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menafn.com…

(MENAFN) French President, Nicolas Sarkozy, said that the government would implement more reform measures in order to overcome the country’s economic crisis, reported Xinhua News. Sarkozy added …

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France to apply more structural reforms

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ROME — No European nation is strong enough to ride out the continent’s debt crisis alone, Italy’s new premier insisted Saturday, urging fellow EU members to develop a common growth policy. Premier Mario Monti, leader of the eurozone’s third-largest economy, is an economist who was appointed in November with a mandate to pull Italy back from the brink of financial disaster. “Italy, in order to develop economically and socially, needs Europe, and Europe to be stronger needs Italy,” Monti said in a speech in the northern city of Reggio Emilia at a ceremony honoring the Italian flag. “No European country is so strong that it can go forward alone in facing the great global economies,” he added. “Europe needs to put into action common and coordinated growth policies on financial stability.” With Italy making what he called a “decisive contribution” to euro-zone stability, “now it’s the time for everyone to do their homework. No one can think they can do less than the others. Europe will overcome the crisis only with the determined and united action of all members,” said Monti, a former EU commissioner. Monti didn’t single out any country, but some critics have felt that Germany has been putting its own economic policy ahead of EU-wide interests. Monti will meet with German Chancellor Angela Merkel in Berlin on Wednesday and at a major European summit in Brussels at the end of the month. EU leaders at that summit will be wrestling with a worsening economic outlook, as more European nations tip over into recession, skepticism keeps rising over many EU countries’ bonds and the survival of the euro remains in doubt. “The eurozone must continue to represent an anchor and a secure reference point in all its geographic extensions,” Monti said. Monti has successfully prodded Italy’s often slow-moving parliament into approving quick spending cuts, new and higher taxes and reforms to the long-generous pension system that will see Italians working longer and retiring later. He singled out two factors in Italy’s favor: the fact that many of its families and business “are among the least indebted among industrialized nations.” But the premier tried to rally Italians to combat two chronically stubborn problems: corruption and widespread tax evasion by companies and citizens alike. Foreign investors are frequently discouraged from operating in Italy, where bureaucrats and politicians are often involved in corruption when it comes to securing permits, contracts or funding. Monti’s next priority is spurring growth in Italy, where the economy is stagnant, women have one of the EU’s lowest rates of employment and youth joblessness rates run 30 percent nationally and much higher in the underdeveloped south. But unions have vowed strikes and rallies to protest the government’s plan to overhaul labor laws protecting workers, including abolishing a provision that makes it very difficult to fire workers. Lawmakers, with an eye on 2013 elections, may also be nervous about demanding their voters make financial sacrifices.

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Italian Prime Minister: No Nation Can Fight Debt Crisis Alone

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Naked Man In Children’s Clothing Ad Creates PR Pain

January 5, 2012

Note to management: If you’re selling children’s clothing by featuring kids running along the beach in your ads, not airbrushing out the naked guy in the background could cause some problems. At a minimum, some people are going to wonder how you missed the birthday suit — and doubt that you did. Earlier this week, La Redoute, a French clothing company, posted a picture on its website that featured a boy wearing its T-shirt running along the beach with three other children his age. Behind the kids, there was a man who, with the help of a zoom feature on the site, could clearly be seen in his birthday suit, according to the French news website 20 Minutes . Though the French have a reputation for relaxed attitudes toward nudity, Magali Gruet, the head of the Parisian news department of 20 Minutes, said many readers considered the ad offensive. “It is definitely an outrage, especially on a page with children,” Gruet told HuffPost Weird News. “It has shown up on Twitter, and then people shared it during lunch break.” La Redoute sought to nip any potential fallout by publishing an apology: “La Redoute apologizes for the photo published on its site and is taking steps to remove it. We have opted to delete all the posts including this picture. “We are aware that it may offend the sensibilities of surfers. We will strengthen the validation process of all brand communications so this can not happen again in the future.” Screen Shot From LaRedoute.fr Is that enough? Sally Julien , a Seattle-based PR professional who has represented many global brands, thinks so. “Professionally, I’d say that La Redoute has taken the best course of action in the situation,” she told HuffPost Weird News. “When they realized that some people were offended, La Redoute pulled the offending images quickly, stated its intentions for ensuring that this didn’t happen again, and apologized.” Julien said that “speed and transparency are always the top priorities when situations like this, er, arise. And they appear to have ticked those boxes in a genuine and authentic way.” Still, Julien admitted she was surprised at how the French were reacting to the whole scandale . “I thought only Americans could get so uptight at a bit of nudity,” she laughed. “Looks like we have exported that particular bit of prudishness abroad.” It’s not yet known whether the naked man’s appearance was a mistake made during the photo shoot or if the photo was doctored as a joke of some kind, according to MetroFrance.com . However, Sean Dougherty, a PR professional who has represented such global brands as Sun Microsystems, Moody’s Investors Service, Ernst & Young and Dewey Ballantine, suspects someone at La Redoute might have been ballsy enough to post the naked-guy photo intentionally. “The company either did it on purpose, &agrave la Benetton or Abercrombie & Fitch, to use controversy to call attention to its brand, or it’s historically sloppy in quality control,” Dougherty said. “Neither says anything good about the brand. My advice would be to move on and not speak about it. Attempts to give money to victims’ charities or otherwise show the work behind fixing the problem will make it look more like a stunt, regardless of the reality.” Meanwhile, the photo of the nude beach-goer — whose identity also remains unknown — seems to have become an Internet meme and has already inspired a Tumblr blog . Though the photo has outraged some citizens, Gruet suspects that it won’t have a lasting negative effect on La Redoute’s French customer base. “I think it’s momentary and people are laughing a lot about it,” she said. “The funny thing is their last ad campaign slogan was ‘everything is allowed.’”

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WATCH: Cops Pepper Spray Protesters In Front Of Santa

December 23, 2011

So much for the holiday spirit. Police pepper sprayed Occupy Albany protesters in front of a man dressed as Santa Claus on Thursday night. The incident occurred as police dismantled the protester’s camp, the AP reported. After a judge issued a court order allowing the city to remove the camp’s tents, a large group of city workers and police officers entered the camp. As the last tent was being removed, protesters began to fight back , holding on to it and engaging the cops in a tug-of-war. The AP reports that at least 5 protesters were pepper sprayed, 4 were arrested and 1 was taken away by an ambulance. Albany Mayor Jerry Jennings defended the police action and insisted there was “no legal ambush” or “planned force.” Watch police clash with protesters in the video below.

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Why Finance Shouldn’t Be New York’s One-Trick Pony

December 21, 2011

Every December, New York’s salespeople dust off the Chateau Petrus and the Mercedes-Benz AMG Roadsters in the hope that St. Nicholas, erstwhile patron saint of the city, will drop big bonus checks into the stockings of local financiers. This year, the jolly old elf doesn’t seem to be spreading his largesse too widely on Wall Street. Yet the city as a whole seems to be weathering the financial decline better than one might have expected, and with luck, New York will emerge from this downturn as a more economically balanced city.

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Immigrants Founded Half Of Top U.S. Startups, Study Finds

December 21, 2011

(Sarah McBride) – Immigrants founded or cofounded almost half of 50 top venture-backed companies in the United States, a new study shows, underscoring some of the high stakes in potential immigration reform. The venture capital community argues the study, completed by research group National Foundation for American Policy, proves the need to overhaul rules governing how entrepreneurs can immigrate to the United States to spur job development. “It’s a gamble whether an entrepreneur should stay or leave right now, and that’s not how the immigration system should work,” said Mark Heesen, president of the National Venture Capital Association, on a call with reporters. “What we need is legislation that helps these entrepreneurs from outside the United States.” Of the 50 top venture-backed companies, 23 had at least one immigrant founder, the study found. In addition, 37 of the 50 companies employed at least one immigrant in a key management position such as chief technology officer. Companies with immigrant founders include some of Silicon Valley’s hot start-ups, such as textbook-rental service Chegg, founded by Indian Aayush Phumbhra and Briton Osman Rashid; online craft marketplace Etsy, founded by Swiss Haim Schoppik; and Web publisher Glam Media, founded by Indians Samir Arora and Raj Narayan. The countries that supplied the most founders included India, Israel, Canada, Iran and New Zealand, the study found, and the immigrant-founded companies created an average of 150 jobs. The study looked at the top 50 venture-backed companies as measured by research firm VentureSource, based on factors such as company growth and the amount of capital raised. VentureSource considered only companies valued at less than $1 billion. Young companies and their backers say the rules are too cumbersome and encourage non-U.S. citizens to launch start-up businesses elsewhere, or bog down companies in red tape if they commit to basing in the United States. One obstacle to the loosening of immigration rules for entrepreneurs is a tendency in Congress to consider legal and illegal immigration jointly, Heesen said. Because illegal-immigration issues are so divisive, he said, overall immigration reform has bogged down. The NFAP identified bills pending in the House of Representatives and the Senate that would help through measures such as lowering the amount of capital an entrepreneur has to raise before being eligible for an immigrant visa. (Source: http://www.nfap.com/pdf/NFAPPolicyBriefImmigrantFoundersandKeyPersonnelinAmericasTopVentureFundedCompanies.pdf ) (Reporting by Sarah McBride; Editing by Steve Orlofsky) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Dan Solin: The Big Flaw in 401(k) Reform

December 21, 2011

Here is the harsh reality: 401(k) plans are a false crutch for employees. They simply don’t work, if you define “work” as providing funds that will permit retirement with dignity — if at all. According to Fidelity Investments , average balances in 401(k) plans as of March 31, 2011 were $74,900. Those 55 and older had saved $233,800 on average. Given increased life expectancy, it is understandable that another study found that 61 percent of those surveyed said they were more scared of outliving their assets than they were of dying. Things are not so grim for those who “service” the burgeoning 401(k) industry. These fees abound. It would take an actuary to figure them out. They include plan administration fees, investment fees and individual service fees. The big kahuna are the investment services fees which can include sales charges (also known as loads and or commissions) and management fees. The U.S. Department of Labor summarized these fees here . There has been a lot of focus on fees. Studies have shown that plans with lower fees typically have higher average account balances. The Department of Labor has issued a new rule to improve the transparency of fees and expenses to employees in 401(k) plans. This rule (Labor Regulation 408(b)2) goes into effect April 12, 2012 and requires plan providers to disclose all fees to employers. Employers will be required to demonstrate they have a process in place to evaluate these fees and disclose them to employees. While this is a good start, it will do little to increase average balances in 401(k) plans. The typical plan offers a mish-mash consisting primarily of actively managed mutual funds (where the fund manager attempts to beat a designated benchmark, like the S& P 500 index) with a few index funds and target date retirement funds tossed into the mix. Employees are left to put together a suitable risk adjusted portfolio. Many have no idea how to do so. Here’s what real reform would look like: Every plan should be required to have a minimum of five risk adjusted, globally diversified portfolios (ranging from conservative to aggressive), consisting solely of low management fee stock and bond index funds. Employees would take a short risk capacity survey and select the portfolio suitable for them; Investment advisers to 401(k) plans should be required to state in writing that they are “3(38) ERISA investment fiduciaries”, which means they can have no conflicts of interest. They would accept 100% of the liability for the selection and monitoring of the investment options in the plan. These advisers would be required to provide investment advice to all participants to be sure they have chosen a portfolio suitable for their investment objectives and capacity for risk. These simple reforms would radically improve the expected returns of plan participants. The underlying fallacy in current efforts at 401(k) plan reform is that employees are capable of making intelligent investment choices when presented with a dizzying array of mostly poor investment options. I recently spent time with a group of nurse anesthetists whose plan we advise. It never occurred to me to ask them to give me ten needles and five choices of anesthesia (some good and some dangerous) and let me handle their next patient. Why do we assume employees can be skilled investment advisers? We need reform that makes the process of making investment selections in 401(k) plans foolproof. Current reform just doesn’t cut it. Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of The Smartest Investment Book You’ll Ever Read, The Smartest 401(k) Book You’ll Ever Read, The Smartest Retirement Book You’ll Ever Read and The Smartest Portfolio You’ll Ever Own. His new book, The Smartest Money Book You’ll Ever Read, will be available December 27, 2011.The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Welcome To Amazon Town

December 20, 2011

FERNLEY, Nev.—Behind the piles of smiley-faced Amazon.com Inc. boxes arriving on doorsteps this holiday season are workers like Ray and Sarann Williams.

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Barbara Ficarra: Companies Curb Health Care Costs With Penalties and Rewards for Employees

December 20, 2011

If you’re a smoker your company could be penalizing you by tapping into your wallet. How do companies curb health care costs? Do healthier employees lead to increased productivity? Several progressive companies believe so and have committed to providing employees with programs to help engage them in a healthier lifestyle. As part of the incentives to lead a healthier lifestyle some employers have instituted a penalty and reward system tied to the companies’ benefits. For example, smokers may incur a significant surcharge to the cost of their health insurance plan while nonsmokers could see a reduction in cost. According to an article in the New York Times , a growing numbers of companies including Home Depot, PepsiCo, Safeway, Lowe’s and General Mills are seeking higher premiums from some workers who smoke, similar to Wal-Mart’s addition of a $2,000-a-year surcharge for some smokers. Escalating health care costs In an era of economic turmoil and escalating health care costs, companies are seeking ways to curtail spending while increasing productivity. In 2011, total health care costs per active employee, on average, are expected to reach $11,176, up from $10,387 in 2010. Employers pay 36% more for health care and employees contribute over 45% more than they did five years ago. With pressures mounting for companies to curtail spending and for employees faced with uncertainties, “a decline in health could begin a vicious cycle of increasing out-of-pocket health care costs and stress,” reports Towers Watson . Employers may be facing an unproductive workforce with employee absenteeism. Employees turning away from their health It’s troubling that employees are strained to the point of turning away from and managing their own health. According to Towers Watson, 59% of employees say that managing their health is a top priority; this is down 10 percentage points since 2008. Penalties more than doubled Additionally, according to Towers Watson’s 2011/2012 Staying@Work Report, employers use of penalties more than doubled from 2009 to 2011, rising from 8% to 19%, and is expected to double again by 2012 when 38% of employers plan to have penalties in place. It’s reported that 12% of employers currently reward or penalize their employees based on outcomes. For example, target BMI or cholesterol levels, and an additional 16% are planning this tactic based approach for 2012. “Employers today view health and productivity programs as integral to their overall health benefit strategy and efforts to control health care cost inflation,” said Shelly Wolff, senior health care consultant at Towers Watson,” in a press release statemen t. As companies strive to maximize employee participation in these programs, they are opting for both rewards and penalties. And many are finding these approaches are producing significant results.” While the overall health and well-being of employees is a goal of employers, the main goal is to curb health costs. Employers are frantic to find a way to curb health care costs. “As companies strive to maximize employee participation in these programs, they are opting for both rewards and penalties,” said Wolfe in the press release. Wal-Mart and the other emerging companies feel that charging employees to pay more for unhealthy behaviors such as smoking, is the answer. Is it the answer? Whether it is the answer or not, companies are initiating this tactic. I asked Matthew Holt, founder of TheHealthCareBlog and co-founder of Health 2.0 how he feels about companies like Wal-Mart initiating an out-of-pocket surcharge to employees who smoke. “It’s OK to charge smokers a small amount more so long as there is a real program to help them quit, and that amount isn’t enough to cause hardship or to prevent them from accepting offered employer based health insurance,” he said. If employees don’t stop smoking, they will pay financially for it. [Part 3 addresses the topic of smoking .] Companies are committed to curbing health care costs; however, they are devoted to promoting healthier behaviors, either through penalties or rewards. Reed Abelson reporter for The New York Times writes: “Many programs that ask employees to meet certain health targets offer rewards in the form of lower premiums. At Indiana University Health, a large health system, employees who do not smoke and achieve a certain body mass index, or B.M.I., can receive up to $720 a year off the cost of their insurance. “It’s all about the results,” said Sheriee Ladd, a senior vice president in human resources at the system.” Source: The New York Times “One in four employees would not participate in their company’s wellness program without a financial incentive.” It’s interesting that according to the research by Towers Watson, they found “more than one-quarter of respondents say they must have a financial incentive in order to participate in a wellness program.” But as many as 23% of the respondents say “financial incentives aren’t important and their health isn’t a top priority.” Incentives According to the chart below, “$100.00 in cash” is preferred over vouchers and sweepstakes which would encourage employees to participate in a wellness program. However when the incentive offered is a “One in 10 chance to win a $1,000 airline voucher,” most preferred $100.00 reduction in annual premium. Encouraging wellness may prove more of a challenge for a workforce that seems resistant to a lifestyle change. [Source: Towers Watson] [Part 2 focuses on technology companies tapping into social networking strategies; perhaps these innovative companies can encourage individuals to manage their health and well-being.] Which of the following would most encourage you to participate in a wellness program? [Please see table here.] – Towers Watson Direct financial incentives are valued more than riskier alternatives [Source: Towers Watson] Conclusion Companies are committed to curbing health care costs. Enticing employees with cash savings and incentives is currently gaining traction, but is that sufficient enough to encourage lifestyle changes or do companies need to supplement this with supportive programs for employees? While we agree that engaging employees to take control of their health and lifestyles is a good idea there are tools available to aid and assist a healthier lifestyle which we will explore in my next article. [This is the first of a three part series focusing on behavioral economics. Part 1 delves into the role of the employer offering rewards and penalties to its employees and how incentives are important for the employee for wellness programs. Part 2 focuses on innovative technology companies diving into social media strategies, applications and science of behavior change and social influence. Part 3 lends itself to the individual, focusing on the issue of smoking with a Q&A, since some employers have initiated a surcharge.] Your turn We would love for you to share your thoughts in the comment section below. How do you feel about companies implementing a surcharge for smokers’? Do you agree with companies penalizing employees in order to cut costs? What type of incentive would encourage you to participate in a wellness program? Tell us about your companies’ wellness program. As always, thank you for your valuable time. Follow Barbara on Twitter Visit Barbara on Facebook Like Healthin30 Connect with Barbara on Linkedin Resources: Shaping Health Care Strategy – Employer Survey on Purchasing Value in Health Care -Towers Watson The Smokers’ Surcharge – The New York Times Employees Perspectives on Health Care – Part II Employee Engagement – Towers Watson Use of Rewards and Penalties to Drive Employee Health Jumps During 2012 “Employers Encourage Healthy Behaviors By Hitting Your Wallet” Originally published on HealthWorksCollective by Barbara Ficarra, RN, BSN, MPA

