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Goldman, BNP Paribas Downgraded by Bondholders: Credit Markets

May 26, 2010

By John Glover May 26 (Bloomberg) — Bond investors aren’t waiting for ratings companies to act before downgrading Goldman Sachs Group Inc., BNP Paribas SA and the rest of the world’s biggest financial institutions. Bank debt yields 253 basis points more than government securities, according to Bank of America Merrill Lynch’s Global Broad Market Financial Index, which comprises bonds with an average rating equivalent to A1 at Moody’s Investors Service. That’s approaching the 268 basis point spread on an index of industrial company notes rated as much as five grades lower. The gap between the two benchmarks was as narrow as 11 basis points this month, down from 177 basis points at the start of 2009. Investors are marking down bank bonds on concern Europe’s sovereign debt crisis will reduce lenders’ creditworthiness and that regulatory efforts to control risk taking will crimp their profits. Banks may have a capital deficit of more than $1.5 trillion by the end of 2011 and some may require state support, according to Independent Credit View, a Swiss rating company. Debt holders are “reacting first rather than waiting for events to unfold,” said Michael Donelan , who oversees $3.5 billion of bonds as director of trading and head portfolio manager at Ryan Labs Inc. The New York-based firm cut holdings of finance company debt at the start of the month, Donelan said. BNP Paribas bonds included in the Bank of America Merrill Lynch index yield an average 438 basis points, or 4.38 percentage points, more than Treasuries. The firm is rated Aa2 by Moody’s. Those of New York-based Goldman Sachs, ranked A1, pay a spread of 340 basis points. Corporate Risk Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of similar-maturity government debt rose 7 basis points to 196 basis points, the highest since Oct. 22, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields rose 2.4 basis points to 3.997 percent. Corporate credit risk eased today as speculation of rising demand in emerging markets overshadowed European debt concerns that dragged the euro lower. Investor sentiment improved after the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next as economies such as China outpace debt-burdened developed countries to drive the global expansion. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 22 basis points to 602, according to Markit Group Ltd. prices at 10:45 a.m. in London. South Korea The cost of insuring Asian bonds from non-payment fell today from a 10-month high. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 12 basis points to 160.5, according to Royal Bank of Scotland Group Plc. Credit-default swaps on South Korea dropped 11.8 basis points to 159.7, CMA DataVision prices show. They surged yesterday after a report by a defector group that North Korean leader Kim Jong Il ordered his military to prepare for conflict. In a show of support for South Korean President Lee Myung Bak , U.S. Secretary of State Hillary Clinton will visit Seoul today. Two-year interest-rate swap spreads soared to the highest in 13 months before easing back in late New York trading yesterday, and the London interbank offered rate that banks say they pay for three-month loans in dollars climbed for an 11th day. Swap Rates The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, widened as much as 11.96 basis points to 64.21 basis points before trading at 49.56 in New York. The spread has expanded from this year’s low of 9.63 basis points on March 24, the narrowest since 1993, as investors fled all but the safest government securities. “The two-year swap spread is the cleanest proxy to express a concern about increased systemic risk,” said Christian Cooper , senior rates trader in New York at Jefferies & Co., one of 18 primary dealers that trade with the Federal Reserve. “Every day we walk in we’re seeing another headline bomb that pushes these spreads wider.” Libor for three months advanced to 0.536 percent, the highest level since July 7, from 0.51 percent May 24, according to data from the British Bankers’ Association. Libor, a benchmark for about $360 trillion of financial products worldwide ranging from mortgages to student loans, has more than doubled this year. ‘Bigger Crisis’ “It’s all part of concern about the system, about whether the sovereign-debt crisis will morph into a bigger systemic crisis,” said Padhraic Garvey , head of investment-grade strategy at ING Groep NV in Amsterdam. “We’re not quite at a point where that’s imminent, but that risk is being priced in.” Bonds of First Data, the credit-card processor bought by KKR & Co. for $27.5 billion at the height of the takeover boom in 2007, fell after Chief Financial Officer Pat Shannon resigned. The Atlanta-based company said May 14 that earnings before interest, taxes, depreciation and amortization fell to $424 million last quarter, from $472 million a year earlier. First Data’s $2.2 billion of 9.875 percent bonds due in 2015 dropped 5.25 cents to 78.125 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt traded as high as 93.56 cents on April 15. High-Yield Debt High-yield debt has lost 3.6 percent this month, on track for the first monthly drop since February 2009 and the biggest loss since falling 8.43 percent in November 2008, Bank of America Merrill Lynch index data show. Emerging-market bonds fell as spreads widened 10 basis points to 348 from this year’s low of 230 on April 15, according to JPMorgan Chase & Co.’s EMBI+ Index. Financial company bonds have lost 0.74 percent this month on average, compared with a gain of 0.52 percent for industrial companies, based on Bank of America Merrill Lynch indexes. That would be the biggest monthly loss since March 2009, when they tumbled 1.72 percent. The companies with the 10 widest spreads in the bank’s Global Broad Market Financial Index are all in Europe, except for American International Group Inc. , the insurer that needed four bailouts amid losses on credit derivatives. Paris-based BNP has the widest spreads, followed by Societe Generale SA, whose bonds have an average gap of 420 basis points. Contagion Risk The risk is “that the contagion spreads to financials or is accompanied by renewed bank failures,” ING analysts led by Mark Harmer and Jeroen van den Broek in Amsterdam wrote in a note to clients. “The effect on the already worsening money markets is clear to see.” The study by Independent Credit View compared estimated capital needs for the end of 2011 with capital ratios reported at the end of last year. “Without state aid or debt restructuring these banks will hardly be able to raise capital,” Christian Fischer, a partner and banking analyst at Independent Credit, told reporters in Zurich yesterday. About 2 trillion euros ($2.47 trillion) of debt issued by public and private borrowers in Greece, Spain and Portugal is held outside those countries, according to RBS. Most Exposed Banks are the institutions that are most exposed to the peripheral nations, with a total of about 1 trillion euros outstanding at the end of 2009, the firm wrote. German and French lenders, with claims against the three countries totaling almost 230 billion euros each, were the most exposed. European leaders must address debt sold by nations such as Greece and Spain now to avoid a costlier bank bailout later, JPMorgan Chief Executive Officer Jamie Dimon said at the Japan Society’s annual awards dinner in New York on May 24. In the U.S., Moody’s said last week it planned to see how lawmakers implement legislation approved by the Senate before deciding whether to cut bank ratings. Francesco Meucci , a Moody’s spokesman, and Standard & Poor’s spokeswoman Lisa Nugent, both based in London, declined to comment. Spreads on Goldman Sachs bonds contained in the Bank of America Merrill Lynch index are up from 163 basis points in mid- April. Morgan Stanley’s spreads have jumped to 295 from 167, while Citigroup Inc.’s are at 306, up from 211. The average yield top-rated financial firms pay to sell commercial paper due in 90 days jumped to a daily average of 0.47 percent last week, the highest since the period ended May 1, 2009, from 0.29 percent a month ago, according to Fed data. The gap in rates on the debt and the Fed funds rate reached an 11-month high of 34 basis points on May 21. “The pressure has stepped up a notch,” said Peter Chatwell , a fixed-income strategist at Credit Agricole SA in London. “Things have taken a turn for the worse over the past month because of Europe’s sovereign debt crisis. It’s a multidimensional picture, but all the dimensions look pretty grim.” To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

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North Korea Expels Eight South Koreans, Threatens to Shut Last Border Post

May 26, 2010

By Bomi Lim and Nicole Gaouette May 26 (Bloomberg) — North Korea expelled eight South Korean government workers and threatened to close the border as U.S. Secretary of State Hillary Clinton said it wasn’t too late to make amends for sinking one of the South’s warships. “There is an opportunity here for the North Koreans to see that their behavior is unacceptable,” Clinton said in Seoul today after meeting with Foreign Minister Yu Myung Hwan .“They need to look internally to see what they could do to improve the standing of their own people and provide a different future.” North Korea’s threats to sever all ties in retaliation for an accusation it denies have yet to include about 890 non- government workers at the 121 South Korean companies operating in the joint Gaeseong industrial park within its borders. South Korea’s benchmark stock index climbed 1.4 percent, recovering about half of yesterday’s decline, on investor optimism that the worst tension on the peninsula in two decades may soon subside. South Korean stocks are a “screaming buy for investors looking for a quick rebound,” Henry Seggerman , president of New York-based International Investment Advisers, said in a Bloomberg Television interview. “The pullback in the Korean stock market is making it the cheapest market in Asia.” North Korea yesterday said it will cut all ties to the South in response to the findings of an international panel that concluded the North was behind the March 26 sinking of the Cheonan. Kim ordered his military to be combat-ready, a Seoul- based dissident group said yesterday, sending the Korean won down 3 percent against the dollar. The South has responded by resuming radio broadcasts into North Korea that it called the “voice of freedom.” The won was little changed today at 1,252.28. ‘Premeditated Provocation’ South Korea’s broadcasting of propaganda into North Korea was “a deliberate and premeditated provocation” aimed at pushing the peninsula “to the brink of war,” the state-run Korean Central News Agency said today. Amid dual threats of military retaliation, about 890 South Koreans crossed the border as usual today to work at the Gaeseong industrial complex. South Korea has not detected any abnormalities within North Korea or along the border, presidential spokesman Park Sun Kyoo told reporters today in Seoul. South Korea is closely monitoring the situation, Park said. Clinton will be followed to South Korea by Chinese Premier Wen Jiabao , who arrives May 28 for a summit with President Lee Myung Bak and Japan’s Prime Minister Yukio Hatoyama . China, North Korea’s main ally, has so far refused to be drawn into taking a stand on the sinking of the Cheonan, in which 46 South Korean sailors died. Cautious Assessment “We are seriously and cautiously looking at assessing the information coming in from all sides,” Vice Foreign Minister Zhang Zhijun said in Beijing today. “We will objectively handle this case depending on the merits. If our region falls into chaos it will undermine the interests of all parties concerned.” South and North Korea have traded accusations and threats of military action since the May 20 report by an international panel that included experts from the U.S., Australia, the U.K. and Sweden. South Korea announced military exercises with the U.S. close to the disputed border with the North, barred investment and cut trade — excluding the industrial zone. The Gaeseong complex employs almost 44,000 North Korean workers. The zone accounted for 56 percent of North Korea’s $1.7 billion in international trade last year, according to the South’s Unification Ministry. North Korea, which doesn’t release its own trade data, relies on aid from and trade with China to stay afloat. UN Sanctions United Nations sanctions imposed after the North carried out a second nuclear test in 2009 caused trade to drop 9.7 percent last year to $5.1 billion, the ministry said. China now accounts for about 80 percent of commerce with the country. As well as being North Korea’s main ally, China also hosts international talks intended to prod the North to abandon its nuclear weapons program. In addition to the two Koreas, the talks include the U.S. Japan and Russia. The U.S., China and Russia have veto power on the UN Security Council. Russia will cooperate in sending a “clear signal” to North Korea, President Dmitry Medvedev said in a phone conversation with Lee yesterday, according to a statement posted on the website of Lee’s office in Seoul. It may take time to convince China and Russia to join global condemnation against North Korea, Yu said. “They won’t be able to ignore the truth,” he said at a joint press conference with Clinton. Deepening Ties The North Korean crisis comes as U.S. President Obama pursues a strategic goal in Asia of deepening ties with China as its economic and military power expands. The U.S. military is preparing exercises with South Korea in anti-submarine maneuvers and interdicting vessels. The U.S. has about 28,500 troops in South Korea, a legacy of its Korean War involvement in the 1950s. “With all the talk about military drills, this is an opportunity for the U.S. to increase its influence in the region,” Abraham Kim , Asia analyst for the Eurasia Group , a New York-based political-risk analysis firm, said in an interview. “China would consider that problematic, so they may feel forced to take some kind of measures to stabilize the situation.” Threats of war by North Korea carried by KCNA are common. A March 26 report warned of “unprecedented nuclear strikes” against enemies while a June 9, 2009, bulletin warned of “merciless strikes” using the country’s nuclear deterrent. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net .

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Stocks, Commodities Plunge on Spanish Banks, Tensions in Korea

May 25, 2010

By Stuart Wallace and Rita Nazareth May 25 (Bloomberg) — Stocks plunged from Tokyo to London and New York, dragging the MSCI World Index to a nine-month low, and commodities slid as concern grew that Spain’s ailing banks signal a widening debt crisis and as tension mounted on the Korean peninsula. The German bund yield fell to its lowest since at least 1990. The MSCI gauge of 23 developed nations’ stocks fell 2.9 percent at 10:55 a.m. in New York to the lowest intraday level since August. The Standard & Poor’s 500 Index lost 2.4 percent, while the MSCI Emerging Markets index sank 4.5 percent. Brent crude oil slid below $69 a barrel for the first time since Feb. 5. Yields on 10-year German bonds declined to as low as 2.56 percent and 10-year Treasury yields decreased to the lowest in more than a year. The South Korean won declined 3.6 percent against the U.S. dollar, and the euro fell as low as 108.84 yen, the weakest since November 2001. Investors fled all but the safest assets after four Spanish banks said they will combine as regulators push lenders to merge with stronger partners. The rate banks say they pay for three- month dollar loans climbed for an 11th day. The North Korea Intellectuals Solidarity group said on its website that the country’s military was put on alert, and the U.S. planned anti- submarine exercises with South Korea following the March 26 torpedoing of a warship. “It’s like Murphy’s law,” said Win Thin , senior currency strategist at Brown Brothers Harriman & Co. in New York. “When you don’t want something to happen, it happens. The Korea story just happens at the wrong time when the global market is already jittery. I worry more about what’s going on in Europe. We’re going back to nervousness about the banking sector.” Europe, S&P 500 The Stoxx Europe 600 Index tumbled 2.6 percent and earlier fell to the lowest intraday level since Sept. 2. Banco Santander SA, Spain’s biggest lender, slid 5.4 percent and Bank of Ireland Plc plunged 11 percent as banks led declines. The S&P 500 fell below 1,056.74, where it closed on Feb. 8 and the weakest level of the year. The index pared a drop of as much as 3 percent after the Conference Board’s gauge of consumer confidence rose to 63.3 in May, topping the highest economist estimate in a Bloomberg survey and reaching the strongest level in more than two years. The MSCI Emerging Markets Index headed for its biggest decline since March 2009. South Korea’s Kospi Index lost 2.8 percent, the most since Feb. 5. The won weakened 3.6 percent versus the dollar, the most since March 2009, and the cost of insuring against South Korea defaulting on its debt rose, with credit-default swaps tied to the nation climbing 33 basis points to 176, according to CMA DataVision. Russia’s Micex Index fell 5.8 percent, extending its drop from an April 15 high to 22 percent. Ninth Straight Loss Brent crude oil retreated as much as 4.2 percent to $68.15 a barrel in London trading, declining for a ninth straight day. Copper for delivery in three months dropped 3.3 percent to $6,685 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also fell. Palladium for immediate delivery slumped 4 percent to $435.25 an ounce. The euro weakened 1.1 percent to $1.2239, approaching the four-year low of $1.2144 reached on May 19. The 10-year German bund yield fell as much as 10 basis points, or 0.10 percentage point, to 2.56 percent. The 10-year U.S. Treasury yield slid 5 basis points to 3.14 percent. The rate that banks say they charge each other for three- month loans in dollars rose to the highest level since July 7, the British Bankers’ Association said. The London interbank offered rate, or Libor, for such loans, advanced 3 basis points to 0.536 percent, the BBA said. China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crunch that pushed off a showdown on the yuan’s value. Discussing the Crisis Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television in an interview that he’s “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar. Revaluing the yuan is “absolutely” in China’s long-term economic interest, Geithner said. China is committed to preserving stability in the northeast Asian region, U.S. Secretary of State Hillary Clinton said today in Beijing, at the end of the Strategic & Economic Dialogue. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies climbed as much as 67.9 basis points to a mid-price of 652.1 basis points before paring its advance and trading at 636.7, according to Markit Group Ltd. The index is trading at the highest since July 29, end-of-day prices from CMA DataVision show. An increase signals deterioration in investor perceptions of credit quality. To contact the reporters on this story: Stuart Wallace in London at swallace6@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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Stocks Drop Worldwide, Commodities Slide on Spanish Banks, Korean Tensions

May 25, 2010

By Stuart Wallace and Rita Nazareth May 25 (Bloomberg) — Stocks plunged from Tokyo to London and New York, dragging the MSCI World Index to a nine-month low, and commodities slid as concern grew that Spain’s ailing banks signal a widening debt crisis and as tension mounted on the Korean peninsula. The German bund yield fell to its lowest since at least 1990. The MSCI gauge of 23 developed nations’ stocks fell 2.8 percent at 10:41 a.m. in New York, dropping to the lowest intraday level since August. The Standard & Poor’s 500 Index lost 2.2 percent, while the MSCI Emerging Markets index declined 4.5 percent. Brent crude oil slid below $69 a barrel for the first time since Feb. 5. Yields on 10-year German bonds declined to as low as 2.56 percent and 10-year Treasury yields sank to the lowest in more than a year. The South Korean won weakened 3.6 percent against the U.S. dollar, and the euro fell as low as 108.84 yen, the weakest since November 2001. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners and after the International Monetary Fund yesterday urged the nation to take more steps to overhaul its financial institutions. The North Korea Intellectuals Solidarity group said on its website that the country’s military was put on alert, and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. “It’s like Murphy’s law,” said Win Thin , senior currency strategist at Brown Brothers Harriman & Co. in New York. “When you don’t want something to happen, it happens. The Korea story just happens at the wrong time when the global market is already jittery. I worry more about what’s going on in Europe. We’re going back to nervousness about the banking sector.” Europe, S&P 500 The Stoxx Europe 600 Index tumbled 2.6 percent and earlier fell to the lowest intraday level since Sept. 2. Banco Santander SA, Spain’s biggest lender, slid 5.4 percent and Bank of Ireland Plc plunged 11 percent as banks led declines. The S&P 500 fell below 1,056.74, where it closed on Feb. 8 and the weakest level of the year. The index pared a drop of as much as 3 percent after the Conference Board’s gauge of consumer confidence rose to 63.3 in May, topping the highest economist estimate in a Bloomberg survey and reaching the strongest level in more than two years. The MSCI Emerging Markets Index headed for its biggest decline since March 2009. South Korea’s Kospi Index lost 2.8 percent, the most since Feb. 5. The won weakened 3.6 percent versus the dollar, the most since March 2009, and the cost of insuring against South Korea defaulting on its debt rose, with credit-default swaps tied to the nation climbing 33 basis points to 176, according to CMA DataVision. Russia’s Micex Index fell 5.8 percent, extending its drop from an April 15 high to 22 percent. Ninth Straight Loss Brent crude oil retreated as much as 4.2 percent to $68.15 a barrel in London trading, declining for a ninth straight day. Copper for delivery in three months dropped 3.3 percent to $6,685 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also fell. Palladium for immediate delivery slumped 4 percent to $435.25 an ounce. The euro weakened 1.1 percent to $1.2239, approaching the four-year low of $1.2144 reached on May 19. The 10-year German bund yield fell as much as 10 basis points, or 0.10 percentage point, to 2.56 percent. The 10-year U.S. Treasury yield slid 5 basis points to 3.14 percent. The rate that banks say they charge each other for three- month loans in dollars rose to the highest level since July 7, the British Bankers’ Association said. The London interbank offered rate, or Libor, for such loans, advanced 3 basis points to 0.536 percent, the BBA said. China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crunch that pushed off a showdown on the yuan’s value. Discussing the Crisis Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television in an interview that he’s “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar. Revaluing the yuan is “absolutely” in China’s long-term economic interest, Geithner said. China is committed to preserving stability in the northeast Asian region, U.S. Secretary of State Hillary Clinton said today in Beijing, at the end of the Strategic & Economic Dialogue. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies climbed as much as 67.9 basis points to a mid-price of 652.1 basis points before paring its advance and trading at 636.7, according to Markit Group Ltd. The index is trading at the highest since July 29, end-of-day prices from CMA DataVision show. An increase signals deterioration in investor perceptions of credit quality. To contact the reporters on this story: Stuart Wallace in London at swallace6@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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U.S., China Sidestep Yuan Confrontation as Europe Dominates Beijing Talks

May 24, 2010

By Bloomberg News May 25 (Bloomberg) — China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crisis that pushed off a showdown on the yuan’s value. Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. President Hu Jintao said China will move gradually and independently in altering exchange-rate policy after keeping the yuan pegged to the U.S. dollar for 22 months. Treasury Secretary Timothy F. Geithner , who has delayed a report to the U.S. Congress that could name the nation a currency manipulator, said he welcomed China’s commitment to yuan changes. “Behind the scenes, U.S. officials will be concerned that Europe’s debt crisis provides a convenient justification for Beijing to delay for a few more months” in ending the peg, said Brian Jackson , an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England. Jackson sees the yuan rising 5 percent to 6.5 per dollar by year’s end. In contrast, non-deliverable yuan forwards indicate a 1.6 percent gain in the next 12 months, after the contracts strengthened 0.2 percent as of 9:30 a.m. in New York yesterday. Investors last week pared back expectations for appreciation on concern the debt crisis centered on Greece will undermine the global recovery. Stocks Jump The Shanghai Composite Index closed 3.5 percent higher yesterday, the biggest gain since October, on speculation that the government may delay economic tightening measures. China will continue to “steadily advance” currency reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Geithner, 48, said that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. The Treasury secretary has “done quite a lot to build up expectations that a move is pretty imminent,” said Mark Williams , a London-based economist at Capital Economics Ltd. who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “That’s going to come back and bite him if China hasn’t moved by the end of June.” Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the exchange rate wasn’t mentioned in talks yesterday morning between officials including central bank governors Zhou and Fed Chairman Ben S. Bernanke . Stimulus Exits Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” Li Daokui , an academic adviser to the Chinese central bank, said yesterday that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Wang on Europe Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the U.S. and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. Growth Models “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” — Kevin Hamlin , Rebecca Christie , Peter Cook , Oliver Biggadike , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle , Nicole Gaouette. Editors: Paul Panckhurst , Brendan Murray To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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China Software Piracy Makes India a Better Bet, Microsoft’s Ballmer Says

May 24, 2010

By Mark Lee and Bruce Einhorn May 25 (Bloomberg) — Microsoft Corp. is less optimistic about China than India or Indonesia because of the country’s lack of progress in stamping out software piracy, Chief Executive Officer Steve Ballmer said. “India is not perfect but the intellectual property protection in India is far, far better than it would be in China,” the head of the world’s largest software maker said in an interview in Hanoi, Vietnam, yesterday. “China is a less interesting market to us than India, than Indonesia.” Ballmer’s concerns underscore growing dismay among U.S. companies toward operating in the world’s third-largest economy. Google Inc. in March moved its Chinese service out of the mainland to avoid censorship rules, and the American Chamber of Commerce in Beijing said last month its members face an increasingly difficult regulatory environment. China has implemented more than 1,000 measures related to the protection of intellectual property and the government will continue such efforts, said Chen Rongkai , a media officer at the nation’s Ministry of Commerce in Beijing. “China’s effort at strengthening protection of intellectual property is universally recognized,” Chen said. Lack of progress in protecting intellectual property has led China, which may overtake the U.S. as the world’s biggest personal-computer market in a year, to generate less revenue for Microsoft than India and South Korea, Ballmer said. China’s gross domestic product is twice the two economies combined. Software Piracy The value of pirated software in China almost doubled to $7.58 billion from 2005 to 2009, the highest increase in the world, Washington-based Business Software Alliance and market researcher IDC said in a report in May. While the piracy rate in the country fell to 79 percent last year, it’s higher than in India, the Philippines and Thailand, according to the report. “Ballmer is right,” said Sandeep Aggarwal , an analyst at Caris & Co. in San Francisco. “It is not easy to control piracy in China.” He estimates that as much as 95 percent of the copies of Microsoft’s Office software and 80 percent of its Windows operating systems are pirated in China. For Microsoft, based in Redmond, Washington, the billions of dollars in lost revenue from piracy in China outweigh the possible benefits of expanding in the country through acquisitions, Ballmer said. For example, owning Baidu Inc. , China’s biggest Internet search-engine operator, would only boost Microsoft’s revenue by about 1 percent, he said. Microsoft gets about 3 percent of its sales from Asia, excluding Japan and Australia, Ballmer said. U.S. Corporate Concerns “There are two things that make a country interesting. One is it buys a lot of PCs, the other is they pay for the software that gets used on those PCs,” Ballmer said. In China, “there is no software market to speak of.” The American Chamber of Commerce in Beijing said in an annual report last month that it expects an increase in trade tension between the U.S. and China. While China should move toward a more flexible currency, the U.S. should focus more on pressing the Chinese government to better enforce laws safeguarding intellectual property, change rules that limit foreign ownership and reduce tariffs. Ballmer’s comments coincide with trade talks between U.S. officials, including Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton and their counterparts in Beijing. China should strengthen efforts to improve intellectual property protection, Geithner said last week. China should let its currency reflect market forces, Geithner said yesterday in Beijing as he and Clinton led a U.S. delegation for the two-day Strategic and Economic Dialogue with Chinese officials. China’s trade surplus with the U.S. widened in March, fuelling concern the yuan has been kept undervalued to support Chinese exports. Better Enforcement Better enforcement of intellectual property rules could save U.S. firms tens of thousands of jobs, Ballmer said. “If the U.S. is going to export to Asia, it’s going to export IP, whether it’s in pharmaceuticals, technology,” Ballmer said. “Otherwise the U.S. will have nothing to export.” Ballmer said he sees signs of improvement. Microsoft last month won a decision from a Shanghai court against a Chinese insurance company. The victory followed a court ruling in the eastern city of Suzhou last year sentencing four people to prison for distributing pirated Microsoft software. “It’s a good start,” Ballmer said. “I am not trying to be pessimistic, I want to be optimistic about China.” To contact the reporter on this story: Mark Lee in Hanoi at wlee37@bloomberg.net .

