Greece must act on fiscal plans

25. Feb. 2010

TOKYO - Moody's Investors Service said on Thursday any changes in its ratings on Greece would depend on whether Athens was smoothly enacting its fiscal reform plans as promised.

Pierre Cailleteau, the head of Moody's global sovereign ratings, told Reuters in an interview that Moody's would follow the situation in Greece and see what was happening on the ground.

"We have to look at the facts and whether the government of Greece is going to do what it has promised to do," he said.

Rival ratings agency Standard and Poor's said on Wednesday it may downgrade Greece's BBB+ rating by one or two notches within a month, citing downside risks to growth that could hinder the country's deficit-cutting plan.

Cailleteau said that if in the next couple of months Moody's sees that Athens is implementing its plan as promised, it could keep the rating where it is or stabilize the outlook.

"Or if we see, based on evidence, that there is a deviation from the plan, we will change our rating accordingly. So a small deviation would lead to a small downgrade and a large deviation -- which we think is unlikely -- would lead to a large downgrade," Cailleteau said.

Moody's said earlier this month that debt-stricken Greece could face the risk of a multi-notch rating cut if its public finances remained unsustainable.

Moody's currently has Greece's long-term debt rating at A2 with a negative outlook.

"We want to evaluate the rating quickly but at the same time we are reasonable people. You can't expect a government to turn around a fiscal position in a few weeks," Cailleteau said.

Asked if Greece was in imminent need of support, he said Moody's did not think so.

"All the evidence we have so far is that Greece has been able to raise funds," he said.

European Union finance ministers earlier this month set Greece a deadline of May 15 to take urgent measures to rein in its budget deficit in addition to a mid-March deadline for a review of its progress so far.

Fears over Greek debt have hit the euro and lifted Greek bond yields this year. Investors are looking closely at how Europe tackles the problem.

The euro tumbled to its lowest in a year against the yen on Thursday and dipped within sight of a recent nine-month low against the dollar, below $1.3500.

JAPAN NEEDS TO WORK ON FISCAL PLANS

Moody's said it didn't think the problems in the euro zone would spread to countries such as Australia, New Zealand, China or Japan.

Tom Byrne, senior vice president and Asia regional credit officer at Moody's, said China still had a strong fiscal position.

"There could be contingent liabilities in the banking sector from the credit surge. But we think the Chinese economy has strong medium term growth prospects at least," Byrne said in an interview with Reuters Insider television.

"We don't see any exogenous threats to China."

But Japan's sovereign debt rating could come under pressure if its economy performed poorly and the government failed to draw up convincing fiscal plans, he said.

"The question that we're asking ourselves is ... can Japan get back on course, the course it was on before the (global) crisis?" Byrne said.

"For that to happen we have to see improved confidence in the economy, certainly improved confidence by the corporate sector, and also we have to see a bit more clear cut fiscal policies."

Last May, Moody's raised Japan's domestic debt rating to Aa2 from Aa3, saying the domestic market was able to absorb new borrowing from the most indebted government in the industrial world.

At the same time, it downgraded the foreign currency rating to Aa2 from AAA.

"The issue is if the deficit cannot be reduced over years beyond 2010, that would be credit negative," he later told a news conference.

In January, rival ratings agency Standard & Poor's threatened to cut Japan's credit rating unless it produces a credible plan to rein in its soaring debt and lift growth in an economy plagued by persistent deflation.

Japan's public debt now stands around 200 percent of gross domestic product, the highest among developed economies.

EU exec says fragile European recovery under way

25. Feb. 2010

BRUSSELS - The European Union economy is recovering from the deepest and longest recession in its history, but growth is still fragile although risks in 2010 are broadly balanced, the European Commission said on Thursday.

The EU executive kept unchanged its 2010 growth and inflation forecasts for the 16 countries using the euro and the whole 27-nation bloc for this year from early November 2009 and said risks to the projections were broadly balanced.

It said both the euro zone and the EU would expand by 0.7 percent this year after contractions of 4.0 percent and 4.1 percent respectively in 2009.

"With many of the main driving forces being still temporary in the EU and globally, the robustness of the recovery is yet to be tested," it said in a statement.

The Commission said in its interim forecasts for 2010 that while better-than-expected global demand could further spur exports, investment remained very weak, reflecting exceptionally low capacity utilization.

"A muted outlook for investment typically implies a weak labor market ahead, which in turn is likely tdampen private consumption," the Commission said.

It said euro zone inflation, which the European Central Bank wants to keep just below 2 percent over the medium term, would be 1.1 percent in 2010. In the whole EU, inflation should be 1.4 percent, above the 1.3 percent forecast in November.

"A sizeable slack in the economy is set to keep inflation in check, offsetting increases in energy and commodity prices. Price stability is expected to be maintained," the Commission said.

Risks for the inflation outlook were broadly balanced, as for the growth outlook.

"On the downside, the situation of financial markets remains highly uncertain and subject to serious adverse risks," the Commission said.

"On the upside, the vigor of the global recovery, particularly in Asian emerging markets, and the imminent turning of the inventory cycle in the EU may have a greater impact on domestic demand than currently anticipated," it said.
[Reuters]

Swiss say will no longer accept untaxed money

25. Feb. 2010

BERNE - Switzerland will no longer accept untaxed money into its banks as it tries to ease pressure on its $2 trillion offshore banking industry from key trading partners seeking to boost tax revenues, it said on Thursday.

Crisis in Credit

As it unveiled measures on how to foster the financial services industry on Thursday, the Swiss government also said it wanted to find a solution for the estimated $600-700 billion of undeclared assets still hidden in the country.

"We are not interested in untaxed money," finance minister Hans-Rudolf Merz told reporters.

The government has dropped the idea of seeking a pan-European deal as a way to improve EU market access for its firms and would instead seek to resolve the issue of untaxed money bilaterally with each country, he said.

He did not specify how Switzerland could do this in practice and reiterated a general commitment to embracing international standards for cooperation in tax matters that have been drafted by the Organization for Economic Cooperation and Development.

Switzerland also fell short of offering full transparency to its European Union partners as it said it would not accept the practice of automatic exchange of information relevant for tax purposes in use in all EU states but Luxembourg and Austri.

