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Nigeria Rolls Back Gas Price After Protests

January 17, 2012 by Leave a Comment

Faced down by thousands of demonstrators, demands for his removal and a weeklong general strike that paralyzed his fractious country, President Goodluck Jonathan abruptly gave in, partly restoring the fuel subsidy that — more than an Islamic insurgency in the north or a long-running conflict in the south — seemed to crystallize the frustrations of the people and draw them to the streets in outrage.

“Government appreciates that the implementation of the deregulation policy would cause initial hardships,” Mr. Jonathan said in a stiffly worded capitulation on Monday, after a week of refusing to back down.

Similar scenes have played out around the world in recent years, from Latin America to the Middle East to Asia, and the government response is frequently the same: give in quickly, despite the counsel of economists and international financial institutions that fuel subsidies are wasteful and distorting, sapping governments of money that could otherwise be used to improve education, public health or other needs.

The Nigerian government spends about $8 billion a year on fuel subsidies, and getting rid of them would be “an important first step” to shoring up the finances of one of Africa’s largest economies, according to a 2009 International Monetary Fund report.

But in resource-rich countries like Nigeria, with its enormous gap between rich and poor, subsidized gas is one of the few benefits trickling down from an infamously corrupt government that has pocketed billions of dollars in oil profits, with little to show for it.

For the poor — and three-fourths of this country’s population lives on about a dollar a day — the fuel subsidy means a cheap ride to the market. It means lower prices for the food they buy there. And it means some sense of ownership in a national resource, oil, in which roughly 80 percent of the economic benefit has flowed to 1 percent of the population, according to some estimates.

“It’s one of the few ways the urban and rural poor feel they benefit from this strategic resource,” said Michael J. Watts, an expert on the politics of oil at the University of California, Berkeley. “The fuel subsidy is experienced as one of the few things they get.”

That sentiment was strongly in evidence as the protests dwindled here on Monday. Under the rollback union leaders agreed to, gas in Nigeria will drop to about $2.27 a gallon from about $3.50 — higher than the $1.70 price before Jan. 1, but low enough to end the strike.

Still, many Nigerians were disappointed that Mr. Jonathan had not dropped the price all the way back down.

“We are not benefitting from this oil,” shouted Ali Mohammed, a motorcycle-taxi driver. “No lights, no roads, no hospitals. Make him reduce the price. We are suffering in this country.”

Hundreds of other young men milled about close by in what has been a center of the protest here: the New Afrika Shrine nightclub of the Afro-beat star Femi Kuti, son of the Nigerian musician and dissident Fela Kuti.

In a speech Monday morning, Mr. Kuti both incited and calmed the crowd listening at his feet amid clouds of marijuana smoke, expressing disgust with Nigeria’s institutions from his rickety wooden stage as supporters murmured their approval.

Later in his office, Mr. Kuti shouted at his television as he watched the labor leaders announce the end of the strike. “I told you those people would back down,” he said to his aides, looking up from the screen. As for the government, he said, “They prosecute people for being gay, but there is no law against stealing 14 million.”

Nigeria has seen similar tumult over the issue in the past, and it is hardly alone. In Bolivia, protesters burned photos of President Evo Morales and vandalized government buildings in December 2010, forcing Mr. Morales to withdraw his subsidy-cutting measure only days after introducing it.

In Venezuela, before the rise of Hugo Chávez, days of riots and hundreds of deaths followed a fuel price rise in 1989. President Chávez now controls one of the world’s most generous fuel subsidies, despite being critical of it.

In Jordan, an announcement last year that subsidies would be lifted helped inspire antigovernment demonstrations that forced a reversal. In Indonesia, a 30 percent increase in fuel prices in 2008 led to bloody rioting. Economists nonetheless praise that country for doing what others often do not: sweetening subsidy removal with cash programs that aid the poor.

Ethan Bronner contributed reporting from Jerusalem, Rick Gladstone from New York and Simon Romero from Rio de Janeiro.

Article source: http://www.nytimes.com/2012/01/17/world/africa/nigerian-president-rolls-back-price-of-gasoline.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Merkel and Sarkozy Warn Greece on Debt

January 10, 2012 by Leave a Comment

The leaders of the European Union’s two largest countries met in the German capital to discuss their next steps in combating the sovereign-debt crisis that has destabilized the Continent and threatened the common currency. Even as Mrs. Merkel and Mr. Sarkozy promised quick action to stem the crisis, investors signaled the depth of their ongoing concern over the instability that has spread from Greece to the very heart of the euro zone by purchasing German debt at a negative real interest rate for the first time ever.

Speaking at a news conference after the two leaders met at the chancellery building here, Mr. Sarkozy acknowledged the uncertainty in the markets, saying, “The situation is very tense, very tense.”

