Commodities Watch

Europe's Markets Slump

2011-08-10T11:28:00.001-07:00

Europe's Markets Slump

European stocks plunged Wednesday, reversing earlier gains in a second day of volatility, as ongoing concerns about euro-zone debt contagion and a weak U.S. growth outlook outweighed the prospect of continued low interest rates in the world's largest economy.

Market chatter of credit rating downgrades in Europe, France in particular, late in the session made investors more jittery still and sent equities deep into the red.

Investors said they were concerned that while the U.S. has resolved its budgetary crisis, albeit through an uncomfortable compromise, the debt crisis in Europe is more demonstrative of fundamental issues.
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Italy Renews Push to Soothe Wary Investors

2011-08-05T20:35:00.001-07:00

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Italy Renews Push to Soothe Wary Investors

In Reversal, Berlusconi Vows to Balance Budget; EU Leaders Place Flurry of Calls

Europe's leaders mounted a frantic joint effort Friday to show markets they are tackling the latest fears over the Continent's debt crisis—with Italian Prime Minister Silvio Berlusconi reversing course and making a late-day pledge to balance his country's budget earlier than planned.

Mr. Berlusconi's comments came as Europe's central bank indicated it was open to purchasing government bonds of Italy and Spain as a way to ease mounting market pressure on two of the euro-zone's largest economies, according to people familiar with the matter.

The anxiety is such that many euro-zone leaders have reluctantly canceled or delayed their summer holidays to deal with the crisis.

Mr. Berlusconi and Spanish premier José Luis Rodríguez Zapatero discussed recent developments in debt markets, noting that recent "fluctuations and speculative movements in sovereign-debt markets were incomprehensible," according to Mr. Zapatero's office.

President Barack Obama, meanwhile, spoke separately Friday with French President Nicolas Sarkozy and German Chancellor Angela Merkel.

U.S. Treasury Secretary Timothy Geithner is increasingly irritated at the Europeans for reacting too slowly to stem the escalating crises.

Market "speculation is now aimed at us," Mr. Berlusconi said during his news conference, adding that Italy and fellow euro-zone nations must take action to block it.
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What is wrong with the month of August ?

2011-08-01T22:01:00.001-07:00

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Beware the guns of August

By the time this column is published I will be on holiday in France, and the US might finally have stepped back from the abyss of debt default.

Viewed from Europe, the American financial uproar is baffling. It is not just the entirely avoidable nature of the crisis. It is also its timing. The entire European political calendar is constructed around the idea that nothing ever happens – or should be allowed to happen – in August.

The drama that surrounded the emergency eurozone summit in Brussels in late July was partly caused by the threat of financial chaos, if Greece was not lent more money. But an unstated reason for the sense of urgency of the leaders around the conference table was a desperate desire to get a deal wrapped up – before the holiday season began in earnest.

When something really drastic happens in the month of August, European leaders are often caught on the hop. In August 2008, when Russian tanks rolled into Georgia, David Miliband, Britain’s foreign secretary at the time, had to deal with the crisis on a mobile phone from a holiday villa in Spain.

in August 1939, Europe was once again hurtling towards war. On August 21, the Molotov-Ribbentrop pact between the Soviet Union and Nazi Germany was announced to a shocked world – making the invasion of Poland and a general war inevitable. On the night of August 31, Adolf Hitler ordered the German army to attack Poland.

The tendency for international crises to break out in August has persisted into the modern age. The Prague Spring in Czechoslovakia was crushed when the Soviet Union and its Warsaw Pact allies invaded in August 1968.

In August 1989, the first breach in the Iron Curtain was made when Hungary opened its borders to Austria, starting off the train of events that led to the fall of the Berlin Wall a few months later.

In August 1990, Saddam Hussein’s Iraq invaded Kuwait – and within weeks President Bush was rallying a coalition to wage the first Gulf wa

in August 1991, Mr Bush was informed that a coup was under way in the Soviet Union – and that Mikhail Gorbachev had been arrested.

What is it about August?

the democratic world tends to be half-asleep, or at the beach, in August makes it the ideal month for dictators and autocrats to make their move. It may be no coincidence that Nazi tanks in 1939, Soviet tanks in 1968, Iraqi tanks in 1991 and Russian tanks in 2008, all got rolling during August.

in the western world, the big financial crises have tended to wait until the autumn. The Wall Street crash of 1929, and its miniature version in 1987, both took place in October. True, the first sign of current crisis came via an injection of liquidy from the European Central Bank in August 2007. But the collapse of Lehman Brothers – lest you have forgotten – did not follow until September 2008.
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No U.S. debt deal or at least not yet!

2011-07-24T18:53:00.001-07:00

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No U.S. debt deal as Republicans, Democrats clash

Chance of technical default 20%, investor says

WASHINGTON (MarketWatch) — Efforts to conclude a plan to increase the debt ceiling showed little progress Sunday night as lawmakers still haven’t agreed a path forward to avoiding a potential default despite a weekend of talks.

Sunday night President Barack Obama met two lawmakers from his own party, House Democratic Leader Nancy Pelosi and Senate Majority Leader Harry Reid.

“In the meeting the president received an update on the state of negotiations on the Hill from Leader Pelosi and Leader Reid, and the Leaders and the President reiterated our opposition to a short-term debt limit increase,” the White House said in a statement.

Republican Sen. Tom Coburn, one on the Gang of Six who outlined their own deficit-cutting plan, told NBC on Sunday that opposition to a short-term deal was a “ridiculous” position “because that’s what he’s going to get presented with.”

Boehner and Obama talked over the phone twice, the Associated Press reported citing a Congressional source.

Face the Nation” that the lack of an agreement could be “stressful” for global investors.

“We may have a few stressful days coming up, and stressful for the markets of the world and the American people,” he said.

The market reaction was negative. S&P 500 futures

/quotes/zigman/1277190 SP1U
-0.84%

fell by 0.8%. Benchmark gold futures

/quotes/zigman/700181 GC1Q
+0.59%

climbed into record territory. The contract was recently up $16.30, or 1.0%, to $1,617.70 an ounce.

Michael Turner, a Sydney-based strategist for RBC Capital Markets, said the Boehner plan may not be good for saving the AAA debt rating of the U.S.

“This is unlikely to please ratings agencies, particularly S&P who have been the most vocal in expressing a need to see a longer term deficit reduction plan sooner rather than later,” Turner said in a note to clients.

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Another Stressful week expected in Global Markets

2011-07-24T10:28:00.001-07:00

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White House Warns of Stress in Global Markets

White House chief of staff Bill Daley said the U.S. government's creditworthiness has already been damaged by the prolonged debate over how to raise the debt ceiling, with the Obama administration girding for volatility in global financial markets as soon as Sunday evening.

Treasury Department officials have said the U.S. must have a deal in place by Aug. 2 to raise the debt ceiling or the country could begin defaulting on its obligations. Numerous proposals to raise the debt ceiling in the past few months have fallen apart or been blocked.

Administration officials would like to make significant progress toward a deal by Sunday evening to ensure that Asian markets open calmly.

Treasury Secretary Timothy Geithner said on "Fox News Sunday" it was difficult to predict how markets would react on Monday but that "the longer the politicians take," the more investors will "wonder whether this place can work again."

Speaker of the House John Boehner (R., Ohio) said on Fox News Sunday, when asked about trying to get a deal by the open of Asian markets Sunday, that "while Asia may be important, this is about American jobs and the American economy."

Another rising risk is that the U.S.'s credit rating could be lowered soon by Standard & Poor's. S&P has said there was a 50% chance it could reduce its AAA rating on U.S. debt to AA+ within 90 days, putting in jeopardy the top-notch rating the U.S. government has had for 70 years. A downgrade could have a variety of consequences, such as making it more expensive for the U.S. to borrow money and creating turmoil in the banking system.
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July 24, 2011

2011-07-24T03:11:00.000-07:00

Slim Fallout Seen for Europe Banks

2011-07-22T19:33:00.001-07:00

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Slim Fallout Seen for Europe Banks

LONDON—Top European banks will face relatively modest losses under the new Greek bailout plan agreed to Thursday, according to a Wall Street Journal analysis of bank stress-test disclosures.

The 90 large European banks that were subjected to European Union stress tests could face total losses ranging from €7 billion to €14 billion ($10 billion to $20 billion), the analysis found. Those losses stem from a provision of the €109 billion bailout that would swap Greek government bonds that come due between now and 2020 in exchange for new securities that don't mature for decades.

The expected losses, nearly two-thirds of which are concentrated among Greek banks, are far smaller than many analysts and investors had feared. Concerns about banks suffering severe losses if Greek defaulted on its debt have been ricocheting around the Continent for more than a year. But the losses likely to be realized under Thursday's bailout will hardly dent most banks' capital buffers.

The smaller scale of losses is partly because the expected hits to the bonds' face values—ranging from losses of 10% to 21%, depending on how they are calculated—are mild compared with the so-called haircuts of 50% or more reflected in trading prices of Greek bonds that analysts had built into their projections.

They warned that Thursday's bailout deal might simply be the first in a string of sovereign restructurings that could saddle holders of European government debt with increasingly hefty losses.

The surprisingly modest bank losses in Thursday's Greek bailout also are because of the way the deal was structured.

Bonds that mature after 2020 won't be exchanged. That allowed a handful of giant banks, which are holding billions of euros of Greek bonds that mature in more than 10 years, to dodge a potentially costly bullet, according to the Journal analysis. Banks, including Germany's Commerzbank AG, Belgium's Dexia SA and France's BNP Paribas SA, could have seen their likely losses swell by hundreds of millions of euros apiece if later-maturing bonds were included.

The losses on bonds that will be exchanged under the bailout are likely to start showing up when banks report their midyear financial results in coming weeks, analysts say.

In Greece, the six banks subjected to the EU's recent stress tests are collectively holding a total of about €43 billion of Greek government debt that matures in the next 10 years, according to the Journal's analysis. That could translate into losses of more than €9 billion.

Outside Greece, French and German banks are among the biggest holders of Greek sovereign debt and therefore appear likely to absorb the greatest losses under Thursday's bailout agreement, according to the Journal's analysis and independent analysts. French banks could face a total of up to €1.4 billion in losses, while German lenders could see €843 million.
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Only a new Marshall Plan can do it ?

2011-07-07T04:19:00.001-07:00

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Debt crisis

Only a new Marshall Plan can do it

To emerge from the enduring debt crisis, Europe needs a programme as ambitious as the post-war US sponsored plan. But this time, it has to find the resources internally and foster a continent-wide redistribution.

In 1947 the Americans kick-started economic recovery in Europe through the Marshall plan. Today, there are calls for Europeans to draw up a Marshall plan of their own. The European commission president, José Manuel Barroso, and the Polish prime minister, Donald Tusk – the incoming president of the European council of ministers – warn that governments in Athens and elsewhere will be unable to sell further austerity measures to voters without some prospect of growth and renewal. Last week's vote bought everyone time, but little more. Is a new Marshall plan feasible? Or just wishful thinking? Casting our eyes back briefly to Europe's plight in the 1940s helps put the issue in proportion and reveals the real obstacles ahead.

Against Europe's problems then ours pale into insignificance. In occupied Germany, the continent's economic dynamo, food intake hovered above starvation levels, and national income and industrial output were barely a third of what they had been a decade earlier. Roughly $13bn was paid out in the European Recovery Program (the Marshall plan's official name) and this proved indispensable in laying the foundations for the "miracle" of sustained economic growth in the decade that followed. This $13bn amounted to some 5% of America's national income in 1948. (The equivalent sum for the EU today would be in excess of $800bn.) The US wrote off prewar French debts; everyone wrote down Berlin's a few years later, even though they had just struggled through a war started by the Germans.

Now compare the challenge Europe's leaders face today. GDP has barely dropped in the EU since 2008. The fundamental debt problem emanates from three small countries – Greece, Portugal and Ireland – whose total contribution to European Union GDP is less than 5%. The German economy is booming. If the stakes – the very future of the EU – are high, the sums required are not. Read full article in the Guardian...
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Europe: In need of a lifeline

2011-04-18T21:47:00.001-07:00

Europe: In need of a lifeline

“We should be honest with ourselves in the European Union: we have spent billions of euros in European taxpayers’ money in aid to Egypt and other neighbouring countries,” David Cameron, UK prime minister, said at the height of the Egypt uprising in February as he bemoaned a succession of Mediterranean policies and partnerships that cost a lot but delivered few tangible successes.

For Europe, the urgency to get it right this time is apparent: pilots from EU member nations are flying bombing sorties over Libya in support of a ramshackle rebellion against Muammer Gaddafi, while tens of thousands of African and Arab refugees are turning up on its shores seeking safety.

More broadly, the bloc is fighting to retain its place on a world stage increasingly crowded by the likes of China, India and Brazil – and on which the US is seeking to take less of a leadership role. In an effort to bolster its global influence, the EU has just christened a pan-European diplomatic corps, the External Action Service, that is supposed to harmonise the dissonant foreign policy voices of its 27 member states.

Lacking US-style military muscle, the EU has instead emphasised its “soft power” through trade concessions, development aid and privileged ties to what is the world’s richest consumer market. That approach paid dividends in central and eastern Europe, where sustained investment helped to shepherd former communist countries along a path to democracy. But Europe’s experience to the immediate south, in a region known as the cradle of civilisations, may have revealed its limits.

Ana Palacio, former Spanish foreign minister, is among those who believe successive EU policies have failed because they were insufficiently frank about linking development aid to democracy – unlike the policies (and the funding) directed towards the post-Soviet nations of eastern Europe. “Unless we shift our priorities in the region toward good governance, democracy and human rights, and let our funding reflect those priorities, we risk losing momentum to support regional reforms,” she wrote in a recent paper. “Now is a rare opportunity for European leadership.”

With regional uprisings still playing out, European leaders have already gone back to the policy drawingboard. In March, they announced their latest Mediterranean initiative – the Partnership for Democracy and Shared Prosperity.

They also like the idea of beefing up the role of the European Bank for Reconstruction and Development, which was founded 20 years ago to finance eastern Europe’s transition to market-based democracy. Thomas Mirow, EBRD president, says it could begin lending to Egypt next year.

Cairo or Tunis in 2011 is not the same as Warsaw or Prague in 1989, policymakers caution. Still, Mr Mirow sees similarities in a young generation that wants to share the prosperity and values of its neighbours.

Unfortunately, the EU has a long history of failed plans for the region. “There has been a traffic jam of European initiatives in the Mediterranean, but the well-being of the people has not improved,” says Bichara Khader, a consultant and professor at the Catholic University of Louvain.

