france

France Q1 growth at zero GDP: CB

by on February 9, 2012

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(MENAFN) The French Central Bank said that the country’s economy in 2012′s first quarter would be expected to record a zero growth, reported Xinhua News. Banque de France added that at the end of …

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France Q1 growth at zero GDP: CB

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(MENAFN) France’s customs services office said that last year, trade deficit surged by 35.1 percent from the previous year to USD91.2 billion, reported Xinhua News. The customs figures showed …

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France’s 2011 trade deficit jumps 35.1%

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Carina Kamel: Egypt’s Economic Crisis: Where Are the Promised Billions and What Will It Take for Investors to Return?

January 24, 2012

Alarm bells are ringing inside Egypt and outside as the country faces an economic crisis nearly one year after the revolution. Growth has stalled, foreign direct investment has dried up, tourists have stayed away, the country’s safety net of foreign exchange reserves has nearly bottomed out and only a fraction of promised aid has materialized. Experts fear this could threaten an already fragile and fraught political transition. Back in the spring of 2011, after the fall of Mubarak, there was no shortage of goodwill for Egypt. The international community pledged billions of dollars in aid and the world’s richest nations promised Egypt and its Arab Spring neighbors $20 billion in funding under the so-called G8 Deauville Partnership. To date, no actual funds have been received from G8 nations. Thomas Mirow, president of the European Bank for Reconstruction and Development or EBRD, one of the banks tasked with funneling funds to Egypt, told me the money was awaiting ratification by donor nations and could be available by June of this year. “We could spend something like 2.5 billion euros a year in terms of investment in Arab Spring countries,” Mirow said. “Every one euro we spend is normally accompanied by two euros from the private sector because we bring along foreign investors.” Mirow said that up to 1 billion euros of that amount could be made available for Egypt and that “technical cooperation” had begun on the first project, providing business advice to a transportation services company in Cairo and Alexandria. Arab nations pledged a total of $7 billion, but according to Egyptian officials, only $1 billion has been received so far, from Saudi Arabia and Qatar. The African Development Bank or AFDB, also part of the funding effort, has yet to agree any new loans. The head of the bank’s North Africa division, Jacob Kolster, told me discussions have been ongoing since March but “so far that has not materialized into concrete new lending operations.” He said the AFDB has $1.5 billion of disbursed loans that were approved before the revolution. Egyptian officials have been reluctant to sign on to any international loans because of the strings usually attached. But with cash running out, little or no income from investment and tourism, and the cost of borrowing from the local markets increasing, officials are running out of options. So this month, the IMF is back in Cairo to negotiate a $3.2 billion loan, more than six months after it was turned away. “I think it’s highly unfortunate that Egypt didn’t take the [IMF] loan early,” Angus Blair, a Cairo-based executive at investment bank Beltone told me. “It was cheap and came with so few conditions, now you’re having to pay more with greater conditionality.” The amount is only a drop in the ocean and will do little to plug the gaping hole in Egypt’s budget. The cash also comes with the IMF’s tarnished legacy of a deeply unpopular structural adjustment and economic reform program imposed in the 90s. There’s also the IMF supported — but notoriously corrupt — privatization program that made billionaires out of Mubarak’s cronies. Still, investors see it as a positive signal. “It is an encouraging step.” said Jean-Michel Saliba an economist at Bank of America Merrill Lynch. “What the government is trying to do is reassure investors that with the IMF stamp they will pursue more prudent fiscal measures.” Investors took flight when unrest broke out last year and have yet to return. Foreign direct investment or FDI evaporated last year after reaching $6 billion in 2010. Investors are worried they don’t have a credible partner to work with and fear investing in a project only for it to be scrapped a few months later. They also want the reassurance of a transparent legal framework for dispute resolution. “Egypt is being seen increasing by a number of multinationals as anti private sector,” Blair said. “Until this changes you’re not going to see a change in FDI.” Investors are also eyeing the ticking time bomb of Egypt’s foreign exchange reserves. They plunged from $36 billion in December 2010 to $18 billion last month and are expected to hit $15 billion this month. That’s only enough to cover two months of import costs, according to an Egyptian military official. With no foreign investors to pump money into the economy and tourism revenues down by a third, the interim rulers have resorted to draining Egypt’s foreign exchange reserves to keep the government ticking over, finance subsidies, and pay for imports. Foreign exchange reserves are also being used to prop up the local currency. Preserving the value of the Egyptian Pound is a priority for Egypt’s military rulers. It is a matter of national pride but it is also about inflation, which would soar if the currency devalued, making basics like food and fuel more expensive for the millions of Egyptians living below the poverty line. Analysts predict that without a serious influx of aid or investment — and fast — the government may have no choice but to devalue the Egyptian pound. But perhaps the elephant in the room is the issue of subsidies. Egypt spends a whopping $20 billion a year on petrol, food and electricity subsidies, with fuel subsidies alone accounting for a quarter of total state spending. Although these provide vital support to Egypt’s poor, experts agree they are not sustainable and are often doled out to industries that could do without them. Dr. Gouda Abdel Khalek, Egypt’s minister in charge of subsidies, told me an overhaul of the program is underway with the aim of reducing fuel subsidies by 20-30%. It’s a tricky balance for those in charge. They need to lure investors back, restore growth and support the private sector, but in an inclusive, sustainable and socially-just way. “There’s a lot of anger in Egypt over the kind of liberal economic models that led to the level of corruption which in the end led to the revolution,” Dr. Claire Spencer, head of the Middle East program at UK think tank Chatham House, said. She said it’s up to Egyptians to decide what type of economy they want and that they must ensure it is capable of employing the millions of jobless. Time is not on Egypt’s side. Along with the dangerously low cash reserves, Egypt’s youth, faced with 25% unemployment and unfulfilled revolution goals, are running out of patience. But some say they might just have to wait a bit longer. “After revolutions things get worse before they get better.” Mirow of the EBRD said. “I hope young people in Egypt show patience and understanding that the very deep structural changes that are needed will not happen in a month.”

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Coalition Takes New Tack To Uncover Corporate Political Spending

January 19, 2012

WASHINGTON — It used to be against the law for executives to spend funds from their massive corporate treasuries to directly influence elections. But two years ago this week , the Supreme Court declared such restrictions unconstitutional — and short of a constitutional amendment , it’s hard to get around that. The Court never said corporations should be able to spend all that money in secret, however. So on Thursday, a coalition of campaign reform and corporate transparency advocates called attention to their petition to persuade the Securities and Exchange Commission to require that corporations publicly disclose their political contributions. “We need to know who’s influencing American elections,” said Sen. Robert Menendez (D-N.J.), one of several backers of the petition, during a conference call with reporters. “We need to know who those corporate interests are and we need to know where they are from, so we can openly determine what they want.” Of the SEC, Menendez said, “It’s the least they can do.” In reaching its January 2010 decision in Citizens United v. Federal Election Commission, the Court “imagined and assumed” there were already robust reporting requirements for political spending, said Robert Jackson, a Columbia Law School professor and a chief author of the SEC petition. “We were dismayed to see the Supreme Court make that assumption because it’s not the case,” he said. Tim Smith, senior vice president at Walden Asset Management, a socially responsible investment company, said members of the Corporate Reform Coalition — which include institutional investors managing $800 billion in assets, public officials, legal scholars and good government groups — “all share the fear that the U.S. democratic process is in danger of being bought and sold.” The coalition’s goal is to “seek new checks and balances” in the wake of the Citizens United ruling, Smith said. Immediately after that ruling, the widespread assumption was that companies would spend their money directly and therefore openly. But instead, corporations quickly found ways to make massive contributions behind a cloak of secrecy, funneling their spending through nonprofit groups that don’t have to publicly disclose their donors. Overtly political nonprofits are supposed to operate under section 527 of the U.S. tax code, which explicitly requires them to publicly identify their donors. But the really big bucks are increasingly flowing through groups formed under section 501(c)(4) — ostensibly for “social welfare” groups — and section 501(c)(6) — for business associations. Among the biggest political spenders in this election cycle, the Karl Rove-associated group Crossroads GPS has applied for 501(c)(4) status, and the U.S. Chamber of Commerce is organized under 501(c)(6). The SEC already has many disclosure requirements , crafted to assure that shareholders have the data they need to make fully informed investment decisions. “The SEC’s disclosure rules have evolved over time in response to investor demands in many ways,” Jackson said. The Corporate Reform Coalition argues that perhaps the most serious disclosure problem today is that the public isn’t getting information on corporate political spending conducted through intermediaries. “Almost nothing is known about this kind of spending,” noted Jackson. Particularly when it comes to intermediaries that don’t have to disclose their donors, “we know nothing,” he said. “We know how much the Chamber of Commerce spends, for example, but we don’t know where it comes from — and this is a very considerable source of political spending.” The coalition includes two state treasurers, who serve as fiduciaries to large public investments. “It’s important as a shareholder to be aware of any conflict of interest or waste that might come from corporate political spending,” said Janet Cowell, the North Carolina treasurer. “Today, corporations have the ability to spend heavily on political causes,” said Ted Wheeler, the Oregon treasurer. “However, corporations also have the ability to obscure that spending from their shareholders.” Wheeler added that the coalition isn’t trying to limit the spending by corporations: “They just oughta tell their owners about it,” he said. And Adam Kanzer, a top manager at Domini Social Investments, raised the possibility that secret political donations are encouraging corruption, conflicts of interest and self-dealing, while distorting the market, to boot. Shareholders, he said, may be unwittingly over-investing in companies that spend a lot of money secretly currying favor with government officials and thus “are winning because the government is going easy on them” — not because they are the soundest. * * * * * Dan Froomkin is senior Washington correspondent for The Huffington Post. You can send him an email , bookmark his page , subscribe to his RSS feed , follow him on Twitter or on Facebook , become a fan and get email alerts when he writes.

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Sarkozy Uses Downgrade To Rally France..Without Mentioning It

January 15, 2012

AMBOISE, France — French President Nicolas Sarkozy says France must have the courage and calmness to make difficult decisions to overcome the financial crisis, in his first public appearance since the country’s credit rating was downgraded. But Sarkozy avoided any mention Sunday of the loss of France’s prized AAA rating in a Standard & Poor’s review two days earlier. Instead he issued a rallying call, saying that a united France committed to reform would make it through. France chooses a new president this spring, and Sarkozy was already behind in the polls before the downgrade. The loss of the AAA rating was a severe blow to France’s self-image and is expected to hurt Sarkozy’s standing even further.

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Charities See Huge Increase In Foreclosed Home Donations

January 5, 2012

Forget collecting coins in a red kettle — charities are increasingly netting donated homes as a result of the foreclosure crisis. And the trend is likely to to continue. USA Today reports that Bank of America donated 150 homes in 2011 and plans to donate more than 1,200 next year. Wells Fargo donated almost four times as many homes this year compared to last. And Habitat for Humanity almost doubled the number of donated homes that it’s rehabbed in the year ending last June. “It’s a win, win, win” Rebecca Mairone, head of Bank of America’s donation program, told USA Today. Those three “wins” include one for the neighborhood where the house is located, one for the bank, and one for the investor. By donating homes — typically of low value — owners rid themselves of a mortgage and the expenses that go with upkeep, as well as earn tax breaks for their donation. Depending on who the home is donated to, it might be torn down, refurbished or rebuilt completely. In some places home donations are becoming too popular. CrainsDetroit.com reports that in Detroit, nearly 98 percent of homes offered are declined, as many are too rundown. And as home donation inquiries increase, some charities are still figuring out what they can and cannot accept. “We had to kind of look at our policy on accepting house donations,” William Brazier, executive director of the Society of St. Vincent de Paul Detroit, told CrainsDetroit.com . But saying “no” to that many home donations still puts most nonprofit organizations and banks ahead of the game. Nonprofit News reports that Real Estate Donations, a division of the West Dundee, Ill.-based nonprofit Restoration America, is still taking advantage of the upward shift in donations. By November, the group had closed on its 101st donated home of 2011. Charles Konkus, president of Real Estate Donations told the news source that was “way ahead” of the 73 last year.

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Moody’s Downgrades Belgium’s Credit Rating

December 16, 2011

Moody’s on Friday cut Belgium’s credit ratings by two notches, saying “fragile sentiment” in the euro zone may cause funding stress for countries with high public debt burdens. The ratings agency lowered Belgium’s local- and foreign-currency government bond ratings to Aa3 from Aa1. The new rating has a negative outlook, which signals another downgrade is possible in a couple of years. (Reporting By Walter Brandimarte and Daniel Bases; Editing by Dan Grebler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Olympus’s Ousted CEO Presses On With Battle To Win Back His Job

December 10, 2011

TOKYO (Tim Kelly) – Olympus Corp’s ousted CEO, Michael Woodford, flies to Japan on Tuesday to press on with a battle to win back his job, as media reported that prosecutors plan to raid the homes of suspects in a $1.7 billion accounting fraud at the camera maker. Woodford wants to meet potential candidates for a new management team for which he will also seek shareholder and investor backing when the board comes up for election at an extraordinary shareholders’ meeting, possibly in February. He will leave Japan on Friday morning, an assistant in Tokyo said in an e-mail. The visit comes as Olympus prepares to issue its earnings before a Wednesday deadline in order to avoid being delisted by the Tokyo Stock Exchange. Even if it does meet the deadline, the 92-year-old maker of endoscopes and cameras could still be dumped from the exchange if its accounting misstatements were large enough. The board, slammed in an independent report on the accounting scandal dragging down the company, has said it plans to stay in place for the time being. Nearly all the current directors served during Olympus’s 13-year cover-up of investment losses. Olympus President Shuichi Takayama said on Wednesday that the earliest an extraordinary meeting to pick the new board could be held was late-February. Takayama, who took over after the scandal broke in October, said the management would not resign before the meeting and would pick its own slate of candidates. PROSECUTORS TO RAID Japanese prosecutors, with police and the securities watchdog, have decided to raid the homes of potential suspects and offices linked to the Olympus accounting scandal next week, media reported on Saturday. The prosecutors’ investigation is expected to cover a total of more than 10 locations, including the main office of the camera maker, Jiji news agency said. Prosecutors are also planning to interview former president Tsuyoshi Kikukawa, who told the independent investment panel set up by Olympus last month that he had only learned about the scandal recently, Jiji said. Olympus has seen its existence threatened by the scandal, in which senior executives cooked the books in a $1.7 billion scheme to hide investment losses. Olympus shares have lost about half their value since Woodford blew the whistle on the accounting problems. The independent panel made up of six legal and accounting experts, described the management as rotten to the core. In order to remove them, Woodford will need the support of most shareholders, including Japanese stock holders, who have yet to voice support for the former president. (Reporting by Tim Kelly and Chikafumi Hodo; Editing by Jonathan Thatcher) Copyright 2011 Thomson Reuters. Click for Restrictions .

