The Irish government is to hold a cabinet meeting this weekend to finalise its four-year-plan to cut its budget deficit, the BBC has learnt.
The meeting will take place on Sunday, with details published by Tuesday.
Meanwhile talks between Dublin and the European Union, the European Central Bank and the International Monetary Fund (IMF) are continuing.
The Republic is negotiating the terms of a bail-out worth tens of billions of pounds to shore up its public finances.
Two key areas will form the basis of the discussions, says BBC business correspondent Joe Lynam:
* The country's precarious fiscal situation which has pushed the budget deficit to 32% of gross domestic product
* How best to prop up the country's enfeebled banking sector which has been frozen out of international markets and all-but nationalised
'Non-negotiable' rate
Dublin's four-year plan is expected to set out how it will reduce the deficit to below 3% by Tuesday at the latest.
Then, and only then, are the terms of any international bailout expected to be published, says our correspondent.
However, the Irish government has insisted it will not raise the country's low corporation tax rate in return for a European Union-led bail-out.
Deputy Prime Minister Mary Coughlan said the 12.5% rate - much lower than the EU average - was "non-negotiable".
Her comments come as speculation grows that France and Germany want Dublin to raise the tax in return for aid.
Meanwhile, Allied Irish Banks (AIB) said 13bn euros ($18bn; £11bn) of deposits had been withdrawn this year, mostly from businesses and institutions - implying that the bank does not face a run by ordinary depositors.
The figure represents 15% of the 84bn euros of customer accounts that the bank reported possessing at the end of last year.
Bank woes
Although the Irish government claims to be fully-funded until the middle of next year, it has provided a blanket guarantee to the Irish banks, some of whom are now finding it impossible to borrow money in the markets.
On Thursday, the Irish government admitted for the first time that it needed outside help.
Finance Minister Brian Lenihan said he felt "no sense of shame" over the country's economic record, but that it now needed outside help.
Previously the government had said it did not need any financial support from the European Union and International Monetary Fund (IMF).
The Republic's low corporation tax has been criticised by other EU nations, who argue that it gives the country too much of an advantage in attracting overseas investment.
They now argue that the Republic should not be allowed to solely rely on a bail-out, and that it should instead raise the tax rate to help boost government funds.
Source:
BBC.co.uk
Saturday, November 20, 2010
Friday, November 19, 2010
Turkmenistan pledges gas for EU's Nabucco pipeline
Turkmenistan has pledged to supply natural gas for the planned Nabucco pipeline - a major project that should allow EU countries to rely less on Russian energy in future.
Turkmenistan says it will have up to 40bn cubic metres (1,412bn cu ft) of spare gas annually, "so European countries need not worry".
The pledge came from Turkmen Deputy PM Baymyrad Hojamuhamedov on Friday.
Uncertainty about Nabucco's gas supply has been delaying the project.
The 3,300km (2,046-mile) pipeline is expected to pump up to 31bn cubic metres of gas annually from the Caspian region and Middle East across Turkey and into Europe.
In July 2009 Turkey, Romania, Bulgaria, Hungary and Austria signed an agreement to build the long-planned pipeline.
Turkmenistan's announcement came at an international energy conference in the ex-Soviet republic's capital, Ashgabat.
New export markets
Mr Hojamuhamedov said Turkmenistan had support from its Caspian neighbours for building a pipeline under the Caspian Sea, to connect up to the Nabucco pipeline.
He said delivering gas to Europe was part of Turkmenistan's plan to diversify its export markets. It already sells gas to Iran, China and Russia.
Nabucco is expected to cost about 7.9bn euros (£6.7bn) and is projected to come on stream by the end of 2014, Reuters news agency reports.
Russia is forging ahead with South Stream, a pipeline that will run from southern Russia under the Black Sea to Bulgaria. It is seen as a major rival to Nabucco.
The EU relies on Russia for a quarter of its total gas supplies. Seven countries in the 27-nation bloc are almost totally dependent on Russian gas.
Source: BBC
www.bbc.co.uk
Turkmenistan says it will have up to 40bn cubic metres (1,412bn cu ft) of spare gas annually, "so European countries need not worry".
The pledge came from Turkmen Deputy PM Baymyrad Hojamuhamedov on Friday.
Uncertainty about Nabucco's gas supply has been delaying the project.
The 3,300km (2,046-mile) pipeline is expected to pump up to 31bn cubic metres of gas annually from the Caspian region and Middle East across Turkey and into Europe.
In July 2009 Turkey, Romania, Bulgaria, Hungary and Austria signed an agreement to build the long-planned pipeline.
Turkmenistan's announcement came at an international energy conference in the ex-Soviet republic's capital, Ashgabat.
New export markets
Mr Hojamuhamedov said Turkmenistan had support from its Caspian neighbours for building a pipeline under the Caspian Sea, to connect up to the Nabucco pipeline.
He said delivering gas to Europe was part of Turkmenistan's plan to diversify its export markets. It already sells gas to Iran, China and Russia.
Nabucco is expected to cost about 7.9bn euros (£6.7bn) and is projected to come on stream by the end of 2014, Reuters news agency reports.
Russia is forging ahead with South Stream, a pipeline that will run from southern Russia under the Black Sea to Bulgaria. It is seen as a major rival to Nabucco.
The EU relies on Russia for a quarter of its total gas supplies. Seven countries in the 27-nation bloc are almost totally dependent on Russian gas.
Source: BBC
www.bbc.co.uk
Thursday, November 18, 2010
Irish crisis: What's it all about?
Dublin, Ireland (CNN) -- Ireland and the European Union are engaged in a strange and increasingly public tug of war. Dublin insists that it doesn't need money from abroad to stay afloat despite a crisis in its banking sector, while the European Union is already discussing a possible bail out.
What's the problem?
Ireland needs funds to shore up its balance sheets. The government pumped billions of euros into Irish banks to keep them afloat, effectively nationalizing most of them. The European Central Bank is lending money to Irish banks because other banks won't. And lately people and companies have been pulling funds out of the banks. This can't go on.
What would international loans or loan guarantees mean for the average Irish citizen?
Analysts say a bail out is not likely to affect Irish citizens directly but would have beneficial effects nonetheless. "All it's going to do is keep the banks going," said Peter Morici of the State University of New York at Albany. "It's not going to change the objective conditions for the average Irish people." But Allan Timmermann, who holds an endowed chair of finance at the University of California San Diego, said a bail out would make life easier for ordinary folks because the aid might lessen the severity of service cuts the government will need to make. "If you imagine that there's no bail out, the measures that Ireland would have to take in terms of cutbacks would have to be much more drastic."
What would it mean for people across Europe?
It means their tax dollars going to pay for yet another bank bail out plan, after the European Union bailed out Greece to the tune of 110 billion euros (currently $150 billion) in May.
But it also means the markets might calm down, taking pressure off Spain and Portugal, which are also facing budget problems. Bringing the yield on Portuguese and Spanish government bonds back to normal levels would mean they pay less on interest and more, hopefully, toward reducing their own deficits.
Would it mean anything for Americans?
The stock market might regain what it has lost in the past two weeks over "fears of European recovery." It could also mean the dollar starts to fall against the euro, which might boost American exports to Europe, since American good would be cheaper for euro-spenders to buy.
Who would pay for an Irish bail out?
After Greece took European and International Monetary Fund loans, European Union countries pledged nearly 1 trillion dollars for any country that can't pay its bills by raising funds through normal debt markets. Ireland does not have that problem, but it's clear the EU would allow Ireland to pump loans into its banks (given the government controls them now anyway). If and when Ireland asks for help, EU countries pay according to their size: Germany the most and Malta the least.
Source: CNN
www.cnn.com
What's the problem?
Ireland needs funds to shore up its balance sheets. The government pumped billions of euros into Irish banks to keep them afloat, effectively nationalizing most of them. The European Central Bank is lending money to Irish banks because other banks won't. And lately people and companies have been pulling funds out of the banks. This can't go on.
What would international loans or loan guarantees mean for the average Irish citizen?
Analysts say a bail out is not likely to affect Irish citizens directly but would have beneficial effects nonetheless. "All it's going to do is keep the banks going," said Peter Morici of the State University of New York at Albany. "It's not going to change the objective conditions for the average Irish people." But Allan Timmermann, who holds an endowed chair of finance at the University of California San Diego, said a bail out would make life easier for ordinary folks because the aid might lessen the severity of service cuts the government will need to make. "If you imagine that there's no bail out, the measures that Ireland would have to take in terms of cutbacks would have to be much more drastic."
What would it mean for people across Europe?
It means their tax dollars going to pay for yet another bank bail out plan, after the European Union bailed out Greece to the tune of 110 billion euros (currently $150 billion) in May.
But it also means the markets might calm down, taking pressure off Spain and Portugal, which are also facing budget problems. Bringing the yield on Portuguese and Spanish government bonds back to normal levels would mean they pay less on interest and more, hopefully, toward reducing their own deficits.
Would it mean anything for Americans?
The stock market might regain what it has lost in the past two weeks over "fears of European recovery." It could also mean the dollar starts to fall against the euro, which might boost American exports to Europe, since American good would be cheaper for euro-spenders to buy.
Who would pay for an Irish bail out?
After Greece took European and International Monetary Fund loans, European Union countries pledged nearly 1 trillion dollars for any country that can't pay its bills by raising funds through normal debt markets. Ireland does not have that problem, but it's clear the EU would allow Ireland to pump loans into its banks (given the government controls them now anyway). If and when Ireland asks for help, EU countries pay according to their size: Germany the most and Malta the least.
Source: CNN
www.cnn.com
Wednesday, November 17, 2010
EU finance ministers discuss Irish debt crisis
(CNN) -- Ireland's economic problems were expected to dominate Wednesday's regular meeting of European Union economic and finance ministers in Brussels, Belgium.
Irish leaders have said their treasury is funded through the first half of 2011, but there are still fears its financial sector could collapse under the weight of its massive debt.
