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Outcry Grows Against British Housing Plan

August 23, 2013 by

LONDON — Depending on where one stands in the debate on the rising cost of housing in Britain, Paul Thomas and Abigail Walker, first-time home buyers, are either part of the solution or part of the problem.

To buy a £248,000, or $386,000, two-bedroom house in Oxfordshire, west of London, Mr. Thomas, a 38-year-old electrician, and his 25-year-old partner, Ms. Walker, who works in an accounting office, are making use of a government program called Help to Buy. Through it, they are able to make a down payment of only 5 percent from their own funds, with the government giving them an interest-free loan to cover the other 20 percent of the deposit.

The government of Prime Minister David Cameron has cast the program as a way to stimulate the country’s sluggish economy by helping consumers — skeptics might refer to them as voters — buy homes they could not otherwise afford. But critics say it could lead to a housing bubble and a spate of problem loans on which the government could be left to make good.

Under Help to Buy, rolled out in March, the government either offers interest-free credit or guarantees part of the property loan. The resulting higher demand for homes is supposed to fuel construction and aid the economic recovery.

“Help to Buy is a dramatic intervention to get our housing market moving,” George Osborne, the chancellor of the Exchequer, told Parliament in presenting the plan. “That is a good use of this government’s fiscal credibility.”

But over the last month, the program has drawn a growing outcry from some lawmakers and economists, demanding an early end for Help to Buy. They note that the housing market has already been picking up and warn that the plan could create a housing bubble that would be likely to burst when the program expires in 2016, while driving price increases that will make homes even less affordable for many in the meantime.

As evidence, they cite a report this month by the government statistical office that indicated that house-price inflation had risen in June at annual rate of 3.1 percent, up from 2.9 percent in May, bringing prices to the highest level in five years.

Albert Edwards, an outspoken strategist at Société Générale in London, called the British plan “madness” and “truly moronic,” saying that “buyers need cheaper homes, not greater availability of debt to inflate house prices even further.”

Critics also question the wisdom of enabling people to get a mortgage with a down payment of as little as 5 percent of the home value at a time when lenders are under pressure from regulators to reduce the riskiness of loans.

It also means that Britain is increasing support to the housing sector just as the United States is seeking ways to reduce the government’s role and risk in the mortgage market. This month, President Barack Obama proposed winding down Fannie Mae and Freddie Mac, the two giant government-backed mortgage finance companies.

“We do not want what the U.S. has, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position,” Mervyn A. King told Sky News in an interview a month before he retired in July as the Bank of England governor.

The International Monetary Fund warned in May that Help to Buy would push up house prices if the government does not ensure that more houses are built. Fitch, the debt ratings agency, has raised similar concerns.

The plan as announced in March by Mr. Osborne came in two parts. The first piece, in place since April, is limited to the purchase of newly built homes. The government offers a five-year interest-free loan worth 20 percent of the home value to help pay the deposit. Mr. Thomas and Ms. Walker are getting help through that portion of the program.

The second and more controversial part of the plan, which is due to start in January, allows the buyers of any house to pay only 5 percent of the value of the home as a deposit. The government would then guarantee an additional 20 percent of the bank loan for any property worth as much as £600,000, effectively passing the risk from the lender to the government.

“Using the government’s balance sheet to back these higher loan-to-value mortgages will dramatically increase their availability,” Mr. Osborne said when he presented the plan to Parliament in March.

Mr. Thomas and Ms. Walker had recently moved in with Ms. Walker’s mother in Oxfordshire to save money for a deposit, which they said would have taken them 10 years to come up with on their own.

Article source: http://www.nytimes.com/2013/08/24/business/global/outcry-grows-against-british-housing-plan.html?partner=rss&emc=rss

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Weak Growth, but Britain Avoids Triple-Dip Recession

April 25, 2013 by Leave a Comment

Although the data were hardly robust, and were still subject to revision, for now the indication that Britain’s economy eked out growth of three-tenths of one percent in the first quarter relieved some of the pressure on architects of the country’s austerity drive.

A triple-dip recession would have been a psychological jolt to consumers and raised more questions about the government’s strict deficit-reduction program at a time when bad economic news has been piling up in Britain, and while policy makers all around Europe are starting to focus more on the need for growth.