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Europe Austerity Ruining Chance Of Recovery

December 14, 2011

(Carmel Crimmins and Gavin Jones) – Europe’s “no pain no gain” attitude to solving its sovereign crisis risks exacerbating the bloc’s problems, choking off the very growth needed to raise the money to pay down the debt. From Athens to Dublin, and almost everywhere in between, administrations are imposing wave after wave of spending cuts and tax increases to persuade investors they are serious about improving their public finances and persuade them to start buying euro zone sovereign debt again. The austerity zeal risks tipping the continent back into recession and a downward spiral of austerity as pitiful growth prospects undermine budgetary targets and ramp up debt burdens, meaning further austerity is required. “The expansionary fiscal contraction story says that you cut, you show you are serious about cutting and then the confidence fairy will come along and she will start pulling in private investment,” said Stephen Kinsella, professor of economics at the University of Limerick. “The expansionary fiscal contraction story is a lie. You don’t cut your way to growth.” With the crisis spreading like wildfire through the currency bloc’s core, pushing up borrowing costs to unsustainable levels, countries are relying more on blunt budget cuts, than time-consuming and difficult structural reforms, to get results. The upshot is ballooning dole queues, shuttered businesses and public services stretched to breaking point. On the streets of Athens and Dublin poverty has visibly increased with more and more homeless people huddling in doorways. In Spain, emergency wards have been shut and in Italy, retailers are struggling to get by. “Consumption has been falling pretty steadily since the winter of 2008. Normally in a crisis, it starts with menswear and goes to womenswear and children. This time, it’s hit them all at once,” said Attilio Lebole, head of Textura, a mid-range clothing wholesaler based in Florence. “Demand is falling, there’s no doubt about that. Only foreigners are still shopping.” Despite having an estimated budget deficit this year of 3.8 percent of GDP, below the European average of four percent, Italy has been piling on austerity since the summer, destroying its already poor growth prospects and then responding with still more austerity to make up for the weaker growth. Italy’s dismal growth prospects and an inability to pass growth-enhancing reforms have been the key reasons given by ratings agencies for downgrading the country, not deficit slippage. “Italy is paying a very high price for lending credibility to Germany’s push for greater fiscal discipline across the eurozone,” said Nicholas Spiro, head of Spiro Sovereign Strategy. TERRIFIED OF SPENDING In the pre-euro days, currency devaluation was the quick-fire route to getting overblown economies back on track. What’s needed now is “internal devaluation” to get wages and domestic prices down. But if everyone is cutting back where will the demand come from? Global growth was meant to be the secret ingredient that kept the Irish economy ticking over while it slashed household income — down by an estimated 16 percent so far and counting — but the spread of austerity measures across the euro zone has shrunk its growth prospects and forced Dublin to cut even harder. Held up as a role model for other indebted nations, the irony is that Ireland’s recovery story looks set to be tripped up as others follow suit. In Spain, the incoming government is hoping that changes to a labor laws, which would untie wages from inflation, as well as measures to aid new businesses would help spur growth despite painful cutbacks. But analysts are unconvinced and say inevitable austerity measures needed to make tough public deficit targets in 2012 will serve to trim growth even further. A Reuters poll on November 24 showed the economy not growing at all in 2012. Others like savings bank foundation FUNCAS predict the economy will contract 0.5 percent next year as a result of the impending austerity measures. “The deficit objectives are so tough that in the short-term it’s not going to allow the government room to stimulate the economy or create jobs. There is no fiscal margin to do so,” said Angel Laborda, head of research at FUNCAS. Across the euro zone, retailers are bracing themselves for yet another drop in Christmas cheer as sales taxes are hiked in Italy, Greece and Ireland. The Greek Commerce Confederation (ESEE) is predicting a 22 to 30 percent fall in retail sales, with per capita spending seen dropping to 288 euros from 410 last year and 550 euros in 2009. And the New Year isn’t looking much better. Last week’s European summit laid out plans for balanced budgets implying austerity budgets for years ahead for many European states. Hilary Behan has already closed three of her six children’s clothes stores in Ireland, cut her staff from 38 to 20 and asked her store managers to take pay cuts of between 10 and 15 percent. Sales are down by over a third since 2008. “It just keeps getting worse and that’s the worrying thing there is no sign of any recovery. Every time the government get a chance they remove any chance of there being any sort of a recovery,” she said. “It’s not even the amount of money that they are taking from people it’s the constant battering. People are terrified to spend.” (Additional reporting by Giulio Piovaccari in Rome, George Georgiopoulos in Athens and Nigel Davies in Madrid. Editing by Jeremy Gaunt.) Copyright 2011 Thomson Reuters. Click for Restrictions .

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ECB’s Stark: More IMF Involvement In Europe ‘Would Be Act Of Desperation’

December 12, 2011

Higher involvement by the International Monetary Fund (IMF) in the euro zone’s efforts to stem its debt crisis would be an act of desperation, outgoing European Central Bank chief economist Juergen Stark said, calling for a quantum leap by the currency bloc. “It would be an act of desperation,” he was quoted as saying by Sueddeutsche Zeitung due for publication on Monday. Stark said he envisaged an informal panel of experts to check on member states’ budgets. “That would be the nucleus for a future European finance ministry,” he said. (Reporting by Annika Breidthardt) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wall Street Finishes Week Higher After EU Deal

December 9, 2011

NEW YORK (Reuters) – Stocks rallied on Friday, finishing the week higher after European Union leaders agreed on a plan to toughen the region’s budget rules to help restore market confidence after a two-year sovereign debt crisis. The agreement went some way to address the structural problems behind the bloc’s debt crisis, but investors said more was now needed to relieve stress in the region’s troubled debt markets. “The fiscal agreement will help, but not for long,” said George Feiger, chief executive of Contango Capital Advisors based in San Francisco. “There is no happy ending to the situation. There are just solutions that are not horrible,” he said. Equities had risen in anticipation of a plan, with the S&P 500 up 6.5 percent since late November. But Wall Street tumbled on Thursday after the European Central Bank dashed hopes for additional bond buying. There are investors who believe the ECB will eventually have to commit to bigger purchases of euro zone sovereign debt to shore up the battered market. At least part of Friday’s rally was a snap-back from the previous session’s losses, traders said. The Dow Jones industrial average ended up 186.56 points, or 1.55 percent, at 12,184.26. The Standard & Poor’s 500 Index was up 20.84 points, or 1.69 percent, at 1,255.19. The Nasdaq Composite Index rose 50.47 points, or 1.94 percent, at 2,646.85. For the week, the Dow rose 1.4 percent, the S&P gained 0.9 percent and the Nasdaq was up 0.8 percent. Banks, which have been pressured by the uncertainty over Europe, rallied after the EU summit. Bank of America Corp rose 2.3 percent to $5.72, while JPMorgan Chase & Co added 3 percent to $33.18. The Financial Select Sector SPDR rose 2 percent. In the latest sign of resilience in the U.S. economy, consumer sentiment rose to its highest level in six months in early December on signs of a better jobs market and an improving economy, according to a survey by Thomson Reuters/University of Michigan. The EU summit failed to secure changes to the EU treaty among all the member countries and investors warned the move was far from a panacea. Indications suggest the region is sliding into a recession and questions about how to bring down high sovereign debt yields are still unanswered. Goldman Sachs suggested that investors short German equities through the benchmark DAX index in a note to clients published late on Thursday. “The European summit seems focused on a set of future priorities for increased fiscal risk sharing and the outlining of some of the needed elements of a new fiscal arrangement, but looks to have little to say about alleviating proximate stresses in Greece and Italy and the European banking system more generally,” Goldman said. Still, Italian bonds reversed losses, with traders citing frequent European Central Bank forays into Italian debt markets throughout the day. Traders also said “fast money” accounts were covering short positions in bonds of so-called peripheral EU countries. Some caution signals were sent by major U.S. companies. DuPont and Co fell 3.1 percent to $45.04 after the Dow component cut its 2011 profit outlook, citing slower growth in some businesses. Texas Instruments Inc cut its revenue outlook for the current quarter, warning of lower demand. The stock ended flat at $29.94. (Reporting By Angela Moon; Editing by Kenneth Barry) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Crisis In Europe Threatens Retirement Funds

December 3, 2011

As Europe teeters on the edge and the eurozone faces the possibility of a breakup, Americans readying themselves for retirement may need to shield their savings from a volatile stock market. The crisis in Europe is weighing on U.S. stocks, with the domestic stock market having plummeted 8.7 percent since its peak in late April. Many economists have predicted that a breakup of the eurozone would potentially plunge the U.S. into another recession. Considering that destructive potential, older Americans ought to avoid stocks and focus on safer investments such as government and corporate bonds, while people further from retirement should stay the course, experts say. While people nearing retirement usually tend to hold a larger proportion of their portfolios in bonds than stocks, some investment managers and advisers said that they should allocate an even larger proportion of their retirement funds in bonds than usual because of the crisis in Europe. “If you’re older than your typical retiree, then by all means put more of it in higher-quality bonds, because this eurozone issue is not resolved,” said Anthony Valeri, a markets strategist for fixed income with LPL Financial. Valeri recommended that people at retirement age prepare a portfolio of 80 to 90 percent high-quality U.S. bonds and just 10 to 20 percent stocks. “Some positive return [on bonds] is certainly going to help, even if it’s low.” A recession in Europe would likely bruise numerous U.S. stocks, especially bank stocks, Valeri said. If the eurozone broke up, retirement fund investments in stocks could decline 17 percent in value, while high-quality bonds probably would rise 5 to 10 percent in value, he said. Valeri added that investors who are more than five years away from retirement should keep investing in what he said are currently undervalued stocks, since they still have good long-term outlooks. Retirement plans are already taking a hit. The average Fidelity Investments retirement plan declined 12 percent in value in the third quarter of this year, putting investors behind where they stood a year ago. Few safe havens would exist in the event of a eurozone breakup, said Clark Yingst, chief market analyst for the investment firm Joseph Gunnar. He said that if a eurozone breakup looks increasingly likely, people near retirement should buy long-term U.S. government bonds, dollars and gold. If the eurozone enters a deflationary spiral of more expensive goods and lower consumer spending, a normal retirement fund would lose as much as 20 to 30 percent of its value, said Peter Cardillo, chief market economist for Rockwell Global Capital. Cardillo emphasized that since the stock market has already fallen in response to the likelihood of a recession in Europe, a recession that avoids a eurozone breakup would not hurt retirement funds a great deal. A recession in Europe would, however, damage U.S. companies by reducing European consumer demand for American goods, weakening export-driven economies in Asia and Latin America that help support U.S. economic growth, and drawing value out of U.S. stocks, since 14 percent of all S&P 500 stock sales come from Europe, said Howard Silverblatt, senior index analyst at S&P. U.S. stock values would plummet as the economic outlook in Europe darkens, he said. Some large U.S. companies have a major presence in Europe, according to Silverblatt. For example, 39.8 percent of McDonald’s sales are in Europe, as well as 25.2 percent of Johnson & Johnson’s sales, 32 percent of the sales at health care companies Becton Dickinson and Baxter International, and 17 percent of Disney’s sales, he said. A eurozone breakup could pull down the price of many of these European stocks. “It would take a huge chunk out of everything,” Silverblatt said of a eurozone breakup. Christopher Philips, senior analyst at the investment management company Vanguard, said that because of the crisis in Europe, this would be a good time for people to reconsider their overall allocation of investments between stocks and safer bonds. While the U.S. bond market consistently rose between 5 and 7 percent per year in 2007, 2008 and 2009, according to Philips, the stock market was more volatile. The S&P 500 plummeted 41 percent in 2008 and spiked 28 percent in 2009. If people want steadier income from their retirement funds, they should consider investing more in high-quality U.S. bonds, he said. But people who are still far from retirement should keep investing their retirement funds in the stock market, since stocks give retirees the best chance to maintain their long-term purchasing power in spite of inflation, some investment managers said. Stuart Ritter, vice president and financial planner at T. Rowe Price, noted that the return for investors in the S&P 500 between 1995 and 2010 — during the technology boom and bust, housing bubble, and recent financial crisis — was an average of 7 percent per year, outpacing inflation. Philips noted that declines in the stock market sometimes precede recessions, rather than occur at the same time, so it would not be a good idea to divest from retirement funds based on the stock market and economic climate. Instead, it would be best to invest a consistent 12 to 15 percent of income in one’s retirement fund, he said. “Trying to time those markets can do more harm than good,” Philips said. “One investor can end up on the wrong side of the investment if it doesn’t work out.”

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German Chancellor: Solving Euro Crisis Will ‘Take Years’

December 2, 2011

BERLIN — German Chancellor Angela Merkel flatly rejected any quick-fix ideas to try to resolve the European financial crisis, telling lawmakers Friday that treaty changes and a stricter fiscal union were the only path forward – a process could take years. Merkel and French President Nicolas Sarkozy are pushing for a reorganization of existing European Union regulations, in order to ensure the eurozone’s long-term stability and win back the trust of markets that have grown jittery over what they view as European dithering. In laying out to the lower house of Parliament plans she will take to a Dec. 9 EU summit in Brussels, Merkel insisted the 17 nations that use the euro currency need to strengthen European Union institutions and eurozone financial regulations. She called for closer supervision of national budgets, coupled with legal regulations that would allow for stronger enforcement of spending rules. “The German government has made it clear that the European crisis will not be solved in one fell swoop…” she said. “It’s a process, and this process will take years.” Merkel said that because the crisis is above all one of trust, in order to move forward, “we need to do away with the underlying deficiencies in the fiscal and currency union.” “In order to win back trust, we need to do more, where we today have agreements, we need in the future to have legally binding regulations,” Merkel said. The eurozone’s current budget rules have been violated about 60 times over the past decade by a number of nations – including Germany – but no country has been seriously punished. To ensure that nations are keeping their budgets in check with the limits of the stability pact – deficits not more than 3 percent of gross domestic product and overall government debt of not more than 60 percent of GDP – Germany is pushing for the right to take countries in violation before the European Court of Justice. “We have to win back that trust that was damaged 60 times,” Merkel said. On Thursday, Sarkozy called for a “refounding and rethinking the organization of Europe.” He said that without some new “convergence” among European countries, the continent’s crushing debt could destroy the euro. Merkel and Sarkozy are to meet Monday to finalize their joint strategy ahead of next week’s EU summit. Stock markets across Europe welcomed the calls for more strict regulations through EU treaty changes, rising overnight on Sarkozy’s comments. The bond yield for Italy also continued to drop, an indication of improving investor confidence in that country’s financial future. Merkel reiterated her objection to so-called eurobonds, held jointly by all EU nations, telling Parliament that jointly backed government debt across the eurozone is no solution. “The current discussion (about joint bonds) does not contribute to solving the crisis,” Merkel said. She also pushed back against charges that Germany, along with France, is trying to dominate the EU, singling out those nations whose governments have been forced to push through tough austerity measures and praising their efforts. “I don’t think we can imagine how much these people contribute so that the euro will be a lasting and stable currency,” Merkel said. “I would like to express my absolute respect before these efforts, for that is a contribution to Europe’s future.” She also rejected an idea floated this week, of taking advantage of a clause in the EU’s constitution to allow the eurozone nations to enact their own treaties for governing the currency, underlining that any treaty changes must include 27 member states. “We are going to Brussels with the goal of pushing through treaty changes, in order to avoid a spirit of division between the eurozone and non-eurozone members,” Merkel said. ___ Associated Press Writers David Rising and Kirsten Grieshaber contributed to this report.

