August 17, 2018

Memo From Europe: A Continent Mired in Crisis Coins a Language of Economic Pain

The Italians, who now track the spread between German and Italian bond yields with a passion once reserved for soccer, toss around words like “spreaddite,” wryly defined by La Repubblica, a daily newspaper in Rome, as the “intensification of the suffering caused by the high spread.”

In Greece, crisis-born phrases pepper conversations in cafes and offices and on subway trains, particularly the ironic use of expressions or slogans uttered by political leaders, like a claim in 2009 by George A. Papandreou, then the prime minister, that there was money, when clearly there was not. “Don’t worry, I’ll get it,” a Greek man celebrating his birthday at an Athens taverna told his friends recently when they reached for their wallets. “Hey, there is money. Remember?”

The long economic crisis in Europe has ushered in record unemployment and boisterous protests, but there are also many subtler ways to gauge its effect. In country after country, the crisis has also spawned a language of its own, brought once exotic financial terms into popular use and generated a slang that reflects the dark humor used by many to cope with their enduring troubles.

Crisis slang has even been embraced by those at the top layers of government and society. Seeking to allay concerns that Spain, like Greece, would need an international bailout, Cristóbal Montoro, Spain’s budget minister, promised nervous Spaniards last year that “los hombres de negro” — or the men in black, as the European Union officials have become known — would not be arriving.

The changes in language are numerous enough that in June the Spanish Royal Academy, guardian of the Spanish language, put the finishing touches on an updated dictionary with 200 words that have been added or given new meanings. They include the worrying “prima de riesgo” (risk premium), with a common sentence to illustrate: “The risk premium of our sovereign debt rose several points.”

Spaniards, many of whom had never heard such terms before the start of the financial crisis in 2008, now use them with such regularity that they are just as likely to come up in conversation with a taxi driver as to be heard on the evening news. When it comes to language there is “poukou,” which the Greeks use to refer to the pre-crisis era, and there is now.

“The crisis is having a huge impact on society and its usage of the language, making people speak about the economy in a way that had no relevance to them just a few years ago,” said Darío Villanueva, the secretary general of the 46-member Spanish Royal Academy, which includes mostly writers but also scientists, historians, economists and lawyers.

To update the Spanish dictionary, the academy relied on a computerized data system to measure the frequency of millions of words used on television and radio and in newspapers as well as other writings. It also agreed to the changes with sister academies, mostly in Latin America, to harmonize linguistic developments across the Spanish-speaking world.

Among the words durable enough to make the cut was “bonus,” which had not been commonly used in Spanish until the spotlight shifted to Spain’s troubled bankers and the money they made. There was also “burbuja,” or bubble, like the one that burst in the housing market, and “población activa,” or the population old enough to work, which came into use because a sizable share of it is not working.

Similarly, several terms rooted in the economic crisis were among the 5,000 words added to the updated version of the Duden, the definitive work of the German language, which came out in July. They include “schuldenbremse,” literally “debt brake,” and “eurobond,” a reference to proposals for the European Union to issue bonds to cover the debt of euro-using nations; Germans fear that such bonds would place onerous obligations on them. While the word may exist, Chancellor Angela Merkel’s government has done its best to make sure the bond does not.

Reporting was contributed by Elisabetta Povoledo from Rome, Niki Kitsantonis from Athens, Marisa Moura from Lisbon, and Maïa de la Baume from Paris.

Article source: http://www.nytimes.com/2013/07/26/world/europe/a-continent-mired-in-crisis-coins-a-language-of-economic-pain.html?partner=rss&emc=rss

South Korea Seeks Arrest of Podcaster Choo Chin-woo

Choo Chin-woo, a reporter with the leading newsweekly SisaIN, has been charged with violating the country’s election law. In their indictment, a copy of which was made available Sunday, the prosecutors said that through articles and a podcast a few weeks before the Dec. 19 presidential election, Mr. Choo “defamed” and “spread false information” about the president’s brother, Park Ji-man, with “an aim of blocking her election.”

