Finance ministers get cold feet over EU stimulus plan - EurActiv.com
The ministers were meeting in Brussels on 2 December to discuss a recovery plan tabled the week before by the European Commission (EurActiv 27/11/08).
In a statement, the French EU Presidency said: "The ministers adopted a European strategy in the form of a common 'toolkit' of Community instruments (resources from the EIB and the EU budget), allowing each member state to take the necessary steps, based on its particular financial and macro-economic situation."
Ministers approved an increase of the European Investment Bank's (EIB) capital from around 65 billion to 230 billion euro, in order to fund measures to help car manufacturers to make cleaner vehicles, for example.
However, all references to the overall 200 billion figure were deleted from the Commission's initial proposal, which also included "smart" investments in 'green' jobs.
Furthermore, proposals to lower taxes on labour-intensive local services, such as hairdressers and restaurants, once more failed to win approval. "We agreed to disagree," said French Finance Minister Christine Lagarde, who chaired the meeting.
In view of continued disagreement, ministers decided to refer the matter to the EU's heads of state and government, who will meet at a summit in Brussels on 11-12 December.
"We agreed that 1.5 percent of gross domestic product was a necessary figure to launch this recovery plan," Lagarde said, according to Bloomberg.
This figure was however not endorsed by everybody. "Germany is taking on a total of 31 billion euros through two packages - that is, 1.25% of our GDP," said Peer Steinbrueck, Germany's finance minister, speaking on Monday (1 December) after a Eurogroup meeting. "That is apparently not being registered by many who are observing us," he said, according to Reuters.
Similarly, finance ministers refused to follow in the UK's footsteps by reducing their VAT rates to the minimum agreed EU threshold of 15%. "We are not obliged to copy what all other countries are doing," Steinbrueck said. "We need to cooperate, but the way of acting can look different."
Speaking on Monday, Eurogroup President and Luxembourg Prime Minister Jean-Claude Juncker said: "The 15 member states of the euro area have declared they don't want to do anything about the standard rate of VAT," he said, according to Reuters.
Forex focus: let's not kid ourselves about the pound - Daily Telegraph
With the the Olympics following hot on the heels of the Queen's Diamond Jubilee, he thinks UK consumers will start spending again. "Ticket sales alone for the Olympics are going to add 0.2pc to the GDP in the third quarter of the year. Things are set to get a lot better in the UK."
Simon Smith of FxPro is cautiously optimistic, pointing to the low yield on UK gilts and saying: "There's little doubt that the pound has benefitted from events in the eurozone. I would expect the pound to continue to appreciate vs. the euro as this effect continues, pushing EUR/GBP to new lows for the year."
However, many consider it is just a race for the bottom between the two currencies with the single currency definitely winning.
"We should be clear that this is not due to any inherent strength in the pound – just the euro's abject weakness," believes David Kerns of Moneycorp.
The pound is also being talked down. Christine Lagarde, head of the International Monetary Fund, has suggested the UK base rate should be cut further below its current record low of 0.5pc while the Bank of England is yet again considering pumping more money into the economy.
Jeremy Cook of World First thinks the Bank could bring in more quantitative easing as early as this month but he doesn't believe it will have much of an impact.
"We would prefer to see the Bank take on some form of 'credit easing' – the purchase of corporate debt as opposed to that of the government. The fact is that the liquidity that the banks are receiving is not making it through to businesses and consumers."
The UK certainly can't afford to be complacent and imagine we can get away with sitting on the sidelines.
Charles Purdy of Smart Currency Exchange says: "There is a great possibility that the UK could run into trouble. The UK has been masterful in its management of international investment sentiment as it convinces the international market to finance our debt at a fraction of the cost of that of Spain or Italy. If this changes then we are in the same position as the southern states of the eurozone."
And Smith adds: "The eurozone crisis is ultimately a banking crisis. We remain a nation still very much reliant on banking and financial services. Therefore, it can't be dismissed."
The situation in the eurozone is creating a vortex threatening to suck everyone into it. It is hoped that the drawn out debacle in Athens has bought sufficient time to work out how to limit the damage.
"Hopefully the time spent will have allowed the authorities to build up an adequate firewall to protect the other 16 members of the euro," says Alistair Cook of Currencies Direct. "If not, then we're in real trouble."
Somalia government money 'goes missing' - BBC News
Large sums of money received by Somalia's interim UN-backed government have not been accounted for, a World Bank report says.
