europe

Stock futures down 2 percent, following Europe selloff

September 6, 2011

NEW YORK (Reuters) – Stock futures tumbled more than 2 percent on Monday in electronic trading, hit hard after European markets slumped on renewed fears the euro zone’s sovereign debt crisis is worsening. European stocks fell 4 percent on Monday, with financial shares falling to their lowest in more than 2 years. Wall Street was closed on Monday for a holiday. Italy’s FTSE MIB fell 4.8 percent, on renewed euro zone debt worries, and bond yields on Italian and Spanish government bonds hit their highest levels in nearly a month as pressure mounts on Italy — the euro zone’s third-largest economy — to get rising deficits under control. S&P 500 futures lost 26.10 points, or 2.2 percent, to 1143.30, suggesting a sharp drop at the open of U.S. trading Tuesday morning. Nasdaq 100 futures lost 39.5 points, or 1.8 percent, to 2124.50. (Reporting by David Gaffen; Editing by Carol Bishopric)

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Analysis: Uneven Europe stock selloff leaves islands of value

September 2, 2011

By Simon Jessop LONDON (Reuters) – The great August stock selloff has been far from uniform. Some sectors are now pricing in a far bigger risk of recession than others, leaving islands of potential value for the brave. Current and implied earnings metrics show some cyclical sectors, including chemicals, faring better than defensives such as telecoms, while other cyclicals such as paper have already been sold down to below their post-financial crisis trough. The disparity is “genuinely odd”, said Ian Scott, global head of equity strategy at Nomura, citing the example of the oil sector, where stocks such as Total have passed their post-Lehman collapse price-earnings (P/E) ratio low even though oil has surged in value since then. “The oil price, as a demonstration of the fundamentals of that market, just seems completely inconsistent with where oil company shares are trading,” Scott said . Other cyclicals to have discounted a replay of the post-Lehman conditions “and arguably even something worse” include steel, construction and forestry stocks, Scott said, suggesting these all could be due a bounce if recession fears fail to pan out. StarMine data shows a market-implied five-year annual earnings-per-share growth rate of minus 6.9 percent for paper firms, minus 2 percent for metals and mining stocks and minus 6.1 percent for construction firms, against minus 1.7 percent for the materials sector. In others words, investors are pricing in an average drop in profit of those magnitudes for each year of that five-year period. Stocks trading below their post-Lehman trough on a regular P/E basis include UK oil firm Cairn Energy , on 7.56 times from a low of 20.42, and Finnish papermaker UPM-Kymmene , on 6.87 from 10.96, Thomson Reuters data showed. On a price-to-book ratio, meanwhile, 83 STOXX Europe 600 firms have passed their post-financial-crisis low. But it’s not all one-way traffic. Firms with cyclical earnings that saw material cuts to earnings forecasts in the post-Lehmans trough, but are trading at multiples implying little in the way of a decline in earnings, include some in the luxury goods sector. Examples include Burberry , on 21 times forward earnings, against 6.1 at the trough, and Bulgari , at 33.4 from 10.6. Five-year implied growth for textiles and apparel, meanwhile, is 8.8 percent, StarMine data showed. MACRO VIEW KEY Figuring out which sectors to play and why depends on whether you think equities have bottomed or if there is further to go, and given the sectoral dispersion, value hunters and short-sellers can both find cause to smile. The macro view — and its impact on corporate earnings — is crucial, however, in determining whether August’s double-digit slide, on slowing global growth and euro zone debt crisis concerns, is overdone. “If we avoid a full-scale sovereign crisis, then equities have priced in too much,” said Ryan Hughes, co-portfolio manager at Skandia Investments, which manages 2 billion pounds ($3.2 billion), although “we don’t know if we’re headed for disaster or we’re averting it … hence the uncertainty.” Top-down, the growth outlook is weakening, with the International Monetary Fund the latest to cut forecasts. Set against that are the bottom-up views of many sell-side analysts and a belief that the U.S. Fed will backstop any economic slide. The so-called “Ben Bernanke put” — the monetary policy safety net named after the Fed chairman that some feel will have to kick in as the U.S. nears recession — has yet to be enacted, although he leads a special two-day meeting later this month. While a third round of quantitative easing could arguably justify some short-term positivity — especially given the rally after its second iteration — implied earnings growth in the market suggest bears are in control. Aggregate analyst earnings growth estimates for the STOXX Europe 600 over 12 months remain at 10.6 percent, despite recent company downgrades. A five-year implied growth rate of minus 3.8 percent shows investors are much more pessimistic. Earnings uncertainty is also seen in the STOXX 600 price-to-earnings ratio, which looks cheap versus history at 8.7 times earnings against a 10-year 13.2 times average, although analyst revisions should start to catch up with the weakening GDP view. While P/E could end up showing European stocks to be not quite as cheap as current valuations suggest, it does not necessarily point to a further slide in price, especially if the debt crisis is contained and growth chugs along. “I don’t know that it necessarily needs to fall, it could just do absolutely nothing for a prolonged period of time,” Tom Elliot, global strategist at JPMorgan Asset Management said. “I think people are reluctant to sell for a lack of alternatives,” he said, citing low-yielding Treasuries, frothy gold and a central-bank-defended Swiss franc. Scott, meanwhile, see risks to the upside. “The market’s moved to discount a particular scenario and on my estimation it’s a pretty negative one,” he said, suggesting some recovery “if things evolve and we don’t have an outcome which is as bad as the market’s priced”. (Additional reporting by Angeline Ong; graphics and additional reporting by Scott Barber; Editing by Andrew Callus)

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Google TV to start in Europe in 2012

August 27, 2011

(MENAFN) Google Inc’s Executive Chairman, Eric Schmidt, said that the company would launch its TV service in Europe early next year, despite teething problems that had led some observers to question …

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Analysis: Eurozone bank doubts worse for lack of deposits

August 23, 2011

By David Henry NEW YORK (Reuters) – European banks like Societe Generale and Dexia SA are reeling from bad loans, but they are also suffering from a less obvious problem: their reliance on bond markets to fund operations. Unlike U.S. banks such as JPMorgan Chase & Co and Wells Fargo & Co , which fund a greater percentage of their loans using deposits, investor-owned banks in Europe generally depend more on borrowing in the short-term capital markets. That leaves the European banks exposed to the vagaries of bond investors, who might suddenly demand much higher rates for their money or take it all back and put a bank at the mercy of a government for a bailout Spikes in short-term rates for some European banks in recent weeks have raised fears of just that kind of meltdown. European bank shares tumbled as scared stock investors remembered 2008 when Bear Stearns and Lehman Brothers fell because of lack of ready funds to meet their obligations. The turmoil points to the need for vulnerable European banks to shrink their loan books to sizes more in line with what their deposits can support, or increase their deposit base. Analysts are also calling for more disclosure from the banks around their funding profiles. “European banking has to be rethought and recapitalized,” said one New York-based institutional investor in the money markets who declined to be named because of the risk of alienating clients. These banks find themselves in a corner. Since the 2008 financial crisis, many have been trying hard to raise more deposits, but it is proving to be tough. Deposits for investor-owned banks are more difficult to collect in Europe, where banks owned by local governments or by depositors have tax and cost advantages and a stranglehold on the market, said Michigan State University professor Rocco Huang. Competition for deposits has driven up costs, especially in Spain. Some banks are looking abroad. Dexia has branched into Turkey to get deposits, but one analyst said that might not be sustainable. The history of booming countries shows that such new money is unlikely to be as dependable as deposits in long-established accounts, said Morningstar bank analyst Erin Davis. Dexia declined to comment. RISKY FUNDING At Paris-based Societe Generale, loans are 1.2 times as much as deposits, according to data compiled by Keefe, Bruyette & Woods. Dexia, the Franco-Belgian bank headquartered in Brussels, has 2.5 times as much money out on loan as it has in deposits. At New York-based JPMorgan in comparison, loans use only two-thirds of the money the bank holds in customer deposits. To make up the shortfalls, European banks rely on capital markets, including short-term money markets, which can be risky at times of uncertainty like now. (For graphic, please click on http://r.reuters.com/mez33s ) “In the funding markets, people tend to shoot first and ask questions later,” said Mark Pawlak, a strategist and senior vice president at Keefe, Bruyette & Woods in New York. “There’s a certain amount of that going on now.” Credit default swaps, a kind of insurance against default, on Societe General more than doubled to 303 basis points on August 19 from the 138 points on May 31, according to Markit. The bank’s stock lost 49 percent of its value in the same time. Meanwhile, JPMorgan credit default swaps rose to just 125 basis points from 75 and its stock fell 21 percent. The downdrafts came as big U.S.-based money market funds quit rolling over billions of dollars of short-term loans to European banks. In June and July, the 10 biggest funds took back 18.4 percent, or $70 billion, of the money they had lent to European banks, according to Fitch Ratings. In a sign of how connected global finance is now, many of the funds said they backed out because they needed money in case investors wanted to cash out in the face of a U.S. government default rather than over worries about European banks. The U.S. funds still had 47 percent of their holdings in European bank instruments at the end of July. Still, the retreat of the money market funds forced the banks to replace their dollars, which stressed prices in the dollar-funding markets in a way that suggested that some institutions have had trouble getting funds, said Pawlak. The problem is exacerbated because these banks do not clearly and consistently disclose their liquidity positions, leaving investors to use inadequate proxies such as ratios of loans to deposits and adding to the uncertainty about their health, analysts said. Societe Generale tried to quell fears by giving more details from its balance sheet in an investor presentation on August 3. This past weekend, Chief Executive Frederic Oudea said in an interview in the newspaper Le Journal du Dimanche: “The bank does not have any liquidity problems. Its operations are healthy and its investment resources are intact.” A Societe Generale spokesman declined to comment further for this story. (Reporting by David Henry in New York and Steve Slater in London. Additional reporting by Ross Kerber in Boston, Lionel Laurent in Paris, and Philip Blenkinsop in Brussels; Editing by Paritosh Bansal)

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Oil falls on concern about Germany economy

August 17, 2011

(MENAFN – Saudi Press Agency) Oil fell Tuesday on renewed concerns about Europe’s biggest economy, AP reported. Benchmark West Texas Intermediate crude for September delivery gave up $1.23 to …

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Gemma Godfrey: Europe: Lacking a Long-Term Solution

August 14, 2011

Over the last few days we have seen a tremendous amount of volatility in the markets, epitomizing the lack of clarity with which many investors have struggled. The contagion continues to spread as we hear rumors of a possible downgrade of French government debt although it is far more likely to occur for Italy first. Fundamentally, there is a lack of a long-term solution and the knee-jerk reaction by some EU countries to ban short selling not only misses the point, it may negatively impact the very stocks it is trying to protect. So as we see movement to safe havens , we also see room for opportunistic buying — as long as you invest with those with strong balance sheets unlikely to be hit in future earnings downgrades and have a long enough time horizon to withstand the volatility. Italy and France to be downgraded? The Contagion Continues to Spread The markets are already betting for the ratings agencies to downgrade France’s debt with credit default swap spreads widening to double their level at the beginning of July. A rising expense to insure against default implies the market believes it to be more likely. However, Italy is the more likely downgrade candidate in the short-term. The reasons given behind Portugal’s downgrade a few months back apply equally to Italy — an unsustainable debt burden (Italy has the third largest in the word at €1.8tn ) and a low likelihood of being able to repay these obligations (as it dips back into recession ). The European Financial Stability Fund is losing its credibility since even its increase to €440bn is not enough to cover future potential bailouts and would need to amount to at least €2tn . The crux of the problem, as I’ve iterated before, is that you can’t solve the problem of debt with debt and austerity does not foster growth. Instead debt burdens are increasing at a faster rate than GDP growth in many western economies so the situation is only getting worse. Outlook for banks: Headwinds for banks remain European banks remain highly correlated to the future of the periphery. German banks, for example, have exposure to the PIIGS (Portugal, Ireland, Italy and Spain) amounting to more than 18% of German GDP. Commerzbank revealed that a €760m write-down for Greek debt holdings wiped out their entire Q2 earnings. That’s before we look at France who have an even higher exposure and here in the UK, our banks have nearly £100bn exposed to struggling economies. Furthermore, these banks need to refinance maturing debt (at a rate of €5.4tn over the next 24 months) at higher rates and with demand shrinking . Will the ban on short-selling help? No, it misses the point The markets are concerned with government fiscal credibility not its regulatory might. Instead, the ban could increase volatility and negatively impact the very stocks it is trying to protect. ‘Shorting’ was acknowledged by the Committee of European Securities Regulators as beneficial for “price discovery, liquidity and risk management” just last year, so we may well see higher volatility than we would have without. Secondly, it limits fund ability to bet on financials going up. Hedge funds use shorts to remove market risk, buying shares in one bank and borrowing and selling shares in another. If they are forced to close these ‘borrowed’ positions, they will have to sell the other bank shares they have bought outright, causing further selling pressure and price falls. Most interesting was the timing of the implementation, just before an announcement was made that the Greek economy shrank by 7% in Q2 — fueling fears the ban was needed since there’s more bad news to come . How to trade these markets: Movement to safe haven offering opportunities So how can you invest in these markets? A possible support to the stock markets is the ‘ search for yield ‘. Sitting on cash can’t be satisfying for long, with rates as low as they are, and the dividend yield on the Eurostoxx is now double the 10 year German ‘ bund ‘ yield. This means that even if markets go sideways, the return generated from holding European stocks could be more attractive than either if the other options. In addition, valuations are looking reasonable, at a near 8x forward earnings. Therefore we may see flows returning to the markets. However, be warned, we are starting to see earnings downgrades and volatility may remain. Therefore invest in companies with strong balance sheets and maintain a medium to longer-term time horizon.