Instead, although the economy has been broadly flat for the past 18 months, Britain’s chancellor of the exchequer, George Osborne, was able to argue on Thursday that there were reasons to be encouraged by the small uptick in the country’s gross domestic product.

The rise in G.D.P. was in comparison to the previous three-month period, when the economy contracted by the same amount, the Office for National Statistics said. Two consecutive quarters of contraction constitute a recession.

The British economy managed some growth despite continued weakness in the construction sector, which shrank by 2.5 percent, and despite cold weather early in the year that some analysts feared would hurt economic activity.

Anemic as the growth might be, they were slightly better than most analysts predicted.

“Today’s figures are an encouraging sign the economy is healing,” Mr. Osborne said in a statement. “Despite a tough economic backdrop, we are making progress.”

Analysts cautioned that estimates of the type published Thursday are often revised, as more data comes available, and so the final figures could be lower.

“While preliminary estimates of G.D.P. growth need to be treated with a degree of caution, the breakdown of this release, if taken at face value, is a welcome surprise,” James Ashley, Senior Economist, RBC Capital Markets wrote in a commentary Thursday.

Although a member of the European Union, Britain uses the pound and not the euro. That gives it the advantage of having a floating currency, which has dropped in value against the euro this year. While that has helped keep its exports relatively more competitive on global markets, Britain is still some way from having a convincing recovery.

The data also highlighted the extent to which the country remained dependent on its large service sector, despite government efforts to rebalance the economy and to promote manufacturing.

Business services and finance together account for around 29 percent of British G.D.P. They contributed 0.1 percent to the 0.6 percent increase from the services sector.

Mining and quarrying, though a smaller part of the overall economy, increased by 3.2 percent.

Construction was down 2.5 percent.

“Doubts about the British economy’s performance over the coming quarters will remain,” said Nawaz Ali, a market analyst covering Britain for Western Union Business Solutions.

“However, the positive figures end the triple-dip threat and will certainly ease pressure on the Bank of England to shift course on quantitative easing, which has been a big worry for currency investors.”

Quantitative easing refers to moves by the central bank to pump more money into the economy, mostly by buying up government debt on the open market. The Bank of England has pursued such a course, even if critics have said the amounts spent have had little stimulative effect.

But the bigger debate across Europe is about the wisdom of tough austerity policies of the sort Mr. Osborne has pursued, and whether they are trapping economies in a cycle of stagnant growth, reduced tax receipts and higher debt. This week, José Manuel Barroso, president of the European Commission, said Europe may have hit the political limit of austerity-driven policies because of growing public opposition.

Last week, the International Monetary Fund raised doubts about the pace of Mr. Osborne’s deficit-reduction strategy and Fitch became the second credit rating agency, after Moody’s, to downgrade Britain from its prized triple-A status.

Employment figures, which had been one of the rare spots of good news for Mr. Osborne, also turned sour, with a jump of 70,000 in joblessness in the three months to the end of February.

Mr. Osborne has already had to slow his deficit reduction plans. But the opposition Labour Party has been calling on the coalition government led by the Conservative prime minister, David Cameron, to go further and change course.

“These lackluster figures show our economy is only just back to where it was six months ago and continue the picture of flat-lining,” Ed Balls, Labour’s finance spokesman, said in a statement. “David Cameron and George Osborne have now given us the slowest recovery for over 100 years.”

Article source: http://www.nytimes.com/2013/04/26/business/global/britain-avoids-triple-dip-recession.html?partner=rss&emc=rss

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Scottish Independence Would Mean Loss of Pound, Osborne Warns

April 23, 2013 by Leave a Comment

LONDON — With the euro crisis still smoldering, currency unions have a pretty bad name in Europe right now. That raises an awkward question for supporters of independence for Scotland: Could Scots opt to leave Britain but keep their currency, the pound?

On Tuesday, the British chancellor of the Exchequer, George Osborne, said the answer was no and warned that Scotland would enter “unchartered waters” if it voted for independence next year. Drawing lessons from the euro zone’s continuing problems, Mr. Osborne added, London would be unlikely to agree to share the pound sterling with an independent nation that might pursue incompatible economic policies.

The pro-independence Scottish government accused him of scaremongering and published a study suggesting that sterling would continue to circulate in Scotland if the country votes yes to independence in a referendum planned for September 2014.