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French man ordered to pay wife for lack of ‘duties’

December 1, 2011

(MENAFN – Jordan Times) A court in France has ordered a man to pay 10,000 euros ($13,300) in damages to his long-frustrated ex-wife after he failed in his marriage “duties” by withholding sex from …

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Bank Of New York Mellon Backs Off From Its Plans For Deposit Fee

November 26, 2011

(JED HOROWITZ, Reuters) – Bank of New York Mellon Corp, which was derided for a plan to charge some of its large corporate and investment management clients for holding their deposits, appears to have flinched. The bank has not assessed a penny since warning clients about the possible deposit fee in early August, officials told Reuters, although it remains burdened by cash that it cannot profitably redeploy at rock-bottom interest rates. The fee of 0.13 percent was to have taken effect on August 8 for accounts with more than $50 million that had soared well above their monthly averages as clients fled short-term investments for the safety of U.S. banks. “My guess is that the backlash was pretty stringent and they decided not to do it,” said William Gerber, chief financial officer of TD Ameritrade Holding Corp, a cash-management client of Bank of New York. “I can see their problem but I’m not that empathetic considering all the fees we’ve been waiving.” He was referring to hundreds of millions of dollars of money-market mutual fund fees that financial companies have waived over the past two years lest investors realize negative returns on their fund holdings. Unlike Bank of America, which was shamed into withdrawing a plan to charge its customers $5 for debit card transactions after a torrent of articles ridiculing the proposal, Bank of New York said that its super-sized version of its deposit fee is not dead. “We haven’t charged any clients to date, and the policy remains in place as markets remain unsettled and interest rates remain at historic lows,” BNY Mellon spokesman Ron Sommer wrote in an email. The fee, he added, was aimed at “a small number of clients with extraordinarily high and volatile deposit levels.” In its August letter, the bank urged clients to consider cash investment options “to minimize any effect” of the mooted fee. ANXIETY DROVE DEPOSITS The plan was prompted by a flood of deposits from companies, money-market funds and other clients fleeing short-term investments that exposed them in late July to the then-unfolding Greek financial crisis and from U.S. government securities amid a Congressional impasse over raising the U.S. debt ceiling. A source said Bank of New York’s deposits swelled about 39 percent in a period of two weeks in late July and early August to about $250 billion, underscoring the fragility of the global financial system at any sign of panic and creating balance-sheet management challenges for the bank. At the end of September, deposits were 45 percent higher than a year earlier, Chief Financial Officer Todd Gibbons said in discussing third-quarter earnings, though he said the influx had stabilized since earlier in the quarter. Sommer declined to discuss the deposit levels. Bank of New York continues to attract a heavy flow of cash since it has higher ratings from Moody’s Investor Services than trust bank competitors such as State Street Corp and Northern Trust Corp, another official said. Those banks did not match Bank of New York’s deposit fee announcement, although some commercial banks with larger lending businesses that fund loans with deposits have been passing FDIC fees to some of their small-business customers. The policy was initiated under former Bank of New York Chief Executive Robert Kelly, who was ousted in early September and replaced by Gerald Hassell, a 30-plus-year veteran of Bank of New York who some insiders said was more sensitive to client relationships. Kelly took the top role when the New York bank combined in 2007 with Pittsburgh-based Mellon Financial Corp, which he led. “I believe they are backing away from the strategy, Gerard Cassidy, an analyst at RBC Capital Markets, wrote in an email. “Not certain if it is customer backlash or a rethinking of strategy under new CEO.” Custody banks make most of their money from holding securities and other assets for clients worldwide and ensuring that they are properly accounted for and exchanged when clients demand. Bank of New York swapped its 338 retail branches and small business banking businesses in 2006 for JPMorgan Chase & Co’s corporate trust business and $150 million in cash. The deal helped Bank of New York avoid some of the credit problems that continue to depress earnings of more traditional banks, but deprives it of the ability to negotiate on loans and other businesses in return for winning custody activities. Because rates are so low, many custody banks today are less eager to attract new business or are more aggressive about insisting that clients offset the low-return deposit business by using other services, said Anthony Carfang, head of Treasury Strategies, a Chicago-based consulting firm. (Reporting by Jed Horowitz; Editing by Tim Dobbyn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Fears Of Italy Default Grow As Borrowing Costs Rise

November 10, 2011

Market confidence in Italy’s ability to pay its bills faded quickly on Wednesday, and experts warn that fears of Italian default could weigh heavily on the U.S. economy as it fights against a renewed economic downturn. Interest rates on 10-year Italian bonds rose above 7 percent on Wednesday to a euro-era high, increasing by almost a full percentage point from Tuesday’s rates. While the European Central Bank may yet step in to buy Italy’s debt, allowing the nation to keep making payments on its current debt load, some economists say that it is becoming increasingly likely for Italy to default, dragging Europe and the United States into recession anew. Italian Prime Minister Silvio Berlusconi, who has failed to fulfill his promises to European leaders to slash his government’s massive debt, vowed Tuesday to step down once the Italian parliament has passed austerity measures. But that did not stop investors from demanding higher interest rates from Italy on Wednesday as fears mounted that an Italian default could freeze lending and send banks falling like dominoes. “This is exponentially more serious than Lehman Brothers,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “The exposure of the global banking system is much greater, and there is really a lack of any solution to this.” Nariman Behravesh, chief economist at the economic forecasting firm IHS Global Insight, estimated a 15- to 20-percent chance that Italy will default on its debt, which he said would cause bank runs, a credit crunch and a year-plus-long recession in Europe, leading to a recession in the United States that would send unemployment over 10 percent, he said. Investors around the world panicked in response to the spike in Italian interest rates. The S&P 500 plummeted 3.67 percent, the DAX in Germany fell 2.21 percent and the value of the euro plunged 2 percent against the dollar. Bank stocks also took a beating, as shares for Goldman Sachs fell 8.21 percent, JPMorgan Chase stocks fell 7.08 percent and Morgan Stanley shares plunged 9.01 percent. Economists say borrowing costs are a leading factor in Italy’s possible default. Beyond the nation’s staggering debt and its own economic contraction, Behravesh attributed the spike in those costs to political dysfunction in Europe. Italy will become much more likely to default, he said, if the interest rate on its debt rises above 8 percent. The wider European bank failure likely sparked by an Italian default would likely cause other troubled countries in the euro zone — such as Spain, Portugal and Greece — to miss their debt payments, some economists say, as the other nations’ higher borrowing costs make their debt burdens likewise unsustainable. Before long, the whole of Europe could be plunged into recession. And that plunge would make wider waves. At 27 percent of the global economy, the European Union is the world’s largest player, according to IHS Global Insight, and economists fear a deep recession in Europe would drag the rest of the world down, too. Baumohl said that if Italy defaults on its debt, the United States would fall back into recession because exports to Europe would slow, banks would be forced to take losses on their European loans and debt insurance, and U.S. banks would tighten lending. Behravesh said he expects the European Central Bank to come to the rescue. The ECB most likely will print more money to buy Italian bonds, he said, to allow Italy to keep financing its debt, and European leaders will probably boost the size of the European Financial Stability Facility, the euro bailout fund, to an amount that can at least calm markets. “The ECB now is the only thing standing between Europe and the precipice, so in the end the Germans will come around,” Behravesh said. Borrowing costs for Italy would fall if the country implements the necessary budget cuts and structural reforms to allow its economy to grow and make its debt burden more sustainable, said Sung Won Sohn, an economist at California State University. But Italy seems increasingly unable to address the crisis on its own. Since the country’s liberal opposition party is “very beholden to unions” and the nation is entering a recession, it would be difficult for the government to implement the structural economic reforms and budget cuts necessary to reassure investors and lower interest rates, Behravesh said. Moreover, as the Italian economy shrinks, budget cuts are likely to worsen the economy and debt burden as taxpayers’ incomes fall, he said. An Italian default would endanger French banks the most, since they have invested $106.8 billion in Italian sovereign debt, according to the Bank for International Settlements. U.S. banks have invested $12.9 billion in Italian sovereign debt, which they would lose if Italy defaults. Some economists say that it is also unlikely for Italy to abandon the euro, since the value of the Italian lira would plummet in the international markets. The rush to move Italian money elsewhere would crater the nation’s banks people, rendering the move counterproductive, said New York University economist Nicholas Economides. Stronger European economies might leave the euro if Italy defaults, however, a scenario that some economists see as more threatening. If banks holding European sovereign debt fail absent needed capital, the broader European economy would shrink sharply, endangering the stability of the euro zone as a whole, the economists warn. Behravesh said he expects European leaders to strive to avoid a scenario in which Italy leaves the euro, which would likely precipitate a series of similar departures. After borrowing costs spike for other countries, he said, the temptation for them to devalue their own currencies to have cheaper exports and a cheaper sovereign debt burden would be irresistible. “If Italy leaves, it’s all over for the European experiment, as far as I’m concerned,” Behravesh said. Reuters reported on Wednesday that German and French leaders have discussed creating a smaller euro zone made up of stronger economies. Behravesh said that while he can’t imagine that European leaders have seriously discussed removing Italy from the euro zone, such “really irresponsible” political discussions are contributing to higher interest rates for Italy. “That’s not even playing with fire,” he said. “It’s playing with dynamite.”

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Greece Threatened With Eurozone Expulsion

November 3, 2011

CANNES, France — European leaders drew a line in the sand for Greece on Wednesday, saying its referendum on a hard-won bailout deal will decide whether it stays in the eurozone – and vowing Athens will not get new aid until the result is in. The acknowledgment that the vote – which will likely take place on Dec. 4 – could see Greece leaving the currency union is the first official admission that such an exit is possible and follows almost two years of pledges to the contrary. The move to tie the vote to the fate of the euro is a huge gamble that could endanger the future of the currency union, the centerpiece of Europe’s postwar unity, and potentially push the world economy into another recession. “The referendum … in essence is about nothing else but the question, does Greece want to stay in the eurozone, yes or no?” German Chancellor Angela Merkel said at a news conference together with French President Nicolas Sarkozy. The leaders of the two biggest eurozone economies spoke to the press after emergency talks with Greek Prime Minister George Papandreou in Cannes, France. The discussion also included International Monetary Fund head Christine Lagarde and other top EU and eurozone officials. By turning the referendum into a popular vote on whether Greece wants to remain in the eurozone – the currency union that gave it access to the club of Europe’s richest countries but also allowed it to pile up a massive debt mountain – leaders are taking a risky bet. The exit of the eurozone’s weakest member could trigger a dangerous domino effect that could quickly see Ireland and Portugal, the other two countries that have received bailouts, also leave the currency bloc and cause the financial collapse of Italy and Spain, which are barely hanging on. Papandreou said that he was forced to call a referendum after it became clear that there was no “broad support” from opposition parties for a bailout deal reached with the rest of the eurozone and big banks just a week ago. That deal would supply Greece with an extra euro100 billion ($138 billion) in rescue loans from the rest of the eurozone and the IMF – on top of the euro110 billion it was granted a year ago – and would see banks forgive Athens 50 percent of the money it still owes them. However, in return Greece had to accept another painful round of austerity measures and privatizations – harboring years of more pain for a people already reeling from two years of deep cuts. “I felt that it was important that the Greek people make a decision on these important developments,” Papandreou said. “It is their democratic right and the Greek people, I believe, are mature and wise to make the decision that is to the benefit of the Greek people and the country.” The alternative to the new rescue deal would be a hard default by Greece within days after the referendum, potentially toppling banks across Europe and further undermining an already slowing economic recovery. Europe’s increasingly shaky condition is the center of attention at a summit of the Group of 20 leading world economies in Cannes on Thursday and Friday. The United States, China and other nations are looking to Europe to get its house in order and avoid harming the global recovery. The United States has an important role to play but it is ultimately Europe’s problem to solve, the White House said Wednesday as President Barack Obama headed for Cannes. Merkel and Sarkozy said that a crucial euro8 billion ($11 billion) loan installment to Greece that was due to be paid out by mid-November won’t be transferred until after the vote. Eurozone finance ministers had already signed off on their part of the payment two weeks ago, but leaders said that without the second bailout assured there was no point in carrying on with the first one. “We want to continue with the Greeks but there are rules and it’s unacceptable that these rules are not followed,” Sarkozy told journalists. Papandreou said that Greece would be able to stay afloat until after the referendum – Greek officials had previously said that Athens would run out of money by mid-November – but acknowledged that the schedule was tight. “If everything goes well – which we hope everything will go well in the referendum – it’s quite a few days before the 6th tranche is needed to pay up salaries and pensions and so on,” he said on his way out of the meeting. While eurozone leaders tried to display a concerted front, with Merkel and Sarkozy briefing the press in their now habitual tandem, the referendum is uncovering growing cracks in the eurozone’s unity. “This did not happen in a coordinated fashion,” she said of Papandreou’s sudden decision to call a vote on the bailout deal. Merkel said that because of the referendum, the rest of the currency union now had to build up its defenses more quickly. To make progress in that direction the finance ministers of France and Germany will meet with the EU’s Monetary Affairs Commissioner Olli Rehn Thursday to work on a plan to boost the firepower of the region’s bailout fund to euro1 trillion ($1.4 trillion). That was one of the commitments of last week’s eurozone summit, but investors remained unconvinced by the promise of a larger rescue fund as many questions on how it will work were left unanswered. In Rome on Wednesday, Italy’s Cabinet proposed legislation to sell off government-owned real estate, encourage investment in infrastructure and privatize local public companies in a bid to avoid becoming the next victim of Europe’s debt crisis. While Merkel and Sarkozy both stressed the democratic right of the Greek people to decide its own destiny, Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the Eurogroup, was more direct. “Greece had 8 billion – Greece has lost 8 billion after having made a decision to put all these questions to a referendum,” he told journalists. “That’s a pity.” ___ Angela Charlton and Jamey Keaten contributed to this report.