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Stocks Suffer In US And Europe As Investors Get Jitters

August 11, 2011

PRESS ASSOCIATION — Stock markets in Europe and the US have tumbled again, a day after a Federal Reserve pledge to keep extremely low interest rates for two more years temporarily calmed investors’ jitters. An initial US surge continued into Asian and European trading sessions, although traders remained nervous after the market turmoil of recent weeks, which has sent many global markets officially into bear market territory – falling 20% from recent peaks. That nervousness became more acute as the US open loomed and European markets gave up all their earlier gains. “So far, panic has eased but fear remains,” said Kit Juckes, an analyst at Societe Generale. Over the past few weeks, markets have suffered a severe reverse amid worries over the US economic recovery and the country’s debt situation in light of a protracted debate in Congress to get the debt ceiling lifted. That contributed to last weekend’s announcement by Standard & Poor’s to downgrade the US’s credit rating for the first time ever. And in a sharp reversal of opinion, economists now believe there is a greater chance of another US recession. The other major market concern is Europe’s debt crisis. Investors have grown increasingly worried that Italy and Spain could become the next European countries to have trouble repaying their debts. Greece, Ireland and Portugal have already received bailout loans because of Europe’s 21-month-old debt crisis. The fears have pushed investors to shun Spanish and Italian bonds, which have led to higher yields and even higher borrowing costs for the two countries. Earlier in Asia, the Shanghai Composite Index rose 0.9% to 2,549.18 and the smaller Shenzhen Composite Index gained 1.4%. Indexes in Taiwan and India also gained. Hong Kong’s Hang Seng jumped 2.3% to 19,783.67. Japanese stocks underperformed somewhat as investors continued to fret over the export-sapping appreciation of the yen. Japan’s Nikkei 225 index climbed 1.1% to close at 9,038.74 as the dollar headed near to post Second World War lows against the yen.

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Countries With Higher Credit Ratings Than The U.S.

August 6, 2011

On Friday, Standard and Poor’s downgraded the credit of the United States for the first time in history, leaving only thirteen countries in the world with a true top-level AAA rating, according to 24/7 Wall St. (Read more 24/7 Wall St. ) Not all credit rating agencies agree with S&P’s downgrade. Indeed, in the days before the S&P downgrade, other rating agencies confirmed their confidence in the ability of the U.S. government to repay their debt. Moody’s has already affirmed the U.S. government’s Aaa rating, but with a negative outlook. Fitch also affirmed its AAA rating for the U.S., but warned that the rising debt profile to over 100% of GDP (after 2012) is not consistent with retaining the crucial AAA sovereign rating. In light of the weakening economy, and following the ratings agency actions, 24/7 Wall St. has decided to reassess the entire global triple-A landscape. Our previous take was that some nations already seemed to be far less deserving of the triple-A rating category than others. The key assumption here is that the U.S. is no longer a true triple-A- rated nation. This implies that other nations with similar conditions are also at risk of losing their triple-A rating, and that there are really far fewer than 17 true nations in the triple-A club now. Our review includes updated figures from Standard & Poor’s and Moody’s along with revised statistics from the CIA World Factbook. We’ve sourced also from the Economist Intelligence Unit, Fitch, Egan Jones, and elsewhere. S&P still has a triple-A rating on Australia, Austria, Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Singapore, Sweden, Switzerland, and the United Kingdom. Other triple-A nations like Guernsey, Isle of Man, Liechtenstein, and Luxembourg we left out due to their small size and dependence upon other nations. Moody’s ratings were also used to make sure that the discrepancies are not overlooked. Read more at 24/7 Wall St. Below are the world’s remaining AAA countries:

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Andrew Pyle: Europe’s Choice: To Capitulate or Decapitate

August 4, 2011

Now that we have scraped through the U.S. debt ceiling drama, leaving in its wake the worst five-day loss for the S&P 500 since May of last year, attention rightly so returns to Europe and its own fiscal woes. Yes, the new debt ceiling agreement has been ratified by Congress and signed by the President, allowing for at least a couple of months of headline freedom from the media (until the bi-partisan ‘super committee’ makes its recommendation on where the remaining deficit cuts should come from). And then it’s a wait until 2013 before we encounter the debt ceiling issue again. During that period, it is quite likely that one or more eurozone countries will clamber up to the trough for another helping of bailout money, putting more even more pressure on a growth-challenged region and the foundation of the euro itself. Unless some tough decisions are taken soon, this will at a minimum create several quarters of volatility as markets gyrate to news from the region. Not to make this too simplistic, but the EU really has only one decision to make and that is whether or not to take the ‘union’ to its logical endgame. Creation of a single currency zone, without the strength of a centralized fiscal power to effect stabilization and redistribution, was never a sound economic idea. It was always a political idea, designed to create and economy with economies of scale and to hopefully right the wrongs of a 20th century which saw the region ripped apart by war. When the euro stumbled out of the gate in 1999 and fell below 90 U.S. cents in 2000-2002, critics wrongly claimed that this was it for the new currency. That, however, was pure market adjustment and nowhere close to the test that Europe faces now. Re-appreciation of the euro over the remainder of the decade was a reflection of not only of a troubled U.S. dollar, but a positive view to economic fundamentals in Europe. And why not? The peripheral countries of the group were presented with sharply lower interest rates to fuel domestic demand. Unfortunately, those countries acted like North American homeowners and disregarded the need for sound foundations, while becoming overly dependent on what were now (in hindsight) artificially low rates for the credit quality of a few of these nations. Investors and rating agencies have become smarter and no longer care where the lowest common denominator rates are in Europe, nor where the ECB sets short-term rates. Market yields have spiked, ratings have been cut and we now have a dislocated economic region. The economic answer is to punt and re-group, with the removal of certain nations from the eurozone group. Give the Greeks their Drachmas, the Irish their Punts and the Portuguese their Escudos. Re-nationalizing outstanding debt will clearly involve a haircut by investors, as these countries devalue to re-ignite their economies, but it looks like haircuts all round anyway. With any luck, this carving out of the worst offenders would prevent the next in line from taking a hit (Spain, Italy, UK, and France). Despite some of the economic arguments in favour of this course of action, politics will forbid it — just like politics drove the euro idea through in the first place. Officials fear the market with good reason and know that one country’s exit will only prompt speculation of additional departures — not an orderly retrenchment, but a vote of non-confidence on the region as a whole. So, if punting is not the option, then Brussels has to drive forward and get members to entertain the idea of a complete union — akin to Canada and the U.S. In other words, a central treasury to complement the European Central Bank and the ability to re-distribute tax revenues from haves to have-nots. Here in Canada, we have taken our federal equalization system for granted, forgetting sometimes that it was responsible for keeping provinces like Newfoundland afloat during challenging economic times. That support inevitably allowed or those provinces to re-engineer themselves and slowly to become non-dependent partners in the economic and fiscal region. True, we’re talking about a project that is ten times the scale of Canada’s, but not unattainable either. The problem is that this next stage of evolution will take time and patience — something that investors don’t have in abundance. In the meantime, we need to be cautious as to where our European equity exposures are (no Greece, for example) and that goes for bonds as well. As for the currency, it is unlikely that the euro will be able to sustain levels between US$1.40-1.50 if the fiscal drag on the region builds. Ironically, some calm in Washington over the U.S. debt situation might allow for the U.S. dollar to regain some strength and allow the euro to weaken (and hopefully stimulate export demand for the region). This would be the wrong focus for Brussels. Better to swallow the pride and whatever pain killers are needed and look for a deeper and longer-lasting solution.

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Germany- VW net leaps more than three-fold

July 30, 2011

(MENAFN) Volkswagen, Europe’s biggest car maker, said that net profit tripled in both the second quarter and first half of the year, but VW shares crashed in midday trading nonetheless. A VW …

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Greece’s Dismal Economy Leaves Some Feeling They’ve Lost ‘Quality As A People’

July 29, 2011

A sovereign debt crisis has left Greece with riots and the worst credit rating in the world. And day-to-day life outside the capital can be equally dismal. Some Greeks living near the ruins of Athens’ ancient rival city Sparta feel they are paying the price for the choices made by politicians in the capital, BBC World reports. Small business owners across multiple industries say they are barely surviving even though the government’s latest round of austerity measures has yet to take effect. From pastry chefs to orange farmers to luxury furniture salesman, times are tough and the outlook does not look good — that’s if you’re lucky enough to even have a job with unemployment ratings rising 40 percent in March. And maybe worse, the joblessness casts a pessimistic malaise even over the most qualified of Greek citizens. “You lose your quality as a people, as a citizen,” one business school graduate who was forced to move back in with his parents after losing his job in Athens told BBC World. “Because you can’t offer [anything] in the community, you can’t offer [anything] for yourself, for your family.”

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Greece’s Prime Minister: ‘It Is Time For Europe To Wake Up’

July 16, 2011

ATHENS, July 16 (Reuters) – Greece’s Prime Minister George Papandreou ruled out bankruptcy for his debt-choked country and said it was time for Europe to wake up and take brave decisions, according to a newspaper interview to be published on Sunday. Ahead of a summit of euro zone leaders on July 21 to discuss a second bailout for Greece, Papandreou said his government had taken the necessary decisions, however difficult they were, to deal with the crisis, and it was Europe’s turn to do the same. “We managed not to let Greece go bankrupt, and neither will it go bankrupt,” Papandreou was quoted as saying by Greek newspaper Kathimerini, referring to whether credit rating agencies could find Greek debt to be in “selective default.” “For a year and a half now, I’ve been continuously reiterating to our partners that we must collectively take brave decisions, not just for the future of Greece but of Europe as a whole. It is time for Europe to wake up,” he added. With sovereign debt jitters having reached Italy, the euro zone’s third-largest economy, Europe’s leaders are struggling to agree on how to provide new aid for Greece to prevent contagion from spreading further in financial markets. Papandreou said that several of the options that he had suggested and were rejected a year and a half ago, such as buying back debt, issuing common euro zone bonds and keeping credit rating agencies in check, were now on Europe’s negotiating table. “In an ultraconservative Europe, I would even say phobic, the truth is it took time for these thoughts to mature with our partners and for them to be convinced that these proposals are not an alibi in order to avoid our own responsibilities,” Papandreou said in the interview. Greece’s total outstanding debt is around 370 billion euros ($523 billion). Most economists regard the debt burden, at around 160 percent of gross domestic product, to be unsustainable as it stifles growth, with the economy seen contracting by nearly 4 percent this year after a 4.5 percent slump last year. “Now everybody understands that Greece needs to be helped to exit recession as soon as possible. The relevant negotiations are making progress, and I hope they are completed as soon as possible,” Papandreou said. A bond buyback is more likely than the other options that euro zone finance ministers have discussed and would allow Greece to cut its public debt by 20 billion euros if purchases were made at market prices, German magazine der Spiegel said on Saturday. (Reporting by Greg Roumeliotis, editing by Jane Baird) Copyright 2011 Thomson Reuters. Click for Restrictions .

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iPhone Customers Gear Up For Class Action Suit Against Apple

July 16, 2011

SEOUL, South Korea — A South Korean lawyer who is an avid user of the iPhone is waging a privacy battle against Apple Inc. over the device’s tracking capabilities. Kim Hyeong-seok said Friday he has gotten at least 16,000 people in South Korea to join him in a class-action lawsuit he plans to file against the company in a Seoul court in early August. The 36-year-old international trade and business attorney has already gotten Apple’s Korean unit to pay him 1 million won ($945) over a lawsuit he took to a regional South Korean court in April. His complaint was that the iPhone’s tracking of users’ locations violated South Korea’s constitutional right to privacy and also caused him “mental stress.” That hasn’t stopped him from continuing to use his iPhone 4 as well as an iPad. “I like Apple,” Kim said in a phone interview from his office in the city of Changwon, located about 240 miles (380 kilometers) southeast of Seoul. In fact, Kim says he is afflicted with “Apple mania.” But he adds his legal fight is about “right or wrong.” Apple spokesman Steve Park in Seoul could not immediately be reached for comment. Kim said that he plans to file the class-action lawsuit in Seoul sometime during the first three days of August and that the targets will be both Apple Korea as well as Cupertino, California-based Apple Inc. The suit will seek 1 million won in damages for each participant, he said. Kim’s fight comes as the iPhone has shaken up the South Korean mobile phone market since it went on sale in November 2009. The phone has unleashed a smartphone war and prompted local companies Samsung Electronics Co. and LG Electronics Inc. to raise their games. Samsung has challenged the iPhone with its Galaxy line of Android-based smartphones while LG has been pushing its Optimus line. Kim began his legal fight in April after reading that iPhones could store data which could potentially be used to track the movements of users. He filed a lawsuit in the local Changwon District Court seeking damages. Kim said the court ruled in his favor in May and awarded him the monetary damage he sought. The company did not contest the ruling and Apple Korea paid the money on June 27, Kim said. A Changwon District Court spokesman confirmed the ruling and payment. Kim said he believes the payment was the first Apple has made anywhere in the world regarding the tracking issue, which surfaced in April. South Korea’s Yonhap news agency reported it was the first in South Korea. Apple admitted that iPhones were storing the locations of nearby cellphone towers and Wi-Fi hot spots for up to a year. Such data can be used to create a rough map of the device owner’s movements. Apple also faces another legal challenge in South Korea. A total of 29 iPhone users filed a class-action lawsuit over the tracking issue in late April, Yonhap news agency reported. __ Associated Press writer May Cho contributed to this report.