There are increasing signs that Greece will fail to make the structural changes to its economy that its leaders have promised. Greek’s prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.

With an eye toward Athens, Mr. Sarkozy said that “our Greek friends must live up to their commitments.” Mrs. Merkel said that if those commitments were not met by the Greek government “it will not be possible to pay out the next tranche” of the bailout money.

The holidays may have created a lull in the action but the New Year promised to be just as hectic as the old for European leaders and Mrs. Merkel in particular. The head of the International Monetary Fund, Christine Lagarde, arrives on Tuesday evening for talks with the German chancellor. Italy’s prime minister, Mario Monti, comes to Berlin on Wednesday.

Mrs. Merkel and Mr. Sarkozy are scheduled to travel to Rome on January 20th for negotiations with the Italian government ahead of the next European Union summit in Brussels on January 30.

“Everyone would like a grand design rather than a series of small steps going forward, some going backwards,” said André Sapir, an economist and senior fellow at Bruegel, a research group based in Brussels. “Sometimes there doesn’t seem to be a design at all, and that has been unnerving investors being asked to refinance debt both private and public.”

A drumbeat of bad economic news lately has led many economists to predict the imminent return to recession for many of the countries that use the euro. At the same time, European countries and financial institutions need to raise roughly $2.4 trillion in 2012.

Asked whether she feared that ratings agencies would downgrade additional European countries and in the process further spook markets, Mrs. Merkel replied coolly, “Fear does not motivate my political actions.”

The gap between countries with sound finances and those like Italy and Spain that are forced to pay high rates has widened to a chasm of five percentage points or more. Germany on Monday joined the likes of the Netherlands and Switzerland as perceived safe havens where customers of short-term debt are willing to lose money in return for shelter from upheaval and the possibility of even greater losses.

Mrs. Merkel called the plan to stabilize the euro “an ambitious but attainable goal.” She hit several familiar themes, stressing that there were no quick solutions to the euro crisis and that Greece was an exception when it came to debt writedowns, often known as a “haircut,” for private investors. “Our intention is that no country must withdraw from the euro area,” Mrs. Merkel said.

She and Mr. Sarkozy both voiced their determination to press ahead with a tax on financial transactions opposed by Britain, but they appeared to diverge on the timing. Mr. Sarkozy, facing a strong left-wing challenge in his struggle for re-election in May, suggested France could go it alone and challenge other states to follow suit.

French Prime Minister François Fillon said today in Paris that France may present a bill on such a tax in February, hoping that other countries follow. “Someone has to be the first to jump in the water,” Mr. Fillon said.

Mrs. Merkel expressed her support for Mr. Sarkozy’s goal of pressing ahead with a financial-transaction tax, saying that European Union finance ministers should make a formal proposal by March. Although an agreement between the 27 members of the union was preferable, one among the 17 countries that issue the euro was acceptable.

“If Sarkozy loses the election, which is entirely possible, the Socialists would certainly be a more difficult partner for Merkel,” said Frank Decker, a political scientist at the Institute for Political Sciences and Sociology at the University of Bonn. “As a result, she looks for ways that she can strengthen his position.”

Steven Erlanger in Paris contributed reporting

Article source: http://feeds.nytimes.com/click.phdo?i=03e894a586eece162b8f31e8c57c1b91

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Economix Blog: Gauging the Strength of a European Firewall

December 10, 2011 by Leave a Comment

WASHINGTON — The Obama administration has applauded the euro zone for moving to save its common currency and enforce fiscal discipline among its members. Yet the deal has done little to calm American concerns about an inadequate “firewall” — financing put up by European governments to ensure that all euro zone countries maintain access to the debt markets at sustainable interest rates.

Chancellor Angela Merkel of Germany “has made some progress with other European leaders in trying to move towards a fiscal compact where everybody is playing by the same rules and nobody is acting irresponsibly,” President Obama said at a news conference on Thursday. “That’s all for the good, but there’s a short-term crisis that has to be resolved to make sure that markets have confidence that Europe stands behind the euro.”

A senior administration official echoed those comments on Friday, saying that Europe is making encouraging and significant steps toward a comprehensive plan — but still needs more money and stronger mechanisms to calm markets in the short term.

At the Brussels summit meeting, the 17 European Union countries that use the euro agreed to run only small deficits in the future, allowing central oversight of their national budgets. But they did considerably less to stop investors from pushing bond yields up to punishing levels in countries like Italy and Spain.

To deal with that immediate crisis, the European Union governments agreed to two things. First, they agreed to consider offering up to 200 billion euros in bilateral loans to the International Monetary Fund, with a final decision to be made within 10 days.