"We are now engaged in short-term and effective consultations with the Irish government, together with the European Central Bank and the IMF (International Monetary Fund) in order to assess the real situation of the banking sector and the needs of reorganization and potential consequences of that," said Olli Rehn, the EU economic and monetary commissioner, as he arrived for Wednesday's meeting.
That Ireland shares the euro with 15 other European nations has raised concerns its financial problems could affect the common currency and the wider EU.
External support to bail out Ireland is one option being considered, but the country must make a request for that to happen -- and Irish Prime Minister Brian Cowen said so far, he hasn't done so.
The European Union and IMF were forced to bail out Greece in May, coming up with a three-year, 110-billion-euro (currently $150 billion) loan to save Greece from defaulting on debt.
Belgian Finance Minister Didier Reynders said Wednesday the ministers were "ready to do something which is necessary" to help Ireland.
"We start the negotiation with Ireland, with the IMF, with the European Commission, with the ECB and, if necessary, we are ready to act," he said as he entered the meeting.
At the request of Irish authorities, a meeting was scheduled for Thursday with the IMF, ECB, and European Commission to determine the best way for them to provide support.
Britain is one of the most exposed European countries to the Irish financial problems, with "very strong interconnection in the banking sector and financial system between the two countries," Rehn said Wednesday.
Britain's finance minister, Chancellor of the Exchequer George Osborne, said Wednesday the the country will do what is in its own national interests as regards Ireland.
"Ireland is our closest neighbor, and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system," he said in a statement. "So Britain stands ready to support Ireland in the steps that it needs to take to bring about that stability."
Cowen said he remains committed to reducing the country's deficit to below 3 percent of gross domestic product -- the broadest measure of a nation's economy -- by the end of 2014.
Ireland is forecast to run a deficit of 11.9 percent of its GDP in 2010, and overall, the country is grappling with a running tab of debt that will total 98.5 percent of its entire economy this year, Cowen said.
Since 2008, Ireland has enacted strict budget-cutting measures slashing about $20 billion off the country's budget. Cowen now plans to cut an additional $20 billion over the next few years.
"Our revenues and our spending are out of line to the tune of 19 billion (euros, or roughly $26 billion) and this is a gap that is presently being filled by borrowing," he said. "This cannot continue. We must continue along the road of budgetary consolidation which we first embarked upon in 2008."
Source: CNN
www.cnn.com
Irish leaders have said their treasury is funded through the first half of 2011, but there are still fears its financial sector could collapse under the weight of its massive debt.
"We are now engaged in short-term and effective consultations with the Irish government, together with the European Central Bank and the IMF (International Monetary Fund) in order to assess the real situation of the banking sector and the needs of reorganization and potential consequences of that," said Olli Rehn, the EU economic and monetary commissioner, as he arrived for Wednesday's meeting.
That Ireland shares the euro with 15 other European nations has raised concerns its financial problems could affect the common currency and the wider EU.
External support to bail out Ireland is one option being considered, but the country must make a request for that to happen -- and Irish Prime Minister Brian Cowen said so far, he hasn't done so.
The European Union and IMF were forced to bail out Greece in May, coming up with a three-year, 110-billion-euro (currently $150 billion) loan to save Greece from defaulting on debt.
Belgian Finance Minister Didier Reynders said Wednesday the ministers were "ready to do something which is necessary" to help Ireland.
"We start the negotiation with Ireland, with the IMF, with the European Commission, with the ECB and, if necessary, we are ready to act," he said as he entered the meeting.
At the request of Irish authorities, a meeting was scheduled for Thursday with the IMF, ECB, and European Commission to determine the best way for them to provide support.
Britain is one of the most exposed European countries to the Irish financial problems, with "very strong interconnection in the banking sector and financial system between the two countries," Rehn said Wednesday.
Britain's finance minister, Chancellor of the Exchequer George Osborne, said Wednesday the the country will do what is in its own national interests as regards Ireland.
"Ireland is our closest neighbor, and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system," he said in a statement. "So Britain stands ready to support Ireland in the steps that it needs to take to bring about that stability."
Cowen said he remains committed to reducing the country's deficit to below 3 percent of gross domestic product -- the broadest measure of a nation's economy -- by the end of 2014.
Ireland is forecast to run a deficit of 11.9 percent of its GDP in 2010, and overall, the country is grappling with a running tab of debt that will total 98.5 percent of its entire economy this year, Cowen said.
Since 2008, Ireland has enacted strict budget-cutting measures slashing about $20 billion off the country's budget. Cowen now plans to cut an additional $20 billion over the next few years.
"Our revenues and our spending are out of line to the tune of 19 billion (euros, or roughly $26 billion) and this is a gap that is presently being filled by borrowing," he said. "This cannot continue. We must continue along the road of budgetary consolidation which we first embarked upon in 2008."
Source: CNN
www.cnn.com
Tuesday, November 16, 2010
Eurozone members pressed on debt plans
(FT) -- Eurozone finance ministers will press Ireland and Portugal to spell out their detailed plans to handle their debt loads amid signs that the two countries are edging towards an international bail-out.
The meeting of eurozone finance ministers in Brussels on Tuesday comes amid signs of increasing fractures within the monetary union over the European Central Bank's efforts to pressure Ireland into taking aid.
Portugal's finance minister said that investors believed Lisbon was increasingly likely to be forced to turn to emergency help because of contagion in the financial markets.
"The risk is high because we are not facing only a national or country problem," said Fernando Teixeira dos Santos, referring to the chances that Lisbon will have to seek emergency support.
"It is the problems of Greece, Portugal and Ireland...This has to do with the eurozone and the stability of the eurozone and that is why contagion in this framework is more likely."
His comments sent the euro lower against the dollar, although the eurozone peripheral bond markets of Portugal, Ireland and Greece held steady. The US dollar was also supported by a sharp rise in Treasury yields that followed the release of better-than-expected retail sales data for October.
At the same time Greece's prime minister, George Papandreou, warned that Germany's insistence on investors sharing the pain in any future mechanism for a eurozone bail-out could damage some economies.
"This could break backs. This could force economies towards bankruptcy," he said on a visit to Paris. Dublin was told by the ECB on Monday that funds from the European Union's new bail-out facility could be used by its government to strengthen its banking system.
Ireland, at the centre of the renewed crisis because of its banking woes, is considered by many investors to be almost certain to need financial support, with Portugal to follow.
The comments by Vítor Constâncio, ECB vice-president, about possible support for Ireland added to the pressure that the ECB is applying behind the scenes for swift action by Dublin.
The euro's monetary guardian fears Ireland is assuming its banks can rely indefinitely on the unlimited liquidity it is pumping into the eurozone financial system.
Countries such as Portugal and Spain, both of which have to borrow from the financial markets before Ireland, have supported the ECB's campaign.
But other countries, with stronger fiscal positions, are complaining about the ECB's tactics and could make an issue of the bank's policy at the eurozone meeting.
According to one official, some countries are expected to argue that the €440B ($598B) rescue fund should only be tapped when a country is in emergency need of funds, not just to settle the financial markets. Dublin has said it is fully funded through the spring.
In an interview, Jyrki Katainen, the Finnish finance minister, said he would propose a measure at the summit that would require countries seeking a bail-out to put up collateral before getting a loan from the European financial stability facility.
Mr Katainen said the measure would help lower borrowing costs and get around the "no bail-out" clause in the EU's treaty. But it would also make it more onerous for countries to tap the fund, a sign Finland is among those who feel the pressure on Ireland is unjustified.
Source: CNN
www.cnn.com
The meeting of eurozone finance ministers in Brussels on Tuesday comes amid signs of increasing fractures within the monetary union over the European Central Bank's efforts to pressure Ireland into taking aid.
Portugal's finance minister said that investors believed Lisbon was increasingly likely to be forced to turn to emergency help because of contagion in the financial markets.
"The risk is high because we are not facing only a national or country problem," said Fernando Teixeira dos Santos, referring to the chances that Lisbon will have to seek emergency support.
"It is the problems of Greece, Portugal and Ireland...This has to do with the eurozone and the stability of the eurozone and that is why contagion in this framework is more likely."
His comments sent the euro lower against the dollar, although the eurozone peripheral bond markets of Portugal, Ireland and Greece held steady. The US dollar was also supported by a sharp rise in Treasury yields that followed the release of better-than-expected retail sales data for October.
At the same time Greece's prime minister, George Papandreou, warned that Germany's insistence on investors sharing the pain in any future mechanism for a eurozone bail-out could damage some economies.
"This could break backs. This could force economies towards bankruptcy," he said on a visit to Paris. Dublin was told by the ECB on Monday that funds from the European Union's new bail-out facility could be used by its government to strengthen its banking system.
Ireland, at the centre of the renewed crisis because of its banking woes, is considered by many investors to be almost certain to need financial support, with Portugal to follow.
The comments by Vítor Constâncio, ECB vice-president, about possible support for Ireland added to the pressure that the ECB is applying behind the scenes for swift action by Dublin.
The euro's monetary guardian fears Ireland is assuming its banks can rely indefinitely on the unlimited liquidity it is pumping into the eurozone financial system.
Countries such as Portugal and Spain, both of which have to borrow from the financial markets before Ireland, have supported the ECB's campaign.
But other countries, with stronger fiscal positions, are complaining about the ECB's tactics and could make an issue of the bank's policy at the eurozone meeting.
According to one official, some countries are expected to argue that the €440B ($598B) rescue fund should only be tapped when a country is in emergency need of funds, not just to settle the financial markets. Dublin has said it is fully funded through the spring.
In an interview, Jyrki Katainen, the Finnish finance minister, said he would propose a measure at the summit that would require countries seeking a bail-out to put up collateral before getting a loan from the European financial stability facility.
Mr Katainen said the measure would help lower borrowing costs and get around the "no bail-out" clause in the EU's treaty. But it would also make it more onerous for countries to tap the fund, a sign Finland is among those who feel the pressure on Ireland is unjustified.
