December 8, 2023

Eurogroup Chief Takes Some Blame for Cyprus Crisis

The Dutch finance minister, who announced a tax on Cypriot depositors, almost suggested as much on Thursday. Under a barrage of questions from puzzled and profile-seeking lawmakers in the European Parliament, he accepted blame for agreeing to the controversial tax.

The decision to impose the levy on small depositors “was not stopped by me because it was a compromise which brought together the different interests and the different goals that we share,” said Jeroen Dijsselbloem, president of the group of 17 euro zone finance ministers. “As the Eurogroup president, I will take responsibility.” But he added that the levy was the result of “a joint decision.”

“Whether we are incompetent or not, I’ll leave up to you to judge,” he told lawmakers in a scheduled hearing that turned into an accounting for the turmoil after the announcement last weekend, which spooked savers by taxing their deposits and ignited new doubts about the viability of the euro currency.

Mr. Dijsselbloem conceded that he should have “communicated more right from the start” on why the levy — particularly on deposits under €100,000, or $130,000 — should not be seen as a threat to savers across Europe, and he insisted that there had not been “a huge loss of confidence” in a Union-wide rule that guarantees deposits up to €100,000.

As the Cypriot Parliament, which rejected the weekend bailout package on Tuesday night, prepared to vote on fresh proposals Thursday, Mr. Dijsselbloem said that a levy on deposits was “inevitable” in order to help cover the costs of a bailout, but that a revised arrangement should put a far greater burden on wealthier depositors.

Mr. Dijsselbloem, 46, took over just two months ago as chair of the euro zone group from Jean-Claude Juncker, the Luxembourg prime minister and a seasoned player of European politics, who had held the post since 2005. He cuts a youthful figure among the graying cadres who keep the machinery of the European Union ticking over.

Dutch officials characterize Mr. Dijsselbloem as a gutsy and gracious politician, and he remained consistently cool under sustained attack on Thursday. But he has little experience at top levels of government or European affairs, having assumed the finance portfolio, his first Dutch cabinet post, late last year.

Mr. Dijsselbloem, whose Eurogroup term lasts two and a half years, immediately brought a speedier metabolism to the group by announcing meetings on his Twitter account and calling ministers to Brussels earlier in the day with the goal of ending meetings earlier.

So far, the results are mixed.

The decision on the levy was announced after what participants characterized as a rancorous and chaotic 10-hour meeting that also involved the European Central Bank and International Monetary Fund — two members of the so-called troika that includes the European Commission and helps determine the terms of euro zone bailouts.

Sharon Bowles, a Briton who leads the Economic and Monetary Committee at the European Parliament and introduced Mr. Dijsselbloem on Thursday, said she didn’t want to go “too much on a witch hunt,” but demanded to know how plans to sting small depositors had gotten so far.

“I know that you can get around it calling it a wealth tax or a levy or whatever,” said Ms. Bowles. But many citizens across the Union now had “a lot of concern” and wanted to know, “Is this a new tool in the tool box, are they safe, and what is to be expected?”

Ms. Bowles suggested that Mr. Dijsselbloem’s presentation had been ham-fisted and should have included “more sensitivity” to concerns about whether the €100,000 deposit guarantee was still valid. She noted that Mr. Dijsselbloem waited two days to issue a second, clarifying statement.

Mr. Dijsselbloem conceded errors.

“Of course we should have spent more time, more wording, right from the start, on the distinction between a one-off wealth tax, a contribution, etc., which is a completely different thing” from the Union-wide deposit guarantee system, he said.

Mr. Dijsselbloem’s first challenge has been one of the hardest imaginable.

In seeking a solution for Cyprus, he has butted up against the reluctance of North European nations, including his own, to fork out money to a divided island in the Eastern Mediterranean and to save a banking system that has long benefited Russian investors whom many lawmakers, particularly in Germany, suspect of involvement in money laundering.

The Cypriots have stoked concerns by seeking to protect a banking sector that José Manuel Barroso, head of the European Commission, noted on Thursday was based on “an unsustainable financial system that is basically eight times bigger than” the island’s G.D.P.

Further complicating matters, Nicos Anastasiades, the newly elected Cypriot president, involved in some negotiations on Friday night, flatly refused a proposal to lower the tax on ordinary Cypriot deposit holders, fearing that a higher tax on bigger depositors would see them flee and hollow out the island’s vital financial services sector.