The report, seen by the BBC, is being circulated at talks in Turkey on how to end Somalia's decades of anarchy.
It alleges a discrepancy of about $130m (£85m) in the accounts over two years.
UK foreign minister William Hague told the BBC that an international board to oversee the distribution of aid funds needed to be established urgently.
Somalia's transitional government mandate expires in August when it is due to hand over to an elected president.
'Big question mark'The revelations in the World Bank report come as several hundred Somali politicians meet representatives of more than 50 countries in Istanbul to try to win new funding for the long-term reconstruction of country.
The report stops short of making specific allegations, but does not rule out corruption as a possible explanation for the missing government revenue funds.
"There is a discrepancy in what comes in and there's a lack of accounting of how money has been spent," the report's author Joakim Gundel is quoted by US broadcaster Voice of America as saying.
"So that opens naturally a big question mark for sure."
The report, which looks at the years 2009 and 2010, also says the transitional government has no real accounting system nor does it publicly disclose financial statements.
Contacted by the BBC, Mr Gundel said he would not make any comment about the report until later on Friday.
But VOA reports him as saying that the missing millions could significantly bolster Somalia's security without relying on foreign donations.
The conference in Istanbul is the second major international gathering this year about Somalia's crisis.
In London in February, at talks hosted by the UK government, it was agreed that a financial management board to oversee aid should be established.
"The details of this need to be finalised with the government of Somalia - and frankly I was hoping it could be done by now, by this conference in Istanbul - if it is not signed here, well then it needs to signed in the next few weeks," Mr Hague told the BBC Somali Service.
Last month, leaders of disparate Somali factions agreed to a timetable that will elect a new president by 20 August, ending the transition period of the interim government.
The Horn of Africa country has had no effective central government since 1991, and has been wracked by fighting ever since - a situation that has allowed piracy and lawlessness to flourish.
Mr Hague said it was important that those at the conference understood that deadlines were met and that the 18,000-strong African Union force in Somalia was properly funded.
"I hope it [the conference] will keep up the momentum, particularly towards a successful and legitimate political process in Somalia, towards making sure that development money can be spent properly and transparently in Somalia... And we'd like to see, of course, the continued success of African Union forces," the UK foreign secretary said.
All Somalia's rival groups have been invited to participate in the Istanbul talks, expect for the Islamist al-Shabab group, which joined al-Qaeda earlier this year.
Despite facing pressure on a number of military fronts, its fighters control much of the country.
In recent months, troops from Ethiopia and the African Union force, as well as pro-government militias, have helped government forces gain territory from al-Shabab but the militants continue to stage attacks in the capital, Mogadishu, and elsewhere.
No money for brain research - Lancashire Evening Post
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'We're stable': Cash-strapped Spain's finance minister says nation is back on track despite claims it asked IMF for massive €300BILLION bailout - Daily Mail
- World finance bosses deny rumours of staggering bailout plan
- But sources say contingency preparations are well under way
- Loans would be from IMF and EU, leaving British taxpayers footing part
- European markets rocky: FTSE-100 plunges to year-long low
- FTSE-100 is 0.87% down; CAC 40 is 1.47% down; DAX is 2.58% down
By Hugo Duncan And James Salmon
|
British taxpayers could be forced to stump up another 5billion to rescue Spain as the crisis in the eurozone spirals out of control.
Fears are mounting that Madrid will have to ask for an emergency bailout of up to 300billion as it struggles to prop up its basket-case banks.
A third of that money could come from the International Monetary Fund – including around 5billion from the UK, even though Britain is not in the eurozone.
Scroll down for live stock market updates...
Talks: IMF boss Christine Lagarde (left) has denied rumours that Spain wants a €300billion bailout, as the nation's finance minister Cristobal Montoro (right) said the country was 'stable'
Working lunch: German chancellor Angela Merkel sits with European Commission President Jose Manuel Barroso Baltic Sea States leaders earlier this week
UK taxpayers have already coughed up 12.5billion to rescue debt-ridden Greece, Ireland and Portugal.
Spain’s deputy prime minister Soraya Saenz de Santamaria has held crunch talks in Washington with IMF chief Christine Lagarde and US Treasury Secretary Timothy Geithner.
But the IMF denied reports that it has started to plan a bailout for Spain, while the country’s finance minister insisted it was stable.