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Senate Republicans Weigh Anti-Obama Resolution

July 12, 2011

WASHINGTON — Senate Republicans are considering a “resolution of disapproval” to express their displeasure with President Barack Obama’s stand on debt negotiations that are growing increasingly testy. The GOP senators were meeting in the Capitol on Tuesday ahead of a planned afternoon announcement. Senate Republican leader Mitch McConnell blasted Obama in an earlier speech. He said a solution to the debt problem seems unattainable so long as Obama is president. A Senate “resolution of disapproval” can be used to overturn federal rules. But passage of a resolution criticizing Obama on the debt seems unlikely in the Democratic-controlled Senate. The plans were outlined by Senate insiders who spoke on the condition of anonymity because the plan has not been formally announced.

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Catholics Look Into Buying Crystal Cathedral

July 8, 2011

By Adelle M. Banks Religion News Service (RNS) The Crystal Cathedral, which has put its iconic campus up for sale to end a bankruptcy crisis, has an interested party that needs a large cathedral: the Roman Catholic Diocese of Orange, Calif. The diocese — the nation’s 11th largest — does not have its own cathedral but has studied the option to build one in nearby Santa Ana, Calif. While that study is ongoing, “it is prudent to evaluate the opportunity to engage in the pending auction of this property and to mitigate the chance that it cease to function as a place of worship, if acquired by others,” said Orange Bishop Tod Brown in a Wednesday (July 6) statement. Marc Winthrop, the lawyer representing the Crystal Cathedral in its bankruptcy case, told the Orange County Register that inquiries from various parties are coming in daily. “The diocese would obviously buy the property to use it for themselves, which will be a big impediment as far as the Crystal Cathedral is concerned,” he told the newspaper. Other prospective buyers — including a development company and nearby Chapman University — plan to offer the cathedral a leaseback program that would allow it to continue worship services in the renowned glass-walled edifice. In recent years, the church has been mired in family, leadership and financial problems. It owed $7.5 million to creditors when it filed for bankruptcy protection last October. On Monday, it announced that founder Robert H. Schuller had been removed from a voting position on its board.

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European Union Cracks Down On Mobile Roaming Charges To Spur Competition

July 6, 2011

(AP) BRUSSELS — The European Union is introducing new rules that would make it cheaper to use mobile and smartphones abroad. The proposals from the EU’s executive Commission Wednesday seek to spur competition among providers and put new caps on roaming charges. For the first time, the EU is slapping caps on the price individuals have to pay for going online from a smartphone or tablet computer when moving from one country to another. The EU is made up of 27 countries. The European Commission also said that from July 2014 operators will have to open their networks to providers from another EU state, which would give consumers more providers to choose from. At the same time, consumers will be able to sign a separate roaming contract, allowing them to take advantage of cheaper offers when moving about. The new rules will kick in when the bloc’s existing regulation on mobile roaming expires at the end of June next year. While the current rules have forced the price of making calls down to 35 euro cents (about 50 U.S. cents) a minute when traveling in another EU country and kept a lid on the cost of receiving calls and sending text messages, the Commission believes that charges remain way too high. The Commission’s goal is to bring roaming prices in line with national ones by 2015, an important step in getting the 27-country bloc closer together and spurring business and freedom of movement in the EU’s internal market. The new rules would also apply in non-EU states Iceland, Liechtenstein and Norway. “This proposal tackles the root cause of the problem – the lack of competition on roaming markets – by giving customers more choice and by giving alternative operators easier access to the roaming market,” Neelie Kroes, who is in charge of the EU’s digital agenda, said in a statement. For the first time, the rules would also cap the price of going online from a smartphone or tablet computer. Using mobile Internet in another EU country can quickly drive up phone bills, with prices for downloading one megabyte of data averaging euro2.23 ($3.22) but sometimes going up to euro12 ($17.35), according to the Commission. One megabyte is equivalent to about 100 e-mails without attachments or a few seconds of streaming video online. Under the new proposal, charges for data roaming would have to come down to 90 cents a megabyte by July next year and sink to 50 cents by 2014. By that date, the price of making calls would be capped at 24 cents a minute, while incoming calls and text messages would cost 10 cents. At the center of the Commission’s proposals are efforts to increase competition between providers. From July 2014, operators will have to open their networks to providers from another EU state, which would give consumers more services to choose from. At the same time, consumers will be able to sign a separate roaming contract, allowing them to take advantage of cheaper offers from a different provider while keeping their regular number and SIM card. The Commission believes that more competition is the best way of forcing operators to bring down prices and stop price ceilings from effectively becoming price floors. The new rules still have to be approved by EU states and the European Parliament.

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Vivian Norris: Dominique Strauss Kahn, the Missing Cell Phone, Women and the Timing

July 1, 2011

Finally we can speak about what is really at stake in the DSK case. More information is coming out, one day after the new IMF head if officially named, is this also a coincidence? And while we do not know the outcome, nor were any of us in that hotel room, (and yes maids are confronted with horrific sexual advances and worse all the time by clients of hotels all over the world and that needs to stop) we are not naïve children and what is at stake here is not simply one woman’s reputation and well-being, nor the Presidency of France, it is much bigger than that. The world is changing dramatically. The West is losing its dominance and many forces are at work as a new rebalancing process of power and wealth tilts us in varying directions. The metaphor of an African immigrant coming to America, looking for a better life, is now turning into a nightmare of lost dreams and deceit. The Sofitel maid’s veracity is being questioned, her background now seems to include money laundering, boyfriends linked to drugs, lies on her application for admittance to the US of A. So what’s new? Look into anyone’s background enough and you will come up with something not so nice. This is about power and a shifting balance of power. It also became a story about the powerful versus the powerless. And it is still, whatever the outcome, a story of women and men and the sad reality of how the former will continue to be depicted by what the latter finds them good for…sex. If this was a set up, why did an intelligent man, just about to announce his run for Presidency, in one of the most important jobs in the world, not see through it? Or did he feel his position would allow him to do what he wished because he was so powerful? Or even more disturbing, did he even think about it, or was it so the norm in his world that he did not have to worry? This story is about Narcissism, the idea that we in the West, can actually still control things. We cannot. The dominance is over. We have to live in a world in which power is not only shared, sometimes we are going to lose. We can dig up yet another reason to go bomb the hell out of a country, but the reality is, we need to approach this shifting world with dignity, respect for others and integrity, not with final, desperate grasps at power which will then be taken from us forcibly if we do not pay attention. Reading an article about the DSK case a few days ago, one thing struck me as glaringly disturbing. The missing cell phone, the one he called the hotel about at least three times, demanded that it be brought to the airport several times, and sent his step daughter to crawl around on the ground with an employee of the restaurant McCormick and Schmick’s to look for, was one of several phones DSK had with him. Why would a man who supposedly had violently attacked a woman for sexual favors keep calling the hotel where the alleged crime occurred, asking for his cell phone? Why would he assume that when the people asked for him at the entrance to the Air France plane at JFK, that they were there to return his precious phone (and not arrest him)? Because it was the phone used for official IMF business. Sorry, but this time the conspiracy theorists have a lot in their favor. That phone had information in it which was not only highly confidential, surely had exchanges which would foretell the direction the IMF, banks and others would take in the days and weeks to come, heck, it was worth a fortune. The question we should all be asking is, “Why now?” Why, just prior to major decisions about Greece, the euro, a possible domino effect which could bring down major banks, add to the already crippling financial crisis and ultimately shift in the balance of power and money, does something like this come out? Who had access to the important information in that phone? The information was worth enormous amounts to banks, hedge funds, sovereign wealth funds, heads of state, who were all hanging on edge, waiting to see what the next steps would be regarding a possible domino effect if Greece defaulted, if the euro was saved, etc. The numbers called, messages and emails sent and received, including vital information and strategies and perhaps even what was going to happen the following day as DSK joined Merkel to discuss the future of, well, the world’s economy, were all in that cell phone. I have been listening to the French mostly saying that this was a set up, all while admitting that sex was involved. No one once said to me that DSK did not have sex with the woman. They said he confused her with his “regular woman” or that he stayed in that hotel because they knew to send him women etc etc (some of this dinner banter came from a former head of Accor in charge of the hotel where DSK stayed). No the French were never naïve about the sex part, they sort of assumed it as normal. Violence, perhaps not, but the sex part is never questioned. And while I am actually happy that this case has brought a very important topic to the forefront here in France, sexism and the use of power to basically keep women from important posts, (heck, perhaps the feminists set him up…all to get a woman into one of the most powerful positions in the world), we have to admit that there was a lot of money to be made and lost based on the decisions DSK and the IMF are making. The IMF has a lot of critics, not least in the developing world, where it is often seen as a way to keep the West in control of the developing economies (which are doing much better than the West at the moment thus the unusual situation of countries from the once wealthy West turning to the IMF for help). I like a lot of things Christine Lagarde has said, even if I politically have a hard time stomaching what the government she belongs to stands for, but as a woman, I like her directness. I like the fact that she and Angela Merkel seem to create a united front. As a woman, it feels good to see women making decisions. But the question we should all be asking now is, not only, “Who gets to buy Mykonos”? But, how will the IMF’s actions in the days and weeks ahead either strengthen or undermine the inevitable shift of power and wealth, not only into the hands of what has become the most outrageous concentration of wealth in history, Who benefits from the situation? Private interests? Those billionaires being driven around Greece in vans while at a conference hosted by Steve Forbes while Athens was burning a few weeks ago looking at properties to be potentially privatized? DSK’s Achilles’ heel is sex, he said so himself. And it is not by chance that the financial Achilles’ heel in Europe, is also the cultural birthplace of much of what the West stands for, Greece. As protesters place banners declaring their anger, symbolically on the Parthenon, so too will those in whose hands great wealth have accumulated, accumulate even more, and they will, perhaps, buy the Parthenon. What is missing in all this mess are the great minds, those philosophical giants, asking us to go down to the port of Piraeus and ask ourselves some very poignant questions. They all got lost on the way, or even worse, stopped off for a Starbucks and never made it to the place where they would offer prayers to the goddess. And when the goddess is forgotten, she becomes really angry. Imagine if we had cared about Plato and Socrates’ sexual activities? There would be no West to speak of; it would have ended before it began. But they knew well enough to respect the goddess. I am hopeful. We are placing more women in positions of power. This will change everything.

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European Banks, Finance Officials Discuss New Greek Rollover Plan

June 24, 2011

LONDON/FRANKFURT (Alex Chambers, Jonathan Gould and Philipp Halstrick) – European banks and finance officials are discussing a proposal to replace existing Greek debt with a different type of bond to get around ratings agencies’ reservations about a planned rollover, two senior European banking sources said on Friday. The proposal foresees a voluntary rollover of debt into securities of a different and not comparable credit composition to avoid agencies moving Greece to default status, the sources told Reuters on Friday. “Only by a completely different composition of the bonds would the rating agencies see the restructuring as voluntary and not declare Greece insolvent,” said one senior banker. Banks, insurers and national finance officials have held meetings this week to seek a solution to Greece’s sovereign debt crisis. A senior German banking source said that banks were still examining a variety of proposals and that they would not agree to commit to any rollover deal without a signal from ratings agencies that there would be no default. French President Nicolas Sarkozy said on Friday that French banks and insurance companies were willing to participate in a voluntary rollover of Greek debt. German private creditors have been asked by the country’s finance ministry to submit data on their Greek exposure and their intentions to roll over the debt by early next week, two other sources familiar with the meetings said. Euro zone governments are discussing a second bailout package for Greece that would run from 2011 to 2014 and could amount to 120 billion euros ($170 billion) , including up to 30 billion euros from the private sector. Germany and France, along with Greek banks themselves, are the biggest holders of Greek state debt and therefore most exposed to any default. There has been rising pressure in countries like Germany, Finland and the Netherlands for aggressive steps to force banks to share the burden of a new aid package, after taxpayers coughed up all of the money in the previous round. (Editing by Patrick Graham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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As Greece Teeters Closer To Default, Investors Bet On Political Will For Preserving European Union

June 21, 2011

As Greece teetered closer to the precipice of government default, investors appeared to come to the conclusion on Monday that although the troubled country probably will receive help from Europe and avoid a sudden default, it will be forced to restructure its debt soon. As the cost of insuring Greek debt continued to skyrocket on Monday, the euro wavered; U.S. markets modestly rose; and European markets modestly fell. As traders weighed the news of Europe’s ultimatum to Greece to slash its budget by July 3 or risk defaulting — just as Greece’s political leadership faces a vote of no confidence tomorrow — the markets ultimately wagered that even though Greece probably will not be able to pay back its investors in full, it probably will be able to avoid a sudden default that would pose an existential threat to the European Union. “They [European leaders] do not want this grand experiment — bringing together Europe into a single common market and single currency — they do not want that to fail,” said Nariman Behravesh, chief economist at IHS Global Insight. “That is the thing they are all trying to avoid, and they will.” “It’s amazing how impending crisis can focus minds,” Behravesh added. “There are ways out. It does not have to end in a meltdown. It doesn’t. Europe is a rich region; they’ve got the money. The issue is the political part.” Mark Vitner, a senior economist at Wells Fargo, called the situation a game of chicken between the Greeks and the large European banks holding Greek debt. “It will come to whatever the ultimate deadline is; it always seems to,” he said. Some economists expressed less confidence in Greece’s ability to pull itself away from the brink of default, which could threaten the American economic recovery . Jay Bryson, a global economist at Wells Fargo, said that there is a “50/50″ chance that Greece will pass its required austerity measures and restructure its debt in a less damaging way. If the country does not implement sufficient budget cuts, it will be forced to default within the next couple of months. Bryson said that it makes sense for European leaders to force the issue now. “If these guys [Greek leaders] really truly are insolvent, you’re probably better off restructuring the debt at this point than giving them even more money,” he said. Gary Burtless, an economist at the Brookings Institution, pointed to the very high cost of insuring Greek debt as a sign that investors fear that the government will not be able to pay its obligations back in full. “There’s a very widespread fear in the market that these bonds are not going to be repaid on time and at the interest rate that is stated on the face of the bonds,” Burtless said. Scott MacDonald, head of research at Aladdin Capital LLC, said: “The market expects there to be a huge discount to Greek paper”: an expectation that could become a self-fulfilling prophecy. “You reach a stage where it becomes very, very difficult to climb back off the ledge, and I don’t know if we can climb back off the ledge here,” MacDonald said. “It depends on how they default.”