Derk Jan Eppink, a Dutchman elected to the European Parliament from Belgium, needled Mr. Dijsselbloem over allowing the Russians to help decide Cyprus’s fate.

There are tens of thousands of Russian citizens living on Cyprus, and Moscow has a strategic interest in the island because of its proximity to its ally, Syria, and because of newly discovered offshore gas reserves.

The danger now is that “Putin is going to keep you dangling,” Mr. Eppink said, referring to the Russian president, who denounced the weekend bailout proposal. Now, the lawmaker warned, “Russia will exert influence over Cyprus.”

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Censored Newspaper in China Returns to Publication Amid Struggles

The agreement, reached late Tuesday, was part of a compromise in which reporters and editors who had said they would strike continued to work to put out the newspaper, Southern Weekend, also known as Southern Weekly. It is an iconic liberal publication that has regularly challenged Communist Party officials and policies but has come under tighter control in recent years, particularly since the summer.

The publication delay on Thursday was due in part to a disagreement between the newspaper’s leadership and employees over whether to publish an editorial defending the newspaper and letters of support from readers, the senior editor said. The leadership chose not to publish the editorial or the letters in an effort to calm the crisis, he said.

In Beijing, talk of another newsroom in crisis emerged on Wednesday as reporters at Beijing News, a newspaper co-founded by the parent company of Southern Weekend, said propaganda officials forced the newspaper, against the judgment of its publisher and top editors, to run an editorial attacking Southern Weekend. Some journalists broke down in tears in the newsroom, according to various accounts, and the publisher, Dai Zigeng, threatened to resign, but was still in his job Wednesday night.

The deal in Guangzhou, the provincial capital, appeared to bring a tentative peace to a newsroom in turmoil, though journalists said they would have to see whether provincial officials followed through on their promises.

The journalists appeared to back down from their demands that the top provincial propaganda official, Tuo Zhen, leave his post. Newspaper employees have accused Mr. Tuo of putting in place much stricter censorship rules since he began his job in May; in particular, they said, he had a hand in the rewriting of a New Year’s editorial that was supposed to have been a call for enforcement of constitutional rights but that ended up being more of a paean to the current system. It is unclear what role Mr. Tuo played in the changes, which ignited the call last weekend among some journalists to carry out a strike.

Journalists at Southern Weekend said that under rules imposed by Mr. Tuo, propaganda officials regularly reviewed the content of the paper before it went to print and vetted reporting topics proposed by journalists. Those rules are supposed to be abolished under the new agreement.

Zeng Li, a veteran journalist who reviews articles in-house at Southern Weekend to guard against riling the censors, said, “Now things are calming down.”

“To publish a good paper is the hope of both the leaders and the staff,” he added.

Hu Chunhua, the new party chief of Guangdong, China’s most liberal province, helped mediate the settlement, journalists said. The clash over censorship is the first big test for Mr. Hu, 49, who is considered one of the party’s rising stars and a candidate to be the leader of China in a decade.

The battle at Southern Weekend also poses a challenge for the central authorities. Xi Jinping, the new party chief, made a trip to Guangdong late last year to stress the need to open the economy further. Analysts have wondered whether he will also call for greater political freedoms. Mr. Xi has made remarks, though, that underscore the need for China to remain true to its socialist roots.

Central propaganda officials appear to have taken a tough line on the censorship issue by demanding this week that the biggest news Web sites and some important publications print an editorial criticizing Southern Weekend that was originally published by Global Times, a populist newspaper, and widely derided by Chinese journalists. Beijing News ran a truncated version.

One journalist described the scene in the Beijing News office in a blog post: “Some people look sad; some burst into tears; some shout that they are going to quit.”

The post continued: “We don’t want to kneel down, but our knees have been shattered. We are kneeling down this one time while gnashing our teeth.”

Edward Wong reported from Guangzhou, and Jonathan Ansfield from Beijing. Mia Li contributed research from Guangzhou, and Shi Da from Beijing.

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DealBook: Private Equity Firms Stimulate Earnings and Deals in Post-Revolution Egypt

Abraaj Capital bought a stake in AlBorg Laboratories in May 2008, and the Egyptian medical testing company has performed surprisingly well.Abraaj CapitalAbraaj Capital bought a stake in AlBorg Laboratories in May 2008, and the Egyptian medical testing company has performed surprisingly well.