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Moody’s Downgrades Spain On Corporate, Bank Debt

October 18, 2011

NEW YORK – Moody’s Investors Service Tuesday cut Spain’s sovereign ratings by two notches, saying high levels of debt in the Spanish banking and corporate sectors leave the country vulnerable to funding stress. Further downgrades of Spain’s rating are possible if the euro zone debt crisis escalates, Moody’s warned. The agency cut Spain’s government bond ratings to A1 from Aa2, concluding the review for a possible downgrade it had initiated at the end of July. The new rating has a negative outlook. (Reporting by Walter Brandimarte; Editing by James Dalgleish) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Euro zone crisis set to dominate G20 Paris meeting

October 14, 2011

By Catherine Bremer and Daniel Flynn PARIS (Reuters) – G20 finance chiefs and central bank heads from the world’s biggest economies meet in Paris on Friday needing to find a solution to a deepening euro zone debt crisis that has fanned fears of a global recession. Underlining the challenge for European policymakers, Standard and Poor’s cut Spain’s long-term credit rating, citing the country’s high unemployment, tightening credit and high private sector debt. “This meeting takes place in a context where the absolute priority for the success of the G20 is to find the elements for the stability of the euro zone,” a source at the French finance ministry said. French and German officials are battling to flesh out the bones of a crisis resolution plan in time for a European Union summit on October 23. Fears about the damage a default by Greece — and possibly others — could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 percent from their 2011 high in May. With impatience growing over the crisis, and its implications for the rest of the world, finance chiefs from outside the bloc are expected to speak frankly. “This meeting is an important staging point before (a G20 summit in) Cannes and a valuable opportunity to put pressure on the euro zone,” said a non-euro zone G20 delegate. Canadian Finance Minister Jim Flaherty set the tone late on Thursday, telling reporters before leaving Ottawa that euro zone actions were short of what is needed. Japan would urge its European partners to support the continent’s banks, Finance Minister Jun Azumi said. RISK OF DIVISION Unlike in 2009 when the G20 launched a coordinated stimulus to pull the world out of crisis, the forum is at risk of division as the rest of the world chafes at Europe’s dithering over a debt crisis that started two years ago in Greece, and as Washington and Beijing spar over the yuan currency. Paris and Berlin are taking time to agree on how to recapitalize banks and while Germany favors a second round of losses for Greek bondholders, Paris is reluctant. The two euro heavyweights also differ on the idea of joint bond issuance for the euro zone, with Germany loath to see its debt costs rise. The Franco-German crisis plan is likely to ask banks to accept big losses on their Greek debt and should lay out a system for recapitalizing troubled banks, whose shares have been pounded by fears about Greek exposure. At its core will be an agreement on how to increase the firepower of the EFSF rescue fund, and it should also set out a timeframe for ramping up economic coordination, with closer governance and explicit national laws on balancing budgets. A key concern has been that, whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Spain, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain. The latter two countries, the bloc’s third and fourth biggest economies respectively, have seen their bond yields pushed up by markets worried at high public and private debt levels and weak growth. In Spain, some banks are seen as vulnerable after the bursting of a property bubble, and the country is still struggling with labor market reforms. “Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” S&P said. The agency’s downgrade of the nation’s long-term rating to AA- from AA mirrored a similar move last week by rival Fitch. The G20 may refer to the euro crisis in its communique and in closing news conferences on Saturday evening, but little else of substance is likely to be inked in. CHINA MAY OFFER GROWTH, NO YUAN SHIFT This week’s talks may give the green light to regulators for new rules on banks deemed ‘too big to fail’, including capital surcharges, due to be officially approved in Cannes. Yet any concrete progress on bigger goals such as setting parameters to measure global imbalances and reining in commodity market volatility and speculative capital flows is unlikely to come before a November 3-4 summit in Cannes, where France passes the G20 baton to Mexico. The finance ministry source said that for Cannes, France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses. “We are going to try to make some progress and obtain, perhaps not tomorrow or Saturday but by Cannes, a list of measures country by country which corresponds to what is needed to relaunch global economic activity,” he said. “These must be measures which will have an impact on the real economy.” A separate G20 source said after preparatory talks late on Thursday that China would commit in Paris to boost its consumption through a five-year plan, via households and companies as well as infrastructure, as the G20 seeks tough fiscal commitments from the euro zone and the United States. The G20 countries make up 85 percent of global output. An April G20 meeting placed seven large economies under review — the debt-burdened United States, export-rich China, France, Britain, Germany, Japan and India. Officials have said privately the aim was to get Beijing to discuss the yuan, and China’s cooperation is essential to the success of the process. France has dangled the prospect of the yuan entering the basket of currencies making up the IMF’s Special Drawing Right (SDR) in a bid to divert the debate away from its value and onto the criteria of free “usability” required for this. But the euro zone crisis has derailed French President Nicolas Sarkozy’s hopes of using his G20 presidency to launch a fundamental rethink of the global financial system and its reliance on the U.S. dollar. China and the United States sparred this week over a U.S. Senate bill to press Beijing to raise the yuan’s value, and the issue is likely to create a sideshow at the G20 talks, even if the euro zone crisis pushes it off center stage. (Additional reporting by Randall Palmer, David Milliken, Francesca Landini, Kevin Yao and Abhijit Neogy; Editing by Louise Ireland and Alex Richardson)

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Slovakia’s Government Falls After Losing Confidence Vote

October 11, 2011

BRATISLAVA, Oct 11 (Reuters) – Slovakia’s government lost a confidence vote called on a plan to bolster the euro zone’s EFSF rescue fund, but the package was expected to go through in a later re-vote because the outgoing prime minister planned to ask for help from the opposition. The result had been anticipated after a junior party in the coalition said it would abstain. All of the 16 other euro zone countries have already ratified the plan to give more powers to the European Financial Stability Facility (EFSF). Slovakia’s main opposition party, the leftist Smer, has said it would be willing to discuss supporting the EFSF deal after the government has fallen. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Europe Shares Suffer Worst Monthly Loss Since Lehman Brothers Collapse

August 31, 2011

LONDON (Dominic Lau) – European shares suffered their biggest monthly loss in August since Lehman Brothers collapsed in 2008, with German stocks posting their worst drop in nine years, as worries over slowing growth and the euro zone debt crisis spooked investors. The sharp falls, which wiped more than $750 billion off share values, came in high volumes. Trading turnover in August, which is usually low with many fund managers and traders on holiday, was the highest in almost three years. The sell-off was sparked by an escalation in the euro zone sovereign debt crisis, fears the United Statescould be heading for a recession and the loss of the world’s biggest economy’s triple-A debt rating. In response, investors sought shelter in safe-haven assets such as gold and U.S. and German government bonds, or even just cash. “This month’s performance has been very bad, on the back of a mix of fundamental elements coming in such a short span that the effect on the market was devastating,” Franklin Pichard, director at Barclays France, said. “Political cacophony on both sides of the Atlantic, credit downgrades, doubts about banks’ balance sheets, fears of a repeat of the credit crunch of 2008… coupled with a number of profit warnings. All this has prompted investors to cut their weighting on equities, in favor of cash,” he said. The latest Reuters monthly asset allocation poll showed cash holdings in Europe leapt to 10.4 percent in August from 6.8 percent last month, while asset managers sharply cut equity holdings. “Economic growth is slowing down, with scant hopes of regaining strength any time soon, as governments in developed countries push for budget austerity,” said Giordano Lombardo, Group chief investment officer at Pioneer Investments. “Most of Europe feels the heat of the sovereign debt crisis… We believe volatility will settle down somewhat, otherwise our asset allocation will cut risky assets.” The pan-European FTSEurofirst 300 index of leading European shares lost 11 percent this month, its biggest monthly percentage drop since October 2008 after the collapse of investment bank Lehman Brothers. The benchmark has fallen 14 percent so far in 2011, far outstripping a 2.7 percent drop in the U.S. S&P 500 index. UNDERPERFORMANCE “European stocks have been seriously underperforming U.S. shares this year, with a risk premium linked to the region’s debt trouble, but also as if a U.S. recession had been priced in here but not on Wall Street,” said Catherine Garrigues, senior equity portfolio manager at Allianz GI Investments Europe, which has around $178 billion under management. Germany’s DAX index, which outperformed other major European markets in the first seven months of the year, was down 19 percent in August, its worst monthly fall since September 2002, as investors reassessed the impact of slowing global growth on German exporters. That compared with an 11 percent fall in France’s CAC 40. Some dealers ascribed part of the underperformance of the German blue chip index to a ban on short selling of financial stocks introduced by France, Spain, Italy and Belgium on August 12. Investors use the DAX and DAX derivatives as proxies to bet on falls in the broader European market. However, expectations that the Federal Reserve may step in next month with another stimulus package to boost the U.S. economy have stabilized markets and may help stop the outflow from equities. September tends to be weakest month for equities, with an average monthly drop of 0.7 percent for theMSCI world index between 1971 and 2010. December, by contrast, has seen the biggest gains, with stocks rising 2.2 percent on average. (Additional reporting by Natsuko Waki and Luke Jeffs in London, Blaise Robinson in Paris,; graphics by Scott Barber and Vincent Flasseur; editing by Nigel Stephenson) Copyright 2011 Thomson Reuters. Click for Restrictions .

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L. Randall Wray: Krugman Taken to the Modern Money Cleaners

August 15, 2011

Last week Paul Krugman again attempted to take-on Modern Money Theory (MMT), in his piece ” Franc Thoughts on Long Run Issues .” He complained that he is being “harassed” by those who adopt the approach to money that has been labeled MMT. He conceded that on many issues he agrees with MMT conclusions — particularly in rejecting the hysteria about current US federal government budget deficits. I want to be clear that MMTers recognize and appreciate the role that Krugman has played in fighting against the deficit hyperventilators in Washington. However, he claimed he diverges from MMT’s insistence that “deficits are never a problem” and in particular that deficits will not become a problem when the current “liquidity trap” ends. At that point, Krugman fears, rising interest rates will rapidly increase servicing costs of federal debt beyond what our nation is willing and able to afford. He cites his dissertation that examined such a situation in the case of France after WWI. With insufficient tax revenue to pay the interest due, the government simply expanded the monetary base (essentially, “printing money”) that caused the exchange rate to collapse and inflation to soar. Now this is at least the third time that Krugman has claimed that MMTers say “deficits are never a problem.” He never cites anyone when he makes the false claim. And every MMTer I know has directly refuted his accusation; indeed Stephanie Kelton, Jamie Galbraith and I have all published responses on Krugman’s own blog denying that we believe any such thing. All of us have also published elsewhere detailed refutations, including my post at New Deal 2.0 . These responses to Krugman have received wide circulation. His refusal to change his tune says more about him than about the MMT position. I will not go into the substance of Krugman’s argument about France because I know that other MMTers are providing a detailed analysis elsewhere. However, since Krugman wrote a dissertation on the topic, he must be aware that France’s position between the end of WWI and the beginning of the Great Depression bears no resemblance to the case of the US today. Like most countries, France abandoned the gold standard in the war, went back on gold after the war, and then finally abandoned it again in the Great Depression (it was the last major country to do so — those that went off gold earlier in the depression tended to recover more quickly). So France created a lot of monetary instability as it moved among monetary regimes, and as MMTers argue the gold standard does significantly restrain policy space — bringing into question government’s ability to afford its commitments. And it does not help to fight a world war within one’s borders. Hence, Krugman is just plain wrong to compare France’s situation in that period to the current and future case of the US. However, I do want to address Krugman’s feeling that he is being harassed by followers of MMT. Every time he writes about fiscal policy, he is flooded with comments and corrections from MMTers. It is true — take a look. What is truly remarkable about his post is not what he wrote. But rather it is the overwhelmingly negative response to his post. I recognize a few of the names and aliases of those who rose to the defense of MMT — regular commentators on New Economic Perspectives, Naked Capitalism, Great Leap Forward, New Deal 2.0, Huffington Post and other MMT-friendly blogs. However, there were many, many other missives posted by people unknown to me, from all over the country and even around the world. And most of them got it right. This is by way of saying that MMT has become a global phenomenon. To some extent, we know that. Why else would a Nobel-winning economist and featured columnist at the “newspaper of record” feel the necessity of refuting MMT? Five years ago, those of us who developed MMT could count our followers on the fingers of two hands. Now, NEP regularly gets over 3000 visits and page views daily. Many followers have set up their own MMT blogs. All the progressive social media sites feature MMT on an occasional basis. “Bing” MMT and you get over 50 million hits; “Google” it and you get over 28 million (I don’t know why Bing is more MMT friendly). Just a few short years ago, the only one I knew who blogged was Bill Mitchell. He (correctly) saw it as the future. I was highly skeptical. I wrote my first blog on invitation from TPM in 2008, and later joined ND2.0, and HuffPost regularly carried my writing after that. Yet, even after Stephanie Kelton created NEP, I still saw the blogosphere — or, social media — as something of a lark. Many or even most of the early comments were pretty silly, often by obsessed libertarians with almost no understanding of economics. Certainly this was no match for the New York Times as a source of reasoned analysis. But look where we are today. Take a look at the comments to Krugman’s post. I have no doubt at all that there are hundreds of MMT followers around the world who could go toe-to-toe with Krugman in a discussion of sovereign government finance. And win. And Krugman is the best that the NYT has. Social media not only helps to spread the ideas, but it also helps to develop, refine, and frame them. When MMT was confined to academic discussion among a few adherents and critics, it was necessarily limited by the shared background of the participants. We had the same parents, so to speak, in Smith, Marx, and Keynes. We had all heard the same stories designed to frame our views of economics, history, and policy. Exposing MMT to a broader audience, and — importantly — allowing that audience to respond to our writing forced us to think outside the box. Now, the same dynamic goes on in the classroom — or, at least, it should. I always found that when I must teach an idea, the interaction with students helps to sharpen my own thinking. But often that is still a fairly narrow slice of the population — usually younger people, and by self-selection an audience that will more readily accept what the professor professes (students are not randomly assigned to classes, after all). Social media opens the floodgates to, potentially, anyone with access to the web. It subjects ideas to the accumulated knowledge of humankind. Many of those are quite bizarre, of course. But there was a time when MMT, itself, was bizarre. Contrast that with corporate media (whether for-profit or “public”). Over the past year (at least) every time a National “Public” Radio or New York Times reporter introduces the topic of the US government deficit, she begins by noting that “everyone agrees, of course, that the deficit is out of control.” The debate is framed, and then two “competing” sides are introduced, with the only difference separating them concerning how quickly and by how much the deficit must be reduced. There is no chance for an alternative view; no one can instantly object that the reporter’s statement is patently false — as would be demonstrated by the hundreds of commentators who would readily disagree if given the chance. And many of those responding would be able to shred the two “competing” experts in a fair fight. Every time I hear Ken Rogoff featured on the radio (which is distressingly frequent), I know there are literally thousands of people around the world who understand finance much better than he does. (If you ever run into him, ask him if he has yet figured out what a CDS is.) Yet he gets to drone on about topics he knows nothing about — such as sovereign default risk — while facing no challenge. His anointed role is to push the agenda of the corporate media — which shields itself by circling the wagons and preventing access. Oh, sure, they might spend a couple of minutes a week reading a few selected letters. And they will occasionally give some “expert” (including yours truly) a few seconds on the air. But these exceptions pose no real alternative to the official message conveyed by corporate media. Fortunately, there is an alternative. And you are part of it. The Modern Money Cleaners Brigade. Don’t let up on Krugman.

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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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Four European Countries Ban Short Selling In Order To Protect Markets

August 12, 2011

Four European countries are banning the short selling of stocks in their markets to try to halt the precipitous plunge in value of troubled European banks, a step that some experts say could intensify fears and ratchet up risks of another financial crisis. Belgium, France, Italy and Spain have decided to impose a temporary ban on short selling, beginning on Friday, according to a statement from the European Securities and Markets Authority released Thursday evening, after markets had closed. It remains to be seen how American markets will react to the news. The past week has seen extreme volatility in the Dow and other benchmark indexes, as investors have greeted even seemingly minor developments with amplified responses. The Dow Jones industrial average finished Thursday 423 points up, or nearly 4 percent on the previous day, a lift that was widely attributed to a fall in the number of people submitting claims for unemployment benefits for the week. The ban on short selling carries echoes of the 2008 financial crisis, when the Securities and Exchange Commission temporarily banned short sales in the U.S. , a move that resulted in a brief rally but ultimately did little to arrest the market’s free fall. Thursday’s ban in Europe could be taken as a sign of lack of confidence in the markets, say experts. Investors might interpret it as a harbinger of disaster, and react accordingly. In short-selling, one investor borrows stocks from another and sells them off, hoping their price will drop before she has to buy them back and return them to their original owner. If the price of the borrowed stocks does drop, the difference in price is the borrower’s profit. Critics say that short sales can lead to a downward spiral in stock prices, and argue that policing is necessary to check runaway speculation. Earlier this week, South Korea and Greece both enacted temporary bans on short sales — effective for three months in the case of South Korea, and two months in the case of Greece. Turkey also took steps to restrain short-selling , though it stopped short of an outright ban. In France and Spain, the ban on short sales will last for 15 days , and will only apply to stocks in the financial sector, according to the Globe and Mail . Belgium will ban short sales on four financial stocks for an unknown period of time. It was unclear which stocks the Italian ban would affect, or for how long it would be in place. A spokesman for the U.K. Financial Services Authority told Bloomberg that Britain has no plans to ban short sales .