Second, they agreed to put a permanent 500-billion-euro bailout fund, called the European Stability Mechanism, or E.S.M., into place a year early. Rather than supplanting the current, temporary bailout fund, the European Financial Stability Facility, in 2013, the E.S.M. will run alongside it for one year starting in July 2012.

Those measures in and of themselves will not be enough to stop investors from shutting big euro zone countries out of the international debt markets. Nor will they wrench borrowing costs down. Thus, they are unlikely to cheer the Obama administration, which has repeatedly argued that European leaders need to address the sovereign-debt crisis plaguing countries across the Continent immediately, with overwhelming force, and using their own money.

“The deal will quiet markets for a while, but the situation will remain fluid and subject to numerous shocks,” says Uri Dadush, the director of the international economics program at the Carnegie Endowment for International Peace. “The deal is too heavily reliant on adjustment in the periphery, and not enough on help from the core and the rest of the world. The main thing missing from the deal is a real ‘bazooka.’”

The agreement does move forward the creation of the permanent bailout fund, and would seem to enhance the amount of money available to keep countries’ borrowing costs stable. But the Brussels compact actually caps the two funds’ total lending capacity at 500 billion euros. That is only 60 billion euros more than the current lending capacity of the temporary bailout fund, the European Financial Stability Facility. The plan does say European leaders will reassess the cap in March, though, and watchers say they may do so sooner.

American leaders have continually called for any bailout mechanisms to have significantly more financing, enough to deal with problems in big, heavily indebted countries like Italy. Speaking in Berlin on Tuesday, for instance, Treasury Secretary Timothy F. Geithner called for a strengthened firewall to “provide the oxygen necessary for economic growth” and to keep interest rates manageable.

Nor is the I.M.F. measure seen in Washington as any sort of magic bullet for the short-term sovereign-debt crisis.

It is not clear whether the 200 billion euros will go to a special fund earmarked for Europe, or into the general I.M.F. funding pool. If it goes into the general pool, it would help with the fund’s liquidity. But it would not mean the fund would have enough money to help a big European sovereign — or two — if borrowing costs spiked. Italy alone has to roll over 360 billion euros in debt in 2012.

That said, the 200 billion euros are seen as an invitation for other countries — presumably cash-rich emerging-market nations — to add financing to the I.M.F. as well. In a statement, the European Council added the hopeful note, “We are looking forward to parallel contributions from the international community.” The I.M.F.’s managing director, Christine Lagarde, said in a statement, “I appreciate this demonstration of leadership from Europe, and I am hopeful that others will also do their part.”

A senior administration official indicated that the United States supported enhancing the I.M.F.’s liquidity, though the United States has ruled out contributing any more financing to the I.M.F. But the Obama administration argues that Europe must provide the great bulk of the financing for stabilizing its own countries’ borrowing costs.

It is a point they have made repeatedly. “Europe is wealthy enough that there’s no reason why they can’t solve this problem,” Mr. Obama said on Thursday. “It’s not as if we’re talking about some impoverished country that doesn’t have any resources. If they muster the political will, they have the capacity to settle markets down.”

The senior administration official did emphasize that the fiscal compact may make other changes to improve the situation in Europe easier, including opening the door for more action from the European Central Bank. The official also lauded a change to E.S.M. bylaws, striking a clause requiring insolvent countries to negotiate haircuts with their bondholders.

Article source: http://feeds.nytimes.com/click.phdo?i=624760d008b3f89bc58081ec67545497

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Dire Warnings Are Building on European Debt Crisis

November 29, 2011 by Leave a Comment

The Organization for Economic Cooperation and Development said on Monday that the euro crisis remained “a key risk to the world economy.” The research group, based in Paris, sharply cut its forecasts for wealthy Western countries and cautioned that growth in Europe could come to a standstill.

Hours earlier, Moody’s Investors Service issued its own bleak report on Europe’s sovereign debt crisis. Moody’s, a leading credit ratings agency, warned that the problems could lead multiple countries to default on their debts or leave the euro, which would threaten the credit standing of all 17 European Union countries that use the euro.

Despite the gloomy predictions, stock indexes rose sharply in Europe and Asia as well as on Wall Street, and the euro strengthened, on hopes that European leaders would step up efforts to resolve the crisis.

Finance ministers from the euro zone were to meet Tuesday in Brussels to try to agree on how to increase the firepower of their bailout fund. They also hope to sign off on an 8 billion euro ($10.7 billion) loan installment to prevent Greece from defaulting. A proposal for a Europe-wide solution to the crisis is expected before a meeting of European Union leaders on Dec. 9.

Already, though, the prime ministers of Finland and Luxembourg are voicing alarm over French-German plans to set strict new budget rules for countries that use the euro currency — something Berlin considers a precondition of further steps to save the euro zone.