But the testy exchange illustrates the passions being stoked by the debate over Scotland’s future, and the extent to which economic, legal and constitutional questions remain unanswered.

Unhappily for supporters of Scottish independence, the argument is unfolding against the backdrop of recession or stagnation in the euro zone — one of the worst advertisements imaginable for the notion of a currency union.

Advocates of independence argue that if Scots vote yes next year, it would be in everyone’s interest to agree to an amicable divorce. Pragmatism will prevail and the terms under which Scotland stays within a British currency union will be quietly resolved, they say.

By contrast, opponents portray independence as a leap into the unknown. They point to the euro zone as a warning of what can go wrong if economies of differing sizes pursue divergent economic policies with a common currency.

The lesson of the euro crisis, they say, is that to keep the pound, an independent Scotland would need to adhere to rigid directives on taxation and spending, and to establish with the remainder of Britain joint structures like a banking union.

Yet doing so would negate the very point of independence, which is to bring economic decision-making from London to Edinburgh.

Wading into the controversy, Mr. Osborne argued Tuesday that a vote for independence would force Scots to confront a series of unpalatable options, including setting up their own currency, joining the euro zone, or using sterling as Panama uses the U.S. dollar.

“Let’s be clear,” Mr. Osborne told the BBC. “Abandoning current arrangements would represent a very deep dive indeed into uncharted waters.”

His comments followed the publication of a report by the Treasury in London that also warned that an independent Scotland would “have a narrower economic and fiscal base, and be exposed to a number of volatile sectors such as finance and energy (including North Sea oil and gas).”

A separate report, commissioned by the Scottish government, considered the options of keeping sterling, joining the euro, having a Scottish currency pegged to sterling, or having a currency that was fully flexible.

While it said that Scotland “could choose any of these options and be a successful independent country,” the report recommended retaining sterling as part of a formal monetary union.

The Scottish finance secretary, John Swinney, said the Treasury was “playing with fire” by deploying arguments that implied that Scotland would no longer be able to use sterling if it voted for independence.

Mr. Osborne’s comments and the Treasury report were the latest in a string of veiled warnings from London on the repercussions of Scottish independence.

In February, the British government released the text of a legal opinion holding that Scotland would have to renegotiate membership in the European Union and other international organizations if it voted for independence in a referendum next year.

Last month, the defense secretary, Philip Hammond, warned that an independent Scotland would be hard pressed to defend itself with its share of the Royal Navy: one frigate and a handful of aircraft.

Article source: http://www.nytimes.com/2013/04/24/business/global/scottish-independence-would-mean-loss-of-pound-osborne-warns.html?partner=rss&emc=rss

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Europe Rejects British Bid to Ease Plan to Curb Bank Bonuses

March 6, 2013 by Leave a Comment

The ministers, taking up rules provisionally approved last week by representatives of the European Parliament and member states, broadly agreed on Tuesday to cap bonuses at no more than the annual salary for bankers working in the 27-nation European Union and for those working for European-based banks worldwide. The ministers left the door open for further concessions that could permit some slightly higher bonuses.

The bonus caps, which are subject to formal approval by a majority of member states, among other steps, are aimed at reining in the risky, but potentially high-reward, behavior that contributed to the financial crisis.

British officials and bankers have warned that the limits could make it harder to keep London, Europe’s main financial hub, competitive with financial centers like New York, Singapore and Hong Kong.

During the ministers’ meeting here on Tuesday, George Osborne, the British chancellor of the Exchequer, told his colleagues that the measures could have the “perverse” effect of raising fixed salaries, making it harder to punish bankers for bad investments or ethical lapses by revoking their bonuses.

But facing almost certain defeat on the issue, Mr. Osborne struck a conciliatory tone, saying he would endorse the rules “if we make progress in the next couple of weeks.”

The rules are drafted to apply to a banker working in New York for a British bank like Barclays, and to a banker in London working for an American bank like Citigroup.

A bonus could not be higher unless the bank’s shareholders approved, and even then it could not exceed twice the salary.

British officials, speaking on condition of anonymity because they were not authorized to discuss the issue publicly, said their government would seek to raise the limits on some types of bonuses given in stocks or bonds that would vest in the future. But the legislation was expected to pass in close to its current form.