Mr. Choo attained nationwide fame when he worked as a co-host of the podcast “Naneun Ggomsuda,” or “I Am a Petty-Minded Creep.” Started in 2011, the online talk show became one of the world’s most downloaded political podcasts from the Apple iTunes store and raised allegations of wrongdoing against some of the country’s religious, economic and political leaders.

The prosecutors’ attempt to arrest Mr. Choo follows earlier criminal indictments of television producers and Internet bloggers whose reports criticized the government on charges of spreading false information and defamation — a practice that international human rights groups have repeatedly denounced for creating a chilling effect among government critics.

“My crime was raising questions those in power don’t like,” Mr. Choo, 39, said in a recent interview. “They hate me like a cockroach and want to squash me.”

Filing a criminal indictment against people accused of spreading false rumors about public figures and then trying to incarcerate them during a long-term pretrial arrest is well beyond what would be accepted in other countries, said Park Kyung-sin, a professor of law at Korea University in Seoul.

“It’s very unusual and against the international human rights standards,” he said.

A Seoul court is scheduled to decide Tuesday whether to allow the prosecutors to arrest Mr. Choo.

In his articles and podcast, the journalist revisited a little-known 2011 case in which Park Yong-chol, a son of a cousin of Ms. Park, was found brutally murdered in a mountain park in Seoul. The man’s cousin was also found dead, hanged from a tree. The police concluded that the first victim had been killed by the second, who then hanged himself.

In his reports, Mr. Choo cited a legal dispute between the president’s brother, Park Ji-man, and his brother-in-law, who accused him of plotting to kill him by hiring Park Yong-chol as a hit man. (The brother-in-law, the husband of the president’s estranged younger sister, lost the case and served time in prison for slandering the president’s brother.)

Mr. Choo’s articles raised questions about the police investigation and cited the suspicion raised by the brother-in-law and his lawyer that the murder of Park Yong-chol might have had to do with a plot to block him from testifying on their behalf in their legal battle against Park Ji-man. They also raised the possibility that the man who police said hanged himself might have been murdered as well.

The president’s brother sued Mr. Choo on charges of spreading false rumors to influence the presidential election.

Ms. Park’s office did not immediately respond to a request for comment.

International free speech advocates — including Reporters Without Borders and Frank La Rue, the United Nations’ special rapporteur on the freedom of opinion and expression — have voiced concerns about a lack of tolerance for dissent in South Korea, where defamation is a criminal offense.

Mr. Park, the Korea University law professor, said that one of the biggest problems with the judicial practices in South Korea was that they hampered public scrutiny and the role of media as a watchdog by placing the onus of proof in a defamation or false-rumor case not on prosecutors or those claiming to have been defamed but on the defendants, even when the alleged victims were public figures.

In 2011, Chung Bong-ju, Mr. Choo’s colleague at the podcast, was thrown into prison for one year when he could not substantiate an allegation he had raised that former President Lee Myung-bak was involved in a stock fraud case.

Many conservative South Koreans hated the co-hosts of the podcast, accusing them of irresponsible statements, character assassination and political cronyism passing itself off as satire. But they were wildly popular among young people who regarded the podcast as an alternative to the country’s mainstream media, which they considered pro-government and conservative.

Although most of the allegations on the podcast were just that, some of them helped break the hottest news in South Korea. It was among the first to suspect the country’s intelligence agency of involvement in a secret online campaign to try to discredit the opposition candidates in the December election. Last month, the police announced that at least two government intelligence agents had been involved in such an operation. Prosecutors have since expanded the investigation, raiding the headquarters of the spy agency.

Prosecutors deny they were politically motivated when investigating government critics like Mr. Choo. But their detractors said that they were eager to press charges to show their loyalty to political power.

“I don’t think this kind of thing can happen except in a backward country ruled by an authoritarian government bent on stifling freedom of expression,” said Lee Jae-jeong, Mr. Choo’s defense lawyer, referring to prosecutors’ move to arrest Mr. Choo.

Article source: http://www.nytimes.com/2013/05/13/world/asia/south-korea-seeks-arrest-of-podcaster-choo-chin-woo.html?partner=rss&emc=rss

Euro Watch: Global Stock Markets Drop on Cyprus Concerns

PARIS — Global stock markets faltered on Monday as investors awaited the outcome of a vote in Cyprus that could help to determine the future of the euro zone.