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China, U.S. Sidestep Yuan Confrontation as Europe Dominates Beijing Talks

May 24, 2010

By Bloomberg News May 25 (Bloomberg) — China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crisis that pushed off a showdown on the yuan’s value. Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. President Hu Jintao said China will move gradually and independently in altering exchange-rate policy after keeping the yuan pegged to the U.S. dollar for 22 months. Treasury Secretary Timothy F. Geithner , who has delayed a report to the U.S. Congress that could name the nation a currency manipulator, said he welcomed China’s commitment to yuan changes. “Behind the scenes, U.S. officials will be concerned that Europe’s debt crisis provides a convenient justification for Beijing to delay for a few more months” in ending the peg, said Brian Jackson , an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England. Jackson sees the yuan rising 5 percent to 6.5 per dollar by year’s end. In contrast, non-deliverable yuan forwards indicate a 1.6 percent gain in the next 12 months, after the contracts strengthened 0.2 percent as of 9:30 a.m. in New York yesterday. Investors last week pared back expectations for appreciation on concern the debt crisis centered on Greece will undermine the global recovery. Stocks Jump The Shanghai Composite Index closed 3.5 percent higher yesterday, the biggest gain since October, on speculation that the government may delay economic tightening measures. China will continue to “steadily advance” currency reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Geithner, 48, said that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. The Treasury secretary has “done quite a lot to build up expectations that a move is pretty imminent,” said Mark Williams , a London-based economist at Capital Economics Ltd. who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “That’s going to come back and bite him if China hasn’t moved by the end of June.” Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the exchange rate wasn’t mentioned in talks yesterday morning between officials including central bank governors Zhou and Fed Chairman Ben S. Bernanke . Stimulus Exits Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” Li Daokui , an academic adviser to the Chinese central bank, said yesterday that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Wang on Europe Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the U.S. and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. Growth Models “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” — Kevin Hamlin , Rebecca Christie , Peter Cook , Oliver Biggadike , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle , Nicole Gaouette. Editors: Paul Panckhurst , Brendan Murray To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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China, U.S. Sidestep Yuan Confrontation as Europe Dominates Beijing Talks

May 24, 2010

By Bloomberg News May 25 (Bloomberg) — China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crisis that pushed off a showdown on the yuan’s value. Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. President Hu Jintao said China will move gradually and independently in altering exchange-rate policy after keeping the yuan pegged to the U.S. dollar for 22 months. Treasury Secretary Timothy F. Geithner , who has delayed a report to the U.S. Congress that could name the nation a currency manipulator, said he welcomed China’s commitment to yuan changes. “Behind the scenes, U.S. officials will be concerned that Europe’s debt crisis provides a convenient justification for Beijing to delay for a few more months” in ending the peg, said Brian Jackson , an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England. Jackson sees the yuan rising 5 percent to 6.5 per dollar by year’s end. In contrast, non-deliverable yuan forwards indicate a 1.6 percent gain in the next 12 months, after the contracts strengthened 0.2 percent as of 9:30 a.m. in New York yesterday. Investors last week pared back expectations for appreciation on concern the debt crisis centered on Greece will undermine the global recovery. Stocks Jump The Shanghai Composite Index closed 3.5 percent higher yesterday, the biggest gain since October, on speculation that the government may delay economic tightening measures. China will continue to “steadily advance” currency reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Geithner, 48, said that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. The Treasury secretary has “done quite a lot to build up expectations that a move is pretty imminent,” said Mark Williams , a London-based economist at Capital Economics Ltd. who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “That’s going to come back and bite him if China hasn’t moved by the end of June.” Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the exchange rate wasn’t mentioned in talks yesterday morning between officials including central bank governors Zhou and Fed Chairman Ben S. Bernanke . Stimulus Exits Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” Li Daokui , an academic adviser to the Chinese central bank, said yesterday that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Wang on Europe Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the U.S. and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. Growth Models “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” — Kevin Hamlin , Rebecca Christie , Peter Cook , Oliver Biggadike , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle , Nicole Gaouette. Editors: Paul Panckhurst , Brendan Murray To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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FDIC’s Bair Says European Banks Should Hold More Capital to Aid Stability

May 24, 2010

By Rebecca Christie May 25 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair said European regulators need to force their banks to hold more capital to help stabilize financial markets and promote economic growth. “In Europe they do need to focus more on the adequacy of the capital base of their banking institutions,” Bair said in an interview yesterday in Beijing, on the sidelines of the U.S.- China Strategic and Economic Dialogue. She said European banks should face leverage limits and be required to hold more and higher-quality capital to insulate the global economy from financial instability. Greece’s budget woes have triggered a debt crisis in Europe that has dominated this week’s discussions between U.S. and Chinese economic officials. U.S. Treasury Secretary Timothy F. Geithner and Chinese Vice Premier Wang Qishan sparred over how much global spillover will result from Europe’s difficulties, with Geithner predicting a small effect while Wang voiced concern it would trigger a “chain reaction.” European officials should be “making it clear to the markets and the international community they have good strong rules in place to ensure the capital base of the banking system going forward, which would help their economic recovery, which in turn would help the rest of the global economy,” Bair said. “There have been a lot of concerns about what will happen in Europe and to what extent it could impact the Chinese economy and the U.S. economy.” U.S.-China Talks Geithner and Secretary of State Hillary Clinton are leading a U.S. delegation of about 200 officials during the two days of talks. Geithner will then depart for London, Frankfurt and Berlin to meet with European officials and reinforce his call for coordinated efforts to fight off the crisis and rein in government spending. Federal Reserve officials including Fed Governor Daniel Tarullo have voiced concerns of a threat to the U.S. and world economies as trade shrinks and banks incur losses on European investments. Drew Matus , a senior U.S. economist at UBS Securities LLC in New York, said that financial stability is the true source of concern, even though there may be little direct impact on the U.S. economy. “The concern should be the stability of financial markets, which the Fed seems to have focused on,” Matus said in an e- mail. “There is a lot of good news in the U.S. economy that seems to be getting ignored because the world’s focus is elsewhere.” Basel III Bair said regulators around the world need to work together on the next round of capital standards for banks, known as the Basel rules because of the town in Switzerland where banking policy makers meet. Negotiations are under way for the next round of international standards, known as Basel III, which Bair said must meet “very aggressive” goals. Bair rejected financial- industry concerns that a U.S. proposal would derail the Basel effort by legislating bank capital standards as part of the financial overhaul under debate in the Congress. The Senate passed a proposal, offered by Senator Susan Collins , a Maine Republican, that would require lenders with more than $250 billion in assets to meet capital standards that are at least as strict as those that apply to smaller banks. The measure would set a “common-sense floor” for big banks, without forcing specific methods on regulators, Bair said. She said the practical outcome would mean that all banks, regardless of size, would be subject to the same leverage limits and barred from letting their risk-based capital ratio fall below about 8 percent. Bank Leverage “As we get further from the crisis and hopefully continue with a more vigorous economic recovery, there obviously will come pressures again for the banks to start becoming more leveraged because it would increase their returns on equity,” Bair said. “Having some good rules in place now to make sure that those capital cushions remain relatively permanent, I think would be a good thing.” The American Bankers Association wrote regulators on May 19 asking for their support in getting Congress drop the provision before the final vote on the financial regulation package. The Senate and the House of Representatives have each passed versions of the legislation that now must be reconciled. “The Collins amendment raises significant issues with respect to cross-border capital regulation and disrupts long- standing U.S. policy on such regulation,” ABA President Edward Yingling . “It would undermine critical efforts to coordinate global capital standards and invite retaliation by foreign governments.” Bair said Congress needs to put some “overarching constraints” on regulators to avoid a repeat of the 2008 financial crisis, which she said was exacerbated because of the “absurdity” of policies that allowed big banks to reduce their capital holdings based on risk-modeling practices. She said the FDIC would work with Congress to keep the measure in the final bill. To contact the reporter on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net

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Microsoft’s Ballmer Says Software Piracy in China Makes India a Better Bet

May 24, 2010

By Mark Lee and Bruce Einhorn May 24 (Bloomberg) — Microsoft Corp. is less optimistic about China than India or Indonesia because of the country’s lack of progress in stamping out software piracy, Chief Executive Officer Steve Ballmer said. “India is not perfect but the intellectual property protection in India is far, far better than it would be in China,” the head of the world’s largest software maker said in an interview in Hanoi, Vietnam today. “China is a less interesting market to us than India, than Indonesia.” Ballmer’s concerns underscore the growing dissatisfaction being voiced by U.S. companies about operating in the world’s third-largest economy. Google Inc. in March moved its Chinese service out of the mainland to avoid censorship rules and the American Chamber of Commerce in Beijing said last month its members face an increasingly difficult regulatory environment. China has implemented more than 1,000 measures related to the protection of intellectual property and the government will continue such efforts, said Chen Rongkai , a media officer at the nation’s Ministry of Commerce in Beijing. “China’s effort at strengthening protection of intellectual property is universally recognized,” Chen said. Lack of progress in protecting intellectual property has led China, which may overtake the U.S. as the world’s biggest personal-computer market in a year, to generate less revenue for Microsoft than India and South Korea, Ballmer said. China’s gross domestic product is twice the two economies combined. Software Piracy The value of pirated software in China almost doubled to $7.58 billion from 2005 to 2009, the highest increase in the world, Washington-based Business Software Alliance and market researcher IDC said in a report in May. While the piracy rate in the country fell to 79 percent last year, it’s higher than in India, the Philippines and Thailand, according to the report. For Microsoft, based in Redmond, Washington, the billions of dollars in lost revenue from piracy in China outweigh the possible benefits of expanding in the country through acquisitions, Ballmer said. For example, owning Baidu Inc. , China’s biggest Internet search-engine operator, would only boost Microsoft’s revenue by about 1 percent, he said. Microsoft gets about 3 percent of its sales from Asia, excluding Japan and Australia, Ballmer said. “There are two things that make a country interesting. One is it buys a lot of PCs, the other is they pay for the software that gets used on those PCs,” Ballmer said. In China, “there is no software market to speak of.” U.S. Corporate Concerns The American Chamber of Commerce in Beijing said in an annual report last month that it expects an increase in trade tension between the U.S. and China. While China should move toward a more flexible currency, the U.S. should focus more on pressing the Chinese government to better enforce laws safeguarding intellectual property, change rules that limit foreign ownership, and reduce tariffs. Ballmer’s comments come as U.S. officials including Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton hold trade talks with counterparts in Beijing. China should strengthen efforts to improve intellectual property protection, Geithner said last week. China should allow its currency to reflect market forces, Geithner said today in Beijing as he and Clinton led a U.S. delegation for the two-day Strategic and Economic Dialogue with Chinese officials. China’s trade surplus with the U.S. widened in March, fuelling concern the yuan has been kept undervalued to support Chinese exports. Better Enforcement Better enforcement of intellectual property rules could save U.S. firms tens of thousands of jobs, Ballmer said. “If the U.S. is going to export to Asia, it’s going to export IP, whether it’s in pharmaceuticals, technology,” Ballmer said. “Otherwise the U.S. will have nothing to export.” Ballmer said he sees signs of improvement. Microsoft last month won a decision from a Shanghai court against a Chinese insurance company. The victory followed a court ruling in the eastern city of Suzhou last year sentencing four people to prison for distributing pirated Microsoft software. “It’s a good start,” Ballmer said. “I am not trying to be pessimistic, I want to be optimistic about China.” To contact the reporter on this story: Mark Lee in Hanoi at wlee37@bloomberg.net .

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Hu Tells U.S. China Will Move Gradually, Independently on Changes to Yuan

May 23, 2010

By Rebecca Christie and Nicole Gaouette May 24 (Bloomberg) — President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today. “China will continue to steadily advance the reform of the formation mechanism of the exchange rate under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Yuan forwards strengthened for a second day on speculation Chinese officials will indicate their intention to let the currency strengthen during the two-day Strategic and Economic Dialogue. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger economic ties. “Both the U.S. and China agree on something: that is that China will switch from a peg to the dollar to a peg to a basket” of currencies, Lu Ting , Hong Kong-based economist with Bank of America-Merrill Lynch, said on Bloomberg Television. “The timing of the initial move and whether or not there will be a one-off revaluation, those will be the questions.” Twelve-month non-deliverable forwards climbed 0.2 percent to 6.7290 per dollar as of 10:24 a.m. in Hong Kong, indicating investors expect the Chinese currency to gain about 1.5 percent against the dollar in the next year. The contracts slumped last week on speculation that China may defer appreciation as Europe’s debt crisis threatens to derail the global recovery. European Crisis Chinese Vice Premier Wang Qishan said at the opening of the dialogue that the European sovereign-debt crisis has “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner, 48, said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. “Even with the challenges of reform and growth facing some of the nations of Europe, we are together, the United States and China, along with India, Brazil and the emerging economies of Asia and other regions, in a much stronger position today to overcome the challenges ahead.” ‘Level-Playing Field’ Geithner said he welcomed China’s stance that exchange- rate reform is “important,” adding that a market-driven currency would allow it to sustain economic growth with low inflation. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he said. “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton and Federal Reserve Chairman Ben S. Bernanke are also in China for the discussions. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. Geithner also addressed China’s efforts to promote technology development, which have drawn concern from U.S. companies that they might discriminate against foreign-owned businesses. More Open “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad- based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. The yuan’s peg has seen the currency gain along with the dollar against the euro this year as the European debt crisis deepened. The euro fell against the dollar, ending a three-day gain, on concern Greece’s fiscal crisis will spread to other nations. The currency dropped to $1.2505 as of 12:43 p.m. in Tokyo from $1.2570 in New York last week. — Kevin Hamlin , Peter Cook , Susan Li , Michael Forsythe , Yanping Li . Editors: Russell Ward , Paul Panckhurst To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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Hu Tells U.S. China Will Move Gradually, Independently on Changes to Yuan

May 23, 2010

By Rebecca Christie and Nicole Gaouette May 24 (Bloomberg) — President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today. “China will continue to steadily advance the reform of the formation mechanism of the exchange rate under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Yuan forwards strengthened for a second day on speculation Chinese officials will indicate their intention to let the currency strengthen during the two-day Strategic and Economic Dialogue. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger economic ties. “Both the U.S. and China agree on something: that is that China will switch from a peg to the dollar to a peg to a basket” of currencies, Lu Ting , Hong Kong-based economist with Bank of America-Merrill Lynch, said on Bloomberg Television. “The timing of the initial move and whether or not there will be a one-off revaluation, those will be the questions.” Twelve-month non-deliverable forwards climbed 0.2 percent to 6.7290 per dollar as of 10:24 a.m. in Hong Kong, indicating investors expect the Chinese currency to gain about 1.5 percent against the dollar in the next year. The contracts slumped last week on speculation that China may defer appreciation as Europe’s debt crisis threatens to derail the global recovery. European Crisis Chinese Vice Premier Wang Qishan said at the opening of the dialogue that the European sovereign-debt crisis has “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner, 48, said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. “Even with the challenges of reform and growth facing some of the nations of Europe, we are together, the United States and China, along with India, Brazil and the emerging economies of Asia and other regions, in a much stronger position today to overcome the challenges ahead.” ‘Level-Playing Field’ Geithner said he welcomed China’s stance that exchange- rate reform is “important,” adding that a market-driven currency would allow it to sustain economic growth with low inflation. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he said. “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton and Federal Reserve Chairman Ben S. Bernanke are also in China for the discussions. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. Geithner also addressed China’s efforts to promote technology development, which have drawn concern from U.S. companies that they might discriminate against foreign-owned businesses. More Open “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad- based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. The yuan’s peg has seen the currency gain along with the dollar against the euro this year as the European debt crisis deepened. The euro fell against the dollar, ending a three-day gain, on concern Greece’s fiscal crisis will spread to other nations. The currency dropped to $1.2505 as of 12:43 p.m. in Tokyo from $1.2570 in New York last week. — Kevin Hamlin , Peter Cook , Susan Li , Michael Forsythe , Yanping Li . Editors: Russell Ward , Paul Panckhurst To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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Hu Tells U.S. China Will Move Gradually, Independently on Changes to Yuan

May 23, 2010

By Rebecca Christie and Nicole Gaouette May 24 (Bloomberg) — President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today. “China will continue to steadily advance the reform of the formation mechanism of the exchange rate under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Yuan forwards strengthened for a second day on speculation Chinese officials will indicate their intention to let the currency strengthen during the two-day Strategic and Economic Dialogue. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger economic ties. “Both the U.S. and China agree on something: that is that China will switch from a peg to the dollar to a peg to a basket” of currencies, Lu Ting , Hong Kong-based economist with Bank of America-Merrill Lynch, said on Bloomberg Television. “The timing of the initial move and whether or not there will be a one-off revaluation, those will be the questions.” Twelve-month non-deliverable forwards climbed 0.2 percent to 6.7290 per dollar as of 10:24 a.m. in Hong Kong, indicating investors expect the Chinese currency to gain about 1.5 percent against the dollar in the next year. The contracts slumped last week on speculation that China may defer appreciation as Europe’s debt crisis threatens to derail the global recovery. European Crisis Chinese Vice Premier Wang Qishan said at the opening of the dialogue that the European sovereign-debt crisis has “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner, 48, said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. “Even with the challenges of reform and growth facing some of the nations of Europe, we are together, the United States and China, along with India, Brazil and the emerging economies of Asia and other regions, in a much stronger position today to overcome the challenges ahead.” ‘Level-Playing Field’ Geithner said he welcomed China’s stance that exchange- rate reform is “important,” adding that a market-driven currency would allow it to sustain economic growth with low inflation. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he said. “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton and Federal Reserve Chairman Ben S. Bernanke are also in China for the discussions. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. Geithner also addressed China’s efforts to promote technology development, which have drawn concern from U.S. companies that they might discriminate against foreign-owned businesses. More Open “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad- based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. The yuan’s peg has seen the currency gain along with the dollar against the euro this year as the European debt crisis deepened. The euro fell against the dollar, ending a three-day gain, on concern Greece’s fiscal crisis will spread to other nations. The currency dropped to $1.2505 as of 12:43 p.m. in Tokyo from $1.2570 in New York last week. — Kevin Hamlin , Peter Cook , Susan Li , Michael Forsythe , Yanping Li . Editors: Russell Ward , Paul Panckhurst To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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South Korea to Take North to UN, Halt Trade Over Sinking of Navy Warship

May 23, 2010

By Bomi Lim May 24 (Bloomberg) — South Korea will seek United Nations Security Council action against North Korea and halt trade with its communist neighbor over the deadly torpedoing of one of its warships in March, which killed 46 sailors. North Korea shipping will also be banned from South Korean waters, President Lee Myung Bak said in Seoul today. North Korea last week threatened “all-out war” against any move to punish it, including any more UN sanctions. A multinational team concluded last week that North Korea was behind the March 26 torpedoing of a South Korean warship that killed 46 sailors. The attack was the deadliest blamed on Kim Jong Il ’s regime since the 1987 explosion of a South Korean airliner with the loss of 115 lives. U.S. Secretary of State Hillary Clinton on May 22 urged international action in response to the attack. Clinton, in Beijing for the second annual U.S.-China Strategic and Economic Dialogue, has made it clear to Chinese officials that the U.S. supports every step that South Korea will take, a U.S. official said yesterday. North Korea is already under UN sanctions after its second nuclear test in May 2009. Those sanctions led North Korea’s international trade to shrink 9.7 percent last year, while its dependency on China for goods increased, South Korea’s Korea Trade-Investment Promotion Agency said today in Seoul. South Korea and North Korea remain technically at war since their 1950-53 conflict ended in a cease fire, which was never replaced by a peace treaty. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Euro Falls, Ends Three-Day Gain, on Concern Fiscal Crisis Will Slow Growth