"Automatic exchange of information would be the end of bank secrecy, and I believe it would greatly damage the Swiss financial market," Merz said.

Switzerland, the world's largest offshore financial center and home to UBS (UBS.N)(UBSN.VX), Credit Suisse (CSGN.VX) and Julius Baer (BAER.VX), fears opening up too much would force money out of the Alpine nation to the benefit of rising financial centers in Asia.

Even though Switzerland offered on March 13 to help foreign authorities fight tax evasion, cash-strapped European Union countries cannot directly access bank data on assets hidden in secret Swiss accounts, known as "Schwarzgeld" or black money.

A damning U.S. tax probe into help UBS gave to Americans seeking to hide money abroad has also weakened Switzerland's international status.

Large neighbors France, Germany and Italy are also keeping the world's largest wealth manager under pressure through a combination of tax amnesties and threats to acquire Swiss bank data from informants.
[Reuters]

Three-way poker in Greek debt crisis

22. Feb. 2010

ATHENS - The man at the center of Greece's debt crisis is surviving on 4-5 hours sleep a night and could not get to his office last week because it was blockaded by striking employees.

"We know we don't have a blank check," Finance Minister George Papaconstantinou told Reuters in an interview at a temporary refuge in a tax and customs administration building.

"We have public support as long as people feel everyone is bearing the burden equally."

Papaconstantinou is trying to make the most of a weak hand in a three-way poker game involving Greece, its European Union partners and the financial markets.

Greece needs to borrow or refinance 53 billion euros ($71.52 billion) this year, including 20 billion in April and May.

"We want to be able to borrow on the same terms as other countries in the euro zone," Prime Minister George Papandreou told a conference in London last Friday.

But investors anxious at the risk that Athens may be overwhelmed by its debts, projected to hit 120 percent of gross domestic product this year, are charging a steep premium to buy Greek bonds rather than benchmark German bunds.

The government needs to slash a huge budget deficit fast to assuage angry European partners and restore credibility in the bond markets, without squeezing voters so hard that it triggers a social revolt in a famously rebellious country.

Papaconstantinou is looking for clearer EU support to help escape a vicious circle of rising borrowing costs, harsher austerity measures, prolonged recession and diminished revenue.

Having owned up to a massive under reporting of its deficit and promised swift corrective action, Greece's negotiating leverage with its EU partners is mostly negative.

It can dramatize the risks for the entire euro zone if its debt woes get worse, it can point to the danger of social unrest if the EU forces too harsh austerity on Greeks, and it can threaten to go to the International Monetary Fund.

The government is doing a little of each while stressing its utter determination to meet steep deficit reduction targets.

"COLORADO DOESN'T GO TO THE IMF"

"The real threat, which they may eventually have to use, is not default, or leaving the euro zone, but going to the IMF," said Loukas Tsoukalis, a former top policy adviser to European Commission President Jose Manuel Barroso.

"That would look serious for the euro zone because we share a common currency. After all, Colorado doesn't go to the IMF," said Tsoukalis, president of Athens' Eliamep policy think-tank.

Euro zone heavyweights France and Germany have insisted that the Greek problem should be handled within the European family.

After EU leaders declared their support on February 11 for Athens' deficit-cutting program and vowed coordinated action, if needed, to safeguard stability in the euro zone, markets were looking for a clear signal of how Europe would help Greece.

It didn't come. Debt spreads, which fell on expectations of an EU rescue package, have crept up again as markets see the public backlash in Germany and question Berlin's willingness to make any financial commitment to Greece.

These doubts come just as Athens is hoping to go back to the market with its next 10-year bond issue.

After talks with EU colleagues last week, Papaconstantinou said in the interview: "We need to give the assurance to markets that we are actually working toward a potential instrument of "xyz" type, so that we'll never have to use it."

He did not rule out seeking IMF assistance but he said there were no negotiations with the global lender now.

Seen from Brussels and Berlin, it is too early to ease pressure on Athens by spreading out a European safety net that would be deeply unpopular with German, Dutch and Finnish voters.

EU ministers reckon Greece should take more drastic steps quickly to cut its public wage bill, raise value added tax and further increase fuel tax to achieve a promised deficit reduction this year of 4 percent of GDP.

The government is waiting until after a one-day general strike by the two main trade unions this week against its public sector wage freeze, tax hikes and welfare cuts before deciding on any further measures.

Papaconstantinou hopes that by April, Greece will have impressed markets with the initial execution of its fiscal adjustment, won further approval from Brussels and secured a clearer EU guarantee to back its borrowing.

"My only choice is to accelerate what we are doing here, be as public about it as we can, grit our teeth until things quieten down and pay the higher cost," the minister said.
[Reuters]

Euro's future in question even if Greece rescued: Soros

22. Feb. 2010

SINGAPORE - A makeshift assistance should be enough to rescue Greece but bigger problems facing Europe would leave the future of the euro currency in question, billionaire investor George Soros said.

Writing in the Financial Times, Soros said what the European Union needed was more intrusive monitoring and institutional arrangements for conditional assistance. He said a well organized eurobond market was desirable.

"A makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal and Ireland. Together they constitute too large of a portion of euroland to he helped in this way," Soro said.

"The survival of Greece would still leave the future of the euro in question."

Greece's deficit swelled to 12.7 percent of gross domestic product in 2009, way above the EU's cap of 3 percent. Greece has pledged to reduce its budget deficit to 8.7 percent in 2010.

On Saturday, a magazine reported Germany's finance ministry has sketched out a plan in which countries using the euro currency will provide aid worth between 20 billion and 25 billion euros ($27-$33.7 billion) for Greece.
[Reuters]

Broader euro zone economic guidelines needed: Greece

22. Feb. 2010

HELSINKI - Broader economic guidelines are needed for to make the euro zone work, not just strict fiscal rules, Greece's finance minister was quoted as saying on Monday.

"This is not only a question of a Greek crisis, but a general European problem. We cannot have a monetary union where there is not a common economic policy that all follow," Finance Minister George Papaconstantinou told Finnish business paper Kauppalehti in an interview.

"A common economic policy cannot be defined only by fiscal measures. It must, for example, define how member countries take care of their competitiveness," Papaconstantinou said.

He said the European Union should have power to inspect developments in member states closely.