Parliament was scheduled to vote Monday afternoon in the Cypriot capital, Nicosia, on whether to approve a 10 billion euro, or $13 billion, European Union bailout.

Nicos Anastasiades, the Cypriot president, warned Sunday that a failure to pass the deal could lead to a major shock, including “a complete collapse of the banking sector” and the possibility that the divided island nation would have to leave the euro altogether.

The bailout plan, worked out early Saturday in Brussels, brought a sharp backlash among Cypriots over a critical break with recent European tradition: For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those in insured accounts — will being called on to bear part of the cost, 5.8 billion euros, through one-time levies on their savings.

That strikes many people as deeply unfair, and has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright.

Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

Cypriot political leaders were discussing revisions to the deal announced Saturday to make the levy more palatable to citizens and get the bailout through Parliament, including reducing the percentage to be paid by those with deposits of less than 100,000 euros.

Still, many analysts and economists insisted that Cyprus’s problems were unique, and said they expected the fallout from the trauma there to be limited. They noted that Cyprus’s banks, whose assets dwarf the island’s gross domestic product, are holding tens of billions of euros in Russian deposits of dubious provenance. That, in turn, is raising fears in other euro zone nations that non-Cypriot taxpayers would be bailing out wealthy Russians, something that has not been a concern with other euro nations in distress.

And analysts at Société Générale noted that the Cypriot banks had issued debt equivalent to just 1.3 percent of their total liabilities, meaning that if the European Union insists on so-called bail-in by creditors, depositors were the only ones able to pick up the tab.

Goldman Sachs analysts said that, assuming Parliament approved a deal, “the direct ramifications from Cyprus will likely be contained,” thanks partly to the European Central Bank’s commitment to back up euro zone banks.

“Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout,” analysts at DBS in Singapore wrote in a research note on Monday.

The markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.”

More broadly, the analysts at Société Générale noted that the approach adopted over the Cyprus bailout also highlighted that there is still “no standard approach of tackling the euro debt crisis.”

In early Paris trading, the Euro Stoxx 50, a benchmark for euro zone blue chips, was down 1.9 percent. In London, the FTSE-100 index dropped 1.0 percent. Yields on Spanish and Italian government bonds — which move in the opposite direction of the prices — rose, as investors sought the perceived safety of German and other bonds.

Trading in U.S. equity index futures pointed to expectations that stocks would fall at the opening bell

The euro fell sharply against the dollar, dropping to $1.2940, from a close of $1.3074 on Friday. The decline took the currency to its weakest level since late last year. Cyprus’s markets were closed for a bank holiday, and officials have suggested they might extend the holiday for a second day Tuesday.

In Asian trading, the Nikkei 225-stock average tumbled 2.7 percent in Tokyo, while the Sydney benchmark Australia, the S.P./ASX 200 index, closed 2.1 percent lower. The Hang Seng index in Hong Kong fell 2 percent.

Bettina Wassener reported from Hong Kong.

Article source: http://www.nytimes.com/2013/03/19/business/global/asian-markets-drop-on-latest-euro-concerns.html?partner=rss&emc=rss

India’s Slowing Economy Forcing Budget Decisions

But on Thursday, when the current finance minister, Palaniappan Chidambaram, arrives in Parliament, his steps will be heavier, and the mood is likely to be, too. Faced with slowing growth, persistent inflation and sagging investor confidence, India’s government is pinned between conflicting pressures: economists warn that tough steps are needed to avoid long-term fiscal problems, even as political leaders are leery of introducing unpopular measures before important elections this year.

On Wednesday, the government sought to change the pessimistic narrative, as the Finance Ministry released its annual economic survey and projected that economic growth would jump somewhere above 6 percent during the next fiscal year, predicting that the downturn was “more or less over and the economy is looking up.” Some economists were skeptical, given that similar rosy predictions in recent budgets have proved wrong.

“Let me remind you that last year the economic survey spoke of about 7.6 percent projected growth — and what we had was 5 percent growth,” said Ajay Bodke, head of investment strategy and advisory at Prabhudas Lilladher, a Mumbai brokerage. “That is not just a miss but a humongous miss.”

