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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. Read more at professional.wsj.com

 

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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. Read more at professional.wsj.com

 

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What is wrong with the month of August ?

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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. Read more at www.ft.com

 

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No U.S. debt deal or at least not yet!

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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. Read more at www.marketwatch.com

 

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Another Stressful week expected in Global Markets

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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. Read more at professional.wsj.com

 

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July 24, 2011

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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. Read more at professional.wsj.com

 

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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... Read more at www.guardian.co.uk

 

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Europe: In need of a lifeline

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

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

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

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. Read more at www.ft.com

 

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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. Read more at www.ft.com

 

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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." Read more at professional.wsj.com

 

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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. Read more at professional.wsj.com

 

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France Focuses on Food at G20 summit

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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. Read more at professional.wsj.com

 

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