Source: CNN
www.cnn.com
Monday, November 15, 2010
Irish elite keen to avoid humiliation
(FT) -- In Dublin on Sunday, Irish government ministers were sticking to the line that the country is fully funded until the middle of next year and does not need to tap the European Union or the International Monetary Fund for a bail-out.
They have depicted any move to go "cap in hand" for outside assistance as a national humiliation, especially in a country that fought for its political independence from Britain 90 years ago.
"It has been a very hard-won sovereignty for this country and the government is not going to give over that sovereignty to anyone," said Batt O'Keeffe, the enterprise minister.
Having set out the choice in such stark terms, the government is now finding it difficult to adjust to mounting pressure from its European partners to make a formal request for assistance, which is required if it wants to access the European Financial Stability Facility.
One pundit has likened Dublin's stubbornness to a husband who has lost his way, but still refuses to take his wife's advice and turn on the GPS guidance system.
In this context, Patrick Honohan, the central bank governor, seemed to play down the humbling symbolism of a bail-out last week, when he said an IMF stability programme would be little different to the government's current austerity plans.
The reality is that the Irish government does have sufficient funds to pay for essential public services up to June or July. And even after that it can resort to the national pension reserve fund, a sovereign wealth fund already used to bail out Ireland's banks, if it is still unwilling or unable to re-enter the debt markets.
One key factor is the balance sheets of Ireland's banks. The concern in Frankfurt and other European financial centres is over the financial positions of the commercial banks, which, despite large-scale taxpayer support, are still heavily dependent on European Central Bank liquidity, as financial market tensions have cut off other sources of financing.
According to data released on Friday, some €130bn in loans to Irish banks were outstanding at the end of October, up from €119bn a month earlier. This means Irish banks made up almost a quarter of the total ECB liquidity in the eurozone financial system -- and that was before the recent sharp spike in Irish government yields.
The banks' problems were underlined on Friday when Bank of Ireland, by far the strongest of the Irish banks, reported that it had lost €10bn in corporate deposits in recent months.
"I will be stunned if the announcement, if it comes, doesn't include the Irish banks in some way," said an Irish economist who asked not to be named.
Ireland's short-term concern is that, if it has to take political heat domestically, there has to be some real financial benefit.
Brian Cowen, the prime minister and Brian Lenihan, his finance minister, are reluctant to sign up to any outside EFSF assistance if doing so allows the ECB to reduce the assistance it is providing to Ireland's commercial banks.
If the Irish government passes the budget on December 7 and calls a general election early in the new year, it would face almost certain defeat.
But then the current opposition would have the humiliating task of calling in outside help.
There is also increasing unrest among backbenchers, fuelling fears that the government may not have the parliamentary numbers to pass the budget.
As pressure from the big economies mount, the preoccupation now seems to be to ensure that any bail-out announcement is perceived as part of a wider effort to shore up the euro, rather than as simply an exercise to address Ireland's problems.
As Mr Lenihan said on Friday: "We have not, contrary to much speculation, applied to join any facility, or avail of any facility. But of course we're an inter-dependent part of the eurozone, and we're in constant liaison with the [ECB] and with the [European] commission."
Source: CNN
www.cnn.com
They have depicted any move to go "cap in hand" for outside assistance as a national humiliation, especially in a country that fought for its political independence from Britain 90 years ago.
"It has been a very hard-won sovereignty for this country and the government is not going to give over that sovereignty to anyone," said Batt O'Keeffe, the enterprise minister.
Having set out the choice in such stark terms, the government is now finding it difficult to adjust to mounting pressure from its European partners to make a formal request for assistance, which is required if it wants to access the European Financial Stability Facility.
One pundit has likened Dublin's stubbornness to a husband who has lost his way, but still refuses to take his wife's advice and turn on the GPS guidance system.
In this context, Patrick Honohan, the central bank governor, seemed to play down the humbling symbolism of a bail-out last week, when he said an IMF stability programme would be little different to the government's current austerity plans.
The reality is that the Irish government does have sufficient funds to pay for essential public services up to June or July. And even after that it can resort to the national pension reserve fund, a sovereign wealth fund already used to bail out Ireland's banks, if it is still unwilling or unable to re-enter the debt markets.
One key factor is the balance sheets of Ireland's banks. The concern in Frankfurt and other European financial centres is over the financial positions of the commercial banks, which, despite large-scale taxpayer support, are still heavily dependent on European Central Bank liquidity, as financial market tensions have cut off other sources of financing.
According to data released on Friday, some €130bn in loans to Irish banks were outstanding at the end of October, up from €119bn a month earlier. This means Irish banks made up almost a quarter of the total ECB liquidity in the eurozone financial system -- and that was before the recent sharp spike in Irish government yields.
The banks' problems were underlined on Friday when Bank of Ireland, by far the strongest of the Irish banks, reported that it had lost €10bn in corporate deposits in recent months.
"I will be stunned if the announcement, if it comes, doesn't include the Irish banks in some way," said an Irish economist who asked not to be named.
Ireland's short-term concern is that, if it has to take political heat domestically, there has to be some real financial benefit.
Brian Cowen, the prime minister and Brian Lenihan, his finance minister, are reluctant to sign up to any outside EFSF assistance if doing so allows the ECB to reduce the assistance it is providing to Ireland's commercial banks.
If the Irish government passes the budget on December 7 and calls a general election early in the new year, it would face almost certain defeat.
But then the current opposition would have the humiliating task of calling in outside help.
There is also increasing unrest among backbenchers, fuelling fears that the government may not have the parliamentary numbers to pass the budget.
As pressure from the big economies mount, the preoccupation now seems to be to ensure that any bail-out announcement is perceived as part of a wider effort to shore up the euro, rather than as simply an exercise to address Ireland's problems.
As Mr Lenihan said on Friday: "We have not, contrary to much speculation, applied to join any facility, or avail of any facility. But of course we're an inter-dependent part of the eurozone, and we're in constant liaison with the [ECB] and with the [European] commission."
Source: CNN
www.cnn.com
Sunday, November 14, 2010
Time to print more money?
The Federal Reserve signals that it might pump more dollars into the economy if things get worse. Is that a good idea?
Best Opinion: U.S. News, Seeking Alpha, Wall St. Journal
With the recovery faltering, the Federal Reserve is considering expanding the money supply to give the economy another boost. In newly released minutes from September's Fed meetings, policy makers appeared ready to launch a second round of so-called quantitative easing — purchasing Treasury bonds to drive down interest rates and raise expectations of inflation, encouraging consumers to buy more now. But opponents of the move say the Fed would just undermine international confidence in the dollar and the U.S. economy. Is printing money the right way to get the things moving again? (Watch a Fox Business discussion about the proposal)
Firing up the printing presses could be a big mistake: Buying all these assets — up to $1 trillion worth — would merely add to "the already ballooning deficit," says Ben Baden at U.S. News & World Report. And pushing down already low interest rates would further penalize people, especially retirees, who live off the interest on their savings. "One of the biggest problems facing the economy is a lack of confidence" — so maybe the Fed should be signaling that the threat of Armageddon is past and we're getting back to normal.
"Why more quantitative easing could be a mistake"
This could be just the stimulus we need: Quantitative easing will "provide short term stimulus," says Jim Farrish at Seeking Alpha. So it is the right move if the Federal Reserve determines that the economy is getting worse and needs another shot in the arm. There's no denying that this will weaken the dollar, possibly expanding deficits and creating inflation. But there will be time to head off those problems once the immediate crisis has passed.
"Is this a bull market or not?"
It might help — just not very much: "Investors have been euphoric" with the hope of another flood of cash, says Kathleen Madigan at The Wall Street Journal. And the move — expected at the Fed's next meeting, in November — is "better than nothing." But the first round of easing that began in 2008 has alread made loans so cheap that any business looking to expand and create jobs could have done so already. Pushing rates a tad lower won't help "as much as some hope."
"QE2 may not be lifeboat for economy or jobs"
Source:theweek.com
Best Opinion: U.S. News, Seeking Alpha, Wall St. Journal
With the recovery faltering, the Federal Reserve is considering expanding the money supply to give the economy another boost. In newly released minutes from September's Fed meetings, policy makers appeared ready to launch a second round of so-called quantitative easing — purchasing Treasury bonds to drive down interest rates and raise expectations of inflation, encouraging consumers to buy more now. But opponents of the move say the Fed would just undermine international confidence in the dollar and the U.S. economy. Is printing money the right way to get the things moving again? (Watch a Fox Business discussion about the proposal)
Firing up the printing presses could be a big mistake: Buying all these assets — up to $1 trillion worth — would merely add to "the already ballooning deficit," says Ben Baden at U.S. News & World Report. And pushing down already low interest rates would further penalize people, especially retirees, who live off the interest on their savings. "One of the biggest problems facing the economy is a lack of confidence" — so maybe the Fed should be signaling that the threat of Armageddon is past and we're getting back to normal.
"Why more quantitative easing could be a mistake"
This could be just the stimulus we need: Quantitative easing will "provide short term stimulus," says Jim Farrish at Seeking Alpha. So it is the right move if the Federal Reserve determines that the economy is getting worse and needs another shot in the arm. There's no denying that this will weaken the dollar, possibly expanding deficits and creating inflation. But there will be time to head off those problems once the immediate crisis has passed.
"Is this a bull market or not?"
It might help — just not very much: "Investors have been euphoric" with the hope of another flood of cash, says Kathleen Madigan at The Wall Street Journal. And the move — expected at the Fed's next meeting, in November — is "better than nothing." But the first round of easing that began in 2008 has alread made loans so cheap that any business looking to expand and create jobs could have done so already. Pushing rates a tad lower won't help "as much as some hope."