The consequences of the budget plans are especially high because India, once a darling of global investors and an anointed power-in-waiting, is struggling to regain its lost luster.

India’s estimated 5 percent growth rate for the current fiscal year compares with 8 percent in 2010. Ratings agencies have threatened to downgrade the country’s investment rating to “junk” status. Meanwhile, India’s political class has spent more than three years enmeshed in scandals, as a bickering Parliament has accomplished almost nothing.

“It’s a supercritical moment, actually,” said Rajiv Kumar, an economist with the Center for Policy Research in New Delhi. “If you get it right, and this is a budget that can shore up the government’s credibility, they can turn it around.”

For investors and business leaders, the question is whether the government will make tough calls to address the country’s large fiscal and account deficits, curb huge subsidies for diesel fuel and petroleum products, unclog bureaucratic bottlenecks on stalled manufacturing, energy and infrastructure projects and create incentives to entice new investment.

Only a year ago, Pranab Mukherjee, then finance minister, unveiled a budget now regarded by many analysts as a major mistake. Desperate to increase revenues, the government spooked investors by giving broad latitude for tax collectors to pursue multinationals for billions of dollars in new, unexpected taxes. Investment slowed markedly, while investors and political opponents complained that India’s coalition government, led by the Indian National Congress Party, was endangering one of the world’s fastest-growing economies.

“The economy is in a deep crisis at the moment,” said Yashwant Sinha of the opposition Bharatiya Janata Party, a former finance minister, “and I only hope the crisis doesn’t become any deeper with more pre-election sops.”

Mr. Sinha and many independent economists warn that the economy cannot afford a repeat of 2008, when the government was preparing for national elections the following year. Then, the pre-election budget was filled with big spending measures, including pay raises for government workers and the forgiveness of billions of dollars in loans to farmers. The government was easily re-elected in 2009, but the new spending contributed to a fiscal deficit that rose to roughly 6 percent, from about 2 percent the previous year.

Neha Thirani Bagri contributed reporting from Mumbai, India.

Article source: http://www.nytimes.com/2013/02/28/world/asia/indias-budget-comes-at-a-time-of-conflicting-fiscal-and-political-pressures.html?partner=rss&emc=rss

Economic Scene: Say Goodbye to the Government, Under Either Fiscal Plan

As President Obama and Speaker John Boehner negotiate to resolve the looming fiscal crisis, Americans might be forgiven for believing that the nation’s problems would be solved if they could only agree on whether to raise $1.2 trillion or $1 trillion in new taxes over the next 10 years, or whether they should cut $850 billion rather than $1.2 trillion more in government spending.

This is not, unfortunately, the case. The frenzied partisan horse-trading has glossed over what is arguably the central issue of any debate over long-term fiscal policy: the kind of role we expect the government to play in the nation’s future. Not only have our political leaders failed to lay out a vision of what they hope the budget will achieve, they are pulling the wool over Americans’ eyes about the kind of budget we are about to get.

The truth is that both the president and House Republicans have agreed to shrink a critical part of the government to its smallest in at least half a century. This is regardless of which trillion-dollar proposal gains the upper hand.

Consider the president’s budget, which by law must include projections of taxing and spending over the next decade. Loath to raise taxes on the middle class yet unwilling to cut deeply into the budgets for Social Security or Medicare, the president and his advisers proposed cutting the discretionary part of the budget devoted to everything except defense and other security agencies to 1.7 percent of economic output by 2022, down from 3.1 percent last year.

This is not irrelevant spending. It accounts for every government expenditure except entitlements, security and interest. It pays subsidies for higher education and housing assistance for the poor. It finances the National Institutes of Health and the Food and Drug Administration. It pays for the Federal Emergency Management Agency and training programs for unemployed workers. Without such spending, the government becomes little more than a heavily armed pension plan with a health insurer on the side.

House Republicans are equally if not more frugal. The House budget resolution, their last detailed proposal about taxes and spending, refers to discretionary spending except national defense, a broader category than that considered in the president’s budget. They too cut it to the bone: to about 2.1 percent of economic output in 2022, from 4.3 percent last year.

