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E.U. Data Shows Reduced Deficits but Higher Debt Burdens

April 22, 2013 by Leave a Comment

PARIS — An austerity push in Europe helped to reduce government budget deficits in 2012 for a fourth straight year, official data showed Monday, but debt burdens grew amid a recession that was expected to last through 2013.

Outlays exceeded revenue by 3.7 percent in the 17-nation euro zone, down from 4.2 percent in 2011, Eurostat, the E.U. statistical agency, reported from Luxembourg. For all 27 nations of the European Union, the government deficit fell to 4 percent from 4.4 percent.

Euro zone debt measured as a percentage of gross domestic product rose to 90.6 percent, from 87.3 percent in 2011. For the entire Union, debt rose to 85.3 percent of G.D.P. from 82.5 percent a year earlier.

Ben May, an economist in London with Capital Economics, noted that the numbers appeared impressive, comparing favorably with those of the United States and Britain, where government deficits last year exceeded 8 percent of G.D.P., and with Japan, where the deficit was more than 10 percent.

“But the fact that most economies’ deficits have fallen by less than expected and that the consolidation has coincided with deeper than anticipated recessions confirms that the costs have been large,” Mr. May wrote. And he noted that Germany, which last year posted a small budget surplus, accounted for about 60 percent of the improvement.

Austerity began in Europe when, after the credit bubble collapsed, speculative attacks began on the sovereign debt of euro members like Greece, Ireland, Portugal and Cyprus. Led by Germany, governments responded with a reaffirmed commitment to hold their deficits to a maximum of 3 percent of G.D.P, and debts to no more than 60 percent.

Fiscal “hawks” argue that deficit spending is merely a means of pushing the cost of politically unpopular action onto future generations. But austerity, whereby government spending is cut and taxes increased, reduces demand in the overall economy and drives up unemployment, at least in the short term.

If it causes recession, austerity may also make it harder to reach debt-reduction goals, since the denominator of the debt-to-G.D.P. ratio shrinks.

The euro zone economy contracted 0.3 percent in 2012, and economists expect another decline this year. While there was a general consensus in Europe about the need for tough budget-balancing measures, especially as Germany, amid election-year politics, was unwilling to consider alternative action, the tide may now have begun to turn given continuing economic weakness and a euro zone unemployment rate of 12 percent.

France’s deficit last year, at 4.8 percent of G.D.P., fell short of President François Hollande’s target of 4.5 percent. Spain posted a budget deficit of 10.6 percent, worse than the 10.2 percent the European Commission had forecast. Both countries face a struggle to meet their financial targets for 2013 amid the economic malaise, economists say.

Greece, the E.U. member most battered by the crisis, posted a deficit of 10 percent of G.D.P., up from 9.5 percent a year earlier. Its debt fell to 157 percent of G.D.P. from 170 percent after a bailout in which bondholders were forced to write off part of the value of their Greek holdings.

Article source: http://www.nytimes.com/2013/04/23/business/global/eu-data-shows-reduced-deficits-but-higher-debt-burdens.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Deal May Avert Default, but Some Ask, ‘Is That Good?’

August 1, 2011 by Leave a Comment

But will the sky really fall?

It is a question more people were asking as the nation’s cash dwindled and lawmakers remained stuck in gridlock before the framework of a settlement emerged late Saturday. President Obama and Congressional leaders were working Sunday to negotiate an 11th-hour deal, and then must hope it can pass in both chambers of Congress this week.

Most people would rather not risk finding out and are hoping lawmakers can turn the framework into a bill that would raise the debt ceiling. But in recent days there has been growing attention on a few economists and financiers who have been arguing that it would be all right to miss the deadline — and even, a few of them say, default on payments to the nation’s bondholders.

These economists and traders argue that lawmakers need to focus on the nation’s long-term financial health rather than its current bind. They point to historical examples involving local and national governments that defaulted on some obligations, and said the short-term pain that befell those places when they tried to borrow again eased over time.

In the case of the United States now, they say such short-term pain would be worth it if it helped lawmakers achieve a sweeping plan to finance the country’s future — including costly programs like Social Security — without running such a large deficit. A few on the fringe even say the country would be better off if it wiped its hands of some or all of its debt because it might mean future generations of workers will not have to see taxes go up as much as they are otherwise likely to do.

“We have an opportunity now to get ahead of this and we might not in a few years,” said Christopher Whalen, who writes the Institutional Risk Analyst newsletter. “If a democracy requires more time, then take more time. I don’t think a default is as big a deal as people say it is, because where do investors go?”

Indeed, most investors believe they have few safer places to park cash other than the Treasuries that the United States issues to borrow money. Recently, as lawmakers failed day after day to reach a deal, investors have piled into long-term Treasuries, paying more to purchase them and driving down the United States’ borrowing cost. That may be because of weak economic data that has thrust the prospect of stocks into question, but it also underscores the unique status Treasuries hold as a global safe haven and a currency in countless financial transactions each day.