"We want it that way. If it would have been like that, Greece's previous government would not have been able to distort public finance data."

Fears over Greece's bloated debt and an uproar over its reporting of economic statistics in recent weeks have roiled markets globally, driving bond yields up and the euro down.

The Greek government has responded with a plan to slash its public deficit from 12.7 percent of gross domestic product to less than 3 percent by 2012.

"These are well-directed measures but I don't think that they will endanger growth," Papaconstantinou told the paper.

He added that the economic downturn from last year had carried into the start of this year, but things should start to improve later in 2010.

"A turn to the better will happen only in the second half of the year," he said.
[Reuters]

French refinery strikers to meet Total on Sunday

21. February. 2010

PARIS - Strikers at Total's (TOTF.PA) French oil refineries plan to meet the firm's management on Sunday, after warning that some petrol stations could run out of fuel in the next few days.

The CGT union, which represents 60 percent of union members at Total, is protesting against the possible closure of the Dunkirk plant in northern France by Europe's largest refiner.

Workers at Total's six French refineries extended their three-day strike on Friday.

The meeting is set for 1300 GMT on Sunday, the union said.

"In the event that negotiations fail, a petrol shortage will be the order of the day starting next week," the CGT said in a statement on Saturday.

Total Chief Executive Christophe de Margerie and France's Minister of Industry Christian Estrosi also plan to meet on Sunday, a spokesman for the refiner said.

France has 10 to 20 days of fuel supplies to cope with the refinery strike, the French Petroleum Industry Body said on Friday, ruling out an imminent petrol shortage as Parisians head off for school holidays.
[Reuters]

Greece's woes scared countries into action

21. February. 2010

HELSINKI - Greece's financial problems have scared other government into taking action to strengthen their finances, and any talk of a "chain reaction" affecting other countries should be avoided, Finland said on Saturday.

"Greece has been such a hard lesson," Finnish Finance Minister Jyrki Katainen told national broadcaster YLE in an interview. "It has scared political decision makers into taking ... comprehensive actions."

Concern over Athens' ability to repay its debt has shaken confidence in the euro and prompted European Union leaders to pledge they will take coordinated action, if needed, to preserve the stability of the single currency.

The Greek government has said it plans to slash its public deficit from 12.7 percent of gross domestic product to less than three percent by 2012.

Katainen said it was important not to link the problems in Greece with other European countries.

"There has been a fashion in recent days to say that Spain, Portugal and Italy are next in line because they are southern European countries and they have economic worries," Katainen said.

"It is very dangerous to link, via rumors, these countries, who through their own actions can very well get their economies into shape," he said. "This speculation ... has to be avoided."

On Spain, Katainen said: "The market believes that Spain can recover when it takes comprehensive actions, large budget cuts, and I believe that this is still possible."
[Reuters]

Up to 25 billion euros in aid mulled for Greece

21. February. 2010

BERLIN - Germany's finance ministry has sketched out a plan in which countries using the euro currency will provide aid worth between 20 billion and 25 billion euros ($27-$33.7 billion) for Greece, a magazine reported on Saturday.

Citing "initial considerations" by the ministry, German weekly Der Spiegel said the share of financial aid for Greece would be calculated according to the proportion of capital each country holds in the European Central Bank.

A spokesman for the German finance ministry said he would not comment on the report, which stated that the financial assistance should take the form of loans and guarantees.

The report said all euro countries would shoulder the burden and that Germany's share in the package would amount to 4-5 billion euros, and be handled by state-owned bank KfW.

According to the German planning, the aid should be tied to strict conditions, the magazine said, adding that loan tranches should only be paid out once these are met.

Spokesmen for both the Greek finance ministry and the European Commission declined to comment on the report.

Chancellor Angela Merkel's government has so far resolutely deflected appeals to promise Greece aid despite fears that failure to help Athens could threaten the euro.

Germany in public argues that leniency would take pressure off Athens and other euro zone debtors to cut their budget deficits. Behind the scenes, lawmakers acknowledge that Berlin has prepared measures if a rescue becomes inevitable.

Merkel's position has been complicated by the fact the country is embroiled in a highly charged debate on the sustainability of Germany's welfare state.

This has helped to galvanize public opposition to Berlin funding a bailout just as her center-right coalition braces for a big test of its popularity in May, when voters go to the polls in Germany's most populous state, North Rhine-Westphalia.

TRANSPARENCY

Speaking to Der Spiegel, Greek Prime Minister George Papandreou told Germany he was not seeking aid, and criticized the Commission for failing to ensure member states adhered to the EU's Stability and Growth Pact that limits budget deficits.

"The union could in the past have more rigorously policed whether the stability pact was being observed -- with us too," he said. "In future we should allow the European statistics office direct access to individual member states' data."

"We suggested that, but not all countries wanted to have so much transparency," Papandreou said.

Greece's deficit swelled to 12.7 percent of gross domestic product in 2009, way above the EU's cap of 3 percent, and Athens needs to sell some 53 billion euros of debt this year, including at least 20 billion euros in April and May.

In case demand should falter, German lawmakers have been quietly thinking about how Greece could be helped.

A senior financial official in the ruling coalition told Reuters last week Germany was considering using the KfW to buy Greek government bonds. A separate proposal saw the KfW issuing guarantees to German banks that bought the Greek bonds.

Separately, Der Spiegel said that an internal report by Germany's financial market watchdog BaFin concluded that German banks could be seriously threatened if Greece or other countries including Spain, Portugal and Italy become insolvent.
[Reuters]

Outstanding External Debt Numbers: Greece Doesn't Look So Bad

17. February. 2010

There's an interesting piece up over at CNBC that ranks the world's biggest debtor nations in order of outstanding external debt (as a percent of GDP) rather than the more common budget deficit (again, as a percent of GDP) and the results are rather surprising.

While the U.S. is number 20 on the list and Greece comes in at a respectable 16th place, the winner by a wide margin is Ireland where external debt totals 1,267 percent of GDP, a figure that converts to a whopping $567,805 per person.

How is this even possible? They make the U.S. look like penny pinchers.

Instead of total external debt, normally you hear the financial media talking about the current year budget deficit and, lately, how badly Greece and Portugal are doing with their finances here in 2010. But, you'd think that maybe the grand total of all prior budget deficits along with the current one might be of equal concern.