May 23, 2010

By Yoshiaki Nohara and Ron Harui May 24 (Bloomberg) — The euro fell against the dollar, ending a three-day gain, on concern Greece’s fiscal crisis will spread to other nations and hamper the region’s economic growth. The Dollar Index rose for the first time in four days before U.S. reports that economists said will show the housing market is improving and consumers turned the most optimistic in 20 months. The single currency weakened versus 12 of its 16 major counterparts after the Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property loan defaults. “Weekend revelations that the Bank of Spain has acted to support a regional lender is likely to weigh on the euro,” Gareth Berry , a currency strategist at UBS AG in Singapore, wrote in a note to clients. “This will probably revive concerns about the broader stability of the euro-zone banking system.” The euro fell to $1.2518 as of 9:30 a.m. in Tokyo from $1.2570 in New York last week. The currency dropped to 112.65 yen from 113.13 yen. The dollar was at 89.93 yen from 90 yen. The Dollar Index , which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, gained 0.3 percent to 85.64. The euro has lost 5.9 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar has risen 9.3 percent, and the yen has advanced 13 percent. High-Deficit Nations European Union finance ministers last week pledged to stiffen sanctions imposed on high-deficit countries and ruled out setting up a mechanism to manage state defaults. “The markets’ focus is still on structural issues in the euro zone,” said Manabu Tamaru , a senior investment manager at Baring Asset Management in Tokyo. “An ultimate solution to this crisis won’t happen until policy makers reach political unity. The euro will be in a downtrend.” Under the German-inspired Stability and Growth Pact, nations with deficits above 3 percent of gross domestic product face fines unless they get the budget back into compliance. No country has been fined during the euro’s 11-year lifespan. Futures traders pared bets against the euro versus the dollar from a record as widening price swings prompted a reduction of euro-funded investments in higher-yielding countries. The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency on May 18 was 107,143 contracts more than those for a gain, down from a record 113,890 a week earlier, Commodity Futures Trading Commission data show. Geithner’s Visit U.S. Treasury Secretary Timothy F. Geithner will tell his Chinese counterparts that Europe’s crisis should have only a small effect on the broader global recovery, a U.S. official told reporters in Beijing yesterday. Geithner and Secretary of State Hillary Clinton are in China for the two-day Strategic and Economic Dialogue, a set of annual high-level talks. Geithner will then depart for London, Berlin and Frankfurt to meet with European officials and reinforce his call for coordinated efforts to fight off the crisis and rein in government spending. U.S. existing home sales rose to an annual rate of 5.65 million in April, from 5.35 million the previous month, according to a Bloomberg survey before the National Association of Realtors report today. The Conference Board’s confidence index rose to 59 this month from 57.9 in April, according to another survey before tomorrow’s data. That would be the highest since September 2008. ‘V-shaped Recovery’ “The U.S. is experiencing a V-shaped recovery,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Against this backdrop, the greenback is likely to be supported.” The dollar will probably become a “growth currency” during the next decade, shedding its haven status of the past decade, as the U.S. economy outperforms Europe and Japan, according to UBS, the world’s second-largest foreign-exchange trader. The dollar will return to a pattern seen in the early 1980s and late 1990s, when it appreciated as stocks rose, Mansoor Mohi-uddin , global head of foreign-exchange strategy at UBS in Singapore, wrote today in a research report titled “FX Mega- Trends 2010-2020: Dollar Regime Change.” “Over the next 10 years it seems likely that the dollar will shift to having a positive relationship with investor sentiment as America’s fundamentals appear more attractive than those of the euro zone, U.K. and Japan,” Mohi-uddin wrote. “The likelihood that the dollar performs strongly rather than weakly when investors are risk-seeking will signify a major change in the currency markets.” To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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U.S. Says Geithner Will Discuss Europe, Economy in China Talks

May 23, 2010

By Rebecca Christie May 24 (Bloomberg) — Treasury Secretary Timothy F. Geithner will tell his Chinese counterparts that Europe’s battle with a Greece-triggered debt crisis should have only a small effect on the broader global recovery, a U.S. official told reporters in Beijing. Geithner and Secretary of State Hillary Clinton are in China for the two-day Strategic and Economic Dialogue, a set of annual high-level talks. Geithner will then depart for London, Berlin and Frankfurt to meet with European officials and reinforce his call for coordinated efforts to fight off the crisis and rein in government spending. One-sided efforts like Germany’s ban on naked short-selling are counterproductive and unlikely to boost investor confidence, the U.S. official, who spoke on condition of anonymity, said yesterday. The official also said such measures have a poor historical track record and are unlikely to be adopted on a wider scale. Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad-based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. “Meeting at this time allows us to demonstrate what is a substantial strength of both the United States and China — a capacity to act quickly, to solve problems, to take initiative and to take a leadership role,” Geithner told reporters in Beijing yesterday. Euro’s Decline The U.S. assessment that Europe’s debt crisis won’t drag down the global economy could be aimed at easing Chinese fears about letting the yuan rise while the European economy lags behind the U.S. and parts of Asia. U.S. officials have varied opinions about the impact of Europe’s debt crisis. Federal Reserve Governor Daniel Tarullo said May 20 that Europe’s debt crisis may pose a threat to the U.S. and world economies as trade shrinks and banks incur losses on European investments. “A deeper contraction in Europe associated with sharp financial dislocations would have the potential to stall the recovery of the entire global economy, and this scenario would have far more serious consequences for U.S. trade and economic growth,” Tarullo told to House Financial Services subcommittees. Analysts say Chinese officials may be loath to relax the yuan peg while the dollar is rising against the euro and other major currencies. Dollar Europe’s common currency fell against the dollar on May 19 to its weakest level in four years a day after Germany banned naked short sales, adding to concern the region’s leadership may not be able to contain the crisis. It rebounded on May 21 amid speculation traders who bet on its decline amid the sovereign- debt crisis had to buy back the currency as it strengthened to a one-week high. “Does it make sense to have the dollar be the strongest currency of the major ones and then encourage your own currency to be even stronger than that one?” said Donald Straszheim , director of China research at International Strategy & Investment Group. “That is not going to sell in Beijing. There’s just no way.” In an interview with Xinhua published two days ago, Geithner, 48, attributed the dollar’s recent rise to confidence in the U.S. economy around the world. Geithner has said it will be “China’s choice” on when and how to let the yuan rise against the dollar. Yuan While Senator Charles Schumer and other U.S. lawmakers have continued to call for increased pressure on the Chinese to revalue, Geithner has opted for a less combative approach. In April, he decided to delay a foreign exchange report in which the Treasury makes determinations about currency manipulation. Chinese officials are likely to press Geithner on the state of the U.S. economic recovery as well as on longstanding issues like export restrictions on advanced technology products, the official said. Geithner also will update the Chinese on the Obama administration’s efforts to get a financial regulatory package through Congress, which the official said is likely to win final approval by July 4. There will also be discussion of U.S. concerns about China’s proposals for promoting domestic economic growth, including innovation from Chinese companies, and the ramifications of developments in Europe. Clinton yesterday urged China to work more cooperatively with American companies eager for a larger share of the Chinese market. “For trade to work in any economy, it needs to be a level playing field where domestic and international companies can compete freely,” she said at Shanghai’s Pudong Airport. ‘Level Playing Field’ Geithner on May 14 expressed confidence that Europe will resolve the crisis and said the U.S. economy is strong enough to withstand any fallout. “Europe has the capacity to manage through this,” Geithner said in an interview. “And I think they will.” China is the largest foreign investor in U.S. Treasuries and also the country’s second-largest trading partner. Total U.S.-China trade in goods was $94 billion for the first three months of 2010, up 19 percent from the same period in 2009. The U.S. trade deficit with China was $52 billion in the first three months of the year, up 3 percent from the first quarter of 2009. To contact the reporter on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ;

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Clinton Calls for `Level Playing Field’ for U.S. Companies in China Trade

May 23, 2010

By Nicole Gaouette May 23 (Bloomberg) — U.S. Secretary of State Hillary Clinton urged China to work more cooperatively with American companies eager for a larger share of the Chinese market. “For trade to work in any economy, it needs to be a level playing field where domestic and international companies can compete freely,” she said today at Shanghai’s Pudong Airport after meeting with 15 U.S. aviation executives to discuss the challenges they face operating in China. U.S. companies “want to sell goods made by American workers to Chinese consumers with rising income and increasing demand.” The Obama administration sees China as central to its goal of doubling exports in five years and creating 2 million U.S. jobs. Clinton and officials including Treasury Secretary Timothy F. Geithner will address trade and investment barriers that could impede that goal at the second annual U.S.-China Strategic and Economic Dialogue that starts tomorrow in Beijing. Clinton said China should increase its transparency in rule making and copyright protection laws, calling them “vitally important in the 21st century economy.” China is America’s second-biggest trading partner after Canada, and the largest foreign investor in U.S. government debt. While there is skepticism in some quarters about how realistic the administration’s export goal is, U.S. officials are confident they can meet it, Commerce Department Undersecretary Francisco Sanchez said yesterday in Shanghai. “We can do that,” he said. Overshadowed Trade and commercial diplomacy were to be the main themes of Clinton’s trip before they were overshadowed by a report finding North Korea responsible for the sinking of a South Korean naval vessel. At the 2010 World Expo in Shanghai, the U.S. Pavilion highlighted American companies including Pepsi Co. and Chevron Corp. , whose donations helped build the 6,000-square meter space. U.S. officials during the Beijing talks will focus on a new Chinese contracting program that could threaten Obama’s export goal. China last year announced an “indigenous innovation” system that proposed to buy only domestically-made software and equipment. “In the coming days, officials at the highest level in our administration will discuss issues of economic balance and competition with our Chinese counterparts,” Clinton said. The new rules could significantly disadvantage foreign companies interested in bidding for government procurement contracts worth an estimated $85 billion a year, Commerce Secretary Gary Locke said in a speech in Beijing on May 21. “Indigenous innovation limits foreign direct investment and imports from abroad that can deliver new products and services to the Chinese people and enhance innovation within Chinese partner companies,” Locke said. Locke brought with him 24 U.S. companies seeking to expand their presence in China, all involved in clean energy technologies or the storage and transmission of electricity. The U.S. and China are the world’s two largest energy consumers and greenhouse gas emitters, Clinton noted in an op-ed in the Beijing-based newspaper Global Times. She said discussions at the Strategic and Economic Dialogue in Beijing would focus “on ways that our two countries can expand our cooperation on energy and climate change.” To contact the reporter on this story: Nicole Gaouette in Shanghai at ngaouette@bloomberg.net .

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Clinton Says North Korea Ship Attack Requires Action

May 21, 2010

By Nicole Gaouette and Takashi Hirokawa May 21 (Bloomberg) — U.S. Secretary of State Hillary Clinton said North Korea’s sinking of a South Korean warship “cannot go unanswered” and the response by the international community must not be “business as usual.” The evidence that North Korea fired a torpedo and sank the ship is “overwhelming and condemning,” Clinton said at a press briefing in Tokyo today with Japanese Foreign Minister Katsuya Okada . “There must be an international, not just a regional, but an international response.” The U.S. wants China to help shape a response, an American official told reporters later in the day in Shanghai. The official, who asked not to be identified, said South Korea doesn’t want war to break out over the crisis. Clinton and Okada offered unqualified support for South Korea after an international panel yesterday issued a report saying evidence provided “conclusive” proof of North Korea’s role in the March 26 sinking, which killed 46 sailors. South Korea’s National Security Council met today as the North threatened to sever all ties and reiterated a threat of war. “The importance of the Japan-U.S. alliance is increasing as the sinking of the South Korean ship shows the instability” in the region, Okada said. Another U.S. official told reporters in Shanghai that the sinking shifted Japan’s attitude in a dispute over moving an American base on Okinawa and that Japan would make a contribution on a deal. The official also asked not to be identified. Tokyo Topics Clinton stopped in Tokyo for four hours on her way to China where she will take part in talks on climate change, the Afghan war and sanctions to curb Iran’s nuclear ambitions. Okada said Japan is studying an agreement Iran struck with Turkey and Brazil to hand over half of its enriched-uranium stockpile in exchange for fuel. In the meantime, Japan supports the U.S. pursuit of a fourth round of UN sanctions on Iran, he said. “We see eye to eye,” Okada said. Clinton said “the burden is on Iran” to live up to its obligations “or face growing isolation.” Clinton and Okada discussed the dispute over where to relocate an American military facility on Okinawa. Prime Minister Yukio Hatoyama , who initially called for moving the Futenma Marine Base off the island in response to local sentiment, said earlier this month he will transfer the base within Okinawa, largely in line with a 2006 bilateral agreement. ‘Viable’ Solution Clinton said both countries share the same goals on moving the base and are seeking an “operationally viable and politically sustainable” solution. Japan and the U.S. will release as early as May 28 a joint agreement on relocating Futenma, the Yomiuri newspaper said today without citing anyone. Okada today said both sides would make every effort to conclude the matter by the end of the month. South Korea yesterday demanded a “stern” global response to the sinking of the 1,200-ton naval vessel Cheonan. Kim Jong Il ’s regime, already under UN sanctions for its second nuclear test last year, threatened “all-out war” if the international body imposes additional restrictions. Tension on the Korean peninsula is overshadowing the planned centerpiece of Clinton’s Asia trip. She and Treasury Secretary Timothy Geithner will be in Beijing May 23-25 to take part in the U.S.-China Strategic and Economic Dialogue. Climate, Energy While Geithner will press the Chinese to improve domestic demand and address the value of the yuan, Clinton’s agenda includes climate change, energy security and Iran. She then will go to Seoul to discuss the South Korean report. The U.S. will be in “deep and constant consultations, not only between the United States and Japan, but also South Korea, China and others to determine our response” to North Korea, Clinton said. The talks in China come as both countries are trying to improve ties after strains earlier this year. Chinese censorship of Google Inc. , the Mountain View, California-based Internet- search company, a Washington visit by the Dalai Lama and disagreements over China’s currency weighed on relations. “It felt like both countries went right up to the edge then looked over into the abyss below and backed away from it,” said Taiya Smith, a senior research fellow at the Carnegie Endowment in Washington. “Now the attitude is, we want to be partners, can we use our time at the highest level to engage on issues in ways that are in each countries’ best interests.” Clinton will start the China portion of her fifth trip to Asia in Shanghai, host to the 2010 World Expo , where she will focus on commercial diplomacy and visit the U.S. pavilion. To contact the reporters on this story: Nicole Gaouette in Tokyo at ngaouette@bloomberg.net ; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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Clinton Says North Korean Sinking of Southern Ship `Cannot Go Unanswered’

May 21, 2010

By Nicole Gaouette and Takashi Hirokawa May 21 (Bloomberg) — U.S. Secretary of State Hillary Clinton said North Korea’s sinking of a South Korean warship “cannot go unanswered” and the response by the international community must not be “business as usual.” The evidence that North Korea fired a torpedo and sank the ship is “overwhelming and condemning,” Clinton said at a press briefing in Tokyo today with Japan’s Foreign Minister Katsuya Okada . “There must be an international, not just a regional, but an international response.” The two diplomats offered unqualified support for South Korea after an international panel yesterday issued a report saying evidence provided “conclusive” proof of North Korea’s role in the March 26 sinking, which killed 46 sailors. South Korea’s National Security Council met today as the North threatened to sever all ties and reiterated a threat of war. “The importance of the Japan-U.S. alliance is increasing as the sinking of the South Korean ship shows the instability” in the region, Okada said. Clinton stopped in Tokyo for four hours on her way to China where she will take part in talks on climate change, the Afghan war and sanctions to curb Iran’s nuclear ambitions. Okada said Japan is studying an agreement Iran struck with Turkey and Brazil to hand over half of its enriched-uranium stockpile in exchange for fuel. In the meantime, Japan supports the U.S. pursuit of a fourth round of UN sanctions on Iran, he said. ‘Eye to Eye’ “We see eye to eye,” Okada said. Clinton said “the burden is on Iran” to live up to its obligations “or face growing isolation.” Clinton and Okada also discussed a dispute over where to relocate an American military facility on Okinawa. Prime Minister Yukio Hatoyama , who initially called for moving the Futenma Marine Base off the island in response to local sentiment, said earlier this month he will transfer the base within Okinawa, largely in line with a 2006 bilateral agreement. Clinton said both countries share the same goals on moving the base, and are seeking an “operationally viable and politically sustainable” solution. Japan and the U.S. will release as early as May 28 a joint agreement on relocating Futenma, the Yomiuri newspaper said today, without citing anyone. Okada today said both sides would make every effort to conclude the matter by the end of the month. War Threats South Korea yesterday demanded a “stern” global response the sinking of the 1,200-ton naval vessel Cheonan. Kim Jong Il ’s regime, already under UN sanctions for its second nuclear test last year, threatened “all-out war” if the international body imposes additional restrictions. Tension on the Korean peninsula is overshadowing the planned centerpiece of Clinton’s Asia trip. She and Treasury Secretary Timothy Geithner will be in Beijing May 23-25 to take part in the U.S.-China Strategic and Economic Dialogue. While Geithner will press the Chinese to improve domestic demand and address the value of the yuan, Clinton’s agenda includes climate change, energy security and Iran. She then will go to Seoul to discuss the South Korean report. The U.S. will be in “deep and constant consultations, not only between the United States and Japan, but also South Korea, China and others to determine our response” to North Korea, Clinton said. Improving Strained Ties The talks in China come as both countries are trying to improve ties after strains earlier this year. Chinese censorship of Google Inc. , the Mountain View, California-based Internet- search company, a Washington visit by the Dalai Lama and disagreements over China’s currency weighed on relations. “It felt like both countries went right up to the edge then looked over into the abyss below and backed away from it,” said Taiya Smith, a senior research fellow at the Carnegie Endowment in Washington. “Now the attitude is, we want to be partners, can we use our time at the highest level to engage on issues in ways that are in each countries’ best interests.” Clinton will start the China portion of her fifth trip to Asia in Shanghai, host to the 2010 World Expo , where she will focus on commercial diplomacy and visit the U.S. pavilion. To contact the reporters on this story: Nicole Gaouette in Tokyo at ngaouette@bloomberg.net ; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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North Korea Sank South’s Warship, Panel Says, Putting Pressure on China

May 19, 2010

By Bomi Lim May 20 (Bloomberg) — North Korea was behind the torpedo attack that sank one of South Korea’s warships in March, a multinational panel said, a finding that puts pressure on China to support international sanctions against its political ally. “The evidence points overwhelmingly to the conclusion that the torpedo was fired by a North Korean submarine,” the investigation team for the March 26 sinking, which claimed the lives of 46 sailors, said today in a statement. “There is no other plausible explanation.” The 1,200-ton Cheonan was split apart by an “external underwater explosion caused by a torpedo made in North Korea,” said the 25-member team, which included experts from the U.S., U.K., Sweden and Australia. Evidence tying North Korea to the sinking, the deadliest attack blamed on the nation in more than two decades, may add weight to efforts by the U.S., Japan and South Korea to isolate the regime of Kim Jong Il . China, which has veto power on the United Nations Security Council, is the main ally of North Korea, providing the trade and aid that keeps the regime afloat. U.S. Secretary of State Hillary Clinton is to visit South Korea next week, followed by the leaders of China and Japan. South Korean President Lee Myung Bak held telephone conversations this week with his counterparts in the U.S. and Japan, and said the investigation team secured “definitive evidence that no one can deny.” The investigation team said it has collected “conclusive evidence” of torpedo parts with markings in the Korean language that are consistent with those seen on a previously obtained North Korean torpedo. The parts also matched the technical drawings and specifications in North Korea’s pamphlets used for overseas buyers of military equipment, the team said. Torpedoes from Russia and China carry markings in their own languages, the report said. Intelligence reports confirmed that a submarine group, together with a support ship, left a North Korean base 2-3 days before the attack and returned to base 2-3 days afterwards. Submarines from neighboring countries were all in or near their home bases, the report said. North Korea said yesterday South Korea’s accusation that the communist country sank the ship was a “smear campaign” and vowed to counter any military move. North Korea on April 17 denied it had anything to do with the incident near the western sea border, where naval skirmishes occurred in 1999, 2002 and November last year. South Korea may raise the issue at the UN Security Council, Foreign Minister Yu Myung Hwan said on April 20. North Korea is already under UN sanctions banning arms trade after carrying out its second nuclear test in 2009. China is North Korea’s principal trading partner and major ideological ally, having fought alongside the country in its 1950-1953 war against South Korean and U.S.-led UN troops. About 28,500 U.S. soldiers are still stationed in South Korea. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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North Korea Sank South’s Ship, Panel Says; China Pressured to Take Action

May 19, 2010

By Bomi Lim May 20 (Bloomberg) — North Korea was behind the torpedo attack that sank one of South Korea’s warships in March, a multinational panel said, a finding that puts pressure on China to support international sanctions against its political ally. “The evidence points overwhelmingly to the conclusion that the torpedo was fired by a North Korean submarine,” the investigation team for the March 26 sinking, which claimed the lives of 46 sailors, said today in a statement. “There is no other plausible explanation.” The 1,200-ton Cheonan was split apart by an “external underwater explosion caused by a torpedo made in North Korea,” said the 25-member team, which included experts from the U.S., U.K., Sweden and Australia. Evidence tying North Korea to the sinking, the deadliest attack blamed on the nation in more than two decades, may add weight to efforts by the U.S., Japan and South Korea to isolate the regime of Kim Jong Il . China, which has veto power on the United Nations Security Council, is the main ally of North Korea, providing the trade and aid that keeps the regime afloat. U.S. Secretary of State Hillary Clinton is to visit South Korea next week, followed by the leaders of China and Japan. South Korean President Lee Myung Bak held telephone conversations this week with his counterparts in the U.S. and Japan, and said the investigation team secured “definitive evidence that no one can deny.” The investigation team said it has collected “conclusive evidence” of torpedo parts with markings in the Korean language that are consistent with those seen on a previously obtained North Korean torpedo. The parts also matched the technical drawings and specifications in North Korea’s pamphlets used for overseas buyers of military equipment, the team said. Torpedoes from Russia and China carry markings in their own languages, the report said. Intelligence reports confirmed that a submarine group, together with a support ship, left a North Korean base 2-3 days before the attack and returned to base 2-3 days afterwards. Submarines from neighboring countries were all in or near their home bases, the report said. North Korea said yesterday South Korea’s accusation that the communist country sank the ship was a “smear campaign” and vowed to counter any military move. North Korea on April 17 denied it had anything to do with the incident near the western sea border, where naval skirmishes occurred in 1999, 2002 and November last year. South Korea may raise the issue at the UN Security Council, Foreign Minister Yu Myung Hwan said on April 20. North Korea is already under UN sanctions banning arms trade after carrying out its second nuclear test in 2009. China is North Korea’s principal trading partner and major ideological ally, having fought alongside the country in its 1950-1953 war against South Korean and U.S.-led UN troops. About 28,500 U.S. soldiers are still stationed in South Korea. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Iran Draft Accord Is Reached at UN as Russia, China Back Nuclear Sanctions