Meanwhile, although the International Monetary Fund on Monday denied Italian media reports that it was negotiating a bailout loan to Italy, some experts predicted the I.M.F. would soon try to come to Italy’s rescue.

Concerns about the European crisis also hung over a meeting Monday at the White House between President Obama and three European leaders: José Manuel Barroso, the president of the European Commission; Catherine Ashton, the European foreign policy chief; and Herman Van Rompuy, the president of the European Council.

During a White House news briefing, the press secretary, Jay Carney, said that “our position is and has been that it’s critical for Europe to move with force and decisiveness now, particularly with new governments coming into place in Italy, Greece and Spain.”

In Brussels, European officials rejected suggestions that the euro was days away from breaking up, pointing out that countries had completed most of their bond issues, even if the respite would be only a matter of weeks before they had to return to the credit markets.

Belgium had to pay higher interest rates to borrow money in the markets on Monday, illustrating how the country’s failure to form a government had increased concerns about its ability to tackle its debts. The yield on 10-year bonds was 5.57 percent, compared with 4.37 percent in an auction last month.

Concerns are also mounting over Italy, whose borrowing costs continue to soar. In a bond auction Monday, Italy had to pay an interest rate of 7.2 percent to sell 12-year issues — a full 2.7 percentage points higher than the last time it auctioned 12-year bonds. Another Italian bond auction is set for Tuesday.

Over the weekend, Italy had signaled, along with Germany and France, that it was ready to agree on new rules to enforce budget discipline while encouraging more coordination of economic and fiscal policy among the 17 European Union members that use the euro.

On Monday the German Finance Ministry published comments from the finance minister, Wolfgang Schäuble, suggesting that this could be done by amending a protocol of the European Union treaty, though officials said this would still need approval by all 27 members.

An alternative, favored by some French policy makers, is to reach agreement among the 17 euro zone nations outside the framework of the European Union treaty. Some news reports have suggested an even smaller group might be involved.

Liz Alderman reported from Paris and Stephen Castle from Brussels. Steven Erlanger contributed reporting from Paris and Annie Lowrey and Brian Knowlton from Washington.

Article source: http://feeds.nytimes.com/click.phdo?i=a841359a9c3c80849e30d7c9d3a272a9

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Global Stocks and Euro Rise Sharply

November 28, 2011 by Leave a Comment

Germany and France have been discussing a deal to fast-track European budget and financial coordination, hoping that a deal that avoids the need for renegotiating European Union treaties could reassure markets and bring skeptics at the European Central Bank on board to support the beleaguered euro.

Investors were awaiting a meeting later Monday in Washington of President Obama and European Union officials, where discussions of the financial crisis were expected to figure prominently. Rumors of preparations for an International Monetary Fund bailout of Italy — even though quickly denied by the fund — also contributed to a sense that official efforts to stabilize the euro were progressing.

Alessandro Frigerio, a fund manager at R.M.J. Sgr in Milan, said he had been “almost certain” that the market would rally before Dec. 9, when European leaders hold a summit meeting to discuss the sovereign debt crisis.

“The market had been selling off for weeks on all the talk and rumors,” he said. “Now, we’re going to start getting some facts,” including more detail on the European Financial Stability Facility, the primary euro-zone bailout vehicle, and Italy’s plans to pay down its debt.

“I don’t know how the market will react after it gets the facts, though,” he said. “We’ll see when we get them.”

Investors shrugged off dire warnings from the Organization for Economic Cooperation and Development and from Moody’s Investors Service, both of which warned that the euro-zone problems were well on their way to becoming serious issues for non-euro countries.

They also ignored another dismal debt offering in Italy, where the Treasury paid 7.20 percent to sell 12-year bonds, 2.7 percentage points above what it paid at a similar auction in October.

In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 4.2 percent, while the FTSE 100 index in London gained 2.3 percent.

Standard Poor’s 500 index futures rallied, suggesting a strong start later on Wall Street. The S.P. 500 fell 0.3 percent on Friday.

Earlier in Asia, the Hang Seng index in Hong Kong rose 2 percent, while the composite index in Shanghai added 0.1 percent. The S.P./ASX 200 in Australia closed 1.9 percent higher, while in Tokyo, the Nikkei 225 stock average rose 1.6 percent, finishing the day at 8,287.49 points, despite comments from the central bank governor, Masaaki Shirakawa, that the prospects for the Japanese economy remained poor.

Global stock markets have slumped in recent weeks, as the European debt crisis began to move from small, peripheral economies like Greece and undermined confidence in larger euro zone members, like Italy and even France.

In a dire report issued Monday, the O.E.C.D. said that “the euro-area crisis remains the key risk to the world economy.”