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Analysis: MF Global Collapse Proves Enron-Style Accounting Lives On

December 1, 2011

The off-balance-sheet accounting methods that Enron and Lehman Brothers made famous in their epic failures years ago have a modern-day poster child: MF Global. Like its predecessors, the bankrupt brokerage formerly run by Jon Corzine took advantage of an accounting maneuver to keep certain financial obligations off its books, making the firm look less indebted and thus less a risk than it really was. On Thursday, Mary Schapiro, chairman of the Securities and Exchange Commission, told a committee of Congress the SEC was investigating the accounting treatment that helped mask MF Global’s exposure to risky foreign sovereign debt. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on MF Global’s balance sheet, click on link.reuters.com/wyk84s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The fact that MF Global was able to use the technique highlights how off-balance-sheet moves are evolving as quickly as new regulations intended to stop them. Earlier this year, the Federal Accounting Standards Board changed its rules to bar an off-balance-sheet loophole that had helped Lehman Brothers get into trouble in 2008. The fixes of FASB regulators often are too specific to keep firms from trying new tacks, said several analysts, academics and former regulators. “They keep trying to put a Band-Aid on this thing, but you’ve got this problem that is huge and requires major surgery,” said Penn State University accounting professor Ed Ketz. WITHIN THE RULES MF Global’s version complies with current accounting rules. Other Wall Street firms use it too, though generally for ultra-safe U.S. Treasuries, which the government promises to repurchase at face value. In MF Global’s case, the off-balance-sheet accounting itself didn’t cause the firm’s downfall, but it allowed MF Global to use borrowed money to make billions of dollars in ultimately catastrophic bets on European sovereign debt – and obscured the risk those bets posed to the company. Nothing was done to force MF Global to respond until the U.S. Financial Industry Regulatory Authority demanded that MF Global’s broker dealer business put aside more cash and liquid assets to absorb any losses in its European bets. Moody’s downgraded the firm, setting off a rapid drop in confidence that ended with the firm’s October 31 bankruptcy. Moody’s senior analyst Al Bush told the Wall Street Journal last month his firm was surprised to learn that MF Global’s large off-balance-sheet position was not being held for clients, but was the firm’s own bet. Law-enforcement officials, regulators and the bankruptcy trustee are still searching for as much as $1.2 billion in missing investor money believed to have been unlawfully mingled with the firm’s own funds. The firm has said it is cooperating fully with the investigation. Corzine has been quiet on the matter since his November 4 resignation, though at that time he pledged to help the firm respond to inquiries. REPO MF Global’s off-balance-sheet maneuver involved what’s called a repo, or repurchase agreement. In repo deals, a firm borrows money, but puts up assets as collateral, assets it agrees to repurchase later. Repo deals are common, and typically don’t move assets off the balance sheet. Lehman got in trouble for doing deals in late 2007 and in 2008 using a slightly different move, what it called the “Repo 105,”, which used to get assets off its balance sheet, often just days prior to its reporting deadlines. Lehman’s repo created “a materially misleading picture of the firm’s financial condition,” according to a 2010 report by Anton R. Valukas, the now-defunct firm’s Bankruptcy Court examiner and chairman of Jenner & Block law firm.. It has been closed by a new FASB rule being implemented this quarter. (link.reuters.com/cuc45s) MF Global used a version of the off-balance-sheet move called “repo-to-maturity.” The firm offered billions of dollars in sovereign debt as collateral on a series of loans designed to expire at the same time as the collateral itself. With the collateral and the loans coming due simultaneously, MF Global might never take possession of that debt again. That entitled the firm to count those as sales, and moved $16.5 billion off its balance sheet, most of it debt from Italy, Spain, Belgium, Portugal and Ireland. It did disclose a $6.3 billion exposure to European debt, a figure that eventually became a concern for regulators and others doing business with the firm. To top it all off, the accounting for these deals added $124 million in financing payments to the firm’s revenue over the last four quarters, according to SEC filings, firm documents and people close to the firm. HARD TO TRACK It’s hard to track the intricacies of repo-to-maturity deals. A few other financial firms including Oppenheimer, Nomura Holdings and Merrill Lynch have disclosed that they use the structure. Much like MF Global, Nomura used the deals to help build a bet on European debt that was as high as $3.6 billion at the end of September, but which has now been cut by the Japanese firm to $884 million. A New York spokesman for Nomura could not immediately be reached for comment. Accounting and financial experts are starting to call for a re-examination of the repo structure that MF Global used. “We are talking to FASB about whether that is a policy that ought to be changed,” Schapiro said on Thursday, referring to the Financial Accounting Standards Board. In response, a FASB spokesman declined immediate comment. Last month, Leslie Seidman, FASB chairman, told Reuters in an interview that the U.S. accounting rule maker relies on regular contact with regulators, investors, accounting experts, companies and accounting firms to know what accounting concerns are out there and no one had raised questions about repo-to-maturity transactions. Accounting rules since Enron have forced many deals onto the balance sheet and disclosure of important details on other deals. Hundreds of billions of dollars of investments in credit card debt, for example, moved onto balance sheets after accounting changes in 2010, though similar bets on real estate loans remain largely off bank balance sheets. Hundreds of billions of dollars in obligations of all types sit off balance sheets. In the banking industry, the bigger off-balance-sheet categories are unused credit, investments backed by pools of loans and derivatives. Excluding derivatives, which are largely offset by other investments aimed at limiting their risk, U.S. bank holding companies’ off-balance-sheet obligations totaled over $9 trillion in September, according to an analysis of Federal Reserve Board data by Montanus Group. More than half of that came from unused lending commitments, 70 percent of which were promised by the 10 largest banks. That’s down almost $700 billion in the last two years, in part because of changes in accounting rules that required banks to bring some of their off-balance-sheet deals onto the books. For MF Global, repo-to-maturity deals pushed assets and liabilities off their balance sheet while providing a source of income for a company that had a drop in other sources, especially interest income. MF Global earned $286.8 million in its last full fiscal year from interest income after expenses. Three years earlier, that figure was $502.1 million. “In this type of environment, when it’s tough to generate high returns on anything, institutions may try to get a little cute in the way they take positions,” said Montanus Group managing partner Nathan Powell. “That’s the lesson I take from MF Global.” (Reporting by Nanette Byrnes in Chapel Hill, N.C.; Editing by Amy Stevens, Howard Goller, Gary Hill) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Mohamed A. El-Erian: Listen to the Occupy Wall Street Movement

October 10, 2011

To those wondering whether to pay attention to the “Occupy Wall Street” (OWS) protests, the answer is yes. This is more than just a nascent movement that will grow in the weeks and months ahead. It is part of a worldwide drive for greater social justice. Like recent examples of peaceful grass-root protests — from those that delivered the Egyptian and Tunisian revolutions to the massive street demonstrations in Israel — OWS has taken many by surprise. In just a few weeks, a self-organized group of diverse individuals planted the seed for what is becoming a national movement that exponentially gains energy and visibility. Yet some observers seem to be repeating a mistake that many made in Egypt, Israel and Tunisia — that of falling hostage to an outmoded way of thinking about seemingly-leaderless grass movements. Such observers are quick to dismiss OWS because it is fragmented and lacks a detailed list of demands. They argue that it is long on criticisms of the past and short on solutions for the future. They note that it is not structured to navigate the current political setup. Accordingly, they conclude that the impact will be transitory and inconsequential. While these reactions are understandable, this conclusion about OWS is likely to be proven wrong as it ignores a powerful reality: A peaceful drive for greater social justice can unify people from diverse cultural backgrounds, political affiliations, religions, and social classes. If you doubt this, go ask the Arab governments overthrown by secular forces that they were slow in understanding and inept in reacting to. You could also ask an Israeli government recently forced to modify its policy stance in an attempt to pacify a national movement that, only a few months ago, did not even register on its radar screens. OWS may pale in comparison to these country examples. Yet it would be both foolish and arrogant to dismiss three important similarities: First, the desire for greater social justice is a natural consequence of a system shown to be blatantly unfair in its operation and, to make things worse, incapable of subsequently holding accountable people and institutions. In the US, it is about a system that privatized massive gains and then socialized huge losses; allowed bailed-out banks to resume past behavior with seemingly little regulatory and legal consequences; and is paralyzed when it comes to alleviating the suffering of victims, including millions of unemployed (too many of whom are becoming long-term unemployed, slipping into poverty, and losing access to safety nets). The result is a visible and growing gap between the haves and the have-nots in today’s America. Second, OWS’s followers will grow as our economy continues to experience sluggish growth, persistently high joblessness, and budgetary pressures that curtail spending on basic social services (such as education and health). Other internal and external realities will also play a role. At home, our elected representatives seem incapable as a group to respond properly to severe economic and social challenges. Continuous (and increasingly nasty) political bickering undermines the required trio of common purpose, joint vision, and acceptance of shared short-term sacrifices for generalized long-term benefits. Internationally, Europe’s deepening debt crisis amplifies headwinds undermining an already sluggish American economy that, in the absence of better policy responses, is on the brink of another recession, Should the economy slip from treading to taking on water, the social implications would be profound given that we already have high unemployment, a large fiscal deficit and, with policy interest rates already floored at zero, little policy flexibility. Third, advances in social media help overcome communication and coordination problems that quickly derailed similar protests in the more distant past. Facebook and Twitter are huge enablers of a movement fueled by legitimate popular concerns about inequities. Particularly in OWS’s initial phases, they compensate for its lack of leadership structure, financial resources, and access to traditional media outlets. For all these reasons, OWS will likely gain momentum in the coming weeks, growing in size and scope. It will develop deeper roots and more branches; and it will encourage similar protests in other western countries. Indeed, the most consequential question is not whether, but how OWS will morph. Judging from international experience, there are two main alternatives. OWS could (and, hopefully, will) coalesce on a common agenda, helping the current political and institutional setup to course correct. Alternatively, it could fragment, thus failing to make the tricky transition from a protest movement to an effective agent for much needed change. This is where the media and politicians come in. Rather than dismiss OWS as “noise,” they should listen to it as a “signal” of the challenges America faces as a compassionate society, and as a democracy built on the importance of fairness and opportunity. It is important to understand OWS better and engage it appropriately. Through constructive collaboration, the movement’s energy and intensity can – and hopefully will — be combined with other influences to formulate forward-looking solutions for an America that must desperately regain its economic vigor, provide more jobs, and deliver better on its traditional commitment to social fairness and equal opportunities.

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Geithner To Float Leveraging Euro Rescue Along Lines Of U.S. Program

September 15, 2011

WROCLAW, Poland (Reuters) – Treasury Secretary Timothy Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said. “Geithner will probably insist on the importance of leverage to have more funds to ringfence the big Europeans, Italy and Spain, and to find a solution for Greece,” one EU official said. “The leveraging of the EFSF — I think this is something that he will put on the table,” the official said. “There could be some openness to the proposal.” TALF — the Term Asset-Backed Securities Loan Facility — was set up by the U.S. Federal Reserve and the U.S. Treasury during the global financial crisis in 2008 to jumpstart the frozen Asset Backed Securities (ABS) market. Under TALF, the New York Fed would lend out up to $200 billion, taking ABS as collateral with a haircut and the Treasury offered $20 billion credit protection for the Fed. In this way, a little bit of public money leveraged a much larger central bank contribution and the same idea could work for the European Financial Stability Facility, which has 440 billion euros at its disposal, to offer credit protection to, for example, the ECB to buy euro zone sovereign bonds. “One of the difficulties is that leverage may be seen as a potential liability,” a second EU official said. “But it deserves to be looked at in detail.” A third euro zone official said that Canada has made the same suggestion for Europe. “It could help those countries where the sovereign bond market is still curable,” the third official said. Such a solution would help ease market concerns that the EFSF does not have enough money to bail out Greece, Ireland Portugal and also help Spain and Italy. “Of course you would have to see if on the basis of the EFSF mandate you can do something similar,” the first official said, adding the solution had not been free of hurdles in the United States either and in Europe they could be even bigger. “From an economic point of view it is a reasonable idea,” the first official said, noting however that the ECB would have to play along with such a scheme. “The issues are more on the institutional and legal side and of course political — you have to find a way for the ECB not to, de facto, finance fiscal policy, but on the other hand you need to have resources that the ECB has and the EFSF has not.” Leveraging the EFSF, however, would not take place before the fund’s new powers of intervention on bond markets, extending precautionary credit lines or lending for bank recapitalization were ratified by the end of September, the official said. “Once the EFSF becomes more flexible, you can see if there are ways similar or different to try to leverage more the EFSF or find other ways to have a critical mass to ringfence Italy Spain and the others,” the official said. “You can also think about leveraging on other actors, not necessarily just the ECB,” the official said. (Additional reporting by Tim Ahmann in Washington) (Reporting by Jan Strupczewski, editing by Patrick Graham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Goldman To Suffer More Than Other Banks, Analysts Say

September 12, 2011

Analysts have been slashing earnings estimates for big Wall Street banks recently, particularly for Goldman Sachs, as unpredictable trading markets and weak merger and underwriting volumes hurt the sector’s profit potential. Third quarter average profit estimates for Goldman Sachs Group Inc have fallen 18 percent over the last month to $2.28 per share, according to Thomson Reuters I/B/E/S. Average estimates for Bank of America Corp have fallen 8 percent, and average forecasts for JPMorgan Chase & Co have fallen 4 percent. Goldman has fallen particularly hard because it has a greater dependence on traditional investment banking businesses like buying and selling securities, underwriting stock and bond offerings, and advising on mergers. The largest U.S. investment bank has derived 45 percent of its revenue from the once-lucrative business of fixed income, currency and commodities trading, on average, since the start of 2006. JPMorgan, in contrast, derived just 12 percent of its revenue from bond trading. Trading was particularly difficult in the third quarter because even though clients traded more in a volatile market, much of the activity came from low-margin products, like Treasury bonds and equities. Analysts also warn that some banks may have to take steep write-downs on inventories of stocks and bonds whose values declined. On Sunday, Citigroup analyst Keith Horowitz cut his third-quarter earnings estimate for Goldman to just 10 cents, down from a previous estimate of $2.70, although 36 cents of that came from one-time items. Horowitz cut his Goldman outlook as part of his broader reduction in price targets for major banks. Horowitz’s move follows Oppenheimer & Co analyst Chris Kotowski changing his recommendation on Goldman shares to “perform” from “outperform” on Tuesday. Both he and Nomura analyst Glenn Schorr also cut Goldman estimates dramatically. Full-year average estimates for Goldman Sachs have dropped 8 percent and 3 percent for 2011 and 2012, respectively, according to Thomson Reuters I/B/E/S. “Brokers like Goldman, I just want to stay away from them right now because I feel like they are so tied to the market,” said Todd Kaplan, a value-stock investor at Rand Strategic Partners in Westborough, Massachusetts, who manages about $10 million in assets and owns Bank of America but not Goldman. LESS ROOM TO RUN Even outside of trading, Goldman could turn in a disappointing quarter. Goldman’s investing and lending business may also get hit hard because of declines in the value of the stocks and bonds that Goldman owns. Its holdings in Industrial And Commercial Bank of China Ltd have declined more than 15 percent so far this quarter, which could result in a $475 million write-down, according to Citi’s Horowitz. Nomura’s Schorr anticipates a $700 million negative revenue from the overall investing and lending division. Analysts also lowered assumptions for its investment banking revenue because companies have been hesitant to pull the trigger on IPOs, debt offerings and M&A transactions due to high volatility and weak pricing. Most analysts have remained generally bullish on Goldman despite what may soon be the sixth straight quarter of weaker profit and revenue. Of the 28 analysts who cover the stock, 18 recommend buying more, while 6 suggest clients hold onto positions without adding and only two recommend selling. But even fans of the stock have gotten more cautious about how much it might rise. The median price target for Goldman is $155, down from $170 a month ago and $198 three months ago. New targets still represent a big premium to Goldman’s recent market value. Its stock is down 39 percent this year, setting a new 52-week low of $99.80 on Monday. It has traded at a discount to tangible book value since August, reflecting investors’ belief that, without more trading activity, the cost of capital for Goldman’s huge trading business may cut deeply into earnings. That said, shares of Morgan Stanley, Bank of America and Citigroup have posted sharper declines than Goldman Sachs so far this year. That is why some stock analysts are less enthusiastic about Goldman Sachs. They believe stocks that have fallen further may have more potential upside. “If a client called us up to ask if he/she should buy the stock we would suggest at least seven other names that we would suggest buying first,” said Oppenheimer’s Kotowski. (Reporting by Lauren Tara LaCapra; Editing by Tim Dobbyn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Diane Francis: The Great Markdown of Western Living Standards