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Greece Faces Power Outages Due To Austerity Strike

June 20, 2011

ATHENS, Greece — Greece faced power outages on Monday as employees at the main power utility began 48-hour rolling strikes to protest the company’s privatization, part of austerity plans needed to avoid a national debt default. The sell-off of state assets in the power company is a major step in a euro50 billion ($71 billion) privatization drive that must be completed by 2015. It is part of highly unpopular austerity plans, including more tax hikes and spending cuts, that must be passed by Parliament by the end of the month if Greece is to get the next euro12 billion installment of its euro110 billion bailout next month. Without the funds, Greece will be unable to pay its debts as of the middle of July, triggering a default that would rock financial markets in Europe and abroad. The power company, known by its acronym DEH, said nine small and large thermoelectric units were already offline as of Monday morning due to the strike, and appealed to consumers to limit their use of electricity, particularly during the midday heat, when air conditioning use is at its peak. It said it was preparing hour-long power cuts in several areas if that became necessary. Greece has seen near-daily protests against the belt-tightening that has slashed salaries and pensions in an attempt to stem a ballooning national debt. “We are on strike because, believe it or not, I feel that they – the government and its measures – have taken my smile away, have robbed me of my life as well as my children’s future,” said electrician Giorgos Maleskos. “My only income comes from this job. After 33 years of work, we have got to the point of wondering if we will be able to survive.” The start of the strike came as Greece’s new finance minister, Evangelos Venizelos, was meeting his colleagues from the eurozone in Luxembourg for a second day. Talks overnight did not produce a final agreement on the next installment of rescue loans or on a broader, second bailout expected in cooperation with the International Monetary Fund. The country’s embattled prime minister, George Papandreou, was also heading to Brussels for meetings with EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso later Monday. On Tuesday, Papandreou faces a vital confidence vote in the new government he announced on Friday, when he reshuffled his cabinet amid a major political crisis. Talks between Papandreou and the head of the conservative opposition party, Antonis Samaras, on forming a coalition government had collapsed two days earlier while an anti-austerity rally and demonstration degenerated into riots on the streets of Athens. Facing a mountain of debt coupled with a massive budget deficit, Greece was granted the euro110 billion package of rescue loans in May 2010 to prevent it from defaulting on its debts. In return, it has been passing strict budget cuts and tax hikes in an effort to reform its economy. But the cuts have led to a recession, and the country is now in negotiations for a second bailout – which Papandreou said Sunday would be roughly the same size as the first. European officials fear a default by Greece could set off a chain reaction that would shake Europe’s banking system and economy, and drag down other financially troubled eurozone countries such as Portugal, Ireland and Spain. Both Portugal and Ireland have also taken bailouts since Greece did. While European officials concede another bailout is needed, they have not agreed on the conditions.

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Robert Lenzner: The Contagion of Write-Offs in Europe

June 19, 2011

There must be a contagion of write-offs, sooner or later. Take Greece for example; its 2 year notes are yielding over 29%, but the institutions holding that debt are still valuing the paper at 100 cents on the dollar. And that’s just Greece, a small nation on the eastern border of Europe. What about the debt of Ireland, Portugal and Spain, not to mention Italy, whose impeccable AA credit rating was just lowered a notch? We are talking about a contagion that Tyler Durden of Zero Hedge suggests is part of narrative in the new financial crisis drama entitled ” The Countdown to Sovereign Debt Write-offs Has Started .” Who, pray tell, has the exposure to the debt issued by the most troubled European nations? On December 14, 2010, Streettalk (that’s me), using a Bank of International Settlements report, discovered the humungous $1.5 trillion Greece, Ireland, Portugal and Spain owed to all European banks. Those 4 nations also owed $353 billion to US banks. Total owed: $1.853 trillion. Of this $1.853 trillion, some $668 billion was somehow related to derivative exposures (exactly how was not made clear enough for me in the BIS report.) Luckily for me, a Columbia University economist, Charles Calomiris, got in touch with some incredibly worrisome breakdown of the relationship of these loans to the GDPs of the nations extending the credit. French banks had lent 9% of France’s GDP to Spain; Dutch banks fully 16.4% of Holland’s GDP to Spain; and Portugal’s banks: 13% of Portugal’s GDP to Spain. German banks had lent 12% of the German GDP to Ireland and Spain British banking giants Barclays and HSBC had lent 9.4% of the UK GDP to Ireland and another 5.7% to Spain. The Greek contagion has already made insolvent the Greek banks, while 3 French banks may have their credit ratings reduced. As the securities of Portugal and Ireland decline in price and rise in apparent yield, it raises significantly the issue of marking to market the holders of Portuguese and Irish loans, which are also being carried at par. Contage another step to the sovereign debt of Spain and Italy, where yields are rising, and the premium cost for insuring against default gets higher every day. What happens if there is further weakness in Spanish real estate or trouble at the Italian banks, suggests Edward Harrison of the Credit Writedowns blog. You can see how the chain could continue from nation to nation, from bank system to bank system, from central bank to central bank. It makes me think of the rolling financial crisis that began with the meltdown of subprime mortgage backed bonds, moved to Alternative A mortgages, then to prime, and onto LBO loans, and money market funds — culminating in the end of Bear Stearns, Lehman Brothers and causing shotgun marriages of Wachovia, Merrill Lynch and the massive bailout of AIG. What then happens to the fragile US banks that either own $350 billion European sovereign debt, or purchased credit default swaps to protect themselves. How will all this transatlantic web of relationships be resolved, unwound, stabilized? I’m exhausted just writing

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As Greek Default Becomes Increasingly Likely, Investors Flee to Safer Investments

June 16, 2011

Stock prices around the world have fallen sharply in response to the growing likelihood that the Greek government could default on its debt and plunge the European economy into a recession, endangering the euro and infecting the global economy. Greek stocks plummeted Thursday, dragging down stocks across Europe. Greece’s ASE index declined 2.8 percent Thursday, and the Stoxx Europe 600 index closed down 0.5 percent. Meanwhile, the value of the euro fell to a record low , and the yield on bonds of more indebted European countries rose, according to Bloomberg and Reuters. Markets far outside of Europe reacted negatively to the news. Latin American currencies fell against the dollar, since the dollar generally is viewed as a safe investment during uncertain times. In Asia, Hong Kong’s Hang Seng index fell 1.7 percent Thursday, Japan’s Nikkei Stock Average ended down 1.7 percent, and Australia’s S&P/ASX 200 fell 1.9 percent, according to Dow Jones Newswires . U.S. stock market shares fell sharply on Wednesday, though the fall softened on Thursday as investors viewed the United States as an increasingly safer gamble than Europe. The Dow Jones Industrial Average rose 63 points on Thursday after tumbling more than 200 points, or 1.5 percent, Wednesday. U.S. banks have minimized their exposure to the Greek debt crisis during the past year, according to Reuters , and the value of the dollar has risen substantially against the euro. Overall, investors have been moving away from stocks into less risky investments , such as the dollar. With Greece locked in a political crisis over whether to impose new budget cuts, investors increasingly are betting that the country will default. The cost of insuring a Greek default has reached an all-time high , as investors wager that Greece does not have the political will to agree on debt reduction measures in time to qualify for another round of bailouts from the European Union. If that happens, Greece likely would default by mid-July . After failing to establish a unity government to address Greece’s debt crisis, George Papandreou, the prime minister of Greece, offered to step aside as long as the center-right opposition party could agree to a new bailout plan to Greece, which it still opposes. The Socialist Party, which he leads, has become increasingly fractured as the Parliament and Greece remain similarly divided. Adding to the sense of turmoil, the ratings agency Moody’s Investors Service threatened on Wednesday to downgrade the rating of major French banks because of their exposure to Greek debt: a move that could cause a crisis in confidence across Europe. French bank shares have fallen in response. In the only sliver of good news from Europe, the European Union said it would be willing to give Greece an emergency $17 billion bailout by early July so that Greece does not run out of cash right away to pay its creditors. Greece’s political crisis has raised questions about whether the euro, and the European Union with it, can survive. If Greece defaults, it could cripple market confidence like the collapse of Lehman Brothers did in the fall of 2008. A Greek default would cause interest rates to escalate, which in turn could pressure European countries with larger debt burdens into default, send European banks into failure, freeze lending, dry up the cycle of buying and producing that keeps people employed and put the European Union in danger of dissolving. As a result, many investors around the world are hedging their bets and selling their stocks. A default by the Greek government would start a negative chain reaction forcing lenders to suffer serious losses, according to the Associated Press , and it would scare away lenders “for a very long time,” European Central Bank Governing Council member Christian Noyer said on Wednesday. Michael T. Darda, chief economist at the investment research firm MKM Partners, wrote in a report today that as interest rates spike, Greece is becoming more likely to default, an event that would make it much more likely for Portugal, Ireland, Italy and Spain to declare bankruptcy as interest rates rise even higher. Defaults in Spain and Italy then would trigger a credit crisis, causing major European banks to fail, and contracts written insuring against European countries’ defaults would endanger the financial institutions that wrote the insurance. Bank runs could ripple across European Union, as frightened investors rush to cash both their stocks and bank deposits, causing banks to fail and stock values to fall. The value of the euro would decline. “If deposits begin to flee and a ‘bank run’ ensues, it will be difficult for the ECB to stop,” Darda wrote, emphasizing that the European Central Bank’s current policy to decrease the supply of cash in the economy, in order to prevent the possibility of inflation, “makes no sense” in the current crisis. If enough countries and banks fail as a result of a European bank run, the euro itself would be in danger of dissolving — and the European Union with it. If Europe enters another recession, it would weigh down to some extent on the global economy, since Europeans would be buying fewer imports, producing fewer exports, hiring fewer people, inventing fewer technological breakthroughs and lending less. Such a contraction could spread to the United States and around the world.

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The Summer Forecast For Commercial Real Estate | The Oakstone …

June 4, 2011

Commercial real estate markets, like the broader economy, are approaching midyear on their firmest footing since before the onset of the recession, with property fundamentals improving across an increasing range of markets and property types. … The potential for the sovereign debt crisis to spread remains a key threat to stability, however. If resulting shifts in bond markets and austerity plans remain reasonably well-contained, Europe's challenges will …

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$969m top bid for Boon Lay Way site « mypropertyblog

June 3, 2011

The third highest bid of $785.1 million or $820 psf ppr came from a Keppel Land-led joint venture together with Perennial Real Estate . Other participants in the tender were Frasers Centrepoint, … CMA, CMT and CapitaLand’s wholly-owned unit, CapitaLand Commercial , submitted their bid through JG Trustee and JG2 Trustee in a joint venture . CMA holds a 50 per cent stake in the venture, CMT has a 30 per cent stake, and CapitaLand owns a 20 per cent stake. …

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Awaiting the services PMI from Europe, but the spotlight is on the U.S. non-farm payrolls

June 3, 2011

Awaiting the services PMI from Europe, but the spotlight is on the U.S. non-farm payrolls

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Robert Zevin: The Consequences of the Slow-Moving European Debt Crisis

June 2, 2011

In Europe, the policies of retrenchment that have been imposed upon Greece and Ireland have begun to produce their inevitable consequences: contracting economies, rising unemployment and social turmoil, falling tax revenues, rising deficits and rapidly rising ratios of debt to national income, the exact opposite of the purported aims of precisely these same policies. Equally predictably, this combination of events has led the Greek government to seek, behind the thinnest veil of “secrecy,” a restructuring of its debt obligations, presumably to delay the substantial maturities of the next few years into the more distant future. Academic economists, newspaper columnists and these commentaries have pointed out that a prompt restructuring would be the least painful alternative. However, banks throughout Europe, which own substantial amounts of sovereign debt from Greece and other troubled countries, along with the European Central Bank (ECB), which now also owns a very large amount of these bonds, have argued strongly against contemplating any kind of restructuring or default, at least for another year or two. Worse yet, the European Central Bank has threatened to turn a restructuring into a cataclysm by immediately refusing to recognize any Greek debt, or the debt of any other country that restructures, as collateral for loans to banks from the ECB. The effect of such a collision would be to make nearly every bank in Greece immediately insolvent, to make many other major banks in Europe drastically undercapitalized, and, as is often the case in head-on collisions, to destroy more than half of the capital of the ECB itself, along with the Greek banks. The governments of Germany, France and the UK continue to be paralyzed when it comes to any effective or coordinated responses to these problems. The banks are fighting their usual good fight to be bailed out. They want the ECB and economically strongest European governments to support the markets for weak sovereign debts, to extend new loans and guarantees to weak peripheral country governments and to protect the bonds the banks already own against any consequences of a default, should one occur. Over the past fourteen months, Europeans have been more skeptical than their American counterparts of the various wishful solutions and glittering grand agreements that have been paraded before them. Perhaps in the next few weeks, certainly in the next few years, we will see some combination of debt defaults or restructurings in Greece and probably Ireland and Portugal; a widespread banking crisis in much of Europe; and a gradual dissolution of the Euro zone, one country at a time. Some aspects of a unified Europe will survive, but the curtain will have fallen on the world’s longest-running and most inspiring vision of a world beyond industrial expansion and beyond war.