May 18, 2010

By Nicole Gaouette and Bill Varner May 18 (Bloomberg) — Secretary of State Hillary Clinton said Russia, China, the U.S. and the other permanent members of the United Nations Security Council have reached a draft accord on sanctions designed to pressure Iran over its nuclear program. The measure would bolster an arms embargo, enhance authority to seize Iranian cargo suspected of ties to nuclear or missile programs, restrict financial transactions and impose travel bans and asset freezes on Iran’s Revolutionary Guard Corps, two UN diplomats who asked not to be identified said. Clinton’s announcement came just a day after Iran said it agreed to a nuclear swap that made sanctions unnecessary. Turkey and Brazil, the nations that brokered the deal, immediately rebuked Clinton, saying sanctions are “ineffective” and a vote on them would be “dangerous.” The draft accord will be circulated to the entire Security Council today and will “send an unmistakable message about what is expected” from Iran, Clinton told the Senate Foreign Relations Committee in Washington. Iran said yesterday it agreed to hand over to Turkey about half its enriched uranium stockpile in exchange for 20 percent- enriched nuclear fuel to run a reactor for medical isotopes. The swap would be supervised by the Vienna-based International Atomic Energy Agency. As the deal was announced, Iran said it would continue to pursue its enrichment program, which the U.S. has said is aimed at creating a nuclear arms capability. ‘Convincing’ Answer Clinton said the draft sanctions announced today are “as convincing an answer to the efforts undertaken in Iran in the past few days as any we could provide.” “With the cooperation of Russia and China,” the U.S. created “a strong draft” of a new sanctions resolution, she told senators when asked to react to Brazil and Turkey’s deal. Brazil and Turkey hold rotating seats on the 15-nation Security Council. Marco Aurelio Garcia , special adviser on foreign affairs to Brazilian President Luiz Inacio Lula da Silva , responded within minutes at a news conference in Madrid. Sanctions are “totally ineffective,” and Clinton’s statement about the draft accord was “her problem,” he said. Turkey’s Response The chief of the Turkish parliament’s foreign relations committee, Murat Mercan , said on state-run television that his country expects that Security Council members will not vote on the sanctions draft. A vote would “create tensions” and be “dangerous,” Mercan said. The permanent members of the Security Council — China, France, the U.K., the U.S., and Russia — along with Germany make up the “P5 plus one” group that has been working on sanctions. A Chinese diplomat at the UN, who asked not to be identified, said the aim of the draft resolution is to push Iran into talks on its nuclear program. Clinton said she spent the morning talking to her Russian counterpart, Foreign Minister Sergei Lavrov , on the final elements of the sanctions resolution. Adversaries are “not happy” that Russia and China have signed on with the U.S. and its allies, Clinton said. ‘This is a real setback for them,” Clinton told the committee. Separately, a senior U.S. lawmaker said the U.S. House of Representatives should act on an Iran sanctions resolution this month. Majority Leader Steny Hoyer , a Maryland Democrat, said today that the accord brokered with Iran by Turkey and Brazil still leaves Iran free to pursue its “nuclear armed intentions,” and “we think that’s unacceptable.” To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net ;

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Clinton Says Pakistan Told of `Severe Consequences’ of Attack by Militants

May 7, 2010

By Nicole Gaouette May 7 (Bloomberg) — U.S. officials have told Pakistan it would face “severe consequences” if locally based militants succeeded in attacking the U.S., Secretary of State Hillary Clinton said in a “60 Minutes” television interview. Clinton said Pakistan has increased its cooperation with the U.S. in the fight against militants along its border with Afghanistan. Even so, the attempted car bombing of New York’s Times Square has prompted U.S. concerns, she said. “We’ve made it very clear that if — heaven forbid — an attack like this that we can trace back to Pakistan were to have been successful, there would be very severe consequences,” Clinton said, according to excerpts of an interview released today by CBS. The segment will air May 9. Law enforcement authorities say the failed car bomb attempt last week was the work of Faisal Shahzad , a naturalized American citizen who was born in Pakistan and says he had terrorist training there. Clinton said that while Pakistan’s attitude toward terrorism has changed, the U.S. still expects more anti- terrorism cooperation. “It’s been a real sea change in the commitment we’ve seen from the Pakistan government,” Clinton said. “We want more. We expect more.” Clinton said Pakistan may have been playing a “double game” in past years. “We got a lot of lip service but very little produced,” Clinton said. The U.S. has captured or killed a “great number of the leadership of significant terrorist groups, and we’re going to continue that,” she said. To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net .

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Asia Stocks Drop for Fourth Day, Default Swaps Climb on Greece; Euro Gains

May 5, 2010

By James Poole and Norie Kuboyama May 6 (Bloomberg) — Asian stocks dropped for a fourth day, the longest losing streak since January, and the cost of insuring against defaults gained to the highest level in almost three months on concern Europe’s debt crisis will slow the global recovery. The euro snapped three days of declines. The MSCI Asia Pacific Index fell 1.8 percent to 120.45 as of 12:14 p.m. in Tokyo, led by a 3.2 percent slump in the Nikkei 225 Stock Average as Japan’s markets opened after a three-day holiday. Two measures of credit-default swaps gained to the highest level since Feb. 9. The euro strengthened from a 13- month low and the New Zealand dollar surged after the jobless rate dropped. Standard & Poor’s Index futures rose 0.2 percent. “The Greece issues are raising concerns about the health of the financial system globally and slowing down the flow of money in markets,” said Ayako Sera , a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages $300 billion. Portugal may have its credit rating cut by Moody’s Investors Service as the country struggles to reduce its budget deficit. Greece’s Parliament will debate today the austerity measures demanded as a condition of an internationally led bailout, a day after three people were killed in protests in Athens against the plan. New Zealand’s jobless rate fell the most since at least 1986, signaling an economic rebound that central bank Governor Alan Bollard said may prompt an interest-rate increase “over coming months.” U.S. reports today and tomorrow that may show an improving labor market supported stock futures. Shares Tumble All of the MSCI Asia Pacific Index’s 10 industry groups declined, with almost five stocks dropping for each one that advanced. Australia’s S&P/ASX 200 Index declined 1.6 percent and South Korea’s Kospi Index fell 2 percent. Canon Inc. , a Japanese camera maker that counts Europe as its biggest market, dropped 3.3 percent to 4,210 yen. Toyota Motor Corp., which receives about 10 percent of its revenue from Europe, lost 2.9 percent to 3,560 yen. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 8 basis points to 122 basis points as of 7:44 a.m. in Singapore, prices from Royal Bank of Scotland Group Plc and CMA DataVision in New York show. The Markit iTraxx Australia index rose 7.5 basis points to 106.5 as of 9:46 a.m. in Sydney, also the highest since Feb. 9, according to Australia & New Zealand Banking Group Ltd. and CMA. Euro Climbs The euro advanced, reversing earlier losses against the dollar, after a technical chart signaled its slump was overdone. The 14-day relative strength index against the greenback, a comparison of magnitudes of gains and losses, was 28.1, below the 30 threshold that indicates it may have fallen too quickly. The currency strengthened to $1.2828 in Tokyo from $1.2814 in New York yesterday, after earlier falling to $1.2789, the weakest since March 12, 2009. The New Zealand dollar surged, gaining 1.3 percent to 72.67 U.S. cents in Tokyo, the biggest gain since April 28, from 71.72 cents in New York yesterday. The British pound climbed to a nine-month high against the euro on concern Greece’s debt crisis will spread through the 16- nation region. Britain votes today in an election that polls show may produce no parliamentary majority for the first time since 1974. “The pound is now considered to be a safe-haven currency from the euro-zone, which is suffering from concerns over a contagion of sovereign problems,” said Toshiya Yamauchi , a senior foreign exchange analyst at Ueda Harlow Ltd. in Tokyo. Yuan Forwards The U.K. currency advanced to 84.77 pence per euro, the highest since Aug. 6, 2009, before trading at 84.90 pence at 12:44 p.m. in Tokyo from 84.86 pence in New York yesterday. South Korea’s won dropped the most in five months, declining 1.7 percent from May 4 to 1,134.55 per dollar, after markets were closed for a public holiday yesterday. Malaysia’s ringgit weakened 0.5 percent to 3.2455 per dollar. Yuan forwards slumped for a fifth day, the longest losing streak in almost nine months, on speculation China will delay appreciation of its currency. U.S. Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Clinton are scheduled to travel to Beijing on May 24-25 to take part in the second U.S.- China Strategic and Economic Dialogue. Twelve-month non- deliverable forwards fell 0.3 percent to 6.6681 per dollar. China’s Shanghai Composite Index lost 1 percent to a seven- month low on concern government curbs on property will hurt economic growth. China Vanke Co. and Poly Real Estate Group Co., the nation’s two biggest developers, fell at least 2 percent. AU Optronics Corp. and LG Display Co. dropped after Tracfone Wireless Inc., the U.S. prepaid phone service division of America Movil SAB , sued the liquid-crystal display makers for price fixing. LG Display slid 2.7 percent in Seoul and AU Optronics retreated 1 percent in Taipei. Officials from the two companies declined to comment. Copper for three-month delivery on the London Metal Exchange climbed as much as 1.8 percent to $7,085 a metric ton and traded at $7,040 by 11:33 a.m. in Shanghai. Crude oil traded near $80 a barrel after the biggest two-day drop in three months. To contact the reporters for this story: James Poole in Singapore jpoole4@bloomberg.net ; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net .

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Israel, Palestinians Plan Indirect Talks Next Week Aided by Envoy Mitchell

April 30, 2010

By Nicole Gaouette April 30 (Bloomberg) — Israelis and Palestinians will resume indirect talks next week aided by U.S. special envoy George Mitchell who will travel to the region, Secretary of State Hillary Clinton said. “We will be starting with proximity talks next week,” Clinton told reporters in Washington today. “We’ve been very clear in our efforts that the resumption of talks is absolutely essential for the progress we seek toward a two-state solution.” The Arab League would have to agree to a resumption of talks, State Department spokesman Philip J. Crowley said. The 22-member League meets tomorrow in Cairo. A U.S. push to resume negotiations stalled last month when Israel announced a plan to build 1,600 homes in disputed east Jerusalem, which it captured in the 1967 Middle East War and to which Palestinians also lay claim. That announcement came during a visit by Vice President Joe Biden and prompted a public rebuke by the U.S. “The resumption of talks is absolutely essential for the progress we seek toward a two-state solution,” Clinton said. “Ultimately we want the parties in direct negotiations and working out all the issues as they must, they’ve been close a few times before.” Abbas Committed Clinton called on the Arab League to support Palestinian Authority President Mahmoud Abbas in the talks. While Abbas has told Israeli television that he is committed to starting the proximity talks, the League has conditioned their support for the talks on a freeze in Israeli settlement building in the West Bank. “We’re looking forward to a resumption,” said Jonathan Peled a spokesman for the Israeli Embassy in Washington. “We’re carefully cautious and optimistic that we’re definitely coming closer.” Israeli Prime Minister Benjamin Netanyahu told Israel’s Channel Two last week that there would be no building halt. “I am saying one thing: There will be no freeze in Jerusalem,” he said. “There should be no preconditions for talks.” In a speech to the American Jewish Committee in Washington April 29, Clinton said both sides “should refrain from unilateral statements and actions that could undermine trust or prejudge — or appear to prejudge — the outcome of negotiations.” To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net

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Kevin Connor: Obama Needs to Turn His Back on Goldman’s Support

April 23, 2010

In the wake of the historic fraud suit against Goldman Sachs, it was unclear whether the bank would have any presence at President Obama’s financial reform speech yesterday. But CEO Lloyd Blankfein chose to attend, along with his number two, Gary Cohn . Why? The President invited them. Instead of getting a tongue-lashing for their fraudulent ways, the President asked them to join him in the fight for financial reform. If Obama is to be a credible voice for financial reform, and for a just and sustainable economy, he needs to turn his back on Goldman Sachs and other financial behemoths — including hedge funds like John Paulson’s premised on a business model of outright deception and collusion. Symbolic gestures won’t do it. One strategy: he could refuse all future campaign donations from individuals associated with these firms. Goldman Sachs has enormous influence over this White House, in large part because of the role the bank played in helping elect Obama. The fact that Goldman was Obama’s top corporate contributor does not begin to illustrate the central role the bank’s networks played in Obama’s campaign — not just current employees and executives, but, crucially, Goldman alumni. These quiet players have not gotten much attention, but their significance to the Obama campaign cannot be overstated. One of these Obama supporters is former Goldman Sachs executive Richard Perry , now a hedge fund manager. During the 2008 campaign, Perry hosted a pivotal meeting between Obama and Caroline Kennedy. At the time, Hillary Clinton was still in the race; after winning Caroline Kennedy ‘s support, Obama emerged as the chosen candidate of an extremely influential arm of the Democratic Party elite. The New York Post has described this as ” a move some credit with helping Obama score the Democratic nomination over Sen. Hillary Clinton .” Perry’s support is all the more notable for the fact that he and his wife had been Hillary Clinton bundlers. He may have been brought on board by his mentor at Goldman Sachs, Robert Rubin . In addition to working for Rubin, Perry babysat for his children and taught classes with him. Rubin’s fingerprints are all over the Obama campaign: longtime right-hand man Michael Froman , who followed Rubin from the Treasury Department to Citigroup, played a central role in early fundraising efforts, lining up an unrivalled fundraising team of politically-interested financiers in early 2007. Froman was later charged with picking economic appointments for the Obama administration, along with Rubin’s son, Jamie. Then there are people like David Heller , co-head of Goldman’s securities division; Frank Brosens , a hedge fund manager and formerly a Goldman trader under Rubin, and at one point Obama’s pick to oversee TARP; Bruce Heyman , a Goldman managing director in Chicago; Eric Mindich , a hedge fund manager and former Goldman trader under Rubin; Jim Johnson , a Goldman director and chair of the compensation committee — in charge of approving all those exorbitant bonuses. Johnson was Obama’s choice to lead his search for a vice president before his ties to Fannie Mae got him in trouble. All five were Obama bundlers, and all five had strong ties to Goldman Sachs. They raised at least $850,000, and possibly as much as $2.1 million for Obama. That’s more than double the amount given to Obama by current Goldman executives ($1 million), all raised by a handful of people in the Goldman alumni network. You can bet that all of these individuals hold Goldman Sachs near and dear to their hearts. What has all this money won Goldman’s network? One need look no further than White House visitor logs to get an idea of the extent of the bank’s influence over this administration. In a study of the logs earlier this year, citizen analysts at LittleSis.org found that more high-powered visitors to the White House had ties to Goldman Sachs than any other business in the country . We looked for individuals who had attended small group or one-on-one meetings with the President or one of his top advisors, identified them, and analyzed their relationships. Out of a list of 250 visitors, seven current and former Goldman employees had attended such meetings, based on our study of available logs. Morgan Stanley and the New York Times were next with six each. And now one former White House official, Greg Craig , has been hired by Goldman to help it clean up its legal mess. Against this backdrop, Obama’s insistences that he is independent of Goldman Sachs look extremely disingenuous, and rumors that he pressed the SEC to sue Goldman seem far-fetched. Obama’s coziness with Goldman Sachs poses a serious political liability in the months ahead. During Bush’s second year, a wave of corporate crises took down several large corporations, including that reigning symbol of corporate corruption, Enron. Bush took heat for his close ties to “Kenny boy” and his mismanagement of the crises, and his approval ratings began dropping . Businesses like Enron may have put him in the White House, but they also threatened to take down his presidency. The run-up to the Iraq War eventually distracted Americans from this shameful cronyism. Ironically, Enron was just as close with members of the Clinton administration, and its fraud was aided and abetted by Clinton-backed legislation. But Bush took the heat, for good reason: he was the Enron crony in power. And even though Republicans also have strong ties to Goldman Sachs (see: Hank Paulson), Obama will take heat because he is the Goldman Sachs crony in power. Fox News has already begun their drumbeat, but Obama’s ties to Goldman are simply too strong for more mainstream outlets to ignore. How will Obama deal with the political liability of being Goldman’s favorite politician, and hold on to the support of voters? Yesterday, he chose to ignore it, but this strategy will almost certainly backfire as the scandal grows and the media begins linking Obama with Goldman. But Obama does have options for addressing these issues. He is not a former Goldman Sachs executive, and he has never worked on Wall Street. He has a significant opportunity to distance himself from Wall Street’s culture of fraud by turning his back on his big-dollar Wall Street donors, and embracing the support of his small-dollar ones. By making a firm pledge to reject all future donations from individuals associated with the big banks and hedge funds, he can credibly demonstrate his political independence to the American people. Of course, as long as he continues to invite Goldman Sachs to join him — on his campaigns, at his speeches, in the White House — the fight against Wall Street’s fraud is a fight against the Obama administration.

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Cameron Poll Drop Means Pressure on Him to `Deliver’ in First U.K. Debate

April 14, 2010

By Kitty Donaldson and Robert Hutton April 15 (Bloomberg) — Prime Minister Gordon Brown and Conservative David Cameron meet tonight in a televised debate that injects a novel element into U.K. politics and gives them a chance to reshape the closest election campaign since 1992. Neither Brown, described as “charismatic” by only 2 percent of respondents in a poll this month, nor Cameron has enough support to win a majority in the May 6 vote, surveys show. Cameron, who in September 2008 held a lead of as much as 28 percentage points during Britain’s longest recession since World War II, has failed to keep it in double digits this year. “The tightening of the polls over the past week puts an awful lot of pressure on Cameron to deliver,” said Andrew Hawkins , chairman of ComRes Ltd., whose latest poll put the gap at six points. “It needs to be the performance of his life.” While Brown and Cameron are used to sparring in the House of Commons, a televised debate, a staple of U.S. campaigns since 1960, has never featured in the U.K. Tonight’s debate, which also includes Liberal Democrat leader Nick Clegg , will be followed by two more on April 22 and April 29. “This is a turning point in British politics,” said Ivor Gaber , professor of political reporting at London’s City University. “It’s now inconceivable that we would ever have another election without debates.” Clegg Bounce The man with the most to gain may be Clegg, 43. He’s getting equal treatment with the other two leaders, helped by laws that require broadcasters to treat all parties fairly during an election. “Clegg is the one with most to win,” said Charles Pattie, a geography professor at the University of Sheffield . “Cameron and Brown have something to be nervous about, as both could do quite a lot of damage to themselves.” After months of negotiations between the parties and the broadcasters, 76 rules have been agreed on for the three 90- minute sessions. The audience, selected by pollsters ICM Ltd. to be politically balanced and to ask the questions, will be allowed to applaud only at the start and end. The debates have changed the shape of the campaign. Brown has spent the past two nights at his “debate camp,” the Radisson Hotel in Leeds, 40 miles (65 kilometers) from Manchester in northern England, where tonight’s event will take place. Helping him prepare is Michael Sheehan , who worked with Bill and Hillary Clinton . Campbell Plays Cameron In rehearsals, Alastair Campbell , the communications chief of Brown’s predecessor Tony Blair , has been playing the part of Cameron, while an aide pretends to be Clegg. The team in the room includes Business Secretary Peter Mandelson and election coordinator Douglas Alexander . For both Cameron and Brown, wardrobe advice comes from their wives. Samantha Cameron is a professional designer, and Sarah Brown founded a public relations firm. Cameron has prepared with his culture spokesman, Jeremy Hunt , playing the part of Clegg, while immigration spokesman Damian Green portrayed Brown. “Both Brown and Cameron have ‘Jekyll and Hyde possibilities’, character pluses and potential flaws which may be highlighted,” said Pattie, who specializes in electoral behavior. “Cameron needs to be normal and accessible, but also needs to be seen as prime ministerial, not lightweight.” Personalities Polls on personalities point to a reason for the closeness of the race as the U.K. emerges from the longest and deepest economic recession since World War II. A survey by YouGov Plc on April 11-12 found Brown, 59, described as “charismatic” by 2 percent of respondents and “a natural leader” by 4 percent, to Cameron’s 42 percent and 25 percent. When it came to sticking to his beliefs and being good in a crisis, Brown scored 36 percent and 20 percent, twice the 18 percent and 9 percent garnered by Cameron, 43. “We know that people loathe Brown and think it’s time for a change, but they’re not particularly sold on Cameron being that change,” YouGov pollster Anthony Wells said. A ComRes poll for broadcaster ITV News and The Independent newspaper yesterday put the Tories on 35 percent and Labour on 29 percent. The Liberal Democrats got 21 percent. Should that play out, the Conservatives would be 40 seats short of a majority, according to an e-mail from ComRes. A separate YouGov poll for The Sun put the Conservatives ahead by 41 percent to 32 percent, still probably not enough for an outright win. Labour and the Tories are targeting about 150 voting districts that they have identified as so-called swing seats, ones not traditionally dominated by one party and with everything to play for. That’s 23 percent of a total of 650. The Undecided Half the people likely to watch the debates said they could influence how they vote, according to the poll by ComRes. Public indecision has made it the tightest race since 1992, when the Conservatives under John Major won a fourth straight election after convincing voters that Labour wasn’t equipped to guide the economy through a recovery. In a less tightly controlled debate on March 29 between finance spokesmen, it was the Liberal Democrat Vince Cable who scored the most laughs and applause from the audience. That show earned Channel Four 1.8 million viewers, almost doubling the audience it would receive on a regular Monday night, a spokeswoman for the television channel said. The BBC’s long- running soap opera Eastenders, aired at the same time as the debate, scored 9.4 million viewers. David Chapman, landlord of The Albion pub in Hackney, north London, will screen the debate live. “It definitely wasn’t a commercial decision to show the debates,” said Chapman, 60, who has run the hostelry for 13 years. “I’m not sure how many people will come. It may even attract fewer punters.” To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net ; Robert Hutton in Leeds, England, at rhutton1@bloomberg.net .