September 2, 2011

It looks like gold will hit $2,011 an ounce in 2011 as the permanent drop in Western living standards continues apace. This economic “markdown” started in 2008 when America hit the wall and deepened again in 2010 after Europe’s crisis. But this summer, another, deeper one is underway: The financial tourniquets aren’t holding and now major amputation is being performed. The “markdown,” to be brutal, means chronic unemployment as public debt costs devour government budgets and more taxes eat up job-creating capital. There’s also the demographic markdown: Aging populations don’t consume as much and well-paying American or European jobs will be filled by robots or, alternatively, five cheap, younger workers in Asia. Americans, Europeans and the rest of us will just have to work longer for less to a riper age. We will benefit from fewer government goodies and our kids may have to teach English in Asia or, better yet, become engineers and build nuclear reactors or highways over there. The rest who stay put will continue to be partially subsidized by their parents or governments or find themselves living like Argentinians. It’s grim, but not as bad as what Europe is in for, the continent of the 32-hour week, six week holiday and freedom 55. The big news a few weeks ago was that gold hit new highs and markets plummeted because Germany’s Angela Merkel and France’s Nicolas Sarkozy met to do nothing. Markets dumped Euro banks, the minute the shorts found a way to get around the ban on shorting these banks. In the worst shape is Commerz Bank, which faces a writedown higher than its market cap, according to Egan-Jones Rating Agency in New York City, the only rating agency that doesn’t take payments from those it’s rating. Worse yet, its president, Sean Egan, told CNBC that the total cost of fixing Europe’s basketcase sovereigns and banks would be six trillion euros, more like three trillion because they’ll all take a 50 percent haircut. Little wonder the Merkel and Sarko tent folded and went away. They do nothing because they cannot do anything except postpone and pray. “It’s the end of the road,” said Egan. “Germany’s total sovereign debt is already 1.4 trillion Euros which is 78 percent debt to GDP. Germany cannot do this alone, so all the Europeans will have to.” So in a weird way, this means markets are working and the collapse is the arithmetic revaluation in anticipation of a continental workout. This fix will involve dumping money into Europe’s central bank, dumping money into banks that loan to Greece et al, which will wipe out shareholders and guaranteeing deposits to avoid the collapse of Greek and other banks. But there is one other prescription, which is why markets are jamming gold higher — the Europeans will have to print money or, as the central bankers euphemistically call it, quantitatively ease. This is inflation by any other name, a thief in the night against the rest of us, and what the U.S. has done twice. So we will go from America’s QE1 and QE2 to Europe’s QEE1 and eventually QEE2 and 3. On second thought, the U.S. will be sucked into the European mess so there will possibly be a QE3 too. “Gold is the world’s default currency,” says Maison Placements analyst John Ing, whose $2,100-an-ounce forecast a while ago is looking smart. Unfortunately, it will be too low should there be a QE3 and QEE3. And the Americans still are not out of the woods either unless they bite the bullet, he added. “The easy credit of yesteryear spawned the financial crises of today. America is simply  over‐housed and stretched financially. The heart of the problem is that it is spending 25 percent of its GDP yet raises less than 15 percent in taxes.” And Europe’s worse. So this means that markets will continue to correct and politicians will be left to react and undertake damage control to more slowly stretch out the lowering of living standards that are irreversibly taking place. In the U.S., Republicans will propose, again, draconian spending cuts to avoid raising taxes, and the Democrats will go for a moderate dose of both. Neither are right. This simply about arguing over what chairs go where on the Titanic. In Europe, the German strategy will be to demand that spendthrift countries dismantle their entitlements and raise taxes, and the French will play for time, or until after the next French election, even though time’s run out. So for investors, it’s a flight to quality and safety and investing in solid corporations and countries, U.S. T-bills or in the asset class for the confused and/or frightened, which is gold. Still others buy the shiny stuff in the hopes that it will become part of the solution and, because it’s finite and cannot be printed, will impose discipline on everyone, instead of remaining a symptom of the problem. World Bank President Robert Zoellick gave credence to that debate last fall when he suggested a system that would involve the dollar, euro, yen and renminbi with gold as a reference point to keep every one honest. It’s inevitable because this isn’t working. From Diane Francis’s blog at “Financial Post.”

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China, France agree to discuss Yuan flexibility

August 27, 2011

(MENAFN – Saudi Press Agency) The French economy minister says Paris and Beijing have agreed to discuss how to work toward making China’s yuan freely convertibl, AP Reported. Francois Baroin …

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France to unveil deficit cutting measures, slash growth forecast

August 25, 2011

(MENAFN – Saudi Press Agency) French Prime Minister Francois Fillon will slash the country’s 2011 growth forecast later Wednesday when he announces a series of measures to try ensure France meets …

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France- ‘Syrians have the right to democracy too’:

August 25, 2011

(MENAFN – Khaleej Times) French President Nicolas Sarkozy said Wednesday the Syrian people “have the right to democracy too” following a meeting with a leader of the Libyan rebel movement that …

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DSK May File Civil Charges Against Maid

August 24, 2011

NEW YORK — Former International Monetary Fund leader Dominique Strauss-Kahn might take legal action in civil court against the hotel maid who accused him of sexually assaulting her in a now-dismissed criminal case and in her ongoing civil suit, one of his lawyers said Tuesday. Strauss-Kahn, a former French presidential candidate, could file his own claims to counter housekeeper Nafissatou Diallo’s lawsuit, “and that’s certainly a consideration,” lawyer Benjamin Brafman said in an interview with The Associated Press. “Because she did lie, and he has suffered enormous damages as a result of those lies.” A court Tuesday dismissed the attempted-rape and other charges against Strauss-Kahn, who resigned his IMF post, spent five days in jail and then spent about six weeks on high-priced house arrest before being freed from it July 1. The dismissal came after prosecutors said they couldn’t pursue the case because of doubts about Diallo’s credibility and a lack of other evidence to prove a forced sexual encounter. Diallo wasn’t truthful with prosecutors about several aspects of her life and changed her account of what she did right after when she claims she was attacked, prosecutors said. Strauss-Kahn’s lawyers have long said the encounter at a luxurious Manhattan hotel, though brief, was consensual. But while Diallo’s account of it has been recounted in interviews, in her lawsuit and in the now-defunct prosecution, the married Strauss-Kahn doesn’t want to detail his version of what happened, Brafman said. “What happened in that room, so long as we have now confirmed that it wasn’t criminal, is really not something that needs to be discussed publicly,” Brafman said in the AP interview. “You can engage in behavior that you’re not proud of, and maybe some people might consider it inappropriate – it doesn’t mean that you committed a crime. And it’s not something that you may want to discuss, at the end of the day.” Diallo’s lawyer, Kenneth Thompson, didn’t immediately respond to an email inquiry about the possibility of Strauss-Kahn filing his own claims in civil court. Thompson has said it’s “utter nonsense” to say the encounter was consensual. Earlier Tuesday, he blasted the dismissal of the case, saying prosecutors “would not allow a woman to have her day in court.” Diallo says Strauss-Kahn chased her down in his hotel suite on May 14, grabbed her crotch, propelled her to the ground and forced her to perform oral sex. His semen was found on her uniform, and a gynecological exam found a mark that her lawyer holds up as evidence of an attack but prosecutors say could have resulted from a number of other things. From the start, Strauss-Kahn’s lawyers considered her account implausible, partly because neither she nor Strauss-Kahn had bruises reflecting a forceful attack, Brafman said. The Associated Press does not usually name people who say they are victims of sexual assault unless they come forward publicly, as Diallo, an immigrant from Guinea, has done. ___

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European Shares Recover As Investors Asses Short-Selling Ban

August 12, 2011

BRUSSELS — Bank stocks jumped after several eurozone countries banned short selling, helping European markets push higher Friday ahead of an expected further rise on Wall Street. The advance in Europe follows big gains in the United States on Thursday, which helped support most stocks in Asia. However, wild swings over recent days, with shares often changing direction every few hours, highlight how volatile trading is at the moment amid concerns over the global economy and the levels of debt in both the U.S. and Europe. In Europe, London’s FTSE 100 rose 1.4 percent to 5,234 points, while Germany’s DAX was 2.3 percent higher at 5,933. The CAC-40 in France gained 2.3 percent to 3,154, even after data showed the French economy did not grow in the second quarter. Wall Street also was poised for a higher open after Thursday’s big gains. Dow futures were up 0.6 percent at 11,147m while futures for the broader Standard & Poor’s 500 index rose 0.7 percent to 1,176. The gains in Europe came after regulators in France, Italy, Spain and Belgium imposed temporary bans on short-selling of financial shares late Thursday, following sharp selloffs and temporary gains in French bank shares in particular that were blamed on false rumors. The share prices of French banks, which fluctuated sharply in recent days, appeared to stabilize Friday, with Societe General up 3 percent and Credit Agricole up 1.3 percent. Belgium’s Dexia was doing particularly well, trading 14 percent higher. However, analysts question whether the short-selling ban would be successful in the long run, since many experts claim that a similar move in 2008 actually contributed to investor uncertainty. Short selling is a way for an investors to bet a stock will go down. It is done by selling borrowed shares in hopes of buying them back at a lower price and pocketing the difference. The practice has not been banned in Britain or Germany. “With deteriorating investor confidence in eurozone debt likely to continue driving reduced investor confidence in European banks’ ability to withstand the fallout from the euro-zone debt crisis, we doubt that downward pressure on European financials will now dissipate,” said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ. The gains in Europe came despite figures showing France’s economy unexpectedly ground to a halt in the second quarter on the back of a sudden reversal in consumer spending and stagnation by the country’s exporters. The halt in the French economy is set to exacerbate concerns over the eurozone in general, where the three bailout countries of Greece, Ireland and Portugal are in recession and Italy and Spain are struggling with lackluster growth. Data also showed that Greece’s economy shrank 6.9 percent in the second quarter from the year before. France is already facing speculation that it may soon lose its AAA rating due to its high debt load. “With the economy stagnating and elections coming up next spring, it will be extremely difficult to implement the aggressive austerity measures that are needed to convince markets that the government finances are on a stable footing,” said Jennifer McKeown, senior European economist at Capital Economics. The euro also was seemingly unaffected by the French and Greek data, trading 0.3 percent higher at $1.425. Earlier in Asia, the session was far less volatile than of late. Hong Kong’s Hang Seng added 0.1 percent to 19,620.01. Australia’s S&P/ASX 200 gained 0.8 percent to 4,237.90, while benchmarks in New Zealand and Singapore also rose. But Japan’s Nikkei 225 stock average was lower – closing down 0.2 percent to 8,963.72 after spending the morning in positive territory. A stronger yen, which reduces the value of profits earned overseas, pummeled export shares. The dollar is trading around the 76.50 yen mark, which is not far off the levels that prompted the Bank of Japan to intervene directly in the markets to stem the export-sapping appreciation of the yen. Mainland Chinese shares, however, traded higher for a fourth day, with the absence of bad news helping boost sentiment, traders said. The Shanghai Composite Index gained 0.5 percent to 2,593.17 while the Shenzhen Composite Index gained 1 percent to 1,158.96. In the oil markets, prices fell as traders booked some profits garnered over the previous session, when crude rose 3.4 percent. Benchmark oil for September delivery was down 16 cents at $85.56 a barrel in electronic trading on the New York Mercantile Exchange. _____ Pamela Sampson in Bangkok contributed to this story.

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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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Brad Reid: Business Must Understand U.S. Individualism and Conflicting Visions

August 1, 2011

Modern Western individualism began with the Reformation translations of the Bible into native languages. A literate individual could read the text without clerical interpretation. Later the economic philosophy of Adam Smith elevated individual economic activity. Recently, the U.S. counterculture movement of the 1960s reveled in the philosophy of social and cultural individualism. At the same time, U.S. political movements advocated a vision of the collective good, starting with the U.S. “New Deal” in the 1930s and subsequently the civil rights, environmental, and consumer movements of the 1960s. It was inevitable that there would be a clash of individualism and competing collective visions. The question is how this clash will impact the future of the U.S. It appears that individually tailored goods, services, and health care will continue to proliferate as well as individualized tools of social media expression. Business will face an ever accelerating product life cycle. Established institutions such as religion and education will no longer be able to offer a single “mass produced product.” However, the potentially dangerous side of individualism is the breaking down of a collectively nationally shared social and political vision. Further complicating the movement toward individualism, some life choices, such as the decision to have an abortion, are morally offensive to influential segments of the U.S. population. Political and social fractures in the U.S. began to appear in the 1960s. The impact of the Vietnam War and the Civil Right Movement are prime examples. Competing visions have become less willing to accommodate dissent within their membership and consequently have become more extreme. Some visions essentially want the government to withdraw from the commonly understood U.S. social contract that includes such things as public education and a variety of publicly funded social welfare programs. Another vision wants to expand the utilization of public resources to create a society more like that in northern Europe. This division runs deeply through contemporary U.S. politics. Consequently the debt ceiling debate is a small part a much larger clash of opposed visions about the relative roles of the public and private spheres of influence. It also demonstrates the continuing rise of individualism with the fracturing of traditional political party discipline. Pressured by both sides in this climate are those who voice moderation or are economically in the middle class. Economic and political polarization is the order of the day. The economic distance between the wealthiest and poorest segments of U.S. society is increasing. At the same time we see an ever increasing cultural diversity in the U.S. population with groups having less dialogue. Unfortunately history tells us that such polarization produces instability that, when taken to an extreme, will collapse a society into disorder. Subsequently an elite arises to restore order. Consider the history of the French Revolution. The U.S. has already experienced a civil war, so extreme division, however improbable, is not impossible. There are those who profit politically and economically from both individualism and advocating an extreme vision. No compromise is the order of the day. Additionally, why would one who ardently believes in the correctness of his or her vision compromise it? The difficulty of U.S. national leaders in reaching consensus on macroeconomic policies demonstrates the strength of the forces driving this division. These “politicians” find it increasingly difficult and costly to be “statesmen,” that is to make decisions that are contrary to narrow partisan interests. A rapid 24/7 global news cycle has vividly broadcast to the world the conflicting visions that currently divide U.S. society. What can be difficult to accurately assess is the future impact of these visions. The recent virtual paralysis of the U.S. federal government is not to be taken lightly and will shake international confidence in long term U.S. stability. Political and economic leaders must be willing to reach across factional divisions to implement policies that benefit all of society. Universally beneficial social goals include encouraging education, job creation, innovation, robust infrastructure, and maximizing freedom. All sides at least abstractly advocate these ideals but are increasingly unable to agree on the way to achieve these ends. The writers of the U.S. Constitution developed divided government to prevent any faction from becoming dominate. We can hope that factional battles over what vision will dominate do not result in U.S. social and political collapse. Cautionary observation and analysis is an appropriate course of action for business.

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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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Bessma Momani: Is the IMF a Sexist Organization?