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Europe’s Top Financial Cop: White House Not Doing Enough To Curb Banker Bonuses

June 1, 2011

WASHINGTON — The U.S. isn’t doing enough to curtail excessive banker bonuses, Europe’s top financial regulator told the Obama administration in a recently-disclosed letter. “I think you agree with me that ‘bankers’ bonuses’ is a matter that continues to cause public outrage,” Michel Barnier, the European commissioner overseeing finance, wrote to Treasury Secretary Timothy Geithner. “Getting this matter right is key to restoring our citizens’ confidence in the financial system — and ultimately — their confidence in the public authorities regulating the financial institutions.” Lavish compensation paid to traders and bankers during the housing-driven bubble fueled risk-taking at the nation’s largest financial firms, experts have said. Those risks eventually led to the collapse of storied firms, the near-collapse of the financial system and the most punishing economic downturn since the Great Depression. Yet bonuses were never recouped. Individual traders made off with tens of millions of dollars, and chief executives of failed firms and those rescued by taxpayers left with hundreds of millions. To prevent further occurrences, the European Union moved to restrict cash bonuses for executives and risk-takers at banks and other financial institutions. The U.S., however, has been loathe to do so, and is moving slowly in implementing the resulting rules enacted into law last year, charged Barnier, as the Financial Times first reported. U.S. regulators are leaving “too much latitude” to financial firms, which allows them to potentially “circumvent globally-agreed principles,” Barnier wrote to Geithner. Two years ago, leaders of the 20 leading industrialized nations agreed to curb bonus-fueled risk-taking during a summit in Pittsburgh. But while Europe charged ahead with creating hard rules restricting specific pay packages, the U.S. approach gives bank regulators great latitude in determining what’s appropriate — a power such organizations have held since 1995. Regulators have also lumbered along in creating rules designed to rein in risk-taking, having yet to formally implement pay rules lawmakers called for in passing the financial reform bill known as Dodd-Frank. U.S. bank and securities regulators proposed a rule earlier this year that calls for firms to defer at least 50 percent of executive officers’ annual incentive-based pay (commonly known as bonuses) for at least three years. It also seeks to prohibit pay schemes that lead to “excessive” compensation and packages that “could lead to material financial loss.” Regulators will scrutinize the overall design of those packages, rather than individual packages themselves. But since 1995, bank regulators have had the ability to prohibit risky compensation schemes based on the premise that such packages could be an “unsafe and unsound” practice. It’s unclear whether bank overseers at the Federal Reserve, which oversaw institutions like Countrywide; the Office of the Comptroller of the Currency, which regulated banks like Citibank; and the Office of Thrift Supervision, which was responsible for AIG and Washington Mutual, ever used that authority to rein in excessive bonuses geared towards short-term profit at the expense of long-term risks. In the new proposed rules, excessive pay won’t necessarily be determined by the dollar amount. Dodd-Frank doesn’t require firms to report “the actual compensation of particular individuals as part of this requirement,” regulators wrote in their proposed rule. However, cash bonuses on Wall Street are down 39 percent since their peak in 2006, according to data compiled by New York’s Office of the State Comptroller. In Europe, banks are restricted by law when doling out cash bonuses, and as much as 60 percent of bonus payouts for “risk takers” and other senior employees must be deferred for at least three years. About half of the pay must be in the form of shares. No such requirement exists in the U.S. “Up front cash bonuses that are based on expected rather than actual performance are a key driver of excessive risk taking,” the European Parliament argues on a page of its website devoted to explaining the new rules. “Staggering payments over time and linking them to the bank’s health and actual performance should ensure that these risks are tackled.” Spokeswomen for Barnier didn’t respond to emailed requests for comment. A Treasury spokeswoman declined to comment. ************************* Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 917-267-2335.

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Lagarde Heads To Brazil After Securing G8 Support

May 30, 2011

BRASILIA, Brazil — French Finance Minister Christine Lagarde was in Brazil on Monday to kick off a global tour promoting her candidacy to head the International Monetary Fund. Lagarde has emerged as the odds-on favorite for the job. Her appointment would make her the first woman in charge of the scandal-rocked fund but may also increase tensions with developing nations that argue countries outside of Europe should be allowed to lead the organization. Brazilian officials have not spoken out in favor or against Lagarde’s candidacy. But they previously have emphasized that the IMF’s next leader should be chosen on merits, not based on geography. The IMF is hunting for a new leader to replace former managing director Dominique Strauss-Kahn, of France, who quit May 18 after he was accused of attempting to rape a New York hotel maid. He has denied the allegations. Lagarde will meet with the head of Brazil’s Central Bank and also the nation’s finance minister, Guido Mantega. In recent years, Mantega has loudly fought for reforms in the IMF, World Bank and other multilateral institutions that would take into account the growth of emerging nations such as Brazil, China and India. “We must establish meritocracy, so that the person leading the IMF is selected for their merits and not for being European,” Mantega said earlier this month. “You can have a competent European … but you can have a representative from an emerging nation who is competent as well.” Mantega also has said that whoever is chosen to replace Strauss-Kahn should only hold the job until Strauss-Kahn’s term expires at the end of 2012. That, Mantega has argued, would give IMF member nations more time to carefully choose a full-term chief. China has suggested it is time to shake things up at the IMF, with Foreign Ministry spokeswoman Jiang Yu saying the leadership “should be based on fairness, transparency and merit.” South African Finance Minister Pravin Gordhan spoke in stronger terms earlier this month. He said the new director should come from an emerging economy, to “bring a new perspective that will ensure that the interests of all countries, both developed and developing, are fully reflected in the operations and policies of the IMF.” French Embassy spokesman Stephane Schorderet said Lagarde will return to Paris on Monday night and plans to stump for the IMF job in China next week. She also plans to visit other influential developing nations to convince them that if given the job, she will not exclusively focus on Europe, where the fund is closely involved in a half-dozen bailout deals. According to France’s foreign minister, Lagarde has already won the backing of the Group of Eight rich nations. Interviewed Sunday on French television channel Canal+, Alain Juppe said there was unanimous support for Lagarde among the eight leaders at their annual summit in Deauville, France, last week. The U.S., whose vote will be crucial for Lagarde’s nomination, has not officially endorsed a candidate.

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‘From The Brink Of Extinction’

May 28, 2011

WASHINGTON — Vice President Joe Biden on Saturday credited the Obama administration’s intervention for the American auto industry’s recovery from “the brink of extinction” and pointed to Chrysler’s early repayment of the federal loan that saved it from disaster. “This announcement came six years ahead of schedule – and just two years after Chrysler Corp. emerged from bankruptcy,” Biden said in the administration’s weekly radio and Internet address. “It’s a sign of what’s happening throughout the American automobile industry.” Biden also said that General Motors, which went through bankruptcy and has come back strong, announced in the past week that its Detroit Hamtramck factory in Michigan will run three shifts for the first time in its 26-year history. “You know, that’s 2,500 more good, paying jobs,” he said. Biden, who provided the weekly address because President Barack Obama was traveling in Europe, credited the efforts of the Obama administration for the resurgence of the auto industry through its assistance. “Because of what we did, the auto industry is rising again,” Biden said. “Manufacturing is coming back. And our economy is recovering and it’s gaining traction.” Obama will visit a Chrysler plant in Toledo, Ohio, next Friday to discuss the carmaker’s recovery. Chrysler announced Tuesday the repayment of $5.9 billion in U.S. loans and $1.7 billion in loans from the governments of Canada and Ontario. It covers most of the federal bailout money that saved the company after it nearly ran out of cash in 2009 and went through a government-led bankruptcy. GM and Chrysler were on the verge of collapse in the final days of the Bush administration after Congress failed to approve an emergency loan package. The Bush administration gave the companies $17.4 billion in loans and required them to develop a restructuring plan by mid-February 2009. Obama’s administration pumped billions more into the carmakers later that spring but won concessions from industry stakeholders, allowing them to push GM and Chrysler through bankruptcy court in the summer of 2009. The Republicans’ weekly address focused on the party’s plan to create jobs. House Majority Leader Eric Cantor, R-Va., said boosting employment requires cutting taxes, reducing regulations, completing bogged-down trade agreements with several countries and expanding energy exploration in the United States. “All of these elements will help encourage growth and long-term economic stability,” Cantor said. “By putting in place policies that encourage businesses to expand, innovators to innovate and allows leaders to lead, we will not only begin to put our budget on a path to balance, but we’ll get Americans working again.” ___ Online Array Array

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IMF chief ‘needs knowledge of Europe’

May 28, 2011

IMF chief ‘needs knowledge of Europe’

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As France’s Lagarde Launches IMF Bid, China, Criticism Surfaces

May 25, 2011

PARIS/WASHINGTON (Jean-Baptiste Vey and Lesley Wroughton) – France’s Christine Lagarde has entered the race to head the IMF despite anger in big emerging economies over Europe’s “obsolete” lock on the job. France’s finance minister announced her candidacy on Wednesday, the eve of a G8 summit, after securing the unanimous backing of the 27-nation European Union and, diplomats said, support from the United States and China. “It is an immense challenge which I approach with humility and in the hope of achieving the broadest possible consensus,” Lagarde told a Paris news conference. The 55-year-old former corporate lawyer, who speaks fluent English, has won plaudits for her deft chairing of the G20 finance ministers and communications skills. But unlike Dominique Strauss-Kahn, who resigned last week after being charged with attempted rape, she is not an economist and may struggle to match his thought leadership over the management of the world economy. Brazil, Russia, India, China and South Africa criticized EU officials in a joint statement for suggesting the next International Monetary Fund head should be a European, a convention that dates back to the founding of the global lender at the end of the Second World War. However, the countries known as the BRICs failed to unite behind a common alternative candidate, leaving the way clear for Lagarde unless she slips on a pending French legal case. Diplomats said the complaint was mostly aimed at securing a commitment from developed countries that nationality will no longer be a covert criterion for selecting future IMF chiefs. In a nod to the emerging nations’ concerns, Lagarde said she would work for “greater representativity and greater flexibility” at the IMF if elected. BRICS AGGRIEVED In the first joint statement issued by their directors at the Fund, the BRICs said the choice of who heads the IMF should be based on competence, not nationality. They called for “abandoning the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe.” Lagarde said she was running as a candidate to serve all IMF members, not just Europe, although she noted her experience and good relations with European officials would be an advantage in steering the IMF’s role in the bloc’s debt crisis. “Being European shouldn’t be a plus, but it shouldn’t be a minus either,” Lagarde said. Hours before the statement was issued in Washington, France’s government said China would back Lagarde. The Chinese Foreign Ministry declined comment. Some emerging market government officials say privately that although they are fed up with advanced economies controlling the selection process, they are not in a position to put forward a challenger who could stand up to Lagarde. Mexico has nominated its central bank chief for the job and he said some countries had welcomed his decision to run. South Africa and Kazakhstan may put forward their own candidates. Under a long-standing agreement between the United States and Europe, the top job at the IMF goes to a European while an American leads its sister organization, the World Bank. The United States also fills the number two position at the IMF. European diplomats said Washington had asked the French government about the legal case hanging over Lagarde, in which she faces accusations of abusing her authority. The Court of Justice of the Republic, a special court created to try ministers for alleged offences committed while in office, is examining the procedure followed in awarding the 285 million euro settlement to Bernard Tapie, a convicted ex-minister who backed Sarkozy’s 2007 election campaign. French officials have told other governments privately the case will not be a show-stopper, the diplomats said. Lagarde said her conscience was clear. “I have every confidence in this procedure because my conscience is perfectly clear,” she said. “I acted in the interest of the state and in respect of the law.” U.S. BACKS EUROPEAN The EU and the United States, which sources in Washington have said will back a European, have enough joint voting power to decide who leads the IMF. Securing support from some emerging economies would defuse a potentially bitter row over the decision though. In April 2009, the Group of 20 leading nations endorsed “an open, transparent and merit-based selection process” for heads of the global institutions. France, which presides over the G20 this year, has made an effort to work with Beijing on key issues for developing nations like global monetary reform and commodity market speculation. Last week, the head of China’s central bank, Zhou Xiaochuan, said the IMF’s leadership should reflect the growing stature of emerging economies. But he stopped short of saying its new boss should be from an emerging economy. Wu Qing, a researcher with the Development Research Center government think tank in Beijing, said it was plausible that China would support Lagarde as there weren’t many qualified candidates from China or Asia in general. The IMF’s board will draw up a shortlist of three candidates and has a June 30 deadline for picking a successor. (Additional reporting by Julien Toyer in Paris, Jiang Yan in Beijing, Leigh Jones and Michelle Nichols in New York; Writing by Emily Kaiser and Paul Taylor) Copyright 2011 Thomson Reuters. Click for Restrictions .