No one really knows what would happen if the United States defaulted on its debt, and a default could come in many forms, including a late payment of interest, a renegotiation of the absolute level of debt or missed payments of some of the government’s other obligations, like payments to its vendors. The idea of some sort of default has been tossed around by big names on Wall Street and Washington, including by Stanley Druckenmiller, a private investor who spent many years working with the billionaire George Soros. In May, former president Bill Clinton reportedly said at a panel that “it might not be calamitous” if the country defaulted on its debt for a few days.

It is difficult to separate viable proposals from political posturing in the budget debate, and the warnings given on both sides may be exaggerated. There are no historical examples that could be considered directly comparable. Several Republican lawmakers have been urging their peers to take more time on the debt talks, saying doomsday is not imminent. The Obama administration, which months ago announced this Tuesday as the deadline, has vigorously disagreed. Historians still debate what would have happened in 2008 if there had not been a bailout for the banking system. Many in Washington and on Wall Street had argued there would have been a catastrophe back then if the government hadn’t intervened.

The question really is whether United States Treasuries, the country’s instrument of financial power, is something to be preserved at all costs, as most economists say, or if their status gives the country some leniency in the markets if lawmakers decide to temporarily default, for instance.

Julie Creswell contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=a92aa3df4baa0c55f99a9fa4ea86b980

Filed Under: Business News Tagged With: , ,

You’re the Boss: This Week in Small Business: A Union for Owners

June 27, 2011 by Leave a Comment

Dashboard

What’s affecting me, my clients and other small-business owners this week.

The Fed: Bernanke Reins It In

In his second ever press conference, Federal Reserve Chairman Ben S. Bernanke reins in growth forecasts and says QE2 will run its course. Agustino Fontevecchia says that the Fed chairman is clueless. Seeking Alpha’s Jeff Miller explains the superpowers of Ben Bernanke. Bob McTeer is happy QE2 is over: “QE2 comes to a formal end this month and just in the nick of time, too, since it’s been flooding the markets with newly printed money, making hyperinflation and a collapse of the dollar inevitable.” But Mark Sunshine is concerned that our slower money supply is sending us back into recession, and Mark Thoma explains how this could happen. Want to vent? Here’s how you can have dinner with President Obama.

The Data: Housing Still in the Basement

Oil prices tumble and new unemployment claims rise. Russell Investments’ state-of-the-economy dashboard has been updated. Vehicle traffic declined in April compared with the previous year. Commercial real estate prices are at a post-bubble low. Existing home sales and the Architecture Billing Index also fell. And Calculated Risk isn’t surprised: “Of course many qualified buyers bought last year — using the ill-considered home-buyer tax credit — and that pulled demand forward. The housing market is still paying the price for that policy mistake.” But housing starts (PDF) increased. First-quarter gross domestic product was revised up and durable goods orders improved.

The Economy: Deficit Reform Draws Closer?

A deficit reform bill gets closer, and then talks break down. Jonathan Bernstein advises us not to panic about the current budget negotiations. The president shows that he really does care about future generations. The Treasury secretary calls for tax increases. I’m calling for a special tax on the Harry Potter industry. A political writer says that corporate tax cuts don’t stimulate job growth. Looking at the top and bottom five states in terms of job growth, Brian Pittelko says, “nationally, the economy is expanding, but not every state is feeling that change.” Small-business lending shows signs of life. Andrew Sullivan says that a growing housing gap could be good news for the construction industry. Greece’s prime minister wins a vote of confidence. Bill Gross says our budget situation is worse than Greece’s. Fortune’s Nin-Hai Tseng reports that demand for loans is dropping at all banks, but the slowdown in small-business lending is hurting local banks.

Starting Up: You Say It’s Your Birthday

A person begs for financing for his iPhone start-up. A new company stores social media posts for background checks, and another venture has come up with an ultrasound alternative to N.F.C. A heavily hyped start-up fails to live up to its hype. A lawyer explains how to introduce a start-up and avoid landing in jail. Small-business coach Andy Hayes explains how much sacrifice it takes to start a small business: “I wish I could tell you how many of your children’s birthdays you’ll miss. I wish I could warn you about how much over-consumption of caffeine you’ll have, and how many nights you won’t sleep because you’re worried about paying your mortgage. I’d love to say that you’ll be breaking even within a year, or that in six years you’ll cash out as a millionaire.” New research from the small-business insurer Hiscox finds that 15 percent of start-ups were started as a result of layoffs. The venture capital industry laments the lack of public offerings.

Marketing: Be a Better Blogger

A blogger offers seven ways to revitalize your blog, including: “Use link clusters. This is where your analytics software comes in. When checking your figures, look out for posts which have attracted lots of traffic via a particular keyword (say, ‘social media tips’). Then, go back in your posts archive and edit previous posts so that they include a text link for ‘social media tips’ which links back to your original high-performing post.” Todd Wasserman reviews five creative location-based campaigns. A social customer-relations management newcomer, Nimble, releases a company-wide product. Geez, I guess advertising really can work.