The Arab revolutions today are another face of the very limited success of the European partnership with the Mediterranean countries,

What we have not been very good at is how to deal with countries in the next circle – countries that are not going to become members, or at least not for a very long time

The EU can’t get into a two-year discussion about its own bureaucratic structures when the region is changing so dramatically,

“Then, Europe did a remarkable thing and offered the perspective of entry to the Union. That is not possible in the Mediterranean, but we have to find the equivalent in our system to give the money and resources needed to ensure that the revolutions do not come to mean unemployment and more violence.”

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Greek debt hit by restructuring fears

2011-04-14T19:47:00.001-07:00

Greek debt hit by restructuring fears

FT.com / Capital Markets - Greek debt hit by restructuring fears

Greek debt hit by restructuring fears

Greek borrowing costs reached a euro-era high compared with those of Germany.

George Papaconstantinou told the Financial Times that Greece needed more time to convince international investors of its commitment to reform its finances.

Greece’s debt levels were unsustainable, “further measures” would have to be taken.

any involuntary restructuring before 2013, but warned that investors could face losses after that point.

“Greek bonds are getting crushed,” said Gary Jenkins, head of fixed income at Evolution Securities.

These comments didn’t say anything new, but they gave short sellers an excuse to get back into the market at better prices after the recent rally.”

Yields on Greek two-year bonds jumped 0.9 of a percentage point to 17.829 per cent.

a Greek restructuring “will inevitably cause collateral damage to Europe’s banking system and contagion across Europe’s most vulnerable sovereign borrowers.”

Investors fled risky “peripheral” eurozone debt for the haven of Germany, where 10-year bond yields, which move inversely to prices, dropped nearly 4 basis points at one point before ending flat at 3.428 per cent.

“Everyone thinks restructuring is going to happen at some point. Peripheral tensions had eased in recent days, but they haven’t gone away.”The cost of insurance against a Greek default, via buying credit default swaps, also hit a new high at 1,139bp, implying it costs $1.14m a year to insure $10m of debt for five years.

Ultimately we believe that if the idea is to get the debt back to a sustainable level then the target will be the Maastricht treaty limit of debt-to-GDP of 60 per cent. In order to reach that level, bonds will have to take a haircut of some 62 per cent,” he said.

Polls suggest Finns could elect an anti-European Union leader at the weekend. True Finns, headed by Timo Soini, has been only narrowly behind the centre-right National Coalition party and investors fear an anti-EU Finland could hamper Brussels’ negotiations for Portugal’s bail-out and further progress in creating permanent rescue mechanisms.

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Will China's Rise Lead to War? | Foreign

2011-04-09T00:51:00.001-07:00

Will China's Rise Lead to War? | Foreign Affairs

The rise of China will likely be the most important international relations story of the twenty-first century, but it remains unclear whether that story will have a happy ending.

China, unlike the Soviet Union, will prove a serious economic competitor as well as a geopolitical one

because the current international order is defined by economic and political openness, it can accommodate China's rise peacefully.

The United States and other leading powers, this argument runs, can and will make clear that China is welcome to join the existing order and prosper within it, and China is likely to do so rather than launch a costly and dangerous struggle to overturn the system and establish an order more to its own liking.

China's growing strength, most realists argue, will lead it to pursue its interests more assertively, which will in turn lead the United States and other countries to balance against it

The dangers that do exist, moreover, are not the ones predicted by sweeping theories of the international system in general but instead stem from secondary disputes particular to Northeast Asia -- and the security prevalent in the international system at large should make these disputes easier for the United States and China to manage.

Conflict is not predetermined -- and if the United States can adjust to the new international conditions, making some uncomfortable concessions and not exaggerating the dangers, a major clash might well be avoided

The solution to the puzzle lies in the concept of the security dilemma -- a situation in which one state's efforts to increase its own security reduce the security of others.

Current international conditions should enable both the United States and China to protect their vital interests without posing large threats to each other

Large-scale conventional attacks by China against the U.S. homeland, meanwhile, are virtually impossible because the United States and China are separated by the vast expanse of the Pacific Ocean, across which it would be difficult to attack

United States and China will be able to maintain high levels of security now and through any potential rise of China to superpower status

According to neo-isolationists, in short, China's rise will not jeopardize U.S. security, but maintaining current U.S. alliances could.

Some realist pessimists argue that in order to be highly secure, China will find itself compelled to pursue regional hegemony, fueling conflict along the way.

However, China's size, power, location, and nuclear arsenal will make it very challenging to attack successfully.

The prospects for avoiding intense military competition and war may be good, but growth in China's power may nevertheless require some changes in U.S. foreign policy that Washington will find disagreeable -- particularly regarding Taiwan.

Current U.S. policy is designed to reduce the probability that Taiwan will declare independence and to make clear that the United States will not come to Taiwan's aid if it does.

Given the different interests and perceptions of the various parties and the limited control Washington has over Taipei's behavior, a crisis could unfold in which the United States found itself following events rather than leading them.

Not all adversaries are Hitler, and when they are not, accommodation can be an effective policy tool.

The challenge for the United States will come in making adjustments to its policies in situations in which less-than-vital interests (such as Taiwan) might cause problems and in making sure it does not exaggerate the risks posed by China's growing power and military capabilities.

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China and the US: Access denied

2011-04-08T20:46:00.001-07:00

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China and the US: Access denied

In December 1997, Ren Zhengfei and his management team gathered by the fireplace in a Silicon Valley hotel to discuss their recent meetings with a clutch of US technology firms. While their American counterparts headed home for Christmas, the boss of Huawei, the Chinese telecommunications equipment maker, and his team remained at work, analysing what they had seen and heard. In Mr Ren’s vision for global expansion, the US was to be the role model.

“We must respect them, learn from them, critically carry on [their work],” he concluded in an article praising companies such as IBM and Bell Labs for their innovative power, speed of movement and scale. Ever since, his company has paid up to 3 per cent of its revenue each year to consultancies including IBM, Accenture and Hay Group to model its management systems on US multinationals. “This has helped us develop a common language with customers all over the world,” says a Huawei board member.

But 14 years on, its love affair with America is on the rocks. While the lessons from Silicon Valley have helped the Chinese company storm markets in Africa, the Middle East, Latin America and Europe – and elevated it to the global number two slot – it has hit a brick wall in the US. In spite of $28bn in global revenues, $4.4bn in operating profit and a world market share of 14.2 per cent last year, it has yet to win a single network contract with a leading telecoms carrier in the US.

Huawei’s frustrated attempts to make serious inroads in the US add up to more than just a corporate saga. They reveal deepening mutual distrust between China and America. In the US, there is growing frustration and alarm in the intelligence community and in Congress at its companies’ dependence on China for critical components in highly sensitive industries. There are also concerns that US groups are placed at a disadvantage by hidden financial support from Beijing for their rivals. China, for its part, suspects that America is seeking to contain its rise on all fronts, including economic.

The extent of Huawei’s problems became apparent last year when the company tried to raise its stake in the US market, and each attempt ended in failure. In October, it appeared close to winning a multibillion-dollar network infrastructure contract from Sprint Nextel, the third-largest carrier in the US. Though the administration of Barack Obama lacked a formal mechanism to prevent the deal, such was its concern that Gary Locke, the commerce secretary since named ambassador to Beijing, telephoned Sprint’s chief executive. In the event, Sprint chose Samsung.

Last year, Huawei also lost out to Nokia Siemens Networks in a bid for Motorola’s wireless assets, and failed to win a bid for 2wire, an internet software firm that went to Pace of the UK instead. People familiar with both failures say that concerns about the risk of regulatory delays played a role in each.

Last month, Huawei was forced to agree to unwind a $2m acquisition of patents from 3Leaf, an insolvent California-based startup, after the Committee on Foreign Investment in the United States (Cfius), which vets foreign takeovers of US assets, refused approval.

In the Sprint case, Huawei had offered external validation of its equipment through Amerilink, a company set up by William Owens, a former vice-chairman of the joint chiefs of staff, and Kevin Packingham, a former Sprint executive. But US officials never believed the group had the necessary technical capability or independence, according to people familiar with the matter. Instead, the attempt to appease government concerns was perceived as a ploy.

This is in part because of the rocky state of Sino-US relations, including reports of cyberattacks on US companies such as Google in China. Fairly or unfairly, says James Lewis of the Center for Strategic and International Studies in Washington, America will be loath to entrust a Chinese group with access to its communications network if it has reason to suspect doing so would bolster cyberwarfare capabilities.

“Awareness in the national security policy community of threats in the cyber domain has greatly increased,” says Mr Mancuso. “So if you believe that the Chinese government is engaging in cyber-intrusion, you’ll have a problem with Huawei because Huawei sits smack in the middle of the industry supplying the critical infrastructure.”

Huawei sees itself as a victim of a relationship poisoned by distrust and demonisation of China. Bill Plummer, spokesman for Huawei North America, reels off a list of other stress points, including currency disputes, disagreement over Tibet and Taiwan and China’s inclination to use information security and innovation policies to shut foreign companies out of the market. “We are always seen through this prism,” he complains.

In a recent letter to Mr Obama, senior Republican lawmakers warned about Beijing’s “extensive support” for Huawei and ZTE, another Chinese technology group, and that such financial ties “[increase] the risk that the companies feel obliged to follow its instructions”. Huawei acknowledges having several credit lines from state banks but acts only as a “bridge” between the banks and customers who need loans to buy its equipment, and says it has received no other significant government support.

In 2008, Huawei retracted a bid with Bain Capital for 3Com, a US technology company, after it became clear the deal would not pass Cfius scrutiny. People familiar with the Cfius process say US concerns about Huawei are based on classified information known to only a handful of officials.

US politicians have long-running complaints about transparency. As a private company, Huawei does not disclose details about its owners. Mr Ren’s history in the People’s Liberation Army has fed insinuations that the PLA could have either a stake in or special relations with Huawei. He was an officer in the engineering corps from 1974 to 1983, losing his position when the military was downsized. The company refutes the insinuations, saying Mr Ren holds no more than a 1.42 per cent stake and the rest of the company is owned by employees through a holding structure. But that has helped little to dispel doubts in the US.

Huawei also says the process of unwinding its patent deal with 3Leaf could have some benefits for its future in the US. The company has installed a compliance officer in charge of overseeing divestment to meet Cfius demands. “This gives us the chance for the first time to have a continuous dialogue with Cfius,” Mr Bross says.

Legal experts in the US stress that such dialogue is necessary to build trust with officials even when no deal is in the pipeline. But Huawei claims it was not given that chance in the past. “If you are Ericsson, you can have that. If you’re Huawei, you can’t,” says Mr Bross.

Huawei also intends to install product security mechanisms to address US criticism. It plans to replicate the “secure cell” structure it uses in the UK, whereby critical software code for network products is compiled by locals and put in escrow. That comes on top of a system where US customers can choose who they want to install Huawei products and who they want to support them.

But while it keeps lobbying the top-tier carriers, Huawei has started selling gear for rural networks in the US. Last month, it sold a rural broadband network to Northeast Wireless in Maine, and currently it is in talks with Sprint Rural Alliance, a group of small rural operators that have “roaming” partnerships with Sprint Nextel, for infrastructure in a few midwestern states.

Even in the relatively straightforward Maine transaction, however, the problems Huawei faces in the US remain constant. At a recent congressional hearing, a senator from the state asked law enforcement officials about the deal, and revealed that the FBI had discussed the transaction with Northeast Wireless. The deal was completed and did not in the end prove controversial. But it was one more sign of Huawei’s uphill struggle in America.
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Stabilising nuclear plant to take years

2011-03-31T18:31:00.001-07:00

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Stabilising nuclear plant to take years

Japan’s quake-crippled atomic power station will take years to fully stabilise but officials hope to prevent any further deterioration of the plant and stem the leakage of radioactive material into surrounding areas within a matter of weeks.

Workers are battling to contain radiation from the power station amid signs it may be continuously leaking into the sea. The huge earthquake and tsunami that ravaged Japan’s north-eastern coast on March 11 knocked out the plant’s cooling systems.

Asked how long it would take to end the crisis, Mr Edano said that achieving “full stability” of the plant and its dangerously overheated spent fuel rods was generally recognised to be a multi-year task.

Tokyo Electric Power, the utility at the centre of the worst nuclear accident in 25 years, could face claims of as much as Y11,000bn ($133bn) if the crisis lasts two years, according to estimates by Bank of America Merrill Lynch. Moody’s, the ratings agency, has twice downgraded the operator’s long-term issuer rating in two weeks.

During a brief visit to Tokyo on Wednesday, Nicolas Sarkozy, French president, agreed with Japanese prime minister Naoto Kan to work together to develop new international nuclear safety standards.

The damage to the atomic plant and other infrastructure inflicted by the tsunami and earthquake has exacerbated worries about the economic impact of a disaster feared to have killed over 27,000 people. Japanese manufacturing activity sank to a two-year low in March, with the seasonally-adjusted Markit/JMMA purchasing managers’ index marking its steepest decline since the index was first compiled in 2001.

The Fukushima Daiichi plant’s problems have sparked speculation that Tepco, the operator, could be nationalised and Japan’s atomic energy sector radically restructured.

Mr Edano, who as the government’s top spokesman has won plaudits for his matter-of-fact explanations of the complex situation at the plant, said ministers and officials had not had time to “reflect fully” on the causes of the crisis or how the industry might be reformed.

However, Mr Edano stood by the government’s decision to impose a 20km exclusion zone around the plant and to advise people living with 30km to stay indoors or leave voluntarily, saying residents should face no health risk if such advice was followed.
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Oil Flows as Rebels Gain

2011-02-27T20:26:00.001-08:00

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Oil Flows as Rebels Gain

Libyan rebels pressed the regime of Col. Moammar Gadhafi Sunday, taking control of a key city near the capital of Tripoli, declaring a provisional government and allowing oil shipments to resume from territory under their control.

An oil tanker was expected to depart the port of Tobruk in the northeast corner of Libya sometime Sunday night carrying 700,000 barrels of oil, said Hassan Bulifa, a member of the management committee of Arabian Gulf Oil Co., Libya's largest oil producer and the only oil company based in the country's opposition-controlled eastern territory.

The management committee has assumed control of day-to-day operations at the company after its chairman, Abdulwanis Saad, resigned during the uprising against Col. Gadhafi. Mr. Bulifa said he believed the tanker would be bound for China.