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The Future Of Casinos Is Online, Industry Panel Says

May 25, 2011

ATLANTIC CITY, N.J. — Internet gambling is the future of the casino industry, whether it’s approved at the federal or state level, a panel of online and brick-and-mortar casino executives said Tuesday. And a New Jersey lawmaker predicted there will be a ballot question next year asking his state’s residents whether to amend the state Constitution to allow Internet gambling. Speaking at the East Coast Gaming Congress, executives from two online betting organizations and Caesars Entertainment said the Internet provides the gambling industry its best opportunity for growth. But the prospect of a federal law permitting it appears dim in light of recent federal raids on online gambling sites. “You’re not going to stop the Internet,” said Jan Jones, senior vice president of government relations for Caesars Entertainment. “You can regulate it, you can put in protections, but it’s going to exist.” Melanie Brenner, president of the U.S. Online Gaming Association, said more than 10 million people currently play online poker. “That’s what they look forward to,” she said. “This is the path to growth for (the casino) industry.” Panel members estimated the potential annual revenue from legalized Internet gambling in the U.S. at nearly $80 billion. Richard Bronson, chairman of U.S. Digital Gaming, predicts individual states will approve online gambling soon. He said the recent raids by federal prosecutors on online poker web sites makes it unlikely the federal government will approve Internet gambling, leaving states an opportunity to do it on a piecemeal basis. “I believe strongly there will not be a national online gambling bill passed in the U.S.,” he said. “I’ve yet to find one governor, one legislator, one lottery director that tells me otherwise. They want this to be a state issue.” New Jersey was on the verge of becoming the first state in the nation to approve Internet gambling within its state borders. But Gov. Chris Christie vetoed a bill that would have permitted it, voicing concern about its legality. Christie suggested if New jersey legislators are serious about allowing Internet gambling, they should put a proposed Constitutional amendment before the voters and let them decide. That’s exactly what state Assemblyman John Burzichelli, a south Jersey Democrat, said the legislature plans to do. “Next year there’s probably going to be a question on the ballot to allow Internet gambling,” he said. “Whether or not New Jersey voters amend the Constitution is up in the air. We came close, and we’re going to do it again. We’re going to take another run at it.” New Jersey law requires that all casino gambling in the state take place in Atlantic City. The bill Christie vetoed would have had the Atlantic City casinos maintain the servers, thus technically making the transactions happen in Atlantic City. Christie didn’t buy that argument, and also worried about bars and restaurants setting up “Internet cafes” that would be fronts for illegal gambling. In April, federal authorities busted the three largest online poker web sites in the United States on charges of bank fraud and illegal gambling against 11 people, accusing them of manipulating banks to process billions of dollars in illegal revenue. Prosecutors in Manhattan said they’ve issued restraining orders against more than 75 bank accounts in 14 countries used by the poker companies, interrupting the illegal flow of billions of dollars. The companies, all based overseas, are PokerStars, Full Tilt Poker and Absolute Poker. The indictment seeks $3 billion in money laundering penalties and forfeiture from the defendants. The indictment said the companies ran afoul of the law after the U.S. in October 2006 enacted the Unlawful Internet Gambling Enforcement Act, which makes it a crime for gambling businesses to knowingly accept most forms of payment in connection with the participation of another person in unlawful Internet gambling. Federal prosecutors in Maryland on Monday announced indictments of three other people and two businesses, plus the seizure of 11 bank accounts and 10 website domain names. The American Gaming Association called the prosecutions a “half measure” toward fixing the problem and called for federally sanctioned licensing and regulation of online poker. The association’s president, Frank Fahrenkopf, said millions of Americans bet billions of dollars a year at foreign websites, and will continue to do so as long as there are sites they can access. “In fact, in the immediate aftermath of online poker’s April 15 `Black Friday,’ some of the 300 companies that continued to operate in the U.S., in spite of the law, saw a surge in new business,” he said. “Today, there are more than 1,000 real-money websites operated by these offshore operators that still target the U.S. market.” Because of that prosecution, individual states will try to approve Internet gambling solely within their own borders, panel members agreed. But they would lose out on a lucrative worldwide market that unscrupulous illegal website operators will fill, they added. “If we look at this as a state opportunity, we will have lost the single largest opportunity for this industry,” said Jones, the Caesars executive. “If you don’t have that international capability – Europe, Asia – you can’t go in there because you can’t go outside your own state. You lost the worldwide opportunity.”

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Nancy Birdsall: IMF Leader Selection: It’s the Process, Stupid

May 24, 2011

A Bretton Woods project statement issued on April 6 was prescient indeed: The MD must be, and must be seen to be wholly independent of any national or regional interest. This is particularly important when the home state is a powerful member of the IMF. In practical terms therefore, recent or sitting ministers should be ruled out. Who’s that? The candidate now supported by France and the UK: Christine Lagarde is, of course, a sitting minister of a powerful member country. Well at least she is a woman — widely discussed now as a good idea for the male-dominated IMF (compared to the World Bank and in culture as well as numbers) — and is said to be independent-minded. But would she be able to eschew “representing” France or the powerful France/Germany/UK triad in the tense discussions that seem to pit Greece (and other peripheral countries of the euro zone) against the banks in Germany? Would she not seem to be biased even if she wasn’t — beholden to Sarkozy and Merkel generating immoral hazard for the IMF (or the euro or Greece… )? Won’t she represent, whether she wants to or not, the stench of colonialism wafting around the IMF? The Bretton Woods project statement also emphasizes the logic of locking in a process including: a short and open list of candidates made public; no need for a candidate to have his/her own country’s support (Arminio Fraga headed the Brazilian Central Bank under the party now out of power; that is also Gordon Brown’s problem of course); an open voting process based on formal voting (as proposed by the Indian ED Arvind Virmani — go here; the need for any candidate to have a majority of country members not just a majority of weighted votes (the “double majority” idea ). (Our IMF leader survey includes creation of an eminent persons group to propose a short list of candidates (adding to country members’ nominees) that could include nominees their own country might not nominate, and also refers to double majority voting. I hope survey takers who favor “open, transparent and merit-based” agree strongly with those proposals too.) These changes are less likely to happen between now and end of June (by when IMF Board promises it will have selected a new leader) but pumping for them now could help improve the process in the next round. By the way, any of these changes in process would be a step in the direction of legitimacy for the new leader. None would take away the ability of the United States and of Europe to block candidates. For all practical purposes the large and powerful economies have effective vetoes (Europe if its triad of France/Germany/UK collaborates). With double majority voting other country groups in a coalition would also have veto power… and with an open list there would be more time for the public scrutiny that helps provide a new leader legitimacy. Related Content: About IMF Survey and Candidate Bios Take the Survey and View Results More IMF Blog Posts

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Simon Johnson: The Case For A Non-European IMF Leader

May 24, 2011

The debate over choosing the next managing director of the International Monetary Fund is ostensibly about whether its succession process is transparent and merit-based. But this is code for a more important issue -– whether the time has come for Western Europe to give up control of the IMF. There is a valid economic case that the next chief should come not from Europe, as tradition dictates, but from one of the emerging markets. India, South Africa, China, Mexico and Brazil all have strong candidates.

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EU Crisis Could Infect U.S., Fed Official Warns

May 24, 2011

FARMINGTON, Missouri (By Mark Felsenthal) – Turmoil over sovereign debt problems in Europe could weigh on the U.S. economic recovery, St. Louis Federal Reserve President James Bullard said on Monday. “I am concerned about the situation in Europe,” Bullard told reporters after a speech. “Prolonged financial market turmoil could be a negative for the U.S.” Financial markets piled pressure on heavily indebted euro zone countries on Monday and global stock markets fell as investors worried about heightened risks in Spain and Greece and ratings agencies stoked new concerns over Italy and Belgium. Italy, which has the euro zone’s biggest debt pile in absolute terms, was hit by credit ratings agency Standard & Poor’s decision on Saturday to cut its outlook to “negative” from “stable”. Uncertainty in Europe is one reason why U.S. longer-term bond yields have dropped, Bullard said, as investors move into less risky assets. Discussing monetary policy, Bullard said not to expect action for a while after the Federal Reserve ends its $600 billion bond buying program in June. “Past behavior of the (Fed) indicates that the committee sometimes puts policy on hold,” he told the Mineral Area College Foundation. “A pause allows more time to assess the strength of the economy.” While waiting to see how the economy evolves, the Fed would hold interest rates near zero, said Bullard, who is not a voter on the central bank’s policy-setting panel this year. Being on hold also signals no change to the Fed’s pledge to keep rates extremely low for an extended period, he said. In addition, it means reinvesting securities to keep the Fed’s much-expanded balance sheet at whatever level it reaches after the bond-buying initiative comes to a close, likely above $2.7 trillion, he added. He said that if the economic recovery gains pace in the second half of the year, it would be reasonable to expect the Fed’s next move would be to tighten financial conditions. However, he said that U.S. growth in the first half of 2011 has been slower than anticipated. U.S. home sales and factory activity data released last week showed the economy was stuck in low gear, although a drop in claims for jobless aid offered hope the labor market’s recovery was on track. Bullard also cautioned that stripping energy and food costs from inflation measurements may understate inflation. Fed officials have argued that despite recent jumps in the prices of commodities and food, inflation is in check because underlying measures have climbed only modestly from historic lows. Commodity prices have logged “dramatic” increases in recent months, he said. “Ignoring energy prices in a price index may systematically understate inflation for many years,” he added. Many Fed officials believe the best way to measure whether their efforts to keep inflation at bay are working is to look at measures of underlying inflation, because that is a better gauge of where inflation is headed. Bullard further renewed his call for the Fed to adopt an explicit numerical inflation target. Fed Chairman Ben Bernanke signaled after the Fed’s last meeting at the end of April that the U.S. central bank is in no hurry to reverse its massive support for the modest U.S. economic recovery in which unemployment remains above what Fed officials believe is the norm. That support includes rock-bottom benchmark interest rates and will amount to $2.3 trillion in purchases of longer-term assets when the current program winds up. Many economists and some Fed officials are concerned that inflation risks are rising. Even though oil prices have moderated recently, there is concern that the Fed is ignoring overall inflation because prices for gas and many food items are noticeably higher to many consumers. Fed officials such as Bernanke have argued that higher energy prices reflect increased global demand from emerging markets such as China, India, and Brazil, rather than too-easy monetary policy in the United States. The chairman and others also say that there is no indication consumers or businesses expect inflation in the future. However, Bullard said recent events show so-called core inflation that strips out volatile food and energy prices is no longer an accurate gauge of trends and raises doubts in the public’s mind about the Fed’s effectiveness. Still, Bullard told reporters he believes the Fed would still be in no rush to tighten policy if it focused on overall inflation rather than underlying inflation. The main problem with an emphasis on core inflation is it makes the Fed look out of touch with the prices most consumers are encountering, he said. “This is hurting Fed credibility to be talking about core inflation when everyone sees headline inflation,” Bullard said. (Reporting by Mark Felsenthal; Editing by Gary Hill & Kim Coghill) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Sony Paid Big Money To Mitigate PlayStation Network Hack

May 23, 2011

TOKYO — Sony Corp. is expecting an annual loss of $3.2 billion, reversing its earlier projection of a return to profit, as the electronics giant struggles with production disruptions from Japan’s tsunami and a hacker attack on its online gaming service. The Japanese maker of PlayStation 3 video game machines and Bravia flat-panel TVs said Monday that the projection of a 260 billion yen ($3.2 billion) net loss for the fiscal year ended March 2011 was largely due to writing off 360 billion yen ($4.4 billion) related to a tax credit booked in a previous quarter. Sony announced the loss ahead of its official earnings announcement Thursday under Tokyo Stock Exchange guidelines. The company had earlier projected a 70 billion yen ($860 million) profit. Like many other Japanese manufacturers, Sony has been hampered by the production disruptions set off by the March 11 earthquake and tsunami that killed more than 25,000 people, destroyed many factories and sent the nation’s economic recovery into reverse. The company kept its operating profit forecast unchanged at 200 billion yen ($2.46 billion). It expects to report sales of 7.18 trillion yen ($88.2 billion), slightly down from an earlier projection of 7.2 trillion yen ($88.5 billion). Masaru Kato, Sony’s chief financial officer, said parts shortages in the aftermath of the disaster have eased but a full recovery hasn’t yet been realized. “In the first quarter, we saw quite a major impact on our manufacturing activities,” he said. After the quake, “negative factors have grown bigger” and offset earlier improvement in the previously loss-making games division, dashing hopes for a profit. Tokyo-based Sony also faced a new challenge to its reputation following a massive security breach affecting more than 100 million online accounts. After temporarily closing down its online gaming services last month, Sony began restoring its PalyStation Network services in the U.S. and Europe on May 15 mainly for online gaming, chat and music streaming services. Sony spent 14 billion yen ($170 million) to cover costs that included identity theft insurance for customers, improvements to network security, free access to content, customer support and an investigation into the hacking. Sony has seen plunging sales of flat-panel TVs and other gadgets, and was likely to remain in the red in its TV business for the seventh year straight. Sony has also taken a beating in music players and other portable devices to Apple’s iPod, iPhone and iPad. The company booked a 40.8 billion yen ($439 million) loss for the fiscal year ended March 2010 after a 98.9 billion yen loss the year before_ Sony’s first annual red ink in 14 years. ___ Associated Press writer Tomoko A. Hosaka contributed to this report.