The Economist magazine tallies the budget deficit data in this handy table and, there, you'll see that Ireland's current budget gap is 12 percent of GDP, just one percentage point less than in Greece where, in recent weeks, the shortfall has caused rampant speculation about the breakup of the euro currency block (well, the Greeks lying about it didn't help).

When looking at total external debt, it's not even close - Ireland at 1,267%, Greece at 161%.

Here's a table with the complete list of 20 nations from the CNBC data:

However you look at it, that's a lot of money owed by a lot of governments and you have to wonder how you get from the current figures above to anything that seems reasonable.
[Seeking alpha, by: Tim Lacono]

CDS Tale of a Giant (China) and a Dwarf (Greece)

17. February. 2010

The past week has seen the problems of a small southern European country writ large on the global stage as the world weighs whether contagion or moral hazard is the more important enemy to battle.

So while the world watches the woes of a country with 11MM people, a country with 1 bilion has tapped the breaks three times since we entered 2010. The first came on 1/7 when the People’s Bank of China raised the interest rate on its three-month treasury bills by 0.04%. The second time was on 1/18 when the central bank increased reserve requirements by 0.50%. The third time was last Friday when the PBoC raised its reserve requirement by another 0.50% bringing the percentage of deposits banks have to keep on hand to 16.5%.

The move on the 18th was part of a triple whammy to hit the U.S. stock market, accompanied by Obama’s banker bonus bashing and the bumbling of Bernanke’s 2nd term confirmation. This troika set of the correction that brought the S&P 500 from 1150.23 on 1/19 to 1056.74 on 2/8.

Stocks in China also dropped on each of the days the People’s bank took action but China’s economy doesn’t seem to care. Evidence of this was corroborated by data released Friday that electricity demand rose by 40% in January alone and appears to be pushing the limits of existing infrastructure.

Two separate purchasing-managers indexes also showed increased activity in manufacturing with the HSBC China Manufacturing Purchasing Managers Index (3 times fast please) rising to a record of 57.4 in January from 56.1 in December. The China Federation of Logistics and Purchasing and the National Bureau of Statistics index came in at 55.8, down slightly from December’s 56.6 reading but still comfortably above the 50 mark which determines whether the economy is expanding or contracting.

As for Friday’s efforts to slow things down, Mark Williams with Capital Economics in London said, “The first signals that the People’s Bank were tightening made big waves in the markets around the world, because the China recovery has been such a big part of the global story over the last few months,” adding “I wouldn’t expect this move to have anything like the same impact.”

With regard to how these moves are impacting the Middle Kingdom’s economy, Wang Tao, UBS’ China economist said, “Even if new Yuan loans were under control, liquidity in China’s real economy remained ample last month, which supported the manufacturing activity.”

The central bank’s efforts to rein in lending “is creating some concern here that they might slow down their economy so much that it impacts the global rebound,” was how Robert Pavlik, chief market strategist at Banyan Partners in New York, described the reasoning behind the world’s reaction to the rate hikes.

As with many things, the tightening seems to be relative as new local currency loans totaled 1.39TN Yuan ($203.6BN) in January, nearly 1/5th of the governments lending target for the entire year. With property prices up 9.5% in the first month of 2010 it would seem prudent to slow things a bit. Fortunately consumer price inflation moderated to 1.5% in January from 1.9% in December so there might not be the need to really slam on the brakes.

Additionally, the National Development and Reform Commission, the agency responsible for economic planning, predicted that oil will average around $80/bbl this year, up about 25% from last year and reinforcing analysts’ expectations that Chinese demand will continue to help push prices up despite concerns that recent credit tightening moves could crimp its demand for oil.

China’s apparent energy appetite rose 15% YoY in December and Harry Tchilinguirian, senior oil analyst with BNP Paribas, thinks that “with growth front-loaded in 2010, the progressive tightening won’t bear much impact on oil demand in the first half of the year.”

Sounds like the growth news out of China will more than make up for the gross debt issues out of Greece.

5-yr CDS levels for Greece retreated last week falling from 425bps on 2/8 to 355 on 2/12. For a little perspective, it should be noted that in August of last year, default protection cost just 100bps on Greek debt.

CDS levels for China’s sovereign paper closed at 85bps on Friday. CDS levels in this market have been range bound since May of last year with a high of 92bps (11/27/2009) and a low of 59bps on 9/23/2009.

Enjoy the holiday shortened week.
[Seeking Alpha, by: Jim Delaney]

Offshore centers seek to solve bank secrecy riddle

15. February. 2010

ZURICH - European offshore centers are seeking ways to ward off relentless foreign pressure on bank secrecy that is threatening their role as financial hubs, but appeared after talks in Luxembourg to lack a concrete strategy.

Swiss Finance Minister Hans-Rudolf Merz met ministers from Luxembourg and Austria, the only two European Union states that still retain bank secrecy, and the prime minister of formerly black-listed tax haven Liechtenstein during closed-door talks in the heavily-guarded castle of Senningen.

They were joined for the first time by German Finance Minister Wolfgang Schaeuble, whose determination to hunt down tax cheats even by purchasing stolen data has rattled the multi-trillion dollar offshore banking industry.

"The meeting was definitely a step in the right direction," a person familiar with the talks told Reuters. "But there were no concrete political results," the person said as ministers sat for a dinner of salmon and beef after hours-long discussions.

A spokesman for Luxembourg minister Luc Frieden, who hosted the meeting, declined to comment on the talks.

A Swiss finance ministry spokeswoman said the atmosphere had been friendly despite recent tensions between Switzerland and Germany over Berlin's decision to pursue a stolen CD-rom containing data of Swiss bank clients.

European offshore centers agreed last March to relax their strict bank secrecy laws and help foreign tax authorities to hunt down tax evaders to avoid appearing on an international black list drafted by the Organization for Economic Cooperation and Development that was backed by the G20.

Switzerland, the main target of an international crackdown against tax dodgers, suffered at the same time a major blow as it emerged that its banking flagship UBS (UBSN.VX)(UBS.N) had helped rich Americans to hide money in secret Swiss accounts.

But despite their concessions, offshore centers continue to face pressure to open up and allow cash-strapped nations to replenish their tax coffers after the financial crisis.