‘The IMF is not drawing up plans that involve financial assistance for Spain, nor has Spain requested any financial support from the IMF,’ said the fund’s spokesman Gerry Rice.
Desperate: European leaders scrambled to stop the financial crisis in Spain spiralling out of control and infecting other countries such as Italy
But growing doubts over how the Spanish government will finance the 15billion needed to rescue Bankia, one of its biggest lenders, have raised fears that it will follow Ireland, Greece and Portugal in requiring a bailout from Europe and the IMF.
This week US investment bank JP Morgan warned a joint rescue of Spain could cost around 300billion.
The Spanish banking system has been crippled by nearly 150billion in toxic property loans.
Meanwhile, as Bankia announced a loss of 2.6billion, it emerged that its top bosses had enjoyed a pay bonanza totalling 18million.
Lord Oakeshott, the Liberal Democrat peer, said: ‘It would be beyond belief if we had to help pay for Spanish so-called bankers who have run Bankia on to the rocks.’
Lagarde called her meeting with Saenz de Santamaria productive. She also denied a Wall Street Journal report that the IMF was drawing up plans for a rescue loan for Spain.
Saenz de Santamaria said that she discussed with Geithner some of the ideas being discussed in Europe about how to set up a fund to recapitalise European banks.
She said: 'The problem is not Spain as a country. But our financial system in a given moment has needs just like the other states had at other times.'
Crisis: Spain's government nationalised major bank Bankia earlier this month, and now says it needs to inject $23.6billion in public money into the bank
'EUROZONE JOBLESS HITS RECORD HIGH AND WILL KEEP ON RISING'
Eurozone unemployment has hit a record high and job losses are likely to keep climbing as the debt crisis eats away at businesses' ability to hire workers while indebted governments continue to cut staff.
Around 17.4million people were out of work in the 17-nation eurozone in April (11 per cent of the working population) - the highest level since records began in 1995, the EU's statistics office Eurostat said today.
'This 11 percent level is going to continue edging up in the coming months and probably until the end of the year,' said Francois Cabau, an economist at Barclays Capital who sees the eurozone's economy contracting 0.1 per cent this year.
'The economic activity situation tells you the story of the labour market. There's been basically no economic growth since the fourth quarter of last year and indicators are pointing to very weak growth momentum for the second quarter,' he said.
ING economist Martin van Vliet said he sees the unemployment rate reaching slightly above 11.5 per cent if the economy starts to recover later this year. But if the downturn worsens, 'the risk is for an even higher peak in unemployment,' he said.
As the debt crisis intensifies, companies in the euro zone are trying to keep their labour costs low as they struggle with falling demand and profits, while a German-led drive to cut deficits and debt is pressuring governments to shrink spending.
But some economists say austerity policies in an economic downturn are self-defeating because governments receive less tax receipts as unemployment grows and must pay out more money in jobless benefits.
The denial comes as senior European officials last night issued a grave warning that the very survival of the euro is at risk as the crisis in Spain threatens to tear the region apart.
Politicians and central bankers said the situation in the eurozone was unsustainable and drastic action was needed to prevent the ‘disintegration’ of the single currency.
They spoke out as European leaders scrambled to stop the financial crisis in Spain spiralling out of control and infecting other countries such as Italy.
The euro crashed to a 23-month low against the US dollar at $1.2335 but was up slightly against sterling having recovered from its lowest level since late 2008. Last night, 1 was worth €1.2460.
Mario Draghi, president of the European Central Bank, said the eurozone was unsustainable in its current form.
In his sharpest criticism yet of eurozone leaders’ handling of the crisis, he said the European Central Bank could not ‘fill the vacuum’ left by governments in terms of economic growth or structural reforms.
And he called for overwhelming force to be used to shore up Europe’s battered banks to restore confidence in the financial system.
Ignazio Visco, governor of the Bank of Italy and a senior ECB member, said political inertia and bad economic decisions have put ‘the entire European edifice’ at risk.
‘There are growing doubts among international investors about governments’ ability to ensure the survival of the single currency,’ he said.
Olli Rehn, EU economic and monetary affairs commissioner, said bold action was required ‘if we want to avoid a disintegration of the eurozone’.
The apocalyptic tone from usually measured EU officials betrayed the spreading sense of panic.
Irish voters are likely to approve a European treaty on budget discipline in yesterday’s referendum – securing continued aid.
The result will be announced later today.