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Greece: European Leaders Set To Give Financial Rescue Fund New Powers

July 21, 2011

Update: European leaders have agreed to a new Greek rescue plan that will temporarily cause the country to default on some of its debt, according to The New York Times . BRUSSELS (Luke Baker) – Euro zone leaders were set to give their financial rescue fund sweeping new powers to prevent contagion and help Greece overcome its debt crisis, according to the draft conclusions of an emergency summit on Thursday. The leaders met in Brussels after the European Central Bank signaled in a policy reversal that it was willing to let Greece default temporarily as part of a plan involving longer official loans at cheaper rates, a debt swap, a bond buyback but no new tax on banks. Minds have been concentrated by the danger that Europe’s debt crisis could engulf the much bigger economies of Spain and Italy. Greece, Portugal and Ireland have already succumbed. The draft summit statement obtained by Reuters showed the EFSF rescue fund would be allowed for the first time to help states earlier with precautionary loans, to recapitalize banks and to intervene in the secondary bond market. “To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF,” it said, listing those three key steps, all of which Germany had previously blocked. German Chancellor Angela Merkel and French President Nicolas Sarkozy crafted a common position in late night talks in Berlin with ECB President Jean-Claude Trichet. “I expect we will be able to seal a new Greece program. This is an important signal. And with this program we want to grasp the problems by their root,” Merkel told reporters on arrival in Brussels. Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, long vehemently opposed by the ECB, was now a possibility. “The demand to prevent a selective default has been removed,” he told the Dutch parliament. According to the draft, the maturities on euro zone rescue loans to all three assisted countries would be extended to 15 years from 7.5 and the interest rate cut to around 3.5 percent from between 4.5 and 5.8 percent now. The EFSF would be able to lend to states on a precautionary basis instead of waiting until they are shut out of market funding, and to recapitalize banks via loans to governments, even if they are not under an EU/IMF assistance program. It would also be allowed for the first time to intervene in secondary bond markets, subject to an ECB analysis recognizing “exceptional circumstances” and a unanimous decision. Germany blocked all these measures when the European Commission proposed them back in February, at a time when the crisis was less acute, EU sources said. The wider EFSF powers could help deter or minimize any market contagion in case of a temporary Greek default. In an apparent trade-off for Merkel’s new willingness to embrace such bolder steps, Sarkozy dropped a French call for a tax on banks to help fund a second Greek bailout. The leaders were also set to promise a “Marshall Plan” of European public investment to help revive the Greek economy, in a deep recession due to draconian EU/IMF-imposed austerity. MARKETS IMPRESSED The euro and European stocks, which had fallen on talk of a selective default, rallied sharply on news of the draft conclusions. The Stoxx European banking index was up 4.5 percent and the insurance index 3.4 percent. The risk premium investors demand to hold peripheral euro zone government bonds rather than benchmark German Bunds fell to two-week lows as expectations of a bolder-than-expected Brussels deal took hold. “It really shows in the 11th hour leadership from the euro zone leaders,” said Niels From, chief analyst at Nordea. But JP Morgan economist David Mackie was more cautious, saying: “The key question is whether the measures in the package aimed at limiting contagion will work. If they don’t, more socialization (of euro zone debt) will be forthcoming.” The 115 billion euro second Greek rescue package would involve both more official funding from the euro zone rescue fund and the IMF and a contribution by private sector bondholders, as well as Greek privatization revenues. Senior bankers were present in the corridors of the summit but not at the table, officials said. They included Baudouin Prot of BNP Paribas, the foreign bank with the biggest exposure to Greek debt, and Deutsche Bank chief executive Josef Ackermann, chairman of the International Institute of Finance, which drafted proposals for private sector involvement. Top Greek bankers were also present. The IIF proposed a “voluntary” exchange of Greek debt maturing until the end of 2019 for 30-year paper and forecast a 90 percent take-up rate. Euro zone and banking sources said the resulting net contribution of 17 billion euros would mean a write-down of about 20 percent on the value of banks’ Greek bond holdings. The new bailout would supplement a 110 billion euro ($156 billion) rescue plan for Greece launched in May last year. Worried about the impact on financial markets and wary of angering their own taxpayers, euro zone governments have struggled for weeks to agree on major aspects of the plan, especially a contribution by private sector investors. New IMF Managing Director Christine Lagarde also attended the summit. The global lender has urged euro zone leaders to put more money into their 440 billion euro European Financial Stability Facility. The proposed expansion of the EFSF’s role would have to be endorsed by national parliaments, but diplomats said critical lawmakers in Germany, the Netherlands and Finland were likely to back it since the private sector was sharing the burden. Even so, Thursday’s summit is very unlikely to mark a complete resolution of the crisis, as Merkel herself acknowledged earlier this week. A second bailout may simply keep Greece afloat for a number of months before a tougher decision has to be made on writing off more of its debt. Many economists believe the only way out of the euro zone’s debt crisis in the long run may be closer integration of national fiscal policies — for example, a joint euro zone guarantee for countries’ bonds, or issuance of a joint euro zone bond to finance all countries. (Additional reporting by Emmanuel Jarry in Paris, Philipp Halstrick and Andreas Framke in Frankfurt, Gernot Heller and Andreas Rinke in Berlin, Emilia Sithole-Matarise in London; writing by Paul Taylor, editing by Janet McBride/Mike Peacock) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Marc Hershon: How Far Will Your Brand Stretch?

July 15, 2011

Four simple rules to make sure your trademark is limber enough to play in the big leagues. Clients looking for a new brand name often warn that it must be easy to spell (among a host of other concerns) when, in reality, that’s a consideration that can have little bearing on a brand’s ability to be embraced. Many brands these days are primarily encountered visually — be it on the web or through advertising — and when all a potential customer has to do is click a link to find out more, they don’t need to know how something is spelled. They just need to know how to get to the brand… wherever it may exist. That said, not just any word will do. There’s no substitute for thinking through the creation of your trademark, the strategy behind its launch and maintenance, and the many places where it might (and should) appear. Getting In The Game There are four simple rules to follow that can help assure that your trademark can at least get in the game. (Caveat: Just because the rules are simple to understand doesn’t make them easy to execute.) Rule #1: The brand name must be distinctive. Clearly, in today’s crowded marketplace, a new trademark has to have the power to be noticed. The only way to be effective is to gain the attention of consumers who are being avalanched in a glut of information. Whether it’s a real word seen in a new context, an invented brand name with no inherent meaning, or a word that’s been misspelled on purpose, distinctiveness in your category is key. Rule #2: The brand name must be easy to search. Once again, how important is spelling? Even when we’re saying that a trademark has to be easily searchable, you’ve got some latitude. Internet search engines such as as Google and Bing will return searches on misspelled words even while asking if you didn’t mean to look for the correct spelled version. Take out a letter here (such as in flickr ) or substitute one letter for another (as with birst ), and the world can still beat a path to your brand’s door. Rule #3: The brand name must work across multiple media and web platforms. Today you need to be reasonably certain that the name you’re creating will have to fit just as comfortably on the edge of a new handheld device as it would rolling up the side of the Goodyear blimp. One place today’s brands are likely to appear is on an app on an iPhone, Droid or other smartphone device. Keep in mind that the average “acreage” of an app button, for instance, measures 57×57 pixels. That’s about the size of your pinky fingernail. What message can you get across on a billboard that size? Coca-Cola is the best-selling soft drink in the world but the app that carries its name has little to do with the beverage. Instead, it’s the electronic equivalent of the old Magic 8 Ball — answering questions with a randomized selection of smug answers. One wonders why the company didn’t use their much shorter yet equally well-recognized brand name: Coke . By comparison, Vree is an app specifically designed for diabetes management by Merck pharmaceuticals. Created by Lexicon Branding, the Vree name is short and quick, while supporting the idea of being free from worry and free in general (the app doesn’t cost anything). The size of the name alone allows Merck to place it in advertising and other merchandising very easily, where it can begin to tell its own story. Rule #4: The brand name must work well across many languages. This may be the trickiest rule in the bunch. If you’re marketing on the Internet — even if your product or service is locally-based — you are now reaching an international marketplace. And if the name for your offering means something offensive or even off-putting in another language, you could end up not only icing yourself out of that market, but others as well if the offensive translation becomes widely known. Names that share familiar common roots, such as Latin, Greek or Sanskrit, tend to work well in many parts of the world. Even if the word isn’t clearly understood, there can be enough of the meaning coming through that the audience “gets” what your brand is about. Where semantics (the meanings of words) falls down, other factors such as sound symbolism (a principle discussed previously in this blog) can help invented solutions such as Pentium , Febreze or Venza gain acceptance and take on the unique meaning that is your product or service no matter what country or web page in which it is encountered. Can following the four simple rules guaranteed success for your brand name? Of course not. There are many factors involved in bringing a successful new trademark to market, starting with whether the product or service you’re offering is something that people want to buy. But without a name that’s been built to be strong and flexible enough to deliver your message by means of whatever avenues are available, you’ll never get off the ground. Marc Hershon is the co-author of the business book I Hate People (Little, Brown and Company; June 2009) with Jonathan Littman. Marc is a branding expert who, as an Associate with Lexicon Branding , has helped to create such memorable names as BlackBerry, Swiffer, nüvi, and Crackle.com

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UK Vulnerable To Greece Debt Crisis

July 6, 2011

As financial markets brace for the possibility of a Greek debt default, economic officials here are sketching out doomsday scenarios in a grim acknowledgment that even the world’s strongest economies are vulnerable. With Greece shelling out record interest rates, and with some frustrated investors pushing for a default , economists fear that the collateral damage from a credit event could reach these shores. By virtue of our connections to institutions throughout Europe and our reliance on credit, British banks bear heavy indirect exposure to Greece, setting them up for significant losses if the currently perilous Greek debt situation were to evolve into a full-blown crisis, the UK central bank said in a news conference late last month. No one, in other words, is immune. “It’s this issue of interconnectedness in the financial system that policymakers are so worried about,” said Richard Barwell, a London-based economist at Royal Bank of Scotland. “It’s difficult for anyone to be convinced their balance sheet is secure unless they know that the people they’ve lent to, and the people that they’ve lent to, all their sheets are secure, too.” “At the end of the day,” he added, “that’s how you can get those cascades of defaults.” After European finance ministers approved the latest installment of Greece’s bailout package Saturday, concerns remained about the troubled nation’s ability to repay its mounting debt, which is projected to total 160 percent of the country’s economic output this year. For many investors and economists, the question isn’t whether Greece will default, but when. The emergency aid extended to Greece is widely seen as a time-buying measure, and not a long-term solution. Greece likely cannot service its debt on its own, with its 10-year paper yielding nearly 16.5 percent, and its two-year debt throwing off more than 26 percent, according to Bloomberg data. But efforts to hammer out a longer-term fix have been stymied. French President Nicolas Sarkozy outlined a plan last week for banks to stretch their short-term Greek debt into long-term bonds, offering Greece some interest-rate relief. But such a plan would impose losses on creditors and would constitute a default, the ratings agency Standard & Poor’s said Monday. If a default were to spark a broader crisis, weaknesses among Greece’s immediate creditors could quickly spread. “If UK banks are exposed to banks in France which are themselves exposed to a bank in Germany, which is then exposed to Greece, that’s another indirect exposure,” said Mervyn King , governor of the Bank of England, during the news conference. “There’s an infinite regress here.” The direct exposure of UK banks to Greece was relatively small at the end of 2010, at about £12 billion at the time, according to the latest figures from the Bank for International Settlements . But indirect exposure potentially dwarfs that figure. If significant damage were to spread other countries’ private sectors, UK banks could face severe strains, suggests a June report from the Bank of England. The banking sector’s claims on the non-bank private sectors of Spain and Ireland combined constitute about half of those banks’ so-called Tier 1 capital, the money banks set aside to cushion against losses, according to the report. As for UK banks’ claims on France and Germany, those together represent about 130 percent of Tier 1 capital, the report says. “You just don’t know all the interbank connections,” said John Whittaker, an economist at Lancaster University Management School. “It’s like when Lehman went down. Nobody knew who was indebted by how much to who else.” The years after the financial crisis have seen a host of weak European banks become even weaker. Now, the credit ratings on Europe’s 100 largest banks span the widest range in 30 years, according to S&P, the Bank of England said. Calculating the total magnitude of the UK’s exposure to a broader meltdown is impossible, King said. Moreover, any crisis would likely be worsened by a broader loss of confidence, affecting a range of institutions, he added. Creditors would flee and markets would likely freeze, heaping pain on beleaguered governments. “There’s a risk that if something went wrong, you may get a drying of liquidity more generally,” said Simon Hayes, chief economist at Barclays Capital. Or put another way, creditors might decide they “simply don’t understand the complexity of the interconnectiveness of these exposures, and just won’t take the risk of lending,” King said at the June 24 news conference. Such a panic would likely affect the world’s strongest economies. If the crisis spreads here, it would likely also touch the United States, said Barwell, the RBS economist. “The price of a whole range of risk assets would fall,” he said. “There are these huge channels that certainly come into play, which won’t get captured by the simple numbers.”