“It looks like the key points will hold,” said Philip Davies, a partner in London at Eversheds, an international law firm. He predicted that the bonus caps would put London’s financial district, known as the City, at a competitive disadvantage to banking hubs like Wall Street and Hong Kong.

“The long-term effect on the City remains to be seen.” he said. “But as it now stands, alternative jurisdictions that are able to offer more favorable terms look to have a significant recruitment edge.”

Banks are concerned about how the proposed caps would affect them, said several legal specialists who are advising banks based in the City. Some are even seeking legal advice as to whether the European officials are authorized to limit bonuses.

While no bank appears to be ready to take the issue to court, specialists say that will remain a possibility as long as questions about how the bonus caps will work remain unanswered.

When Michel Barnier, the European commissioner responsible for financial regulation, was asked whether he thought any legal challenge would succeed, he replied, “Good luck.”

Some financial institutions are looking at ways to devise compensation packages around long-term incentives that would allow bankers to receive sizable compensation despite any new controls. Yet advisers acknowledge that it would be difficult for leading banks to defend such moves, because of widespread public anger over the industry’s past excesses.

Mr. Osborne’s foes called the European Union’s rebuke a sign that the Conservative government led by Prime Minister David Cameron, which has called a referendum on Britain’s membership in the bloc, was increasingly unable to influence policy making in Europe.

“This government needs to take a crash course in finding friends and influencing E.U. partners,” said Arlene McCarthy, a member of Britain’s Labour Party in the European Parliament and a senior member of the chamber’s Economic and Monetary Affairs Committee.

Ms. McCarthy said she supported the caps as the only way to rein in bankers. But she complained that the Cameron government had failed to win more favorable terms for the City “because of a kind of arrogance” toward its partners in the European Union.

Ireland, which holds the rotating presidency of the bloc, helped broker talks on the bonus caps last week with legislators of the European Parliament. On Tuesday, Michael Noonan, the Irish finance minister, said, “Now there is very little further we can do for” Britain. “We pushed the negotiations to quite a degree, and we got the best possible compromise,” he said.

Mr. Osborne was in a bind over how forcefully to argue for changes. He was under acute pressure from members of the Conservative Party who favor a tough line against European rules that they consider at odds with British interests.

Adding to that pressure was a growing challenge from the United Kingdom Independence Party, which wants to pull Britain out of the European Union.

But supporting high pay for bankers angers significant sections of British voters, who are struggling in a weak economy. Many of them also resent the banking industry for receiving several giant bailouts paid for by taxpayers.

Mr. Osborne also needed to temper his criticism because the caps are part of a legislative package that included something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.

Mark Scott contributed reporting from London.

Article source: http://www.nytimes.com/2013/03/06/business/global/britain-isolated-as-european-colleagues-support-bonus-caps.html?partner=rss&emc=rss

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Britain Takes on Brussels in Fight Over Bank Pay

March 4, 2013 by Leave a Comment

BRUSSELS — The British finance minister, George Osborne, is expected Tuesday to urge his European Union counterparts to water down proposed rules restricting the size of bankers’ bonuses.

The proposal is a sore point for Britain, which is home to Europe’s main financial hub, and where many in government and the financial industry worry that mandated limit to bonuses could make it harder for London to compete in international banking circles.

A failure by Mr. Osborne to win concessions during a monthly meeting here on Tuesday of the European Union’s 27 finance ministers could fuel disenchantment with the Union among restive members of Britain’s ruling Conservative party. Prime Minister David Cameron has already called for a referendum on Britain’s membership in the Union.

Yet if Mr. Osborne pushes too hard against the bonus cap, his government risks criticism at home for succoring bankers. They are unpopular with large swaths of the British electorate for earning lavish salaries even as a prolonged economic downturn forces many households to scrimp. Many voters also resent the banking industry for receiving a series of giant bailouts paid for by taxpayers.

The meeting Tuesday will follow a Monday evening session by 17 of the same finance ministers, representatives of the euro currency union, who discussed but deferred action on a bailout request by Cyprus. That country is seeking about €17 billion, $22 billion, to shore up government finances and its banks, which were badly exposed to a debt write-down in Greece.

But for Britain, which is not a member of the euro zone, the banker bonus proposal is the main issue. The Cameron government considers the bonus cap “misguided and fear it could impact negatively on London without even combating the excessive risk-taking it was meant to address,” said Simon Tilford, chief economist at the Center for European Reform, a research organization based in London.