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Cameron Poll Drop Means Pressure on Him to `Deliver’ in First U.K. Debate

April 14, 2010

By Kitty Donaldson and Robert Hutton April 15 (Bloomberg) — Prime Minister Gordon Brown and Conservative David Cameron meet tonight in a televised debate that injects a novel element into U.K. politics and gives them a chance to reshape the closest election campaign since 1992. Neither Brown, described as “charismatic” by only 2 percent of respondents in a poll this month, nor Cameron has enough support to win a majority in the May 6 vote, surveys show. Cameron, who in September 2008 held a lead of as much as 28 percentage points during Britain’s longest recession since World War II, has failed to keep it in double digits this year. “The tightening of the polls over the past week puts an awful lot of pressure on Cameron to deliver,” said Andrew Hawkins , chairman of ComRes Ltd., whose latest poll put the gap at six points. “It needs to be the performance of his life.” While Brown and Cameron are used to sparring in the House of Commons, a televised debate, a staple of U.S. campaigns since 1960, has never featured in the U.K. Tonight’s debate, which also includes Liberal Democrat leader Nick Clegg , will be followed by two more on April 22 and April 29. “This is a turning point in British politics,” said Ivor Gaber , professor of political reporting at London’s City University. “It’s now inconceivable that we would ever have another election without debates.” Clegg Bounce The man with the most to gain may be Clegg, 43. He’s getting equal treatment with the other two leaders, helped by laws that require broadcasters to treat all parties fairly during an election. “Clegg is the one with most to win,” said Charles Pattie, a geography professor at the University of Sheffield . “Cameron and Brown have something to be nervous about, as both could do quite a lot of damage to themselves.” After months of negotiations between the parties and the broadcasters, 76 rules have been agreed on for the three 90- minute sessions. The audience, selected by pollsters ICM Ltd. to be politically balanced and to ask the questions, will be allowed to applaud only at the start and end. The debates have changed the shape of the campaign. Brown has spent the past two nights at his “debate camp,” the Radisson Hotel in Leeds, 40 miles (65 kilometers) from Manchester in northern England, where tonight’s event will take place. Helping him prepare is Michael Sheehan , who worked with Bill and Hillary Clinton . Campbell Plays Cameron In rehearsals, Alastair Campbell , the communications chief of Brown’s predecessor Tony Blair , has been playing the part of Cameron, while an aide pretends to be Clegg. The team in the room includes Business Secretary Peter Mandelson and election coordinator Douglas Alexander . For both Cameron and Brown, wardrobe advice comes from their wives. Samantha Cameron is a professional designer, and Sarah Brown founded a public relations firm. Cameron has prepared with his culture spokesman, Jeremy Hunt , playing the part of Clegg, while immigration spokesman Damian Green portrayed Brown. “Both Brown and Cameron have ‘Jekyll and Hyde possibilities’, character pluses and potential flaws which may be highlighted,” said Pattie, who specializes in electoral behavior. “Cameron needs to be normal and accessible, but also needs to be seen as prime ministerial, not lightweight.” Personalities Polls on personalities point to a reason for the closeness of the race as the U.K. emerges from the longest and deepest economic recession since World War II. A survey by YouGov Plc on April 11-12 found Brown, 59, described as “charismatic” by 2 percent of respondents and “a natural leader” by 4 percent, to Cameron’s 42 percent and 25 percent. When it came to sticking to his beliefs and being good in a crisis, Brown scored 36 percent and 20 percent, twice the 18 percent and 9 percent garnered by Cameron, 43. “We know that people loathe Brown and think it’s time for a change, but they’re not particularly sold on Cameron being that change,” YouGov pollster Anthony Wells said. A ComRes poll for broadcaster ITV News and The Independent newspaper yesterday put the Tories on 35 percent and Labour on 29 percent. The Liberal Democrats got 21 percent. Should that play out, the Conservatives would be 40 seats short of a majority, according to an e-mail from ComRes. A separate YouGov poll for The Sun put the Conservatives ahead by 41 percent to 32 percent, still probably not enough for an outright win. Labour and the Tories are targeting about 150 voting districts that they have identified as so-called swing seats, ones not traditionally dominated by one party and with everything to play for. That’s 23 percent of a total of 650. The Undecided Half the people likely to watch the debates said they could influence how they vote, according to the poll by ComRes. Public indecision has made it the tightest race since 1992, when the Conservatives under John Major won a fourth straight election after convincing voters that Labour wasn’t equipped to guide the economy through a recovery. In a less tightly controlled debate on March 29 between finance spokesmen, it was the Liberal Democrat Vince Cable who scored the most laughs and applause from the audience. That show earned Channel Four 1.8 million viewers, almost doubling the audience it would receive on a regular Monday night, a spokeswoman for the television channel said. The BBC’s long- running soap opera Eastenders, aired at the same time as the debate, scored 9.4 million viewers. David Chapman, landlord of The Albion pub in Hackney, north London, will screen the debate live. “It definitely wasn’t a commercial decision to show the debates,” said Chapman, 60, who has run the hostelry for 13 years. “I’m not sure how many people will come. It may even attract fewer punters.” To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net ; Robert Hutton in Leeds, England, at rhutton1@bloomberg.net .

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Obama’s Nuclear Summit Ends With 47 Nations Pledging to Secure Stockpiles

April 13, 2010

By Edwin Chen and Roger Runningen April 13 (Bloomberg) — President Barack Obama said a summit on nuclear security is concluding with a strong agreement among 47 countries that the world’s nuclear stockpiles must be secured to reduce the chance of terrorists getting an atomic device. “We have seized the opportunity,” Obama said during a news conference at the conclusion of a two-day summit on nuclear security in Washington. “The American people will be safer and the world will be more secure.” In a 12-point summit communiqué, the U.S. and 46 other nations gathered for the meeting pledged “sustained and effective international cooperation” on Obama’s goal of securing all vulnerable nuclear material in four years. The representatives and heads of state from around the world spent two days discussing a plan of action for locking down global nuclear stockpiles. Obama has said the most significant security threat is the potential for al-Qaeda or other terrorist groups to acquire the materials to develop a nuclear weapon through theft or illicit sales. Opening the summit’s plenary session earlier today, the U.S. president said the world must recognize the changed nature of the nuclear threat. “Two decades after the end of the Cold War, we face a cruel irony of history — the risk of a nuclear confrontation between nations has gone down, but the risk of a nuclear attack has gone up,” Obama said. That requires “we summon the will, as nations, as partners, to do what this moment in history demands,” he said. Blocking Terrorists The leaders and representatives at the summit reaffirmed their commitment to preventing terrorists from obtaining “information or technology” required to use nuclear material and to maintain security of such supplies, according to a copy of the document obtained by Bloomberg News. The communiqué recognizes the role of the United Nations as well as other organizations to enforce compliance “within their respective mandates and memberships” and it calls on states to “work cooperatively” by requesting and providing assistance as necessary. Obama also got agreements from individual countries on actions to secure nuclear material. The U.S. announced yesterday that Ukraine will relinquish its entire stockpile of highly enriched uranium and convert research reactors to use lower- grade fuel. Ukraine’s Uranium Ukraine will dispose of roughly 90 kilograms of uranium, “enough to construct several nuclear weapons,” and will convert nuclear research reactors to use lower-grade fuel, White House press secretary Robert Gibbs said. Canada’s Prime Minister Stephen Harper , who is in Washington for the summit, separately announced his country will send spent highly enriched uranium to the U.S. for processing to make it unusable for a weapon. Canada also joined with the U.S. and Mexico in a plan to convert highly enriched uranium from a Mexican research reactor, the White House said today. The action will result in the removal of all high-grade uranium from Mexico, according to a White House statement. Chile previously has agreed to give up its stockpile. U.S.-Russia Accord In another step toward eliminating such material, Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov today signed a protocol in which each side agrees to dispose of 34 metric tons of weapons-grade plutonium, enough material for about 17,000 nuclear weapons. The U.S. and Russia’s Plutonium Management and Disposition Agreement had been stalled since 2000 over differences on implementation. In addition, Obama said several nations at the summit agreed to bolster security at ports to block smuggling of nuclear material. Two potentially high-risk sources of illicit nuclear materials, Iran and North Korea, weren’t invited to the summit and aren’t specifically part of the agenda. Obama said at the news conference that the United Nations is moving toward tougher sanctions if Iran doesn’t comply with demands it halt any attempt to enrich uranium. Cooperation on sanctions is a sign that “international diplomacy” is making it more possible to “isolate” countries like Iran and North Korea. “I want to see us move forward boldly and quickly,” he said. To contact the reporters on this story: Edwin Chen in Washington at echen32@bloomberg.net ; Roger Runningen in Washington at rrunningen@bloomberg.net

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Cuomo Leads Republican Hopefuls for N.Y. Governor, Quinnipiac Poll Shows

April 13, 2010

By Henry Goldman April 13 (Bloomberg) — New York Attorney General Andrew Cuomo has a 74 percent job-approval rating among voters and leads his Republican contenders by more than 2-to-1 in his still-undeclared Democratic candidacy for governor, a Quinnipiac University poll reported. Cuomo holds a 55 percent to 26 percent lead over former U.S. Congressman Rick Lazio , a 60 percent to 24 percent edge over Buffalo businessman Carl Paladino and a 57 percent to 24 percent advantage over Suffolk County Executive Steve Levy , the poll found. Lazio, 52, leads the race for the Republican nomination with 34 percent compared with Paladino, 63, and Levy, 50. Each received 11 percent support, with 40 percent of Republicans undecided, the poll found. Among all voters, as many as 79 percent say they don’t know enough about the Republican candidates to form an opinion about them, the poll reported. “Besides burying the opposition, Cuomo continues to score high on job-performance,” said Maurice Carroll , director of the Quinnipiac University Polling Institute in Hamden, Connecticut. Cuomo, 52, son of former Governor Mario Cuomo , reported $16.1 million in his campaign treasury as of Jan. 15. Although he has not formally announced his candidacy, supporters said in November that he intends to run for governor. Cuomo would receive at least 80 percent of the state’s Democratic vote if the election were held today, plus 20 percent of the Republicans and more than 50 percent of independents, the poll found. Among Republicans, 64 percent viewed Cuomo’s job performance favorably compared with 24 percent who didn’t. ‘Republican Wannabes’ “None of the Republican wannabes draws more than the generic Republican vote against Cuomo, but let’s see what happens when we have a campaign,” Carroll said in a prepared statement. Although New York State voters disapprove of Governor David Paterson ’s job performance 65 percent to 25 percent, 62 percent say he should serve his full term through Dec. 31 rather than resign. The percentage who disapprove represents the highest level since he assumed the job in March 2008 upon the resignation of Eliot Spitzer , said Carroll. Paterson withdrew as a candidate for election in January after becoming the subject of two separate ethics investigations. Senator Kirsten Gillibrand , a Democrat appointed by Paterson in January 2009 after Hillary Clinton vacated the post to become U.S. Secretary of State, had 47 percent of voters approving her job performance while 25 percent didn’t. Highest Approval Those who view her favorably outnumber those who don’t, 37 percent to 23 percent with 39 percent saying they don’t know enough about her to form an opinion. This is the Quinnipiac poll’s highest approval and best favorability score since she became senator last year, said the report. She would trail behind former Governor George Pataki , 40 percent to 45 percent, in the event Pataki decided to enter the race. Gillibrand would defeat her only declared Republican rival, attorney Bruce Blakeman , 47 percent to 25 percent, with 87 percent of the state’s voters saying they don’t know enough about Blakeman to form an opinion, the poll reported. The survey, conducted with interviews of 1,381 voters from April 6 through 11, had a margin of error plus or minus 2.6 percentage points, said pollster Douglas Schwartz . A subset of 411 Republicans had an error 4.8 percentage points, he said. To contact the reporter on this story: Henry Goldman in New York City Hall at hgoldman@bloomberg.net

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Ukraine Agrees to Dispose of Enriched Uranium Stockpile by ’12, Gibbs Says

April 12, 2010

By Edwin Chen and Roger Runningen April 12 (Bloomberg) — Ukraine agreed to get rid of its stockpile of highly enriched uranium, enough for several nuclear weapons, in an agreement the White House announced as President Barack Obama opens a nuclear security summit in Washington. Obama expressed confidence that the summit will produce progress on checking the spread of nuclear weapons. “I think that at the end of this we’re going to see some very specific concrete action that each nation is taking that will make the world a little bit safer,” the president told reporters. On Ukraine, White House press secretary Robert Gibbs said its stockpile will be disposed of by 2012 under the agreement. Some of it may be shipped to the U.S. for storage as part of an effort to keep it out of the hands of terrorists. Russia also will have a role in disposing of the material. “This is something the United States has tried to make happen for more than 10 years,” Gibbs said at a briefing. Heading off the potential for nuclear terrorism is the top priority in Obama’s nuclear strategy, and the two-day Washington summit involving 46 nations and the U.S. is focused on steps toward the president’s goal of securing nuclear stockpiles worldwide within four years. Obama and Ukraine’s President Viktor Yanukovych met earlier today as the summit was getting under way. Gibbs said Ukraine will convert its civil nuclear research facilities to operate with low-enriched uranium fuel. Significant Measures In another step toward disarmament, Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov are scheduled to sign a deal tomorrow in which each side agrees to dispose of 34,000 metric tons of weapons-grade plutonium, enough material for about 17,000 nuclear weapons. “These are both very significant measures and exactly the kind of thing that we hoped would be stimulated by holding this conference,” said Gareth Evans , a former Australian foreign minister. “It was a matter of this conference actually being the occasion to get people to the line on very specific commitments.” Evans, co-chairman of the International Commission on Nuclear non-Proliferation and Disarmament, is attending a conference of experts in Washington that is being held in parallel with the Nuclear Security Summit. John Brennan , Obama’s homeland security adviser, said at the briefing that al-Qaeda is determined to gain the material to make a nuclear device and such a weapon is the “most prized goal of terrorist groups.” “We cannot wait any longer before we lock down those stockpiles,” Brennan said. The consequences for failure would be “devastating.” Gibbs said the U.S. is “absolutely” willing to offer technical or financial assistance to other countries that want to unload their stockpiles. He said he had no estimate on what the cost of the Ukraine agreement would be to the U.S. Ukraine follows Chile, which was among the first to surrender highly enriched uranium, about 40 pounds, or 18 kilograms, that it got from Britain and France for two research reactors, the Associated Press reported today. The material was shipped last month to the U.S. after the country’s earthquake. The summit is the latest effort by Obama on one of his foreign policy goals, laying the groundwork for someday eliminating nuclear weapons. He signed a treaty with Russia last week to further cut their atomic weapons and the release of an administration doctrine that reduces the role of nuclear arms in U.S. defense strategy. The possibility of a terrorist group getting a nuclear weapon is “the single biggest threat to U.S. security” in the near and distant future, Obama said yesterday before meeting with South African President Jacob Zuma . Along with al-Qaeda, groups that have sought nuclear weapons include the Aum Shinrikyo cult that killed 12 people in a 1995 sarin gas attack on the Tokyo subway, according to Matthew Bunn , an associate professor at Harvard University who once worked as an adviser on U.S. nuclear controls. The United Nations atomic energy agency has documented 18 cases of theft or loss of highly enriched uranium or plutonium, not counting incidents that individual countries haven’t confirmed, Bunn said. The U.S. and Russia’s Plutonium Management and Disposition Agreement, to be signed tomorrow, was agreed to in principle by then-Presidents Bill Clinton and Vladimir Putin in June 2000. Disputes between the two governments over protocols to implement the agreement delayed action until now. Step in Process A White House fact sheet said the deal represents a step toward nuclear disarmament because weapon-grade plutonium will come from each nation’s stockpile. Disposal prevents “the plutonium from ever being reused for weapons or any other military purpose,” according to the National Security Council fact sheet. Each country will dispose of the plutonium by using it as fuel in civilian reactors to produce electricity, the council said. An initial pledge of $400 million in U.S. funds to help Russia dispose of its plutonium has been reduced to $100 million, the NSC said, and the amount will be spread over decades of verified disposal. To contact the reporters on this story: Edwin Chen in Washington at echen32@bloomberg.net ; Roger Runningen in Washington at rrunningen@bloomberg.net .

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Obama Will Use Russia Arms Accord as Leverage to Curb Iran Nuclear Program

April 7, 2010

By Julianna Goldman April 8 (Bloomberg) — President Barack Obama signs a nuclear-arms treaty with Russia today that he will try to use to build international support for increasing pressure on Iran and preventing terrorists from getting atomic material. Obama and Russian President Dmitry Medvedev will gather at noon for a ceremony in Prague to cap the deal. U.S. officials have said the new Strategic Arms Reduction Treaty, which trims the U.S. and Russian arsenals by about 30 percent, bolsters the American commitment to Non-Proliferation Treaty obligations and will encourage other countries to demand compliance. The accord “shows the world, particularly states like Iran and North Korea, that one of our top priorities is to strengthen the global nonproliferation regime and keep nuclear materials out of the wrong hands,” Secretary of State Hillary Clinton said March 26, when the deal was announced. Iran has rebuffed calls to stop what the U.S. and its allies say is the Islamic republic’s pursuit of a nuclear- weapons capability and to engage in negotiations. Obama, who said March 30 he would push for tougher United Nations Security Council sanctions on Iran “within weeks,” needs broad international enforcement of potential new measures such as authority to seize Iranian cargoes and cut off credit. “If the U.S. and Russia did not get moving together on reducing nuclear weapons, nobody else in the world is going to,” former U.S. Defense Secretary William Perry said in an interview. “The whole issue of trying to contain nuclear proliferation and trying to deal with rogue states would have a huge setback.” It was in Prague a year ago where Obama articulated a vision of a nuclear-free world that won him a Nobel Peace Prize. Obama’s Summit The message will carry over to Obama’s April 12-13 summit in Washington, where he will host representatives from 46 nations, including Medvedev and Chinese President Hu Jintao , to seek consensus on steps to halt the spread of nuclear material. Obama’s strategy to build on START may have limits, said Sam Greene , deputy director of the Carnegie Moscow Center, a public-policy institution. “While the U.S. may try to make the most of the momentum it has gained with Russia, Moscow will want to maximize its room for maneuver in each specific case, whether on Iran, Afghanistan or any other major issue of concern to the U.S.,” Greene said in an e-mail. “Moscow will not want to feel tied down.” Obama made the prevention of nuclear terrorism a top goal of U.S. atomic policy this week as he revamped Cold War-era guidelines in the Nuclear Posture Review that defined limits on the role of nuclear weapons in defense. ‘Making Good’ “This signing of the treaty and this Nuclear Posture Review are two very tangible steps that, in effect, are making good on the promise of the vision” Obama described last year, Perry, who served in former President Bill Clinton ’s administration, said. The U.S. will set an example through START, said one advocate for eliminating nuclear weapons, Joseph Cirincione , who heads the San Francisco-based Ploughshares Fund , a nuclear policy group. “In order to get the cooperation you need to stop Iran from getting nuclear weapons, you’ve got to restore the credibility of the U.S. by reducing its own stockpile of weapons,” Cirincione said. The arm-reduction treaty also helps to lay the groundwork for next month’s non-proliferation treaty review talks in New York, analysts said. ‘Light Tower’ “It’s the light tower that tells the rest of the world what is the role of nuclear weapons,” said Micah Zenko , a fellow at the Center for Preventive Action at the Council on Foreign Relations . “The U.S. and Russia are not particularly safer because of this agreement, but because of the other sort of cooperation that it leads to, we are safer.” Some critics contend Obama should be focused less on incremental cuts in nuclear stockpiles and more on efforts to prevent countries, such as Iran, from gaining a weapon. The new START agreement doesn’t take into account “that we’re adding another country to the list of those who have nuclear weapons,” said Lawrence Eagleburger , who was secretary of state under former President George H.W. Bush. “Once Iran is a nuclear weapon state, there are bound to be other countries who look at this and say, ‘They are, we should be too,’” Eagleburger said in an interview. “Then it’s off to the races.” Administration officials counter that START is the latest effort to reset relations with Russia and say they hope it opens the way to greater cooperation to stop Iran’s nuclear ambitions. Russian View The U.S. says the treaty doesn’t restrict missile defenses to thwart an attack by states such as Iran and North Korea. That issue remains a sticking point with Russia, which has said it reserves the right to pull out of the accord if a U.S. system posed a threat to its nuclear arsenal. Foreign Minister Sergei Lavrov said April 6 Russia could exit the treaty if “the U.S.’s build-up of its missile defense strategic potential in numbers and quality begins to considerably affect the efficiency of Russian strategic nuclear forces.” To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

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U.S. Softens Tone to China Over Google, Seeking Support for Iran Sanctions

April 1, 2010

By Jeff Bliss April 2 (Bloomberg) — The Obama administration has softened its tone in responding to cyber attacks that may have originated in China, betting that playing down the dispute will help the U.S. obtain the Asian superpower’s cooperation on foreign-policy goals, security experts said. That calculation may yield short-term benefits such as Chinese support for additional sanctions against Iran and reining in North Korea, though in the longer term it could wind up endangering U.S. economic leadership, said Tom Kellermann , a former World Bank security official. “The U.S. is in a very difficult position,” said Kellermann, a vice president at Core Security Technologies Inc., a Boston-based security-software company. President Barack Obama needs “help from China.” Mountain View, California-based Google Inc. , owner of the world’s most popular search engine, disclosed in January that it had been the target of cyber attacks that resulted in the theft of intellectual property and the infiltration of e-mail accounts belonging to people active in Chinese human-rights causes. U.S. authorities began an investigation and Secretary of State Hillary Clinton urged China to do so, too. The U.S. response falls short of actions that could deter future attacks such as threatening sanctions or at least complaining to the World Trade Organization, Kellermann said. Currency, Trade Complicating the U.S. posture are long-standing issues such as North Korea’s nuclear program, China’s position as the No. 1 holder of U.S. debt, the trade imbalance between the two nations and the U.S. push for a revaluation of the Chinese currency, the security experts said. Still, the U.S. has much to lose if it doesn’t take a stronger stand on network breaches, said John Bumgarner, chief technology officer of the Norwich, Vermont-based U.S. Cyber Consequences Unit , which produces threat assessments for the government and business. “If we don’t watch out, the long-term gains will be enormous for China,” Bumgarner said. Cyber infiltrations over the past few years have resulted in the theft of software code that has allowed the Chinese to avoid research-and-development costs and sell cheaper products, Kellermann said. China has denied involvement in computer attacks. Google officials have said that while they are certain the attacks originated in China, they haven’t determined who was behind them. Hong Kong Move Last week, after a two-month clash with China over censorship, Google shut its mainland Chinese search engine and redirected users to its Hong Kong site. Google on March 31 blamed the Chinese government-controlled firewall for blocking service on the search engine, which has been restored. At a March 24 congressional hearing, Alan Davidson , Google’s director of public policy, pressed for new trade rules for countries that censor the Internet. This week, the Office of the U.S. Trade Representative issued a report saying that the absence of stated Chinese censorship rules has made it difficult for Internet companies to function there. A report released March 25 by Mountain View, California-based Symantec Corp., the biggest maker of security software, said that 28 percent of targeted cyber attacks last month originated in China. Jay Nancarrow, A Google spokesman, declined to comment specifically on the U.S. response. Taiwan Arms Chinese and U.S. ties deteriorated after the Obama administration announced Jan. 29 that it would sell arms to Taiwan, a move Chinese Foreign Minister Yang Jiechi said March 7 had “seriously damaged” relations. China protested again after Obama met in February with the Dalai Lama , the Tibetan spiritual leader. China viewed the actions as an affront to Chinese sovereignty. More recently, the administration has tried to ease tensions. Deputy Secretary of State James Steinberg on March 29 reaffirmed the U.S. views that Taiwan shouldn’t be independent and Tibet is part of China. U.S. officials are pressing China to support more sanctions against Iran over its nuclear program. Russia and China have used their veto power in the United Nations Security Council to block the U.S.- and European-led sanctions effort. Iran Talks Clinton said last week that China was beginning to ease its policy. Susan Rice , the U.S. ambassador to the UN, said on CNN on March 31 that China would join talks on drafting tougher sanctions on Iran. While Clinton said in a Jan. 21 speech that she expected “Chinese authorities to conduct a thorough review” of their Internet policies, she has distanced herself from the Google dispute. “This is really between Google and China,” she said in an interview with Bloomberg Television in Moscow on March 19. The State Department’s role is to promote the “notion of maintaining and expanding Internet freedom,” not to advocate for a specific company, Michael Posner , assistant secretary for democracy, human rights and labor, said on Bloomberg Television yesterday. The U.S. may be disappointed if it is hoping that the soft- pedal approach will compel China to cooperate on Iran, said Carolyn Bartholomew , vice chairwoman of the U.S.-China Economic and Security Review Commission, a Washington-based group created by Congress. “In the early 1990s it was we couldn’t push them on human rights because we needed their cooperation on North Korea,” she said. “It took a good 15 years before we started getting any sort of cooperation.” For Related News and Information: To contact the reporter on this story: Jeff Bliss in Washington jbliss@bloomberg.net .