"QE2 may not be lifeboat for economy or jobs"
Source:theweek.com
Saturday, November 13, 2010
You say 'recession,' I say 'depression'
With hopes for a quick recovery fading, the fight over what to call the economic slump begins anew
Best Opinion: New Republic, Encore, Death by 1000 Paper Cuts
Economists warn that U.S. is facing slower economic growth ahead, raising fears that the nation may fall into another recession. But some financial experts say it makes perfect sense that business isn't bouncing back as it has after past recessions — because what we're experiencing is actually a full-blown depression, instead of a more common recession. Is this financial crisis a depression, or a recession? (Watch a CNBC discussion about whether this is a depression)
Sorry, folks. This is a depression: Unlike all the post-World War II recessions, this downturn was global in scale, says John B. Judis in The New Republic. And like the Great Depression, the current crisis was "precipitated, and deepened, by a financial crisis." Past experience shows that only massive government spending can speed the economy out of a depression — if we pull back, and treat this like a mere recession, we'll only prolong the pain.
"You say recession, I say depression"
Don't fall for the liberal word play: The U.S. economy has suffered a bad recession, says Howard Rich at Encore online. If we leave it to the free market, we'll bounce back quickly. But if Big Government advocates continue to use scare tactics to justify "costly federal interventionist policies." If they have their way, we'll turn "a recession into a depression" by overburdening the government with debt, just like we did after the crash of 1929.
"Recovery semantics"
It doesn't matter what we call it — the economy's in crisis: A recession is a downturn that's part of a normal business cycle, says Mondo Frazier at Death by 1000 Paper Cuts, while a depression is a long-term crisis that hits many countries at once. Whatever word you choose, we've got massive deficits, 10 percent unemployment, and no relief in sight. "We only have two words of advice: buckle up."
"Recovery summer's over. Now, is it a recession or depression?"
Source:theweek.com
Best Opinion: New Republic, Encore, Death by 1000 Paper Cuts
Economists warn that U.S. is facing slower economic growth ahead, raising fears that the nation may fall into another recession. But some financial experts say it makes perfect sense that business isn't bouncing back as it has after past recessions — because what we're experiencing is actually a full-blown depression, instead of a more common recession. Is this financial crisis a depression, or a recession? (Watch a CNBC discussion about whether this is a depression)
Sorry, folks. This is a depression: Unlike all the post-World War II recessions, this downturn was global in scale, says John B. Judis in The New Republic. And like the Great Depression, the current crisis was "precipitated, and deepened, by a financial crisis." Past experience shows that only massive government spending can speed the economy out of a depression — if we pull back, and treat this like a mere recession, we'll only prolong the pain.
"You say recession, I say depression"
Don't fall for the liberal word play: The U.S. economy has suffered a bad recession, says Howard Rich at Encore online. If we leave it to the free market, we'll bounce back quickly. But if Big Government advocates continue to use scare tactics to justify "costly federal interventionist policies." If they have their way, we'll turn "a recession into a depression" by overburdening the government with debt, just like we did after the crash of 1929.
"Recovery semantics"
It doesn't matter what we call it — the economy's in crisis: A recession is a downturn that's part of a normal business cycle, says Mondo Frazier at Death by 1000 Paper Cuts, while a depression is a long-term crisis that hits many countries at once. Whatever word you choose, we've got massive deficits, 10 percent unemployment, and no relief in sight. "We only have two words of advice: buckle up."
"Recovery summer's over. Now, is it a recession or depression?"
Source:theweek.com
Friday, November 12, 2010
Are we heading into a 'third depression'?
In its history, the U.S. has endured only two depressions. Misguided fears over deficit spending are pushing us into a third, argues Paul Krugman
Best Opinion: NY Times, BeliefNet, FireDogLake
The G-20 nations agreed last weekend to halve their deficits by 2013, saying fiscal austerity measures are the best path to economic growth. President Obama and Indian Prime Minister Manmohan Singh, an economist, argued that cutting spending too soon will just make things worse; Nobel laureate and New York Times columnist Paul Krugman is going one step further, warning that austerity now will turn the fragile recovery into America's third full-fledged depression. Who's right? (Watch a CNBC discussion about Krugman's claims)
Spend now, cut later: Misguided Europeans and U.S. deficit hawks have us "in the early stages of a third depression," says Paul Krugman in The New York Times. Like in the Great Depression and Long Depression of the 1870s, foolish policymakers are foolishly "preaching the need for belt-tightening when the real problem is inadequate spending." It is "self-defeating" and cruel to cut spending while unemployment remains high.
"The third depression"
Cut or perish: Given our "fathomless hole of debt," it's "sheer madness to borrow even more, as Krugman advises," says Rod Dreher in BeliefNet. Instead, how about this "irresistible" advice from Krugman's "principal antagonist," Niall Ferguson: To avoid the "terrible" specter of default, "we simply have no choice but to slash spending." A note to Obama: The French Revolution was "sparked principally by massive levels of government debt."
"Krugman: Here's the next Great Depression"
Why trust the architects of this disaster? The problem with "today’s deficit hysteria," says John Chandley in FireDogLake, is that it's being spread by the same geniuses that drove us into this ditch in the first place. It doesn't take a PhD in economics to understand that "the most important steps in reducing long-run deficits start with a fully recovered economy and putting people back to work." And that's a long way off.
"Economics is hard... especially for those who got everything wrong"
Source:theweek.com
Best Opinion: NY Times, BeliefNet, FireDogLake
The G-20 nations agreed last weekend to halve their deficits by 2013, saying fiscal austerity measures are the best path to economic growth. President Obama and Indian Prime Minister Manmohan Singh, an economist, argued that cutting spending too soon will just make things worse; Nobel laureate and New York Times columnist Paul Krugman is going one step further, warning that austerity now will turn the fragile recovery into America's third full-fledged depression. Who's right? (Watch a CNBC discussion about Krugman's claims)
Spend now, cut later: Misguided Europeans and U.S. deficit hawks have us "in the early stages of a third depression," says Paul Krugman in The New York Times. Like in the Great Depression and Long Depression of the 1870s, foolish policymakers are foolishly "preaching the need for belt-tightening when the real problem is inadequate spending." It is "self-defeating" and cruel to cut spending while unemployment remains high.
"The third depression"
Cut or perish: Given our "fathomless hole of debt," it's "sheer madness to borrow even more, as Krugman advises," says Rod Dreher in BeliefNet. Instead, how about this "irresistible" advice from Krugman's "principal antagonist," Niall Ferguson: To avoid the "terrible" specter of default, "we simply have no choice but to slash spending." A note to Obama: The French Revolution was "sparked principally by massive levels of government debt."
"Krugman: Here's the next Great Depression"
Why trust the architects of this disaster? The problem with "today’s deficit hysteria," says John Chandley in FireDogLake, is that it's being spread by the same geniuses that drove us into this ditch in the first place. It doesn't take a PhD in economics to understand that "the most important steps in reducing long-run deficits start with a fully recovered economy and putting people back to work." And that's a long way off.
"Economics is hard... especially for those who got everything wrong"
Source:theweek.com
Thursday, November 11, 2010
High-tech will help spur economic recovery
When the networking giant Cisco recently experienced a 23 percent jump in quarterly profit and 8 percent gain in revenue, John Chambers, the chairman and CEO, announced plans to hire as many as 3,000 workers — despite an economy struggling to recover from the worst fiscal crisis since the Great Depression.
Last week, Intel announced a $3.5 billion initiative for investment in U.S.-based technology companies, as well as a commitment, with 10 other tech firms, to increase hiring of college graduates. AT&T and Verizon project capital expenditures in 2010 of nearly $35 billion combined.
Fortunately for our nation’s economy, the high-tech playbook is a growth catalyst. After the early-1980s recession, the boom in personal computer and individual content creation — fueled by industry bellwethers like Intel, Apple, Dell, IBM and Microsoft — ushered in a new industry, thousands of jobs and the birth of the digital age.
The same was true in the mid-1990s, as the Internet revolutionized how businesses and consumers access information, perform research and engage in commercial transactions worldwide.
During the past decade, new platforms and technologies — such as virtualization, WiFi, cloud computing, mobility and social networks — have spurred new levels of efficiency, collaboration and cost savings. They created the likes of Google, MySpace, Facebook and Twitter.
A recent Democratic Leadership Council study found that investment and recovery go hand in hand. In the past two decades, job creation has closely tracked business investment in equipment, software and computers. Innovation is especially vital for small businesses, which create most new jobs.
The research firm Gartner estimates that global spending on technology products and services will rise by 4.6 percent to $3.4 trillion this year, after initially predicting 3.3 percent growth. New and emerging markets — including the BRIC countries of Brazil, Russia, India and China — are expected to be responsible for more than half of all industry growth, according to IDC, a research firm.
While the potential of information and communications technology to drive a job-rich economic recovery looks almost certain, three factors will determine the extent of its success:
First, the degree to which Congress and the Obama administration — working with the private sector — outline and implement a plan for the United States to become the global leader in ICT-driven innovation.
Consider the issue for education. While our nation’s higher education system is the world’s most innovative, the latest scorecard, released by the National Center for Education Statistics, shows that the average score of U.S. eighth-graders in math and science is 520, compared with 530 in Russia, 553 in England and 561 in Japan.
We must embrace what works in the private sector, learn from our closest competitors and invest in programs that ensure our K-12 education system doesn’t fall behind.
Another priority must be our complex corporate-tax system. One-fifth of the U.S. private-sector work force (nearly 22 million in 2006) works for U.S.-based multinational companies. Yet the United States is the only large economy with both a worldwide tax system and a corporate tax rate greater than 30 percent — with enough tax loopholes to support the largest fleet of tax lawyers and accountants in the world.
To compete in the global economy, Washington needs a competitive tax structure that enables us to create jobs, promote innovation and raise living standards.
Second, a shift in mind-set from “make-work” to “work-wireless.” Too often, we associate job creation with shovel-ready projects and not information-technology-focused job-training programs that teach skills necessary to help Americans compete with peers in Europe and Asia, including those in intelligent infrastructure projects.
n the United States, there are more than 1,000 community colleges, serving more than 11 million students. With four-year institutions and community-based job-training programs, we can train (and retrain) America’s work force using the tools and techniques that China, India and other global competitors are embracing to become more competitive.