“But London is caught between a rock and a hard place, as there’s much popular antipathy toward the bankers,” Mr. Tilford said. The issue of banker remuneration “is pretty toxic stuff Britain,” he added.

Further undermining Britain’s position ahead of the meeting is the result of a referendum over the weekend in Switzerland, also known for its business-friendly climate but where voters approved tighter restrictions on executive compensation. That vote will give shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors.

The bonus cap legislation that concerns the British leadership cleared an important hurdle last week when representatives of E.U. governments and the European Parliament agreed that the coveted bonuses many bankers receive would be capped at no more than their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary.

The rules are drafted so that a banker working in New York for a British bank like Barclays would be subject to the rules, as would a banker in London working for a U.S. bank like Citigroup.

Another reason Mr. Osborne may be hesitant to oppose the bonus rules too vociferously is that they are part of a legislative package that includes something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.

Britain and Mr. Osborne have strongly backed the higher capital requirements as essential for preventing another financial crisis.

In any event, European Union diplomats said ministers were unlikely to formally approve the rules on Tuesday because details still needed to be nailed down. That could still give Britain weeks, or even months, to press for concessions.

There are also questions among some European countries about how strictly to apply parts of the legislation requiring banks to publish detailed information on profits, taxes and subsidies on a country-by-country basis across the globe.

In the case of the separate Cyprus bailout discussions Monday evening, euro zone finance ministers were taking up talks that stalled with the country’s previous, Communist-led government. That government was replaced late last month by a center-right administration, a change that has been welcomed in other European capitals.

Article source: http://www.nytimes.com/2013/03/05/business/global/05iht-euro05.html?partner=rss&emc=rss

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DealBook: Osborne Promises More Regulatory Power to Split Up British Banks

February 4, 2013 by Leave a Comment

Britain's chancellor of the Exchequer, George Osborne, spoke Monday in Bournemouth, southern England.Stefan Wermuth/ReutersBritain’s chancellor of the Exchequer, George Osborne, spoke on Monday in Bournemouth, on the south coast of England.

LONDON – British regulators will have the power to split up banks that fail to separate risky trading activity from retail banking, George Osborne, the country’s chancellor of the Exchequer, said on Monday.

As part of an overhaul over how the country’s banks operate, the British finance minister said regulators would be able to forcibly separate firms that failed to maintain a division between their retail banking and investment banking units.

The so-called ring-fencing of consumer deposits from risky trading activity is an effort to reduce the exposure to the wider British economy if one of the country’s largest banks goes bust.

Many of Britain’s largest banks have been engulfed in a series of scandals, and Mr. Osborne said the public was right to be angry over abuses in the country’s financial industry.

The spotlight is now focused on the Royal Bank of Scotland, which is expected to announce a settlement over the manipulation of a key benchmark rate as early as this week.

The bank, in which the government holds an 82 percent stake after providing a bailout, is said to be facing a fine of more than $650 million and a guilty plea against an Asian subsidiary related to the manipulation of the London interbank offered rate, or Libor.

Mr. Osborne said troubling behavior by those in Britain’s financial industry was unacceptable.

“Irresponsible behavior was rewarded, failure was bailed out, and the innocent – people who have nothing whatsoever to do with the banks – suffered,” Mr. Osborne said in a speech in Bournemouth, on the south coast of England.

During the recent financial crisis, a number of British banks, including the Lloyds Banking Group and Northern Rock, received multibillion-dollar bailouts after they ran into trouble because of exposure to risky assets.

To reaffirm the separation between retail and investment banking divisions, Mr. Osborne said on Monday that banks would have to appoint different senior managers to oversee each division. The new powers to forcibly split up banks are in response to fears that firms would try to find ways around dividing their retail and investment banking operations.

“No more rewards for failure. No more too big to fail. No more taxpayers forking out for the mistakes of others,” Mr. Osborne said.

Critics of the planned changes, however, say the separation of banks’ operations will make it harder for them to raise capital and provide financial support to British companies.

“This will create uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses,” Anthony Browne, chief executive of the British Bankers’ Association, a trade body criticized for its role in the Libor scandal, said in a statement.