If concerns about the euro are not addressed, “contagion to countries thought to have relatively solid public finances could massively escalate economic disruption,” the report said. “Pressures on bank funding and balance sheets increase the risk of a credit crunch.”

That followed a similar warning from Moody’s about the increasing severity of the European debt crisis.

“While the euro area as a whole possesses tremendous economic and financial strength, institutional weaknesses continue to hinder the resolution of the crisis and weigh on ratings,” Moody’s said in a report
on Monday. “In terms of the policy framework, the euro area is approaching a junction, leading either to closer integration or greater fragmentation.”

Still, markets were helped by news of unexpectedly strong consumer spending over the Thanksgiving holiday weekend — a key shopping period for American retailers.

The National Retail Federation said Sunday that spending per shopper surged 9.1 percent over last year — the biggest increase since 2006 — to an average of almost $400 a customer. In all, 6.6 percent more shoppers visited stores on the Thanksgiving weekend than last year.

Article source: http://feeds.nytimes.com/click.phdo?i=1afb88d99f98d8acc9d785fda0194df9

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Europe’s Banks, Squeezed for Credit, Borrow From E.C.B.

November 23, 2011 by Leave a Comment

Indebted governments among the 17 members of the European Union that use the euro are also finding it harder to borrow at affordable rates as investors lose confidence in their creditworthiness.

In a Tuesday auction, the Spanish treasury, for example, was forced to sell three-month bills at a price to yield 5.11 percent, more than double the 2.29 percent interest rate investors demanded at a sale of similar Spanish securities on Oct. 25. Spain also sold six-month debt at 5.23 percent Tuesday, up from 3.30 percent in October.

Italy’s 10-year bond yield, meanwhile, edged up once again — to nearly 6.8 percent Tuesday — as foreign investors withdrew their money from that debt-staggered country.

Together, the commercial banks’ heavy reliance on the central bank to finance their everyday business needs, along with the growing borrowing burden for Spain and Italy, raise the risk of failure for some banks within the countries that use the euro and the danger that nations much larger than Greece could eventually seek a bailout or be forced to leave the euro currency union.

European stocks were down broadly on Tuesday’s gloomy news. In the United States, stocks closed lower, too, but were not down as much as they had been before the International Monetary Fund announced at midday that it would extend a six-month lending lifeline to nations that might seek it in response to the euro zone crisis.

At the same time, though, the central bank continued to resist calls that it stretch its mandate and expand the money supply, as the United States Federal Reserve and the Bank of England have done.

The European debt crisis has crimped the flow of funds to banks by raising doubts about the solvency of institutions with a large exposure to European government debt. In particular, American money market funds have severely cut back their lending to European banks in recent months, leading many institutions to turn to Europe’s central bank.

Compounding the problem, many banks using the euro have also had trouble selling bonds to raise money that they can lend to customers. That raises the specter of a credit squeeze that could amplify an impending economic slowdown. In addition, some banks may fail if they are unable to raise short-term cash.

The central bank said Tuesday that commercial banks had taken out 247 billion euros, ($333 billion), in one-week loans, the largest amount since April 2009. And the 178 banks borrowing from the central bank on Tuesday compared with the 161 banks that borrowed 230 billion euros ($310 billion) last week.

Since 2008, the central bank has been allowing lenders to borrow as much as they want at the benchmark interest rate, which is now 1.25 percent. Banks must provide collateral. But the central bank is not supposed to prop up banks that are insolvent, only those that have a temporary liquidity problem.

And while the central bank has been buying bonds from countries like Spain and Italy to try to hold down their borrowing costs, the amount —195 billion euros ($263 billion) so far — is modest compared with the quantitative easing employed by other central banks like the Fed.

A growing number of commentators say the European Central Bank should be authorized to buy government bonds at levels sufficient to stimulate the economy.

“It is essential to have a central bank free to use all the levers, including variants of quantitative easing,” Adair Turner, chairman of Britain’s bank regulator, the Financial Services Authority, told an audience in Frankfurt late Monday. The audience included Vítor Constâncio, vice president of the central bank.

Richard Koo, chief economist at the Nomura Research Institute, wrote in a note Tuesday that “the E.C.B. should embark on a quantitative easing program similar in scale to those undertaken by Japan, the U.S. and the U.K.”

“Doubling the current supply of liquidity,” Mr. Koo said, “would not trigger inflation and would enable the E.C.B. to buy that much more euro zone government debt.”

But there has been no sign the central bank will budge from its position that it is barred from financing governments, and that purchases of government bonds are justified only as a way of keeping control over interest rates and fulfilling the bank’s main task to keep prices stable.