To put it in perspective, this would cut the government’s civilian discretionary budget to the smallest it has been as a share of the economy at least since the Eisenhower administration — when a quarter of the population lived under the poverty line, thousands of children still contracted polio each year and fewer than one in 12 Americans older than 25 had a college degree. According to estimates by the Congressional Budget Office, even going over the so-called fiscal cliff would not cut it as deeply.

“This is no way to run a $3.7 trillion enterprise,” said a Columbia University economist, Jeffrey Sachs, referring to the size of the federal government. “It is President Obama’s responsibility to put forward a plan and give us a comprehensive view of what is the strategy.”

The numbers for civilian discretionary spending shrink so much under both the president’s and the House Republicans’ budget proposals that even those who wrote them seem to have a hard time believing they will come true.

Rather than specify how all the required cuts would affect spending on specific programs, like housing assistance, Pell grants or the National Science Foundation, the budget writers put hundreds of billions of unspecified savings under a hazy budget line called “allowances” — which essentially means cuts to be determined later, in the course of the decade. They are what Richard Kogan, a tax expert at the Center on Budget and Policy Priorities, calls “the magic asterisk.”

President Obama’s budget has almost $200 billion worth of allowances. The House Republican proposal included almost $1 trillion. “In my personal opinion, the defense and nondefense spending caps won’t hold until 2021,” Mr. Kogan said. “At some point the deficit will look small enough and the pressure to provide services and benefits will appear large enough that Congress will find ways around them.”

Mr. Sachs’s critique comes from the president’s left, where there is widespread belief that the nation needs more tax revenue to avoid sacrificing important government programs. But economists to the president’s right share the concern over an opaque budgeting process that fails to address the central issue of our time.

“Either we reform entitlements or we accept large tax increases or we crowd out everything else the government does,” noted R. Glen Hubbard, the dean of Columbia Business School, who advised the Republican nominee Mitt Romney during the last presidential campaign. “People need to have that discussion.”

We’ve had this debate several times before. President Franklin Roosevelt’s New Deal was based on the proposition that government should play a much bigger role to guarantee Americans’ economic security. In the 1960s, President Lyndon Johnson asserted the government’s responsibility to alleviate the plight of the poor and disenfranchised. Three decades ago, President Ronald Reagan changed course, ushering in an era of government retrenchment that persisted pretty much unabated until we were walloped by the Great Recession.

Today, our public finances are caught between these two appetites: our preference for lower taxes and our unwillingness to accept cuts to entitlements set up in our bygone Big Government era. The average federal income tax rate is at its lowest in more than 30 years. Still, nearly half of all Americans say their income taxes are too high. And most Americans do not want government to cut spending on Medicare or Social Security.

Unwilling to confront voters with the tension between these choices, it is perhaps natural that our leaders would take the ax to discretionary spending outside of defense, the easiest part of the budget to cut. It might also explain why they are so loath to tell us what they are doing. But this reticence does not make for a fruitful debate about the role of government in our future.

Mr. Sachs recalls confronting Gene Sperling, who heads President Obama’s National Economic Council, about how civilian discretionary spending shrinks in the president’s budget. Mr. Sperling’s reply suggests the president knows the cost-cutting is getting out of hand: “Jeff, we have a problem with that number, too.”

E-mail: eporter@nytimes.com; Twitter: @portereduardo

Article source: http://www.nytimes.com/2012/12/19/business/say-goodbye-to-the-government-under-either-fiscal-plan.html?partner=rss&emc=rss

E.C.B. Sees a Healing Euro Zone but Warns of Risks

FRANKFURT — Tensions in the euro zone have eased noticeably since the summer, the European Central Bank said Friday, but it warned that the situation remained fragile in part because commercial banks were still in a weakened state.

“There is a risk in spite of the recent improvements,” Vitor Constâncio, the vice president of the E.C.B., said at a press briefing Friday.

In its annual report on financial stability, the E.C.B. noted a number of indications that the euro zone is starting to heal. For example, borrowing costs for troubled countries have dropped substantially, and banks in Portugal and Ireland have regained access to money markets.

Countries including Spain and Italy have been able to increase their exports because labor costs have fallen, improving their competitiveness, the E.C.B. said. While that is positive, it came about partly because of high unemployment and falling wages.