The turmoil across the Middle East, cradle of much of the world's oil production, has sent prices soaring. Last week, crude oil for April delivery on the New York Mercantile Exchange rose $8.17 per barrel, or 9.11%, to $97.88, and for the seventh time since 1982 prices jumped 10% within two days. Month-to-date, U.S. benchmark crude is up 6.17%.

he National Oil Co., which is based in Tripoli and remains under the control of Mr. Gadhafi's government. Nevertheless, the relaunching of exports would be good news for Arabian Gulf Oil, which has had to cut back production rates for fear of running out of storage capacity amid a lack of export outlets.

The developments in Libya came on another turbulent day in the Middle East. Oman, a small sultanate at the mouth of the oil-rich Persian Gulf, had its first protests, in which at least one person was killed. Riots broke out in Tunisia, the country that started the wave of uprisings in the region. The prime minister there, appointed only a few weeks ago, resigned after several days of street violence.

In Libya, the pledged Arabian Gulf Oil shipment was a rare bright spot amid signs the industry is faltering badly as expatriate workers leave and many local workers stay home, fearing growing violence. The United Nations refugee agency said more than 100,000 people have fled violence in Libya to other countries in the past week.

Over the weekend, the government failed in repeated attempts to regain ground in the strategically important coastal city of Misrata. Libya's third-largest city, it is located between Tripoli and Col. Gadhafi's hometown of Sirte, raising questions about the strength the leader's remaining loyalist forces.

But areas near Tripoli weren't as quiet. Foreign journalists taken on a government-sponsored tour of Al-Zawiya, to the west of Tripoli—which last week witnessed bloody clashes between opposition and pro-Gadhafi security forces—entered the center of town to see the tricolored flag that predated Col. Gadhafi's 1969 revolution flying.

"This council was created in defiance of Gadhafi's claim that there will be chaos after he leaves," said the spokesman, Abdul Hafidh Gogha. "There is no chaos. In just 10 days we managed to cross the hard times and create local councils to govern."
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Tunis Flap Prompts Departure Of French Minister

2011-02-27T20:10:00.001-08:00

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Tunis Flap Prompts Departure Of French Minister

PARIS—French President Nicolas Sarkozy said he was replacing the country's foreign minister, Michèle Alliot-Marie, in an effort to draw a line under a string of embarrassments that have muddied France's diplomatic efforts since the start of uprisings in the Middle East.

In a televised address, Mr. Sarkozy said Ms. Alliot-Marie was being replaced by Alain Juppé, who was defense minister in the previous cabinet. Gérard Longuet replaces Mr. Juppé at the Defense Ministry, he said.

Ms. Alliot-Marie, 64 years old, has come under fire over the past few weeks, first for saying—at the height of the protests in Tunisia in January—that authorities there would benefit from the skill of France's riot police and then for disclosures involving her Christmas vacation in the North African country. During the holiday, Ms. Alliot-Marie used a private jet belonging to a relative of ousted Tunisian President Zine al-Abidine Ben Ali.

Though the minister said she had used a private jet during her Tunisian holiday, she denied any wrongdoing, saying the trip had not influenced her political position. But public perception turned against her, analysts say.

Ms. Alliot-Marie's Tunisian vacation also added to another disclosure: that French Premier François Fillon and his family had accepted a private-plane trip and other hospitality from the Egyptian government during a New Year's holiday.

The two events gave the French public the impression that France was cozying up with despotic rulers across the Middle East, instead of supporting democratic forces, analysts say.

Commenting on the Tunisian revolt that led to Mr. Ben Ali's downfall, Mr. Sarkozy said in January that France "had failed to grasp the sense of despair and the suffering" of Tunisia's population.

Fewer than a fourth of French adults approve of Mr. Sarkozy's policies, according to recent opinion polls.
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France Focuses on Food at G20 summit

2011-02-19T20:40:00.001-08:00

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France Focuses on Food

President Puts Issue of Rising Prices at Top of G-20 Agenda

LONDON—Long known as a country obsessed with culinary perfection, France is making food a top priority as President Nicolas Sarkozy takes the helm of the Group of 20 meeting this week.

Key to the agenda in France, Western Europe's largest grains producer, is addressing rising world food prices by improving transparency in commodities markets. Proposals include limiting the size of positions dealers can take, regulating off-exchange trading and publishing data on the type of investors in the market.

Ministers of the G-20 industrialized and developing nations are also considering ways to make agricultural markets more transparent, including publishing more information on international supplies and improving forecasting mechanisms.

Agricultural powers such as the U.S., Canada and Brazil have signaled their opposition to greater regulation, while financial hubs like the U.K. fear losing lucrative trading.

"Regulation of commodities is not the answer," said Argentine Economy Minister Amado Boudou after discussions with Brazilian Finance Minister Guido Mantega. "The solution lies in increasing production."

But it argues that current food prices are largely being driven by supply and demand, particularly pointing to the surging demand from emerging markets coupled with supply shocks that include flood and drought.

Even some French officials have started to tone down their push for more regulation. Finance Minister Christine Lagarde said in a recent interview that France would now focus more on transparency. "We will solve a number of things through access to information," she said.

The price of wheat, for instance, has doubled since July.

Inflation poses a headache for policymakers globally, but far more in developing countries, where households spend up to 75% of their budget on food, compared with around 10% to 12% in Europe and the U.S.

Food-price inflation has been partly blamed for sparking protests in North Africa that toppled long-standing presidents in Tunisia and Egypt. To prevent a repeat of the widespread unrest of the 2007-08 food crisis, governments in some importing countries have begun building up grain stocks while others have boosted food subsidies.

European Union data show that between 2003 and 2008 institutional investors increased their investment in commodities markets to between $250 and $300 billion from $15 billion. But opinions remain divided over the influence that financial investors wield over prices.

"Speculators are always an easy target, but speculators didn't cause food prices to rally in the second half of 2010," he said. "The more you have different types of players trying to use the derivatives markets, the more they reflect the true price of the commodity."

Strong demand growth and a lack of transparency in emerging markets have also contributed to price volatility, said David Lehman, managing director of commodity research and product development at futures market operator CME Group.

"Even if we don't have a complete overview, because of the severe impact this can have on people's lives, a precautionary approach should be taken," said Oxfam agriculture and trade expert Marita Wiggerthale.
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Hungry for a Solution to Rising Food Prices

2011-02-17T19:52:00.001-08:00

Hungry for a Solution to Rising Food Prices - BusinessWeek

As the Tunisian dictator Zine el Abidine Ben Ali discovered in January, there is no surer route to political oblivion than to deny people access to affordable food.

The riots that ensued—propelled in part by anger over high food prices—drove Ben Ali from power and spread to Egypt, Jordan, Yemen, and Algeria. Ben Ali may be remembered as the despot who was toppled by a vegetable cart.

The deluges in Saskatchewan were so sustained and intense that farmers couldn't plant some 10 million acres of wheat, according to the Canadian Wheat Board. "What is typically the driest province was never wetter," said the governmental agency Environment Canada.

Chicago Board of Trade up by 74 percent in the past year.

Corn traded in Chicago rose by 87 percent during the same period.

grain prices have spiked even higher because of yet another drought, this one threatening China's wheat crop, the world's largest. In that country's eight major wheat-producing provinces, some 42 percent of winter wheat cropland has been hurt by a dry spell, according to Agriculture Minister Han Changfu.

"Whenever you get the market as tight as we are now, hoarding becomes widespread," says Abdolreza Abbassian, a senior economist at the FAO. Wheat prices may keep rising until the summer, he predicts, because importers are speeding up purchases to outrun inflation. Prices are more likely to stay high or go higher in the next six months, he adds, than to decline.

You need two perfect harvests through the summer of 2012 to get stockpiles back to an acceptable level," says Jason Lejonvarn, a commodities strategist at Hermes Fund Managers in London.

a Chinese ban on wheat exports would also send prices higher, meaning that global grain shortages—once thought to be a disaster of the past—could return. Even American commodities buyers are feeling the pinch. "There is not one crop you can point to that is without supply problems," says Steve Nicholson, a commodity procurement specialist for International Food Products in St. Louis. "Production is not keeping up with demand."

the crisis is a test of mankind's ability to feed itself

the era of predictable abundance that fueled the world's population growth to almost 7 billion people may be over.

Yet rising global food prices have pushed 44 million more people into extreme poverty in developing countries since June, the World Bank says. "Global food prices threaten tens of millions of poor people around the world," World Bank President Robert Zoellick said in a Feb. 15 conference call. "The price hike is already pushing millions of people into poverty and putting stress on the most vulnerable, who spend more than half of their income on food."

"In many of these emerging markets, two-thirds of the consumer price index is essentially food, energy, and transportation," New York University economist Nouriel Roubini told Bloomberg News in January.

"We are a food-abundant country and the last place where food inflation is going to rise," says Erick Erickson, an economist at the Washington-based U.S. Grains Council.

That's because in those countries, consumers pressed by food costs are more likely to get pay raises, says Karen Ward, senior global economist at HSBC in London. Once inflation creeps into wages, it quickly becomes general. China, with nearly double-digit economic growth, is an example. Chinese consumer prices rose 4.9 percent in January from a year earlier, the government announced on Feb. 14, while food costs rose 10.3 percent.

In low-demand, high-unemployment economies such as the U.S., workers can't get higher pay to cover their rising food bills, so they cut back on other kinds of spending. Companies, too, are forced to eat their higher costs because they know raising prices will kill sales. In a weak economy, higher commodity prices are "like a further tax on your growth," says HSBC's Ward.

The question is whether Wall Street speculators are making commodity prices rise faster. At the height of the housing and stock market bubble that burst two years ago, speculators were accused of pushing up crude oil prices—to a peak of $147 per barrel for West Texas Crude in 2008—without regard to supply and demand. This led to calls for regulation that weren't answered until the Dodd-Frank financial reform bill gave new marching orders to the U.S. Commodity Futures Trading Commission.

the commission in January proposed stricter position limits, or rules on how many futures contracts investors can own at one time.

Traders say they don't boost prices, because trading is a zero-sum game: For every buy, there's a sell. "Speculators will flock to a good, compelling, fundamental story," says Gary Mead, an analyst at VM Group in London. "If you take away that good, compelling, fundamental story, speculators will look at something else. In this low-interest-rate environment, they're searching for yield in whatever shape. Right now, it happens to be commodities."

A record 43.6 million people in the U.S.—more than one of every eight—received food stamps in November, as the jobless rate stayed near a 27-year high, the USDA reported. In most parts of the developing world, there is no comparable safety net, which is why national leaders and nongovernment organizations alike are scrambling to devise solutions before the worst comes to pass.

Beijing will spend 12.9 billion yuan ($1.96 billion) to bolster farm production and fight the dry weather. Benjamin Wey, founder and president of New York Global Group, an advisory firm in Beijing and New York, predicts that the Chinese government, to avoid social unrest, will impose food price controls, making producers and distributors whole through subsidies.

Agriculture Minister Mykola Prysyazhnyuk urged the World Bank to create a world grain bank "to safeguard the global food supply … and to avoid unrest and to avoid fear."

Bank President Zoellick also recommends targeted government aid for the poor, such as school lunch programs, and a free-market approach to price volatility, with governments promoting transparency and preventing restrictions on the flow of food.

Scientists have been warning for years that carbon emissions from cars, planes, factories, and power plants would make the global climate warmer and more chaotic—altering weather patterns to make some places more prone to drought and others more prone to floods. And climate campaigners have been wondering for years what it would take to galvanize the U.S. and other nations into action.

"There is an increasing likelihood of a food crisis globally," he said, "due to climate change." Business leaders are equally frank. "The fact is that climate around the world is changing," says Sunny Verghese, chief executive officer at Olam International, among the world's three biggest suppliers of rice and cotton. "That will cause massive disruptions."

The current series of droughts and floods are not simply wreaking havoc on food supplies. They're harbingers of life in a hotter and more chaotic climate. Could hunger, and the threat to power that accompanies it, be what finally forces political leaders to act?

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Drought threatens China's wheat crop

2011-02-12T11:48:00.001-08:00

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Drought threatens China's wheat crop;
Shortages could create more pressure on already rising global food prices

The U.N. Food and Agriculture Organization issued an alert Tuesday that a severe drought was threatening the wheat crop in China, the world's largest wheat producer, and even resulting in shortages of drinking water for people and livestock.

The state-run news media in China warned Monday that the country's major agricultural regions were facing their worst drought in 60 years and said Tuesday that Shandong Province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month.

World wheat prices are already surging and have been widely cited as one reason for protests in Egypt and elsewhere in the Arab world. China has been essentially self-sufficient in grain for decades for national security reasons, and any move by China to import large quantities of food in response to the drought could drive international prices even higher, creating serious problems for less affluent countries that rely on imported food.

''China's grain situation is critical to the rest of the world - if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world's grain markets,'' said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Banos, Philippines.

The Food and Agriculture Organization said that 5.16 million hectares, or 12.75 million acres, of China's 14 million hectares of wheat fields had been affected by the drought, and that 2.57 million people and 2.79 million head of livestock faced shortages of drinking water.

''Minimal rainfall or snow this winter has crippled China's major agricultural regions, leaving many of them parched,'' reported Xinhua, the state-run news agency. ''Crop production has fallen sharply, as the worst drought in six decades shows no sign of letting up.''

Relatively few days of subzero temperatures and government irrigation projects have somewhat tempered the effects of the drought so far, the F.A.O. said in its ''special alert,'' but it went on to caution that extreme cold, with temperatures of minus 18 degrees Celsius (zero Fahrenheit), could have ''devastating'' effects. Kisan Gunjal, the F.A.O. food emergency officer in Rome for Asia alerts, said by telephone that if rain came soon and temperatures warmed up, then the wheat crop could still be saved and a bumper crop might even be possible.

Chinese meteorological agencies are warning of frost for each of the next nine nights in the heart of Shandong Province, with temperatures falling as low as minus 6 degrees Celsius (21 Fahrenheit), with very little chance of precipitation in the next 10 days except for the possibility of a little light rain or a dusting of snow on Wednesday or Thursday.

The heat wave in Russia last summer, combined with floods in Australia in recent months, have drawn worldwide attention to the international wheat market because both countries have historically been big exporters. Soaring wheat prices have been a particular trigger for food-related protests this year, in contrast to three years ago, when rice led food price increases and caused food riots from Haiti to Senegal.
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China Spends $1 Billion To Fight Massive Drought Wrecking Country's Wheat Crop

2011-02-12T09:42:00.001-08:00

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China Spends $1 Billion To Fight Massive Drought Wrecking Country's Wheat Crop

China has announced $1 billion in funding to help farmers fight the country's devastating droughts, according to The Guardian.