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U.S. Softens Tone to China Over Google, Seeking Support for Iran Sanctions

April 1, 2010

By Jeff Bliss April 2 (Bloomberg) — The Obama administration has softened its tone in responding to cyber attacks that may have originated in China, betting that playing down the dispute will help the U.S. obtain the Asian superpower’s cooperation on foreign-policy goals, security experts said. That calculation may yield short-term benefits such as Chinese support for additional sanctions against Iran and reining in North Korea, though in the longer term it could wind up endangering U.S. economic leadership, said Tom Kellermann , a former World Bank security official. “The U.S. is in a very difficult position,” said Kellermann, a vice president at Core Security Technologies Inc., a Boston-based security-software company. President Barack Obama needs “help from China.” Mountain View, California-based Google Inc. , owner of the world’s most popular search engine, disclosed in January that it had been the target of cyber attacks that resulted in the theft of intellectual property and the infiltration of e-mail accounts belonging to people active in Chinese human-rights causes. U.S. authorities began an investigation and Secretary of State Hillary Clinton urged China to do so, too. The U.S. response falls short of actions that could deter future attacks such as threatening sanctions or at least complaining to the World Trade Organization, Kellermann said. Currency, Trade Complicating the U.S. posture are long-standing issues such as North Korea’s nuclear program, China’s position as the No. 1 holder of U.S. debt, the trade imbalance between the two nations and the U.S. push for a revaluation of the Chinese currency, the security experts said. Still, the U.S. has much to lose if it doesn’t take a stronger stand on network breaches, said John Bumgarner, chief technology officer of the Norwich, Vermont-based U.S. Cyber Consequences Unit , which produces threat assessments for the government and business. “If we don’t watch out, the long-term gains will be enormous for China,” Bumgarner said. Cyber infiltrations over the past few years have resulted in the theft of software code that has allowed the Chinese to avoid research-and-development costs and sell cheaper products, Kellermann said. China has denied involvement in computer attacks. Google officials have said that while they are certain the attacks originated in China, they haven’t determined who was behind them. Hong Kong Move Last week, after a two-month clash with China over censorship, Google shut its mainland Chinese search engine and redirected users to its Hong Kong site. Google on March 31 blamed the Chinese government-controlled firewall for blocking service on the search engine, which has been restored. At a March 24 congressional hearing, Alan Davidson , Google’s director of public policy, pressed for new trade rules for countries that censor the Internet. This week, the Office of the U.S. Trade Representative issued a report saying that the absence of stated Chinese censorship rules has made it difficult for Internet companies to function there. A report released March 25 by Mountain View, California-based Symantec Corp., the biggest maker of security software, said that 28 percent of targeted cyber attacks last month originated in China. Jay Nancarrow, A Google spokesman, declined to comment specifically on the U.S. response. Taiwan Arms Chinese and U.S. ties deteriorated after the Obama administration announced Jan. 29 that it would sell arms to Taiwan, a move Chinese Foreign Minister Yang Jiechi said March 7 had “seriously damaged” relations. China protested again after Obama met in February with the Dalai Lama , the Tibetan spiritual leader. China viewed the actions as an affront to Chinese sovereignty. More recently, the administration has tried to ease tensions. Deputy Secretary of State James Steinberg on March 29 reaffirmed the U.S. views that Taiwan shouldn’t be independent and Tibet is part of China. U.S. officials are pressing China to support more sanctions against Iran over its nuclear program. Russia and China have used their veto power in the United Nations Security Council to block the U.S.- and European-led sanctions effort. Iran Talks Clinton said last week that China was beginning to ease its policy. Susan Rice , the U.S. ambassador to the UN, said on CNN on March 31 that China would join talks on drafting tougher sanctions on Iran. While Clinton said in a Jan. 21 speech that she expected “Chinese authorities to conduct a thorough review” of their Internet policies, she has distanced herself from the Google dispute. “This is really between Google and China,” she said in an interview with Bloomberg Television in Moscow on March 19. The State Department’s role is to promote the “notion of maintaining and expanding Internet freedom,” not to advocate for a specific company, Michael Posner , assistant secretary for democracy, human rights and labor, said on Bloomberg Television yesterday. The U.S. may be disappointed if it is hoping that the soft- pedal approach will compel China to cooperate on Iran, said Carolyn Bartholomew , vice chairwoman of the U.S.-China Economic and Security Review Commission, a Washington-based group created by Congress. “In the early 1990s it was we couldn’t push them on human rights because we needed their cooperation on North Korea,” she said. “It took a good 15 years before we started getting any sort of cooperation.” For Related News and Information: To contact the reporter on this story: Jeff Bliss in Washington jbliss@bloomberg.net .

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China to Join New UN Talks on Drafting Tougher Iran Sanctions, Rice Says

March 31, 2010

By Bill Varner April 1 (Bloomberg) — China will join talks in New York with the U.S., Britain, France, Germany and Russia on drafting tougher sanctions intended to dissuade Iran from developing nuclear weapons, the U.S. ambassador to the United Nations said. The ambassadors of the six nations have been given responsibility for crafting a final sanctions resolution, U.S. envoy, Susan Rice , said on CNN yesterday. Talks stalled for months because China resisted adoption of a fourth round of UN sanctions, saying more time was needed to negotiate an agreement with Iran. “China has agreed to sit down and begin serious negotiations here in New York,” Rice said. “This is progress, but the negotiations have yet to begin in earnest. We have shared our thoughts” on what elements should be in a tough Security Council resolution. Winning China’s approval for sanctions is crucial because the country wields veto power over UN measures with its permanent seat on the Security Council. China, with the fastest- growing major economy, is one of Iran’s biggest crude-oil customers. China will “join hands with other parties to make efforts toward a peaceful and proper resolution of the issue,” Foreign Ministry spokesman Qin Gang said two days ago in Beijing when asked whether the government would back sanctions. “China opposes Iran having nuclear weapons and concurrently we believe that Iran as a sovereign state has the right to the peaceful use of nuclear energy.” U.S. Proposal The U.S. offered a proposal earlier this month to tighten restrictions on dealings with Iran’s banking, shipping and insurance industries. The plan also targets the Iranian Revolutionary Guard Corps that U.S. Secretary of State Hillary Clinton said has largely taken control of the country. President Barack Obama “has committed us to building adequate and sufficient and strong pressure on Iran to make clear to Iran that it faces a choice,” Rice said. It can either give up its nuclear weapons program and rejoin the community of nations or face increased isolation and intensified pressure, she said. At the UN in New York, Clinton told reporters the six nations have formed a “unified consultative group for more than a year” and that the group “continues to be unified.” The U.S. and its European allies, which have been trying to persuade Iran to scale back its nuclear program and embrace wider economic and political ties, offered at an October meeting in Geneva to enrich uranium Iran needs for a reactor that makes medical isotopes. The Iranian government has never formally replied to the proposal, which the U.S. has portrayed as a confidence-building measure. Iran insists its enrichment program is intended only for civilian energy projects and rejects UN demands that it restrain nuclear work. To contact the reporter on this story: William Varner in New York at wvarner@bloomberg.net

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Losing Kennedy Made Obama Find Health-Care Law in Homage to Undying Cause

March 30, 2010

By Kristin Jensen and Edwin Chen March 31 (Bloomberg) — Five days after President Barack Obama ’s inauguration, Tom Daschle requested a meeting with the new president. Daschle, tapped to become Health and Human Services secretary, wanted a commitment that Obama still planned to pursue an overhaul of the health-care system. Top advisers, from Vice President Joe Biden to members of his economic team, were pushing Obama to wait and focus instead on the recession. As Daschle, 62, and Obama huddled in White House Chief of Staff Rahm Emanuel ’s office on the president’s first Sunday in office, Obama assured him the issue was a major priority. “I said, ‘Well, I just need to know: Is this as important to you as you said it was when you asked me to do the job?’” recalled Daschle, who later had to withdraw his nomination over a tax controversy. “And he said, ‘Let me tell you, this is even more important to me.’” That Obama chose to stake his presidency on the U.S. health overhaul will define his legacy even as he risked the careers of many fellow Democrats in doing so. Republicans are now vowing to work toward repeal and make Democrats pay at the polls in November, ensuring that the president will spend almost as much time defending the legislation as he did getting it passed. Obama’s pursuit of health care reflected his desire to succeed where no other president had, as much as a determination to seize the chance to fix a broken system, according to Daschle. “Once committed, he felt he just couldn’t afford to lose,” Daschle said last week. Biggest Since Medicare When Obama, 48, signed the last piece of the legislation yesterday, he cemented the biggest changes to the health system since the 1965 creation of the Medicare insurance program for the elderly. He also brought to a close a year-long fight in which he gambled his presidency and came out on top. The health-care initiative would be marked by missed deadlines and political missteps. Obama rewrote the rules for an industry covering one-sixth of the economy on a partisan basis with public support eroding. He and Democratic leaders revived the effort through legislative crises, party infighting, and opposition from Republicans determined to make it his downfall. “If we’re able to stop Obama on this, it will be his Waterloo,” South Carolina Senator James DeMint said in July. Former Republican vice presidential candidate Sarah Palin warned of “ death panels ” stemming from a provision for end-of-life counseling. The Tea Party movement mobilized voters to confront Democrats at town-hall meetings in August, which drew so much attention they almost sank the bill. Sagging in Polls Polls showed the legislation had become unpopular, and Obama drew the ire of lawmakers in his own party. Many complained that he failed to provide direction at key junctures, shifted his rationale for the bill, and had made a campaign promise to air negotiations on C-Span that was coming back to haunt them because it was impossible to keep. In the end, the insurance industry, which fought Obama’s plans, offered what may have been his biggest boost by doing what he had said it would do: A WellPoint Inc. unit proposed a 39 percent rate increase for some California customers. Still, the deals that had to be cut meant that no one was completely happy with the final product, which Republicans said didn’t come close to putting a dent in rising U.S. health-care costs , already the highest in the world. “We have a bill that is chock full of gimmicks and hidden mandates,” said Representative Paul Ryan , a Wisconsin Republican, before the House’s March 21 vote to approve the measure. “The European-style social welfare state promoted by this legislation is not sustainable.” Significant Changes Democrats focused on the potential for significant changes down the road. They argued that free preventive care would mean less serious health problems; pilot programs designed to change the way Medicare operates would have larger ramifications for the system; and about 32 million uninsured Americans would get coverage. Over the past year, Obama and his aides liked to repeat a prediction credited to White House congressional liaison Phil Schiliro : The health-care effort would be “pronounced dead” four or five times before passage. They were right. The prospects began to look grim enough last summer that Emanuel suggested the president consider a scaled-back version and declare victory, according to one person with knowledge of the discussions. Obama said no. ‘Dead’ The worst day for the White House may well have been Jan. 19, when Democrats were stunned by the loss of a special election to fill a Massachusetts seat that had been held by the late Senator Edward Kennedy for 47 years. The party had been close to finishing a House-Senate compromise bill. Now, Republicans controlled 41 seats in the Senate, enough to kill the plan to push the new measure through both chambers. “Dead,” White House health policy adviser Zeke Emanuel wrote in response to an e-mail days later asking about the bill’s prospects. “F—–g dead.” Obama was already talking about the next steps even before the polls closed the night of the election, meeting with Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi in the Oval Office. Eventually, they would hit on a compromise: The House would pass the Senate bill and both chambers would pass another measure making changes to it. Emanuel, 52, the brother of Rahm Emanuel, said the mood soon turned around as the way forward became clear. The one thing that never wavered was Obama’s determination, said Emanuel as well as others in the White House and on Capitol Hill. “You’re the guy that made it happen,” Biden, 67, said to Obama before the president signed the first of two pieces of health-care legislation into law on March 23. Pessimism At the beginning, Biden and other top aides were pessimistic. They urged him to avoid making health care a top priority in the face of the worst economic recession in seven decades, two wars and the likelihood that special interests would fight any effort to overhaul the system. During one meeting soon after Inauguration Day, Biden said Americans didn’t care enough about health-care coverage to make it a priority, said two people involved in the discussions. Rahm Emanuel, 50, and senior adviser David Axelrod voiced caution, according to three people involved, who like others in this story spoke on condition of anonymity. “I had a whole bunch of political advisers telling me, this may not be the smartest thing to do,” Obama remembered a year later as he spoke in Elyria, Ohio, on Jan. 22. “I had no illusions when I took this on that this was going to be hard. Seven presidents had tried it, seven Congresses had tried it — and all of them had failed.” Obama had been persuaded by the data he had seen and the stories he heard from Americans. He also knew it was the lifelong cause of Kennedy, the Democratic Party icon who had given Obama’s political fortunes an early boost in the presidential primary fight against Hillary Clinton . Not Scoring Points That day in Ohio — three days after the loss of Kennedy’s seat — Obama said he was fighting on because the status quo was unsustainable. He cited soaring medical costs and premiums, Americans without insurance and struggling small businesses. “I didn’t take this on to score political points,” he said. Once Obama decided, his team fell in line. Biden’s chief of staff, Ron Klain , said his boss was “working to bring outside allies on board, and personally persuading key senators and congressmen to support the effort at critical moments — including the close vote on final passage in the House.” A year earlier, it was Daschle himself who set back the timetable as word trickled out that he had to file amended returns and pay $140,000 in back taxes and interest for unreported income. On Feb. 3, 2009, he withdrew his nomination, saying he didn’t want to prove a “distraction.” Missing Kennedy As a former Senate Democratic leader with relationships throughout Congress, Daschle was positioned to head the effort. Obama could ill-afford to lose him as he was already working without the legislative skills of Kennedy, who was suffering from brain cancer and would die at age 77 on Aug. 25. To win passage, a minority of more conservative Democrats overcame the majority’s desire for a government-run insurance program, or public option, that many said was the best way to reduce costs for average Americans. The White House team had studied the failed health-care push in 1993 and 1994 by former President Bill Clinton and his wife, Hillary, now secretary of state. Bill Clinton underlined the continuity of the effort when he stood in for Obama to speak at the Washington Gridiron Dinner on March 20, the night before the House vote, so the president could lobby lawmakers. The former president, who jokingly invoked the words of General Douglas MacArthur by saying, “I shall return,” about his visit to the capital, urged Congress to pass the bill. Winning Over Companies One lesson from the Clinton failure on health care was to try to win the support of health-care companies, many of whom helped destroy the earlier attempt. Obama cut deals with drugmakers and hospitals, ensuring a limited impact on their profits in return for specific dollar contributions to the overhaul effort and a pledge of support. Another lesson they drew was to leave the drafting of the legislation largely to Congress, Axelrod, 55, said in a July interview. That strategy backfired with some lawmakers. Iowa Senator Tom Harkin , 70, the Democratic chairman of the health committee, said Obama should have been more assertive. “The White House took a hands-off position until right before Christmas,” Harkin said in a Jan. 22 interview. “Maybe if they had gotten involved earlier we wouldn’t be in this mess.” ‘Lot of Grousing’ During summer months filled with protests and shouting at congressional town-hall meetings, Axelrod said he went to see Obama and told him, “The polls are difficult and there’s a lot of grousing on the Hill about it, and this is going to cost a lot politically in the short run.” “I know you’re right,” the president said, Axelrod recalled in a March 23 interview on the “ Charlie Rose Show.” Axelrod said Obama then told a story about a woman he had just met in Wisconsin with ovarian cancer. While the married mother of two had insurance, the policy didn’t cover her treatments, and the family was slowly going broke. Axelrod recalled that Obama patted him on the shoulder and said: “So, you know what? We’ve got to keep on fighting.” That September, Democrats came back shaken from encountering angry constituents during the August recess. Obama tried to revive the legislation and address some misconceptions with a Sept. 9 speech to a joint session of Congress. End of Bipartisanship Senator Bob Corker , a Tennessee Republican, said he saw a hardening by Democrats, tracing the end of bipartisanship to that address. Rahm Emanuel called Corker at home the weekend before and said “listen to the speech.” That night, Emanuel sat four rows ahead of Corker and could see he wasn’t applauding much. “He motioned for me to call him on the cell phone, which I did,” Corker, 57, recalled. “I told him that speech is the kind of speech you might hear in an Iowa primary or something. It had nothing to do with advancing policy, it was about consolidating the base.” There were efforts at bipartisanship, even if the prospects of success were slim. The most notable was the group known as the Gang of Six put together by Senate Finance Committee Chairman Max Baucus and his Republican counterpart, Senator Charles Grassley of Iowa. The group met 31 times over 63 hours and much of their work became the basis for the final legislation: They had decided against a public option; it didn’t make the final law. Instead of a straight employer mandate to provide insurance to workers, the final bill used Baucus’s model for penalties on certain companies. The group had moved toward medical industry fees and a tax on high-end insurance plans. Both made the bill. Building Blocks “At the very least, Democrats figured out how much reform their caucus could tolerate,” said Jennifer Duffy , a senior editor at the nonpartisan Cook Political Report in Washington. “At best, the group provided the building blocks of what would become the Senate bill.” That none of the Gang of Six Republicans signed on to the legislation reflects the deep political divide in Washington. On Sept. 16, when Baucus, 68, of Montana finally presented his plan, it was under his own name. Standing alone against a red, white and blue backdrop in Room 215 of the Dirksen Senate Office Building, he lacked the usual phalanx of back-slapping lawmakers involved in such moments. This, he said, “is a bill that can pass.” For the Senate, the following months were filled with special deals and arm-twisting. Reid, 70, needed every one of his Democrats to support the bill and used anyone he could to help. Courting Lincoln Rahm Emanuel asked Hillary Clinton to make dozens of phone calls to lawmakers, said two people familiar with the effort. Biden worked on Arkansas Senator Blanche Lincoln , 49, a friend from his years in the Senate, according to two people with knowledge of the meeting. Lincoln won assurances the bill would be made available to the public for three days before a vote. Louisiana Senator Mary Landrieu , 54, got what she called a “fix” of almost $300 million to help her hurricane-ravaged state fund the Medicaid health program for the poor. To secure the vote of Nebraska Senator Ben Nelson , 68, a former director of the Nebraska Department of Insurance, Reid promised not to include a provision repealing the insurance industry’s antitrust exemption. ‘Cornhusker Kickback’ Reid would have to add another sweetener — special aid for Nebraska’s Medicaid program later dubbed the “Cornhusker Kickback.” And on Dec. 18, he would spend 13 hours wooing Nelson and satisfying him that federal funds wouldn’t be used for abortion, with the help of White House aide Pete Rouse and New York Senator Chuck Schumer . The Senate passed its legislation on Dec. 24, and final approval of a House-Senate compromise looked on track until the Jan. 19 election in Massachusetts. Immediately after Scott Brown ’s victory, House members rebelled at the idea of simply passing the Senate bill, and Pelosi on Jan. 21 said she couldn’t get it through her chamber without changes. At one point, she said she was 63 votes short, according to a person with knowledge of the discussions. Obama took the fight behind closed doors, outwardly focusing on other issues while holding meetings to get health care done. California Rate Hike Within days, the announcement by WellPoint’s Anthem Blue Cross subsidiary in California to raise rates provided new fodder for a White House that billed the legislation as “health insurance reform.” That moment crystallized the fight, said Nancy-Ann DeParle , who ran the overhaul effort for the White House. “Anthem raising the rates in California was like, you must be kidding,” Pelosi said in a March 23 roundtable with seven reporters. “Thank you very much. That’s horrible for the people of California, but it’s great for the passage of our bill.” Democrats came up with a plan. First, the House would pass the Senate bill and then it would approve another bill to fix the things House members didn’t like. The Senate would also take up that second bill under a budget process called reconciliation that only required a simple majority vote. Obama’s Campaign Obama started a lobbying campaign, holding 64 meetings or phone calls with lawmakers between March 15 and March 19. He had no tougher or more effective ally than Pelosi. At one House Democratic caucus, shortly before the showdown votes, tempers flared as some members complained that neither the Senate nor the White House could be trusted, according to a person with knowledge of the meeting. “Do you trust me?” Pelosi replied, changing the tone. New York Representative Anthony Weiner said Pelosi, 70, told the members, “The Senate is going to go along because I am telling you I am going to make sure they go along.” By the time the House passed the Senate bill along with the other measure making changes, it was clear the Democrats would win. Obama had his victory. “When I spoke to him after the vote, he said that he was happier after the vote than he was the night that he won the presidency,” Pelosi said at the March 23 roundtable. “And I said, well, I’m pretty happy, but I’m not happier than the night he won the presidency because if you hadn’t won the presidency, we wouldn’t be here.” To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net ; Edwin Chen in Washington at echen32@bloomberg.net

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Obama Sees Tougher UN Sanctions on Iran in `Weeks’ to Curb Nuclear Program