The changes, which form part of new banking legislation being submitted to Parliament on Monday, mirror similar efforts in the United States and Europe to reduce the effect of banks’ risky trading operations on the broader economy. The so-called Volcker Rule, which forms part of the Dodd-Frank Act and would prohibit banks from making risky bets with their money, is also nearing regulatory approval in the United States.

In Britain, authorities are going a step further by dividing the Financial Services Authority, the country’s financial regulator, into two separate units, as part of the widespread reforms.

In April, oversight of the country’s banks will be returned to the Bank of England, the central bank, while a new consumer protection agency will monitor market abuse.

The changes come after a series of recent settlements by British banks over illegal activity.

HSBC and Standard Chartered have agreed to pay a combined fine of more than $2 billion to American authorities related to money laundering allegations. Barclays reached a $450 million settlement with United States and British regulators in June related to the manipulation of Libor. And, in total, many of Britain’s largest banks have been required to pay billions of dollars of penalties after inappropriately selling loan insurance to customers.

“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system,” Mr. Osborne said on Monday.

Article source: http://dealbook.nytimes.com/2013/02/04/osborne-promises-more-regulatory-power-to-split-up-big-banks/?partner=rss&emc=rss

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Europe’s Leaders Get Testy as Crucial Summit Nears

October 26, 2011 by Leave a Comment

On Sunday, when the 27 leaders had their first round of deliberations, emotions ran high and some tough exchanges soon leaked out to the news media, designed as ever to make individual leaders look smarter, more intelligent or more courageous than the others.

For all the talk of European solidarity, these summit meetings tend to be covered — and briefed by officials — as boxing matches, with every national delegation trying to show its boss as the champion of national interests against the collective horde.

Prime Minister David Cameron of Britain tried that on Sunday, insisting that there be a full summit meeting of all 27 members of the European Union on Wednesday, as well as a meeting of the 17 nations in the euro zone. Facing an internal party revolt, he means to protect Britain’s interests, he said, in case the euro zone countries get ahead of themselves and do damage to the single market that is one of the European Union’s greatest strengths.

But President Nicolas Sarkozy of France turned on him, fed up with criticism of the euro crisis from Mr. Cameron and especially from George Osborne, the young British chancellor of the exchequer, or treasury minister.

“You’ve lost a good opportunity to shut up,” Mr. Sarkozy told Mr. Cameron, the same phrase his predecessor, Jacques Chirac, once used about his Polish counterpart. “We’re sick of you criticizing us and telling us what to do. You say you hate the euro, and now you want to interfere in our meetings.”

This exchange was leaked by British diplomats and officials, but French officials did not deny the essence of it. Mr. Sarkozy, they confirmed, is not a great fan of kibitzing from outside the euro zone (Britain is not a member). Mr. Sarkozy barked at a French journalist, too, saying essentially that comment is cheap and governing is hard.

Mr. Sarkozy and the German chancellor, Angela Merkel, are compelled to work together, but find each other difficult and even odd. She has been known to make fun of the way he gestures and walks, comparing him to the old French comic Louis de Funès, with his wavy hair and prominent nose. He has been known to call her “La Boche,” an offensive French version of “Kraut,” and mocks what he sees as her matronly caution.

But their relationship is said to have improved of late, and Sunday evening there were “informal” photos of the two of them as he opened her present, a Steiff teddy bear, for his newborn daughter, Giulia.

The “Franco-German couple” ganged up on the Italian prime minister, Silvio Berlusconi. They criticized him for not following through on his promises of economic and governmental restructuring, saying Italy’s failure to move quickly was putting not just Italy but also the euro at risk.

The whole point of beefing up a new bailout fund, the European Financial Stability Facility, was to be able to protect Italy from bond speculators, but Italy had to act too, they told him, officials said. Mr. Berlusconi pretended to fall asleep at one point, officials said, and afterward said he had never been held back a year at school.

Even in public, at a news conference, Mrs. Merkel lectured Italy about making “credible” reductions in its huge debt — 120 percent of its gross domestic product. And Mr. Sarkozy, when asked if he had confidence in Mr. Berlusconi, said only that he had confidence in the whole of Italian society — “political, financial, economic.”

Part of Mr. Sarkozy’s annoyance is not just economic, but stems also from a sense of betrayal. The new head of the European Central Bank is to be Mario Draghi, an Italian who replaces a Frenchman, Jean-Claude Trichet, in part because the obvious German candidate quit the bank in disgust over its supposedly overly liberal credit policies.