The country is facing its worst drought in 60 years right where it hurts the most, the wheat producing province of Shangdong.

Beyond the impact on the country's wheat crop, the drought has left 2.81 million people without drinking water, according to Xinhuanet.
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U.N. Says Drought in China Puts Wheat Crop at Risk

2011-02-08T11:25:00.001-08:00

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U.N. Says Drought in China Puts Wheat Crop at Risk

SHANGHAI—A United Nations agency said this year's wheat crop is at risk in at least five Chinese provinces, echoing continuous warnings from China that its major northern wheat growing areas are facing an epic drought.

In a rare special early warning global alert, the U.N. Food and Agriculture Organization said north China's "ongoing drought is potentially a serious problem." The Rome-based FAO, which based its notice partly on a stream of warnings from Beijing about the wheat crop, said the provinces primarily affected include Shandong, Jiangsu, Henan, Hebei and Shanxi, which together represent about two-thirds of China's national wheat production.

For weeks, Beijing officials have underscored their concern about risks to the wheat crop, with the state-run Xinhua news agency reporting on Tuesday that the production base in Shandong province "is bracing for its worst drought in 200 years."

The FAO report said water shortages in the wheat regions are a likely factor in lifting Chinese retail wheat flour prices 8% over two months to January and 16% from the same month in 2010. In separate reports earlier, the FAO has warned governments to avoid short-term measures to combat inflation.

Global wheat producers, including in the U.S., have been attentive to the possibility China will import wheat this year at a time when a half-year-old Russian export ban is in place after wildfires there and when Australian producers have faced weeks of adverse weather. On Tuesday, U.S. wheat futures surged to a 30-month high.
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What Germany’s got right, and what it hasn’t

2011-02-06T08:58:00.001-08:00

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Angela in Wunderland

What Germany’s got right, and what it hasn’t

THE West has rightly marvelled at China’s economic miracle. Less noticed is a minor miracle in its own midst. It is time to pay attention to Germany’s new Wirtschaftswunder.

Germans entered 2011 in their most optimistic mood since 2000, according to Allensbach’s polls. Business confidence is at its highest since the Ifo institute began tracking it 20 years ago.

the country did not experience a property or credit bubble, and that it has kept its public finances admirably under control.

Germany’s success has been export-driven: unlike most other big rich economies it has maintained its share of world exports over the past decade, even as China has risen.

Germany has a cheaper-labour hinterland right on its doorstep in central Europe that has helped companies raise efficiency and hold down pay. Meanwhile, German firms happen to produce exactly the things that a booming China wants, from luxury cars to the machinery that enables Chinese factories to be the workshops of the world. So Germany has been a big winner on both the supply side and the demand side of globalisation. The euro also provided a bonanza, thanks to (unsustainable) demand in places like Spain and Greece.

German companies have excelled at seeking out unglamorous but profitable niches, and then focusing relentlessly on being the best.

Under Gerhard Schröder, a Social Democrat who was Angela Merkel’s predecessor as chancellor, the so-called Hartz reforms made labour markets more flexible and made work a bit more attractive compared with living on unemployment benefits.

German businesses also took a gamble during the downturn. With the help of government subsidies they held on to their workers, betting that order books would quickly fill up again. They did, so German companies retained the skills and the manpower to respond quickly to the upturn.

Yet the German model remains flawed in two important ways.

it is too dependent on foreign demand, reflected in an excessive current-account surplus of 5% of GDP last year, while consumer spending is feeble (one reason why enthusiasm for the government is low too, see article).

If every European country followed that example it would be a recipe for a slump. Instead, like China, Germany needs to rebalance its growth, with greater efforts to boost demand at home. More spending in Germany would also help struggling economies elsewhere in Europe. The second blot on Germany’s copybook is its poor record in improving productivity. In contrast to Germany’s industrial prowess, its bigger services sector remains overprotected and inefficient. More competition and less red tape would help.

Without a rise in domestic spending and progress in productivity, Germany’s success will falter. It is encouraging that consumer spending has started to play a bigger role of late. Productivity-enhancing reforms of services should be next. Half a German miracle is not enough.
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Running the world

2011-01-31T20:14:00.001-08:00

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Running the world

The world today is neo-medieval, Mr Khanna believes. Power no longer lies in the bony hands of a few white Western bureaucrats and politicians. It has become geographically and politically fragmented. In the Middle Ages the church rivalled kings and emperors. Today the West shares influence with rising nations, like China and Brazil, with companies large and small, and with NGOs.

In a bit over 200 pages of breathless prose Mr Khanna applies his formula to everything from global warming to Middle East peace and solving world poverty. You can forgive Mr Khanna for failing to put the world to rights entirely—his solution for Israel and Palestine, for example, looks little different from today’s gridlock. And he has a point, though not a terribly original one, when he says that the modern world has so many new actors that Western power is circumscribed.
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South Africa looks to China

2011-01-31T03:44:00.001-08:00

Amplify’d from www.economist.com

South Africa looks to China

NEARLY everyone at Davos is talking about China. Finance ministers fret about the future of the yuan. Corporate titans feverishly swap tips on how to make things in Guangzhou or sell things in Zhejiang. Chinese academics engage cautiously with Western reporters about the possibility that some day Chinese people may be allowed to vote.

There is wide disagreement as to why China’s economy has grown so fast. Those who know the least about China often have the strongest views. Some see it the way Barack Obama once said American voters saw him: "as a blank screen on which people of vastly different political stripes project their own views."

Free-market types tend to argue that China has prospered because, since the late 1970s, it has abandoned or relaxed the state controls with which Mao Zedong once throttled it. By this argument, China is like a spring which was trodden down for decades and from which the boot has been removed, allowing it to bounce back to its natural shape.

Others take the opposite view. Dirigistes insist that the secret of China’s success is that its state is still highly interventionist. South Africa’s president, Jacob Zuma, inclines to this view. He and his circle are convinced that “market fundamentalism” was the cause of the global financial crisis, and have started looking to China for an alternative. Top members of the African National Congress (South Africa’s ruling party) have been making study trips to Beijing to observe how things work there.

Late last year, Mr Zuma’s government unveiled a plan called the “New Growth Path”. Some of its suggestions, such as a freeze on private-sector wages, sound impractical. And although the details of how it will be implemented are as clear as lumpy sorghum beer, the overall thrust alarms South African businessfolk. Mr Zuma wants a “developmental state”, with substantially more government intrusion in the economy.

Why, asks a South African businessman, did Mr Zuma not look to India for an example of how a poor country can grow fast? Culturally, South Africa has much more in common with India than with China. But the ANC rather likes the idea of extending its power over private business and the allocation of capital, he fears. And this will end in tears, he predicts, for a simple reason. China, for all its flaws, has a reasonably competent bureaucracy to implement the central government’s plans. South Africa conspicuously does not.
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Indonesia Scraps Import Duty on Rice, Soybeans, Wheat: Ministry

2011-01-29T05:38:00.001-08:00

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Indonesia Scraps Import Duty on Rice, Soybeans, Wheat: Ministry

Indonesia will scrap import duty on rice until the end of March 2011 as part of the government efforts to ease food prices and fight inflation, the finance ministry said on Friday.

Rice is currently subject to import duty of 450 rupiah per kg. The government will also scrap import duties on wheat and soybeans until the end of 2011 to stabilize prices, said Bambang Brodjonegoro, acting head of the fiscal policy office at the ministry.

"Import duty for both soybean and wheat should return to normal levels of 5 percent each by January 2012," Brodjonegoro told reporters.

AP

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Hungary Interest Rate Increase

2011-01-25T20:03:00.001-08:00

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FT.com / Comment - Where have all the thinkers gone?

2011-01-24T20:17:00.001-08:00

FT.com / Comment - Where have all the thinkers gone?

Where have all the thinkers gone?

A few weeks ago I was sitting in my office, reading Foreign Policy magazine, when I made a striking discovery. Sitting next door to me, separated only by a narrow partition, is one of the world’s leading thinkers. Every year, Foreign Policy lists the people it regards as the “Top 100 Global Thinkers”. And there, at number 37, was Martin Wolf.

The list of intellectuals from 2010, he suggested, looked pretty feeble compared with a similar list that could have been drawn up in the mid 19th century.

Even if, like Foreign Policy, you have a preference for politicians, the contrast between the giants of yesteryear and the relative pygmies of today is alarming. In 1861 the list would have included Lincoln, Gladstone, Bismarck and Garibaldi. Their modern equivalents would be Mr Obama, Nick Clegg, Angela Merkel and Silvio Berlusconi.

A list of significant intellectuals alive in 1939 would have included Einstein, Keynes, T.S. Eliot, Picasso, Freud, Gandhi, Orwell, Churchill, Hayek, Sartre.

A second possibility is that familiarity breeds contempt. Maybe we are surrounded by thinkers who are just as great as the giants of the past, but we cannot recognise the fact because they are still in our midst.

In the modern world more people have access to knowledge and the ability to publish. The internet also makes collaboration much easier and modern universities promote specialisation. So it could be that the way that knowledge advances these days is through networks of specialists working together, across the globe – rather than through a single, towering intellect pulling together a great theory in the reading room of the British Museum. It is a less romantic idea – but, perhaps, it is more efficient.

And then there is a final possibility. That, for all its wealth and its gadgets, our generation is not quite as smart as it thinks it is.

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Global Prices Fears

2011-01-23T19:24:00.001-08:00

Global Price Fears Mount - WSJ.com

Global Price Fears Mount

As Food, Raw Materials Soar, Europe's Central Bank Head Warns on Inflation

Inflation fears—fueled by spiraling food, oil and raw material prices—are mounting around the globe, prompting the head of the European Central Bank to signal that it could raise interest rates in the future even though some countries have been weakened by the Continent's debt crisis.

Jean-Claude Trichet warned that inflation pressures in the euro zone must be watched closely, and urged central bankers everywhere to ensure that higher energy and food prices don't gain a foothold in the global economy.

Fast-growing emerging markets such as China and Brazil are seeing rising inflation at home, and their demand for globally traded commodities is pushing prices higher elsewhere.

annual inflation in China is almost 5%—and a sizzling 9.8% economic growth rate in the fourth quarter triggered fears of more price pressures ahead. Inflation in Brazil is even higher.

With the global recovery still in its early stages, those moves could accelerate. Higher raw material prices, especially coal and iron ore, are pushing up steel prices across the globe.

All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to…be very careful that there are no second-round effects" on domestic prices, said Mr. Trichet in his office overlooking Frankfurt's financial district

Global inflation isn't just coming from volatile commodities that track the ups and downs of the world economy. Fast-growing emerging nations are taking increasingly aggressive actions to beat back rising food prices as they grow more worried about threats to stability

Last month, inflation unexpectedly jumped to 2.2% in the euro zone from 1.9%, the first time in more than two years it has exceeded the ECB's target of just below 2%. Some economists say it will rise above 2.5% in the next two months.

Many economists worry that higher interest rates would do further damage in such countries, where the interest burdens on high private-sector debts are closely linked to the ECB's policy rates. Mr. Trichet rejected calls to take special heed of stragglers on the euro zone's fringe.

Mr. Trichet argues that budget discipline would help growth in Europe more than renewed stimulus, and called on the euro zone's 17 member countries to strengthen "surveillance" of each other's fiscal policies. In Europe, budget discipline benefits growth and job creation by "improving confidence of households, enterprises, investors and savers," said the 68-year-old Frenchman.

Mr. Trichet's inflation warnings signal a symbolic shift from the crisis mentality that has dominated ECB policy for much of the past three years back to its traditional role—keeping prices stable

"I do not buy the very simple reasoning that would suggest that pursuing sounder fiscal policy would hamper growth," Mr. Trichet said.

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Surprise Increase in Expectations Lifts German Ifo Business-Climate Index to New Record in January

2011-01-22T20:59:00.001-08:00

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Surprise Increase in Expectations Lifts German Ifo Business-Climate Index to New Record in January

The fact that the renewed worsening of the Eurozone debt crisis since November 2010 has not prevented survey participants from becoming more optimistic about the future is encouraging. Notwithstanding the current shift towards domestic sources of growth, exports remain robust too.

Underlying growth momentum will stay well above 2%, and thus potential, in 2011. The supportive background environment of unusually low interest rates and a relatively subdued euro level due to the sovereign debt crisis will stay in place for some time to come.

IHS Global Insight's January interim forecast has predicted that average German economic growth will only moderate from 3.6% in 2010 to 2.7% in 2011 (in calendar-adjusted terms), thus ensuring that the steep drop of -4.7% in 2009 will have unwound by mid-2011.

The Ifo business-climate index continues to go from strength to strength. In January, it increased from 109.8 to 110.3–another all-time high in the history of German post-reunification data (since 1991). The data corroborates the message given by the December purchasing managers’ index (PMI) release, which had shown a significant, orders-led extension of the rebound observed since October. Strikingly, the Ifo sub-index reflecting six-month expectations was the driving force, increasing from 106.8 to 107.8, its highest level since the start of post-unification records. The current conditions sub-index slipped marginally from 112.9 to 112.8, its first slight setback since February 2010 and only its second monthly decline during the last 19 months. Current conditions, therefore, remain moderately below series highs (115.5 in the boom of 2006–07 and 116.5 in January 1991) for now.

Germany's increasing domestic strength is being boosted by interest rates that are much too low for its own economic conditions, and exports are remaining robust, supported by the moderate level of the euro. Assuming global growth momentum does not collapse due to authorities (specifically in China) slamming on the brakes in order to keep inflation in check, German economic growth will stay very robust during 2011.

Domestic demand will increasingly contribute to GDP growth, but exports will continue to provide a solid contribution too, based on the current competitiveness of Germany's manufacturing firms. In January, wholesale and retail trade as recent drivers of economic growth suffered corrective setbacks (chiefly via current conditions in these sectors, rather than expectations). However, a sizeable increase was posted for the manufacturing-sector climate—based on both expectations and current conditions—with a huge, expectation-driven surge posted for construction.

The Ifo institute has commented that capacity utilisation in the manufacturing sector is now above its long-term average and that firms want to increase employment.