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Dollar Surges on Risk-Off Flows- Aussie Plummets on China, Europe

May 23, 2011

Dollar Surges on Risk-Off Flows- Aussie Plummets on China, Europe

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U.S. stocks fell by opening, amid ongoing concern Europe’s debt crisis…

May 23, 2011

U.S. stocks fell by opening, amid ongoing concern Europe’s debt crisis…

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U.S stocks close in red, in light of Europe’s debt crisis…

May 23, 2011

U.S stocks close in red, in light of Europe’s debt crisis…

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the U.S. dollar extends gains, amid concern spread regarding Europe’s debt crisis

May 23, 2011

the U.S. dollar extends gains, amid concern spread regarding Europe’s debt crisis

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Obama Heading To Europe

May 22, 2011

WASHINGTON — Weaving together strands of pomp, policy and summitry, President Barack Obama’s weeklong European tour is all about tending to old friends in the Western alliance and securing their help with daunting challenges, from the political upheaval in the Mideast and North Africa to the protracted war in Afghanistan. Obama’s eighth trip to Europe as president, with a quick-moving itinerary that dips into four countries in six days, unfolds against the backdrop of the NATO-led bombing campaign in Libya and stubborn economic weakness on both sides of the Atlantic. A priority for the president and his allies will be to more clearly define the West’s role in promoting stability and democracy in the Arab world without being overly meddlesome and within tight financial limitations. Obama, who departs late Sunday, will visit Ireland, England, France and Poland. Each is weathering an economic downturn that has forced European nations to adopt strict austerity measures. The U.S. has pushed its national debt to the limit, and Obama and congressional Republicans are in contentious talks about how steeply to cut spending. But never mind all that, at least for a moment. A highlight of Obama’s opening stop in Ireland will be a feel-good pilgrimage to the hamlet of Moneygall, where America’s first black president will explore his Irish – yes, Irish – roots, and most likely raise a pint. It turns out that Falmouth Kearney, who immigrated to the United States in 1850 at the age of 19, is the great great great grandfather of Obama on his white, Kansas-born mother’s side. Obama, whose father was born in Kenya, will connect in Moneygall with distant relatives from the Irish branch of his family tree. Michael Collins, the Irish ambassador to the United States, says the president’s visit will be “a golden moment” for a country that’s been on the economic ropes after its boom time. The visit is sure to play well at home for Obama – make that O’bama – as he heads into re-election season after being pushed to great lengths simply to prove he was born on U.S. soil. After his day in Ireland, Obama spends two in England, where he and first lady Michelle Obama will be treated to all the pomp and pageantry that the monarchy can muster for the president’s first European state visit. The Obamas even get a Buckingham Palace sleepover. Though the United States and Britain remain the closest of allies, the relationship has been strained by recent events, including last year’s oil spill in the Gulf of Mexico triggered by the explosion of an oil rig owned by British-based BP. Britain’s unilateral announcement of a timetable for withdrawal of its 10,000 troops from Afghanistan also rankled the United States. Heather Conley, director of the Europe program at the private Center for Strategic and International Studies, said Obama’s stop in Britain could help “put the `special’ back into the U.S.-U.K. special relationship.” Obama on Wednesday will become the first American president to speak to members of Parliament from the historic Palace of Westminster. European leaders are eager to see how president frames the U.S.-European partnership at a time when Obama has prodded Western allies to shoulder greater responsibility in areas such as Afghanistan and Libya. A NATO-led mission is working to protect civilians and assist the rebel fighters trying to oust Libyan leader Moammar Gadhafi. Former Liberal Democrat leader Menzies Campbell, a member of the House of Commons foreign affairs committee, said British politicians would be listening keenly to what Obama had to say about Afghanistan when he addresses both houses of Parliament on Wednesday. “The death of Osama bin Laden can only encourage those with the ear of the president to proceed more quickly with the draw-down of American forces in Afghanistan,” Campbell said. “MPs and peers alike will be listening closely to what he says about America’s intentions for Afghanistan.” In private, Obama and British Prime Minister David Cameron will plunge into the details of a host of international challenges on which the U.S. and Britain have worked together: Afghanistan, Libya, counterterrorism, the global economy and more. Both leaders then scoot to a French summit of the Group of Eight industrialized nations, where the president hopes to build on momentum from his speech days ago about how best to promote stability and democracy in the Middle East. Obama has called on the World Bank and International Monetary Fund to present the G-8 with an ambitious plan to help Egypt and Tunisia, in particular, recover from the disruptions caused by their democratic revolutions and prepare for elections later this year. The U.S. and its allies don’t want those elections to occur against a backdrop of economic chaos that could increase support for extremists. But there’s no expectation of a big aid measure emerging from the G-8. Rather, the countries in the region will present their plans for democratization and stabilizing their economies, and the G-8 will consider ways to help. Although not on the official agenda, the G-8 leaders are sure to be talking about future leadership of the IMF now that former chief Dominique Strauss-Kahn has resigned after being arrested on attempted rape charges in New York. European leaders are anxious to put another European in that position while emerging economies would like to see a process that is open to someone from the developing world. U.S. officials have said they favor an open process, without being more specific. Obama’s visit to Europe comes a little more than a month before the U.S. is scheduled to start its gradual troop withdrawal in Afghanistan. The president has said the initial drawdown will be significant, but it’s unclear how many specific answers he’ll have for European leaders. Britain and France, in particular, are looking for details on the U.S. withdrawal timetable for signs of how NATO will move from combat missions to a training role by the end of 2014. The Afghan mission is deeply unpopular in many European countries, and political pressure has led some leaders to set timetables for their withdrawal. The British are planning to draw down 400 of their nearly 10,000 troops this year, with all British troops out by the end of 2014. France, which has 4,000 troops in Afghanistan, has said it is considering speeding up its withdrawal now that al-Qaida leader Osama bin Laden is dead. During his two-day stay in Deauville, France, Obama will take time for one-on-one meetings on the side of the G-8 with several world leaders, including Russian President Dmitry Medvedev and Japanese Prime Minister Naoto Kan. The U.S.-Russia relationship, though much improved since the Bush administration, remains complex. Medvedev has spoken out strongly in recent weeks against U.S. plans to plant missile interceptors in Romania as part of a U.S. shield over Europe, saying that could threaten Russia. He’s warned that Washington’s failure to cooperate with Russia on the missile shield could lead to a new arms race, and also threatened to pull out of the New START nuclear treaty with the U.S. if Russia feels at risk. Obama’s meeting with Kan would be his first with the Japanese prime minister since the March tsunami and earthquake that triggered a nuclear crisis in Japan. The U.S. has sent military and humanitarian assistance to Japan, as well as nuclear experts, to help the country recover from the disaster. Obama’s visit to Poland is emblematic of a growing front in the administration’s engagement in Europe, as the U.S. expands its economic and security relationship with Central European nations. Robert Kupiecki, Poland’s ambassador to the United States, says Central Europe’s experiences in moving toward democracy offer many lessons that are “directly applicable” in the Middle East and North Africa, and that Poles and others in the region are anxious to help the democratic movement spread. Lech Walesa, the former Polish president who founded the Solidarity freedom movement, has visited Tunisia, and Walesa will meet with Obama in Poland to talk about the experience. Obama can point to Poland, with its stable government and growing economy, as a benefactor of democracy’s virtues.

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Spain Protests Rock Nation, Tens Of Thousands Fill The Cities Over Joblessness

May 21, 2011

By Tracy Rucinski and Fiona Ortiz MADRID – Tens of thousands of Spaniards angry over joblessness protested for a sixth day on Friday in cities all over the country, and the government looked unlikely to enforce a ban on the demonstrations, fearing clashes. Dubbed “los indignados” (the indignant), tens of thousands of protesters have filled the main squares of Spain’s cities for six days, in a wave of outrage over economic stagnation and government austerity marking a shift after years of patience. The electoral board ruled on Thursday that protests would be illegal on Saturday, the eve of elections when Spaniards will choose 8,116 city councils and 13 out of 17 regional governments. But Prime Minister Jose Luis Rodriguez Zapatero, who has failed to contain the highest unemployment in the European Union, at 21.3 percent, said he may not enforce the ban. “I have a great respect for the people protesting, which they are doing in a peaceful manner, and I understand it is driven by economic crisis and young people’s hopes for employment,” Zapatero said during a radio interview. He said the Justice Ministry was reviewing the electoral board’s ruling to determine whether it should stand. PROTESTERS WILL STAY “We are not going to budge from here,” said a 44-year-old unemployed man who declined to give his name, during an assembly at Puerta del Sol in central Madrid, where protesters reached an informal consensus to stay in the square despite the ban. The man was among hundreds who have camped out all week at Puerta del Sol. His wife and daughter join him every day and the crowd swells to thousands every evening. “Our next move is to spread this to the rest of Europe,” he said. Many protesters told Reuters that they are scared the police will crack down, but analysts said police action against the protesters would be a disaster for the Socialists. The protesters have called on Spaniards not to vote for the two main parties, the Socialists or the center-right opposition Popular Party. Spain has struggled to emerge from a recession, and the collapse of the construction sector and a slump in consumer spending have hit the young particularly hard — 45 percent of 18- to 25-year-olds are unemployed. “They can’t kick us out. The politicians won’t allow it, it’ll make them look bad right before the voting,” said Virginia Braojos, 32, a logistics technician who has come with three friends to the protests every night this week. NOT A GAME CHANGER The protests have drawn huge media attention, but will not change the outcome of Sunday’s elections, when the ruling Socialist party is expected to suffer heavy losses over its handling of the economic crisis, a prominent pollster said. However, the symbolic impact of the protests is huge and will make things even tougher than they already are for the increasingly lame-duck Zapatero, said Jose Juan Toharia, president of Metroscopia pollsters. “There will be an authentic cataclysm for the Socialists, who are going to head into general elections next year without a single stronghold,” Toharia said. The next general election is due in March, though some analysts say a Socialist rout could lead to an early election. The protest movement has captured the mood of many Spaniards who have been out of work for months and face a bleak future as the economy is not yet growing robustly enough to create jobs. While most protesters are young, organizing themselves through Twitter and social media, middle-aged and older people joined the crowds on Friday, frustrated with stagnation. STICKING TO DEFICIT COMMITMENT The risk premium on Spanish debt, as measured by the difference between yields on Spanish and benchmark German bonds, rose on Friday due to concerns that following the elections, new regional leaders will uncover budget shortfalls. Budget trouble in the regions would rekindle concerns about a fiscal crisis in Spain. Spain has been under intense market scrutiny since Greece, Ireland and Portugal were forced to accept EU/IMF bailouts. It is widely accepted that a bailout for Spain, the euro zone’s fourth largest economy, would stretch the European Union’s resources and political will to breaking point. The Spain/Bund spread traded at its widest since mid-January at around 239 basis points. Zapatero, who slashed government spending this year, promised there would not be a new round of spending cutbacks following the elections, but stressed Spain’s obligation to international markets to stick to its plan to cut the deficit. “I can guarantee there will be no more spending cuts after the May 22 elections (but) we are committed to the budget target. I insist we will meet this obligation because, if we don’t, markets and investors won’t finance us, and that would make things worse.” (Additional reporting by Paul Day; editing by Mark Heinrich) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Video: European Farmers Expect Lower Grain Crops on Drought

May 20, 2011

May 20 (Bloomberg) — Bloomberg’s Nejra Cehic reports on forecasts of lower grain crops in Europe due to dry weather conditions.

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Xradia Strengthens Global Sales & Support for 3D X-Ray Microscope Solutions

May 20, 2011

New Leadership With 3 Key Hires in Europe, Asia and North America

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U.S. stocks fluctuate by opening, amid ongoing concern Europe’s debt crisis…

May 18, 2011

U.S. stocks fluctuate by opening, amid ongoing concern Europe’s debt crisis…

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Georges Ugeux: Dominique Strauss Kahn Arraigned: The European and Global Impact

May 16, 2011

The recent events surrounding Dominique Strauss Kahn are a tragedy and will have a major impact at many levels. From my perspective, I see several levels of consequences: For the International Monetary Fund: the loss of the leadership of Dominique Strauss Kahn is heavy. His deputy, John Lipsky, is an American economist, who had indicated his desire to leave the Fund. He does not carry the weight of DSK, who is a politician and a leader of international dimension. Dominique could speak to the heads of states and governments in a strong and credible manner. Whether it was in discussions with Europe, the United States or China, his positions were important and meaningful. Replacing him won’t be easy: it seems doubtful that his successor could necessarily maintain the European (and French) monopoly of this function. For developing countries that rely on assistance from the IMF to get out of hard times and need assistance to get their economies back in shape, sometimes painfully, the impact is devastating. Several countries are the beneficiary of this assistance around the world: the IMF is irreplaceable in this area. It is to help these countries that the IMF has been created. For Europe, the risk is significant. The internal debate that divides the advocates of debt restructuring of the countries in difficulty, to begin with Greece and those who prefer to increase the assistance to Greece (including Greeks and the European Central Bank) they had a referee: the IMF and its Director General. The manner in which the IMF intervenes in similar problems is tough and its method to lend only if the milestones of the needed reforms are implemented is essential. Will this voice be as powerful without DSK? The IMF has a high quality staff but it requires leadership and vision as well. France did not need this kind of scandal to tarnish its image. She loses a key global leader and one of the best candidates for its presidential elections. He represented a chance to finally have a President who can lead the reforms that the country needs with real international experience. This departs from what has sometimes been a hexagonal foreign policy of the French Republic. The most urgent problem is obviously the situation of Greece and other countries in difficulty in the Eurozone. The fragility of the Eurozone did not need such a disturbing event. Investors were already worried, and confidence is fragile. Anything could set fire to the powder and provoke a crisis of global amplitude. Finally, allow me a personal reflection. It is always with great sadness that I see a man falling down. I have known DSK for many years and often admired him for his courageous action in the world of international finance where few leaders had his stature and his authority. His leadership will be missed.