July 7, 2011

We often believe that you can tell a lot about an organization, private or public, by the management style of its leaders. If that were true, then we would be quick to conclude that the IMF must be a sexist organization. Irrespective of the rape charges against him, few would dispute the argument that Dominique Strauss-Kahn, former managing director of the once obscure international financial organization, was a womanizer. No wonder then that the New York Times’ May 19 article depicted a male chauvinist institution rife with harassment and unfavourable work conditions for women. The truth is, however, the IMF is not misogynistic but its technocratic organizational culture is notably conformist and it has a difficult time recruiting female macroeconomists. Based on surveys done by the IMF’s Independent Evaluation Office, the Fund staff have noted that the organization has a technocratic, hierarchical, and conformist organizational culture. Former managing director Michel Camdessus even once quipped that the IMF staff were like soldiers who should not question the institution’s directives when in the field with debtor officials. One does not need to be a management professor to know that this is not the kind of warm and fuzzy work environment of organic companies like Apple and others , which encourage debate and brainstorming sessions. Indeed, Fund staff have often complained that working at the IMF is about conforming to how the IMF wants things done, including how to write reports that use the IMF’s preferred, watered-down terminology. Moreover, it is notably a stressful work environment, involves extensive travelling, requires an enormous amount of paperwork, and is becoming less financially attractive to work in compared to academia, the private financial sector, and in some cases Western governments. One could argue that these criticisms of IMF work life make the institution less hospitable to women who are more likely to carry the added load of children and home life. Putting this all aside, Fund staff will tell you that the most important criteria for a staff member’s success is to be technically strong in macroeconomics. The IMF is an organization that respects macroeconomic skill sets, first and foremost. Now there are plenty of criticisms one could point out for having the IMF overvalue macroeconomic skillsets at the expense of political-economy, diplomatic, or negotiation skillsets, but this does not make the IMF a sexist organization. The reality is that women are grossly underrepresented in economics departments at the post-secondary level as both students and as professors. The field of economics has historically had difficulty in attracting women and the subfield of macroeconomics is perhaps worst off than microeconomics in achieving gender equality. So the problem with low female recruitment at the IMF is far from the fault of the organization and says more about how the economic discipline does not attract women to study it. This has encouraged some to undertake gender analysis of international finance and point out the gaps of traditional macroeconomics in understanding the role of women in domestic and the global economy. These specialists are not, however, in economic departments and are usually found in humanities or other social science departments. The fact remains that the macroeconomic discipline has not attracted enough women to achieve gender equality and so this reverberates in the record of Fund recruitment of its staff. Christine Lagarde, who is not a macroeconomist but a lawyer, had frequently campaigned in the run-up to her election as the current managing director that she would bring more women into the upper echelons of power at the IMF and that her gender would improve the Fund’s poor track record at hiring female economists. This is ambitious at best. Unless Lagarde can encourage more women to study macroeconomics, her attempts to bring women into management will be window dressing. She will soon discover that the IMF is not a sexist institution, but needs to re-evaluate the preferred skill set of its incoming staff and work toward making the organizational culture less technocratic. The benefit of rethinking the IMF’s recruitment policies would not only be better for the organization, but arguably make the Fund better at proposing economic policies that governments can sell to their people.

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Greece Would Likely Default If It Followed French Banks’ Plan: S&P

July 4, 2011

ATHENS (Angeliki Koutantou) – Greece would likely be in default if it follows a debt rollover plan pushed by French banks, S&P warned on Monday, deepening the pain of a bailout that one European official said will cost Athens sovereignty and jobs. European politicians and bankers had expressed confidence last week that the French proposal would not trigger a default, but ratings agency Standard & Poor’s said it would involve losses to debt holders, most likely earning Greece a “selective default” rating. “It is our view that each of the two financing options described in the (French banks’) proposal would likely amount to a default under our criteria,” S&P said. French banks, major holders of Greek sovereign debt, proposed voluntarily renewing some of the bonds when they fall due, but on different terms. S&P cut Greece’s sovereign rating to “CCC” last month, from “B,” on a view that any restructuring of the country’s massive debt load would count as an effective default. The euro fell from around $1.4550 to a session low around $1.4510 after the latest S&P comment. Derivatives industry body ISDA said before the French proposal was released in late June that a voluntary agreement to roll over Greek debt would “typically” not trigger payments on credit default swaps. Greece was already facing an uphill struggle this week to start the process of selling off state-owned assets and reform its tax system to meet European Union and IMF conditions for bailing it out. The deep spending cuts required under the loan terms have sparked angry protests on the streets of Athens. Eurogroup Chairman Jean-Claude Juncker said Greece will lose sovereignty and jobs to meet those criteria, a comment that has enraged unions. Any suggestion of foreign intervention in running the country is an incendiary political issue that will make implementing reforms even tougher. Public-sector union ADEDY, which has launched crippling strikes and protests, reacted angrily to his comments. ADEDY President Spyros Papaspyros said Juncker was out of line: “Mr Juncker interferes in the internal affairs of a country, provokes European rules and is an embarrassment for the country whose government tolerates him.” Juncker’s comments could trigger more of the anti-austerity street protests that have roiled the country for months as Greece stays stuck in its worst recession since the 1970s with a youth unemployment rate of more than 40 percent. “The sovereignty of Greece will be massively limited,” Juncker told Germany’s Focus magazine in an interview released on Sunday. Teams of experts from around the euro zone would be heading to Athens, he said. “One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone,” Juncker said. EASIER SAID THAN DONE Greece last week passed austerity measures worth 28 billion euros ($40 billion) and promised to deliver 50 billion euros in sell-off revenues by 2015, including raising 5 billion euros by the end of this year alone. On the list are public utilities whose sale is sure to prompt public reaction. “Greece now needs to push faster fiscal adjustments and structural reforms,” said EFG Eurobank economist Platon Monokroussos. “On the privatization front, it is of essence the government delivers fast results to send a strong signal to financial markets.” That is easier said than done. The socialist government, which came to power on a social welfare platform, has yet to launch a single state sale in 18 months in power and must set up a privatization agency within weeks to meet its target. It must also start to sell state property, estimated at up to 300 billion euros but often entangled in legal complications. “The 50 billion euro target is not achievable,” said Constantinos Mihalos, head of the Athens Chamber of Commerce. “Share values are very low right now because of the recession.” At the same time, Greece needs to deliver on pledges to reform a chronically inefficient tax system that has relied too much on middle class salary earners and let wealthy tax evaders off the hook, producing disappointing revenues this year. Finance Minister Evangelos Venizelos told Reuters in an interview on Friday that Greece would tap for the first time private-sector expertise but tax offices around the country are notoriously resistant to any change. “A greater effort is needed to rein in tax evasion and broaden the tax base in a bid to bring the ratio of revenues to GDP closer to euro area average and reduce expenditure and waste in the broader public sector,” Monokroussos said. Investors have feared that default by Greece would send shockwaves through the world finance system with some commentators saying such an eventuality could call the whole euro zone into question. Another hurdle is the law on a uniform pay scale for the public sector, sure to cut further the salaries of civil servants who have already seen their pay reduced by an average 15 percent as a result of a wave of austerity measures to secure the 110-billion-euro bailout last year. On Saturday, euro zone finance ministers approved a 12 billion euro loan Greece needs to avert default. The IMF will meet on July 8 to approve the 12-billion euro loan tranche, which is expected to be handed over by July 15 and allow Greece to avoid the immediate threat of debt default. But the country still needs the second rescue package, which is also expected to total around 110 billion. EU officials will now look at how private creditors can be involved voluntarily so that rating agencies do not declare the rescue a “credit event.” (Additional reporting by Wayne Cole in Sydney) (Writing by Dina Kyriakidou and Emily Kaiser; Editing by Louise Ireland, Peter Millership and Neil Fullick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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David Isenberg: PMC und Drang in the Persian Gulf

June 24, 2011

This post was originally written June 5. It’s now been three weeks since the New York Times published its story on the United Arab Emirates business doings of Erik Prince, the man that lefty critics of private security contracting love to berate. So now that the reflexive PMC und Drang, to coin a phrase, has died down a bit, it is a good time to take a step back, draw a breath, and try to consider some the pros and cons of this latest development. Note, however, PMC und Drang is actually a useful phrase to keep in mind, as the protagonist in a typical Sturm und Drang stage work or novel is driven to action — often violent action — not by pursuit of noble means nor by true motives, but by revenge and greed. If you substitute free market enterprise or good old fashioned capitalism for greed — remember, as Gordon Gecko said, greed is good — then it seems entirely appropriate. For those who need their memories jogged, the May 14 NYT article ” Secret Desert Force Set Up by Blackwater’s Founder ” by Mark Mazzetti and Emily B. Hager detailed how Prince was hired by Sheik Mohamed bin Zayed al-Nahyan, the crown prince of Abu Dhabi and the de facto ruler of the United Arab Emirates, to put together an 800-member battalion of foreign troops for the U.A.E. The force is intended “to conduct special operations missions inside and outside the country, defend oil pipelines and skyscrapers from terrorist attacks and put down internal revolts, the documents show. Such troops could be deployed if the Emirates faced unrest in their crowded labor camps or were challenged by pro-democracy protests like those sweeping the Arab world this year.” While it is impossible to say for certain since I’ve not seen its documentation so far, the NYT story has, factually, stood up pretty well. Apart from using words like mercenaries, the worst thing that can be said about was an incorrect and somewhat derogatory reference to the old South African based Executive Outcomes. See the details here on Eeben Barlow’s blog So Prince has formed a new company called Reflex Responses (any resemblance to a malady like acid reflux is, I’m sure, entirely coincidental), complete with a nifty logo. He has reportedly hired Colombians, along with South African and other foreign troops that are trained by retired American soldiers and veterans of the German and British special operations units and the French Foreign Legion. Hmm, trained by Legionnaires; this could be the first Legion/PSC hybrid in history as Feral Jundi noted . What should we make of all this? Well, first, evidently Erik Prince has decided that of all the things he might or could do in the post Blackwater/Xe Services era, teaching history and economics to high school students is not one of them. Remember that was one of the things he said in early 2010 he might be doing when it was announced that he was leaving the United States and moving to the UAE. Somehow I think the UAE education establishment will weather this loss. Second, let’s consider some of the positives of this. Generally speaking, doing business in the Persian Gulf is a good thing. Why is that? For the same reason Willie Sutton robbed banks; because it is where the money is. Also, Erik has learned something from his past BW contracts in Iraq. BW, along with all the other PSC contractors, took a lot of PR grief for being protected by the old Coalition Provisional Authority immunity provision covering contractors. Although it was never the one hundred percent get out of jail free card critics claimed, it was enough to cast a cloud of suspicion and doubt over their activities. But that was then, this is now. RR’s contract with the UAE states: Article 17 Compliance with the Laws, Regulations and Bylaws The Second Party undertakes to comply with all the laws, regulations and bylaws in force in the State, and all provisions of the Decision of the Deputy Supreme Commander of the Armed Forces referred to hereinabove shall apply to this Contract, provided that the general legal principles in force in the State concerning contracts and contracting methods of the administration shall apply to any matter regarding which there is no specific provision in the said Decision or in this Contract. So if something wrong does happen you will have to take it up with the UAE legal system. Although it is unclear how responsive the UAE system will be to redressing any human rights violations. The latest annual State Department human rights report notes: Section 5 Governmental Attitude Regarding International and Nongovernmental Investigation of Alleged Violations of Human Rights The government generally did not permit organizations to focus on political issues. Two recognized local human rights organizations existed: the quasi-independent EHRA, which focused on human rights issues and complaints such as labor rights, stateless persons’ rights, and prisoners’ well-being and humane treatment; and the government-subsidized Jurists’ Association Human Rights Committee, which focused on human rights education and conducted seminars and symposia subject to government approval. And as Feral Jundi astutely noted , if things work this could be the start of a new financial empire for Prince. Call it Moycock II: Persian Gulf. Emirati military officials had promised that if this first battalion was a success, they would pay for an entire brigade of several thousand men. The new contracts would be worth billions, and would help with Mr. Prince’s next big project: a desert training complex for foreign troops patterned after Blackwater’s compound in Moyock, N.C. So will R2 be opening it’s doors for training to the world, much like how BW operated in the US? If true, I could see something like this becoming a multi-billion dollar project for Prince and company. Just because it would be located in the middle east and cater to all the OPEC nations. Furthermore, qualitatively speaking it is hard to accuse Prince of doing something new. As Strategy Page observes , just about all Persian Gulf states have, for decades, been using foreigners, either working directly for foreign governments or private sector civilians with that government’s approval to equip and train their military security forces. If one wants to accuse Prince of doing something bad one has to similarly accuse firms like Vinnell which has been training the Saudi National Guard for decades. On the negative side it is hard to see the initial force that RR is training as being for any other purpose than to deal with future internal unrest and dissent, as in cracking down on protesters. Training a force of 800 men to deal with a threat from perennial boogeyman threat Iran is farcical. The Iranian military may have its problems but it is clearly capable of overwhelming so few. Though as Nation reporter and perennial Erick Prince critics Jeremy Scahill noted : In a speech Prince delivered in late 2009, a copy of which was obtained by The Nation, Prince spoke of the need to confront Iranian influence in the Middle East, charging that Iran has a “master plan to stir up and organize a Shia revolt through the whole region.” At the time, Prince proposed that armed private soldiers from companies like Blackwater be deployed in countries throughout the region to target Iranian influence. If Prince, Sheik al-Nahyan, or U.S. State or Defense Department officials think a battalion is going to help with that, they are smoking something far more potent than Bill Clinton ever inhaled. In fact, the State Department probably deserves more blame than the Pentagon on this. Even though RR is a UAE majority owned company, Prince is still a U.S. citizen and subject to the International Traffic in Arms Regulations (ITAR) the regulation, and the law is the Arms Export Control Act (AECA). As such he needs to be registered as a Broker or as an Exporter of Defense Articles or Defense Services and would need approval from the Directorate of Defense Trade Controls (DDTC) at the State Department. Even commentators like military historian and foreign-policy analyst Max Boot, who has staunchly defended the use of PSC in the past, wrote : I am nevertheless slightly discomfited by news that Erik Prince, the former SEAL officer and founder of Blackwater, is now in the process of assembling a mercenary battalion for the United Arab Emirates. The UAE is a close American ally and by Middle Eastern standards relatively liberal. But there is no mistaking it for a democracy. It is run by a small number of ruling families which keep a tight lid on dissent–especially among the vast underclass of foreign-born workers who keep the emirates running but are denied citizenship or any of the other benefits that native Emiratis receive. Many of these workers belong to a more or less indentured class of laborers from the Indian subcontinent who live in squalid, miserable conditions. They are deported at any hint of labor organizing or any other attempt to redress their numerous grievances. If the New York Times account of Prince’s dealings can be trusted, he is recruiting Latin Americans and other foreigners, because Arabs cannot be trusted to fire on other Arabs. This suggests that his force is designed to be used for internal repression among other, more legitimate tasks. If that is the case then this is morally dubious undertaking. Again there is nothing inherently wrong with mercenaries but like any other military force they can be used for good or ill. It is not hard to imagine disreputable uses to which this new force could be put by the unelected rulers of the UAE. Likewise 800 men are also clearly inadequate to protect the UAE’s oil infrastructure. And when one looks at the UAE’s human rights record it seems, that while it is hardly the worst in the region, it is also not one inclined to tolerate things like freedom of speech and association. Thus training a force that could be used for “crowd control” doesn’t sound good if the United States wants to be on the side of democratic forces in the future. This raises an interesting potential question as the New Yorker pointed out : A document obtained by the paper describes “crowd-control operations” where the crowd “is not armed with firearms but does pose a risk using improvised weapons (clubs and stones).” After the Arab Spring, and what we have seen in Libya, that is an interesting business to be in. … If the U.A.E.’s R2 battalion ends up killing civilians, might we intervene? And would we do so with the support of private contractors from companies like Blackwater? Interestingly, but perhaps not surprisingly, Reflex Responses does not appear to be a signatory to the International Code of Conduct For Private Security Service Providers that came into effect last November. Perhaps it is because of provisions like this: 21. Signatory Companies will comply, and will require their Personnel to comply, with applicable law which may include international humanitarian law, and human rights law as imposed upon them by applicable national law, as well as all other applicable international and national law. Signatory Companies will exercise due diligence to ensure compliance with the law and with the principles contained in this Code, and will respect the human rights of persons they come into contact with, including, the rights to freedom of expression, association, and peaceful assembly and against arbitrary or unlawful interference with privacy or deprivation of property. Having to comply with UAE law, which doesn’t offer that much in the way of guaranteeing basic civil liberties, is one thing; having to incorporate basic international humanitarian law standards might be something else entirely. So what kind of grade do we give this? Actually, I see three. First, for Prince it is an A plus. Give him credit for knowing where to go to make a profit. For the United States it is a B minus. As long as nothing goes wrong, as in using the future force for breaking up a demonstration of oppressed workers or a continuation of Arab Spring protests in the UAE, the U.S. can sit back and twiddle its geopolitical thumbs and say Erik Prince, who’s that? But if and when some civilian gets killed by a RR employee it can forget about that attempt at plausible deniability. As for the PMSC industry itself, I give it a C. In recent years the PMSC industry has invested considerable effort and some resources to depicting itself as a highly ethical peace and stability operations industry. While a lot of it is rhetorical, some of it has been very real. It is not clear that Prince and RR are doing much to bolster the image that companies and trade groups have tried so hard to cultivate.