The December spike in the retailer climate was unwound in January, as the buoyancy of pre-festive-period sales in 2010 gave way to more normal conditions. The index declined from December’s cyclical high of 24.1 to 14.0, broadly returning to November’s level of 13.3. This matches the topping out of the GfK consumer climate index for January. Expectations unwound part of recent gains, and current conditions shed most of December’s increase. Nevertheless, the underlying trend for the retail sector still points upwards, underpinned by the ongoing improvement in labour-market conditions, and the boost is providing for consumer confidence about job security and the potential for future wage increases.

Fiscal tightening is not a major risk for a setback to Germany's recovery, and this is compensated in any case by ECB monetary policy continuing to be too soft for German economic conditions for quite some time. Germany's recovering labour market will increasingly lend impetus to private consumption, reducing the dependence on exports. At the same time, German exports will remain quite robust for reasons of competitiveness and because of relatively subdued euro levels, the latter being linked to the Eurozone debt crisis. This indirectly boosts Germany’s trade with the non-Eurozone world.

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German Ifo Business Climate Index Rose To 110.3 In January

2011-01-22T20:41:00.001-08:00

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German Ifo Business Climate Index Rose To 110.3 In January

The German January Ifo business climate index rose to 110.3 in January, the Munich-based Ifo Institute reported Friday, news reports said. The index had been forecast to rise to 110.0 from a revised reading of 109.8 last month.

he Ifo Business Climate Index for German industry and trade rose further in January. The business climate has thus continued the positive development of the past year. The firms are just as satisfied with their current business as they were in December, and they have given more favourable assessments of their business prospects for the coming half year. The German economy has started the year with great vigour.

the business climate has clearly improved, having clouded over somewhat in the previous month. The manufacturing firms report an improved business situation and once again have given more favourable appraisals of their business outlook. Especially in exports, the survey participants see much greater opportunities. The firms have further increased the utilisation of their machines and equipment, and now capacity utilisation in manufacturing is above average. They also plan to increase the number of their staff.

The business climate in retailing and wholesaling has cooled off somewhat, following a significant improvement in both distributive sectors in December. Both retailers and wholesalers no longer assess their current business situation quite as favourably as in the past month. With regard to the six-month business outlook, their optimism has also weakened somewhat.
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Ireland's Leader Quits Party But Stays Prime Minister

2011-01-22T10:07:00.001-08:00

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Ireland's Leader Quits Party But Stays Prime Minister

Ireland's Prime Minister Brian Cowen bowed to pressure from members of Fianna Fail on Saturday and resigned as the party's leader, but said he would continue to serve as premier until a March 11 election.

Cowen's decision to split the role of party leader and prime minister is highly unusual and crowns a week of political drama that had Irish people shaking their heads in anger.

Many blame Cowen for mishandling the economic crisis and allowing a disastrous property bubble to develop during a previous stint as finance minister.

The meltdown that ensued forced the country to accept an 85 billion euro ($115 billion) bailout from the EU and IMF late last year.

"He should have gone months ago to preserve some kind of dignity for himself and for the office," said Tony Moore, a vegetable delivery man in central Dublin. "Just look at the country's standing abroad, we're a laughing stock."

Under pressure from his party for weeks, Cowen called a vote of confidence in his leadership at the start of the week. He won that but squandered the victory a few days later when an ill-judged attempt to reshuffle his cabinet nearly brought down his administration.

"This is the right thing to do for the party," Cowen said at a hastily arranged address to the media at a Dublin hotel. "We will manage the situation and people need to be assured of that. The government will discharge its duties properly and appropriately. It doesn't in any way affect government business."

Enda Kenny, the leader of the main opposition party, Fine Gael, slammed Cowen's move and said he would table a motion of no-confidence in the prime minister on Tuesday unless he called an immediate election.
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Vatican Expresses Worry Over Berlusconi Scandal

2011-01-22T09:37:00.001-08:00

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Vatican Expresses Worry Over Berlusconi Scandal

VATICAN CITY—A top Vatican official on Thursday waded into a scandal that has embroiled Italian Prime Minister Silvio Berlusconi, expressing concern over an investigation into whether the billionaire media mogul gave gifts and cash to an underage woman in exchange for sexual favors.

"The Holy See is watching these Italian matters with attention and, in particular, worry," Vatican Secretary of State Cardinal Tarcisio Bertone, the Vatican's No. 2 official, told reporters when asked about the allegations against Mr. Berlusconi.

The comments marked a rare, if subtle, rebuke of Mr. Berlusconi whose center-right government has long supported the Catholic Church's conservative teachings. The Vatican has traditionally eschewed any overt criticism of Mr. Berlusconi's penchant for late-night parties with young women, a practice that has been public for nearly two years.

The remarks are therefore a measure of how Mr. Berlusconi faces mounting pressure from across the political and social spectrum as he defends himself against allegations by prosecutors that he had sexual relations with Karima El Mahroug when she was 17 years old. Prosecutors also allege the premier abused his powers in an attempt to cover up the relationship.

Mr. Berlusconi has vigorously denied having sex with Ms. El Mahroug or seeking to cover up his alleged relations with her. He has also lashed out at Italy's judiciary, accusing prosecutors of violating Italy's constitution in a campaign to persecute him.

The Vatican's views carry particular weigh in Italy, a Catholic stronghold where church officials still command a large swath of votes. The Vatican also holds some sway over the Union of Christian Democrats party, which Mr. Berlusconi recently courted in an effort to shore up his narrow majority in Parliament.

"The Church calls for everyone, especially those who have public duties in politics, governance and the judiciary, to bear the burden of robust morality, of a sense of law and justice," Cardinal Bertone said.
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Vatican Expresses Worry Over Berlusconi Scandal

2011-01-22T02:11:00.001-08:00

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Vatican Expresses Worry Over Berlusconi Scandal

VATICAN CITY—A top Vatican official on Thursday waded into a scandal that has embroiled Italian Prime Minister Silvio Berlusconi, expressing concern over an investigation into whether the billionaire media mogul gave gifts and cash to an underage woman in exchange for sexual favors.

"The Holy See is watching these Italian matters with attention and, in particular, worry," Vatican Secretary of State Cardinal Tarcisio Bertone, the Vatican's No. 2 official, told reporters when asked about the allegations against Mr. Berlusconi.

The comments marked a rare, if subtle, rebuke of Mr. Berlusconi whose center-right government has long supported the Catholic Church's conservative teachings. The Vatican has traditionally eschewed any overt criticism of Mr. Berlusconi's penchant for late-night parties with young women, a practice that has been public for nearly two years.

The remarks are therefore a measure of how Mr. Berlusconi faces mounting pressure from across the political and social spectrum as he defends himself against allegations by prosecutors that he had sexual relations with Karima El Mahroug when she was 17 years old. Prosecutors also allege the premier abused his powers in an attempt to cover up the relationship.

Mr. Berlusconi has vigorously denied having sex with Ms. El Mahroug or seeking to cover up his alleged relations with her. He has also lashed out at Italy's judiciary, accusing prosecutors of violating Italy's constitution in a campaign to persecute him.

The Vatican's views carry particular weigh in Italy, a Catholic stronghold where church officials still command a large swath of votes. The Vatican also holds some sway over the Union of Christian Democrats party, which Mr. Berlusconi recently courted in an effort to shore up his narrow majority in Parliament.

"The Church calls for everyone, especially those who have public duties in politics, governance and the judiciary, to bear the burden of robust morality, of a sense of law and justice," Cardinal Bertone said.
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Vatican Expresses Worry Over Berlusconi Scandal

2011-01-22T01:41:00.001-08:00

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Vatican Expresses Worry Over Berlusconi Scandal

VATICAN CITY—A top Vatican official on Thursday waded into a scandal that has embroiled Italian Prime Minister Silvio Berlusconi, expressing concern over an investigation into whether the billionaire media mogul gave gifts and cash to an underage woman in exchange for sexual favors.

"The Holy See is watching these Italian matters with attention and, in particular, worry," Vatican Secretary of State Cardinal Tarcisio Bertone, the Vatican's No. 2 official, told reporters when asked about the allegations against Mr. Berlusconi.

The comments marked a rare, if subtle, rebuke of Mr. Berlusconi whose center-right government has long supported the Catholic Church's conservative teachings. The Vatican has traditionally eschewed any overt criticism of Mr. Berlusconi's penchant for late-night parties with young women, a practice that has been public for nearly two years.

The remarks are therefore a measure of how Mr. Berlusconi faces mounting pressure from across the political and social spectrum as he defends himself against allegations by prosecutors that he had sexual relations with Karima El Mahroug when she was 17 years old. Prosecutors also allege the premier abused his powers in an attempt to cover up the relationship.

Mr. Berlusconi has vigorously denied having sex with Ms. El Mahroug or seeking to cover up his alleged relations with her. He has also lashed out at Italy's judiciary, accusing prosecutors of violating Italy's constitution in a campaign to persecute him.

The Vatican's views carry particular weigh in Italy, a Catholic stronghold where church officials still command a large swath of votes. The Vatican also holds some sway over the Union of Christian Democrats party, which Mr. Berlusconi recently courted in an effort to shore up his narrow majority in Parliament.

"The Church calls for everyone, especially those who have public duties in politics, governance and the judiciary, to bear the burden of robust morality, of a sense of law and justice," Cardinal Bertone said.
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Top investors raise alarm on inflation

2011-01-21T20:57:00.001-08:00

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Top investors raise alarm on inflation

Some of the world’s leading investors have turned increasingly bearish on government bonds from developed countries as they warn of the growing danger of inflation.

Data this week showing the UK consumer price index hit 3.7 per cent in December fuelled concern and sent benchmark British borrowing costs to an eight-month high of 3.72 per cent.

In Europe, inflation has risen above the European Central Bank’s target for the first time in more than two years, leading investors to bet on interest rate rises in the eurozone and UK this year.

“Why would you want to be a bondholder with bond yields so low and that sort of inflationary trend,” Bill Gross, who runs the world’s largest bond fund at Pimco, told the Financial Times. “If CPI continues above 3 per cent in the UK and 2 per cent in the US, then we are accepting negative real interest rates and that is not an attractive investment.”

Jim Rogers, the veteran investor based in Singapore, said western governments were concealing the extent of inflation, leading him to avoid bonds and continue his long-held preference for commodities. “There has been inflation but the US and UK governments lie about it ... Money all around the world is becoming more and more debased so you need to own real assets.”
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Inflation Rise in UK beats Analysts Expectations

2011-01-18T20:58:00.001-08:00

Price rise pressure on Bank of England

Investors betting on summer rates increase

Consumer index lift higher than expected

By Daniel Pimlott and Chris Giles in London

Investors are betting that the Bank of England will start raising interest rates in early summer after soaring fuel and food prices pushed inflation higher than expected in December.

The UK consumer price index rose 3.7 per cent in the year to December, with inflation up from 3.3 per cent in November. The latest nasty surprise on prices led some economists to predict that inflation will reach 5 per cent, more than double the Bank’s 2 per cent target.

The spike in inflation squeezes household and corporate incomes, putting a further brake on the recovery at the same time as austerity begins to bite. It also threatens to become ingrained in people’s expectations, making it more difficult to eradicate.

Investors are now betting that the Bank’s monetary policy committee will soon feel the need to show it is serious about beating inflation and will raise interest rates from their current low of 0.5 per cent.

The high level of inflation – reflecting the 25 per cent fall in sterling since 2007 – gives the Bank an even worse dilemma than European Central Bank, which put down a marker against price rises last week after inflation in the eurozone rose to 2.2 per cent.

In Britain, the Bank is coming under fire, partly for failing to foresee the rise in inflation. As recently as February, it forecast that inflation would be only 1.5 per cent in the fourth quarter of 2010 and thought that the chances of the 3.4 per cent outcome were negligible.

Ben Broadbent, an economist at Goldman Sachs, calculated that after adjusting for the unexpected value added tax cut of 2009, “the MPC has under-predicted inflation in every year since the CPI target was introduced in 2004”.

Michael Saunders, an economist at Citi, who has repeatedly warned of the Bank’s overoptimism on inflation, said the MPC faced a crisis of inflation forecasting and credibility.

“The MPC needs to show . . . that it takes the inflation target seriously, which means tough rhetoric near term and then probably also higher policy rates in coming months,” he added.

The Bank argues that such price increases are temporary. It suggests that inflation is going to fall next year once the rise in VAT falls out of the annual comparison and spare capacity in manufacturing and services discourages companies from raising prices.

“We have to look through those short-term things, despite whatever unpopularity comes our way,” Paul Fisher, head of markets at the Bank and a member of the MPC, said in an interview with a regional newspaper.

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China’s lending hits new heights

2011-01-17T19:15:00.001-08:00

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China’s lending hits new heights

China has lent more money to other developing countries over the past two years than the World Bank, a stark indication of the scale of Beijing’s economic reach and its drive to secure natural resources.

China Development Bank and China Export-Import Bank signed loans of at least $110bn (£70bn) to other developing country governments and companies in 2009 and 2010, according to Financial Times research. The equivalent arms of the World Bank made loan commitments of $100.3bn from mid-2008 to mid-2010, itself a record amount of lending in response to the financial crisis.

The volume of overseas loans by the two banks indicates how Beijing is forging new patterns of China-led globalisation, as part of a broader push to scale back its economic dependency on western export markets.

The financial crisis allowed Beijing to push the commercial interests of its energy companies by offering loans to producer countries at a time when financing was hard to come by.

The agreements include large loan-for-oil deals with Russia, Venezuela and Brazil, as well as loans for an Indian company to buy power equipment and for infrastructure projects in Ghana and railways in Argentina.

The World Bank has been trying to find ways to co-operate with Beijing to avoid escalating competition over loan deals. China itself has been one of the biggest recipients of World Bank loans in the past.“One of the topics I have been discussing with the Chinese authorities is how we can work with them to share our mutual experience to support other developing countries, whether in south-east Asia or Africa,” Robert Zoellick, World Bank president, said on a visit to China last year.

CDB and EximBank provide more preferential terms than the World Bank and other lenders for certain deals that are strongly supported by Beijing, but offer terms that are closer to international standards for less politically sensitive deals. They also tend to impose less onerous transparency conditions.

The flurry of Chinese lending to oil producers has already caused some anxiety in the US about energy security. According to Erica Downs, a China expert at the Brookings Institution, the impact on US interests is mixed. “CDB’s [energy] loans indicate that Chinese lenders are likely to be more concerned about good economic policymaking in recipient countries and they are not reducing the amount of oil available to the US,” she said. “On the other hand, CDB’s loans are empowering anti-American regimes in Latin America.”
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Tunisia Revolution ....