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French Writer To File Sexual Assault Lawsuit Against DSK

July 4, 2011

PARIS, July 4 (Reuters) – French writer Tristane Banon will file a legal complaint on Tuesday over an alleged rape attempt by former IMF chief Dominique Strauss-Kahn in 2002, her lawyer told Reuters. David Koubbi, Banon’s attorney, said the complaint would relate to an incident that took place when she went to interview Strauss-Kahn in an apartment in Paris. She was 22 at the time and has already publically discussed the incident. “Tristane Banon will file a complaint on Tuesday for attempted rape in Paris,” Koubbi said. (Reporting by Gerard Bon) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Dominique Strauss-Kahn Case Reportedly Near Collapse

July 1, 2011

NEW YORK — Prosecutors have serious questions about the credibility of a hotel housekeeper who has accused former International Monetary Fund leader Dominique Strauss-Kahn of raping her, and they are taking the extraordinary step of seeking a substantial reduction in his pricey bail, a person familiar with the case said Thursday. The person, who spoke on condition of anonymity to discuss matters not yet made public in court, told The Associated Press that prosecutors have raised issues about the accuser’s credibility in the case against Strauss-Kahn, but would not elaborate on what those issues were. A separate law enforcement official who is familiar with the case, but not authorized to speak about it publicly, told the AP that the issue was not necessarily about the rape accusation itself, but about troubling questions surrounding the alleged victim’s background that could damage her credibility on the witness stand. The official refused to elaborate. The New York Police Department, which investigated the case, declined comment. The woman’s lawyer did not immediately return a telephone call seeking comment. Strauss-Kahn has been under armed guard in a Manhattan townhouse after posting a total of $6 million in cash bail and bond. He denies the allegations. Prosecutors with the Manhattan district attorney’s office had argued against his release in May, citing the violent nature of the alleged offenses and saying his wealth and international connections would make it easy for him to flee. “The proof against him is substantial. It is continuing to grow every day as the investigation continues,” Assistant District Attorney John “Artie” McConnell told the judge. “We have a man who, by his own conduct in this case, has shown a propensity for impulsive criminal conduct.” The New York Times first reported that investigators uncovered major inconsistences in the woman’s account of her background, citing two law enforcement officials. One of the officials told the Times that the woman has repeatedly lied since making the initial allegation May 14. The discoveries include issues stemming from the asylum application of the 32-year-old woman, who is from Guinea, and possible links to criminal activities such as drug dealing and money laundering, one of the officials told the newspaper. The Times reported that senior prosecutors and Strauss-Kahn’s lawyers are discussing whether to dismiss the felony charges against him. Another person familiar with the case, speaking on condition of anonymity for the same reason, said earlier Thursday that Strauss-Kahn may get his pricey bail and house arrest arrangement eased in the case at a court hearing scheduled for Friday. The person declined to detail what the new bail arrangements might be. Strauss-Kahn lawyer William W. Taylor would say only that the hearing was to review the bail plan. The district attorney’s office declined to comment. Strauss-Kahn was held without bail for nearly a week after his May arrest. His lawyers ultimately persuaded a judge to release him by agreeing to extensive – and expensive – conditions, including an ankle monitor, surveillance cameras and armed guards. He can leave for only for court, weekly religious services and visits to doctors and his lawyers, and prosecutors must be notified at least six hours before he goes anywhere. The security measures were estimated to cost him about $200,000 a month, on top of the $50,000-a-month rent on a town house in trendy TriBeCa. He settled there after a hasty and fraught househunt: A plan to rent an apartment in a tony building on Manhattan’s Upper East Side fell through after residents complained about the hubbub as reporters and police milled around the building. Under New York law, judges base bail decisions on factors including defendants’ characters, financial resources and criminal records, as well as the strength of the case against them – all intended to help gauge how likely they are to flee if released. Defendants and prosecutors can raise the issue of bail at any point in a case. It’s common, if asking a judge to revisit a bail decision, to argue that new information or new proposed conditions change how one or more of the factors should be viewed. The maid told police that Strauss-Kahn chased her down a hallway in his $3,000-a-night suite in the Sofitel hotel, tried to pull down her pantyhose and forced her to perform oral sex before she broke free. Strauss-Kahn’s lawyers have said the encounter wasn’t forcible, and that they have unreleased information that could “gravely undermine the credibility” of the housekeeper. The defense was using private investigators to aggressively check out the victim’s background and her story. Police Commissioner Raymond Kelly has said the detectives investigating the case found the maid’s story believable. “Obviously, the credibility of the complainant is a factor in cases of this nature,” Kelly said in May. “One of the things they’re trained to look for, and what was reported to me early on, was that the complainant was credible.” The woman’s lawyer has said she is prepared to testify despite a “smear campaign” against her. The Associated Press generally does not identify accusers in sex crime cases unless they agree to it. Strauss-Kahn, 62, was in New York on a personal trip. He left the hotel shortly after the alleged assault – to have lunch with a relative, his attorneys have said. During his initial bail hearings, prosecutors noted that Strauss-Kahn was arrested on a Paris-bound plane at John F. Kennedy International Airport, and that they could not compel his return from France if he fled. His lawyers have underscored that it was a long-planned flight, and they’ve said he wants to return to court to clear his name. He resigned his IMF post after his arrest. ___ Jennifer Peltz can be reached at http://twitter.com/jennpeltz ___ Associated Press writers Tom Hays and Colleen Long contributed to this report.

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Men Charged With Transporting Prostitutes To Vermont Farms

June 30, 2011

BRATTLEBORO, Vt – Federal prosecutors have charged two men with transporting several Hispanic women from New York to Vermont to have sex with farm workers. Alejandro Enrique Young-Hernandez, 53, of Hyde Park, Vermont, appeared Wednesday in U.S. District Court in Burlington on a conspiracy charge of intent to have the women, most in their early to mid-twenties, engage in prostitution at various farms, Assistant U.S. Attorney Heather Ross said on Thursday. According to the criminal complaint, Young-Hernandez, also known as Alex Young, met a Mexican man in October named Jose Tomas Flores-Rocha, also 53, who prosecutors said was in the country unlawfully. Prosecutors alleged that the men began working together to arrange so-called “tricks” for Vermont farm workers at $60 per sexual act, with Flores-Rocha bringing the handful of women from New York for that purpose. Flores-Rocha was arrested near a farm in Vermont on March 16 while traveling with a female illegal alien from Mexico who was working as a prostitute. Prosecutors said he also had a ledger with clients’ and prostitutes’ names, farm addresses, and dates and times of services rendered. Flores-Rocha pleaded guilty on June 14 to transporting the Mexican woman for prostitution and as part of a plea, admitted to having driven more than five women to Vermont for that purpose. He agreed to serve 18 months in jail, with his sentencing set for October 18. U.S. Magistrate Judge John Conroy set Young-Hernandez next court appearance for July 18. If convicted, Young-Hernandez faces up to 10 years imprisonment and a fine of up to $250,000. (Reporting by Zach Howard; Editing by Chris Michaud and Greg McCune) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Bant Breen: The Revealing Conference Call

June 26, 2011

Today we live in an always-on world of networked PC’s and mobiles. As these digitally connected devices continue to add more cameras it is important to remember that we live in an always-seen age as well. Last summer I arrived at my in-laws farmhouse for a vacation. But before my holiday could begin I had one last web conference call presentation with several my colleagues that needed to be attended. I set up my computer and logged into the conference call. The meeting was going to start in about 15 minutes so at the urging of my wife and kids I ran outside and jumped into the pool to cool down and wash the long trip and my worries away. I was having a great time playing with my kids in the water and was shifting into rest and relaxation mode when I remembered about the conference call. I jumped out of the pool and ran back to the house to join the meeting. I sat there in the dark bedroom as my colleagues made presentations about their monthly activities followed by discussion. Finally my name was called and I was asked to speak. My presentation appeared on the screen and in a professional voice I started outlining our corporate progress on various initiatives. My associates were strangely silent as I presented. Finally one of my coworkers from England piped up, “Uh, mate, uh, are you naked?” This was followed by several other affirmative murmurs and chortles. I had not put on a shirt after being in the pool, did not realize the webcam was on and appeared to the global conference call as if I was sitting there au naturale. My colleagues had a field day with this gaffe and I still receive e-mail invitations to conference calls with the line at the end, “Remember to wear a shirt.” There are numerous examples of our connected video cameras capturing the good, bad, funny and ugly. Earlier this year, a Wyoming couple accused a national rent-to-own chain of spying on them at home using their rented computer’s webcam without their knowledge. ‬Thousands of people followed Joshua Kaufman’s saga in Oakland as he took pictures of the thief that had stolen his MacBook from his Oakland apartment in March until the criminal was apprehended. I cannot see the usage of connected video abating. I am a heavy user of virtual meeting technologies and love the ability to share my screen and work with collaborators all over the world. Certainly there are significant privacy concerns and limitations will need to be established. Just remember, if there is a connected camera on your computer or mobile, it is advised to wear a shirt to the virtual meeting.

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Jeff Danziger: Jobs For US Graduates

June 26, 2011
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Marcelo Giugale: Give Africans a Stake in Their Own Wealth

June 23, 2011

When your government announces a big oil discovery, should you celebrate? A lot of sensible people will tell you that you shouldn’t. For them, natural resource wealth — large quantities of things like petroleum, gas or minerals — is actually a “curse,” not a blessing. How come? Well, “extractive industries” can flood your economy with foreign currency, make all your other industries uncompetitive, spoil your environment, and corrupt your politicians. The evidence is pretty suggestive: very few “commodities-rich” countries have done well, most have not. If that’s true, Africa has a problem. Not only is the continent rich in natural resources, but by some estimates it has only found a tenth of its riches. (Believe it or not, comprehensive geological maps of Africa do not exist). To make matters “worse,” commodity prices are projected to stay sky-high until at least 2015. The feeling of an imminent bonanza is already permeating the Congos, Gabon, Ghana, Guinea, Nigeria, Uganda and many others. Is there a way to avoid the curse? It will be easier on the economic and environmental sides — today’s central banks and NGOs know how to intervene quickly if local currencies appreciate too much or if large corporations pollute too much. The trickier issue is how to avoid the corruption usually associated with giving out licenses to explore and exploit, and with using the huge royalties that all this brings to governments. Fortunately, technology can help Africa avoid graft. Some 35 African countries already transfer cash directly to their poor — whether through smart-cards, debit cards, cellphones, or in person. This is getting cheaper and safer. The coverage of banking and cellular telephony services is expanding — the latter at viral speed. And biometric identification of individuals through mobile devices is rapidly catching up (Kenya is a good example). Logistically, there is nothing that prevents governments from transferring a part of the income coming from natural resources directly to each and every citizen, not just the poor. This kind of “direct dividend transfer” is of course not new — Alaska has been practicing it since the early 1980s. They will soon be possible in Africa too. Would putting money in Africans’ pockets, rather than in their governments’ treasuries, really reduce corruption? It probably will, for three reasons. First, it would intensify social monitoring. If you know your government is giving you ten percent of its new oil revenue, you will surely be interested in what it does with the other ninety percent. You will also want the company that explores, exploits and exports your natural resources to be managed competently — if it fails to find, extract and sell, you lose money. You will be less patient with the public monopolies that usually control those resources and behave as self-serving, unaccountable, states-within-the-state. In fact, you will begin to wonder whether your country should get rid of those public monopolies all together, and hire experienced, private operators to work for you. Second, direct dividend transfers would make politics more contestable. There is no question that the transfers would be popular. Social programs that deliver cash to the poor have survived presidential transitions everywhere — for example, in Chile, where the recent political alternation went from left to right, and in El Salvador, where it went from right to left. But incumbent governments may be reluctant to give up part of the easy revenue that comes from commodities — less money, less power. Democracy would take care of that, as politicians in opposition can only gain by proposing to give people real access to their nation’s wealth — “Vote for me and the oil is yours.” And third, alternative ways of transferring natural resource wealth are worse. Governments in resource-rich countries are always under political pressure to be seen as passing some of the “dividends” to the population. The usual means have been to give out tax breaks, sell fuel or food below their cost, or give away jobs in the civil service. All this has in practice been captured by the rich and the connected. (Rule of thumb: the average developing country spends more on subsidizing public college education for the rich than on primary schools for the poor). If anything, giving people a direct stake in their country’s riches can be an opportunity for — and can be funded by — the abolition of other inefficient, inequitable and morally-questionable transfers. You get a dividend, but you accept to pay full price for what you consume. Would transferring the same — probably small — amount of cash to all citizens be fair ? Optimally, one would want to means-test the transfer, that is, to give more to those who have less . However, trying to decide who is how rich in a developing country may prove politically impossible. But a uniform universal dividend would still be “progressive,” that is, it would be of more help to those who need help the most. Imagine: if the average African government decided to pass on a tenth of its resource revenues directly to its citizens, the dividend could be about $100 dollars per person per year. That may be peanuts for the better-off — they may not even bother to collect it — but it would be a huge game-changer for the two-thirds of Africans that live on two dollars a day or less. And if you are not just poor but also female, the transfer would carry a welcome dose of personal independence as well. More subtly, direct dividend transfers could help national unity. In countries where regional, racial or religious differences make it difficult to agree on how to share natural wealth — a problem that is all too common in Africa — the idea that everyone gets a cut of the riches, personally and individually, regardless of location, skin color or faith, just for being a citizen of the country, may be a useful source of national identity. (Yes, new biometric tools can take care of misidentification and fraud.) By now you are thinking: “If the institutions of government cannot be trusted with commodity revenue, should we not try to fix them instead of bypassing them?” True, and good progress is being made in getting civil society to participate in the management of public funds — Ghana is an African leader in that. But building institutions takes time and the new resources have started to come in. By sharing a portion of those resources with people early on , we may buy the time, and the political goodwill, necessary to construct more permanent tools for better governance.

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As Greek Default Appears Increasingly Likely, European Markets Tumble

June 20, 2011

Amid falling European markets and mounting fears of a Greek government default, European financial ministers gave Greece an ultimatum Monday: approve stricter budget cuts or default. Greece had been relying on the promise of a $17.1 billion bailout — a critical piece of a promised $158 billion lifeline — in order to avoid being forced to default in mid-July. Now, European financial ministers have taken their hardest line against Greece yet, handing down a two-week deadline. Greece must sell state assets and implement steeper budget cuts and tax hikes by July 3, or risk defaulting. The ultimatum from European financial leaders, coupled with Greece’s own political instability, could quicken the country’s seemingly inevitable march toward admitting that it cannot meet all of its obligations. If that admission comes too soon, it could roil international markets and cause a string of major bank failures and government defaults across Europe, endangering the euro and the American economic recovery , according to economists. Even as Greece’s new finance minister urged Parliament to pass new budget cuts, a no-confidence vote is approaching , in which Greek Prime Minister George Papandreou could get voted out of office. If Papandreou is replaced, it remains unclear whether the politicians that would replace him would have the mandate to rein in the debt as much as European financial leaders are demanding. Papandreou’s proposed measures fall short of what is necessary, according to some economists . The unemployment rate in Greece remains above 16 percent , and protestors continue to fill the streets of Athens clapping and shouting at the Parliament building, “Thieves! Thieves!” With the turmoil in Greece escalating, investors avoided risky investments Monday. Although U.S. stock markets rose modestly Monday morning, stock prices for American banks such as Goldman Sachs, J.P. Morgan, Bank of America, Citigroup and Wells Fargo plunged more than one percent soon after trading began. The cautious upward rise of Wall Street stocks on Monday helped lift European stocks, which had plummeted more than one percent earlier on Monday. As of early Monday afternoon, the FTSE 100 in Britain had fallen 0.38 percent and the CAC 40 in France had fallen 0.63 percent. Italy’s FTSE Italia All-Share had plummeted 1.97 percent, in light of a recent threat by the ratings agency Moody’s Investors Service to downgrade Italy’s credit ratings because of its exposure to Greek debt. A downgrade could effectively increase Italy’s debt burden if panicked investors demanded higher interest rates, increasing the likelihood of default by the Italian government. The euro, after declining earlier on Monday , made up for its losses against the dollar after European officials announced that the lending capacity of its bailout fund would be increased. If Greece suddenly defaults, it could very well cause a chain of government defaults and major bank failures across Europe, scaring American banks from lending and endangering the American economic recovery. “If Greece is just unable to pay its debts, we are going to see finance suddenly freeze up,” Gus Faucher, an economist at Moody’s Analytics, a research firm independent of the ratings agency, told The Huffington Post on Friday. “We are going to see huge drops in stock prices. Firms are going to get very cautious, very anxious again. They’re going to lay people off. It’s going to be very similar to what we saw in late 2008, early 2009, on top of what we already had. So it would be really disastrous for the American economy.” The International Monetary Fund warned Monday that the debt crisis in Greece and other indebted countries, such as Ireland and Portugal, threatens the European economic recovery and could cause a global financial crisis. The IMF implored countries that have received aid to show “a determined commitment” to cutting their deficit and returning to solvency, while also urging European leaders not to abandon indebted countries. The IMF warned that a sudden default by any members of the European Union could lead to “large global spillovers.” Recent reports released by the economics research firms Roubini Global Economics and MKM Partners have warned that Greece still is very much in danger of default. In a report released on Friday, MKM Partners warned France and Germany’s proposed mix of budget cuts and bailouts would not work for Greece unless the European Central Bank starts to devalue the euro, effectively reducing the debt burdens of troubled European countries. The European Central Bank has taken a hard line against inflation, leaving countries like Greece with fewer and more extreme options to address their debt — steep budget cuts, sudden default or leaving the European Union altogether. The recent report by Roubini Global Economics suggested that Europe’s current approach likely will prove itself ineffective. The report said that since the debt burdens of countries like Greece are unsustainable, bailouts by other European countries — “the preferred crisis-management tool so far” — have not generated enough benefits to ease the fears of either investors or the indebted countries.