DUBAI — After Abraaj Capital bought a stake in AlBorg Laboratories in May 2008, the Dubai-based private equity firm braced for a rough ride. Over the next four years, AlBorg, an Egyptian medical testing company, weathered the global financial crisis, the economic downturn and the revolutions that swept the Mideast.

When the turmoil faded, Abraaj was shocked with the results. AlBorg had not only emerged unscathed — it emerged stronger. In the first half of 2012, the company’s earnings rose 30 percent, according to Abraaj.

“Certain sectors, especially health care, have experienced a renaissance of sorts since the dust settled post-revolution in Egypt,” said Ahmed Badreldin, the co-head of large cap private equity at Abraaj Capital. “These sectors are performing surprisingly, unexpectedly well, especially in the first quarter of 2012.”

Such pockets of strength are increasingly common across the private equity landscape in Egypt, traditionally one of the biggest markets for Mideast buyouts. And industry professionals are hoping that the trend will persist, reviving the moribund deal-making environment in the region.

Amid the tumult in recent years, big investors damped their expectations for Egypt, figuring their companies would be lucky to notch single-digit gains, if any at all. But last year, a number of private equity-owned businesses in the country increased their earnings by 40 percent or more, with consumer-oriented companies showing the most resilience.

In some ways, the companies are benefiting from the Arab Spring. In 2011, the Egyptian government increased salaries and introduced a minimum wage. With increased purchasing power, the country recorded record high sales in consumer goods, especially in the first few months of 2012.

Private equity is broadly betting on the rise of the middle class — and the demand for power, food, health care and goods that comes with it.

Eastgate Capital, the private equity arm of the Saudi bank, NCB Capital, bought the jewelry firm L’Azurde, a subsidiary of a Saudi company in 2008, and took a $40 million stake in the generic drug maker Sigma, the next year. The firm’s portfolio of Egyptian companies, according to Eastgate, increased earnings by roughly 40 percent this year, far exceeding expectations of 5 percent to 10 percent.

“This growth is driven by robust consumer spending, supported by the large population and increase in salaries post-revolution,” said Nasr-Eddine Benaissa, managing partner of Eastgate Capital Group.

“From a practitioner’s point of view, we just have to see how the political situation plays out,” he added. “And if stability is achieved, it’s very likely that Egypt will regain its reputation as a key private equity market.”

Amid the tumult, private equity companies have had to be opportunistic to drive earnings at their companies. Some have turned to deal-making. AlBorg Laboratories bought a stake in a Sudanese company, Ultralabs, earlier this year, capitalizing on weakness in the region.

Private equity firms have also focused on operations. Sigma, one of Eastgate’s portfolio companies, expanded geographically and opened a state-of-the-art manufacturing plant in Egypt. To help AlBorg navigate the uprisings, Abraaj introduced a new management team and posted two executives from its firm to support the transition.

“One of the key ways that we were able to help AlBorg increase revenues is by paying attention to human capital, which has traditionally been a bottleneck in Egypt,” said Mr. Badreldin.

Not all sectors are performing well. Tourism, real estate, construction and other cyclical sectors influenced by economic and political instability have been struggling. “Real estate, nobody wants to touch because our private equity clients feel that prices peaked over the last few years and the political outlook is still uncertain,” said Omar Bassiouny, head of mergers and acquisitions at the law firm, DLA Matouk Bassiouny.

The market conditions also remain shaky, making it difficult for private equity firms to sell companies or take them public. In July, Citadel Capital canceled its plans to sell National Petroleum.

But private equity firms are hoping to leverage the new strength in their portfolios to raise money and make more deals.

When the financial crisis hit in 2008, deals were suspended, firms retrenched, and investors grew cautious. While activity slowly returned in 2010, it all but dried up the following year during the Arab Spring, and even the most risk-tolerant investors sat on the sidelines.

“When it comes to new private equity acquisitions, there is that ‘wait and see’ attitude about the environment, and for financing to become available,” said Ahmed Heikal, chairman of the Egyptian private equity firm Citadel Capital.

Fund-raising efforts have slumped, too. In the first half of 2012, private equity firms raised just $96 million, according to data from the Emerging Markets Private Equity Association.

For now, private equity firms are focused on the small areas of opportunity, mainly health care and infrastructure. In April, the Lebanon-based EuroMena Fund bought a 51 percent stake in Al-Oyoun Al Dawali Hospital, worth $11 million. In June, the Egyptian Refinery Company secured $1.1 billion in equity financing from a consortium of investors, including the private equity firm Citadel Capital and InfraMed, a fund focused on Egypt.