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Georges Ugeux: Is Madame Lagarde the Ideal IMF Leader?

June 2, 2011

The extraordinary push and unusual consensus of the European Union on the candidacy of Madame Lagarde deserves some attention and maybe scrutiny. Being a lawyer and politician who ran a U.S. law firm in Chicago, Madame Lagarde is undoubtedly a very serious candidate. France considers the IMF top job as “theirs,” and has provided a succession of quite remarkable leaders of the IMF. Whether that means the next one should be French was “beyond reasonable doubt” for the Elysée Palace where Président Sarkozy rules. The fact that he or she should be European is part of a “deal” between the United States and Europe, whereby, at Bretton Woods in 1944, the World Bank goes to an American and the IMF to a European. That deal reflects the fact that, at Bretton Woods, the U.S. and Europe were alone to split the jobs. More than ever, this position is no longer defendable. The IMF, under the leadership of Dominique Strauss-Kahn, embarked in a co-financing process, together with the Eurozone, of the bail-out of Greece ($150 billion), Ireland ($130 billion) and Portugal ($120 billion). The Eurozone was indeed unable or unwilling to put on the table the full amount and is now in the unenviable position to have to call on the International Monetary Fund. The new Director General will have to represent the interests of all the members of the Fund in these negotiations. Is a European the best candidate to have the necessary objectivity and dispassionate view of the situation? One could also argue that Madame Lagarde is a crucial part of the negotiations that are taking place which could lead to a further $60 billion loan to Greece, which has not fulfilled its commitments. She supported the European Central Bank view that the Greek debt should be restructured, thereby protecting the ECB’s substantial portfolio of Greek bonds, as well as the European bank’s exposure to Greece. The IMF has always insisted on loans associated with strict application of its conditionality to pay the additional tranches. In this case, it departed from its sound and historical practice. Last but not least, with 43% of the capital of the IMF, the emerging countries are asking for more say and would be perfectly legitimate in requesting that seat for one of them. Agustin Carstens, the Mexican Finance Minister, is campaigning in their name. It seems that the United States, which stayed silent on the matter, will not support Madame Lagarde unless she gets some support from the key emerging countries. They are right. She was in Brazil starting a campaign. The G8 talked about it but, as he often does, Président Sarkozy pretended that it was not the place for such discussions. His Minister of Foreign Affairs, Alain Juppé, pretended that the candidacy of Madame Lagarde was agreed upon, contradicting the statement by Russian President Medvedev that there was a “near-accord” on the fact that an emerging market candidate would be considered. Prime Minister Manmohan Singh of India indicated to German Chancellor Merkel in Delhi that it was not the nationality that should define the right candidate. The reality is that the European attitude has literally infuriated the other countries who saw in it a sign of colonialism and arrogance. In France, Madame Lagarde is under investigation by the Court Supérieure de Justice for allegedly abusing her power in bypassing the procedure to grant $300 million for a former French Minister and businessman Bernard Tapie. The Court was established by President Mitterrand to investigate irregularities committed by Cabinet Members, in the exercise of their function. Those elements should at least require a serious look, for a candidacy that cannot be treated as ideal, without further consideration. This being said, as Patrick Stewart of the Council on Foreign Relations wrote today: “The apparent lesson of this episode is that while emerging powers are quite content to criticize existing global institutional arrangements, they do not yet constitute an effective bloc that can unite behind an agreed program of action.”

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Arab Democracies Will Receive Billions In Support, G8 Leaders Say

May 27, 2011

DEAUVILLE, France — Rich countries and international lenders are aiming to provide $40 billion in funding for Arab nations trying to establish free democracies, officials said at a Group of Eight summit Friday. The officials didn’t provide a breakdown of where the money would come from or when, or what it would be for. But the overall message from President Barack Obama and the other G-8 leaders meeting in this Normandy resort appeared to be warning autocratic regimes in the Arab world that they will be shut out of rich-country aid and investment, while new democracies are encouraged to open their economies. Tunisia’s finance minister said French President Nicolas Sarkozy floated the $40 billion figure at talks Friday, in which the prime ministers of Tunisia and Egypt joined the G-8 leaders and appealed for help after uprisings earlier this year that overthrew longtime autocrats but also scared away tourists and investors. A French official says $40 billion is the overall goal, but that breakdowns by country and timetables are still under discussion. The official was not authorized to be publicly named according to his office policy. A group statement from the G-8 leaders said that $20 billion from international development banks could go to Egypt and Tunisia over the next three years. Beyond the institutional funding, the French official said the aim was for another $20 billion from bilateral support from G8 members as well as from rich Persian Gulf states and others. “We are really very satisfied by the very strong, very clear, very precise declarations that have come from all the G-8 nations and financial institutions – bilateral agencies and development banks,” Tunisian Finance Minister Jaloul Ayed told reporters in Deauville. He said foreign ministers and finance ministers from the countries involved were expected to meet between now and early July to flesh out details of the aid package. Tunisia’s government said it was asking the G-8 for $25 billion over the next five years, and Egypt says it will need between $10 to $12 billion for the fiscal year that begins in July to cover its mounting expenses. “This isn’t the end, additional funding will likely come from other sources after the G-8, and I think they’ll be satisfied with at least the ball starting to roll,” Jenilee Guebert of the G-8 Research Group at the Munk School of Global Affairs in Toronto. U.S. and European officials had said that they would not announce an aid figure at this summit, thinking it was too early to do so. “They said their main problem was the economy. They need some support,” European Commission President Jose Manuel Barroso told reporters Friday after meeting the Egyptian and Tunisian leaders. “I think they are ready. Let’s do everything to support the Arab Spring. I think they can succeed.” Uncertainty lingers, however, about the fragile governments in Egypt and Tunisia as they prepare for elections later this year – and debate over how to handle Libya’s war. The G-8 leaders are also worried that fighting in Libya and violence against protesters in Syria could derail the pro-democracy movement that has swept around the Arab world since Tunisian protesters rose up against an autocratic regime and forced out their longtime president. In their final statement, the G-8 leaders said Libyan leader Moammar Gadhafi “must go” and are pressing Syria’s regime to “stop using force and intimidation” against its people. The G8 leaders say Gadhafi and his government have failed to fulfill their responsibility to protect Libya’s people “and have lost all legitimacy. He has no future in a free, democratic Libya.” The main product of the G-8 summit was a partnership program aimed at supporting the countries’ fragile political leadership and fighting corruption and stabilizing the economies. The G-8 leaders laid out a plan for refocusing the European Bank for Reconstruction and Development – created to help eastern European economies after the collapse of communism – to help Arab democracies. The EBRD was set up 20 years ago, when the sudden collapse of the Soviet Union convinced European leaders of the urgency to provide support to a region emerging from decades of political and economic dictatorship. The idea was to set up a “transition bank” to help lead the way on banking systems reform, price liberalization, privatization and establishing legal property rights in a region just shaking off the effects of almost 50 years of planned economies. The G-8 leaders also met with African leaders Friday, calling for concerted efforts to settle conflicts on the continent. ___ Julie Pace and Sylvie Corbet in Deauville contributed to this report. (This version corrects short headline.)

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A Look At What World Leaders Will Discuss At G8 Summit

May 25, 2011

This Thursday, leaders from the “Group of Eight” top industrialized nations — the United States, Japan, Germany, France, Britain, Italy, Russia and Canada — will convene at the French seaside town of Deauville to begin a two-day annual summit on global issues. The summit, which coincides with U.S. President Obama’s six-day European tour, will focus on a variety of topics, among them global economy, climate change and the aftermath of Japan’s devastating March 11 earthquake and tsunami. Issues pertaining to the Arab Spring — particularly those related to Libya and Syria — will also feature prominently in the discussions, reports the AFP. See what G8 leaders will discuss in Deauville this week, courtesy of Reuters, below:

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Lagarde Set To Announce IMF Bid On Wedneday

May 24, 2011

PARIS-French finance minister Christine Lagarde is set to announce her bid to become the next managing director of the International Monetary Fund on Wednesday, according to a French government official.

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Robert Kuttner: Beware Greeks Bearing Banks

May 23, 2011

After every financial debacle or war, there is a huge political struggle over whether creditors and financial speculators get to stand in the way of an economic recovery. When the creditors win, ordinary people who had nothing to do with the crisis are typically the victims. Today, the entire political elite is in the austerity camp, and those who argue that creditors should take some losses so that the rest of the economy can grow are mostly ignored. This is the common theme to the issue of mortgage relief to spare American homeowners millions of foreclosures, the question of whether the US should sacrifice Medicare and Social Security on the altar of deficit reduction, and the punishment being visited upon small European economies such as Greece, Portugal and Ireland. (Though Dominique Strauss-Kahn was evidently a sexual predator, he was not a financial rapist when it came to vulnerable nations. He was a rare member of the ruling financial club who gave some attention to economic recovery over austerity.) Greece is the poster child for this dilemma, and the Greek story reveals the real villain of the piece — the big banks. In February 2010, it was revealed that Goldman Sachs had been complicit in allowing previous Greek governments to cook their books and hide the size of the Greek deficit by creating a special kind of currency swap that was really a disguised loan. In the aftermath of the financial crisis, Greece’s national debt is unsustainable, and only credits from the European Central Bank and the International Monetary Fund are keeping Greece from defaulting. The bankers want Greece to languish in debtor’s prison, cutting wages and social benefits, increasing taxes, and otherwise sandbagging its own economy in order to pay back creditors at 100 cents on the Euro. Greece, however, is now in a vicious circle: the more the Greeks practice the austerity demanded by the money markets and the European Central Bank, the more the Greek economy predictably slumps and the more that money markets lose confidence that Greece will ever recover enough to pay back its bondholders. In this crisis, bankers are culpable in three different and reinforcing respects. First, we have the case of Goldman’s complicity in helping the Greek previous government to get Greece in over its head. Secondly, the European Central Bank and the big German banks are opposed to a restructuring of the Greek debt — trading short term bonds for longer term securities with reduced interest and principal — because big banks are the major bondholders and resist taking any losses. Recently, a third concern came to light — our old nemesis, credit default swaps (CDS). These are the very same toxic securities that were so implicated in the 2007-2009 financial crash. CDS are a form of insurance against default of securities. But unlike, say, underwriters of life insurance or fire insurance, the issuers of swaps seldom have adequate reserves against losses because they assume that defaults will hardly ever occur. Rather, CDS have become a favorite vehicle for speculation by hedge funds and investment banks. According a Friday Wall Street Journal report from Brussels, even a partial a restructuring of the Greek government debt could trigger payouts of credit default swaps. A group of European finance ministers raised the possibility of a “soft” restructuring of the Greek debt, so as not to reward speculators who were betting on a Greek default, but officials of the European Central Bank threw a fit, warning that the ECB would pull the plug on funding for Greek banks if such a restructuring were discussed. From the view of the ECB, the sheer complexity of financial markets is now such that any form of restructuring that would benefit Greece could set off ripples that might destabilize the system, so the ECB is dead set against it. Better for the Greeks just to suffer. It’s clear that Greece can’t pay its debts. The practical question is whether an adjustment will be accompanied by more pain or less, and whether the financial sector will be permitted to keep bleeding Greece dry. There is an instructive historical parallel. When American banks found themselves in big trouble in the 1980s because several third world countries could not pay back their loans, Nicholas Brady, Bush I’s Treasury Secretary, came up with an ingenious plan. The debts would be stretched out, and the creditors would take a hit averaging about 30 percent. The banks were compelled to take their feet off the oxygen hoses of more than a dozen nations, and recovery of their real economies ensued. Worry about triggering payouts of credit default swaps was not an obstacle because, mercifully, credit default swaps had not been invented yet. The more we learn about these toxic securities and their abuse, the more wisdom we see in Paul Volcker’s comment that the last useful innovation created by the financial industry was the ATM machine. The stakes are somehow clearer after wars than after financial busts. Bonds issued by defeated countries are worthless, so debts do not sandbag recoveries. Victorious countries typically restructure their own war debt, so that it doesn’t cripple the postwar economy. (America’s first treasury secretary, Alexander Hamilton, was a hero for devising a plan for the new federal government to assume the war debts.) We also remember the fatal lesson of the First World War, where the British and French tried to squeeze defeated Germany dry to pay off their own war debts — and destroyed Germany’s economy, thus creating grievances that led to World War II. After the second war, we didn’t make the same mistake twice. But somehow, it’s harder to win general support for debt relief after a financial collapse because details are more murky and the banks are so bloody powerful. The fact is that throughout modern history, governments have defaulted on debts dozens of times. It’s more important for real economies to realize their productive potential than for bankers to get their pound of flesh. The choice doesn’t have to be default or debtor’s prison. A middle ground is debt restructuring of the sort being proposed for Greece, but the banks and their toadies in government are too greedy and short sighted to appreciate it. In the context of today’s debt politics, Nick Brady, who faithfully served George H.W. Bush, is a dangerous radical. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril .

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IMF management could stay French despite Strauss scandle

May 21, 2011

IMF management could stay French despite Strauss scandle

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Penning A Rape Apology: A Guide For Important Men