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Former Madoff Employee Admits To Falsifying Records

June 6, 2011

NEW YORK (Grant McCool) – A former employee at convicted financier Bernard Madoff’s firm admitted to adding fake employees to the payroll, part of a plea deal on Monday to bank fraud and other charges. The former payroll manager, Eric Lipkin, told U.S. District Judge Laura Taylor Swain in New York that in 22 years of employment in the investment advisory arm of Bernard L. Madoff Investment Securities LLC, he conspired with others to falsify records and deceive authorities. Madoff, 73, and eight others have been criminally charged with running a multibillion-dollar Ponzi scheme that collapsed in December 2008, shaking up regulators who missed years of warning signs of the fraud. Madoff is serving a 150-year prison sentence after pleading guilty in March 2009 for what is considered the biggest investment fraud in history. A Ponzi scheme is one in which early investors are paid with the money of new clients. Lipkin told the judge that from at least 1986, “I created false payroll records.” As one example, he said that in 2008 he was instructed by the firm’s operations manager, Daniel Bonventre, to put Bonventre’s son on the payroll even though he did not work at the firm. Bonventre has also been charged and is free on bail pending trial. Under Lipkin’s plea agreement, he will cooperating with the office of the Manhattan U.S. Attorney and the FBI in its investigation of the Madoff fraud. Lipkin, 37, also said in Manhattan federal court that he created false reports to be sent to the Depository Trust Co (now called the Depository Trust & Clearing Corp) clearing house for buyers and sellers of securities. “I knew these documents were false because they were created by me,” said Lipkin, who was released on bail of $2.5 million after the plea proceeding. Lipkin said the false reports were given to auditors to mislead them. Lipkin pled guilty to charges of conspiracy and falsifying books and records to commit bank fraud. The most serious charge of bank fraud carries a maximum possible 30-year prison sentence. The case is USA v O’Hara et al, U.S. District Court for the Southern District of New York, No. 10-228. (Editing by Gerald E. McCormick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Some Federal Food Service Workers Make More Than State Governors

June 6, 2011

Despite the political power, governors aren’t always the most well-paid government employees in their state. In fact, a recent report from the Congressional Research Service finds that 77,057 federal government employees nationwide make more than their respective state’s governor. The report, requested by Republican Senator Tom Coburn of Oklahoma, reviews 2009 federal employee salaries across the country, and comes during the on-going debate over whether public sector pay rates are draining state budgets. An array of government positions offer higher pay rates than that of governor. Government medical officers, for instance, are the most likely to be paid more than their governor with 18,351 employees nationwide receiving higher pay, according to the report. Air traffic controllers are the second most likely with 5,170 earning more than their governors. Some chaplains, archaeologists and food service workers are also paid more than their state governor, the report said. On his website , Senator Coburn stated that government employees deserve to be paid fairly but was concerned with much of the report’s findings due to the struggling economy. “This report begs for an explanation of why interior designers, recreation planners, and other public employees are enjoying higher salaries than state governors,” he said. And it’s not just federal workers receiving handsome pay, either. In California, state-employed lifeguards are often paid well over $100,000. And athough that still falls short of the California governor’s $212,179 salary, it exceeds the salaries of other state governors, such as Maine’s Paul LePage, who is paid only $70,000. But the problem doesn’t lie with the salaries of full-time government employees, according to Beth Moten, legislative and political director for the American Federation of Government Employees . She says that pay rates for government contractors are what need to be reevaluated, not that of government employees who provide valuable services to the public. “So the government’s paying $700,000 and more for contractor salaries, and Sen. Coburn worries about the pay of physicians who care for wounded soldiers?” Moten asks, according to the Washington Times . “If those governors want to make more money, they should either become contractors or try applying to medical school.”

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U.S. Probing Tech Giants’ Patent Deals

June 5, 2011

The Justice Department is scrutinizing likely bidders for a trove of patents being sold by the bankrupt Canadian telecom-equipment maker Nortel Networks Corp. amid concerns the patents could be used to unfairly hobble competition, according to people familiar with the matter.

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The GOP’s Deal Maker

June 5, 2011

After a few months on the sidelines of the endless budget battles, McConnell is back at the table. A White House that has long ignored him knows that any grand bargain on the budget and the debt limit won’t pass without his O.K.

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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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French See Dominique Strauss-Kahn As Victim Of Plot

May 22, 2011

PARIS — Forget what the New York prosecutor says about Dominique Strauss-Kahn. The doubters in France are legion and the country is abuzz with conspiracy theories. Did Strauss-Kahn bring on his own ruin at a luxury Manhattan hotel? Or did his political enemies in France set him up in a sinister plot to undo the known womanizer who was a top contender to become France’s next president? From the moment that Strauss-Kahn’s arrest for the alleged sexual assault of a chambermaid flashed around the world, doubts emerged in France. A week later, with evidence still under wraps and the accused and the accuser silent, speculation abounds. A poll Thursday suggested that a majority of French, 57 percent, think Strauss-Kahn was the victim of a plot. In a country where low blows pepper the political culture, where people think politicians will do almost anything to keep their perks and where President Nicolas Sarkozy’s approval ratings are sinking relentlessly, a plot against the increasingly powerful IMF chief seems plausible to many. “The trap, you cannot not think of it,” Cooperation Minister Henri de Raincourt conceded on Radio France International a day after the arrest. “But we must let justice follow its course without any prior assumptions.” Strauss-Kahn himself is reported to have voiced fears of a setup involving an alleged rape victim last month with a journalist. And then there are the precedents. Former conservative Prime Minister Dominique de Villepin is now in a slander trial that grew out of accusations he had wind of a dirty tricks campaign against Sarkozy in 2004 and failed to stop it. Sarkozy has said he believes the scheme was meant to upend his 2007 presidential bid. Doubts are still raised over the 1994 suicide, in his office at the presidential Elysee Palace, of the man considered former Socialist President Francois Mitterrand’s closest counselor, Francois de Grossouvre. And there are those who wonder, nearly two decades later, who really aimed the gun in the 1993 suicide of former Prime Minister Pierre Beregovoy. Strauss-Kahn’s fall from grace on May 14 was brutal. It came minutes before his trans-Atlantic flight for a meeting, as chief of the International Monetary Fund, with German Chancellor Angela Merkel. The 62-year-old Socialist who led popularity polls for next year’s presidential race insists he is innocent and has resigned from his job at the IMF to fight the charges. He was indicted by a grand jury on charges including criminal sexual abuse and attempted rape for allegedly attacking a 32-year-old maid, a West African immigrant, in his suite at the Sofitel. Strauss-Kahn is now under house arrest in Manhattan, watched by armed guards and tracked with an electronic bracelet, as he prepares his defense. The French press and Internet forums are flooded with questions from those who suspect a setup or are true believers in his innocence. _ Why would he call the hotel from the airport to recover a forgotten cell phone if he was guilty? _ Why not simply arrange for a female companion rather than assault a maid? _ Why would a maid enter Strauss-Kahn’s presidential suite unaccompanied? “At this stage of the investigation, the hypothesis of a manipulation cannot be swept aside,” sociologist Michele Fize wrote in Sunday’s Le Monde newspaper. Le Monde also quoted the director general of the top French firm handling housekeeping in luxury hotels as saying a maid could be fired for entering an occupied room alone. Luxury hotel maids know the protocol: knock, wait, announce oneself, knock again, open the door slightly, said Marie-Francoise Litaudon of the Francaise de Service Group. Socialist allies thought they saw bids to damage Strauss-Kahn’s image weeks before the arrest, when paparazzi arrived in April to photograph him getting into a flashy Porsche. It wasn’t his car, it belonged to a friend, but that elitist image won’t sit well with Socialist voters. That was followed by an allegation in the France-Soir newspaper that Strauss-Kahn wore $35,000 suits. “There is a campaign against the personality of Dominique Strauss-Kahn,” Socialist lawmaker Jean-Marie Le Guen told Europe-1 radio only hours before the Frenchman was arrested. A journalist for the left-leaning newspaper Liberation said the politician himself foresaw dirty tricks in the upcoming presidential campaign and confided in an off-the-record meeting April 28 the three obstacles he faced: “money, women and my Jewishness.” “Yes, I love women … So what?” journalist Antoine Guiral quoted him as saying. Strauss-Kahn even predicted one possible line of attack against him – “a woman raped in a parking lot who has been promised 500,000 or a million euros to invent such a story,” Guiral quoted him as saying. A poll by the CSA firm showed that 57 percent of 1,007 adults questioned at their homes believed Strauss-Kahn was “certainly” or “probably” the victim of a plot, compared to 32 who felt this was “certainly” or “probably” not true. Those polled May 16 were of all levels of education, it said. No margin of error was provided but it would be plus or minus 3 percentage points for a poll of that size. Bruno Cautres, an analyst at CEVIPOF, a think tank of the prestigious school Science Po where Strauss-Kahn taught for years, says the enormity of the affair and the wave of “this is impossible” remarks by Socialist Party figures may have colored national opinion in favor of a plot theory. “Whatever the country, there will always be those who believe in a plot (to explain) a dramatic phenomenon,” he said. “That is a natural tendency because this phenomenon seems unexplainable and we seek explanations.” Strauss-Kahn’s reputation as a successful womanizer makes an alleged sexual assault even less credible because he had ample access to willing women, doubters say. The French barely shrugged when the IMF investigated Strauss-Kahn for a 2008 affair with an employee then absolved him of wrongdoing. “We have a political culture by which we will pardon a lot of politicians for behavior in private life and not necessarily make the equation that bad behavior in private life equals bad behavior in political life,” said Cautres. Cautres himself dismissed the notion of a plot. “Who would organize it … given the risk of a leak, of a spectacular revelation?” he asked. However, Strauss-Kahn’s defense team will surely be looking for that “banana peel” that centrist politician Dominique Paille suggested may have been strategically dropped. What about that tweet on Strauss-Kahn that set off a frenzy in France from a Science Po masters student who belonged to the youth wing of Sarkozy’s conservative UMP party? “A pal in the United States just let me know that DSK was arrested by police in New York an hour ago,” Jonathan Pinet tweeted at 22:59 p.m. Paris time (2059 GMT, 4:59 p.m. EDT) on May 14. The timing would be shortly after Strauss-Kahn was escorted off on an Air France plane in New York. Rejecting any conspiracy ties, Pinet later explained his information came in a Facebook chat with a friend who has another friend who works at the Sofitel in New York – and who likely mistook the happenings there hours earlier for the actual arrest.

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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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Air France records annual profit despite rising unrest

May 19, 2011

Air France records annual profit despite rising unrest

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Rabah Ghezali: Natives Do Benefit From Immigration Too

May 16, 2011

The public perception of immigrants is often negative, linking them almost exclusively to poverty and security risks. Despite this conventional wisdom, which materializes during elections, there is no proof that immigration has a negative effect on natives. The opposite, in fact, may be true. Immigration may well affect natives positively. That is what some economic empirical studies have recently shown. If common sense commands us to believe that more immigrant workers should put downward pressure on the wages and employment of native workers, economic reality refutes it. Indeed, a recent analysis , conducted in 14 European countries from 1996 to 2007, emphasizes the existence of positive effects of immigrants on the employment of native workers. For instance, for most companies the supply of more workers performing manual tasks generates the need for more technicians and engineers who typically perform more complex tasks. As, generally speaking, migrants tend to occupy low-skilled jobs while natives hold supervising positions, the result of this specialisation is that, outside time of crisis, more immigrants can generate a higher demand for native workforce. Tasks, not native workers, are replaced by immigrants in the production process. Natives may thus have an opportunity to move into tasks, which pay better and that are complementary to manual jobs, for which they compete among each other and not with immigrants. Immigrants boost native workers’ employment only if the latter are flexible enough to adjust to new labour organizations. Inflows of immigrants tend to boost the supply of jobs for the natives who benefit from a comparative skills advantage. And when it comes to wages, due to the complementarity between these migrants and natives’ skills, a raised supply of manual tasks tend to increase the relative compensation for skilled workers, making them better paid. In addition, migrants help reducing the prices in some industries where they are predominantly employed, thus increasing the purchasing power of the natives . A recent study shows that immigrants are beneficial to the French economy: if they receive 47.9 billion euros from the State, they pay 60.3 billion to it. In other words, the balance is 12.4 billion euros positive for the state budget. The taxes paid by the migrants are much higher than what it actually costs to the State in terms of social transfers, thus sweeping aside the idea that immigrants are a burden to the social budgets. Given the characteristics of France’s economy, one should not be surprised if the figures turned to be positive if a similar study was to be done for the United Kingdom. The economic case for labour migration is likely to become more urgent in the coming decades. As human capital has become the most crucial economic determinant in an increasingly knowledge-based world, European governments are increasingly recognizing the importance of skills in generating productivity and growth. Highly skilled workers are vital for ensuring innovation and improving economic efficiency, and therefore for creating new jobs. A study on the impact of the Green Card programme for foreign IT workers, for example, estimated that each highly skilled migrant created on average 2.5 new jobs in Germany . If attracting skilled immigrants becomes key to national competitiveness, there are serious concerns about whether Europe is attractive enough in comparison to North America. Despite substantial structural unemployment in many European countries, native workers are often selective in their choice of occupations and locations. So although the portion of low and semi-skilled jobs is declining, there are substantial gaps in a number of these occupations. Natives’ increasing skills over the decades associated with inadequate remuneration and low status explains why these gaps are increasingly filled by labour migrants. One just needs to open his eyes to observe that immigrants tend to work the jobs that natives do not want to take. Moreover, ageing populations imply a higher ratio of economically inactive to active populations, thus placing a strain on welfare systems. Migrant workers are likely to be the ones paying the health and pensions bills, which are to become more expensive in the future. American and European publics have recently demonstrated a certain propensity to channel their anxieties into migration issues. These anxieties are more the result of deep socio-economic changes that occurred during the last few decades — which make native citizens feel stranger in their own country — than rational responses to the impact of immigration which, as seen, tend in fact to be good for them. Despite the demands of increasingly numerous populist voices to stop immigration, migration can’t be closed down because migrants are part of how modern economies are managed. Simply speaking, immigration is part of national economic policy and needs to be viewed as such by the citizens. In most countries, the migration debate turns to be rather demagogic, mainly because political decision-makers assess this issue through voters’ perceptions rather than through demographic and economic realities. Migration policy is a dilemma stemming from tension between economic and electoral considerations that our uninspired representatives seem unwilling to reconcile. Our leaders should certainly remember that when governing a nation, pragmatism and truthfulness are required, virtues which, when it comes to immigration, unfortunately give way to demagogy and even xenophobia.