NO WAY BACK

Switzerland, which manages an estimated $1.8 trillion of foreign wealth and is the main target of attacks by countries such as the United States and Germany, will hold a government meeting on February 24 to discuss its future strategy.

Its largest wealth manager UBS has put at 140 billion Swiss francs ($131 billion) its estimated share of potentially untaxed money held by clients from major EU countries. Credit Suisse (CSGN.VX) said this was around 100 billion francs for the bank.

The Swiss banking lobby has suggested expanding an anonymous withholding tax system on clients' earnings to guard privacy while addressing foreign countries' tax-collecting needs.

But Swiss media said Sunday the government, divided until a few days ago on how to fend off foreign pressures, may seek to secure a sufficiently long transition period so to allow tax cheats to come clean or leave the country.

This strategy is in line with the approach so far followed by Liechtenstein, an opaque principality that made a U-turn last year to avoid the collapse of tis financial services industry.

Switzerland agreed in March to drop an artificial distinction between serious tax fraud and minor tax evasion offences, thus weakening its centuries-long secrecy laws.

But senior Swiss officials have expressed concern that Switzerland could lose access to the vast EU financial market place if it does not align to best tax cooperation practices.

While 62 percent of Swiss oppose the abolition of bank secrecy, a poll carried out by two Swiss newspapers showed on Sunday, the mood in the country is changing.

According to the poll, 67 percent of Swiss favor helping foreign countries chase tax evaders in Switzerland and 55 percent would do away with the distinction between tax evasion and tax fraud still in force for Swiss residents.

Meanwhile Luxembourg, whose banking secrecy laws have help it become Europe's biggest funds center, is in the line of fire at EU level because the embracing of so-called OECD tax standards by Switzerland and by other offshore centers forces it to share tax data with other EU nations given previous EU agreements.

The same would be true for Austria, also an EU member.

"There has to be a negotiated solution to this issue and you only get that if you start talking with all the interested parties," the person familiar with the talks said.
[Reuters]

Who wins in U.S. vs Europe contest?

12. February. 2010

In these days of renewed gloom about the future of Europe, a quick test is in order. Who has the world’s biggest economy? A) The United States B) China/Asia C) Europe? Who has the most Fortune 500 companies? A) The United States B) China C) Europe. Who attracts most U.S. investment? A) Europe B) China C) Asia.

The correct answer in each case is Europe, short for the 27-member European Union (EU), a region with 500 million citizens. They produce an economy almost as large as the United States and China combined but have, so far, largely failed to make much of a dent in American perceptions that theirs is a collection of cradle-to-grave nanny states doomed to be left behind in a 21st century that will belong to China.

That China will rise to be a superpower in this century, overtaking the United States in terms of gross domestic product by 2035, is becoming conventional wisdom. But those who subscribe to that theory might do well to remember the fate of similar long-range forecasts in the past. At the turn of the 20th century, for example, eminent strategists predicted that Argentina would be a world power within 20 years. In the late 1980s, Japan was seen as the next global leader.

The latest pessimistic utterances about Europe were sparked by a debt crisis in Greece which raised concern over the health of the euro, the common currency of 16 EU members. Plus U.S. President Barack Obama’s decision to stay away from a U.S.-EU summit scheduled for May in Madrid, with a new EU leadership structure that should have made it easier to answer then U.S. Secretary of State Henry Kissinger’s famous question: “Who do I call when I want to talk to Europe?”

There are still several numbers to call in the complex set-up, giving fresh reasons to fret to those crystal-gazers who see the future dominated by the United States and China, the so-called G-2.

Pundits who see the European way of doing things as a model for the United States (and others) to follow are few and far between, not least, says one of them, Steven Hill, because most Americans are blissfully unaware of European achievements and, as he puts it, “reluctant to look elsewhere because ‘we are the best.’”

As foreigners traveling through the United States occasionally note, the phrases “we are the best” and “America is No.1″ are often uttered with deep conviction by citizens who have never set foot outside their country and therefore lack a direct way of comparison. (They are in the majority: only one in five Americans has a passport).

Hill, who heads the political reform program at the New American Foundation, a liberal Washington think tank, has just published a book whose title alone is enough to irk conservative Americans: Europe’s Promise. Why the European Way Is the Best Hope in an Insecure Future.

STUBBORN PRECONCEPTIONS

It marshals an impressive army of facts and comparative statistics to show that the United States is behind Europe in nearly every socio-economic category that can be measured and that neither America’s trickle-down, Wall Street-driven capitalism nor China’s state capitalism hold the keys to the future.

While China’s growth has been impressive, says Hill, the country remains, in essence, a sub-contractor to the West and is racked by internal contradictions.

“When I talk to American audiences,” Hill said in an interview, “many find the figures I cite hard to believe. They haven’t heard them before. U.S. businesses making more profits in Europe than anywhere else, 20 times more than in China? 179 of the world’s top companies are European compared with 140 American? That does not fit the preconceptions.”

Such preconceptions exist, in part, because U.S. media have portrayed Europe as a region in perpetual crisis, its economies sclerotic, its taxes a disincentive to personal initiative, its standards of living lower than America’s, its universal health care, guaranteed pensions, long vacations and considerably shorter working hours a recipe for low growth and stagnation. “In the transmission of news across the Atlantic, myth has been substituted for reality,” says Hill.

He is in good, though numerically small, company with such views. The economists Joseph Stiglitz and Paul Krugman, both Nobel prize winners, also have positive outlooks for Europe. In a recent column in the New York Times, Krugman said that Europe is often held up as evidence that higher taxes for the rich and benefits for the less well-off kill economic progress. Not so, he argued. The European experience demonstrates the opposite: social justice and progress can go hand in hand.

The relative rankings of countries tend to be defined by gross domestic product per capita but Hill points out that this might not be the best yardstick because it does not differentiate between transactions that add to the well-being of a country and those that diminish it. A dollar spent on sending a teenager to prison adds as much to GDP as a dollar spent on sending him to college.

On a long list of quality-of-life indexes that measure things beyond the GDP yardstick — from income inequality and access to health care to life expectancy, infant mortality and poverty levels — the United States does not rank near the top.