2011-01-15T21:44:00.001-08:00

Amplify’d from www.economist.com

Watching and waiting

THE mood on the streets of Tunis remains uncertain. A day after the president, Zine el-Abedine Ben Ali, fled the country (he is now said to be in Saudi Arabia), Tunisia’s future hangs in the balance. With a sense that the revolution is far from over, people have been stocking up on food and any other available supplies.

Foued Mebazaa, the speaker of parliament, has now taken over as interim president. Mohammed Ghannouchi, the prime minister, had initially said that he would take charge of the country but the constitution put Mr Mebazaa in control. He says he has now asked Mr Ghannouchi to form a national unity government.

The question now is how far the Jasmine Revolution will go. Apart from Lebanon’s Cedar Revolution in 2005, it is the only successful Arab revolution since the end of the colonial era. For now, power is still very much in the hands of the ancien regime but Tunisians are hoping that their revolution will not stop with the ousting of Mr Ben Ali and the crumbling of his 23-year oppressive reign. They are demanding big changes for Tunisia. But their demands—sorting out unemployment, providing freedom of speech and human rights, bringing real democracy to Tunisia—are tough ones. It is not clear what kind of government will take over from Mr Ben Ali’s nor whether it will be able, or want, to fulfil them.

Abd al-Rahman al-Rashid, a leading Saudi columnist for al-Sharq al-Awsat, a pan-Arab daily owned by a member of the Saudi royal family, has been worrying (in Arabic) about whether this could lead to a domino effect, shaking even relatively calm Arab states. Perhaps most disconcerting for Arab leaders is that most people would have counted Tunisia among that group until a few weeks ago.

Most importantly, this combination has undermined authoritarian regimes' ability to control the flow of information to their citizens. As Arabs throughout the Middle East watch scenes of protests in Tunisia on their computers and their televisions, it is increasingly difficult for their governments to intervene.

In Jordan too, thousands of protesters took to the streets in protest over rising food and commodity prices, unemployment and poverty. The Muslim Brotherhood has warned that the proposed price hikes will spark protests similar to Tunisia’s in Jordan. So far, most of the anger seems to be directed at Samir Rifai, the Jordanian prime minister, and there has no violence or arrests.
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Spain seeks to show it is not another Ireland

2011-01-15T21:18:00.001-08:00

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Spain seeks to show it is not another Ireland

As the Spanish prime minister reveals plans for an overhaul of the country’s network of debt-soaked savings banks, he will be hoping to reassure anxious investors that Spain is not heading for an Irish-style banking meltdown.

Since the financial crisis began, Spanish officials and bankers have boasted of the relative strength of their banking system compared with those of the UK, the US and Germany. But the parallels between the troubles that have afflicted Spain’s regional savings banks – or cajas – and those that brought down Ireland’s banks are hard to overlook.

The problems stem from an aggressive expansion into commercial property and construction when the market was booming – and the severe losses triggered when those loans went bad.

Like the Irish banks, many cajas lent heavily to property developers, builders and homebuyers in the pre-crash years. Some of the most aggressive cajas doubled or even tripled their balance sheets during the boom years.

Since then, property prices have collapsed, debtors have fallen into bankruptcy, and bad loans have shot up, leaving many cajas in dire need of fresh capital.

“The system is sitting on probably 1.5m homes that need to be sold – that’s the glut,” says David Stix, a Madrid-based stockbroker and property expert. “Some of these banks have been forced to repossess these homes and have them on the balance sheet.”

According to the Bank of Spain, the “potential troubled exposure” to construction and real estate amounted to €180.8bn ($241bn) in mid-2010, with banks prepared for losses on only a third of that sum.

But the cajas’ woes are seen as less of a threat to Spain than the Irish banks’ troubles were to Ireland,
largely due to the comparative size of the economies.

Analysts point out that the amount needed to bail out the cajas, which could be up to €90bn in a stressed scenario, would represent less than 10 per cent of GDP, while that needed in Ireland was about 30 per cent of GDP.
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Back in the Old Euro Denial Routine

2011-01-10T18:50:00.001-08:00

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Back in the Old Euro Denial Routine

The euro zone is ratcheting up the pressure on Portugal to seek an aid package, but in a manner that makes it possible for government leaders to deny they are doing so, and maintain the appearance of national sovereignty.

The finance ministries of Germany and France have both denied that they have tried to persuade the Portuguese government to follow Greece and Ireland in seeking a bailout from the European Union and the International Monetary Fund.

As with Greece and Ireland before, "sources" from other euro-zone governments worry about Portugal's ability to borrow from the international bond markets.

Inevitably, come Monday morning, investors reacted to the weekend speculation about Portugal by selling its government's bonds. That move was later reversed, thanks to purchases of Portuguese bonds by the European Central Bank.

It could be that euro-zone policy makers are just very bad at communication and have very little understanding of how bond markets work.

It is certainly the case that throughout the fiscal crisis, the size and complexity of the euro zone's policy-making apparatus has made it difficult to craft a single message and stick with it for very long.

But there is also a consistency and regularity to the way euro-zone policy makers have behaved in the run-up to each bailout. Officially, they insist that it is up to the individual government to request help, and that nobody is being put under pressure to choose that option.

This tactic saves the appearance of a euro zone that still comprises independent nations free to exercise their sovereignty, while in fact giving preference to the needs of the euro zone as an entity.

Governments that are reluctant to admit failure because of the domestic political consequences are forced to take action that is considered necessary for the good of the currency area as a whole, and prevent contagion.

But at least one government minister has broken ranks. Shortly after the Irish government agreed to take €67.5 billion ($87.4 billion) in loans from the EU and the IMF, Minister for Justice Dermot Ahern gave his version of what had just happened.

"There were people from outside this country who were trying to bounce us ...into making an application-throwing in the towel before we had even considered it as a government," Mr. Ahern told state broadcaster RTE Radio in late November.

"If you notice they are doing the same with Portugal now because they fear that Portugal will now cause contagion," he added.

Except that, thus far, the euro zone's preference for "bouncing" members into taking help hasn't prevented contagion. Already economists are calculating how much it will cost to rescue Spain, which is seen as next on the list for help.

"Given the fact that the existing funding facilities will not be large enough to provide full three-year funding to Spain, we regard a significant extension of the facilities as necessary in order to calm markets," economists at Citigroup wrote in a note Monday.

"Portugal will not need a bailout," Spanish Minister of Finance Elena Salgado said in a radio interview Monday.

So the most plausible way to read the official leakage on Portugal is this: there is an effort under way to force the Portuguese government to accept aid by forcing its cost of borrowing up to levels that make it impossible to refinance its debt and cut its budget deficit.

This tactic appears designed to preserve the appearance of national sovereignty within the euro zone, while ensuring that members ask for help sooner rather than later in an effort to stop the rot.

But it may be the last time we see it. Euro-zone policy makers have long regarded Spain as the battle that has to be won. Given the scale of the funds needed to aid the fourth largest economy in the currency area, euro-zone policy makers are unlikely to suggest that it can't survive without outside help, unless they really don't know what they are doing.
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Trade war looming, warns Brazil

2011-01-09T19:16:00.001-08:00

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Trade war looming, warns Brazil

Brazil has warned that the world is on course for a full-blown “trade war” as it stepped up its rhetoric against exchange rate manipulation.

Guido Mantega, finance minister, told the Financial Times that Brazil was preparing new measures to prevent further appreciation of its currency, the real, and would raise the issue of exchange-rate manipulation at the World Trade Organisation and other global bodies. He said the US and China were among the worst offenders.

“This is a currency war that is turning into a trade war,” Mr Mantega said in his first exclusive interview since Dilma Rousseff, Brazil’s new president, took office on January 1. His comments follow interventions in currency markets by Brazil, Chile and Peru last week and recent sharp rises in the Australian dollar, the Swiss franc and other currencies amid an exodus of investment from the sluggish economies of the US and Europe.

Mr Mantega, finance minister since 2006, coined the term “currency war” in September before launching controls on foreign portfolio investments in Brazil aimed at stemming an increase of 39 per cent in the real against the dollar over the past two years. He said that most of Brazil’s measures last year were directed at the spot market but the focus had switched to the futures markets, which he said were now behind the upward pressure on the currency.

On Thursday, Brazil’s central bank launched a surprise measure to curb short selling of the dollar against the real by onshore banks. “You can expect more measures on the futures market,” he said.

He said currency manipulation would be on the G20 agenda this year. Brazil would also lobby to have the WTO define exchange-rate manipulation as a form of veiled export subsidy.

Mr Mantega said that Brazil’s trade with the US had slipped from an annual surplus of about $15bn (£9.6bn) in Brazil’s favour to a deficit of $6bn since the US began trying to reflate its economy through loose monetary policy.

He said China’s overvalued currency was also distorting world trade. “We have excellent trade relations with China ... But there are some problems ... Of course we would like to see a revaluation of the renminbi.”
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Agri forum urges greater efforts to contain escalating food prices

2011-01-05T19:47:00.001-08:00

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Agri forum urges greater efforts to contain escalating food prices

JEDDAH: An agricultural forum was opened here Sunday calling for joint efforts to boost supply applying modern technology to contain escalating food prices in the Kingdom and elsewhere in the world.

Ahmed Al-Balla, CEO of National Prawn Company (NPC), said the forum was held at a time when the world is experiencing a dire shortage of agricultural products that fail to meet growing global demand.

“This situation has resulted in shooting up prices to historical levels,” Al-Balla told the forum, which was opened by Jeddah Gov. Prince Mishaal bin Majed.

Food prices will continue to go up for the next 10 years, he said quoting a report of the Food and Agriculture Organization of the United Nations.

Al-Balla said increasing worldwide demand on foodstuffs was putting pressure on agriculture. He called for the application of new technology to increase agricultural production.

Agriculture Minister Fahd Balghoneim said the forum would contribute to strengthening the sector. There are about 38,000 agricultural farms in the Makkah province, which produces 66,000 tons of dates, he said.

The forum will focus on water, agricultural, environmental and animal resources and rural development, the minister said, adding that it would also discuss matters relating to industrialization and marketing. “There will be discussions on individual and collective experiments and productive families,” Balghoneim said.

“We have decided to hold these forums in different provinces of the Kingdom to expand participation,” the minister said. Previous forums were held in Riyadh and Dammam. He underscored the Makkah province’s contribution to the agricultural sector. There are about 70 poultry farms in the region, he pointed out.
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Global food prices hit all-time high: UN

2011-01-05T19:41:00.001-08:00

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Global food prices hit all-time high: UN

Food prices around the world reached record highs last year, according to the United Nations Food and Agriculture Organisation (FAO).

The FAO Food Price Index surged to a record high in December 2010, driven by rising sugar, cereal and oil prices -- topping the previous high of June 2008 when shortages led to a food crisis in some countries.

We are concerned, the real reason for concern is the unpredictability,” said the Food and Agriculture Organization’s economist Abdolreza Abbassian to Reuters.

There is still room for prices to go up much higher, if for example the dry conditions in Argentina tend to become a drought, and if we start having problems with winterkill in the northern hemisphere for the wheat crops

Abbassian noted, however, that some of the factors behind the food riots of 2007 and 2008 in some nations – including weak production in poor countries – do not currently exist, thereby reducing the likelihood of more civil unrest.

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Global Food-Price Index Hits Record

2011-01-05T19:34:00.001-08:00

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Global Food-Price Index Hits Record

A prominent indicator of international food prices hit a record high in December, sounding a warning about looming threats to the world's poor and to global growth.

The United Nations Food and Agriculture Organization's monthly food price index rose for the sixth consecutive month to 214.7, topping the previous peak, 213.5, reached in June 2008.

The index doesn't measure domestic retail prices, which can be affected by a wide range of factors, including government subsidies. Instead, the index tracks export prices and can still serve as a barometer of what consumers may pay.

"The longer [food prices] remain high, the longer there is a possibility of a repeat," said Abdolreza Abbassian, secretary of the FAO's intergovernmental group on grains.

Despite challenging growing conditions in some major exporting nations, strong recent crops in many developing countries are helping governments and consumers manage the price spike, Mr. Abbassian said. Some African nations, he said, have seen healthy recent corn harvests.

The trade-weighted FAO index monitors the monthly change in a basket of 55 commodities, including meat, dairy, cereals, oils and sugar. Some of those categories are actually lower than they were in June 2008. But others are substantially higher.

The overall FAO index rose 4.3% in December, largely driven by significant monthly price increases in cereals and sugar. The indexes for those food groups rose 6.4%, and 6.7%, respectively, in December from November.

Poor weather conditions in major exporting countries across the globe have significantly curtailed harvests and expectations, sending prices sharply higher.

Corn and wheat futures are each up 49% since the end of 2009; soybeans are up 33%. But, Mr. Abbassian said, prices for important staple foods are still below their record highs. Rice is priced at half its high two years ago, he said.

China has raised interest rates twice in recent months to combat inflation. Euro-zone inflation jumped past the bloc's target rate for the first time in more than two years, data released this week showed, and economists said the rise was likely due to higher food and energy prices.

Mr. Abbassian said poorer countries will at some point have to tap the international markets for foodstuffs. "That is the worrisome development," he said. "We consider the [current] prices quite punitive for the poorer countries."

Mr. Abbassian said prices will more likely rise this year than fall due to poor weather. Any potential price correction, therefore, isn't likely to happen before the middle of the summer when the next harvests are due to begin.
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FAO draws comfort at lack of food riots

2011-01-05T19:31:00.001-08:00

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FAO draws comfort at lack of food riots

Kenya’s poorest-paid city workers usually flock to illegal streetside stalls to find an affordable breakfast. Partly obscured by smoke rising into the morning air, security guards, drivers and many others cram trestle tables in search of the capital’s cheapest food, although it is no longer as cut-price as it was.

“The price is going up slowly but surely, but we can still afford it,” says Godfrey Nganga, a 40-year-old driver.

The relatively relaxed attitude of Mr Nganga contrasts with the food crisis of 2007-08, when a spike in agricultural prices triggered food riots in poor countries in Africa, including in Kenya’s capital, and elsewhere in Asia and Latin America.

The Food and Agriculture Organisation, the UN body in charge of global food policy, is drawing comfort from the absence of widespread riots, usually the defining element of a food crisis.

The FAO’s food price index, a basket tracking the wholesale cost of wheat, corn, rice, oilseeds, dairy products, sugar and meats, has jumped to a record high, surpassing in December the peak of the 2007-08 food crisis.