But the outcome of a second Greek election on June 17 – seen as crucial for the country’s future in the eurozone – is too close to call.
Book review: Finance and the Good Society, by Robert J Shiller - Management Today
By Robert Skidelsky Friday, 01 June 2012
More innovation in the investment markets and in managing risk is socially as well as economically desirable, argues the author. But Robert Skidelsky is not convinced.
Book: Finance and the Good Society
Author: Robert J Shiller
I met economist Robert Shiller, famous for the Case-Shiller home price index, at a breakfast in London in 2009 to mark the publication of his book Animal Spirits, co-authored with George Akerlof. He explained how financial innovation might be used to limit the volatility of 'animal spirits', a bold claim after an economic collapse often attributed to an excess of financial innovation. I suggested what we needed was financial de-innovation; simpler, not more complex financial systems. Shiller looked puzzled.
In Finance and the Good Society, he looks forward to a rapid increase in the scope of financial services to create a more prosperous, stable and equal society. At its analytical heart lies the conviction that financial innovation is the road to 'complete' markets - markets for all possible desired contracts. Thus it can move the actual market system closer to the ideal market system envisaged by economists such as Arrow and Debreu, despite the absence of the perfect rationality and perfect information that those theorists considered necessary for Pareto efficiency.
Indeed, it is the absence of these conditions that justifies ever more extensive financial engineering, because, if they existed, trades would always be priced correctly, on average, and one would need no financial system at all!
It is the object of financial innovation to make 'previously untradable risks tradable'. Shiller shows how financial inventions (eg, limited liability, stock markets, securitisation, insurance, pensions, mutual funds) have contributed to human wellbeing, and offers his own ideas about how they may continue to do this. For example, the housing market could be made less risky by having continuous work-out mortgages. Instead of issuing debt, governments could issue shares - 'trills' - in the nation's GDP. Tax rates could be set to provide 'inequality insurance'.
Shiller is particularly keen to incentivise good causes. 'Benefit corporations' could specify objectives other than maximising profits; there might be different levels of tax deductibility for various kinds of philanthropic giving; there could be 'participation non-profit organisations', purchase of shares in which would count as charitable contributions, and so on.
As these examples show, Shiller does not rely on markets alone to discover and serve human needs. Government has a vital role in both facilitation and regulation.
Four years after the Great Collapse, a book in praise of finance and its practitioners has an air of both defiance and innocence. But Shiller argues his case skilfully and persistently, and with a wealth of quirky and interesting examples.
The first part, based on lectures to his finance class at Yale, can be highly recommended as a handbook for investors and money managers, as well as for explaining the mysteries of the financial system.
Apart from this descriptive section, Finance and the Good Society is an invitation to argument. First, Shiller ignores the possibility that financial innovation may be subject to diminishing social returns. At the macro level there is no clear correlation between financial intensity and the overall rate of economic expansion. Many countries achieved rapid growth in the period of 'financial repression' from 1945 to the 1970s. Nor have trend growth rates risen after the financial liberalisation of the 1980s. Such considerations have led Adair Turner, a former regulator, to argue that the benefits of financial innovation may vary by stage of development.
Second, Shiller's expectations for finance are closely bound up with his view of why markets fail. His explanation is behavioural. Over large swathes of their lives people act irrationally; their decision-making is subject to wide mood swings ('animal spirits') and herd behaviour. On this view, more 'complete' insurance markets, made possible by information technology, can limit the bad consequences of the erratic flight of the human butterfly. But it may be that our problem is epistemological: there are bound to be too few insurance markets, because much of the future is uninsurable - we don't and cannot know enough about it. If this is so, the programme of salvation through better 'risk management' may be misconceived.
Finally, one is left wondering what Shiller means by the 'good society' of his title. He implies that it is one in which all people have the maximum chance to achieve their goals; indeed, 'finance is the science of goal architecture'. On the content of these goals he has little to say. But, without being more specific about the goals, it is impossible to say how much or what kind of finance, or financial innovation, a society needs.
- Lord Skidelsky's latest book, How Much is Enough? (Allen Lane), co-authored with his son Edward, is out this month.
Finance and the Good Society
Robert J Shiller
Princeton £16.95
VOLTA FINANCE - INTERIM MANAGEMENT STATEMENT MAY 2012 - PR Inside
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Forex: GBP/USD rebounds from session lows - FXStreet.com
Thanks John
- iamnotanumber, north west, England, 02/6/2012 01:31
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