March 30, 2010

By Julianna Goldman and Helene Fouquet March 30 (Bloomberg) — President Barack Obama said he believes the United Nations will agree on new sanctions for Iran in a matter of weeks if the Islamic republic fails to comply with resolutions aimed at limiting its nuclear program. Obama said he and French President Nicolas Sarkozy agreed at their meeting today on the need for tougher steps against Iran. “The door remains open if the Iranians choose to walk through it,” Obama said at a joint news conference with Sarkozy at the White House. In the “interim we are going to move forcefully” on a sanctions regime. Sarkozy said the U.S. has “all my support for strong sanctions” at the UN Security Council. “The time has come to make decisions,” he said. Obama said the U.S. and its partners are still seeking unanimous support for tougher sanctions. Both Russia and China hold a veto at the UN Security Council and have sent conflicting signals about punishing Iran. “We think we can get sanctions within weeks,” Obama said. Group of Eight foreign ministers, meeting in Canada, released a statement earlier today, saying actions by Iran have deepened “serious doubts” about the peaceful nature of the country’s nuclear program. They said they are prepared to take “strong steps” to show resolve on the issue. The statement fell short of calling for sanctions against Iran. Canadian Foreign Minister Lawrence Cannon and U.S. Secretary of State Hillary Clinton said it wasn’t the meeting’s objective to agree on sanctions because that issue should be resolved at the UN Security Council. “It’s important to underscore that the negotiating forum we are all focused on is” the Security Council, Clinton said at a joint press conference following the meeting. To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net ; Helene Fouquet in Washington via Hfouquet1@bloomberg.net

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Obama Calls Nuclear Arms Deal With Russia `Most Comprehensive’ in Decades

March 26, 2010

By Roger Runningen March 26 (Bloomberg) — President Barack Obama said the nuclear arms accord reached between the U.S. and Russia marks the “most comprehensive” agreement to reduce the arsenals of both countries in two decades. The agreement will trim the nuclear weapons deployed by the U.S. and Russia by 30 percent from the existing treaty and is part of an effort to “reset” the relationship with a former Cold War enemy, Obama said in remarks at the White House. Obama sealed the agreement with Russian President Dmitry Medvedev during a call this morning. They plan to sign the treaty April 8 in Prague, where a year ago Obama called on global leaders to work toward eliminating all nuclear weapons. “Today, we have taken another step forward in leaving behind the legacy of the 20th century while building a more secure future for our children,” Obama said. Obama has made reduction and eventual elimination of nuclear arms a central part of his broader foreign policy. About 95 percent of the world’s nuclear weapons are in the hands of the U.S. or Russia, according to the Center for Arms Control and Non-Proliferation. “With this agreement, the United States and Russia — the two largest nuclear powers in the world — also send a clear signal that we intend to lead,” Obama said. The commitments of the two nations will “strengthen our global efforts to stop the spread of these weapons, and to ensure that other nations meet their own responsibilities.” ‘Principled Diplomacy’ Secretary of State Hillary Clinton said the agreement shows “deep and substantive cooperation on a matter of vital importance” with Russia and that “patient principled diplomacy can advance our national interests.” Defense Secretary Robert Gates who addressed a briefing with Clinton, said the agreed to reductions won’t hurt U.S. nuclear prowess or weaken its defenses. The accord won’t restrict development and deployment of U.S. missile defense programs, according to a White House fact sheet. Following up the signing of the treaty, the president has scheduled a summit on preventing the spread of nuclear material to terrorists April 12-13 in Washington. More than 40 nations have been invited to take part. The arms-reduction accord, along with this week’s passage of sweeping legislation to overhaul the U.S. health-care system, will enhance the ability of the U.S. to make progress on other foreign policy issues, said Andrew Kuchins , director of the Russia program at the Center for Strategic and International Studies in Washington. “That strengthens the hands of the U.S. in engagement with international partners,” Kuchins said. “It enhances the political capital of the Obama administration.” The accord is subject to ratification by the U.S. Senate and the Russian Duma. To contact the reporter for this story: Roger Runningen in Washington at rrunningen@bloomberg.net

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Malpass Seeking U.S. Senate Seat From New York to Get to `Core’ of Crisis

March 25, 2010

By Vincent Del Giudice and Thomas R. Keene March 25 (Bloomberg) — Wall Street economist David Malpass , who worked at Bear Stearns Cos. before its collapse in March 2008, said he’ll run for the U.S. Senate because the government has failed to address the causes of the crisis. Malpass, founder and president of investment advisory firm Encima Global, said he will seek the Republican Party’s nomination to challenge Democratic incumbent Kirsten Gillibrand . Gillibrand was appointed in January 2009 to replace former Senator Hillary Clinton when she was named secretary of state. Government officials “haven’t done enough about the core problem” that led to the financial crisis and the deepest recession since the 1930s, Malpass said today in an interview on Bloomberg Radio. “You’ve got a huge portion of the population dependent on Washington,” he said. “That’s the way Washington likes it.” Malpass was chief economist at Bear Stearns and served as an economic adviser to the Republican presidential campaign of Rudolph Giuliani , the former mayor of New York City. Bear Stearns was acquired by JPMorgan Chase & Co. in March 2008 in a transaction backstopped by the Federal Reserve. “A lot of what I want to talk about in the campaign is job creation,” said Malpass, who served in the Treasury and State Departments in the administrations of Ronald Reagan and George H.W. Bush. He has also worked as Republican staff director of the Joint Economic Committee of Congress. While in government, Malpass worked on the 1986 tax cuts, the Gramm-Rudman-Hollings budget law, the savings and loan bailout, the North American Free Trade Agreement and Treasury Secretary Nicholas Brady’s plan for developing country debt. (In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.) To contact the reporter on this story: Vincent Del Giudice in Washington at vdelgiudice@bloomberg.net

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Obama, Medvedev Move to Reduce Nuclear Arsenals in Arms Control Agreement

March 25, 2010

By Viola Gienger and Roger Runningen March 25 (Bloomberg) — President Barack Obama and his Russian counterpart Dmitry Medvedev may sign the first new treaty to reduce their nuclear arsenals in two decades as early as next month, the Kremlin and U.S. analysts said. Negotiators for the two sides have reached agreement on all elements for an accord, and the leaders probably will meet in Prague for the signing, a Kremlin official said yesterday on condition of anonymity in line with the government’s policy. The timing hadn’t been made final. The new Strategic Arms Reduction Treaty probably will lower the number of deployed warheads to 1,600 for each side, at least 25 percent below actual current levels, said Daryl Kimball , executive director of the Arms Control Association in Washington. Bombers and land- or submarine-based missiles that could carry the warheads probably will be capped at a level below 800, he said. Under the treaty that expired in December, each side is permitted a maximum of 2,200 warheads and 1,600 launch vehicles. Obama’s spokesman, Robert Gibbs , said there are “still some things that need to be worked out” before a deal on a replacement agreement is sealed. Obama and Medvedev probably will have another conversation in the next few days, he said. Officials in Prague said they have been notified that the two leaders are seeking to sign the accord in the Czech capital. U.S. Secretary of State Hillary Clinton said last week that a signing ceremony may be held “in early April.” Medvedev is scheduled to visit neighboring Slovakia on April 6-7. “I would anticipate that when we have something to sign, it will be in Prague,” Gibbs said yesterday. The timing would mark a year since Obama pledged in an April 5 speech in Prague to pursue a replacement for the treaty as a step toward the global elimination of atomic weapons. ‘Really Done’ “I think it’s really done,” Kimball said. “If you look at all the tea leaves in the last several days, the two sides have reached agreement on a critically important” treaty. Disagreements that had stalled a final accord since the basic warhead and launcher levels were settled last year appear to have been resolved, said Kimball and Steven Pifer , a former ambassador to Ukraine with expertise in arms control who is now an analyst at the Brookings Institution in Washington. Signals indicate “they’re pretty much done,” Pifer said. Missile Defense Negotiators got stuck on details including Russia’s demands that the treaty address U.S. plans for a missile-defense system in Europe. The final treaty probably will contain wording addressing the connection between the offensive weapons that the agreement primarily addresses and defensive arms that have the potential to undercut agreed levels, Kimball and Pifer said. Such language is contained in the 1991 accord and wouldn’t limit U.S. missile defense plans, they said. Senate Republicans would object to linkages similar to the one in the 1991 treaty, said Ryan Patmintra, a spokesman for Arizona Senator Jon Kyl . Kyl, who is the party’s whip, and Senate Republican Leader Mitch McConnell wrote Obama on March 15, saying lawmakers probably wouldn’t ratify a treaty that includes “unilateral declarations that the Russian Federation could use as leverage against you or your successors when U.S. missile defense decisions are made.” The two Republican leaders also tied ratification to submission of a plan to modernize the U.S. nuclear arsenal with more funding than the administration has requested. Medvedev and Obama have made signing a new nuclear arms accord a priority as they try to repair ties that sank to a post-Cold War low under Obama’s predecessor, George W. Bush . Breakthrough “This is a major diplomatic and domestic political breakthrough for the president at a critical time,” said Stephen Flanagan , vice president of the Center for Strategic and International Studies in Washington. “While the actual reductions achieved would be modest,” he said, it suggests a “reset in relations with Moscow” may lead to more weapons reductions in years ahead. Obama’s and Medvedev’s meeting may occur before the U.S. president’s summit on nuclear security April 12-13 in Washington. Flanagan said having a weapons reduction treaty in hand may help Obama push his broader non-proliferation agenda at the meeting. Obama yesterday privately briefed Senate Foreign Relations Committee Chairman John F. Kerry , a Democrat, and the panel’s top Republican, Senator Richard Lugar , on the arms-reduction talks. They will play key roles in Senate ratification. A treaty also would be subject to approval by the Russian parliament. “I assured the president that we strongly support his efforts, and that if the final negotiations and all that follows go smoothly, we will work to ensure that the Senate can act on the treaty this year,” Kerry, of Massachusetts, said in a statement. He plans to begin hearings sometime after Congress returns from its Easter holiday break. To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net . Roger Runningen in Washington at rrunningen@bloomberg.net

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Calderon’s Drug War Strategy Comes Under Attack as Clinton Visits Mexico

March 23, 2010

By Thomas Black and Viola Gienger March 23 (Bloomberg) — Mexico’s drug-related violence is sparking demands that President Felipe Calderon drop his war on criminal gangs as U.S. Secretary of State Hillary Clinton visits Mexico City to review the countries’ anti-drug strategy. From Mexican billionaire Ricardo Salinas Pliego , who controls broadcaster TV Azteca SAB and retailer Grupo Elektra SAB, to the parents of bystanders killed in shootouts, criticism of Calderon’s U.S.-supported crackdown is growing. Salinas urged Mexico and the U.S. in a March 19 interview to legalize drugs. Soldiers on the streets have exacerbated the violence, he said. “They are not winning this battle,” said Roderic Camp , a government professor at Claremont McKenna College in Claremont, California, who has published more than 20 books on Mexico, including two on its army. “At best, they’re maintaining the status quo with many more negative consequences.” Clinton, Defense Secretary Robert Gates and Homeland Security Secretary Janet Napolitano are scheduled to meet with Mexican officials, including Calderon, today to discuss ways break up border gangs and tighten border security, Arturo Sarukhan , Mexico’s ambassador to the U.S., told reporters yesterday. Director of National Intelligence Dennis Blair and Chairman of the Joint Chiefs of Staff Admiral Michael Mullen will also attend, reviewing the progress of the Merida Initiative, a program providing Mexico with more than $1 billion to help combat trafficking . Mexico will push the U.S. to speed up aid under the plan, Sarukhan said. Urgency of Violence The urgency of dealing with violence in Mexico, where 2,213 drug-connected deaths have been recorded since the start of the year according to El Universal newspaper, was heightened for the U.S. on March 13 when gunmen killed three people connected to the U.S. consulate in Ciudad Juarez across the border from El Paso, Texas. Within the past week in Monterrey, headquarters to companies such as Cemex SAB and Fomento Economico Mexicano SAB , two university students and a mother of three were killed in two separate shootouts. An elderly couple was wounded in a third. All were bystanders. Drug gangs demonstrated their power by blocking major highways with cars and buses seized from motorists. During her visit last year to Mexico, Clinton praised Calderon’s unprecedented use of more than 50,000 army and navy troops to take on the gangs that ship cocaine, marijuana, methamphetamines and heroin to the U.S. Juarez Murders After the Juarez murders, Clinton reiterated support for Calderon’s effort to “cripple” the trafficking organizations. Yesterday Calderon’s office said in a statement that President Barack Obama had called to express his backing for Mexico’s efforts. The offensive has resulted in a record number of arrests and confiscations. At the same time, the death toll has climbed every year since Calderon took office in December 2006. Once popular, the military patrols on the streets of Monterrey, Ciudad Juarez, and Tijuana now stir fears that innocents are getting caught in the cross-fire between gangs and shootouts with the army. “This isn’t the way to fight it,” Rosa Elvira Alonso, the mother of one of the slain university students in Monterrey, said in an interview aired by Milenio television. “It’s costing the lives of a lot of innocent people.” U.S. Assistant Secretary of State for the Western Hemisphere Arturo Valenzuela has portrayed the surge of violence as a sign Calderon’s tactics are working. ‘Quantum Leap’ “As you bring down certain kinds of criminal organizations, you encourage a certain degree of conflict between them,” Valenzuela told a U.S. House Foreign Affairs subcommittee on March 10. Since the 1990s, there has been “a quantum leap” in U.S. cooperation with Mexico, he said. In his book “Drug Trafficking: The Failed War” published in October, Jorge Castaneda , foreign minister under Calderon’s predecessor, President Vicente Fox, wrote that Calderon’s military offensive on crime was designed to legitimize his presidency after a disputed election. “I think it’s really dangerous in terms of civil liberties and it’s not going to lead to anything except more violence,” said Salinas Pliego, whose Mexico City-based companies have made him the country’s second-richest person after Carlos Slim according to Forbes magazine. “We should definitely reconsider this mistaken policy.” Press Ahead Calderon said he will press ahead with the drug fight. Drug-related killings reached a record 7,724 last year and are on track to surpass that in 2010, according to the Mexico City- based El Universal, which keeps an unofficial tally. “Because of our duty to preserve liberty and security for every Mexican family, we are not taking, and will not take, even one step backward from those who want to see Mexico on its knees and without a future,” Calderon said in a March 21 speech. The U.S. hasn’t done enough to support Mexico with materiel or stopping illegal weapons or reducing drug demand, Claremont McKenna’s Camp said. Of the $628.6 million of helicopters, polygraph units and armored vehicles that the U.S. has committed to provide to Mexico, $112.9 million has been delivered, according information provided by the U.S. Embassy in Mexico City. “I don’t see any end in sight,” Camp said. “Citing how many drugs they seize or how many drug cartel leaders they kill, it just doesn’t alter the flow of drugs, which only can be altered by us.” To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

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Clinton to Meet Putin in Moscow After Urging Delay to Iran’s Nuclear Plant

March 19, 2010

By Indira Lakshmanan, Lyubov Pronina and Lucian Kim March 19 (Bloomberg) — U.S. Secretary of State Hillary Clinton , who’ll meet Russian Prime Minister Vladimir Putin in Moscow today, urged her hosts to delay plans to bring a nuclear power station in Iran online. “We think it would be premature to go forward with any project at this time because we want to send an unequivocal message to the Iranians,” Clinton said yesterday after meeting with her Russian counterpart, Sergei Lavrov . A few hours earlier, Putin said the Russian-built Bushehr plant’s first reactor may begin work this summer after repeated delays. Clinton is in Russia for two days of talks on arms control, possible new sanctions against Iran and the Middle East peace process. The meeting with Putin was added to her schedule at the last minute. She is also set to meet President Dmitry Medvedev . The U.S. is seeking to shore up support from Russia for tougher international sanctions intended to prevent Iran from developing nuclear weapons. Russia, which holds a veto in the United Nations Security Council, has sent contradictory signals over a tighter embargo. Medvedev said this month Russia was ready to consider sanctions that wouldn’t hurt civilians. Clinton said the Bushehr plant is “something we will be discussing not only with Russia but also with our other partners.” Signal to Iran Philip Crowley , a State Department spokesman, said Bushehr didn’t come up in Clinton’s meeting with Lavrov, and that the U.S. is concerned only with the timing of the plant’s opening. “This isn’t about Russia,” Crowley told reporters after the meeting. Clinton’s “concern was simply what signal does this send broadly as we are working hard to apply pressure on Iran and shift their path.” Iranian Deputy Foreign Minister Mehdi Akhundzadeh , who was also in Moscow yesterday, called on Russia to “redouble” efforts to implement agreements, including completion of the Bushehr plant. ZAO Atomstroyexport, Russia’s reactor builder, said Bushehr will be launched in July, Interfax reported, citing the company official in charge of construction, Vladimir Pavlov. Lavrov will host a meeting today of the Middle East Quartet, consisting of the U.S., UN, European Union and Russia, following Israel’s announcement of plans to expand Jewish neighborhoods in east Jerusalem. Indirect peace talks between Israel and the Palestinian Authority have stalled, and the U.S. and its partners have condemned the Israeli decision. ‘Many Conversations’ Clinton and Lavrov will be joined by UN Secretary-General Ban Ki-Moon , EU foreign policy chief Catherine Ashton and the Quartet’s envoy Tony Blair , a former U.K. prime minister. Israeli Prime Minister Benjamin Netanyahu and Clinton discussed by telephone possible steps to advance the prospects for the peace talks, Crowley told reporters early today in Moscow. “They discussed specific actions that might be taken to improve the atmosphere for progress toward peace,” Crowley said. President Barack Obama said on March 17 that there’s no crisis in U.S.-Israeli relations as a result of the clash over the settlements. Clinton, on her second trip to Russia since becoming secretary of state last year, is also in discussions on a replacement for the 1991 Strategic Arms Reduction Treaty and cooperation on bringing peace to Afghanistan. Obama made nuclear disarmament a priority in his promise to “reset” relations with Russia after they had reached post-Cold War lows under his predecessor, George W. Bush . “In the last year, the bilateral relationship between Russia and the U.S. has moved in a very positive direction,” Clinton said yesterday. A new arms control treaty is “in the home stretch” and negotiations will be completed “in the near future,” Lavrov said. Earlier, he said Russia and the U.S. “aren’t adversaries” any longer, “but we’re also not friends.” To contact the reporters on this story: Indira Lakshmanan in Moscow at ilakshmanan@bloomberg.net ; Lyubov Pronina in Moscow at lpronina@bloomberg.net ; Lucian Kim in Moscow at lkim3@bloomberg.net

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Clinton Awaits Israeli Response on Commitment to U.S.-Brokered Peace Talks

March 16, 2010

By Indira A.R. Lakshmanan March 17 (Bloomberg) — Secretary of State Hillary Clinton said the U.S. is seeking assurances from Israel and the Palestinian Authority of each side’s commitment to U.S.-brokered indirect peace talks following a flap over Israeli settlements. A scheduled trip to Israel and the Palestinian territories by U.S. special envoy George Mitchell was postponed in part because the Obama administration is awaiting a response from Israeli Prime Minister Benjamin Netanyahu to requests Clinton made during a phone call to him on March 12, State Department spokesman Phillip J. Crowley said yesterday. “We are engaged in a very active consultation with the Israelis over steps that we think would demonstrate the requisite commitment to this process,” Clinton told reporters in Washington yesterday. Mitchell was planning to set the so-called proximity talks in motion, adding momentum to President Barack Obama ’s efforts to settle Israeli-Palestinian differences and move toward creation of a Palestinian state. The Israeli government stood firm yesterday on its policy of building Jewish homes in all parts of Jerusalem in the face of U.S. objections and outbreaks of violence in the capital’s Arab neighborhoods. Israeli Foreign Minister Avigdor Lieberman said any ban on Jewish building in east Jerusalem is unacceptable. “There can’t be a situation where only Jews are prohibited from building in Jerusalem, while Arabs are allowed to both build and buy,” Lieberman said in an interview with Israel Radio. Protesters Dispersed Police used stun grenades to disperse Palestinian protesters in two areas of east Jerusalem and arrested 60 of the demonstrators yesterday. Fifteen policemen were injured in the disturbances. Clinton said she had expressed to Netanyahu U.S. “dismay and disappointment” over Israel’s announcement during a visit last week by Vice President Joe Biden of plans to construct 1,600 apartments for Jewish residents in east Jerusalem. Palestinians want east Jerusalem as the site of a future capital of an independent state. The U.S. asked Palestinian leaders this week to refrain from any incitement that could stoke tension in the region. Clinton dismissed the suggestion that U.S.-Israeli relations were experiencing their worst strain in three decades, saying, “I don’t buy that,” and stressing Washington’s “close, unshakeable bond” with the Israeli people. Speech Planned Clinton plans to speak next week at the Washington policy conference of the American Israel Public Affairs Committee, which has called on the administration to “defuse the tension” with Israel. Michael Oren , the Israeli ambassador to the U.S., said in a statement late yesterday that “recent events do not — I repeat — do not represent the lowest point in relations between” the two countries. He added: “Though we differ on certain issues, our discussions are being conducted in an atmosphere of cooperation as befitting long-standing relations between allies. I am confident that we will overcome these differences shortly.” Clinton’s Call In the 43-minute call on March 12, Clinton told Netanyahu that the U.S. wants three things from Israel to prove its commitment to Mideast peace: a freeze on construction of the new housing units announced for east Jerusalem; a gesture to bolster the Palestinian Authority, such as the restoration of economic exchanges, and a pledge that talks would tackle substantive issues, such as the final status of Jerusalem and the return of refugees, a U.S. official familiar with the talks said. The official, who was privy to the talks, spoke on condition of anonymity because the conversation was private. A response from Netanyahu is possible as early as today, the official said. As a gesture to kick-start stalled peace talks, Netanyahu had pledged a 10-month settlement freeze, with certain exclusions, on territories annexed by Israel since 1967. Palestinian officials for the past year had opposed any return to negotiations without a settlement freeze first. Arab states earlier this month endorsed U.S. plans for indirect talks, in part because of Israel’s conditional moratorium. The State Department last week used some of its strongest language toward Israel since Obama took office, going so far as to question Israel’s attitude toward its friendship with the U.S. Crowley said Clinton had told Netanyahu that he would have to “demonstrate not just through words, but through specific actions, that they are committed to this relationship and to the peace process.” To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net

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David Kirby: Obama Keeps Two Factory Farm Promises – Will Hold "National Rural Summit"