Yet so far, unrest has been limited. Mozambique witnessed disturbances after the government announced in September a 30 per cent price rise for bread. Food skirmishes have also emerged in Bolivia, where the government is removing subsidies, and India, after a sharp increase in onion prices prompted national outrage.

To an outsider, the relative calm, compared with riots in more than 30 countries three years ago, is striking. But a closer look reveals big differences to the situation then, differences that make clear why the world is not facing a crisis.

Abdolreza Abbassian, at the FAO in Rome, says the price of rice, one of the two most critical staples for global food security, remains below the peaks of 2007-08, providing breathing space for 3bn people in poor countries. Rice prices hit $1,050 a tonne in May 2008, but now trade at about $550 a tonne.

The surge in the FAO food index is principally on the back of rising costs for corn, sugar, vegetable oil and meat, which are less important than rice and wheat for food-insecure countries such as Ethiopia, Bangladesh and Haiti.

Three years ago, a large number of poor countries had harvested mediocre crops, forcing governments to tap the global market to bridge the shortfall in domestic production. This pushed up domestic prices and triggered riots.

Food aid and agriculture officials say that as long as African and Asian countries do not need to import produce, the impact of rising global prices will remain limited. But a string of bad crops, perhaps because of poor weather, could change that outlook.
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Free markets can still feed the world

2011-01-05T19:24:00.001-08:00

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Free markets can still feed the world

Nicolas Sarkozy, France’s president, has rightly identified food price volatility as a priority for his country as it chairs the Group of 20 leading economies this year. Figures released on Wednesday by the UN’s Food and Agricultural Organisation show that costs for a range of basic commodities have now surpassed their peaks of 2008. With food accounting for a large and volatile share of tight family budgets in the poorest countries, rising prices are re-emerging as a threat to global growth and social stability.

The G20 should agree to put food first – because food is the essence of life, and because practical action by the G20 could help make a real difference to hundreds of millions of people.

The overarching goal should be to ensure that the most vulnerable people and countries are no longer denied access to nutritious food. The G20 can achieve this, providing we take the following practical and interconnected steps.

Increase public access to information on the quality and quantity of grain stocks.

Improve long-range weather forecasting and monitoring, especially in Africa.

Deepen our understanding of the relationship between international prices and local prices in poor countries.

Establish small regional humanitarian reserves in disaster-prone, infrastructure-poor areas. Large stocks can be costly, degrade easily and impede producers. But in places where food crises are likely to recur and transport links are weak such as the Horn of Africa, small, pre-positioned strategic reserves would get food to the hungry fast, probably at lower cost. The World Food Programme (WFP) could manage this system.

Agree on a code of conduct to exempt humanitarian food aid from export bans. Export restrictions make food price volatility worse. Ideally, countries would not impose any export bans; in 2011 they should at least agree that food for humanitarian purposes be allowed to move freely.

Ensure effective social safety nets.

Give countries access to fast-disbursing support as an alternative to export bans or price fixing.

Develop a robust menu of other risk management products.

In some cases, the most useful tools might be weather insurance or a rainfall index; in others, it could be a hedge on energy prices to keep transport and input costs low.

Help smallholder farmers become a bigger part of the solution to food security. Eighty-six per cent of staples in poor areas come from local sources, so support for country-led efforts to bolster smallholder agriculture is critical. One concrete step would be for the G20 to help farmers benefit from tenders from humanitarian purchasers such as the WFP. This may require flexibility to allow development benefits such as building local markets to be taken into account in sourcing decisions. South Sudan could offer a timely pilot.
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Global food prices hit record high

2011-01-05T19:18:00.001-08:00

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Global food prices hit record high

Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN’s Food and Agriculture Organisation said on Wednesday.

The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.

The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices.

Higher food prices are also boosting overall inflation, which is above the preferred targets of central banks in Europe.

The FAO said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points – up almost 4.2 per cent from November.

The FAO is drawing comfort from relatively stable prices for rice, one of the two most important cereals for global food security, which remains far below its record high. Rice is the staple of 3bn people in Asia and Africa.

However, the cost of the other critical staple, wheat, is now rising fast on the back of poor harvests.

The increasing costs of sugar, whose price recently hit a 30-year high, oilseeds and meat are the main reason behind the rise in the FAO food index.

The rise of commodity prices makes it likely that the global food import bill will hit a record high in 2011, after topping $1,000bn last year for only the second time. In November, the FAO raised its 2010 forecast to $1,026bn, up almost 15 per cent from 2009 and within a whisker of a record high of $1,031bn set in 2008 during the food crisis.

Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies.

The weakness of the US dollar, in which most food commodities are denominated, has also contributed to higher prices.
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US apportions blame for BP spill

2011-01-05T19:08:00.001-08:00

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US apportions blame for BP spill

Systemic failures by the management of BP and other companies led to the Macondo well blow-out in the Gulf of Mexico last year, the official US inquiry has concluded, warning that industry complacency could cause a similar accident again.

A 48-page chapter from the report of the National Commission set up by President Barack Obama after the spill, released this morning, delivers a scathing verdict on the procedures followed by BP and its contractors on the project, Transocean and Halliburton.

An explosion on the Deepwater Horizon drilling rig on April 20 killed 11 men and led to the largest ever offshore oil spill.

The report says: “Most of the mistakes and oversights at Macondo can be traced back to a single overarching failure – a failure of management. Better management by BP, Halliburton, and Transocean would almost certainly have prevented the blow-out.” It warns that “the root causes are systemic” and without significant reform of the industry and its regulation, “might well recur”.

The Commission’s full report, including its assessment of the response to the spill, will be published on Tuesday.

Its conclusions will form part of the basis for legal action against BP and the other companies, including the civil cases being pursued by the US government that could result in tens of billions of dollars in damages.

But the Commission’s report warns that the bill for compensating people who have lost money “is likely just the beginning”. It adds: “BP, its partners . . . and its key contractors (particularly Halliburton and Transocean) face potential liability for the billions more necessary to restore natural resources harmed by the spill.”
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Severe flooding in Australia has interrupted coal production, pushing up prices

2011-01-04T20:07:00.001-08:00

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Severe flooding in Australia has interrupted coal production, pushing up prices and threatening to constrain world-wide steel output and lead to higher steel prices in some parts of the world.

Torrential rains in the northeastern state of Queensland, the world's biggest exporter of seaborne coal, have idled dozens of mines and shut rail lines and roads needed to transport coal. The floods have already cost coal companies an estimated $1 billion from lost production, according to the Queensland Resources Council.

Roughly 98 million tons of annual steelmaking-coal capacity, equal to 73% of such coal exported from Queensland, is under force majeure, according to Curt Woodworth, an analyst with Macquarie Capital in New York. That is about 37% of the annual, global seaborne supply of coal used by steelmakers.

Prices for steelmaking coal have already shot up 10% on the spot market to about $250 a metric ton, say analysts. "If the infrastructure issues continue, clearly prices are going to continue to head upward," said Jeremy Sussman, an analyst with Brean Murray, Carret & Co.
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US economic recovery not enough to curb QE2

2011-01-04T19:43:00.001-08:00

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US economic recovery not enough to curb QE2

Federal Reserve officials indicated last month that it was too early to consider scaling back their plan to buy a total of $600bn in long-dated Treasury bonds by the end of June, in spite of the acceleration in the US economic recovery.

The US central bank’s resistance to reversing the quantitative easing programme – nicknamed QE2 – came even as officials offered a more encouraging snapshot of the economy. They said growth would pick up “somewhat” in the coming months, citing a better “tone” in the labour market and stronger measures of production and consumer spending.

They also pointed to the $858bn fiscal package signed into law by President Barack Obama last month – which extended Bush-era tax rates, cut the payroll tax and extended unemployment insurance – as supporting recovery. Some also saw the risk of deflation – one of the big concerns ahead of the QE2 plan’s announcement – as “having receded somewhat”.

Indeed, the depressed state of the housing market, the reluctance of businesses to ramp up their hiring, and continued deleveraging by households and companies continued to restrain the US economy, according to the minutes. Fed officials also pointed to the existence of continued “downside risks” to the recovery, including the potential spillover from the sovereign debt woes in Europe. They also said that inflation was expected to remain “for some time” below the level which the Fed believes to be consistent with its mandate, indicating they did not foresee price pressures building rapidly.
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Cold and floods send fuel prices to new highs

2011-01-03T20:57:00.001-08:00

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Cold and floods send fuel prices to new highs

Crude oil and thermal coal prices set fresh 27-month highs on the first session of the new year and added to inflationary concerns in developing economies.

The surge came amid a forecast of cold weather in the US, the world’s biggest oil consumer, robust growth in the manufacturing sector in Asia and Europe and heavy flooding in Australia, the world’s second largest thermal coal exporter.

The mix propelled Brent crude, the global benchmark, above $95 a barrel for the first time since October 2008.

Lawrence Eagles, head of oil research at JPMorgan in New York said in a note to clients: “$100 a barrel oil looms.

“Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the US.

The surge in oil and thermal coal prices adds to already rising inflation in emerging countries, some of which are big importers of energy commodities. China, where the central bank has raised interest rates to fight rising prices, is the world’s second largest importer of both oil and thermal coal. India is also a large buyer.

In London, ICE February Brent surged to an intraday peak of $96.47 a barrel on thin trade becaiuse of a UK public holiday. It later traded up 87 cents to $95.62.

The price of coking coal, used in making steel, has also soared. Australia accounts for about two-thirds of the global seaborne market for coking coal.

Elsewhere in commodities markets, precious metals rose amid strong demand from investors, partly exacerbated by New Year’s money allocation shifts.

Agricultural commodities prices also rose, with strong gains for wheat and oilseeds, on the back of bad weather in key growing regions in Australia, Indonesia and Latin America. Meteorologists have blamed the bad weather on la niña, a recurring phenomenon, caused by a fall in water temperature in the tropical Pacific.

The phenomenon could alter rainfall and temperature patterns across some of the world’s most important tracts of agricultural land, and has triggered unusually strong downpours in Australia and Indonesia and drought in Argentina and Brazil.

In Paris, Euronext February rapeseed rose above the €500 per tonne level for the first time in almost three years. It hit an intraday high of €506.0 per tonne, up 1.8 per cent. Rapeseed prices peaked €521.5 a tonne in March 2008.
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Untitled

2011-01-03T20:56:00.001-08:00

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Cold and floods send fuel prices to new highs

Crude oil and thermal coal prices set fresh 27-month highs on the first session of the new year and added to inflationary concerns in developing economies.

The surge came amid a forecast of cold weather in the US, the world’s biggest oil consumer, robust growth in the manufacturing sector in Asia and Europe and heavy flooding in Australia, the world’s second largest thermal coal exporter.

The mix propelled Brent crude, the global benchmark, above $95 a barrel for the first time since October 2008.

Lawrence Eagles, head of oil research at JPMorgan in New York said in a note to clients: “$100 a barrel oil looms.

“Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the US.

The surge in oil and thermal coal prices adds to already rising inflation in emerging countries, some of which are big importers of energy commodities. China, where the central bank has raised interest rates to fight rising prices, is the world’s second largest importer of both oil and thermal coal. India is also a large buyer.

In London, ICE February Brent surged to an intraday peak of $96.47 a barrel on thin trade becaiuse of a UK public holiday. It later traded up 87 cents to $95.62.

The price of coking coal, used in making steel, has also soared. Australia accounts for about two-thirds of the global seaborne market for coking coal.

Elsewhere in commodities markets, precious metals rose amid strong demand from investors, partly exacerbated by New Year’s money allocation shifts.

Agricultural commodities prices also rose, with strong gains for wheat and oilseeds, on the back of bad weather in key growing regions in Australia, Indonesia and Latin America. Meteorologists have blamed the bad weather on la niña, a recurring phenomenon, caused by a fall in water temperature in the tropical Pacific.

The phenomenon could alter rainfall and temperature patterns across some of the world’s most important tracts of agricultural land, and has triggered unusually strong downpours in Australia and Indonesia and drought in Argentina and Brazil.

In Paris, Euronext February rapeseed rose above the €500 per tonne level for the first time in almost three years. It hit an intraday high of €506.0 per tonne, up 1.8 per cent. Rapeseed prices peaked €521.5 a tonne in March 2008.
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Eurozone manufacturing improves markedly

2011-01-03T20:46:00.001-08:00

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Eurozone manufacturing improves markedly

Europe’s manufacturing sector shrugged off market concerns about public debt levels in December, with a marked improvement in a key indicator extending to some of the troubled “peripheral” countries for the first time.

The eurozone purchasing managers’ index rose to 57.1 in December, up from 55.3 in November and 0.2 points higher than an earlier estimate. A reading above 50 indicates growth in manufacturing output.

The revised data released on Monday showed that although the German-led “core” of the eurozone remains the engine behind its economic recovery, there are signs that the troubled “periphery” is also improving.

welcome signs of recoveries were also evident in the periphery, where export sales helped boost output growth in all cases except Greece, where the rate of decline at least moderated

the small increase in the periphery will help ease fears of a “two-speed Europe” which emerged in 2010 as Germany powered ahead while much of southern Europe remained stuck in the mire.

Joblessness in the eurozone has remained at 10 per cent since spring in spite of a pick-up in economic output. Now the PMI survey shows hiring intentions at their highest level in more than a decade.

But the good news was partly tempered by sluggish growth for consumer goods manufacturing, a sign that shoppers remain cautious. Economists worry that the scope for economic recovery in Europe will be limited without a marked pick-up in consumer spending, particularly in Germany.

Julian Callow of Barclays Capital termed it a happy new year’s message from the manufacturing sector: “[It] provides further evidence that, contrary to the tensions in the debt markets, the business sector has continued to exhibit economic improvement.”
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Why fiscally prudent Estonia wants to join the troubled euro?

2011-01-01T05:16:00.001-08:00

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After the break-up of the Soviet Union, the kroon was restored in 1992, a symbol of independence regained.

Now the kroon, too, is destined to become a museum piece, though this time its abolition is voluntary. On January 1st Estonia adopts the euro, with mixed emotions among the numismatists in the museum shop. Most Estonians accept the government’s view that giving up the kroon will strengthen Estonia economically and politically. Pegged from the outset to the D-mark and then the euro, the kroon has hardly been independent. Abandoning it, say ministers, will end speculation about devaluation, reduce transaction costs, lower interest rates and boost investment.