May 18, 2011

Who would have thought there would ever be an issue in our modern lives that could possibly bring together the abundant talents of Bernard-Henri Levy and Ben Stein? The former is a louche French “public intellectual,” the latter a Nixon speechwriter-turned-droning commercial pitchman, so up until recently, I wouldn’t have imagined there were too many causes under whose banners the two would publicly unite. But that was all before IMF head and would-be French presidential candidate Dominique Strauss-Kahn was accused of raping a hotel maid. Now, Levy and Stein find themselves offering up the same response — two of the World’s Most Interesting Men, defending another Interesting Man, on the grounds that the privilege all enjoy makes the crime inconceivable on its face. Ahh, the vita is always dolce when you are an Interesting Man. And rape? This is not a crime that Interesting Men dismiss out of hand, necessarily. But it’s a tawdry and declasse sort of thing that happens to downmarket people. It’s not supposed to rile up the lives of the world’s elite. Game recognizes game, after all. And shame? That’s for lesser people. And so while it can be acknowledged that the possibility exists that DSK is the perpetrator of a crime (Levy: “I do not know what actually happened.” Stein: “…it’s possible indeed, maybe even likely, that he is guilty as the prosecutors charge.”), the important thing to do right now is remind the world that in this life, Interesting Men are never supposed to experience shame, let alone experience it publicly. Isn’t that the greater indignity? The good news for Interesting Men is that they need never again spend too much time wondering how to defend their fellows from such base charges, as Levy and Stein have discovered the formula by which such a defense can be mounted. 1. Always remember that a man’s importance is a defense in itself. Per Levy, DSK is “one of the most closely watched figures on the planet.” Oh, you didn’t know who he was until this week? Typical . He’s actually a “champion” of (some of) the French people. One of that country’s “most devoted and competent servants.” And the world “is indebted to him for contributing, for the past four years at the head of the IMF, to avoiding the worst.” So remember that as these accusations play out! Per Stein: “This is a case about the hatred of the have-nots for the haves, and that’s what it’s all about. A man pays $3,000 a night for a hotel room? He’s got to be guilty of something. Bring out the guillotine.” Indeed, this is our fault, for scheming up a way to indict DSK the moment he flashed us his platinum card. 2. And remember, the greater outrage here isn’t that a hotel maid may have been raped, it’s that an Interesting Man is being treated as a common criminal! Levy: “This morning, I hold it against the American judge who, by delivering him to the crowd of photo hounds, pretended to take him for a subject of justice like any other.” Stein: “Mr. Strauss-Kahn had surrendered his passport. He had offered to stay in New York City. He is one of the most recognizable people on the planet. Did he really have to be put in Riker’s Island? Couldn’t he have been given home detention with a guard? This is a man with a lifetime of public service, on a distinguished level, to put it mildly. Was Riker’s Island really the place to put him on the allegations of one human being? Hadn’t he earned slightly better treatment than that?” 3. On the other hand, the accuser is so common and ordinary! Stein: “People accuse other people of crimes all of the time. What do we know about the complainant besides that she is a hotel maid? … How do we know that this woman’s word was good enough to put Mr. Strauss-Kahn straight into a horrific jail?” 4. Your privileged perch gives you vast knowledge of the world, bearing on this case, that smaller people can’t possibly appreciate. This includes: stuff about high-priced hotels. Levy: “I do not know — but, on the other hand, it would be nice to know, and without delay — how a chambermaid could have walked in alone, contrary to the habitual practice of most of New York’s grand hotels of sending a ‘cleaning brigade’ of two people, into the room of one of the most closely watched figures on the planet.” Stein: “They were in a hotel with people passing by the room constantly, if it’s anything like the many hotels I am in. How did he intimidate her in that situation?” You people at the Days Inn couldn’t possibly understand how exculpatory these anecdotes are! 5. No, you’re not a criminologist, but you’re important , and so your extra special thoughts on forensics should be given more weight that the people who actually perform those tasks and apply that knowledge, for mere five figure salaries. Stein: “In life, events tend to follow patterns. People who commit crimes tend to be criminals, for example. Can anyone tell me any economists who have been convicted of violent sex crimes? Can anyone tell me of any heads of nonprofit international economic entities who have ever been charged and convicted of violent sexual crimes? Is it likely that just by chance this hotel maid found the only one in this category? Maybe Mr. Strauss-Kahn is guilty but if so, he is one of a kind, and criminals are not usually one of a kind.” How can you argue with this tautological reasoning? People who commit crimes tend to be criminals. But people who run the International Monetary Fund? THEY TEND TO BE THE HEAD OF THE IMF. And the whole idea of economists committing rape is just insane! The grand debate between Keynes and Hayek permit you no time for such pursuits. Stein continues: “The prosecutors say that Mr. Strauss-Kahn ‘forced’ the complainant to have oral and other sex with him. How? Did he have a gun? Did he have a knife? He’s a short fat old man.” As everyone knows, in the history of the world, men have always needed knives and guns to intimidate women. 6. What’s more, as an Important Man who can alone Divine the Mysteries of the Universe, you have special insight into the character of other Important Men, which is, in and of itself, exculpatory. Levy: “And what I know even more is that the Strauss-Kahn I know, who has been my friend for 20 years and who will remain my friend, bears no resemblance to this monster, this caveman, this insatiable and malevolent beast now being described nearly everywhere. Charming, seductive, yes, certainly; a friend to women and, first of all, to his own woman, naturally, but this brutal and violent individual, this wild animal, this primate, obviously no, it’s absurd.” Stein: “If he is such a womanizer and violent guy with women, why didn’t he ever get charged until now? If he has a long history of sexual abuse, how can it have remained no more than gossip this long?” SPOILER ALERT: It’s because women accused of rape often face such a steep climb in the criminal justice system that many rape surivivors are too intimidated by the long odds. Combined with the pain of reliving such a traumatic event, many can’t bear the burden. In this way, rape is a crime of double-intimidation, with the legal system providing the second blow. 7. The American legal system is something that ordinary people have no real trouble understanding, but if it suits your purposes, just say a whole bunch of things about it that aren’t anywhere near being true! Stein: “Did the prosecutors really convince a judge that he was a flight risk when he was getting on a flight he had booked long beforehand? What kind of high-pressure escape plan is that? How is it a sudden flight move to get on a flight booked maybe months ago?” The fact that someone once booked a flight in the past isn’t what people mean by the term “flight risk.” Someone is a “flight risk” if they have the ready means to flee the country. But never mind! Levy: “I am troubled by a system of justice modestly termed ‘accusatory,’ meaning that anyone can come along and accuse another fellow of any crime — and it will be up to the accused to prove that the accusation is false and without basis in fact.” Actually, the American system of justice is adversarial and typically, the burden of proof is on the accuser, but whatever! The unique thing about rape is that, like no other crime, the actions of victim go on trial as well. Did you get assaulted because you took, perhaps, an ill-advised shortcut home ? You may lament that decision, sure, but no one in their right mind is going to suggest that your actions provided the criminal the right to commit the crime. Rape, on the other hand, is much different — there, the actions of the victim are often deemed fair game, with the implication being that the victim accorded the attacker the right to commit rape. 8. Which reminds me, don’t forget to blame the victim! Stein: “I love and admire hotel maids. They have incredibly hard jobs and they do them uncomplainingly. I am sure she is a fine woman. On the other hand, I have had hotel maids that were complete lunatics, stealing airline tickets from me, stealing money from me, throwing away important papers, stealing medications from me.” That’s just the way hotel maids are! You don’t have to limit your victim blaming to just this one victim, either. Levy: “I hold it against all those who complacently accept the account of this other young woman , this one French, who pretends to have been the victim of the same kind of attempted rape, who has shut up for eight years but, sensing the golden opportunity, whips out her old dossier and comes to flog it on television.” Yes, what a golden opportunity, to relive a traumatic time in one’s life, and get pilloried. It’s like winning the lottery! Depending on your taste, you can season the piece with talk of grand political conspiracies. And there’s always room to blame the media, for daring to report the story. But that’s basically how you do it. Heck, you Interesting Men no longer have to write these defenses yourselves anymore — just hand this guide to an underling and they can write it up for you. One final note: at some point, someone might tell you that every time one of these rape apologias makes it into print, it has the net effect of stealing away one more portion of courage from women the world over who have survived rape, who might ordinarily confront their attackers in an attempt to bring them to justice. You’ll be told that every time a victim gets smeared or discounted, it makes it that much more clear to rape survivors that this is acceptable public treatment. A simple application of logic might inform you that enabling — indeed, ennobling — rapists helps clear the way for more rapes to be committed. But surely such concerns are well beyond the purview of Interesting Men. [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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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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IMF Head Pulled Off Plane, Charged In Alleged Sexual Assault

May 15, 2011

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

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Euro Zone grows 0.8% in the first quarter, boosted by the superb German and French expansion

May 13, 2011

Euro Zone grows 0.8% in the first quarter, boosted by the superb German and French expansion

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Video: Lagarde Says She Would Like to See a Strong U.S. Dollar

May 4, 2011

May 4 (Bloomberg) — French Finance Minister Christine Lagarde talks about the euro and U.S. dollar. She also discusses Portugal’s bailout package and the outlook for European economies. Lagarde speaks with Bloomberg’s Phillip Yin in Hanoi. (Source: Bloomberg)

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Video: Prot Says BNP Paribas in a `Fairly Positive’ Position

May 4, 2011

May 4 (Bloomberg) — BNP Paribas SA Chief Executive Officer Baudouin Prot discusses the bank’s first-quarter profit which rose 15 percent, helped by its French and U.S. consumer-banking businesses.

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Video: Prot Says BNP "Confident" It Won’t Have to Raise Capital

May 4, 2011

May 4 (Bloomberg) — BNP Paribas SA Chief Executive Officer Baudouin Prot discusses the bank’s capital position and expansion plans after first-quarter profit rose 15 percent, helped by its French and U.S. consumer-banking businesses. He talks with Bloomberg Television’s Caroline Connan in Paris.

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GE CFO: ‘Best Earnings Outlook In The Last 10 Years’

April 27, 2011

SALT LAKE CITY (Scott Malone) – General Electric Co sees its best earnings growth prospects in a decade as the global economic recovery drives demand for the heavy energy and aviation equipment it makes, top executives said. Rising oil prices have not yet taken a toll on global growth rates, Chief Executive Jeff Immelt said at the company’s shareholder meeting on Wednesday. “Things are getting better every day. The global economy outside the U.S. is strong,” he told reporters. Asked about oil prices, which have risen about 33 percent over the past year on rising demand, particularly in emerging markets, Immelt said they have not yet taken a toll on growth. “It’s something to think about, but it doesn’t seem to be hurting the economy,” he said. The U.S. economy is also improving, he added, although the housing sector remains a weak spot. GE believes its profit growth over the next few years will be the best it has seen in a decade, officials said. “This is the best earnings outlook we’ve had in the last 10 years,” Chief Financial Officer Keith Sherin told a crowd of 268 shareholders. GE no longer provides investors with numeric profit forecasts; but analysts on average look for earnings per share excluding one-time items to rise 16.5 percent this year, according to Thomson Reuters I/B/E/S. GE, which employs about 134,000 people in the United States, each year holds its annual shareholder meeting in a different city where it has operations. Its energy, healthcare and finance arms all have a presence in Salt Lake City. In a nod to the prevalence of firearms in the Western United States, the sign directing shareholders to the meeting’s location in the city’s Salt Palace convention center pointed out that no guns would be allowed in the meeting room. NUCLEAR OUTLOOK UNCLEAR The future of the nuclear power industry is unclear in the wake of the disaster at Japan’s Fukushima power plant, where GE designed the turbines, Immelt said. “It’s too soon to say what the future of the nuclear business is going to be,” he said. GE’s nuclear operations are a joint venture with Japan’s Hitachi Ltd. The world’s largest maker of jet engines and electric turbines has seen its stock price more than triple from its recessionary lows below $6, though the shares remain at about half their level before Immelt took the top job from Jack Welch a decade ago. Immelt told shareholders that even through the recession and financial crisis, “in every year we earned more money than when the stock traded at an all-time high.” GE shares were up 2.7 percent to $20.64 on the New York Stock Exchange. Over the past year, the shares have risen 4 percent, lagging the 12 percent rise of the Dow Jones industrial average, of which it is a component. Immelt faced shareholder questions on issues ranging from his appointment as an economic adviser to the Obama administration to GE’s past support of efforts to attach a price to emissions of the greenhouse gas carbon dioxide. No shareholders asked about the company’s low tax rate — which has been in the public eye over the past month — though a group of several dozen protesters who said they were affiliated with the conservative Tea Party movement gathered outside to protest it. Shareholders approved company-backed resolutions including the election of the board and a proposal to have a nonbinding “say on pay” vote each year. They voted down all five company-opposed proposals, including one calling for the board to rescind stock grants and another asking GE to disclose more about the use of animal testing at its healthcare unit. GE competes with some of the world’s largest businesses, including Germany’s Siemens AG, French industrial group Alstom SA and Swiss engineering company ABB Ltd. (Reporting by Scott Malone; Editing by Gerald E. McCormick, Dave Zimmerman) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Dan Solin: An Outsider’s Look at Insider Trading

April 20, 2011

I am fascinated by all trading (since little of it makes sense to me), but insider trading really intrigues me. Some recent cases are worthy of special attention. In one, a hedge fund manager in FrontPoint Partners is alleged to have sold a huge block of shares in a biotech company after he got a tip that one of the company’s drugs was in trouble. The sale allegedly avoided $30 million in losses. According to an article in the Wall Street Journal , FrontPoint, which was previously owned by Morgan Stanley, agreed to a settlement with the SEC involving payment of $33 million. Criminal charges are pending against the fund manager. The fund manager, who earned a medical degree from Yale, allegedly paid cash to a French doctor who gave him the inside tip. On one occasion, he allegedly slipped $10,000 in cash in an envelope to the doctor while they were both at a bar in Milan. The French doctor has admitted his complicity in this scheme. I have to give credit to his lawyer, David Zornow, who noted that: “Dr. Benhamou’s conduct in this instance must fairly be considered in the overall context of his extraordinary contributions to his patients and to medical science.” How those contributions should factor into his illegal conduct is beyond me, but I thought the effort to conflate the two was very creative. The founder of the Galleon Group, Raj Rajaratnam, is currently on trial for insider trading, as part of a broad crackdown by the U.S. Attorney Office. By some accounts, 47 people affiliated with hedge funds in the last 18 months have been charged with insider trading. Here’s what fascinates me. These are not rinky dink outfits. Galleon Group managed over $3 billion in assets. It had significant resources which — you would think — would permit it to do all the research necessary to uncover mispriced stocks and secure outsized returns for its wealthy investors. Clearly, these giants of Wall Street know something they aren’t telling their clients: It’s really hard to be a successful stock picker. In fact, I am unaware of any research validating this skill and reams of data showing that stocks are fairly priced, incorporating all available information instantaneously. As successful insider trading indicates, it’s tomorrow’s news that affects stock prices. When FrontPoint got tipped off about non-public information, it was able to profit. Essentially, it learned about tomorrow’s news before that news was public. Insider trading validates index based investing. The hedge fund managers who engage in this activity understand they are unlikely to “beat the markets,” without violating the law. As noted author and market theorist William Bernstein said: ” It turns out for all practical purposes there is no such thing as stock picking skill.” Confronted with that reality, some managers have resorted to illegal conduct. There is a much better alternative. It will permit you to outperform 95% of all professionally managed money. Invest in a globally diversified portfolio of low management fee stock and bond index funds in an asset allocation suitable for you. Keep your cash out of envelopes. Keep yourself out of prison. That’s my outsider’s look at insider trading. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Elise Lelon: The Career Epidemic: You Don’t Have to Choose Between Your Job and Your Health