So where is the best place to live? For the past 30 years, a U.S.-based magazine, International Living, has compiled a quality-of-life index based on cost of living, culture and leisure, economy, environment, freedom, health, infrastructure, safety and climate. France tops the list for the fifth year running. The United States comes in 7th.
[Reuters]

German halt, Italian reverse hit euro zone recovery

12. February. 2010

PARIS - Europe's post-recession recovery hit a roadblock on Friday as German economic growth unexpectedly halted and Italy went into reverse in the final quarter of 2009, knocking total euro zone GDP growth almost flat.

The weak data comes at a bad time for the single currency bloc as governments struggle to sort out Greece's debt crisis and contain financial market fears that are driving the euro lower and government bond yields higher.

Gross domestic product in the 16-country euro currency zone came in just 0.1 percent higher than the previous quarter, below the 0.3 percent forecast and well short of the 0.4 rise that lifted it from recession in the third quarter.

Euro zone GDP dropped 4.0 percent in 2009 as a whole.

"While we do not expect the euro zone to relapse back into recession, GDP growth of just 0.1 percent ... highlights the fact that the region still faces very challenging economic and financial conditions," said Howard Archer of IHS Global Insight.

France was a rare bright spot in a rush of official reports on how the closing quarter of the year went and Deutsche Bank economist Gilles Moec calculated that aggregate euro zone GDP would in fact have fallen 0.4 percent without France.

German quarter-on-quarter growth was zero after expansions in the two previous quarters that ended a year-long recession. Growth of 0.2 percent had been forecast.

Italy did even worse with a GDP fall of 0.2 percent from the third quarter, contrary to forecasts that the euro zone's third largest economy would keep its head above water with a 0.1 percent increase.

But France, the euro zone's second largest economy, reported an increase of 0.6 percent compared to the third quarter. French GDP, unlike export-heavy Germany, was supported in large part by healthy consumer spending.

Spain, next in size after Germany, France and Italy but hard hit by the a housing boom collapse, stayed in recession with a fourth quarter GDP dip of 0.1 percent.

ROUGH RIDE FOR DEBT AND GDP

"The euro zone growth engine has taken a break in the fourth quarter but it should return soon," ING bank economist Carsten Brzeski said. "Today's numbers, however, were a good reminder that recoveries can not only be bumpy but also capricious."

Part of Europe's problem is that it needs a reasonable pace of economic growth to help limit the surge in sovereign debt caused by the recession of 2008-2009.

Forecasters for now believe that the euro zone will have a weaker recovery than the United States this year, just as it fell harder than America in 2009.

National GDP reports showed fourth-quarter stagnation too in Portugal and recession deepened in Greece, with a quarter-on-quarter drop of 0.8 percent in the fourth quarter after a 0.5 percent drop in the third.

Portugal, like Spain, is trying to rein in its bloated debt and avoid the pain inflicted on Greece, the first country to require pledges of support from other euro zone governments in the 11 years of monetary union.

Concern over how Athens will service its debt has hammered the euro, which is trading near a 8 1/2-month low versus the dollar and has fallen nearly 10 percent since late 2009.

A deepening Greek recession will only make Athens' plans to slash its swollen budget deficit harder to deliver.

The euro edged lower on Friday, trading in the middle at its weakest since May 2009, at around $1.3550.

FRENCH FACELIFT

In France, where the recession knocked 2.2 percent off GDP in 2009 as a whole compared to a 5 percent dent in Germany, the end of year news was marginally more positive than expected, once again as a result of domestic demand.

The French data showed a 0.9 percent quarter-on-quarter increase in household consumption in the fourth quarter.

That helped to offset the damage from tumbling investment, a major casualty of recession, which fell 1.2 percent in the final quarter versus the preceding one and dropped 6.9 percent over 2009 as a whole.

Germany's statistics office said falling investment and consumption offset firmer foreign trade in the fourth quarter.

European Central Bank President Jean-Claude Trichet has been warning for some time that the recovery in Europe will be "bumpy" and at times "chaotic."

Severe winter weather at the turn of the year may well blur the picture further. Economists say that could hit GDP in the first quarter but that should be recouped in ensuing months.

German Economy Minister Rainer Bruederle has already said growth in the first quarter of 2010 could be near zero.

The news was little better on Europe's eastern flank where many exports go to Germany. Czech GDP dropped 0.6 percent in the fourth quarter versus the previous one, way short of expectations for a 0.8 percent rise, while Hungary and Romania remained mired in recession.

"The picture of a growing eurozone economy with the handbrake still on will also hold true in the coming quarters," said Christoph Weil, economist at Commerzbank.
[Reuters]

Economy briefs: DIB announces AED1.2bn profit & others..

12. February. 2010

DUBAI: Dubai Islamic Bank (DIB) announced on Thursday its financial results for the 12 months ending Dec. 31, 2009, demonstrating the bank’s resilience in the face of challenging global conditions, which continue to impact the performance of financial services firms worldwide. For the full year 2009, DIB reported a net profit of AED1.2 billion.

Emaar swings to Q4 profit

DUBAI: Dubai’s Emaar Properties said on Thursday it would focus on developing middle income housing in emerging markets in 2010 after returning to profit in the fourth quarter, but missing most analysts’ forecasts. Net profit in the three months to Dec. 31 was 720 million dirhams ($196.1 million) compared to a loss of 2.4 billion dirhams in the fourth quarter of 2008, it said in a statement.

S&P puts GFH on ‘selective default’

MANAMA: Standard & Poor’s has lowered Bahrain-based Gulf Finance House (GFH) to a selective default (SD/SD) on partial debt extension. GFH announced on Wednesday that it had got extension in its debt upon the maturity of $100 million of its $300 million syndicated loan for six months. “Because we consider the partial debt maturity extension a ‘distressed exchange’, we are downgrading GFH to selective default from CC/C,” Standard & Poor’s Ratings Services said in a statement.

Oman sees no bonds in 2010

MUSCAT: Oman has no plans to issue government bonds this year and banks remain liquid despite the impact of the global financial crisis, the Gulf country’s central bank head said on Thursday. The global economic downturn slashed growth rates and froze credit in the world’s top oil exporting region last year, forcing governments to embark on massive fiscal spending. “There is no plan to issue government bonds in 2010,” Central Bank of Oman Executive President Hamood Sangour Al-Zadjali told Reuters in a brief telephone interview.