Third, rallying behind a national broadband strategy that helps modernize our nation’s dated IT infrastructure. The U.S. ranks 20th in household broadband penetration, behind South Korea, Canada, the Netherlands and Estonia, according to a Strategy Analytics survey.
If this doesn’t illustrate the need for action, a recent study shows that a tenfold increase in broadband speeds would yield an additional $6 billion a year for existing home broadband users.
The Information Technology and Innovation Foundation estimates that 250,000 jobs are created for every $5 billion invested in broadband deployment — 100,000 direct and indirect jobs from telecom and IT equipment spending, plus an additional 150,000 jobs in “network effects,” spurring new online applications and services.
The Federal Communications Commission is due to unveil its national broadband plan by mid-March. This must be aimed at pushing the United States into the top echelon of countries with widespread next-generation mobile and fixed wireless (and wired) capabilities by 2015.
It’s important to remember that high-tech is a bedrock of American innovation. If we embrace investment in new technologies, businesses and the economy will benefit. And if we combine this investment with the right ideas, public policies and market conditions, the impact on our work force should be vast and far-reaching.
Dean Garfield is president and CEO of the Information Technology Industry Council. Bruce Reed is CEO of the Democratic Leadership Council.
Source: www.politico.com
Last week, Intel announced a $3.5 billion initiative for investment in U.S.-based technology companies, as well as a commitment, with 10 other tech firms, to increase hiring of college graduates. AT&T and Verizon project capital expenditures in 2010 of nearly $35 billion combined.
Fortunately for our nation’s economy, the high-tech playbook is a growth catalyst. After the early-1980s recession, the boom in personal computer and individual content creation — fueled by industry bellwethers like Intel, Apple, Dell, IBM and Microsoft — ushered in a new industry, thousands of jobs and the birth of the digital age.
The same was true in the mid-1990s, as the Internet revolutionized how businesses and consumers access information, perform research and engage in commercial transactions worldwide.
During the past decade, new platforms and technologies — such as virtualization, WiFi, cloud computing, mobility and social networks — have spurred new levels of efficiency, collaboration and cost savings. They created the likes of Google, MySpace, Facebook and Twitter.
A recent Democratic Leadership Council study found that investment and recovery go hand in hand. In the past two decades, job creation has closely tracked business investment in equipment, software and computers. Innovation is especially vital for small businesses, which create most new jobs.
The research firm Gartner estimates that global spending on technology products and services will rise by 4.6 percent to $3.4 trillion this year, after initially predicting 3.3 percent growth. New and emerging markets — including the BRIC countries of Brazil, Russia, India and China — are expected to be responsible for more than half of all industry growth, according to IDC, a research firm.
While the potential of information and communications technology to drive a job-rich economic recovery looks almost certain, three factors will determine the extent of its success:
First, the degree to which Congress and the Obama administration — working with the private sector — outline and implement a plan for the United States to become the global leader in ICT-driven innovation.
Consider the issue for education. While our nation’s higher education system is the world’s most innovative, the latest scorecard, released by the National Center for Education Statistics, shows that the average score of U.S. eighth-graders in math and science is 520, compared with 530 in Russia, 553 in England and 561 in Japan.
We must embrace what works in the private sector, learn from our closest competitors and invest in programs that ensure our K-12 education system doesn’t fall behind.
Another priority must be our complex corporate-tax system. One-fifth of the U.S. private-sector work force (nearly 22 million in 2006) works for U.S.-based multinational companies. Yet the United States is the only large economy with both a worldwide tax system and a corporate tax rate greater than 30 percent — with enough tax loopholes to support the largest fleet of tax lawyers and accountants in the world.
To compete in the global economy, Washington needs a competitive tax structure that enables us to create jobs, promote innovation and raise living standards.
Second, a shift in mind-set from “make-work” to “work-wireless.” Too often, we associate job creation with shovel-ready projects and not information-technology-focused job-training programs that teach skills necessary to help Americans compete with peers in Europe and Asia, including those in intelligent infrastructure projects.
n the United States, there are more than 1,000 community colleges, serving more than 11 million students. With four-year institutions and community-based job-training programs, we can train (and retrain) America’s work force using the tools and techniques that China, India and other global competitors are embracing to become more competitive.
Third, rallying behind a national broadband strategy that helps modernize our nation’s dated IT infrastructure. The U.S. ranks 20th in household broadband penetration, behind South Korea, Canada, the Netherlands and Estonia, according to a Strategy Analytics survey.
If this doesn’t illustrate the need for action, a recent study shows that a tenfold increase in broadband speeds would yield an additional $6 billion a year for existing home broadband users.
The Information Technology and Innovation Foundation estimates that 250,000 jobs are created for every $5 billion invested in broadband deployment — 100,000 direct and indirect jobs from telecom and IT equipment spending, plus an additional 150,000 jobs in “network effects,” spurring new online applications and services.
The Federal Communications Commission is due to unveil its national broadband plan by mid-March. This must be aimed at pushing the United States into the top echelon of countries with widespread next-generation mobile and fixed wireless (and wired) capabilities by 2015.
It’s important to remember that high-tech is a bedrock of American innovation. If we embrace investment in new technologies, businesses and the economy will benefit. And if we combine this investment with the right ideas, public policies and market conditions, the impact on our work force should be vast and far-reaching.
Dean Garfield is president and CEO of the Information Technology Industry Council. Bruce Reed is CEO of the Democratic Leadership Council.
Source: www.politico.com
Wednesday, November 10, 2010
Why does the U.S. need China?
Editor's note: Li Daokui is director of the Center for China in the World Economy at Tsinghua University in Beijing and also adviser to the China's Central Bank.
Beijing, China (CNN) -- The United States needs China for two simple reasons: China can make a difference in the world after the financial crisis, and more importantly China's fundamental interests are aligned with the United States.
It is obvious that China can make a difference in the world today and tomorrow. China is the world's leading exporter of manufactured goods. A sudden appreciation of its currency would inevitably export inflation to the rest of the world, which is not welcome by American families struggling to find jobs. China holds the world's largest currency reserves, enough to buy up the share prices in New York or sell down the yield curve of the T-bond.
Halfway into industrialization, China has become one of the largest emitters of global warming gas -- understandable, as it has followed the growth path of the West. Whether China can creatively find a new approach to modernization holds the key to the success of mitigating global warming. Last but not least, developing countries, including those in Africa, are watching carefully what China is doing. If China can be successful in achieving a balanced, sustainable and green growth, many other emerging economies will follow.
Does this mean that the United States and the West have lost their dominance in the world? Not at all! The West still enjoys the highest living standard and best educational achievement, still possesses the world's most important and relevant technologies, be it military or green, and still maintains by far the most formidable military power. Perhaps, most important to me as an economist, the West was not only the builder but also the most skillful mover and shaker in today's international institutions. The United Nations, the International Monetary Fund, the World Bank, and the G-20 were all initiated in the West. The most skillful professionals working in China are from the West or trained in the West. The most useful working language is English.
The most important point the United States and the West need to understand: In today's post-crisis world, China's fundamental interests are aligned with the West. It is in China's fundamental interest to contribute to the world's economic rebalancing and to continued peace and prosperity.
China's policy makers understand the need to reduce its trade surplus in order to reduce its exposure to international economic volatility. They realize that their household income needs to increase faster in order to boost domestic income and to bring real benefits of economic growth to its population. They also understand that China's growth of energy consumption must come down, relying more upon green energy and recycled materials. This awareness and commitment can be found in black and white in various official policy papers including the recent Guide to the next Five Year Development Program.
In fact, progress has been made in China in rebalancing growth. This year alone, trade surplus is likely to be below four percent of GDP, coming down from nine percent before the finance crisis and five percent last year. Imports are growing much faster than exports. Household consumption is outpacing GDP by five percent.
How have these been achieved? Exchange rate appreciation is not the most important factor. The driving factors are domestic forces. Wage rates of the exporting sector have increased by 20 percent this year. Taxes were cut for some consumption goods. Importing inland regions are encouraged to grow much faster than exporting coastal areas. Structural changes are much more fundamental than nominal appreciation.
The exchange rate dispute is the most counterproductive debate in the world. Appreciation does not work like a magic wand. In the Chinese case, against the background five percent general cost increase and 20 percent exporting sector wage increases, anything beyond a gradual appreciation will directly translate into a price hike to the American or European buyers, since in the short run, the option of switching from Chinese producers to others is not available, and the Chinese firms have to mark up their export prices in order to survive.
The end outcome of such a rapid appreciation is continued trade surplus with inflation in the West, which in turn brings in more expectation of nominal appreciation, causing capital flowing from the United States into China for arbitrage, offsetting the impact of Quantitative Easing (QE2) in the U.S. economy. Moreover, this scenario provides juice to conspiracy theories that renminbi (RMB) appreciation and the QE2 are just contrivances to undermine the Chinese and developing countries' modernization process.
The continued dispute on the RMB exchange rate may well be the saddest tragedy of economic policy making in the post-crisis world, since both the Chinese and U.S. sides share the same fundamental interest of rebalancing trade and growth but in the end ruin each other's endeavors. It is like the captains of two giant ships spending precious time arguing about the best techniques to steer the course and causing the ships to eventually collide.
In a larger context, the G-20 is perhaps the only tangible reward to the world in the wake of the financial crisis. Let us hope the leaders will not waste the precious good will and political capital on senseless issues like the exchange rate. Rather, they need to work on something much more relevant and effective to mitigate global imbalances, to reinvigorate growth and to avoid future crises.
By Li Daokui, Special to CNN
Source: CNN
www.cnn.com
Beijing, China (CNN) -- The United States needs China for two simple reasons: China can make a difference in the world after the financial crisis, and more importantly China's fundamental interests are aligned with the United States.
It is obvious that China can make a difference in the world today and tomorrow. China is the world's leading exporter of manufactured goods. A sudden appreciation of its currency would inevitably export inflation to the rest of the world, which is not welcome by American families struggling to find jobs. China holds the world's largest currency reserves, enough to buy up the share prices in New York or sell down the yield curve of the T-bond.