In return for supporting Mr. Draghi, Mr. Sarkozy got Mr. Berlusconi to agree to move another Italian, Lorenzo Bini Smaghi, from the bank’s executive board to make room for a French banker. Mr. Bini Smaghi said he would quit only if he replaced Mr. Draghi as head of Italy’s Central Bank. But in the end, Mr. Berlusconi felt compelled by domestic politics to give that job to another person, so Mr. Bini Smaghi remains where he is and Paris has no one on the board, a political humiliation for Mr. Sarkozy.

Article source: http://www.nytimes.com/2011/10/26/world/europe/europes-leaders-testy-as-summit-nears.html?partner=rss&emc=rss

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Meetings on European Debt Crisis End in Debate, but Little Progress

September 17, 2011 by Leave a Comment

The meetings were highlighted by the appearance by Timothy F. Geithner, the United States treasury secretary, whose advice, and warnings, drew a tepid reaction from the euro zone’s finance ministers. And Mr. Geithner’s rejection Friday of a European idea for a global tax on financial transactions prompted a debate about whether Europe should go ahead on its own.

Meanwhile, with an October deadline looming for international lenders to agree to the release of around 8 billion euros, or $11 billion, of aid to Greece, without which it could default on its debt, George Papandreou, the Greek prime minister, canceled a trip to the United States.

“The coming week is particularly critical for the implementation of the July 21 decisions in the euro area and the initiatives which the country must undertake,” Mr. Papandreou said in a statement on Saturday.

The attendance of an American official at Friday’s meeting was unusual, and Jacek Rostowski, the finance minister of Poland who invited Mr. Geithner, said it showed “unity within the transatlantic family.”

That glossed over the grumbling about Mr. Geithner’s comments from several European ministers Friday, including Maria Fekter of Austria, who publicly said she was unimpressed with Mr. Geithner’s contribution.

Yet the American plea for urgent decisions to shore up the euro zone was echoed Saturday by two European ministers whose nations have stayed outside the single currency.

“The euro zone leaders know that time is running out, that they need to deliver a solution to the uncertainty in the markets,” said George Osborne, Britain’s chancellor of the Exchequer, who told the BBC he wanted action over Greece and the “weakness” in Europe’s banking system.

“The problem is that the politicians seem to be behind the curve all the time,” added Anders Borg, Sweden’s finance minister. “We really need to see some more political leadership,” he said, citing a “clear need for bank recapitalization.”

Almost two months after a deal was struck on a second bailout of Greece, Finland is holding up its implementation by requesting collateral for new loans — a demand that has complicated the negotiations.

Meanwhile, the Greek government must still convince international lenders that it has done enough to justify the release of the next round of aid.

One European official, not authorized to speak publicly, said the ministers “seemed to come to no operational decisions at all.” The only positive news was an outline agreement on new laws to tighten the rulebook for the euro — though that was struck in Brussels.

Saturday’s meeting ended promptly around noon, allowing ministers to leave before a demonstration in Wroclaw against austerity measures in Europe.

But Mr. Geithner’s contribution continued to reverberate after his departure on Friday. Though there was no discussion of it in detail, his idea of increasing the firepower of the 440 billion euro ($608 billion) bailout fund through leverage — as the United States did in some programs in 2008 — prompted debate, but not consensus.

Some European countries consider such a financial transaction tax a way of ensuring that the financial sector contribute to ending the crisis, but others oppose it.

After Mr. Geithner’s comments, Belgium’s finance minister, Didier Reynders, called for Europeans to press ahead.

“I’m sure that if it’s impossible at the worldwide level, we’ll need to organize that in the E.U. and at least in the euro zone, but of course with a lower level of taxation in one jurisdiction than on the worldwide level,” he said.

Mr. Borg ruled out Swedish participation. “We have substantial experience in Sweden,” he said. “Basically most of our derivative and bond trading went to London during the years we had a financial transaction tax, so if you don’t get a solution that is universal, it is very likely to be detrimental for European financial markets.”

Article source: http://www.nytimes.com/2011/09/18/business/global/meetings-on-european-debt-crisis-end-in-debate-but-little-progress.html?partner=rss&emc=rss

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