Volkswagen recalls 193,000 vehicles

WASHINGTON: German carmaker Volkswagen announced Thursday a recall of more than 193,000 vehicles in Brazil for malfunctions in the rear wheels of its Novo Gol and Voyage models. The company said it had determined the component had not been sufficiently lubricated, which could cause the rear wheels to seize up or even fall off.

Credit Suisse posts $6.3bn profit

GENEVA: Switzerland’s banking giant Credit Suisse reported Thursday 2009 net profits of 6.7 billion francs ($6.3 billion) — but also unveiled lower-than-expected fourth quarter results. Profit for the final quarter of last year stood at 800 million francs.
[arab news]

EU seals deal to rescue Greece

12. February. 2010

BRUSSELS: European leaders struck a deal to provide financial aid to Greece on Thursday, in an unprecedented move to stave off a broader crisis in the 16-nation bloc that shares the euro single currency.

The details of the package were not expected to be finalized until early next week, when EU finance ministers meet, but the bloc’s leaders suggested it could include some form of loans to Greece to help it service its debt and avoid a damaging default.

As they announced the deal, EU leaders also urged Athens to make deep cuts to its budget deficit to restore confidence in its economy, and the broader euro zone, and prevent its fiscal crisis from spilling over to other high-debt states like Portugal and Spain.

“There is an agreement on the Greek situation,” EU President Herman Van Rompuy told reporters gathered at a summit of leaders from the 27-nation EU in Brussels.

“Euro area member states will take determined and coordinated action if needed to safeguard stability in the euro area as a whole,” he said.

The agreement was forged in talks between Van Rompuy, European Commission President Jose Manuel Barroso, French President Nicolas Sarkozy, German Chancellor Angela Merkel, European Central Bank President Jean-Claude Trichet and Greek Prime Minister George Papandreou.

Germany and France are expected to take the lead in providing support, in part because other big euro zone economies like Italy and Spain are themselves under financial pressure.

Economists said the plan, while short on details, was likely to enhance market confidence in Greece, which has seen its debt and equity markets hammered over the past month.

But it is also a clear sign that the bloc’s fiscal rules have failed and raises “moral hazard” questions because Greece has a history of manipulating deficit figures to meet EU rules.

Until this week, EU leaders had avoided speaking openly about a bailout, fearful it might ease pressure on the government in Athens to enact tough austerity measures needed to bring down a deficit that hit 12.7 percent of gross domestic product (GDP) last year — more than four times EU limits.

The euro spiked higher against the dollar after the deal was announced, before slipping back on the lack of detail. The yield spread between Greek bonds and benchmark German issues narrowed but then widened again. “It takes away the one-way bet on Greek debt by creating the possibility of an announcement of a detailed plan at any time in the future,” Luigi Speranza, an economist at BNP Paribas, said. “If this is successful in enhancing market confidence, ultimately the bailout could not even be needed.”

Polish Prime Minister Donald Tusk told reporters in Brussels that the support, which would be the first bailout of a euro zone member since the currency zone was created 11 years ago, was likely to come in the form of loans. “It could be voluntary loans from member states. That seems to be the best option,” Tusk said.

Another possibility sources raised would be for Germany’s state-owed KfW bank to issue bonds and use the proceeds to buy Greek debt, thereby ensuring that a sizable portion of Greece’s financing requirement is underwritten. It was unclear whether any aid would be made available to other euro zone countries.

European leaders are keen to prevent Greece’s woes from spreading to other members and plunging the currency area into a bigger crisis that could reverberate around the globe.
[Reuters]

German economic growth falls flat

12. February. 2010

Germany's economy failed to grow in the final quarter of 2009, marking a pause in the country's recovery from last year's financial crisis.

The government's federal statistics office said on Friday that German GDP was flat in the fourth quarter of 2009, following growth in the two previous quaters.

It said exports were the "only positive contribution" to the economy, while imports, consumer spending, and capital investment all fell.

The news comes as governments in the eurozone struggle to sort out Greece's debt difficulties and contain financial market fears that have driven the currency lower.

'Bumpy recovery'

But analysts remained positive over Germany's economy.

"The eurozone growth engine has taken a break in the fourth quarter but it should return soon," Carsten Brzeski, ING bank economist, told the Reuters news agency said.

"Today's numbers, however, were a good reminder that recoveries cannot only be bumpy but also capricious."

Germany went into recession in 2008 as demand for its exports dried up amid the global economic crisis.

After shrinking for four straight quarters, including a 3.5 per cent slump in the first quarter of 2009, the country technically emerged from recession with growth in the second quarter of 2009.

That, in part, helped the 16-nation eurozone to improve economically.

The Federal Statistical Office will release more detailed data for the fourth quarter at the end of February.

Jean-Claude Trichet, the European Central Bank president, has been warning for some time that the recovery in Europe will be "bumpy" and at times "chaotic".

Severe winter weather at the turn of the year may have also affected economic growth. Economists say that could hit GDP in the first quarter but that much of such immediate losses are usually made up in the ensuing months.

Rainer Bruederle, the German economy minister, has said growth in the first quarter of 2010 could be near zero.
[Aljazeera]

EU 'approves deal' on Greece debt

11. February. 2010

The European Union president has said that European leaders have approved a deal in Brussels to help Greece with its debt problems.

Herman Van Rompuy said on Thursday details of the agreement would be finalised at a meeting of eurozone finance ministers next week.

But sources close to the talks said it was likely to involve voluntary loans to Greece from member states.

The euro has come under increasing pressure as a result of Greece's financial situation and Van Rompuy stressed that the 16 eurozone countries "would take determined and co-ordinated action if needed to safeguard stability in the eurozone as a whole".

Financial markets welcomed the statement, with the euro rising against the US dollar.

'Political statement'

Van Rompuy's statement came after he had held talks with several European leaders including Nicolas Sarkozy, the French president, Angela Merkel, the German chancellor, and George Papandreou, the Greek prime minister.

In a joint news conference later on Thursday, Sarkozy said that the European Commission would monitor Greece's fiscal actions on a monthly basis, while Merkel said the decisions about the country had been underwritten by all 27 members of the EU.