“This adjustment has had a heavy cost,” Mr. Constâncio said. “But at least we can say the adjustment occurred.”

Unemployment will start to fall by 2014 as the stressed countries begin to grow again, Mr. Constâncio said.

The E.C.B. attributed the ebbing of fear in the euro zone to a combination of central bank policy, improved competitiveness at some countries and progress by political leaders toward creating a more durable euro zone. Mr. Constâncio said it was impossible to separate out how much each of those factors contributed.

The E.C.B. gave itself credit for some of the improvement, including its promise to buy government bonds as needed to contain countries’ borrowing costs. It also lauded the decision by euro zone leaders this week to give the E.C.B. overall authority for regulating banks.

Mr. Constâncio emphasized that, even though the E.C.B. has direct control only over about 150 of the biggest banks as part of the so-called banking union, it sees itself as overseer for the whole banking system, with the power to assume oversight of any bank it chooses. Mr. Constâncio said that political leaders understood this.

The E.C.B. “has legal competence over all the banks,” he said. “This is a very important idea.”

Banks, and falling bank profits, were the major weaknesses identified by the E.C.B. in the report. European bank shares are currently valued at much less than the value of their assets, the report said.

“It really is a very negative judgment by the stock market,” Mr. Constâncio said.

Article source: http://www.nytimes.com/2012/12/15/business/global/15iht-ecb15.html?partner=rss&emc=rss

Economix Blog: A Glass Half Full

That, at least, might be the conclusion from a new poll from the Allstate Corporation and National Journal. Although 70 percent of Americans believe the country is generally on the “wrong track,” and more people say their financial situation is in only fair or poor shape than say it is in good or excellent shape, 60 percent said they were still living the American dream.

The poll, which has been conducted quarterly since early 2009 by FTI Consulting, defined the American dream as “the opportunity to go as far as your talents and hard work will take you and to live better than your parents.”

Sounding a bit like a candidate on the campaign trail, Jeremy Ruch, assistant vice president at FTI Consulting, attributed what might look like a disconnect to “the enduring optimism of the American public.”

“It’s no surprise that there’s been some economic difficulties facing the country over the last few years, and Americans are disappointed and disenchanted with political leaders in Washington and also to some extent the business community and corporate America,” he said. “And on the personal front people have taken a hit to their personal finances, but despite all that, the optimism of the American people shines through here.” That positive outlook, he said, “surpasses all those other indicators that are dragging different parts of the economy and the mood down.”

The 11th quarterly Heartland Monitor poll also specifically surveyed a larger group of adults aged 50 and older to gauge their views of retirement. The survey found that overall, 73 percent were confident they would have enough money to retire in financial security.

But the view of those who are already retired compared with those who are yet to retire differed quite dramatically. Of those who had already retired, 42 percent said they were more secure in their sunset years than their parents, with nearly a third saying they had similar security levels to their parents. But among those 50-plus people who have yet to retire, 47 percent of them predicted that they would be less secure than their parents in retirement and only slightly more than a quarter said they would be more secure than their parents.

And while slightly more of the retired respondents said their finances were in good or excellent shape than rated them in only fair or poor condition, those who had yet to retire faced gloomier financial landscapes: 58 percent said their finances were in only fair or poor condition.

Article source: http://feeds.nytimes.com/click.phdo?i=d9e8eaa43732d97920b5ac6f8b8c55b1

European Central Bank Moves to Head Off Credit Crunch

But stocks fell after Mario Draghi, the E.C.B. president, quashed hopes that the bank might drastically scale up its purchases of euro area government bonds to help contain the sovereign debt crisis. Yields on Italian and Spanish bonds rose, an indication that investors were more pessimistic about those countries’ creditworthiness.

At a news conference, Mr. Draghi said he was “surprised” that comments he made last week were interpreted as a signal that the E.C.B. would buy more bonds if political leaders, who are meeting Thursday and Friday in Brussels, delivered tougher rules on budgetary discipline.

“While Draghi had opened the door for more E.C.B. support last week, he closed it again today,” said Carsten Brzeski, an economist at Dutch bank ING. “According to Draghi, it was up to politicians to solve the debt crisis.”