Halfway into industrialization, China has become one of the largest emitters of global warming gas -- understandable, as it has followed the growth path of the West. Whether China can creatively find a new approach to modernization holds the key to the success of mitigating global warming. Last but not least, developing countries, including those in Africa, are watching carefully what China is doing. If China can be successful in achieving a balanced, sustainable and green growth, many other emerging economies will follow.
Does this mean that the United States and the West have lost their dominance in the world? Not at all! The West still enjoys the highest living standard and best educational achievement, still possesses the world's most important and relevant technologies, be it military or green, and still maintains by far the most formidable military power. Perhaps, most important to me as an economist, the West was not only the builder but also the most skillful mover and shaker in today's international institutions. The United Nations, the International Monetary Fund, the World Bank, and the G-20 were all initiated in the West. The most skillful professionals working in China are from the West or trained in the West. The most useful working language is English.
The most important point the United States and the West need to understand: In today's post-crisis world, China's fundamental interests are aligned with the West. It is in China's fundamental interest to contribute to the world's economic rebalancing and to continued peace and prosperity.
China's policy makers understand the need to reduce its trade surplus in order to reduce its exposure to international economic volatility. They realize that their household income needs to increase faster in order to boost domestic income and to bring real benefits of economic growth to its population. They also understand that China's growth of energy consumption must come down, relying more upon green energy and recycled materials. This awareness and commitment can be found in black and white in various official policy papers including the recent Guide to the next Five Year Development Program.
In fact, progress has been made in China in rebalancing growth. This year alone, trade surplus is likely to be below four percent of GDP, coming down from nine percent before the finance crisis and five percent last year. Imports are growing much faster than exports. Household consumption is outpacing GDP by five percent.
How have these been achieved? Exchange rate appreciation is not the most important factor. The driving factors are domestic forces. Wage rates of the exporting sector have increased by 20 percent this year. Taxes were cut for some consumption goods. Importing inland regions are encouraged to grow much faster than exporting coastal areas. Structural changes are much more fundamental than nominal appreciation.
The exchange rate dispute is the most counterproductive debate in the world. Appreciation does not work like a magic wand. In the Chinese case, against the background five percent general cost increase and 20 percent exporting sector wage increases, anything beyond a gradual appreciation will directly translate into a price hike to the American or European buyers, since in the short run, the option of switching from Chinese producers to others is not available, and the Chinese firms have to mark up their export prices in order to survive.
The end outcome of such a rapid appreciation is continued trade surplus with inflation in the West, which in turn brings in more expectation of nominal appreciation, causing capital flowing from the United States into China for arbitrage, offsetting the impact of Quantitative Easing (QE2) in the U.S. economy. Moreover, this scenario provides juice to conspiracy theories that renminbi (RMB) appreciation and the QE2 are just contrivances to undermine the Chinese and developing countries' modernization process.
The continued dispute on the RMB exchange rate may well be the saddest tragedy of economic policy making in the post-crisis world, since both the Chinese and U.S. sides share the same fundamental interest of rebalancing trade and growth but in the end ruin each other's endeavors. It is like the captains of two giant ships spending precious time arguing about the best techniques to steer the course and causing the ships to eventually collide.
In a larger context, the G-20 is perhaps the only tangible reward to the world in the wake of the financial crisis. Let us hope the leaders will not waste the precious good will and political capital on senseless issues like the exchange rate. Rather, they need to work on something much more relevant and effective to mitigate global imbalances, to reinvigorate growth and to avoid future crises.
By Li Daokui, Special to CNN
Source: CNN
www.cnn.com
Tuesday, November 9, 2010
Will the Fed's $900 billion cash injection restart the economy?
The Federal Reserve is pumping vast amounts of "new" money into the economy. Will that solve our financial woes?
Best Opinion: U.S. News & World Report, Reuters, Economist
As many predicted, the Federal Reserve has agreed on another round of quantitative easing — essentially printing "new" money — in a bid to jump start the economy (read more on quantitative easing from The Week). The Fed announced yesterday it would buy up $600 billion of long-term government bonds, or Treasuries, by the middle of 2011 in hopes of driving down rates on mortgages and other debt and spurring investment. That comes on top of an expected $300 billion in buying from earlier programs. Will this massive cash injection be enough to revitalize the economy? (Watch a CNBC discussion about the announcement)
The evidence suggests it won't help much: The Fed surprised everyone by pumping $1 trillion into the economy in March last year, notes Rick Newman at U.S. News & World Report, and while it steadied the stock market, it didn't speed up GDP growth. This round "will probably have far less impact" — mainly because the market was expecting it for months and has already priced it into expectations.
"Why the Fed's quantitative easing is overblown this time"
$600 billion a lot of money — but still too little: Call this quantitive easing "lite," says John Kemp at Reuters. "After all the thunderous commentary" for and against pumping more cash into the economy, the Fed has "labored mightily and brought forth a mouse." Only "shock and awe" could have jolted the market into action. This may "shave more than a few basis points" off interest rates, but the overall effects "will probably be marginal."
"Fed launches QE-lite"
It's already worked: "I'm struck by the extent of the scepticism regarding this action," says The Economist. Sure, the "impact of easing" had already hit the markets. But "that impact is impressive." Equity markets are up and the dollar is down — which will help "domestic firms thinking about hiring and investing." It may not solve our unemployment rate, but "it's not clear that any Fed action" could do that.
"The morning after"
Source:www.theweek.com
Best Opinion: U.S. News & World Report, Reuters, Economist
As many predicted, the Federal Reserve has agreed on another round of quantitative easing — essentially printing "new" money — in a bid to jump start the economy (read more on quantitative easing from The Week). The Fed announced yesterday it would buy up $600 billion of long-term government bonds, or Treasuries, by the middle of 2011 in hopes of driving down rates on mortgages and other debt and spurring investment. That comes on top of an expected $300 billion in buying from earlier programs. Will this massive cash injection be enough to revitalize the economy? (Watch a CNBC discussion about the announcement)
The evidence suggests it won't help much: The Fed surprised everyone by pumping $1 trillion into the economy in March last year, notes Rick Newman at U.S. News & World Report, and while it steadied the stock market, it didn't speed up GDP growth. This round "will probably have far less impact" — mainly because the market was expecting it for months and has already priced it into expectations.
"Why the Fed's quantitative easing is overblown this time"
$600 billion a lot of money — but still too little: Call this quantitive easing "lite," says John Kemp at Reuters. "After all the thunderous commentary" for and against pumping more cash into the economy, the Fed has "labored mightily and brought forth a mouse." Only "shock and awe" could have jolted the market into action. This may "shave more than a few basis points" off interest rates, but the overall effects "will probably be marginal."
"Fed launches QE-lite"
It's already worked: "I'm struck by the extent of the scepticism regarding this action," says The Economist. Sure, the "impact of easing" had already hit the markets. But "that impact is impressive." Equity markets are up and the dollar is down — which will help "domestic firms thinking about hiring and investing." It may not solve our unemployment rate, but "it's not clear that any Fed action" could do that.
"The morning after"
Source:www.theweek.com
Monday, November 8, 2010
Gazprom profits soar despite European price falls
Profits at the Russian gas monopoly Gazprom have leapt 66% in the first half of the year, despite lower gas prices in Europe.
Gazprom supplies more than a quarter of the continent's gas needs.
It said it had sold 19% more gas to European countries, partly because the winter was colder than usual.
However, the average price it charged Europe fell by 23%, but this was more than offset by an increase in the price of gas sold in its domestic market.
As a result, net income for the six months to the end of June increased to 508.2bn roubles ($16.5bn; £10.2bn), compared with 305.7bn roubles during the same period in the previous year.
Falling market share
Gazprom is the world's largest supplier of natural gas. It also has the largest gas reserves of any energy company in the world.
The state-controlled company is hoping to sign a huge deal within the next year to supply gas to the fast-growing market of China.
Earlier this year, it cut supplies to Russia's neighbour Belarus in a row over payment.
Politicians in Europe are unnerved by such moves and want to reduce the continent's dependence on Russia for energy.
Over the past decade, Russia's share of gas imports to western Europe has fallen from 39% to 27%, according to East European Gas Analysis, a US-based firm.
It says Norway's share has risen from 16% to 22% over the same period.
Gazprom supplies more than a quarter of the continent's gas needs.
It said it had sold 19% more gas to European countries, partly because the winter was colder than usual.
However, the average price it charged Europe fell by 23%, but this was more than offset by an increase in the price of gas sold in its domestic market.
As a result, net income for the six months to the end of June increased to 508.2bn roubles ($16.5bn; £10.2bn), compared with 305.7bn roubles during the same period in the previous year.
Falling market share
Gazprom is the world's largest supplier of natural gas. It also has the largest gas reserves of any energy company in the world.
The state-controlled company is hoping to sign a huge deal within the next year to supply gas to the fast-growing market of China.
Earlier this year, it cut supplies to Russia's neighbour Belarus in a row over payment.
Politicians in Europe are unnerved by such moves and want to reduce the continent's dependence on Russia for energy.
Over the past decade, Russia's share of gas imports to western Europe has fallen from 39% to 27%, according to East European Gas Analysis, a US-based firm.
It says Norway's share has risen from 16% to 22% over the same period.
Friday, November 5, 2010
EU warns troubled German bank WestLB over state aid
WestLB, a troubled state-controlled German bank, has been warned it may be wound down if it does not quickly comply with European competition rules.
Competition commissioner Joaquin Almunia said the European Commission had repeatedly asked for a revised restructuring plan, but had not received one from German authorities.
The possibility that WestLB would be broken up was "increasing", he said.
"Time is running out... decisions are required as [soon as] possible."
WestLB transferred about 77bn euro of its toxic and non-strategic assets to a so-called "bad bank" earlier this year.
The Commission, which provisionally approved a restructuring in May 2009, is investigating whether WestLB breached competition rules after receiving an extra 3.4bn euro in state aid.