“By assuming the role of lender of last resort for highly indebted member states, the bank would overextend its mandate and shed doubt on the legitimacy of its independence,” Jens Weidmann, president of the German Bundesbank and a member of the central bank’s governing council, said Tuesday in Berlin.

“To follow this path would be like drinking seawater to quench a thirst,” he said.

Lucas D. Papademos, the new prime minister of Greece and a former vice president of the central bank, met with Mario Draghi, the central bank’s president, when he visited the bank on Monday. The bank did not disclose details of their discussions, but Greece’s fate is to a large extent in the central bank’s hands. Because of its bond purchases, the central bank is the Greek government’s largest creditor, and the bank is one of the institutions that determines whether Greece will continue to receive aid from the 17 European Union members that use the euro.

Article source: http://www.nytimes.com/2011/11/23/business/global/banks-seek-emergency-funds-from-ecb.html?partner=rss&emc=rss

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Economix Blog: How Other Countries Do Deficit Reduction

November 22, 2011 by Leave a Comment

As noted in my previous post, today’s (failing) deficit “supercommittee” discussions are hardly the first time Congress has engaged in efforts to reduce the deficit. In most of the deals of the last 30 years, tax increases have accounted for a significant portion of deficit reductions.

The same is true across the developed world.

Researchers at the International Monetary Fund have recently put together a comprehensive report on how developed countries have tried to cut deficits in the last three decades.

The study looked only at tax and revenue changes that were passed explicitly to reduce budget deficits, and calculated the total tax increases, spending cuts or both made in each year, as a share of a given country’s gross domestic product.

It found that the typical year that a deficit-reduction plan was in effect, tax increases accounted for reductions equal to about 0.37 percent of a country’s gross domestic product. Spending cuts accounted for reductions amounting to 0.62 percent of a country’s economy. That means spending cuts were about twice as big as tax increases in this group of 17 rich countries.

In the United States, deficit-curbing plans from 1978 to 1998 were about equally reliant on tax increases and spending trims, with each accounting for deficit cuts of about 0.18 percent of America’s gross domestic product in the average year that any austerity plan was in effect.

To look at other countries, I suggest checking out the original report. A detailed chronology for each country begins on Page 6. On Pages 86 and 87 you can find a table summarizing all the data, which I’ve also adapted below (after the jump). Note that the monetary fund researchers decided to exclude the Balanced Budget Act of 1997 and the Taxpayer Relief Act of 1997.

 

Article source: http://feeds.nytimes.com/click.phdo?i=572aba42f2235d260f98fc9656e55357

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Economist Lucas Papademos Named Prime Minister of Greece

November 11, 2011 by Leave a Comment

The announcement came after four days of often chaotic negotiations that put the feuding among Greece’s political parties on full display.

Mr. Papademos, who has a low-key, avuncular manner, emerged from the presidential office building shortly after the statement about his new post was released at midday and spoke briefly with reporters, striking an optimistic note.

“The course will not be easy,” he said. “But the problems, I’m convinced, will be solved. They will be solved faster, with a smaller cost and in an efficient way, if there is unity, agreement and prudence.”

Mr. Papademos has only a few weeks to persuade Greece’s creditors in the so-called troika — the European Union, the International Monetary Fund and the European Central Bank — to release its next block of aid, $11 billion, before the country runs out of money. Then he must begin fulfilling the painful terms of an even larger loan.

He will have to move swiftly to reassure the European leaders there will be no repeat of the shock they suffered in October, when the former prime minister, George A. Papandreou, after negotiating a new $177 billion loan, decided without warning to submit the bailout package to a referendum. The move infuriated the Europeans, who had concocted the Greek bailout as part of a painstakingly negotiated broader effort to stabilize the euro. It also started the clock on the end of Mr. Papandreou’s tenure.

Mr. Papademos will have to deal with 2011 budget shortfalls and the passage of a 2012 budget that is expected to call for another round of austerity measures in a climate of growing social unrest. He will also have to start what are expected to be difficult negotiations with private sector banks that have agreed, in principle, to write off 50 percent of the face value of their Greek bond holdings as part of the rescue plan.

As if to underscore the problems, the national statistics authority reported on Thursday that unemployment had jumped to a record high 18.4 percent in August, a month when the tourist season normally lowers the rate, from 16.5 percent in July.

Mr. Papademos almost did not get the job. After Mr. Papandreou agreed on Sunday to step aside once a new coalition government had been formed, the parties could not seem to stop fighting long enough to settle on a candidate. With new elections expected early next year, all sides were maneuvering for strategic advantages. On Wednesday evening, Mr. Papandreou went on television to give his farewell speech as prime minister and was expected to announce a different successor.