April 10, 2011

Two years ago, shortly before she came to see me about some career challenges, Elizabeth, a physically-fit, happily married, mother of two, was diagnosed with an autoimmune disease. A high-achieving executive with an impressive 20-year track record in finance, Elizabeth has held a variety of senior positions including, at one time, CEO. During the onset of her symptoms, Elizabeth exceeded everyone’s expectations but became embroiled in a tough fight for a well-deserved promotion. Her request was denied despite her reliably stellar reviews. Medication and dietary changes have helped, but Elizabeth continues to work while saddled with exhaustion and pain, both daily realities of her disease. In 2009, with the 20% decline in Manhattan apartment prices and a significant slowdown in transaction volume, Marc, a top real estate agent at a premier firm, came to me for advice about how to reinvent his business. When we first met, he told me, “The game has changed. This housing market is in a downward spiral and I’ve got to re-think my strategy or else.” As the sales cycles got longer, and as clients got more gun-shy, Marc began having severe podiatric and orthopedic problems that literally prevented him from stepping his business forward, and would ultimately require surgery. Samantha, a superstar salesperson in a blue chip bank with over $1 trillion in assets under management, developed dental and oral problems from biting the inside of her mouth. This behavior began once the company she had been loyal to for over a decade became unstable following post-merger restructuring. And then, there is Matthew (whose name has been changed along with all the client names referenced above, to honor confidentiality). A spectacular entertainer who graced Broadway stages for years, Matthew now faces fewer audiences and paychecks thanks to the closed shows, lower ticket sales, and increased competition for work following Broadway’s bust in 2009. Re-located to a suburb of Los Angeles, he is struggling to raise four children on diminishing means. Matthew has developed such debilitating insomnia that there are nights when he considers taking his own life. As a whole, the clients who come to me for strategic career advice are healthy, extremely high functioning and successful professionals. But, in the last two-and-a-half years, a disproportionate number of them have struggled with physiological conditions. Research says that anxiety over job and income instability is partly to blame. Sheldon Cohen of Carnegie Mellon University, one of the leading researchers on the relationship between stress and disease, confirms that , under chronic stress, the immune system doesn’t defend as well as it should against challenges. According to Cohen, when exposed to a virus, people who are experiencing ongoing stress are more likely to get sick. More dramatic is the research suggesting that job loss takes 1-1.5 years off of your life . Two prominent economists, Daniel Sullivan of the Federal Reserve Bank of Chicago and Till von Wachter of Columbia University, claim , “We were convincingly able to show that if you lose your job, you die earlier.” This is especially relevant data given a Gallup Poll that says 1 out of 5 employed Americans think they will lose their job in the next 12 months. If you do the math, that means about 26 million Americans will die at least a year earlier than they would have, had they kept their jobs. Even the lucky among us, who have jobs but worry about them constantly, are at risk. Sociologist, Sarah Burgard, of the University of Michigan has found that the consistent, nagging concern about losing one’s job is even more harmful to people’s health than job loss itself. Under the stress of job uncertainty, people smoke more, drink more and don’t sleep as much. Ultimately, they are more likely to develop stress-related health conditions such as hypertension or diabetes. Each year, hypertension kills 40,000 Americans, and high-blood-pressure-related illness claims an additional 200,000 lives. (Not to mention that having hypertension makes you 7 times more likely to have a stroke and 6 times more likely to have congestive heart failure.) According to the American Diabetes Association , 25.8 million Americans have diabetes and 5800 of them die from the disease each week. Clearly, genetic factors, environmental influences and lifestyle choices impact people’s physical health. But, the domino effect on America’s collective well-being caused by the recession, massive industry restructuring, and layoffs cannot be dismissed. While there are wide reaching public-policy implications of our country’s rampant career and income instability, that’s not a battle for this blog post. Instead, here are four practical ways to combat the stresses of your career: #1) Don’t Fixate on Fixing. Create. Sometimes, fixing your job is the wrong answer. Ming, an experienced technology professional, was constantly frustrated at her job. As much as she tried to influence the decisions of her senior management team, she was never the one making the decisions. For a born leader with strong entrepreneurial instincts, the lack of “juice in the job,” as she called it, chipped away at her self-esteem. To increase her impact, Ming began new initiatives and ran big projects, but ultimately the buck always stopped with someone else. The years of hoop jumping and fence mending were causing more anxiety than promotion potential. The fact was that no one above her was going anywhere. In our private weekly meetings together, Ming and I started repeating a mantra, ” Fixing is about history. Creating is about the future. ” She grew to be more proactive than reactive by tapping into her Rolodex and big idea bank. Ming is now the CEO of her own Internet company where, by the way, the buck sits squarely on her desk. You too can make the mind shift from broken to becoming. Focus on new opportunities rather than old problems. A good place to start is InMaps by LinkedIn . InMaps is an innovative way to see your entire professional network at a glance. In seconds, it builds an intricate web of all the contacts from your LinkedIn account and clusters them by color. You can name the groups according to the common theme that each cluster shares. For example, one cluster may be made up of friends from college, another grouping may consist of former colleagues at your previous employer or a national association to which you belong. The visual picture shows you the depth of each one of your micro networks as well as the breadth of your macro network. This is a great tool for brainstorming about ways to leverage the dense volume of people you already know in one industry, geography, company or social circle. Equally as important, InMaps allows you to identify where you’re “out of it.” While you may maintain solid contact with certain people, the fun part is to discover where you can build bridges with entirely new communities to broaden your professional universe. InMaps opens the career doors your current manager keeps slamming in your face and reminds you of your power to create a whole new pathway of possibility — with a little help from your friends. #2) Blame The Economy Research shows that stress is correlated with blows to your self-esteem. The more you internalize the reasons for your present job crisis, the more negative your health consequences may be. Stop beating yourself up, and look around. You’re not the only one out of a job, obsessed that you might be unemployed soon, or struggling to make ends meet. In fact, you’re in pretty good company. Along with the 13.7 million unemployed Americans reported in the Bureau of Labor Statics’ March 4th release, 84% of high-powered women and 40% of their male counterparts are considering leaving their current job. Whether you’re employed or not, uncertainty is part of the career condition right now. So ease up on the self-blame game. #3) Support Groups (Read before rolling your eyes.) Jack, one of my CEO clients, closes his office door at work whenever there is a crisis. At home, if he feels overwhelmed by family issues, he locks the study door and hangs a sign on the knob that says in French “Do Not Disturb”. The sign was a not so subtle and sadly appropriate trip souvenir gift from his high school age son. Everyone around Jack gets the message loud and clear. His strategy for survival when the going gets tough is to shut the world out. But science indicates that social relationships, more than any other factor, are the key to health and happiness. Dr. John Cacioppo, from The University of Chicago, has found that isolation is bad for our health. In fact, chronic loneliness is associated with many mental and physical disorders including heart disease, diabetes, dementia and depression. In the event that you’re one of the 27 million Americans living alone, it’s especially important that you get off your couch and make contact with the human race. Join your local chapter of BNI where you can pitch other people over breakfast on your skill sets, business services, and make new contacts. As they say, start “gaining from giving.” #4) Mindfulness Meditation Meditation is the best way I know to let go of what is and what isn’t. It settles you into the truth. By tuning into the present moment, your body and your breath, you become an impartial witness to your own experience. Like the welcome change of scenery a vacation provides, meditation gives you distance from your everyday frustrations, on command . It loosens your grip around that gnawing sense of dissatisfaction so many of us live with — what Buddhists refer to as “Dukkha,” a primary cause of human suffering. In my own life and in the lives of my clients, I have observed the transformative power of meditation. Ironically, busy clients who associate stillness with failure and futility benefit the most from learning to meditate. For some people, life spent sprinting on a treadmill with no off button feels far safer than a few minutes sitting in silence. The goal for them is always the same: more. This cycle of craving — endemic to our culture — drives many people to fill voids constantly in their jobs and lives. Unfortunately, spending so much energy filling what’s not there usually causes people to miss what is . If that sounds too abstract, imagine this. You’re driving at a good clip along Highway 1 in breathtaking Big Sur, California. As you steer, you try to take in the view through the car window that is moving past everything at 60 miles per hour. There’s so much to see, but you’re moving too fast. You take your eyes off the raw beauty around you and just focus on the road. You might think you’re driving that car, but it turns out the car is really driving you. Clients often tell me that they can’t take time off or cut back on their work schedules because there’s too much to do. Sometimes, it takes actually getting sick for them to figure out that when you can’t stop, you can’t really see. After all, that’s what lookout points on the side of the road are for — a spot to stop and take it all in. Meditation gives you that reason to pause, a lookout point. Eventually, with a regular meditation practice, an awesome sense of emptiness replaces the craving for more. Much to your surprise, with nothing but your own mind and breath, you might just find that is enough. Need to press pause? Set an alarm for 3 minutes, sit quietly in an undisturbed place, and close your eyes. Focus only on your breath going in and out. If your mind wanders, bring it back gently, and re-attend to your breathing until your alarm rings. Try it every day for a week, adding a few minutes when it becomes more comfortable. To learn more about meditation and its healing potential, read Jon Kabat-Zinn ‘s book, Full Catastrophe Living , or check out some mindfulness meditation tips, CDs and resources at MindfulnessTapes . Clearly, there is a paradox to this current career crisis. In order to make a healthy livelihood, you need to make sure your job or joblessness doesn’t suck the life out of you. As the four strategies outlined above show, this requires that you do both internal and external work. Yes, it’s important to dive deep inside yourself to create exciting new possibilities, strong self-esteem and inner peace. But, connect that inspired internal effort with other people and communities, both on-line and face-to-face. Regardless of our global economic concerns, the world needs your contribution. It’s up to you to take care of yourself so that you can first determine what your unique path of contribution is, and then start paving it like your life depends on it.

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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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Libyan Opposition Strikes Oil Deal

April 1, 2011

BENGHAZI, Libya — A plan to sell rebel-held oil to buy weapons and other supplies has been reached with Qatar, a rebel official said Friday, in another sign of deepening aid for Libya’s opposition by the wealthy Gulf state after sending warplanes to help confront Moammar Gadhafi’s forces. It was not immediately clear when the possible oil sales could begin or how the arms would reach the rebel factions, but any potential revenue stream would be a significant lifeline for the militias and military defectors battling Gadhafi’s superior forces. Rebel units were pushed back about 100 miles (160 kilometers) this week along the Mediterranean coast, but still held parts of oil-rich eastern Libya and the key city of Benghazi. In recent clashes, rebels displayed more firepower including mortars and rockets, but remain significantly outgunned. Ali Tarhouni, who handles finances for the opposition’s National Transitional Council, said that Qatar has agreed to market oil currently in storage in parts of southeastern Libya. He said one sticking point is how to truck the oil out of the country. Tarhouni said money from oil sales will be put into an escrow account the opposition will use to pay for weapons, food, medicine, fuel and other needs. He said the rebels had asked visiting U.N. and French envoys to have sanctions lifted on the parts of Libya controlled by the rebels. He said that if transport issues are solved, the rebels could immediately start exporting 1 million barrels per week. When asked, he said the rebels would certainly use oil revenues to buy arms. “People are dying,” he said. He said the council was exploring “buying arms, any kind of arms that we can get to. We have a list of the arms we need and we’re trying some different fronts to buy them. There was no immediate comment from officials in Qatar, one of the few Arab states taking part in the international military contingent enforcing a no-fly zone in Libya. Qatar is also assisting a rebel satellite TV operation that began broadcasts this week from Qatar’s capital Doha and has agreed to host a meeting of Libyan opposition groups. A spokesman for Qatar Petroleum, the state company responsible for selling the Gulf nation’s oil, declined to comment. In London earlier this week, Britain’s foreign secretary, William Hague, said Qatar had offered to “facilitate” oil sales that are consistent with international law. Hague did not provide details about who would be supported, how the facilitation process would work, or how Qatar’s offer has been received by diplomats. It has been unclear how exactly such an arrangement would work. The effort to get oil out is hampered by several factors, including the rebels’ ability to hold eastern oil production and export facilities, the departure of skilled foreign oil-field workers and international sanctions that technically apply to the country as a whole. OPEC member Libya produced about output of 1.6 million barrels per day of oil before the conflict, just under 2 percent of world production. Qatar – host of the U.S. Army’s Middle East command hub – has significantly boosted its international profile in recent years with diplomatic initiatives and top-level sporting events, including being picked to host the 2022 World Cup. The 22-member Arab League was critical in winning U.N. Security Council support for the no-fly zone. But only Arab League members Qatar and the United Arab Emirates have contributed aircraft to the mission. Qatar also has agreed to host the first meeting of an international contact group aimed at coordinating political action and opening channels with Libya’s opposition. No date for the meeting has been set. A Qatari aid plane carrying 30 tons of relief supplies including medicine, medical equipment and blankets landed in the Libyan city of Tobruk on Wednesday, according to the official Qatar News Agency. Last month, Qatar sent ground troops to join a Saudi-led force aiding the rulers in Bahrain, which has been wracked by anti-government protests and violence for more than six weeks. In the Arab world, however, Qatar may be best known as the headquarters for the powerful Al-Jazeera broadcasting network, which was founded by the country’s rulers in 1996. A Libyan rebel spokesman, Mahmoud Shamam, said a satellite channel, Libya TV, began broadcasts from Doha earlier this week with financial and logistical support from Qatar. A top rebel official, Mustafa Abdul-Jalil, offered a cease-fire Friday if Gadhafi pulls his military forces out of cities and allows peaceful protests against his regime. ___ Associated Press writers Adam Schreck and Brian Murphy in Dubai, United Arab Emirates, contributed to this report.

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Nuclear Industry Insists New Reactors Are Safe

March 28, 2011

OLKILUOTO, Finland — Halfway around the globe from Japan’s atomic emergency, engineers building a cutting-edge nuclear reactor along Finland’s icy shores insist the same crisis could never happen here. And that’s not only because Finland is seismically stable. The 1,600-megawatt European Pressurized Reactor projected to come online in 2013 in Olkiluoto, 195 miles (315 kilometers) northwest of Helsinki, is the first of its kind expected to begin operating after the Japanese disaster. It has walls thick enough to withstand an airplane crash, components designed to tolerate the extreme cold of the Nordic winter, and decades worth of new safety systems. “(We have) so many backup systems that the kind of accident like in Japan could not happen,” said project manager Jouni Silvennoinen. With the renaissance of nuclear power at stake, the atomic industry faces the challenge of persuading an increasingly skeptical public that new reactors like the EPR units being built by French company Areva in Finland, France and China are not just safer than the old ones but are virtually disaster-proof. The state-controlled company has marketed its expensive new-generation reactor technology to the United States and developing countries from India to Saudi Arabia and Brazil. Since news of Japan’s catastrophe, Areva’s shares have fallen 12.4 percent, trading at euro31.49 midday Friday. Areva CEO Anne Lauvergeon has said an EPR plant would have survived the earthquake and tsunami without radiation leaks. And French Energy Minister Eric Besson, whose country gets up to 80 percent of its electricity from nuclear power, insisted last week it was his “profound conviction that nuclear energy will stay in Europe and the world and be one of the core energies in the 21st century.” But that’s a tough message to sell, with explosions and radiation leaks at the Fukushima Dai-ichi plant in Japan eroding confidence in nuclear power. That confidence took decades to rebuild following the Soviet Chernobyl disaster in 1986 and the 1979 Three Mile Island accident in Pennsylvania. Shocked by the Japanese crisis, the European Union has called for “stress tests” for its 143 reactors. Germany – the EU’s biggest economy – has temporarily suspended plans to prolong the life of its aging nuclear plants and had already planned to abandon nuclear power altogether over the next 25 years. President Barack Obama, while expressing support for nuclear power, requested a comprehensive review of the safety of U.S. plants. Even China, which plans a massive expansion of nuclear energy, has said it will hold off on approving new nuclear plants to allow for a revision in safety standards. Suggesting that third-generation reactors like the EPR would have withstood the shock that crippled the Japanese plant is “sheer arrogance,” said Mycle Schneider, an independent researcher on France’s nuclear industry. “There’s no way we can say today that any plant in the world would have survived what happened in Japan,” he said. At the Fukushima plant, which began operating in 1971, the massive earthquake and tsunami damaged the critical cooling system, which overheated and began spewing radiation into the environment. For the first time, nuclear engineers were forced to head off a total reactor meltdown at three reactors simultaneously as well as dealing with overheating fuel rods in a damaged storage pool at a fourth reactor. So how could a modern reactor have avoided those problems? The principle of power generation is the same as in older high-pressure water reactors like the ones at Fukushima: nuclear reaction heats water to create steam that turns turbines to generate electricity. But technological advances have improved efficiency and stricter safety precautions have made the third-generation reactors more secure, industry officials say. New EPR plants have backup systems like diesel generators that are housed in separate buildings to protect them from any accident that might occur in the main reactor building. The plant must also have access to other sources of electricity, like gas turbines or the national grid, if the diesel generators fail to work. At Olkiluoto, four large diesel generators act as a backup if the first step of connecting to the national grid proves unsuccessful. If they don’t work, two smaller diesel generators kick in, and failing that, the new reactor can be connected to the joint backup systems of two older reactors at Olkiluoto. There are also new “protective barriers” shielding the environment from radioactive products used in the reactor. These include encasing the fuel rods in thick metal containers and having a double concrete cover and walls over the containment vessel that houses the reactor. Besides natural disasters, modern reactors worldwide must be able to withstand terror strikes and – since 9/11 – even a large airliner crash, Silvennoinen said. Situated just 200 yards (meters) from the frozen Baltic Sea, the Olkiluoto nuclear plant is elevated so that it can withstand storm surges of up to 11 feet (3.5 meters), which is considered a worst-case scenario. During a recent visit, dozens of workers in yellow vests clambered up and down stairs of the concrete buildings bordering the cylinder-shaped reactor as construction cranes swerved over its domed roof. Since Olkiluoto is the first EPR scheduled to become operational, it has been seen as a flagship for the latest generation of nuclear reactors. But the project has been plagued by faulty materials and planning problems since construction began in 2005, and it’s now running four years behind schedule. The nearby town of Eurajoki, population 6,000, in the middle of Finland’s sparsely populated countryside, has welcomed the project. It has created 4,000 jobs, even though 70 percent of them went to foreign workers. Teijo Jantunen, who lives near the town, 10 miles (16 kilometers) from Olkiluoto, conceded that the problems at Fukushima had made him think about the possibility of a nuclear accident. “But I’m not really very worried. I’m confident it will be a good plant,” said Jantunen, a 57-year-old construction manager. “I trust them despite everything.” Leo Mantymaki, who lives 6 miles (10 kilometers) away, doesn’t quite know what to believe. “They tell us that a Japan-like accident couldn’t happen here, but I’m not so sure,” the retired welder said, sitting on a tractor as he took a break from clearing snow. “What if they press the wrong button?” Jukka Laaksonen, director of Finland’s Radiation and Nuclear Safety Authority, stressed that safety features must be designed according to local conditions, and said a major flaw at Fukushima was that its seawall was too low. “EPR has much better safety systems than old similar plants but having a good plant is not enough,” Laaksonen said. “You also have to pay attention to the site conditions. If the EPR is not properly protected against a tsunami … then you never know what will happen.” _______ Associated Press writer Angela Charlton in Paris contributed to this report.

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