On Thursday evening European leaders were to begin their latest summit meeting on the sovereign debt crisis that threatens to stifle economic growth far beyond Europe’s shores.

Taken together, the moves showed that Mr. Draghi, president of the E.C.B. for just over one month, is willing to break with precedent to combat the crisis, even as the bank awaits the outcome of the Brussels meeting.

At the same time, Mr. Draghi seems to remain unwilling to violate the ultimate E.C.B. taboo and effectively print money by buying bonds in massive quantities. Mr. Draghi also threw cold water on expectations the E.C.B. might use the threat of deflation as a justification to expand the money supply.

“We don’t see any high probability of deflation,” he said.

The E.C.B. cut its key rate to 1 percent from 1.25 percent, as expected, returning it to the record low level that had prevailed from 2009 until earlier this year.

The central bank also announced additional measures to aid euro area banks suffering from a dearth of money-market funding. The E.C.B. said it would begin giving banks loans for three years, compared to a maximum of about one year previously. The move means the E.C.B. is intervening for the first time in the market for medium-term bank funding.

Banks will be able to borrow as much as they want at the benchmark interest rate. They must provide collateral, but the E.C.B. on Thursday also broadened the range of securities it accepts, which will help banks that have large amounts of assets that are hard to sell on the open market. The E.C.B. also eased its requirements for reserves that banks must maintain.

The measures will also help smaller community banks that may not have been able to borrow from the E.C.B. because they lack the required collateral, Mr. Draghi said.

In a sign of how badly banks need the money, 34 institutions took advantage Wednesday of a new lower interest rate offered by the E.C.B. in conjunction with other central banks for three-month loans denominated in dollars. The banks borrowed a total of $50.7 billion.

Mr. Draghi, who took over the E.C.B. from Jean-Claude Trichet on Nov. 1, has wasted little time reversing the rate increases imposed in April and July. Those policy moves were widely criticized as an overreaction to tentative signs of inflation and may have helped hasten a widespread economic slowdown in Europe.

Lower interest rates will be particularly welcome in countries like Portugal and Italy, where the debt crisis has pushed up market interest rates and made it harder for businesses to get loans.

At their summit meeting Thursday night and Friday, E.U. leaders were to discuss ways to impose more central control on government spending to avoid future debt crises. Mr. Draghi had suggested that more action could follow if leaders made serious progress. But following his comments Thursday it is unclear what those measures might be.

The European economy is almost stagnant, growing just 0.2 percent in the third quarter, with unemployment at 10.3 percent. Economists expect the economy in the 17 E.U. nations that use the euro to slip into recession early next year if it has not already. Declining output makes the debt crisis even worse by cutting tax receipts.

Earlier Thursday, the Bank of England held its benchmark rate steady at 0.5 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=fc0c5fd823ed87e454cca43e94b94136

China Says Helping Europe Would Be Difficult

HONG KONG — The Chinese government over the weekend sought to tamp down international expectations that Beijing might use its large financial reserves to help ease the European debt crisis.

The two government agencies that control the reserves face heavy restrictions on their use, Chinese government officials and economists said.

“The argument that China should rescue Europe does not stand, as reserves are not managed that way,” China’s vice minister for foreign affairs, Fu Ying, said in comments prominently reported by the state news media over the weekend.

Ms. Fu’s statements were significant because Chinese diplomats and political leaders had been less publicly hostile to the idea of helping Europe than Chinese economic policy makers, who had been strongly opposed.

Her comments conspicuously echoed some of the arguments made for several months by Chinese economic policy makers.

She said that the $3.2 trillion in bonds, bills and cash held by the central bank as official foreign reserves represented national savings that were not easily disbursed.

“Foreign reserves are not domestic income or money that can be disposed of by the premier or finance minister,” she added, according to Xinhua, the state-run news agency. “Foreign reserves are akin to savings, and their liquidity should be ensured.”

Lou Jiwei, chairman and chief executive of the China Investment Corporation, a $374 billion sovereign wealth fund that is managed independently of the foreign exchange reserves, has also tried to dispel speculation that it might buy a lot of European bonds.

