has room to maneuver,’’ Ms. Lagarde said.

Asked if Spain needed more time for fiscal adjustment, Ms. Lagarde replied that it did. She said the country needed to put a budget-tightening plan in motion, but it need not be ‘’upfront, heavy duty’’ fiscal consolidation. “Spain needs more time and needs to be able to adjust,” Ms. Lagarde said.

At a separate news conference, Jim Yong Kim, the head of the World Bank, which focuses on economic development, laid out his grand vision for a ‘’two-pronged approach for a world free of poverty.’’

Dr. Kim has called for eradicating extreme poverty by 2030 and for fostering income growth for the bottom 40 percent in every country. ‘’For that second goal, we also mean sharing prosperity across generations, and that calls for bold action on climate change,’’ Dr. Kim said.

‘’Doing better on growth means doing even more of the kinds of reforms that have underpinned the strong developing-country growth of the past 15 years,’’ he said. ‘’That means eliminating bottlenecks; additional investment in infrastructure; and, to ensure that the poor participate in the benefits of growth, much greater investments in education and health care. As we move ahead, we also must address climate change with a plan that matches the scope of the problem.’’

Article source: http://www.nytimes.com/2013/04/19/business/economy/imf-warns-against-three-speed-recovery.html?partner=rss&emc=rss

German Lawmakers Back Cyprus Bailout

BERLIN — Germany’s lower house of Parliament approved the bailout package for Cyprus on Thursday, bringing to an end to months of debate in Berlin.

Wolfgang Schäuble, Germany’s finance minister, warned lawmakers ahead of the vote that despite its tiny size, Cyprus could still endanger the broader economy of the European Union if its troubles were ignored.

“We must prevent that the problems in Cyprus become problems for other countries,” Mr. Schäuble said. He added that if Cyprus were allowed to go bankrupt, there was a “significant risk” of contagion to Greece and other vulnerable countries in the euro zone.

As expected, a clear majority of 487 out of 602 lawmakers casting ballots voted in favor of the package, which includes €9 billion, or $11.7 billion, in contributions from European Union members. The International Monetary Fund is to contribute an additional €1 billion.

German law requires parliamentary approval of all financial assistance the country extends to other European Union members.

In a separate vote, the German lawmakers also approved seven-year extensions on loans previously granted to Ireland and Portugal.

Germans were further rattled by news last week that Cyprus would need to raise €13 billion — nearly twice the amount the government initially estimated only a month ago — to keep its debt and deficit from spinning out of control and to meet the terms of the bailout. German taxpayers worry they will be called upon to come up with even more money to aid Cyprus.

Germany had insisted in the bailout negotiations that Cyprus reduce the size of its banking industry, that the European contribution be limited in scope and that depositors and investors in Cypriot banks be forced to share the burden. On Thursday Mr. Schäuble underlined that the European contribution would not be expanded, or made directly available to the struggling Cypriot banks.

Compared with most of its European Union partners, Germany continues to achieve economic growth, even if it has been only slight lately. Officials in Berlin said this week that the export-driven economy and the country’s solid public finances would enable Germany to achieve a budget surplus in 2016 — a sharp contrast to the deficits projected for weaker members in the euro zone. Even by next year, Germany expects to have a balanced budget, according to the annual stability program it plans to submit to the European Commission.

On Thursday, Moody’s maintained Germany’s triple-A credit rating, praising its “advanced, diversified and highly competitive economy and its track record of stability-oriented macroeconomic policies.”

Many Germans have grown weary of providing financial support to their fellow Europeans. A report last week by the European Central Bank suggesting that some of the weaker countries have higher wealth per household than Germany stoked public anger, which Mr. Schäuble sought to ease on Thursday.

“In our country, where we do not feel the euro crisis is our daily life, we have to remember that the people in Ireland, Portugal, Spain and Greece are living through a difficult time,” he said. “There are no viable shortcuts on this path, but for those affected it is difficult.”

Article source: http://www.nytimes.com/2013/04/19/business/global/german-lawmakers-back-cyprus-bailout.html?partner=rss&emc=rss

South Korea Proposes $15.3 Billion Stimulus Budget

SEOUL — The South Korean government proposed a 17.3 trillion won stimulus Tuesday to revive slowing growth in the country.

The $15.3 billion effort would be the third-largest supplementary budget ever in South Korea. It would be exceeded, when measured as a proportion of gross domestic product, only by the efforts approved after the 1998 Asia financial crisis and the 2008 global financial turmoil.

The Ministry of Strategy and Finance said the budget would add 0.3 percentage point to growth this year and create 40,000 new jobs.

A ministry statement said the budget would be used to cover a shortfall in tax revenue, to aid small and medium-size companies and to lift the stagnant real estate market. It said it would submit the plan to Parliament on Thursday.

The ministry estimated a tax revenue shortfall of 6 trillion won because of the slower-than-expected economic recovery and another shortfall of 6 trillion won from delays in selling stakes in state-owned banks. The remaining 5.3 trillion won would be a net increase in the government’s budget.

In addition to the extra budget, which requires parliamentary approval, the ministry will use 2 trillion won in state funds that do not need to go through the assembly to stimulate the economy.

“The extra budget is aimed at finding growth momentum for South Korea’s economy,” the finance minister, Hyun Oh-seok, said in a news release.

The stimulus plan comes after a cut last month in the ministry’s forecast for South Korea’s economic growth this year. It said South Korea’s economy would expand 2.3 percent, instead of the 3 percent it had predicted earlier. The ministry said the slide in Japan’s yen had hurt exports and weakened weak consumer sentiment.

The Bank of Japan’s unprecedented monetary measures, which have driven down the yen’s value, are meant to help lift Japan’s economy out of years of deflation. But the weaker yen puts major South Korean exporters like Samsung Electronics and Hyundai Motor at a disadvantage against Japanese rivals like Sony and Toyota Motor.

The fiscal measures also come amid heightened tensions with North Korea. The increase in threats from the North has caused jitters in South Korea’s financial markets.

The stimulus plan underlines the government’s search for a quick fix to the economic slowdown. South Korea’s economy expanded 2 percent in 2012, the slowest rate in three years, because of weak global recovery and trade. The opposition, however, could use procedural tactics to slow parliamentary approval of the extra budget.

Despite the government’s calls for all-out efforts to help the economy, South Korea’s central bank has resisted lowering interest rates.

Last week, Bank of Korea kept its main interest rate unchanged at 2.75 percent for a sixth month. Governor Kim Choong-soo said the economy was on track for a slow recovery and monetary policy was “accommodative” enough to encourage borrowing and spending.

Article source: http://www.nytimes.com/2013/04/17/business/global/south-korea-proposes-15-3-billion-stimulus-budget.html?partner=rss&emc=rss