But some 50 members of his party, and members of the opposition as well, pressed for Mr. Papademos, seen as an outsider to the old-boy political networks — a technocrat, perhaps able to take Greece on a new path. But it was not an easy sell. Some analysts here have said that the political parties were reluctant to embrace him because he would be an unknown, and perhaps a rival, at election time.

Only after another five hours of negotiations on Thursday morning did the president’s office issue a written statement confirming that Mr. Papademos would take on the task of trying to bring Greece’s economy back from the brink. It was unclear on Thursday night what his cabinet might look like.

News reports earlier this week said that Mr. Papademos had also set certain conditions before he was willing to take the post that had added to some of the reluctance to embrace him. The reports said he wanted a term of at least six months; earlier, the major political parties had agreed to new elections in just 100 days.

Other reports said that Mr. Papademos was insisting that members of the main opposition New Democracy party play a significant role in the unity government. It was widely reported that the opposition, headed by Antonis Samaras, had resisted participating, not wanting to be linked to deeply unpopular reforms with an election around the corner.

But standing outside the presidential palace, Mr. Papademos said he had not made any demands before accepting the job. He also said the new unity government would be “transitional,” and its priority would be to make sure that Greece stayed in the euro zone. “I am convinced that Greece’s continued participation in the euro zone is a guarantee for the country’s stability and future prosperity,” he said.

Whether he will succeed remains an open question. But some analysts said they considered his appointment to be Greece’s best shot.

Niki Kitsantonis and Dimitris Bounias contributed reporting.

Article source: http://www.nytimes.com/2011/11/11/world/europe/greek-leaders-resume-talks-on-interim-government.html?partner=rss&emc=rss

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Italy’s Leader, Silvio Berlusconi, Offers to Resign

November 9, 2011 by Leave a Comment

Although Mr. Berlusconi’s exit was not immediate — weeks of political wrangling over the austerity measures probably lie ahead — political commentators said they could see no escape this time for the prime minister, whose Houdini-like ability to wriggle free from scandals is legendary.

“A season is over,” said Mario Calabresi, the editor in chief of the Turin daily newspaper La Stampa, who said Mr. Berlusconi told him that he was not only stepping down, but also would not run for office again.

In the end, it was not the sex scandals, the corruption trials against him or even a loss of popular consensus that appeared to end Mr. Berlusconi’s 17 years as a dominant figure in Italian political life. It was, instead, the pressure of the markets — which drove Italy’s borrowing costs to record highs this week — and the European Union, which could not risk his dragging down the euro and with it the world economy.

With fears that the debt crisis would spread from Greece to Italy, whose economy is too big to bail out, pressure had been building on Mr. Berlusconi to resign for weeks, including recently from members of his center-right coalition. Even the Roman Catholic Church, whose support is crucial for any Italian government, began harshly criticizing him.

European leaders, who have long questioned Mr. Berlusconi’s commitment to fundamental economic changes, had become especially concerned that he no longer had enough control of his coalition to deliver on promises of crucial reforms and that in a crisis built partly on perception, Italy’s reputation was too closely linked to his own.

In a sign of the seriousness of the fears, a delegation from the European Commission was due in Rome on Wednesday to check on the country’s reform program, days after the International Monetary Fund said it would monitor Italy’s progress, a rare intrusion for an economy the size of Italy’s.

Mr. Berlusconi’s announcement came just days after Greece’s leader, Prime Minister George A. Papandreou, also overcome by financial troubles, agreed to resign in favor of a unity government.

The immediate trigger for Mr. Berlusconi’s decision was a procedural vote in Parliament that made it clear that he had lost his majority after defections from his coalition. Umberto Bossi, a crucial ally and the leader of the Northern League, a coalition member, said he had told the prime minister to step aside for the good of the country.

After the parliamentary vote, a photographer’s zoom lens caught Mr. Berlusconi writing “8 traitors” on a piece of paper on which he had also written “resignation.”

Hours later, he met with the president of Italy, Giorgio Napolitano, and said he would resign.

A statement issued by the president’s office after the meeting said that the prime minister had acknowledged “the implications of the result of the day’s vote in the lower house,” but at the same time had expressed “concerns” about the need to pass the urgent reforms requested by Italy’s “European partners.”

In a telephone call to the state broadcaster RAI, Mr. Berlusconi said, “Today’s vote reinforced my concerns about the moment that we are experiencing, a situation where the markets do not believe that we really want to introduce the liberalizing measures that Europe insistently asked us to carry out.”

By linking his fortunes to the austerity package — whose contents have not yet been made final — Mr. Berlusconi effectively blocked both the opposition and dissidents within his own party from bringing him down in a humiliating confidence vote over the measures.