It said that before it could approve the aid, the bank should consider "further restructuring measures" to address concerns about unfair advantages over other banks, or a gradual reimbursement of the sum.
Mr Almunia also said he had growing doubts that WestLB's business model could restore its viability.
However, WestLB's chief executive Dietrich Voigtlaender said the Commission had failed to present new facts to back up its position.
The German finance ministry said the government did not expect WestLB to collapse and that the bank would be able to meet EU conditions.
Source:BBC
www.bbc.com
Competition commissioner Joaquin Almunia said the European Commission had repeatedly asked for a revised restructuring plan, but had not received one from German authorities.
The possibility that WestLB would be broken up was "increasing", he said.
"Time is running out... decisions are required as [soon as] possible."
WestLB transferred about 77bn euro of its toxic and non-strategic assets to a so-called "bad bank" earlier this year.
The Commission, which provisionally approved a restructuring in May 2009, is investigating whether WestLB breached competition rules after receiving an extra 3.4bn euro in state aid.
It said that before it could approve the aid, the bank should consider "further restructuring measures" to address concerns about unfair advantages over other banks, or a gradual reimbursement of the sum.
Mr Almunia also said he had growing doubts that WestLB's business model could restore its viability.
However, WestLB's chief executive Dietrich Voigtlaender said the Commission had failed to present new facts to back up its position.
The German finance ministry said the government did not expect WestLB to collapse and that the bank would be able to meet EU conditions.
Source:BBC
www.bbc.com
Thursday, November 4, 2010
India IT firms say US rejecting business visas
The US is rejecting a growing number of Indian visa applications and interviews border on interrogations, Indian information technology firms say.
[justify][b]Nasscom[/b], an umbrella organisation of IT firms, said it had written to the US ambassador to convey its concern.
India's government has also been informed, it said. There was no immediate response from the US embassy.
President [b]Barack Obama[/b] begins a three-day India visit on Saturday. It is not known if the issue will come up then.
"[b]Nasscom[/b]... said it had received complaints from member-companies and had taken up the issue 'appropriately' with the US embassy in New Delhi," the Times of India newspaper reported.
"The letter is said to have pointed out that the firms affected are all 'perfectly good companies' which have 'met all guidelines'," the paper added.
India and the US have forged close trade ties in recent years. In 2008, the two countries signed a deal for civil nuclear co-operation.
But, there has been growing concern in Washington that outsourcing to cities such as Bangalore - the IT hub in southern India - is worsening unemployment in the US.
President Obama recently spoke out against outsourcing of American jobs to countries like India and offered tax breaks for those creating jobs in the US.
Also recently, the US Border Security Bill hiked the fees for H1B and L1 business visas, leading to protests from Indian IT firms.
The issues of outsourcing and visa fees are expected to come up in talks during President Obama's visit.
But analysts say the president's drubbing in mid-term elections this week is expected to tie his hands when it comes to bold policy moves on India.
On Wednesday, Indian Foreign Secretary [b]Nirupama Rao[/b] said Delhi was not expecting any "big bang" results from the visit.
She said there would be positive outcomes, but it was not time for another "big bang".
[b]Mr Obama[/b] arrives in Mumbai (Bombay) on Saturday morning where he is due to meet Indian business leaders and address a meeting of the India-US business council.
In Delhi, he is due to meet Prime Minister Manmohan Si[/justify]
Source: BBC
www.bbc.co.uk
[justify][b]Nasscom[/b], an umbrella organisation of IT firms, said it had written to the US ambassador to convey its concern.
India's government has also been informed, it said. There was no immediate response from the US embassy.
President [b]Barack Obama[/b] begins a three-day India visit on Saturday. It is not known if the issue will come up then.
"[b]Nasscom[/b]... said it had received complaints from member-companies and had taken up the issue 'appropriately' with the US embassy in New Delhi," the Times of India newspaper reported.
"The letter is said to have pointed out that the firms affected are all 'perfectly good companies' which have 'met all guidelines'," the paper added.
India and the US have forged close trade ties in recent years. In 2008, the two countries signed a deal for civil nuclear co-operation.
But, there has been growing concern in Washington that outsourcing to cities such as Bangalore - the IT hub in southern India - is worsening unemployment in the US.
President Obama recently spoke out against outsourcing of American jobs to countries like India and offered tax breaks for those creating jobs in the US.
Also recently, the US Border Security Bill hiked the fees for H1B and L1 business visas, leading to protests from Indian IT firms.
The issues of outsourcing and visa fees are expected to come up in talks during President Obama's visit.
But analysts say the president's drubbing in mid-term elections this week is expected to tie his hands when it comes to bold policy moves on India.
On Wednesday, Indian Foreign Secretary [b]Nirupama Rao[/b] said Delhi was not expecting any "big bang" results from the visit.
She said there would be positive outcomes, but it was not time for another "big bang".
[b]Mr Obama[/b] arrives in Mumbai (Bombay) on Saturday morning where he is due to meet Indian business leaders and address a meeting of the India-US business council.
In Delhi, he is due to meet Prime Minister Manmohan Si[/justify]
Source: BBC
www.bbc.co.uk
Dubai World debt restructuring agreed
State-owned Dubai World has signed up the last remaining creditor to a $23bn (£15bn) debt restructuring.
The last investor - US distressed debt fund Aurelius Capital Management - sold its position to Deutsche Bank, one of the company's main creditors, according to a report in the Financial Times.
The holding company said in September that 99% of its creditors had already agreed to the new repayment terms.
It means Dubai World can now avoid a lengthy tribunal to complete the deal.
Dubai World manages investments for the Emirate of Dubai, including the Dubai ports, foreign investments, and major real estate development such as the famous palm islands.
Debt for equity
Aurelius had bought the debt in the secondary market after the company defaulted on its debts last year, but missed the 9 September deadline to vote for the restructuring.
The terms of the restructuring involve converting $8.9bn of government debt into equity, and would leave Dubai World with $14.4bn of remaining debts.
The news means that a special tribunal, which had been set up to reach a settlement with any creditors that held out from the deal, will no longer be needed.
Meanwhile, there was good news for Dubai on the economic front.
A government spokesman said that he expected a growth rate this year of 2.3%, thanks in part to a 7% rise in population during the first nine months of the year as immigration picked up again.
Meanwhile, Dubai Ports World (a subsidiary of Dubai World) reported that its global container levels had returned to the pre-crisis peak levels of 2008.
The last investor - US distressed debt fund Aurelius Capital Management - sold its position to Deutsche Bank, one of the company's main creditors, according to a report in the Financial Times.
The holding company said in September that 99% of its creditors had already agreed to the new repayment terms.
It means Dubai World can now avoid a lengthy tribunal to complete the deal.
Dubai World manages investments for the Emirate of Dubai, including the Dubai ports, foreign investments, and major real estate development such as the famous palm islands.
Debt for equity
Aurelius had bought the debt in the secondary market after the company defaulted on its debts last year, but missed the 9 September deadline to vote for the restructuring.
The terms of the restructuring involve converting $8.9bn of government debt into equity, and would leave Dubai World with $14.4bn of remaining debts.
The news means that a special tribunal, which had been set up to reach a settlement with any creditors that held out from the deal, will no longer be needed.
Meanwhile, there was good news for Dubai on the economic front.
A government spokesman said that he expected a growth rate this year of 2.3%, thanks in part to a 7% rise in population during the first nine months of the year as immigration picked up again.
Meanwhile, Dubai Ports World (a subsidiary of Dubai World) reported that its global container levels had returned to the pre-crisis peak levels of 2008.
Irish Republic announces record budget cuts
The Irish government has outlined when it will make 15bn euros ($21.3bn; £13.1bn) of budget cuts designed to reduce the country's deficit.
In what it called "a significant frontloading", the government said it would cut 6bn euros in 2011 to try and reduce the deficit to 9.25%-9.5% GDP.
By 2014, the government wants to reduce the deficit to 3% of GDP.
It said savings would be made through spending cuts and tax rises and would impact the living standards of all.
Further details of these measures will be released in the government's Four-Year Plan, published later this month.
Finance Minister Brian Lenihan said the cuts underlined the "strength of our resolve to show that the country is serious about tackling our public finance difficulties.
"But our spending and revenues must be more closely aligned. This is the only way to ensure the future well being of our society."
Analysts said the announcement contained few surprises, and that markets were waiting for further details on the spending cuts and tax rises before passing judgement on whether the cuts were realistic.
"I think committing to front-load the cuts sends a good signal to the markets that Ireland is serious about fiscal consolidation," said Oliver Hogan at the Centre of Economics and Business Research.
"I think they're on the right track in terms of what has to be done but they may find it has more of a detrimental effect [on growth] than they're expecting."
A number of countries have announced measures to reduce budget deficits that rose dramatically during the economic downturn, most notably Greece and the UK.
Investor concerns
Earlier on Thursday, yields on Irish 10-year bonds reached a new high of 7.69%.
The move reflected increasing scepticism about the Republic's ability to tackle its problems without outside help.
The Irish Finance Ministry has released its budget early to try to soothe investor concerns as Irish borrowing costs have hit a new high every day so far this week.
The Irish deficit is predicted to be the equivalent of 32% of the country's economic output this year.
It has been pushed up by the cost of government bail-outs of Irish banks. At the end of September, Prime Minister Brian Cowen revealed that taxpayers' total bill for bailing out the banks could reach 50bn euros.
Mr Cowen has vowed to reduce the deficit to below 3% of gross domestic GDP by 2014.
'Huge amount'
European Central Bank (ECB) president Jean-Claude Trichet earlier said he thought the figure was a sensible target.
"The 15bn... are not in our view insufficient but of course you have to be alert permanently and stand ready to do all that is needed," Mr Trichet told a news conference, shortly after the ECB had announced it was holding interest rates in the eurozone at 1%.
"The market observers, savers, investors are looking with great, great attention to what the minister and the government will say in a few hours," Mr Trichet said.