Management: A Union for Small-Business Owners

Here’s how Facebook would work in real life. A poll of 625 women found that 75 percent of them would not marry a man who was unemployed. A fed-up entrepreneur starts a union for small-business owners. Diana Ransom explains why this week’s court victory for Wal-Mart is also a victory for small business. A working mom explains what it’s like to be a working mom: “Each and every day, I recognize the enormous responsibility that rests upon my shoulders to support my family. But I also recognize that nothing is as important as my mental health.” Sarah Needleman reports that a third of American workers are ready to quit. Russell Roberts says technology does not destroy jobs. Anita Woolley and Thomas Malone write in the Harvard Business Review that women make a team smarter.

Success Strategies: Go Overseas, Young Man

A customer relations guru, Paul Greenberg, says United Airlines could learn a lot from Marriott. A disgruntled customer writes a great letter to an airline. A few experts weigh in on whether franchising makes sense. A small-business owner, Norm Goldenberg, reflects on a half century spent in the pest control and lawn care industries. A new survey finds that nearly a quarter of American small and midsize companies are doing business overseas. Some believe that the National Football League lockout will hurt small businesses. Here are the five deadly sins of bad meetings.

Around the States: Go East, Californians

A Chamber of Commerce study identifies state-level economic development strategies that are working. The Greater Austin Chamber of Commerce is introducing an effort to create a downtown work space that could serve as a home base for entrepreneurs and early stage start-ups. A Silicon Valley doctor is making a big impact on the way health care is delivered. The United States Conference of Mayors predicts 3.5 percent growth in the second half of the year and that New York’s economy will be the 13th largest (PDF) in the world. California small businesses rise up against a proposed Internet tax while many companies are leaving the state.

Technology: Putting a Fork in RIM?

A popular mobile application invades Chicago. The F.B.I. seizes a few servers, causing sites to go down. Verizon Wireless will join its competitors ATT and T-Mobile next month in eliminating the option for customers to consume unlimited data on their mobile phones without paying additional fees. Microsoft is introducing Office 365 on June 28. Box.net and Google Docs join forces against it. Google goes after Skype. Uh-oh: RIM begins “cost-optimizing” its employees, and John Biggs says RIM is done. People are spending more time with their mobile apps than on the Internet. New research says that small- and medium-sized business technology spending is trending up. A hardcore laptop is introduced. Robert Scoble predicts that Android tables will make huge gains this year. Internet addresses are now whatever you want. The Internet reunites a long-lost camera with its owner. A girl tries to solve global warming.

Red Tape Update: A New Twist in Health Care

The Chamber of Commerce goes after President Obama’s regulations. A tax holiday proposal may not offer much to celebrate. The I.R.S. increases (PDF) the mileage rate through year end. Ezra Klein says that Medicare is much more efficient than we think. Number crunchers find a health care twist that could let several million middle-class people get nearly free insurance. The House G.O.P. nears a patent reform bill.

The Week Ahead: Lots of Consumer Data

Monday’s data will include personal spending and income. Tuesday and Friday will bring two sets of consumer confidence numbers. Friday will reveal this past month’s vehicle sales. And did you know Thursday is the 58th anniversary of the Corvette?

This Week’s Bests

Advice for Getting Market Share Marketer Walter Dailey shares a few lessons. For example: “Seek Out Your ‘Average Customer.’ Every business has an average customer – a person that consistently spends around the same amount and appears at your doorstep like clockwork. In order for you to grow, you must market to people that represent this particular customer. Why? You’re most likely to already have the infrastructure and know-how to be successful with this kind of customer. Growing your share will be a matter of duplicating your existing success, rather than reinventing the wheel in order to cater to an atypical client.”

Reason to Barter Barbara Taylor explains why she loves barter: “While my husband and I feel lucky to still be in business (I, too, am Staying Alive), we have had to regroup and find new ways to bolster our bottom line, which is how I came to have not one or two but three barter arrangements in place at my firm.”

Spin on the World Economy Simon Hunt thinks the United States may have much to gain from a world recession: “Within a decade, the U.S.A. could supplant China as the manufacturing hub of the world … big changes will be needed in Washington for this historic development to occur. The changes will not just be on the fiscal side, but the need to offer businesses the right incentives to produce in the U.S.A. rather than abroad, the permitting procedures to allow the development of the country’s resources, including oil (the U.S.A. could become self-contained), making government less intrusive in households and businesses and so on.”

This Week’s Question What economic metric do you watch for your business?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://feeds.nytimes.com/click.phdo?i=bb357eef507e3fd8677bd36bf6c12344

Filed Under: Small Business Tagged With: , ,