Speaking to Al Jazeera from Brussels, Jackie Davies, a senior adviser to the European Policy Centre, said the outcome of Thursday's talks was a mixture of a deal and a holding statement.

"There are two key messages out of what has been agreed today," she said.

"The first is a message to Greece, 'we want to see concrete evidence that you are going to implement the necessary reforms, you are going to get your deficits down, we're going to monitor you.'

"Second message, and this is the clear message to the markets, 'if that doesn't work then we'll stand by, we will be ready to help you if necessary'.

"But what people here are really hoping is that this strong political statement might be enough, if it calms the market jitters ... but I think people here know that it almost certainly won't and there will be other stages to go.

"But for today, they are trying to do it without actually putting any money on the table."

No financial request

Greece's budget deficit for 2009 equalled 12.7 per cent of gross domestic product, more than four times the limit for EU member states.

Athens will need to borrow around $75bn this year to cover its deficit and refinance debts.

Van Rompuy said that Greece had "not requested financial support" and that the EU was expecting "rigorous" action from its government to tackle the country's problem.

He said Athens would have to implement all agreed deficit-cutting measures to reduce its budget gap by four percentage points in 2010, as recommended by the executive European Commission and that further measures would be needed.

"The commission will closely monitor the implementation of the recommendations in liaison with the European Central Bank and will propose needed additional measures, drawing on the expertise of the International Monetary Fund," he said.

"We fully support the efforts of the Greek government and their commitment to do whatever is necessary including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met."

A first assessment will be carried out in March, Van Rompuy said.

Spain 'different'

Concerns over the Greek debt and other weak European economies made the euro reach an eight-month low against the US dollar last week.

Hamish Macdonald, Al Jazeera's correspondent in Brussels, said: "It is not just the Greek economy that is in trouble, Spain and Portugal have rising unemployment and spiralling national debt."

"The concern is that if there is a run on Greek government bonds, a loss of faith in the government, that there might also be a run on government bonds in Spain and Portugal, and that could spread further."

But Elena Salgado, the Spanish finance minister, said those concerns are unjustified.

"The Greek economy is very different to the Spanish economy," she told Al Jazeera.

"We have done a lot of investment in the last 10 years ... Our financial system is very sound. Our statistics are credible and correct. So our situation is not the Greek one."

Greece has debts that are expected to reach nearly $400bn this year.
[Aljazeera]

Greece is a crisis for all of Europe

11. February. 2010

A day of protests on the streets of Athens.

Nothing particularly unusual about that, you might think, and in four years living in the Greek capital, I’ve certainly seen my fair share of strikes and demonstrations.

But, this time it's different. All of Europe is watching Greece, and waiting to see whether the government can bring this economic crisis under control.

Even with wage cuts, higher taxes and pension reform, it may now be too late to avert some sort of a bailout for Greece.

There's a growing sense that this country will not be able to pay off its debts without help from outside.

One financial commentator in Athens told me today, "it's a question of how Greece is helped, not whether it is helped".

Greece has a relatively small economy, but other European countries can't afford to let it default on its debts, because of the fear that this crisis will spread.

Other heavily-indebted countries in the eurozone, such as Portugal, Spain and even Italy, are next in the firing line.

Well, if it comes to a bailout for Greece, there are two likely options; assistance from fellow EU member states, or from the IMF.

EU leaders will be looking at these options at a special summit in Brussels on Thursday.

"They'll only go to the IMF as a last resort", says my commentator, "they'll want to show that Europe can deal with its own problems. This is Europe's hour, and Europe's crisis".

I can see the logic of that. It's been a tough few months for Europe; humiliated at the Copenhagen summit on climate change, embarrassed by President Obama's decision not to attend a summit with EU leaders.

Asking the IMF to come in and help Greece would be another blow to the European ego.

But, there are also political risks for European leaders as they seek to help Greece.

It's not going to be easy for, say Angel Merkel of Germany, to explain to her electorate why billions of euros of German money should go to help the profligate Greeks, who've lived beyond their means for so long, and been so careless (to put it politely) with their accounts.

Events are moving fast. Let's see how the eurozone crisis develops in the next few days.
[Aljazeera]

Sweden beats U.S. to top tech usage ranking

11. February. 2010

Sweden took the number one spot from the United States to top the annual rankings on the usage of telecommunications technologies such as networks, cellphones and computers, a report released on Thursday shows.

The Connectivity Scorecard, created by London Business School professor Leonard Waverman in 2008, measured 50 countries on dozens of indicators, including technological skills and usage of communications technology.

"Sweden not only has the best current mix of attributes, but it also shows few signs of losing its lead," said Waverman.

"By contrast, there is the beginning of a gap in what was once the essence of U.S. leadership in most industrial and service sectors - education and skills."

Sweden was second in the last survey behind the United States. Norway placed third, up from fifth spot last year.

Researchers say the new indicator -- commissioned by telecom gear maker Nokia Siemens Networks -- is already used by several countries in developing innovation strategies.

"Economic recovery and government stimulus packages aimed at boosting broadband deployment and ICT development should provide room for optimism in the coming years," Waverman said.

Countries in eastern and southern Europe -- including Italy, Spain, Greece and Poland -- took the last spots on the list of 25 developed countries.

Malaysia, helped by good co-operation between the public and private sectors, continued to top the list for developing countries, while South Africa rose to second spot, helped by strong corporate spending on IT hardware, software and services.

Following are the ratings for top 10 "innovation driven economies" measured in the study, scale 1-10, with last year ranking in the brackets:

1 Sweden 7.95

2 United States 7.77

3 Norway 7.74

4 Denmark 7.54

5 Netherlands 7.52

6 Finland 7.26

7 Australia 7.04

8 United Kingdom 7.03

9 Canada 7.02

10 Japan 6.73

Following are indexes for top 10 "efficiency and resource driven economies," scale 1-10, but not comparable with indexes for innovation-driven economies, with last year ranking in the brackets:

1 Malaysia 7.14

2 South Africa 6.18

3 Chile 6.06

4 Argentina 5.90

5 Russia 5.82

6 Brazil 5.32

7 Turkey 5.09

8 Mexico 5.00

9 Colombia 4.76

10 Ukraine 4.67
[Reuters]