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El-Erian: Strauss-Kahn Scandal Could Put IMF ‘Under Huge Cloud’

May 16, 2011

This weekend’s detention of the IMF’s chief on allegations of sexual assault has implications that go well beyond the impact on Dominique Strauss-Kahn’s (or, as he is commonly known, DSK) international prestige. They could also impact the IMF, France, market uncertainty and the well-being of the global economy.

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What Arrest Of IMF’s Head Means For Greece’s Bailout

May 15, 2011

BERLIN — The arrest of IMF chief Dominique Strauss-Kahn complicates a key European meeting on whether to give Greece billions more in aid – but experts insisted one man’s troubles won’t keep the 17 eurozone nations from trying to contain a debt crisis that threatens them all. Eurozone financial leaders are to discuss Greece’s deteriorating economy Monday at a Brussels meeting where experts will brief them on the situation in Athens. Key questions include what conditions to put on more help to the debt-strapped nation, with European leaders unhappy at what they see as limited Greek efforts to raise money by selling government property. Strauss-Kahn was arrested Sunday in New York on suspicion of sexual assault on a hotel maid. Despite the arrest, the International Monetary Fund said in a statement it remains “fully functioning and operational.” The IMF Executive Board convened an informal session Sunday and made Strauss-Kahn’s deputy, John Lipsky, acting managing director while its chief was unavailable. The Washington, D.C.-based lending body also sent Nemat Shafik, a deputy managing director who oversees IMF work in several EU countries, to Monday’s eurozone meeting to replace Strauss-Kahn. Strauss-Kahn had to cancel his Sunday meeting with Chancellor Angela Merkel in Berlin, where the German public is deeply skeptical about putting up any more money for Greece. Germany, as Europe’s largest economy, provided a large chunk of the euro110 billion ($157 billion) bailout for Greece from the European Union and the IMF last year. Greek government spokesman Giorgos Petalotis insisted the arrest would not affect his nation’s efforts to resolve its financial woes. “The Greek government deals with institutions, not individuals, and continues unimpeded to implement the program that will get it out of the crisis,” Petalotis said. German Finance Minister Wolfgang Schaeuble struck a similar tone, saying the eurozone meeting would go ahead as planned. And European politicians had already gotten used to the idea that Strauss-Kahn may leave his post soon to run for president of France next year. Yet others said Strauss-Kahn’s immediate departure from the financial stage adds additional uncertainty to the already difficult situation in Europe. “The leadership vacuum at the IMF comes at a highly inopportune time for Europe, which is teetering on the brink of a full-blown debt crisis,” said Eswar Prasad, a professor of international economics at Cornell University and a former IMF official. Many investors believe that Greece’s financial troubles are so overwhelming that a Greek default or a restructuring that would give creditors less than the full value of their bonds is inevitable. But that would be a serious blow to the euro, and eurozone governments and the European Central Bank appear determined to prevent it. Merkel has stressed that her government will need clear conditions for any new Greek loans before it will back more help. But Schaeuble has conceded that if the experts’ full report in June shows that Greece can’t pay its debts, something more will have to be done. The IMF put up euro30 billion ($43 billion) of that Greek loan and also supplies expertise in assessing whether Greece and other countries that get emergency loans are living up to the conditions attached to them. A euro78 billion ($111 billion) bailout for Portugal was also on the agenda for Monday’s meeting in Brussels, as is Ireland’s progress in dealing with the financial morass that led to its own EU-IMF bailout. With the terms of the Portuguese bailout largely decided, EU finance ministers are expected to signal approval of that deal. Although eurozone ministers were talking about Greece, a new bailout announcement was not planned for Monday. Instead, investors expected a general statement of support, followed by days or weeks of more haggling. Marco Valli, chief eurozone economist at UniCredit, said Greece’s troubles were separate from those of Strauss-Kahn, and he expected a decision on more help for Greece in the near future. “There is no way that just because the IMF’s chief gets into personal trouble that Greece would be left alone,” Valli said. “Maybe it can have some impact on timing, but our view is that this is not going to have a meaningful impact on the bottom line, which is that Greece would get a second bailout package.” Other analysts agreed that the IMF will simply navigate through the upcoming difficulties. “The IMF is not a one-trick pony,” David Buik at BGC Partners in London. “European markets may be damaged by this news for a few hours but there is plenty of depth to the IMF.” ___ AP Business Writer Gabriele Steinhauser contributed from Brussels and Demetris Nellas from Athens, Chris Rugaber in Washington D.C.

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Germany and France expand beyond expectations ahead of euro area GDP

May 13, 2011

Germany and France expand beyond expectations ahead of euro area GDP

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International expedition to recover Air France’s black box

April 26, 2011

International expedition to recover Air France’s black box

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International expedition to recover Air France’s black box

April 26, 2011

International expedition to recover Air France’s black box

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Richard Kirsch: We’re Not Broke. We’ve Been Robbed!

April 25, 2011

We’re not broke. We’ve been robbed by the super-rich and big corporations who are raking in the cash and running up the deficit. Our economy is still more than twice as large as any other country in the world. With 4% of the world’s population, we generate 24% of its wealth . We spend more on our military than almost all other nations combined and more than twice as much per person on health care as other developed countries. But over the past three decades, the rich have gotten richer while their tax rates have plummeted. While the income of the richest 400 Americans quadrupled — they now have more wealth than the 155 million Americans on the other end — their effective tax rates were cut almost in half . One thing is for sure: corporate America is not broke. Sitting on some two trillion in cash, fattened every quarter by record profits, corporate taxes are at an historic low in terms of the economy and share of federal revenues. And that includes Wall Street, which was rewarded with bailouts, bonuses and bonanza profits for igniting the deepest recession in three-quarters of a century. We’re not broke, but the wealth grab is wrecking our economy. The rich can’t spend enough to keep the economy going. The engine that drives it is a strong middle class. The problem isn’t that we haven’t generated wealth, it’s that we’ve stopped sharing the wealth we’ve generated. If wages had kept up with productivity over the past 30 years, the median wage would be 60% higher than it is now. If income had increased at the same rate for everyone from 1979 to 2006, the average family would make about $10,000 more a year , but the top 1% would make $700,000 less. We’re not broke, but the power grab of the greedy is ruining our democracy. None of this happened by accident, nor is it the inevitable result of globalization and technological change. While the rich gobbled up a bigger chunk of the United States’ economy, that hasn’t been true in other developed countries — including Germany, France and Japan — that face the same economic pressures. Our politicians have been bought off with campaign contributions and wined and dined by lobbyists, many of whom used to work for or serve in Congress. Democracy is increasingly a myth; politicians respond to the policy preferences of the richest 10% and ignore the choices of the rest of us . The result has been tax, spending, financial and trade policies that have resulted in huge deficits and a crumbling middle class. The middle class is not only the engine of our economy, it’s the glue of our democracy. A bigger middle class leads to higher voting rates and lower levels of public corruption. When we believe that the system is stacked against us, we’re more likely to drop out or cheat. It’s no wonder that despite elite celebration of economic recovery, Americans are deeply pessimistic about the future . Much of the public believes that our best days are behind us. And unless we build a movement for change, they will be right. Building a movement for change requires both anger and hope. The story I’ve just told gets people angry. To turn that anger into positive change we need the rest of the story, how we can write a happy ending if we rally together. The fact is, it doesn’t have to be this way. We can make other choices that will lead to shared prosperity, opportunity and security for all and a brighter future for our children. We can create good jobs for everyone in America. There is more than enough vital work to be done, and Americans stand ready and eager to do it. We can create tens of millions of jobs, jobs for a green economy and energy independence, jobs to rebuild our infrastructure and create a new one for the information age, jobs to educate our children and take care of our seniors. We can assure that every job — private and public — pays enough to support a family, with decent wages, health and retirement benefits and family-friendly leave policies. We can create good jobs in America with the right trade, tax, purchasing and financial policies. Each of these are political choices, within our control. We can tame the deficit without sacrificing our future by creating good jobs, increasing taxes on the wealthy and closing corporate tax loopholes, cutting unneeded military spending and controlling health care spending through a system that puts quality ahead of quantity and stops overpayments to drug and health insurance companies. There are real budget proposals in Congress that do all that. We can take our democracy back from the super-wealthy and big corporations if we create a real movement for change. We need to embed the reforms necessary for restoring our democracy — public financing of elections, slamming the revolving door shut between Congress and corporate lobbyists, a Supreme Court that has the common sense to see that money is not speech and corporations are not people — in the movement to create shared prosperity and opportunity for all. We’re not broke, but we have been impoverished by an “on-your-own” ideology that denies the best in us. At the end, this is a question of what we believe. When you stood in school and took the pledge of allegiance, was it a pledge for liberty and justice for the few, for the super-rich? Or was it a pledge for liberty and justice for all? That’s the pledge I remember taking: liberty and justice in an America that works for all. Cross-posted from New Deal 2.0 .

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Jay Mandle: The Politics of the Budget Deficit

April 25, 2011

The federal budget showed a surplus of $185.2 billion in 2000. By 2010 it was in deficit by $1.3 trillion. What happened? Only after that question is answered is it reasonable to discuss what we should do. The numbers are clear: between 2000 and 2010 tax revenues declined from 21.5 percent of the economy’s Gross Domestic Product (GDP) to 16.3 percent. During these same years, federal government expenditures increased from 19.6 percent to 25.4 percent. The budget surplus disappeared because revenues declined by 5.2 percent of GDP and expenditures increased by 5.8 percent. 1 It does not take much investigation to explain the contrasting trends in revenues and expenditures. The two tax cuts passed during the Bush Administration, combined with the two recessions that occurred during that administration, starved the government for funds. At the same time, defense expenditures increased dramatically — from 3.7 percent of GDP to 5.6 — while health care rose from 5.0 to 7.3 percent in 2009 (the most recent available data). This means that increased health care and military spending together were responsible for about three-quarters of the growth in government expenditures as a percentage of GDP that occurred during the last decade. Economic downturns and tax cuts, combined with increased military expenditures and escalating health care costs, were clearly the villains. Logic therefore would suggest that these are the areas that need to be corrected. The economy’s vulnerability to crises should be reduced, the Bush tax cuts rescinded, defense expenditures curbed, and the health care sector made more efficient. But as obvious as these corrective steps might seem, the dominance of wealthy special interests in our political system makes it unlikely that any of them will be implemented. Despite the financial debacle of 2007, Wall Street continues to ride high and the economy remains vulnerable to a financial meltdown. Reducing health care costs will require taking on powerful special interests in a way that the Obama Administration has shown no stomach to do. Increasing taxes on the wealthy at a time of mounting income inequality is so obviously a matter of justice that it would seem not to require much of an argument. Yet spokespersons for the elite like Arthur C. Brooks of the American Enterprise Institute recently argued in The Washington Post that increasing taxation on the rich will damage not only the economy but the meritocratic ideals upon which the country rests. 2 Then there is the question of defense spending. The fact is that the importance of the military in the American economy far exceeds that anywhere else in the world. Most Americans are unaware of that imbalance or its implications. But the fact is that defense spending in the United States as a share of GDP is at least twice as high as in any comparably developed country. In contrast to the roughly 5 percent in the United States, France stands out as the big spender in the European Community at 2.4 percent. The United Kingdom’s level is 1.7 percent. 3 This commitment to the military is particularly anomalous because the United States is a relatively low tax country. Defense spending here therefore claims a significantly larger share of the overall budget. One estimate has it that United States spends 19.3 percent of budget appropriations on the military, in contrast to 6.3 percent in the United Kingdom and 5.4 percent in France. 4 The consequence is that desirable social and labor market policies are crowded out for lack of funds much more so in this country than in Europe. The people who most need social support are the same people who pay the cost of our military expenditures. Given the configuration of power in our political system and in particular the dominant role of wealth, it is all too likely that in addressing the budget deficit, legislators will inflict a grave injustice on large numbers of people. Middle and low income households were not responsible for the budget deficit. But the programs from which they benefit that are most likely to be on the chopping block. The deficit emerged because rich people succeeded in achieving major tax reductions, Wall Street decimated the economy, the costs of health care remained exorbitant, and the growth of defense spending remained unchecked. Yet as things stand, none of these will be the object of political redress. It is at times like these — when real and important choices have to be made – that the fundamental dysfunction of a political system based on wealth is most obvious. 1. Statistics from this and the next paragraph are from the Bureau of Economic Analysis, U.S. Economic Accounts, http://www.bea.gov , Table 3.2, 1.1.10, and 3.12 2. Arthur C. Brooks, the Washington Post , April 24, 2010, p. B-1 3. The World Bank, “Military Expenditures as % GDP,” http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS 4. “How Countries Spend Their Money,” % of Total Budget Allocated to Military, http://www.visualeconomics.com

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Scott Bittle: Fiscal Follies: S&P, Groucho Marx, and the Bond Vigilantes