“My expectations at the end of last year were very different: no stability, lots of turmoil, not exactly attractive for private equity funds,” said Mr. Bassiouny. “I was pleasantly wrong about that.”

A version of this article appeared in print on 08/24/2012, on page B5 of the NewYork edition with the headline: Private Equity Stimulates Sectors in Post-Revolution Egypt.

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Economic Slump in the West Is Catching Up With Asia

For much of this year, the economies of the Asia-Pacific region appeared to be blissfully isolated from the turmoil in other parts of the world. Asian stock markets fell along with those in the rest of the world, but the region’s economies continued to power ahead.

Within the last few weeks, however, cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States’ growth remains subdued.

Exports from Asia have been softening for months as demand in Europe, in particular, has slowed. Although many countries depend less on exports than they once did, the sector remains crucial for economies like those of Taiwan and South Korea and for the small, open economies of Hong Kong and Singapore, economists say.

“The potential risks for Asia have increased” as the European crisis has moved beyond small peripheral economies like Greece, enveloping larger countries like Italy, Spain and even France, said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.

The spreading economic troubles were underscored Wednesday when a closely watched gauge showed Chinese manufacturing contracting. The reading, published by HSBC, dropped from 51 in October to 48 in November, the lowest level in nearly three years and much lower than economists had expected. A reading of 50 is the line between expansion and contraction.

The decline fanned worries about the spillover of the West’s problems into Asia. But it also reinforced nervousness about the effect in the opposite direction: the West increasingly needs a strong Asia to buy its goods as consumers elsewhere stay on the sidelines.

“Europe is now where the United States was three years ago: The economic contraction is only just beginning,” said Pranay Gupta, chief investment officer for the Asia-Pacific region at ING Investment Management in Hong Kong.

So far, the economic pain in Asia has been relatively muted, and much of the region remains on course for strong growth.

The Chinese economy is set to expand 9.5 percent this year, according to projections from the International Monetary Fund in September. India is expected to grow 7.8 percent, Indonesia 6.4 percent, and many other Southeast Asian nations more than 5 percent, the I.M.F. estimates.

Those figures, however, are generally below the growth rates seen in 2010, and are likely to ease off further next year, the I.M.F. and most economists say.

Reacting to the worsening global environment, Indonesia and Australia have lowered interest rates in recent weeks. Most other central banks in the region have put off rate increases that seemed likely only months ago fears about growth replace inflation concerns.

In Japan, the pain has been compounded by the results of the devastating earthquake and tsunami in March and by the persistent strength of the yen. Fanned by the economic difficulties in other parts of the world, the currency’s rise has made Japanese goods more expensive for shoppers abroad and has helped dent exporters’ profits.

With interest rates already at rock bottom, the government has resorted to direct intervention in the currency markets — selling yen for dollars — four times in little more than a year in its effort to weaken the yen.

In the financial sector, meanwhile, banks like HSBC, UBS and Nomura are cutting jobs around the globe. And although many banks would like to grow in the Asia-Pacific region, financial centers like Hong Kong and Singapore have not escaped the hiring freezes and job cuts.

“There are still pockets of hiring in the Asian financial sector, but it has got a lot tougher in recent months,” said Matthew Bennett, managing director at the recruitment firm Robert Walters in Hong Kong.

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Third Solar Company Files for Bankruptcy

Solyndra, which also received more than $700 million in venture capital financing, said it would try to find a buyer quickly to avoid a fire sale liquidation.

The solar industry has been in turmoil this year as a glut of panels has sent prices plummeting 25 percent. Manufacturing capacity expanded just as government austerity measures in Europe eliminated subsidies and undercut demand.

Solyndra cut prices to try to compete but said in court papers that it had been unable to match the extended payment terms offered by foreign competitors.

The company, based in Fremont, Calif., said last week it had suspended operations and laid off 1,100 workers.

Solyndra’s bankruptcy filing followed similar filings by Evergreen Solar and SpectraWatt, a private company that was backed by the Intel Corporation.

Solyndra said in documents filed in Delaware’s bankruptcy court that it planned to spend the next four weeks trying to drum up interest among potential buyers to avoid shutting down permanently and selling its assets piecemeal to repay its creditors.

If it finds a buyer, it could lead to the rehiring of some of its laid-off workers. One of those workers filed a class-action lawsuit against the company in the bankruptcy court, accusing Solyndra of violating the federal law that requires larger companies to give 60 days’ notice of layoffs.