To many Estonians, the euro also means security. For this small country of just 1.3m people, the single currency is a further step towards “Europe” and away from Russia. With its membership of NATO, the EU, the Schengen free-movement zone and now the euro, Estonia thinks of itself as one of the most integrated countries in Europe. As for the euro zone,

Having shrunk by nearly 14% in 2009, the economy has rebounded and is forecast to grow by 4.4% in 2011. The newest and poorest member of the euro zone will have its smallest public-debt ratio: 8% of GDP.

For Jürgen Ligi, Estonia’s finance minister, the essence of this success is discipline in maintaining balanced or surplus budgets in good times, and courage in making swift and deep cuts in bad. Estonia’s accumulated reserves, and its exports, cushioned the blow. Not everything is rosy. Inflation is rising. Unemployment, which this year averaged 17.5%, is high; analysts worry about a brain-drain

austerity is too not hard to bear after the experience of communism and late Soviet-era inflation. “Nobody would take to the streets flying the red flag,” says Mr Ligi. Toomas Ilves

Estonia’s president, suggests another factor: “Maybe it’s our peasant mentality.” Noting the thick snow outside his window, he says northern peoples are thrifty by necessity; they must save food in the summer to survive the winter.

Estonia’s medicine may be harder for other euro-zone countries to take. With big public-sector debts (the euro-zone average is 84% of GDP), restoring fiscal health could take decades of austerity, especially if growth is sluggish. Recession and, worse, deflation, would exacerbate the debt ratio. Still, Mr Ligi is impatient with the timidity of reforms in southern Europe. “Recession is much less painful than bankruptcy,” he says bluntly.

Is Estonia joining a moribund currency? The vital signs are worrying. The euro has fallen in recent months against the dollar, and bond spreads between its strongest and weakest members are still wide. The EU has kept it alive, averting, for now, default by Greece and Ireland, and the risk of another round of bank failures. The emergency room should continue to operate beyond 2013: a recent European summit agreed the wording of a treaty change to make permanent the EU’s bail-out funds, worth some €500 billion ($660 billion). The European Commission, meanwhile, is pressing ahead with plans for close monitoring of members’ budgets and economies, with punishments for those that do not follow its therapy. This will help long-term prevention.

The summit declined to adopt the most frequently proposed treatments: common euro bonds to pool part of the euro zone’s debt; bigger bail-out funds; or even their more flexible use, say, to extend short-term loans.

In December it requested a near doubling of its capital, presumably to counterbalance its risky assets.

Some see hope in China’s promise to buy bonds and make “investments” in troubled European countries. Yet Chinese medicine is no more than a palliative. This year’s prognosis, then, is for a chronic condition punctuated by crises.

Such is the sickly currency that Estonia is joining. It says the euro’s demise is unthinkable. And it is right in saying that self-help—austerity and structural reform—offers the most lasting remedy. But what if the cure kills the patient? Then Estonia will hope to inherit a share in a successor currency, perhaps a “northern euro”. That makes the gamble worth taking.

Baltic bet

Why fiscally prudent Estonia wants to join the troubled euro
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Higher VAT raises fear of cross-border fraud

2010-12-31T07:03:00.001-08:00

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Higher VAT raises fear of cross-border fraud

Increases in value added tax will come into force across Europe next month as governments turn to indirect tax to shore up public finances, sparking concerns about the region’s susceptibility to cross-border fraud that has already cost tens of billions of euros.

The number and scale of the VAT increases due to take place next year are unparalleled, said Richard Asquith at TMF Group, an accounting services company. “This is unprecedented and a real symptom of the economic climate as governments squeeze the consumer to keep business taxes low.”

At least half a dozen countries have ratified tax increases for the beginning of 2011. Within the European Union, these include the UK – 17.5 per cent to 20 per cent; Portugal – 21 per cent to 23 per cent; Poland – 22 per cent to 23 per cent; Latvia – 21 per cent to 22 per cent; and Slovakia – 19 per cent to 20 per cent.

The higher rates are set to boost the incentive for criminal gangs to pursue so-called missing trader or carousel fraud. This is a complex scam which involves taking advantage of the zero-rating of cross-border trade within the EU to make fraudulent claims for VAT refunds.

For example, a trader may import a van load of mobile phones from France, free of VAT, then add the VAT when selling them on in Britain. Instead of handing the VAT to the tax authorities, the trader pockets the money.

Such “missing trader intra-community” (MTIC) fraud historically revolved around buying and selling mobile phones and computer chips. However, fraudsters have migrated into other areas, targeting gas and power trading, the UK’s Serious Organised Crime Agency said recently.

This type of fraud was a big contributor to the €90bn-€113bn a year VAT “gap”, according to a European Commission report last year. This gap is the difference between the tax governments believe they ought to collect and the tax actually paid. It also includes legal avoidance and unpaid bills due to insolvencies.

Jason Collins, a partner at the law firm McGrigors, said higher VAT rates would increase the scale of the thefts and influence criminals’ choice of country to pursue this type of fraud.

The fraud has been on the wane recently in the UK, partly because much of the criminal activity has moved to continental Europe to take advantage of their higher VAT rates. But the UK risks a resurgence once its VAT rate is higher than other countries such as Germany and the Netherlands, where VAT is 19 per cent.

Improving the European VAT system’s resistance to fraud was one of the drivers behind the launch of a European Commission green paper this month that proposes radical reforms to the way the tax is collected.

It highlights the growing importance of VAT in Europe, which accounts for 21.4 per cent of the national tax revenues of EU member states, a rise of 12 per cent since 1995. It says reliance on VAT has increased, given the slump in direct and property-related taxes since the recession.

The indirect tax hikes are not just an EU phenomenon. For example, Switzerland is also proposing a VAT increase (7.6 per cent to 8 per cent), while Malaysia’s service tax rate will increase from 5 per cent to 6 per cent.

More increases are scheduled. Shortly before Christmas, Finland’s finance ministry suggested that VAT rates there should go up by two percentage points in order to finance a €2bn ($2.7bn) cut in income taxes and encourage people to work more.
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Big Gas Find Sparks a Frenzy in Israel

2010-12-29T21:36:00.001-08:00

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Big Gas Find Sparks a Frenzy in Israel

TEL AVIV—Two years ago, Ratio Oil Exploration LP, an energy firm here, employed five people and was worth about half a million dollars.

Today it sits at the center of a gas bonanza that has investors, international oil companies, Israeli politicians and even Hezbollah, Israel's sworn enemy, clamoring for a piece of the action.

Ratio's market capitalization now approaches $1 billion. The rally at Ratio is thanks to the company's 15% stake in a giant offshore gas field called Leviathan, operated by Houston-based Noble Energy Inc.

On Wednesday, the frenzy got fresh fuel: Noble confirmed its earlier estimates that the field contains 16 trillion cubic feet of gas—making it the world's biggest deepwater gas find in a decade, with enough reserves to supply Israel's gas needs for 100 years.

It's still early days, and getting all that gas out of the seabed may be more difficult than it seems today. But Noble and its partners think the field could hold enough gas to transform Israel, a country precariously dependent on others for energy, into a net-energy exporter.

Such a transformation could potentially alter the geopolitical balance of the Mideast, giving Israel a new economic advantage over its enemies.

Even before Wednesday's announcement confirming the size of Leviathan, the big field was causing a ruckus in Israel and the region.

Leviathan, named after the Biblical sea monster, and two smaller gas fields nearby have kicked up a broad speculative craze.

The energy index of the Tel Aviv Stock Exchange rose 1,700% in the past year. In recent months, energy stocks accounted for about a quarter of trading activity on the exchange, once mostly the domain of real-estate companies.

It's also shaken regional relations. Lebanese politicians are trying to lure companies to explore their nearby waters, while the two countries—still technically at war—have threatened each other over offshore resources.

Leviathan sits some 84 miles off Israel's northern coast and more than three miles beneath the Mediterranean's seabed. Noble began drilling its first exploratory well in the field in October.

In March, the U.S. Geological Survey released its first assessment of the zone, estimating it contained 1.7 billion barrels of oil and 122 trillion cubic feet of gas. That's equal to half the proven gas reserves of the U.S.

The finds also exposed a grittier underside to Israel's financial sector. A string of criminal investigations launched by Israeli authorities into share-price movements and company disclosures have dogged some of the bonanza's highest flyers.

"We saw new players, and these skeleton entities that had nothing to do with oil, had no experience or know-how, buying and trading leases, making baseless claims," said Industry, Trade and Labor Minister Uzi Landau. "We decided we had to stop this crazy atmosphere engulfing the market." He wouldn't discuss specific companies.

Officials at the Israeli Securities Authority declined to comment on specific cases, but said they were concerned about an ongoing pattern in which small energy companies publish vague or misleading reports that cause their share prices to skyrocket, and often to plummet later.

Finance Minister Steinitz has so far ignored the pressure. Last month, he said a government-appointed committee had made preliminary recommendations to abolish tax breaks for energy firms and impose steep tax increases of 20% to 60% on windfall profits. Any tax changes are subject to approval by Israel's cabinet.
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2010 in 9 diagrame

2010-12-29T12:54:00.001-08:00

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A year in nine pictures

THE global property bust that pulled the world into recession in 2008 began to lift in 2010. House prices turned up in Britain and stabilised in America (chart 1) but slid further in Spain. The process of deleveraging kept rich-world inflation subdued (chart 2).

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European carmakers hit by China licence curb

2010-12-27T10:38:00.001-08:00

Amplify’d from www.ft.com

European carmakers hit by China licence curb

European stocks fell sharply as concerns global growth may be slowed as China moves to rein in inflation and slow its powerful economy.

Trade in European equity markets was thin, however, as key players in the UK – due to public holidays – were missing. This left the markets prone to volatile moves and the FTSE Eurofirst 300 index was down 0.9 per cent to 1,137.49 in late morning trade.

In Germany, the biggest faller was BMW. The luxury car group was down 6.2 per cent to €59.32, while Porsche lost 4.9 per cent to €59.40, Volkswagen slid 4.7 per cent to €122.10 and Daimler shed 4.7 per cent to €51.55.

These heavyweight losses ensured a negative session on the Xetra Dax, which fell 1.2 per cent to 6,970.73.

In France, Peugeot lost 2.1 per cent to €28.84, while rival carmaker Renault lost 0.7 per cent to €43.44.

Carmakers fell after China also moved to limit the number of new vehicle licenses it issues in Beijing next year to 240,000 – about a third of last year’s total – as it strives to reduce the effects of relentless traffic in what has been ranked as the world’s most congested city.

December has, however, been a good month for equity markets, with the Eurofirst 300 up 7.5 per cent in the month to date, as investors put faith in efforts to rescue economies at the periphery of the eurozone. Banks have been among the stocks to benefit from the rally, but were down on Monday as the China rate hike prompted investors to take profits.

Spain, which is fast becoming the focus of investor suspicion after multiple credit downgrades for Ireland and Portugal in recent weeks, was the worst performing of the eurozone’s market indices, down 2.1 per cent to 9,899.
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Oh, No! Germany More Competitive

2010-12-24T21:57:00.001-08:00

Amplify’d from blogs.wsj.com

Oh, No! Germany More Competitive

Earlier this month, European Central Bank President Jean-Claude Trichet said that euro-zone inflation risks were “broadly balanced.” Maybe a glance at last week’s data on the currency bloc’s hourly labor costs will change his mind (…okay, probably not).

Eurostat reported that hourly labor costs in the euro zone rose 0.8%, the lowest rate of increase on record since the agency started keeping track in 2000. What’s the importance of hourly labor costs?

Headline inflation numbers tend to be relatively noisy, bouncing around with surges and dips in the price of commodities. But wages and salaries change slowly. Many economists believe they more accurately determine whether inflationary pressures are becoming embedded in prices.

From this perspective, the current meager increases in labor costs suggest that inflation is very far from being a problem; instead, outright deflation may be the clear and present danger.

The ECB, it’s true, appears to give unusual weight to commodity prices when setting interest rates. In fact, soaring commodity prices were behind what has been regarded as one of the ECB’s more ill-timed monetary-policy decisions: its move in July 2008 to raise interest rates 0.25%, just months before the financial crisis exploded.

You might argue that falling labor costs show the EU economy is adjusting to the shock of the financial crisis. Weaker euro-zone economies and those countries that peg their currencies to the euro need to see their labor costs fall, after enjoying a decade of wage growth fueled by easy credit. Without the ability or desire to devalue their currencies, lower wages are essential to erasing competitiveness gaps with the core euro-zone economies: Germany, France, the Netherlands, Austria and Finland.

But here there’s also reason to worry. Latvia, a country that desperately needs to become more competitive, saw its hourly labor costs fall just 0.5%, while the Netherlands registered a 1.3% drop in labor costs. Finland’s labor costs fell 0.7%. And Germany’s labor costs rose just 0.5%. Greece was the only weak euro-zone that saw labor costs fall significantly (-6.6%).
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Tosca

2010-12-24T21:26:00.001-08:00

Amplify’d from ro.wikipedia.org

Tosca

Premiera operei a avut loc pe 14 ianuarie 1900, la „Teatro Costanzi” din Roma.

În octombrie 1899, după trei ani de colaborare dificilă, opera era gata. Fiindcă era o poveste despre Roma, s-a decis ca premiera să fie în cetatea eternă, la Teatrul Constanzi. O curiozitate notabilă a plutit în jurul acestei opere a cărei pregătire a fost atât de lungă şi problematică. Tosca a fost soprana Hariclea Darclée, Cavaradossi a fost tenorul Emilio De Marchi iar Scarpia a fost baritonul Eugenio Giraldoni. Dirijorul a fost Leopoldo Mugnone. În public s-au aflat şi Regina Margherita, prim-ministrul Pelloux şi mulţi compozitori, printre care Pietro Mascagni, Francesco Cilea, Franchetti şi Sgambati.

Succesul a fost răsunător, chiar dacă diferenţa dintre atmosfera din Tosca şi Boema a fost una surprinzătoare.

[modifică] Roluri

Premiera din 14 ianuarie 1900

(Leopoldo Mugnone)
Floria Tosca, o cântăreaţă celebră soprană Hariclea Darclée
Mario Cavaradossi, un pictor tenor Emilio de Marchi
Baron Scarpia, şeful poliţiei bariton Eugenio Giraldoni
Cesare Angelotti, fostul consul al Republicii Romane bas Ruggero Galli
Un sacristan bas Ettore Borelli
Spoletta, un agent de poliţie tenor Enrico Giordano
Sciarrone, un jandarm bas Aristide Parassani
Un gardian bas
Un băiat de cioban alto Angelo Righi
Soldaţi, agenţi de poliţie, nobili şi femei, orăşeni, artizani
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