April 21, 2011

Admittedly, we may have an odd sense of humor when it comes to the federal budget. But after an initial shiver of fear, our first reaction to the news that Standard & Poor’s had issued a “negative outlook” for the U.S. national debt was: “Oh, no. Mrs. Teasdale has finally made her move.” You may not know who Mrs. Teasdale is, but she’s the oblivious dowager played by Margaret Dumont who starts the action rolling in the classic Marx Brothers political satire, Duck Soup . That movie starts with a government financial crisis, and Mrs. Teasdale may be the world’s first “bond vigilante.” Some say the term “bond vigilante” dates from the 1980s, while others say it was coined during the Clinton administration. Either way, it describes what happens when the traders who deal in government securities start to get nervous about a nation’s deficits and debt load, and threaten to dump their bonds unless a government changes its policies. That’s what S&P is starting to do with its “negative outlook,” and that’s what Mrs. Teasdale does in Duck Soup . Duck Soup takes place in the fictional nation of Freedonia, which is broke. Mrs. Teasdale, who has more money than sense, agrees to lend $20 million to Freedonia’s government, but only if it will appoint Rufus T. Firefly (Groucho) as prime minister. Things only get worse, and more ridiculous, from there. But while it’s an absurd situation, it’s also an indispensible lesson: when you’re in debt and need to borrow, the people with the cash on hand hold the cards. You might not think the United States and Freedonia have much in common. Now that we know we can’t fix this thing by axing agricultural subsidies and National Public Radio, we face some truly unpleasant choices — cutting spending on things that matter to people and hiking taxes in an economy that’s still sputtering. Right now we’re borrowing to get by, and we can only continue to do that as long as the world’s investors continue to loan us money. Right now, the United States relies on borrowed money that we get by issuing Treasury bonds. We have about $9.66 trillion in Treasury bonds outstanding, and we’ve got another $4.6 trillion in intergovernmental debt (mostly borrowed from the Social Security Trust Fund), which also has to be repaid. U.S, Treasuries are owned by investors around the world ranging from the People’s Bank of China and the “Caribbean Banking Centers” (The Bahamas, Cayman Islands, and the like) to state and local governments to individual bond holders like Mrs. Teasdale. For years, the United States has been in the catbird seat in the world bond market. Both here and abroad, investors have always seen U.S. Treasuries as a prudent, trustworthy investment in a dangerous, changeable world. Government bonds in general are considered one of the safest investments out there, no matter which government you’re talking about, because governments (a) can always raise taxes to pay their bills and (b) rarely go out of business. But sometimes governments get in too deep and then drag their feet on getting their fiscal houses in order. Then bondholders start wondering whether the government is actually good for the money. That’s what has happened to Greece, Ireland, Portugal, and Spain over this past year. The world’s bond markets had their Mrs. Teasdale moment when they started to see these countries as risky financial bets. That’s the reason behind the wave of budget-cutting sweeping over Western Europe right now, as Britain and France try to head off trouble. It’s important to remember: the United States is a wealthy, powerful country, the biggest economy in the world. We’re also the sole superpower, so it’s unlikely any of our creditors would impose a leader like Rufus T. Firefly on us. (We’re not saying he might not get elected on his own.) But it’s risky to think that we’re invulnerable to the power of the bond markets. They know we’re good for the money, if we tax ourselves more and/or spend less. But what S&P and others are really saying is that they don’t think we’ve got the political will to do either one. S&P said there was “significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and presidential elections,” and S&P said there’s a one-in-three chance it would actually lower our bond rating in the next two years. Is it fair that the bond market has this much power? Not really. Did the bond ratings agencies behave as dimwittedly as Mrs. Teasdale when they missed the looming financial crisis in 2008? Sure. Does that change anything? Not at all. We’ve been safe from the Mrs. Teasdales of the world so far, but with new red flags appearing every day, how long can that last? The cold fact is that the federal budget is on an unsustainable path , because as the population ages and our health care costs continue to go up, the costs for Medicare and Social Security are going to skyrocket. In a little more than a decade, our national debt could be as big as our entire economy, and nearly the entire federal budget could be taken up by Medicare, Medicaid, Social Security and interest on the money we’ve already borrowed. If we don’t start getting our deficits down and reining in our long-term spending, someday Mrs. Teasdale will come to call, and she’ll be able to make demands, and we’ll have to listen, and it won’t be funny. At that point, every single one of us could be in duck soup.

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Eric Ehrmann: Brazil Doubles Down on China Trade

April 20, 2011

With food and fuel prices causing inflation and strikes, President Dilma Rousseff has returned from China with over $30 billion in deals that will create some high value jobs and help steady the economy. But while the BRIC nations want to do business in local currencies, most of the government and private sector deals linked to the Dilma visit are dollar plays. Further declines in the US currency will require new intervention, complicating efforts to shift the image of Dilma’s government from the left to the center, a move that is key to attracting global capital in today’s currency war environment. The Dilma in China show was low-fi in contrast with the media circus orchestrated for President Obama’s stopover in Brazil last month. But while American consumer culture drives Brazil’s young, wired and affluent, the China deals — a mix of high tech ventures, defense and security moves and agricultural exports — are reminders of why Beijing has pulled ahead of Washington as Brazil’s top trade partner. To help solidify the foundation of the new Sino-Brazilian relationship, the governments have agreed to increase cultural programs and create what will become Brazil’s largest Chinese language training facility under the aegis of the Federal University of Porto Alegre. Although a study by Estado de São Paulo indicates that the boom under former president Lula brought 20 million citizens into Brazil’s middle class and put computers into 100 million households, team Dilma faces a tough challenge keeping up the momentum. CIA Factbook statistics indicate that income distribution actually worsened during Lula’s eight years in office, with less real wealth trickling down to working Brazilians like those in the northeast who need it most. Brazil’s income distribution, which is the worst among the BRICs, rating a GINI index of 56.7, is also the worst in South America after Colombia. For its part, Beijing has agreed to invest in Dilma’s accelerated growth programs that stabilize the lives of the majority of the population who are on the bubble of marginalization, many earning just the minimum wage of $340 a month (540 Reais). In a move that some in Spanish speaking Latin America might call vendepatria (selling the national patrimony), China now controls and buys most of soybean production in Goias State, an agricultural region the size of Germany. Beijing will invest in processing plants in neighboring Bahia State and help develop transport infrastructure to carry soy product to port. In a nation where politicians of all stripes have a quaint fondness of building highways to nowhere, it costs more to get a cargo of soy product from the Mato Grosso to the port in Parnanagua than it does to ship the same quantity from Brazil to China. China is also helping power Brazil’s growth by investing in the power grid technology for the huge Belo Monte hydroelectric project, which when completed will be the world’s third largest generation facility. Belo Monte has been a newsmaker, drawing criticism from US environmental groups and former US president Bill Clinton, among others. Ironically, International Monetary Fund chairman Dominique Strauss-Kahn, a socialist who wants to become the next president of France, has called for Brazil and China to cool down their relationship and focus on reforms, suggesting that the partnership is fueling the currency wars and unfair to other emerging economies, creating global instability among those who haven’t completely recovered from the ongoing crisis. Meanwhile, finance minister Guido Mantega has announced that Brazil will post a healthy 4 percent growth rate for the first trimester of this year. But while Stauss-Kahn evangelizes against economic nationalism from his bully pulpit, the globalist dimensions of the Sino-Brazilian gambit offer new reminders that to get more money into the hands of those who need it, it may be time to start reforming economics and stop talking about economic reform. Offering China the opportunity to lock in price stability that helps avoid food inflation, the $10 billion soybean deal does not create the value added jobs Brazil needs, masking a low-wage peasant economy stuffed in an agribusiness wrapper. And the $12 billion deal to produce and assemble components for Apple and other mobile items is heavily concentrated in the Amazon high tech free trade zone where unions have little leverage to help workers get higher wages; to help win this deal Dilma recently extended by decree the law establishing the zone for 50 years, citing strategic reasons. Foxconn, the company behind the Apple deal, while the largest exporter of mobile components and devices from the Peoples Republic of China, is actually based in Taiwan. While China-friendly, its key board members have been closely identified with US business and communications intelligence interests including Dan Mehan , a former ATT/ Bell Labs cybersecurity expert. With Dilma playing her cards in the fog of the currency wars and global equity packagers recycling weak dollars into Brazil’s inflation prone economy, one wonders whether if the big deals are trade or aid.

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Duetsche Telekom and France Telecom new venture to save costs

April 18, 2011

Duetsche Telekom and France Telecom new venture to save costs

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Emerging Economies Meeting Could Shuffle Global Power

April 13, 2011

BEIJING — The leaders of the world’s largest emerging economies gather this week in southern China for what could be a watershed moment in their quest for a bigger say in the global financial architecture. Thursday’s summit comes at a crucial moment for the expanded five-member bloc known as the BRICS, which groups Brazil, Russia, India, China, and, for the first time, South Africa. Chinese President Hu Jintao, Brazilian President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh and South African President Jacob Zuma will attend. With the G-20 group of major economies seeking to remake parts of the global financial architecture, it’s time for the BRICS to test whether they can overcome internal differences and act as a bloc pursuing common interests. “The key priority is for the BRICS to put creative ideas on the table rather than just react defensively to proposals put forward by the advanced economies,” said Cornell University economics professor Eswar Prasad, former head of the International Monetary Fund’s China Division. Though largely an ad-hoc grouping at present, the BRICS have the potential to emerge as a new force in world affairs on the back of their massive share of global population and economic growth. With the inclusion of South Africa, the group accounts for 40 percent of the world’s people, 18 percent of global trade and about 45 percent of current growth, giving them formidable heft when dealing with the developed economies. Thursday’s one-day meeting in Hainan’s resort city of Sanya marks only the group’s third annual summit, while moves to lend it greater structure, such as establishing a permanent secretariat, remain under discussion. The five countries are loosely joined by their common status as major fast-growing economies that have been traditionally underrepresented in world economic bodies, such as the International Monetary Fund and the World Bank. All broadly support free trade and oppose protectionism, although China in particular has been accused of erecting barriers to foreign competition. In foreign affairs, they tend toward nonintervention and oppose the use of force: Of the five, only South Africa voted in favor of the Libyan no-fly zone. Yet, while the economies of Brazil, Russia and South Africa are driven largely by raw material exports, India and China – the world’s second-largest economy – are oriented more toward manufacturing and services. Brazil and India are also concerned over large trade deficits with China that critics say are supported by a deliberately undervalued yuan. Politically, Brazil, India and South Africa are functioning democracies, while China, and to a lesser extent, Russia, are authoritarian states characterized by heavy government control over the economy and civil society. The very lack of a common cultural, political or geographical identity brands BRICS as a new type of grouping forged by nontraditional concerns such as trade barriers and monetary policy, said Li Yang, a finance expert and vice president of the Chinese Academy of Social Sciences. “The fact that they are grouped together shows the impact of new factors on international relations,” Li said. In approaching G-20 reforms being proposed by France, which holds the body’s rotating presidency, the BRICS can already point to China’s success in advancing a 6 percent shift in voting rights at the IMF that would give it the third-largest say in decision making after the U.S. and Japan. That move also creates seats for Brazil, Russia, India and China on the IMF’s expanded 10-member governing board, while reducing the influence of Britain, France and Germany. A key concern now will be stemming inflation and pushing back against debt-fueled expansionary monetary policies being pursued by developed nations that now suffer from negative or anemic growth. With about 40 percent of world reserves lead by China with $2 trillion, the BRICS countries share a concern over exchange rate volatility and macroeconomic instability in the developed world. Other priorities include reducing economic imbalances and volatility in commodity prices, pushing for even greater influence in the IMF and other bodies, and gaining a say in the potential introduction of new reserve currencies, possibly including the Chinese yuan. Manbir Singh, a top official in India’s Ministry of External Affairs, said discussions should also cover global security, climate change, and social development goals. At this juncture, the five need to answer some fundamental questions about the future of their bloc, such as whether to plan for a permanent organization or to admit new members, said Zhang Yuyan, director of China’s Institute of World Economics and Politics. “They need to decide whether to focus on boosting coordination among their members or simply representing emerging economies in their dealings with the developed nations,” Zhang said. Regardless of the outcome of such debates, the growth of the BRICS represents an important attempt to create new centers of influence and prevent domination of the world economic order by one or two major players, said South Africa’s ambassador to Beijing, Bheki Langa. “This formation plays a very important role in rebalancing the balance of forces on the world stage,” Langa said.

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Jane White: Did the American Dream Emigrate to Europe?

April 6, 2011

Mickey D’s recent announcement that it’s hiring 40,000 workers bodes ill for the future of job growth in America. According to the National Employment Law Project , while 40% of the jobs lost in the recession were in high-wage industries only 14% of new jobs created were, with 49% of new jobs paying less than $15 an hour. In other words, Mickey D’s job growth is very likely driven by laid-off factory workers who need to grab McMuffins on the way to their new lousy jobs at Wal-Mart that they were forced to take when their unemployment benefits ran out. When globalization is discussed it’s usually focused on the outsourcing of factory and service jobs to low-wage emerging markets such as China and India. But the bigger news that’s rarely covered is that high-wage Europe is not only overtaking the U.S. as the global leader but as a leader whose corporate chieftains actually pay its rank and file decently, provide them generous benefits and tend not to “divorce them,” i.e., lay them off when economic times are challenging. Americans can smugly dismiss the European Union’s role as merely the bailer-outer of dysfunctional countries, i.e., Portugal, Ireland and Greece. But the more significant news isn’t just that the New York Stock Exchange has been bought by NYSE Euronext and Deutsche Borse, but that as of 2007 the value of the European stock market surpassed that of the U.S., according to the excellent book Europe’s Promise: Why the European Way in the Best Hope in an Insecure Age , by Steven Hill. Not surprisingly, the rising value is reflective of the fact that the European Union is now the world’s wealthiest trading bloc, accounting for nearly a third of the world’s economy — almost as large as the U.S. and China combined, says Hill. From 2000 to 2005, Europe added jobs faster than the U.S., posting higher productivity gains and enjoyed a $3 billion trade surplus. Oh, and these Europeans pay high sales and income taxes. Take that, Rep. Paul Ryan! Not only did Germany overtake the U.S. as the world’s largest exporter in 2005, as pointed out in a 2006 Newsweek article entitled “Europe is a House Divided,” but it did so by selling high-quality/cost goods produced by generously compensated workers — its average hourly wage is $48, compared to $32 in the U.S. A little-discussed feature of the European Union is that it’s a partnership between large employers and their workers, not just between countries. Since 1994 when the EU issued a directive on works councils, defined as “composed of both employer and employees convened to discuss matters of common interest,” every multinational company with at least 1,000 workers within the EU and 150 workers in each of two or member states must negotiate agreements with works councils if employees petition the employer to create one, Susan Ladka writes in a June 2005 HRMagazine article entitled ” Working Together .” Works councils not only enjoy veto power over job losses but have the right to meet with management to discuss mergers and the introduction of new technologies, says Hill in Europe’s Promise . In fact, works councils existed long before the EU did. According to a 2001 article in The Economist , ” Europe: You’re Fired ,” Germany had them after the Weimar Republic and after 1945 required any company with more than 500 employees to have a “supervisory board, in which workers hold one third of the seats. A few decades later, other countries in Europe followed suit, including Austria, France, Belgium, the Netherlands, and Sweden. While the UK resisted the notion at first, because, as The Economist put it, the British approach is “sack ‘em now and argue afterwards” — it ultimately passed local works council legislation a few years ago to meet a 2005 EU deadline, Ladka writes. Incredibly, as far as I can tell, no discussion or debate about creating works councils has ever taken the place within “sack-’em-now” American workplaces, much less on Capitol Hill. So our counterparts in Europe are enjoying American-style prosperity while continuing to receive European style benefits, including health care, a free or cheap college education, pensions, and generous unemployment benefits. Our biggest French fan, Alexis de Tocqueville, once said that , “The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” Ironically enough, she need to rip some pages from the European playbook to figure out how to restore the American dream.

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