March 14, 2010

(NOTE: This is the first of a two-part series on President Obama and the regulation of animal factories) The Obama Administration on Friday fulfilled two campaign pledges that affect factory farming in America: It agreed to hold a long-delayed National Rural Summit and, on the same day, two Cabinent members began confronting the problem of entrenched Agribusiness monopolies. A USDA official told me on Friday that the Administration will soon announce a “National Rural Summit,” something that candidate Obama had promised but failed to accomplish within the first 100 days of his term. Obama had originally promised to hold the summit while campaigning in Iowa in 2007, boasting that: “When I’m President, I’ll have a department of agriculture, not simply a department of agribusiness.” The summit would allow citizens to address the growing displacement of family farms by large corporate-backed factory farms. Meanwhile, also on Friday, in the town of Ankeny, Iowa, USDA Secretary Tom Vilsack and US Attorney General Eric Holder held the first of five promised hearings on competition in agriculture. “One of the greatest threats to our economy is the erosion of free competition in our markets,” Attorney General Holder told a standing-room-only crowd, most of whom seemed to support tighter restrictions on corporate-dominated agriculture and factory farms. “And we’ve learned the hard way that recessions and long periods of reckless deregulation can foster practices that are anti-competitive and even illegal.” “Is today’s agriculture industry suffering from a lack of free and fair competition in the marketplace?” Holder continued. “We know that a growing number of American farmers find it increasingly difficult to survive by doing what they’ve done for decades. And we’ve learned that some of them believe the competitive environment may be, at least in part, to blame.” These statements are consistent with President Obama’s “Rural Agenda,” which asserts that “Consolidation has made it harder for mid-size family farmers to get fair prices for their products and compete on the open market,” and that “rural communities are often left behind.” The Attorney General’s words will also be welcomed by family farm actitvists, and dreaded by the large companies that dominate the modern American food chain. As I write in my new book “Animal Factory – The Looming Threat of Industrial Pig, Dairy and Poultry Farms to Humans and the Environment”: Large companies with kitchen-table names like Perdue, Tyson, Smithfield, Cargill, ADM, and Land of Lakes now control much of the poultry and livestock in the United States. They own the animals, they control the all-important processing and packing plants, they often operate their own distribution networks, and they often market their own brands to consumers in the supermarket. This “vertical integration” model of production – some would call it an old-fashioned, illegal trust in search of a Teddy Roosevelt-style buster – leave small and independent growers at such an obvious disadantage that many of them give up animal agriculture altogether. Two percent of US livestock facilities now raise 40 percent of all animals, and the vast majority of pigs, chickens and dairy cows are produced inside animal factories. During the all-important Iowa race, in the fall of 2007 when Obama was still in third place, the candidate adopted an aggressive, anti-factory farming posture and took his populist message into the deepest rural precincts of the state. At the time, Senator John Edwards was sinking: He probably had overstayed his Iowa welcome, camping out in the Hawkeye State for more than a year (and fretting, we now know, over certain extramural activities). Meanwhile, presumed front-runner Hillary Clinton was getting very cozy with the industrial pork people, something that shocked and appalled many rural Democratic caucus goers. One could reasonably argue that Barack Obama won Iowa – and then went on to gain the nomination, and the presidency – because of his bold stance taken against Big Ag in small town halls and school gyms stretching from Sioux City to Davenport. Obama’s Plan to Support Rural Communities read like a manifesto from grassroots groups trying to defend their vision of what a traditional, sustainable agrarian way of life should be. Among many other pledges (some unfulfilled, others reneged upon – coming soon in Part 2), Candidate Obama promised to hold a “National Rural Summit” within 100 days of taking office, to address the American family farm crisis that plagues a sizeable swath of the country. He also vowed to take on the more egregious excesses of corporate agribusiness practices – especially the anti-competitive measures that drive small and medium-sized livestock and poultry operations out of business, leaving the playing field wide open to corporate-controlled “Confined Animal Feeding Operations (CAFOs) – better known as factory farms. But the Rural Summit never materialized, and many rural activists questioned the President’s vow to booster anti-trust laws and ensure fair access to markets. Now, the Administration has taken steps to make good on both pledges – even if one of them comes a year late. (Even so, I imagine that most rural activists will forgive Obama’s tardiness, given the pressing nature of other matters on his presidential plate). Both measures will be applauded in many rural precincts that went for Obama. Those voters will be heartened to see that President Obama in 2010 may be finally fulfilling some – though not all – of the animal factory pledges that propelled candidate Obama to victory on that cold Iowa night back in January, 2008. ————————————– Animal Factory is now available from St. Martin’s Press

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Netanyahu Says Israel’s Decision on East Jerusalem Housing Was `Harmful’

March 14, 2010

By Gwen Ackerman and Calev Ben-David March 14 (Bloomberg) — Israeli Prime Minister Benjamin Netanyahu called last week’s announcement of approval to build new homes in east Jerusalem during Vice President Joe Biden ’s visit “harmful” and “unfortunate.” U.S. Secretary of State Hillary Clinton called Netanyahu to lodge “strong objections” to what she said was “a deeply negative signal,” State Department spokesman Philip J. Crowley told reporters on March 12 in Washington. The Israeli leader was “surprised” by the condemnation, having thought his apology to Biden was sufficient, the daily Haaretz reported yesterday, citing unidentified officials in Netanyahu’s office. “There was an unfortunate incident carried out in good faith, that was harmful and certainly should not have happened,” Netanyahu said in comments to ministers ahead of today’s weekly Cabinet meeting. Biden’s visit was intended to make further progress toward the start of indirect talks between Israel and the Palestinians, announced just before his arrival. Instead, Israel’s approval of 1,600 homes in east Jerusalem prompted the Palestinians to reconsider their participation in U.S.-backed negotiations. Palestinians seek east Jerusalem, captured by Israel from Jordan in the 1967 Middle East war and later annexed in a move not internationally recognized, as the capital of a future state. “The announcement on the new construction was interpreted by Washington as a breach of faith and a breaking of the rules of the game,” said Avraham Ben-Zvi, professor of international relations at Haifa University. “It is unfortunate for Israel in terms of political impact.” New Committee Netanyahu decided last night to form a committee headed by the director-generals of the Housing Ministry and the Jerusalem municipality to look into the events, Netanyahu’s spokesman, Nir Hefez, said in a statement. The committee will establish procedures to prevent a repeat, it said. Israel, which announced a partial 10-month construction freeze in the West Bank in November, has said the building halt doesn’t include Jerusalem. U.S. Middle East envoy George Mitchell , the former U.S. senator and peace mediator in Northern Ireland, is scheduled to return to the region next week to get the indirect talks on track. To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net .

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Clinton Calls Netanyahu to Condemn Israel’s Plan for Jerusalem Settlements

March 12, 2010

By Indira A.R. Lakshmanan and Bill Varner March 12 (Bloomberg) — U.S. Secretary of State Hillary Clinton called Israeli Prime Minister Benjamin Netanyahu to lodge “strong objections” to Israel’s announcement of a Jewish housing project in east Jerusalem during Vice President Joe Biden ’s visit to Israel this week. Clinton told Netanyahu the announcement of 1,600 apartments for Jews in east Jerusalem, which the Palestinians want as their capital under U.S.-backed plans for a two-state peace deal, was “a deeply negative signal about Israel’s approach” to relations with the U.S., State Department spokesman Philip J. Crowley told reporters today in Washington. “The secretary said she could not understand how this happened, particularly in light of the United States’ strong commitment to Israel’s security,” Crowley said. “And she made clear that the Israeli government needed to demonstrate not just through words, but through specific actions, that they are committed to this relationship and to the peace process.” The Obama administration was blindsided and embarrassed by Israel’s settlement announcement on March 9, which caused an uproar in the Arab world. Arab League ministers agreed in Cairo March 3 to back a return to indirect talks between Israel and the Palestinians. The so-called Middle East Quartet also condemned the announcement of the housing project, the UN said in a statement released in New York. The Quartet was set up by the U.S., Russia, European Union and the United Nations to promote Israel- Palestinian peace efforts. Quartet Monitors Developments “The quartet has agreed to closely monitor developments in Jerusalem and to keep under consideration additional steps that may be required to address the situation on the ground,” the statement said. “The quartet reaffirms that unilateral actions taken by either party cannot prejudge the outcome of negotiations and will not be recognized by the international community.” Clinton told Netanyahu that Israel’s announcement, in its timing during a visit by a top U.S. official who is a longtime supporter of Israel and its contradiction of Israel’s pledge to freeze settlements, “undermined trust and confidence in the peace process and in America’s interests,” Crowley said. Netanyahu’s Responsibility Asked by a reporter if the U.S. disputed Netanyahu’s explanation that he did not know the announcement was coming, Crowley replied, “He is the head of the Israeli government and ultimately is responsible for the actions of that government.” The U.S. is trying to keep a new round of Middle East peace talks on track, with a flurry of calls yesterday by U.S. envoy George Mitchell and assistant secretary of State Jeffrey Feltman to Arab leaders. Wrapping up his four-day visit to Israel and the West Bank, Biden said yesterday he’s counting on Israelis and Palestinians to restart talks that have been frozen 15 months. “The most important thing is for these talks to go forward and go forward promptly and go forward in good faith,” Biden said in a speech at Tel Aviv University before flying to Jordan. “We can’t delay because when progress is postponed, extremists exploit our differences.” Palestinian negotiator Saeb Erakat said no decision will be made about joining the talks until Mitchell returns to clarify the Israeli position on the housing project. Regarding Netanyahu’s statement, he said: “It’s not good enough because it talks about an error in timing and not the error in substance. This project must be revoked.” Mitchell, the former U.S. senator and peace mediator in Northern Ireland, is scheduled to return to the region next week. To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net ; William Varner in New York at wvarner@bloomberg.net

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Gates Sees Saudi Help, International Support for Tougher Sanctions on Iran

March 11, 2010

By Viola Gienger March 12 (Bloomberg) — Defense Secretary Robert Gates said yesterday the U.S. has enough backing from other nations to make tougher sanctions work against Iran and signaled that Saudi Arabia may try to persuade China, its biggest oil customer, to go along. The Saudis should draw on their economic clout “to say it’s important to the kingdom of Saudi Arabia” that China support a fourth round of United Nations penalties against Iran for its nuclear work, Gates told reporters traveling with him in the Persian Gulf region. “I have the sense that there is a willingness to do that,” he said in Abu Dhabi, the capital of the United Arab Emirates, where he met with Crown Prince Sheikh Mohammad Bin Zayyed al-Nahyan of Abu Dhabi, the deputy supreme commander of the U.A.E. Armed Forces. The proposed sanctions are intended to intensify pressure on Iran to back off any nuclear-arms development and engage in international talks on the issue. Gates traveled to the Persian Gulf from Afghanistan three days ago as the U.S. seeks support at the UN Security Council for tougher measures against Iran that may target shipping, banking and insurance. The Iranian government says its nuclear work has commercial rather than military aims. Revolutionary Guard Saudi Arabia and the U.A.E. welcomed the Obama administration’s emphasis on measures aimed at pressuring the Iranian regime and its Revolutionary Guard Corps rather than penalties that would hurt ordinary residents, Gates said. The aim is to focus “on the people that we think are making the decisions,” he said. The U.A.E. lies across the oil-transit chokepoint of the Strait of Hormuz from Iran, and has become one of the top buyers of U.S. weapons. The U.S. and the U.A.E., which pumps more crude oil than Venezuela, last year signed an agreement to develop a civilian atomic power program in the Emirates. Gates shed his shoes to tour the Sheikh Zayed Mosque, one of the largest in the world, with 80 white marble domes and an interior decorated with floral inlays. The mosque is named after the late president regarded as the founder of the grouping of eight emirates. “It is a beautiful site and a fitting tribute to the father of this nation, a man of great vision, tolerance, and judgment,” Gates said after his visit. In the Saudi capital Riyadh on March 10, Gates had dinner with King Abdullah and other meetings with officials including Crown Prince Sultan bin Abdelaziz al-Saud. “I felt really good about both stops,” Gates said. CIA Studies Gates said he disagreed with skeptics of sanctions on Iran, and cited Central Intelligence Agency studies on the effectiveness of such measures in cases such as Rhodesia, now Zimbabwe, and South Africa. The main factor was backing from a wide range of players and a goal they could embrace, said Gates, a former CIA director. “I think we have that kind of broad, international support,” he said. “I think the prospects of success are certainly better than a lot of other situations where sanctions have been applied.” The purpose of such measures would be “trying to persuade the Iranian government of what their own best interest is, as opposed to regime change or something like that,” Gates said. In Saudi Arabia, the Pentagon chief asked King Abdullah to urge China to sign onto sanctions. U.S. officials including Secretary of State Hillary Clinton have said a secure Persian Gulf and a stable energy supply is in China’s interests. China, Sanctions While China, the fastest-growing major economy, has balked at sanctions, it came around to support each of the last three Security Council resolutions that laid out penalties against Iran. Obama’s efforts at diplomacy with Iran and the Iranian rejection of an offer that largely mirrored its own suggestion of a solution contributed to expanding support for moving to the next step of imposing sanctions, Gates said. U.S. allies in the Persian Gulf have been moved to action because of “rising interference and covert activities throughout the region, in addition to their missile and nuclear programs,” Gates said of Iran. The U.S. has accused Iran of supporting groups such as Hamas in the Gaza Strip and Hezbollah in Lebanon. Conduit for Products Gates urged the U.A.E. to do more to cut off shipments of American products through its territory to Iran that can’t be sold directly. The U.A.E. also has cracked down on Iranian front companies seeking nuclear and weapons technology. “There has been a significant improvement,” Gates said. “I talked about the desirability of continuing to improve our cooperation in that area.” Gates pressed both Gulf nations he visited to accelerate regional cooperation on air and missile defenses and maritime surveillance in the face of Iran’s weapons development. The U.S. Air Force and the Pentagon’s regional military command for the Middle East and Central Asia have worked to accomplish coordination among the countries in recent years, Gates said. “I would describe this as a gradual process of the growing ties in the security arena,” particularly in defensive systems, Gates said. To contact the reporter on this story: Viola Gienger in Abu Dhabi at vgienger@bloomberg.net

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Biden Pushes Indirect Middle East Peace Process With Peres, Abbas Meetings

March 9, 2010

By Jonathan Ferziger and Gwen Ackerman March 9 (Bloomberg) — Indirect peace talks can help build trust between Israel and the Palestinians, Vice President Joe Biden said as he began meetings with leaders of both sides after they agreed to a U.S.-led format for negotiations. “I hope the indirect talks will be a vehicle by which we can allay that layer of mistrust that has built up over the past years,” Biden said in a Jerusalem meeting today with Israeli President Shimon Peres . Biden’s visit began yesterday with an announcement that Israel and the Palestinians had agreed to participate in a round of U.S.-mediated negotiations that would allow them to discuss peace without actually meeting face-to-face. Israeli-Palestinian talks have been frozen since the end of 2008, when Israel carried out an offensive in the Gaza Strip that it said was intended to stop Hamas from firing rockets at Israeli communities. Previous U.S.-led efforts to revive talks have foundered on the issue of West Bank settlement building, with Israeli Prime Minister Benjamin Netanyahu announcing a partial halt and Palestinian Authority President Mahmoud Abbas demanding a freeze on all construction. Hours before Biden’s arrival yesterday, Israel disclosed that it had approved the construction of 112 new homes in a West Bank settlement, drawing condemnation from the Palestinian Authority, which called the action “provocative.” U.S. envoy George Mitchell , who announced the sides’ acceptance of the indirect talks, called on “the parties, and all concerned, to refrain from any statements or actions which may inflame tensions or prejudice the outcome of these talks.” Return to Region “We’ve begun to discuss the structure and scope of these talks and I will return to the region next week to continue our discussions,” Mitchell said yesterday in a statement released in Washington. Biden is also meeting with Netanyahu today, and tomorrow travels to the West Bank city of Ramallah to meet Abbas. “I hope indirect talks will be quickly followed by direct talks,” Netanyahu said late yesterday in Jerusalem, according to a text message sent to reporters by his office. “The two principles guiding me are Palestinian recognition of Israel as a Jewish state and security arrangements that will guarantee Israel’s security in the future.” The format of indirect negotiations enables Palestinians to engage with Israel even though Abbas made a public commitment not to hold talks until all settlement construction is stopped. The foreign ministers of Arab states agreed in Cairo last week to give the “proximity talks” four months and call for an emergency United Nations Security Council meeting if they fail. President Barack Obama raised Arab hopes that the U.S. would apply pressure to Israel with a June 4 speech in Cairo in which he called for a total settlement freeze. Arab leaders expressed disappointment five months later when Secretary of State Hillary Clinton acknowledged that a complete construction halt is unrealistic and praised Netanyahu’s proposal for a limited 10-month freeze as “unprecedented.” Biden is also due to visit Jordan this week. To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net Jonathan Ferziger in Jerusalem at jferziger@bloomberg.net

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Papandreou Will Press Obama to Support European Crackdown on Speculators

March 9, 2010

By Shobhana Chandra March 9 (Bloomberg) — Greek Prime Minister George Papandreou will press U.S. President Barack Obama to help Europe combat “unprincipled speculators,” who he said have roiled financial markets and threaten a new global financial crisis. “Europe and America must say ‘enough is enough’ to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system,” he said in a speech yesterday in Washington. Papandreou, who is struggling to convince investors his government is serious about taming Europe’s biggest budget deficit, meets Obama and Treasury Secretary Timothy F. Geithner today in his first U.S. visit since being elected in October. “If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago,” Papandreou said. Papandreou and other European leaders such as French President Nicolas Sarkozy have blamed speculators for much of the surge in Greek financing costs , rather Greece’s budget gap of more than four times the European Union limit. Germany and France are pushing for curbs on “speculators” who use derivatives to bet against Greek debt, officials in Berlin and Brussels said yesterday. Papandreou singled out credit-default swaps as being particularly disruptive, saying their use to protect against a Greek default was the equivalent of allowing someone to buy fire insurance on a neighbor’s house and then burning it down to collect. ‘Scourge’ The swaps are a “scourge” that “haunts Greece and all of us,” Papandreou said. U.S. and European regulators need to bolster regulations to curtain such activities, he said, or “a small problem could be the tipping point in an already volatile system.” The euro reversed gains against the dollar yesterday after Papandreou said the European sovereign debt crisis may spread. The 16-nation common currency traded little changed at $1.3629 at 4 p.m. in New York after earlier strengthening as much as 0.6 percent to $1.3705. Some European regulators questioned the charges that “speculators” were behind the slump in Greek bonds. The German BaFin financial services regulator said yesterday there’s “so far no evidence” of “massive” speculation in credit default swaps against Greek bonds. Emergency Lender EU leaders are also backing the creation of a lender of last resort that could come to a member’s aid the way the International Monetary Fund helps governments struggling to finance their deficits. “Our instruments are not sufficient,” Merkel told members of the foreign press association in Berlin yesterday. “The European Union must be able to respond to the challenges of the moment.” The risk premium to buy Greek 10-year bonds instead of comparable German debt, the European benchmark, has more than doubled since Nov. 10. “Greece currently has to borrow at rates almost twice as high as other EU countries,” Papandreou said. “So when we borrow 5 billion euros ($6.8 billion) for five years, we must pay about 725 million euros more in interest than Germany does.” Budget Cuts To try to convince the EU and investors that Greece was serious about trimming a deficit of 12.7 percent of gross domestic product, Papandreou last week announced a package of tax increases and spending cuts that helped the government sell 5 billion euros of bonds the next day. The Mediterranean country faces more than 20 billion euros in debt redemptions in April and May. “We support the steps Greece is taking,” said U.S. Secretary of State Hillary Clinton after meeting with Papandreou yesterday. “We commend the prime minister and his government for moving quickly to put in place the changes that are called for given the economic consequences of the fiscal situation he inherited.” Papandreou said Greece may have a “hard time” carrying out its austerity plan if improvements are “swallowed up by prohibitive interest rates.” The measures have triggered widespread strikes that have disrupted transportation and public services and led to clashes on the streets of Athens. To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Papandreou Will Press Obama to Support European Crackdown on Speculators

March 9, 2010

By Shobhana Chandra March 9 (Bloomberg) — Greek Prime Minister George Papandreou will press U.S. President Barack Obama to help Europe combat “unprincipled speculators,” who he said have roiled financial markets and threaten a new global financial crisis. “Europe and America must say ‘enough is enough’ to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system,” he said in a speech yesterday in Washington. Papandreou, who is struggling to convince investors his government is serious about taming Europe’s biggest budget deficit, meets Obama and Treasury Secretary Timothy F. Geithner today in his first U.S. visit since being elected in October. “If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago,” Papandreou said. Papandreou and other European leaders such as French President Nicolas Sarkozy have blamed speculators for much of the surge in Greek financing costs , rather Greece’s budget gap of more than four times the European Union limit. Germany and France are pushing for curbs on “speculators” who use derivatives to bet against Greek debt, officials in Berlin and Brussels said yesterday. Papandreou singled out credit-default swaps as being particularly disruptive, saying their use to protect against a Greek default was the equivalent of allowing someone to buy fire insurance on a neighbor’s house and then burning it down to collect. ‘Scourge’ The swaps are a “scourge” that “haunts Greece and all of us,” Papandreou said. U.S. and European regulators need to bolster regulations to curtain such activities, he said, or “a small problem could be the tipping point in an already volatile system.” The euro reversed gains against the dollar yesterday after Papandreou said the European sovereign debt crisis may spread. The 16-nation common currency traded little changed at $1.3629 at 4 p.m. in New York after earlier strengthening as much as 0.6 percent to $1.3705. Some European regulators questioned the charges that “speculators” were behind the slump in Greek bonds. The German BaFin financial services regulator said yesterday there’s “so far no evidence” of “massive” speculation in credit default swaps against Greek bonds. Emergency Lender EU leaders are also backing the creation of a lender of last resort that could come to a member’s aid the way the International Monetary Fund helps governments struggling to finance their deficits. “Our instruments are not sufficient,” Merkel told members of the foreign press association in Berlin yesterday. “The European Union must be able to respond to the challenges of the moment.” The risk premium to buy Greek 10-year bonds instead of comparable German debt, the European benchmark, has more than doubled since Nov. 10. “Greece currently has to borrow at rates almost twice as high as other EU countries,” Papandreou said. “So when we borrow 5 billion euros ($6.8 billion) for five years, we must pay about 725 million euros more in interest than Germany does.” Budget Cuts To try to convince the EU and investors that Greece was serious about trimming a deficit of 12.7 percent of gross domestic product, Papandreou last week announced a package of tax increases and spending cuts that helped the government sell 5 billion euros of bonds the next day. The Mediterranean country faces more than 20 billion euros in debt redemptions in April and May. “We support the steps Greece is taking,” said U.S. Secretary of State Hillary Clinton after meeting with Papandreou yesterday. “We commend the prime minister and his government for moving quickly to put in place the changes that are called for given the economic consequences of the fiscal situation he inherited.” Papandreou said Greece may have a “hard time” carrying out its austerity plan if improvements are “swallowed up by prohibitive interest rates.” The measures have triggered widespread strikes that have disrupted transportation and public services and led to clashes on the streets of Athens. To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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