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IMF Head Pulled Off Plane, Charged In Alleged Sexual Assault

May 15, 2011

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, was arrested and is being questioned by police after allegations of sexual assault emerged on Saturday. The New York Post initially reported that Strauss-Kahn was removed from an Air France flight just minutes before takeoff from Kennedy Airport. UPDATE: Reuters has confirmed through NY police that Strauss-Kahn was charged with “a criminal sexual act, attempted rape and unlawful imprisonment.” Scroll down for the latest information on the charges. According to The New York Post , a housekeeper entered Strauss-Kahn’s New York City hotel room at noon on Saturday. Sources claim that Strauss-Kahn emerged naked from the bathroom and grabbed the housekeeper, forcing her to perform oral sex on him. Strauss-Kahn was considered a potential candidate in France’s 2012 election. The New York Times reports that Strauss-Kahn is a former economics professor, and started in the 1980′s as a deputy in parliament, and then was a finance minister: Mr. Strauss-Kahn eventually sought the socialist party’s presidential nomination himself in 2007 — calling for an “anti-Sarkozy front” — but lost to Segolene Royal. Months later he was tapped to run the I.M.F. and received Sarkozy’s support, which many critics called a strategy by Sarkozy to keep Mr. Strauss-Kahn away from the forefront of the socialist party. According to a Reuters post on Twitter, “Lawyer representing IMF chief Strauss-Kahn says Strauss-Kahn ‘will plead not guilty.’” Strauss-Kahn has blogged for HuffPost . Reuters reported early Sunday morning on the charges: IMF chief and possible French presidential contender Dominique Strauss-Kahn was arrested and charged with an alleged sexual assault, including an attempted rape, on a hotel maid in New York City, police said on Sunday. Strauss-Kahn, a key player in the world’s response to the 2007-09 financial meltdown and in Europe’s ongoing debt crisis, was removed from an Air France plane minutes before it was to take off for Paris from John F Kennedy International Airport on Saturday, New York police spokesman Paul Browne said. Browne said Strauss-Kahn was formally arrested at 2:15 a.m. (7:15 a.m. British time) on Sunday on charges of criminal sexual act, attempted rape and unlawful imprisonment. A lawyer representing Strauss-Kahn, Benjamin Brafman, told Reuters in an email that the International Monetary Fund chief “will plead not guilty.” Brafman made no further comment. A 32-year-old maid filed a sexual assault complaint after fleeing the $3,000 (1,852 pound)-a-night hotel suite at the Sofitel in Times Square where the alleged incident occurred around 1 p.m. (6 p.m. British time) on Saturday, Browne said. Strauss-Kahn, 62, who has been considered a possible Socialist Party candidate in the French presidential election in April and May 2012, appeared to have fled the hotel after the incident, the police spokesman said. Browne told Reuters an account of events which led to the state charges against Strauss-Kahn. “She told detectives he came out of the bathroom naked, ran down a hallway to the foyer where she was, pulled her into a bedroom and began to sexually assault her, according to her account.” “She pulled away from him and he dragged her down a hallway into the bathroom where he engaged in a criminal sexual act, according to her account to detectives. He tried to lock her into the hotel room,” Browne added. Browne said Strauss-Kahn does not have diplomatic immunity. He is expected to be brought before state court on Sunday. According to New York state law, a criminal sexual act includes forcibly compelling someone to engage in oral sex. The offence carries a potential sentence of 15-20 years, the same as attempted rape. Unlawful imprisonment carries a potential sentence of three to five years. IMPACT ON IMF The allegation will be a major worldwide embarrassment to the IMF, which has authorized billions of dollars in lending programs to troubled countries and has played a major role in the euro zone debt crisis. It follows the announcement on Thursday the IMF’s No. 2 official, John Lipsky, plans to step down in August when his term ends. The IMF managing director has yet to say whether he will run for president, although French opinion polls put him as a clear winner over conservative incumbent Nicolas Sarkozy if the two faced off in an election. “The NYPD realized he had fled, he had left his cell phone behind,” Browne said. “We learned he was on an Air France plane. They held the plane and he was taken off and is now being held in police custody for questioning.” After being removed from the aircraft’s first-class section, he was taken to the police department’s Special Victims Unit in Manhattan, known to viewers of a hit U.S. television show based on its work. The woman, who has not been named, “was brought by EMS (emergency medical services) to the Roosevelt Hospital, where she was treated for minor injuries,” Browne said. Strauss-Kahn was on his way to Europe for a meeting on Sunday with German Chancellor Angela Merkel to discuss the European debt crisis and then was to attend a euro zone finance ministers meeting in Brussels on Monday. Strauss-Kahn took over the IMF in November 2007 for a five-year term scheduled to end next year. Before that, he was a French finance minister, member of the French National Assembly and a professor of economics at the Institut d’Etudes Politiques de Paris. The IMF declined to comment and IMF board officials told Reuters they had not been informed officially of the incident. PAST CONTROVERSY Strauss-Kahn has faced controversy before. In October 2008, he apologized for “an error of judgement” for an affair with a female IMF economist who was his subordinate. An inquiry cleared him of harassment and abuse of power, although he was warned by the fund’s board of member countries against further improper conduct. Strauss-Kahn apologized to the woman, Piroska Nagy, and his wife, French television personality Anne Sinclair, as well as to IMF employees for the trouble he had caused. Since taking over the IMF, he has won plaudits for putting the fund, the world’s main overseer of the global economic system, at the centre of global efforts to cope with the financial meltdown of 2007-09. Strauss-Kahn introduced sweeping changes at the global institution to ensure that countries swamped by the financial collapse had access to emergency loans. He was pivotal in brokering a bailout program for Iceland, Hungary, Greece, Ireland, and recently Portugal. He has also overseen internal changes that have given emerging market countries, such as China, India and Brazil, greater voting power in the institution, and weighed into thornier issues by urging China to allow its currency to rise in value in a dispute with the United States. Based in Washington at the IMF’s headquarters, Strauss-Kahn has continued to spend a lot of time in France, fanning speculation he was considering re-entering politics as a presidential candidate. Lipsky’s planned departure and now Strauss-Kahn’s detention raises questions about a possible leadership vacuum should the IMF chief be charged by U.S. authorities or face possible discipline by the IMF board. (Reporting by Christine Kearney and Noeleen Walder; Editing by Peter Cooney, Todd Eastham and Jackie Frank) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Ruud de Mooij: To Owe or Be Owned — Depends on How You Tax It

May 13, 2011

In February, President Obama said , “Companies are taxed heavily for making investments with equity; yet the tax code actually pays companies to invest using leverage.” And he is right: the corporate tax code in the United States creates a significant bias toward debt finance over equity. Of course, the U.S. is not unique. In most of Europe, Asia and elsewhere in the world, the tax advantages of debt finance are even bigger than in the U.S. The crux of the issue is that interest paid on borrowing can be deducted from the corporate tax bill, while returns paid on equity — dividends and capital gains — cannot. The debt distortion is not new. What is new, however, is that we have come to realize that excessive debt (or leverage) is much more costly than we have always thought. The global financial crisis was a stark lesson that excessive leverage ratios in financial institutions can create massive spillover effects to the rest of the economy or even beyond national borders. Financial distortions have grown larger in recent years. Indeed, firms respond more aggressively to the tax bias of debt. For example, innovation in financial products has blurred the distinction between debt and equity, creating ample opportunities for tax avoidance. And multinational firms are increasingly reallocating debt and equity between countries to exploit the most favorable tax environments, thus eroding corporate tax bases. Arguably, this matters more when the public purses in advanced economies are under added strain. It would actually make much more sense to tax-penalize debt than to tax-favor it. But that’s not what corporate tax codes do. A recent IMF Staff Discussion Note offers two alternatives to the current corporate tax code. In a nutshell, it will require either reducing the tax deductibility of interest or introducing similar deductions for equity returns. Both reduce or eliminate the more favorable tax treatment of debt. The first is to restrict or eliminate the deductibility of interest for corporate profits. That would broaden the corporate tax base and free up revenue for reductions in the rate. Many advanced countries nowadays pursue such a policy of restrictions on interest deductibility. The problem with restrictions, rather than eliminating deductibility altogether, is that the rules become very complex and firms find their way around them. Added to that, these measures make investment more expensive and tend to hurt economic growth. That is not a desirable long-term prospect. The alternative then is to allow a deduction for normal equity returns. That is, a deduction for the value of returns on equity based on, say, the long-term government bond rate. The traditional allowance for interest deductions would remain, but the debt-equity playing field would be leveled. The flip side of eliminating incentives for excessive debt finance is removing the bias against equity investments, with likely favorable implications for promoting investment, economic growth and job creation. Indeed, estimates suggest the reform can raise GDP by some three percent. Some countries — namely, Belgium, Brazil and Latvia — have had some success in this regard, moving toward such systems during the last decade. The allowance for corporate equity deserves serious consideration from policymakers across the globe. Some governments may be understandably reluctant to introduce an allowance that will narrow the corporate tax base in the short run. But designing a better system will ultimately pay off. The loss of revenue can be kept to a minimum by granting the allowance only to new investment. Improved tax design will make economies less vulnerable to future financial crises, and thus prevent enormous costs in terms of lost revenue. And it could ultimately broaden corporate tax bases by eliminating the ample distortions the current systems create. It’s time for change — end the debt bias in corporate income tax. From iMFdirect blog

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Gemma Godfrey: Gold May Glitter But Can It Deliver?

May 13, 2011

The classic ” safe-haven ” investment has seen a strong uptrend in its value since the autumn of 2008. Risk aversion , inflation fears , falls in the dollar and demand from the east have all been credited as drivers of this move. But just how supportive are these factors going forward — what is the risk gold could lose its luster? A Hedge against Inflation The fear of inflation is heating up as on Wednesday the Bank of England suggested that ” there is a good chance ” inflation will hit 5% later in the year, far above the target rate of 2% . Elsewhere, on the same day, Chinese inflation figures surprised on the upside. However, is gold an adequate hedge? It can be shown graphically that it is not. Charting the inflation rate (CPI change year on year) against the gold price, we can see that over the past decade the relationship breaks down. Indeed, if the gold price kept up with increases in general price levels, it would be valued at $2,600 an ounce instead of around the $1,500 level. How about if instead of actual inflation, we look at the market’s expectation of inflation? Even in this case, the relationship does not hold . Instead, there are other factors at play. As previously discussed, investors may be more focused on the sustainability of the economic growth rate and allow for some inflation. Inflation alone may not provide sufficient support. A Beneficiary of Risk Aversion So — could upcoming economic, fiscal or political disappointments sufficiently boost the gold price? Here the case looks stronger. From sovereign debt crises in Europe, to the tragic tsunami in Japan and the turmoil in the Middle East , there has been enough newsflow to stoke fears and flows into gold (a “whopping” $679m of capital was invested in precious metals in one week alone at the beginning of April). Furthermore, a lack of confidence in the dollar further boosted investment for those looking for a more reliable base. Demand from the East and Central Banks In addition to jewellery demand , central bank purchases may provide much support for gold as we move forward. Russia needs to acquire more than 1,000 tons and China 3,000 tons to have a gold reserve ratio to outstanding currency on parity with the U.S. This is even likely to be an understatement with China stating publicly they would like to acquire at least 6,000 tons and there are unofficial rumors that this may go as high as 10,000 tons . A bubble with no clear end George Soros described gold as the ” ultimate asset bubble ” and with sentiment driving the price as much as fundamentals, it’s unclear when the trend will reverse. An increasing monetary base is looking for a home. As Marcus Grubb, MD of Investment at the World Gold Council was quoted as saying at a ‘WealthBriefing’ Breakfast on Thursday: “In the next 10 minutes the world’s gold producers will mine $3m of gold, while the US prints $15m.” However, an often-overlooked drawback in investing in gold is its lack of yield. With some stock offering attractive dividend yields and investors wanting their investments to provide attractive returns during the life of their investment , capital flows may wander. Investment Conclusion Remain wary of relying on one driver of returns; it can often be overshadowed by another. Instead build a complete picture and continuously question your base case scenario. Gold is a more complex asset than many give it credit for and as always, it pays to be well diversified.

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