His announcement, in a meeting with Mr. Napolitano, made the event seem almost anticlimactic, allowing Mr. Berlusconi to exit somewhat gracefully.

Stephen Castle contributed reporting from Brussels.

Article source: http://www.nytimes.com/2011/11/09/world/europe/support-for-berlusconi-ebbs-before-crucial-vote.html?partner=rss&emc=rss

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Euro Zone Looks Abroad to Get Support for Bailout

October 23, 2011 by Leave a Comment

BRUSSELS — Struggling to assemble a credible backstop for their troubled single currency, European Union leaders on Sunday reached out for wider international support for their bailout fund by seeking investment from non-European countries or the International Monetary Fund.

Officials of the 27 nations in the European Union chalked up one victory from lengthy weekend meetings in Brussels, striking a deal to recapitalize the sickly European banking sector. Despite some resistance, agreement seemed close on a plan worth around 100 billion euros, or $138 billion, to recapitalize banks.

But as of Sunday night, officials still had no definitive answer on how they would expand the euro rescue fund, the European Financial Stability Facility — though one official said they were aiming for €750 billion to €1.25 trillion, or $1 trillion to $1.7 trillion. It is currently $600 billion or €440 billion.

The leaders were also struggling with the amount of the loss that holders of Greek bonds would  be required to take in the rescue of that country — by some estimates as much as 60 percent — a crucial element that is essential to making the rest of the E.U package of measures add up.

Final decisions on the two issues will have to wait until a second  summit meeting on Wednesday. And longer-term solutions to the problems revealed by the financial crisis are likely  to lead to a change in the European Union’s governing treaty, the leaders said — an option that many had dismissed previously.

Mindful that markets on Monday would be watching the announcements from Brussels, the president of the European Council, Herman Van Rompuy, sought to reassure investors that the European countries were on track to reach a comprehensive deal at a meeting on Wednesday to stop the crisis from spreading.

“We are confident that we will get an agreement on Wednesday,” said Mr. Van Rompuy, whose group represents European Union governments. “The union must regain safe ground.”

With the Group of 20 meeting in Cannes in less than two weeks, European leaders clearly were making an effort to internationalize Europe’s crisis, with calls for more resources from the I.M.F., which has already participated extensively in the bailout of Greece.

“We’ve seen the debt crisis is really global. We want to reinforce the I.M.F.,” said José Manuel Barroso, president of the European Commission, the group’s executive agency.

“The I.M.F. is the most important global institution for financial matters,” Mr. Barroso said, “so it’s natural that countries that have a large external surplus can contribute to the common good and to global stability in financial terms.”

In the meantime, one of the roadblocks to agreement over the bailout fund — a rift between France and Germany — seemed to have eroded, with France retreating from its position that the European Central Bank should be used to backstop the euro bailout fund and Chancellor Angela Merkel of Germany asserting that there were now “two different models” under consideration.

Under one plan, a new body would be set up, financed by the current bailout fund but also seeking to attract outside investment. This body would buy bonds of troubled countries, providing that their governments agreed to make significant changes to improve their economic condition.

The alternative would involve using the current euro rescue fund to offer insurance against a proportion of losses on sovereign bonds.

A European official said the new entity could be created under the auspices of the I.M.F, while another minister said the head of the I.M.F., Christine Lagarde, supported the idea.

Prime Minister Fredrik Reinfeldt of Sweden, when asked about a fund involving non-European investors, said “That’s obviously on the table now.”

“If you are crossing that track, it is because you think you could get additional resources,” he said, while underlining that the leaders were “not ready” to commit to a solution after Sunday’s meeting. “That’s why we are meeting on Wednesday,” he said.

The meeting Sunday proved tense and difficult on several occasions, with consistent pressure on the Italian prime minister, Silvio Berlusconi, to push through tough changes as a condition of any further European support.

Mr. Berlusconi met with Mr. Barroso and Mr. Van Rompuy, over breakfast Sunday before going on to a meeting with Mr. Sarkozy and Mrs. Merkel.

German officials are angry at the behavior of Mr. Berlusconi, who promised to enact changes in August before the European Central Bank bought Italian bonds, but then tried to water down the program once the E.C.B intervened.

Europeans leaders, fearful that Italy could be the next applicant for aid, want the country to cut its €1.9 trillion debt load, which amounts to 120 percent of gross domestic product.

“Trust will not happen from a new package for Greece,” Mrs. Merkel said, aiming her comments at Italy. “Trust will only happen when everyone does their homework.”

Mr. Sarkozy also took a clear swipe at Italy, saying that he and Mrs. Merkel were not responsible for admitting nations into the euro that did not meet the original membership criteria.

Article source: http://www.nytimes.com/2011/10/24/business/global/24iht-euro24.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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