Ken Wattrett, chief European economist at BNP Paribas, said the government faced a difficult dilemma.
"[15bn euros] is a huge amount - what we're talking about there is something in the region of 10% of GDP in addition to all the measures that have already been delivered," he told the BBC.
"The intention for 2011 is to frontload quite a lot of that adjustment, probably in the region of 4% of GDP.
"[The government] needs to deliver these cuts to stabilise its public finances and win its credibility back, but at the same time it will probably push its economy into a deeper recession."
Source: BBC
www.bbc.co.uk
In what it called "a significant frontloading", the government said it would cut 6bn euros in 2011 to try and reduce the deficit to 9.25%-9.5% GDP.
By 2014, the government wants to reduce the deficit to 3% of GDP.
It said savings would be made through spending cuts and tax rises and would impact the living standards of all.
Further details of these measures will be released in the government's Four-Year Plan, published later this month.
Finance Minister Brian Lenihan said the cuts underlined the "strength of our resolve to show that the country is serious about tackling our public finance difficulties.
"But our spending and revenues must be more closely aligned. This is the only way to ensure the future well being of our society."
Analysts said the announcement contained few surprises, and that markets were waiting for further details on the spending cuts and tax rises before passing judgement on whether the cuts were realistic.
"I think committing to front-load the cuts sends a good signal to the markets that Ireland is serious about fiscal consolidation," said Oliver Hogan at the Centre of Economics and Business Research.
"I think they're on the right track in terms of what has to be done but they may find it has more of a detrimental effect [on growth] than they're expecting."
A number of countries have announced measures to reduce budget deficits that rose dramatically during the economic downturn, most notably Greece and the UK.
Investor concerns
Earlier on Thursday, yields on Irish 10-year bonds reached a new high of 7.69%.
The move reflected increasing scepticism about the Republic's ability to tackle its problems without outside help.
The Irish Finance Ministry has released its budget early to try to soothe investor concerns as Irish borrowing costs have hit a new high every day so far this week.
The Irish deficit is predicted to be the equivalent of 32% of the country's economic output this year.
It has been pushed up by the cost of government bail-outs of Irish banks. At the end of September, Prime Minister Brian Cowen revealed that taxpayers' total bill for bailing out the banks could reach 50bn euros.
Mr Cowen has vowed to reduce the deficit to below 3% of gross domestic GDP by 2014.
'Huge amount'
European Central Bank (ECB) president Jean-Claude Trichet earlier said he thought the figure was a sensible target.
"The 15bn... are not in our view insufficient but of course you have to be alert permanently and stand ready to do all that is needed," Mr Trichet told a news conference, shortly after the ECB had announced it was holding interest rates in the eurozone at 1%.
"The market observers, savers, investors are looking with great, great attention to what the minister and the government will say in a few hours," Mr Trichet said.
Ken Wattrett, chief European economist at BNP Paribas, said the government faced a difficult dilemma.
"[15bn euros] is a huge amount - what we're talking about there is something in the region of 10% of GDP in addition to all the measures that have already been delivered," he told the BBC.
"The intention for 2011 is to frontload quite a lot of that adjustment, probably in the region of 4% of GDP.
"[The government] needs to deliver these cuts to stabilise its public finances and win its credibility back, but at the same time it will probably push its economy into a deeper recession."
Source: BBC
www.bbc.co.uk
Wednesday, November 3, 2010
Emerging Market Leader Reacts to Massive Bailout Plan Announced by U.S. Government
Kazyna's Alexander Mirtchev Calls for Balanced Government Involvement
WASHINGTON – September 20, 2008 -- Today's market increases and the announcement by the U.S. government to undertake a major bailout plan to restore confidence in the world financial system, prompted a rare comment from Alexander Mirtchev,
Chairman of the Board of Directors for the Kazakhstan Sustainable Development Fund, Kazyna. Dr. Mirtchev provided thoughts on what the suspension of an unfettered free-market in the United States could mean for emerging economies, including Kazakhstan.
"There are dire predictions being made about the impending meltdown of emerging markets. The predictions are based on the assumption of a steep decline in commodity prices, combined with a liquidity squeeze that, taken together, will wipe out the reserves of transitional market countries," said Dr. Mirtchev, who is also the founder of the Washington-based consulting firm Krull Corporation.
He continued: "Emerging markets are all different. It is just a label that does not describe the reality of an economy. Emerging markets have experienced declines and weathered many storms and years with no reserves. In the case of the Kazakh economy, it depends a lot less on financial schemes that need to be unwound than the so-called mature markets. In times of trouble, the people of the emerging markets will work harder, their commodities will be put to good use domestically and in the region, and their companies will survive, restructure and come out stronger."
The mission of Dr. Mirtchev's work at Kazyna is to improve the competitiveness, stability and diversify the national economy of Kazakhstan, as part of the overall market reforms agenda. His comments reflect the unique ability of the Kazakhstan economy to withstand a downturn in world financial systems.
"Each country has different approaches to dealing with market and financial crises. For example, Kazakhstan is introducing an "Assets Stabilization Fund" to address specific problems of the banking sector caused by the financial crisis," Dr. Mirtchev said. "Such government measures may not be right for other countries, but some form of government supervision must take place, as markets, not to mention market players, sometimes do not stick to what is in the textbooks."
As an individual who grew up under Communist rule in Bulgaria and who later came to excel in the free-market of the United States, Dr. Mirtchev added a personal note to involvement by the government in the open markets.
"Irrespective of the fact that dramatic market movements have immediate impact on personal lives, it is undeniable that the market should have its final say. Drastic volatility and market turmoil have their underlying rationale in market principles, which cannot be ignored. Without being too interventionist, governments should embrace the reality that they have certain responsibilities towards how market players operate, in particular, the rules of the game, and how to prepare for and mitigate the possible social fallout, keeping in mind the Law of Unintended Consequences.
Source: www.allbusiness.com
WASHINGTON – September 20, 2008 -- Today's market increases and the announcement by the U.S. government to undertake a major bailout plan to restore confidence in the world financial system, prompted a rare comment from Alexander Mirtchev,
Chairman of the Board of Directors for the Kazakhstan Sustainable Development Fund, Kazyna. Dr. Mirtchev provided thoughts on what the suspension of an unfettered free-market in the United States could mean for emerging economies, including Kazakhstan.
"There are dire predictions being made about the impending meltdown of emerging markets. The predictions are based on the assumption of a steep decline in commodity prices, combined with a liquidity squeeze that, taken together, will wipe out the reserves of transitional market countries," said Dr. Mirtchev, who is also the founder of the Washington-based consulting firm Krull Corporation.
He continued: "Emerging markets are all different. It is just a label that does not describe the reality of an economy. Emerging markets have experienced declines and weathered many storms and years with no reserves. In the case of the Kazakh economy, it depends a lot less on financial schemes that need to be unwound than the so-called mature markets. In times of trouble, the people of the emerging markets will work harder, their commodities will be put to good use domestically and in the region, and their companies will survive, restructure and come out stronger."
The mission of Dr. Mirtchev's work at Kazyna is to improve the competitiveness, stability and diversify the national economy of Kazakhstan, as part of the overall market reforms agenda. His comments reflect the unique ability of the Kazakhstan economy to withstand a downturn in world financial systems.
"Each country has different approaches to dealing with market and financial crises. For example, Kazakhstan is introducing an "Assets Stabilization Fund" to address specific problems of the banking sector caused by the financial crisis," Dr. Mirtchev said. "Such government measures may not be right for other countries, but some form of government supervision must take place, as markets, not to mention market players, sometimes do not stick to what is in the textbooks."
As an individual who grew up under Communist rule in Bulgaria and who later came to excel in the free-market of the United States, Dr. Mirtchev added a personal note to involvement by the government in the open markets.
"Irrespective of the fact that dramatic market movements have immediate impact on personal lives, it is undeniable that the market should have its final say. Drastic volatility and market turmoil have their underlying rationale in market principles, which cannot be ignored. Without being too interventionist, governments should embrace the reality that they have certain responsibilities towards how market players operate, in particular, the rules of the game, and how to prepare for and mitigate the possible social fallout, keeping in mind the Law of Unintended Consequences.
Source: www.allbusiness.com
Portugal passes austerity budget
Portugal's parliament has passed an austerity budget to cut the country's high debt levels, after the opposition upheld an agreement with the minority government to abstain from voting.
The budget provides for measures to cut the deficit from 7.3% of economic output this year to 4.6% in 2011.
It will cut public spending and raise VAT - measures that have proved very unpopular with voters.
Prime Minister Jose Socrates threatened to quit if the budget failed.
The opposition Social Democrats oppose tax rises, preferring spending cuts, but agreed last week to abstain from voting.
Cost of borrowing
Confidence in Portugal's economy was hit hard over the summer during the eurozone debt crisis.
The rate of interest that the government had to pay to investors in order to borrow money, in part to service existing debt, rose sharply.
This led a number of leading credit rating agencies to downgrade Portuguese government debt, compounding the problem.
There were fears that if the austerity budget had not been passed, the cost of borrowing would again increase dramatically.
A number of countries have announced measures to reduce budget deficits that rose dramatically during the economic downturn, most notably Greece and the UK.
The budget provides for measures to cut the deficit from 7.3% of economic output this year to 4.6% in 2011.
It will cut public spending and raise VAT - measures that have proved very unpopular with voters.
Prime Minister Jose Socrates threatened to quit if the budget failed.
The opposition Social Democrats oppose tax rises, preferring spending cuts, but agreed last week to abstain from voting.
Cost of borrowing
Confidence in Portugal's economy was hit hard over the summer during the eurozone debt crisis.
The rate of interest that the government had to pay to investors in order to borrow money, in part to service existing debt, rose sharply.
This led a number of leading credit rating agencies to downgrade Portuguese government debt, compounding the problem.
There were fears that if the austerity budget had not been passed, the cost of borrowing would again increase dramatically.
A number of countries have announced measures to reduce budget deficits that rose dramatically during the economic downturn, most notably Greece and the UK.
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