Solyndra did not return a call seeking comment.

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Economix: 5 Answers From Today’s Jobs Report

The latest jobs report was a solid one, as I mentioned in an earlier post. Job growth is picking up speed, reaching 216,000 in March. Rising oil prices don’t seem to be spooking companies, at least not by the week of March 12, when the Labor Department conducted its survey. All that is very good news. Unlike last year’s recovery — which petered out in the spring — this year’s remains alive.

But today’s report was not great, either. Wages did not grow at all in March and have trailed inflation over the last year. The workweek didn’t get any longer; it typically does get longer before a big boom in hiring. And an employment increase of 216,000 is not exactly blistering. At that pace, the unemployment rate would not return to 5 percent for about five more years.

The economy is making progress, but the progress is slow and uncertain.

Last night, I posed five questions to ask about today’s report. I offer some answers below.

1. Has the latest turmoil — oil prices, Europe’s debt troubles, state and local cutbacks — spooked employers?

Again, no. Job growth over the last three months has averaged 159,000, the highest such number (excluding temporary Census jobs) since the recession began, in late 2007.

2. Is there reason to believe the Labor Department might be undercounting job growth?

Yes. The numbers above refer to the government’s estimate of job growth based on its survey of employers. But the government also surveys households each month. At turning points, the household survey can be more accurate, because the employer survey often fails to capture the creation of new companies.

According to the household survey, the economy added 291,000 jobs last month and an average of 219,000 over the last three months.

3. What’s happening to wages?

Absolutely nothing. The average hourly wage of all employees remained $22.87, unchanged from February and up only 1.7 percent over the last year. The wage trends are a reason to be sober about future consumer spending and highly skeptical of claims that the economy is on the verge of an inflationary spiral.

4. Are existing employees working more hours?

Not in March, which is not a wonderful sign. But the Labor Department did revise its estimate of the February workweek upward, to 34.3 hours, from 33.2 hours.

The workweek was also 34.2 hours back in May 2010 and hasn’t fluctuated much since then. By contrast, between June 2009 and May 2010, before last year’s recovery stalled out, the news was much better, the workweek rose significantly — to 34.2 hours, from a low of 33.7 hours.

5. How are the underemployed and the hard-core unemployed faring?

The number of people working part-time because they couldn’t find full-time work had been falling in recent months, as had the number of people who have been unemployed for at least 27 weeks. But there was no progress in March. The number of involuntarily part-time workers actually rose a bit, to 8.4 million from 8.3 million. The number of long-term unemployed did too, to 6.1 million from 6 million.

One last point:
The Labor Department’s usual revisions to earlier data — January and February, in this case — was mildly positive. Job growth in each month was slightly higher than thought.

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Oil Prices Ease as Libyan Rebels Plan to Resume Production

Over the last two days, the rebels have seized several towns with important oil installations that they said would enable them to produce and export crude. The rebels said they would able to produce up to 130,000 barrels of crude a day, still less than a tenth of what Libya exported before turmoil erupted last month.

While the amount of oil the rebels said they could export was small, Libyan oil is particularly valued on world markets because it is high quality, needs little refining and is particularly well suited for European diesel markets. Although there is concern that the rebel advance may prove to be fleeting, oil traders responded to their victories by pushing down the price of most world oil benchmarks, albeit modestly.

In early trading in New York, the price of light sweet crude was down $1.64 a barrel to $103.76. As the morning progressed, prices began to drift higher, and by afternoon had reached $104.61, still a decline of 79 cents. The price is 8 percent higher than it was a month ago, and 30 percent higher than a year ago, threatening the global economic recovery.

President Obama planned to address the nation Monday night regarding the United States involvement in Libya. The administration has been accused of failing to make its goals clear with regard to the action in Libya.

Some oil analysts expressed doubts the Libyan advance would make a lasting impact. Tanker companies will need to find ways to obtain insurance before they will venture into Libyan ports, analysts noted, and the rebels’ ability to retain control over oil terminals may be tested.

“With military action continuing and sanctions very much in place, it will be hard to move oil out of the country,” Barclays Capital reported in a research note. “There isn’t much clarity as to how many of the actual oil fields are under the control of the rebels.”

Nevertheless, it was the third day in a row that oil prices fell as the rebels’ fortunes improved. Another cause for the drop in oil prices is the strengthening of the dollar, which normally makes the commodity more expensive to buy in other currencies.

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