He suggested a week ago that his fund might invest in roads, bridges and other infrastructure projects in Europe, part of a broader Chinese interest in fixed assets, rather than helping countries finance their budget deficits.

The Chinese central bank effectively borrowed the money from the Chinese public to buy the dollars, euros and other currencies in both funds. The central bank has required commercial banks to transfer one-fifth of their domestic deposits to it and has used that money to buy $1 billion or more a day of foreign currencies to slow the appreciation of the renminbi against the dollar.

The central bank has also pressed commercial banks to buy central bank bills that pay very low rates of interest and has used the proceeds to buy dollars. These methods of financing foreign exchange reserves have left the central bank with significant domestic liabilities in renminbi to balance against whatever return it can earn on foreign bonds, making economic policy makers particularly wary of taking risks with foreign exchange reserves.

The possibility that China might buy large amounts of European Union bonds has been raised repeatedly in the last year and a half by various officials from Greece, Italy and the European Union. These officials have sought to reassure financial markets that there will be demand for European government bonds, as a way to encourage investors to continue buying those bonds and thereby hold down the interest rates that European governments pay on their debt.

The Chinese government has mostly discouraged this speculation. But Prime Minister Wen Jiabao raised hopes in Europe in mid-September when he said that China might be prepared to lend a hand if Europe were to label China a “market economy,” a designation that would make it difficult for European companies to file antidumping cases against low-priced Chinese exports.

Mr. Wen did not offer details on how China might help. Ms. Fu’s remarks represented some of the strongest comments by a Chinese official since then to suggest that Beijing was in no hurry to lend a hand.

In remarks at a conference held at the Foreign Ministry on Friday and then reported by the state media over the weekend, Ms. Fu did not explicitly rule out buying bonds that might be issued as part of a European bailout. She did say that China continued to consider Europe an important economic partner.

But her caution suggested that China was not eager to increase its already sizable investment in the region; the foreign reserves include an estimated $1 trillion in euro-denominated assets, and experts on the Chinese central bank believe that much of it is invested in German government bonds.

Two people close to Chinese policy makers said on Sunday that China was particularly wary of buying any bonds issued in connection with a European bailout as long as there were clear differences within the European Union on the shape of a bailout. They insisted on anonymity because they were not authorized to discuss the subject publicly.

One of the two said China would lend large sums to Europe only if there were clear guarantees by the strongest European countries, particularly Germany, to take direct responsibility for the repayment of that debt.

But Germany has refused to accept that liability. If Germany did give its own repayment guarantee, there would be such heavy demand for the bonds from the Middle East and elsewhere that Chinese money might not even be needed, the person said.

Article source: http://feeds.nytimes.com/click.phdo?i=cfb56ccfc28b29756e76057ae293511a

Economix Blog: Blaming Government More Than Wall Street

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Americans blame the federal government more than they blame Wall Street for the nation’s current economic distress, according to a new poll from Gallup. In fact, forced to declare j’accuse to just one culprit, twice as many chose the feds:

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To be sure, Americans still say financial institutions deserve a lot of blame.

In a separate question in Gallup’s survey, which was conducted Oct. 15-16, respondents were asked how much they blamed Wall Street in general, and more than three-quarters said the banks deserved “a great deal” or “a fair amount” of blame.

Perhaps not surprisingly, in the question about apportioning blame between the two potential malefactors, Tea Party sympathizers were tremendously more likely to assign more blame to the government. What’s more, both Democrats and Republicans were more condemnatory of the government than finance, to varying degrees.

Occupy Wall Street supporters, as you might imagine, were indeed more likely to blame the financial services crowd, but the preference was still relatively small:

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Given persistently high unemployment rates, and Washington’s insistence on arm-wrestling over the debt ceiling rather than focusing on the jobs crisis in recent months, it’s hardly surprising that there is so much anger at the federal government. A separate Gallup survey found that Americans’ confidence in their political leaders was at historic lows.

The question now is: Is there anything that the government will — or even can — do to help fix the economic wreckage that Americans blame them for? What do you think, readers?

Article source: http://feeds.nytimes.com/click.phdo?i=ce0c6d91c8bd7b9a05a5c4408cb49bac