latvia

Zimbabwe Halts Used Underwear

by The Huffington Post on January 10, 2012

Huffington Post…

Zimbabwe may have an 80% unemployment rate, but one thing the country absolutely won’t stand for is its impoverished citizens wearing used undergarments. According to the Zimbabwe Mail , the country’s finance minister Tendai Biti recently announced a total ban on the importation and sale of secondhand underwear . “If you are a husband and you see your wife buying underwear from the flea market, you would have failed. If I was your in-law, I would take my daughter and urge you to first put your house in order if you still want her back,” Biti told the paper. The law went into effect on Dec. 30, 2011 calling for the Zimbabwe Revenue Authority to charge 40 percent duty, 15 percent value added tax and a $3 penalty for every kilogram (2.2 lbs) of imported underwear , according to The Guardian . It is believed the ban will help address health concerns as well as work to protect the country’s domestic textile industry. Zimbabwe ranks among the poorest countries in the world, according to International Monetary Fund data . The Daily Mail explains that Zimbabwe is not the first African country to outlaw the sale of pre-owned underwear. In 1994, Ghana also took a similar measure .

Visit link:
Zimbabwe Halts Used Underwear

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Antonio Borges: The Emerging Bright Spot in Europe

by on May 18, 2011

Huffington Post…

With all the anxiety generated by the troubles of Portugal, Greece and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin and devaluation. Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7 percent in the first quarter of 2011. But many other countries in the region are seeing strong growth as well. True, it will take a while before most crisis-hit countries will be able to reclaim the economic output that was lost as a result of the crisis. But things are definitely going in the right direction. Most encouragingly, the growth pattern is very different from that in the years leading up to the crisis. During the boom years, emerging Europe grew rapidly, but growth in many countries was unbalanced — real estate, construction and banking boomed while manufacturing languished. Capital inflows were large, but they boosted demand rather than supply, and led to a surge in imports, extremely high current account deficits — 25 percent of GDP in Latvia and almost 30 percent of GDP in Bulgaria — and overheating. Today, growth is driven by exports and manufacturing. Take Estonia, where exports of goods in the fourth quarter of 2010 were 52 percent higher than a year earlier. The old growth engines are spluttering, but others have kicked into gear. And it is not just exports anymore — the recovery is broadening to include investment and even consumption. In 2011, domestic demand is set to become the main growth engine in emerging Europe. What has caused the shift? The answer is both markets and policies. Markets at work. During the boom years, real estate, construction and finance were very profitable — much more so than manufacturing. But profits were artificially inflated by asset price bubbles and the under-pricing of risk. Now that profits have evaporated, investors are moving into other sectors. The adjustment is underpinned by improving competitiveness — the wage explosion of 2007-08 has given way to a decline in labor costs across the region. Policies have delivered. Painful but determined fiscal adjustment put public finances back on track, which has led to a sharp reduction in risk. For instance, Latvia’s credit default swap spread (which measures the cost of insuring debt against default) is 200 basis points today — down from 1100 basis points in 2009. Given this good news, what more can policymakers do to sustain the recovery — and prevent a new boom-bust cycle? Raising the long-term growth trend is key. Good structural policies can raise growth potential. A big push to remove bottlenecks in energy, transportation and communication would boost productivity. Here, funding from the European Union could be used to overcome the current lack of domestic resources. Efforts to upgrade the skills of the labor force would enable industry to climb the quality ladder. Good macroeconomic policies can prevent boom-bust cycles. When the next boom takes off, policies should be much tighter. This will reduce the risk of overheating that pulls resources away from manufacturing and other traded goods into sectors where there is little competition, such as real estate and banking. When revenues are growing strongly, they should not be used to increase spending and public wages, as was done during the boom years. Instead, savings that can stimulate the economy during a downturn should be built up. This means that large, even very large, surpluses may be needed during boom years. Emerging Europe still has a lot of scope for catching up with advanced Europe. But catching-up is not a law of nature — without the right policies, countries can get stuck, as we have seen all too clearly with Greece, Ireland and Portugal. From iMFdirect blog

The rest is here:
Antonio Borges: The Emerging Bright Spot in Europe

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

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

May 13, 2011

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

Read the full article →

Video: Latvian Exports Boost Economy as Austerity Plan Pays Off

March 21, 2011

March 21 (Bloomberg) — Bloomberg’s David Tweed reports on Latvia’s austerity program and economic rebound. The Baltic country’s gross domestic product grew an annual 3.6 percent in the last three months of 2010, the quickest pace of expansion in three years, as exports and industrial production picked up.

Read the full article →

Latvian house prices rising, GDP growth positive

December 10, 2010

Residential real estate prices continue to rise in Latvia especially in the capital Riga, as economic growth returns.

Read the full article →

The 14th Banker: Creating an American Latvia

November 8, 2010

The United States faces profound risks in the way its financial markets continue to operate. As I wrote last week, Ben Bernanke’s latest stimulus effort smacks of desperation. If we are to find real solutions to our domestic problems, we need to open our minds to rethink what the core problems might be. The videos below are of a speech Michael Hudson made several weeks ago to the American Monetary Institute. I hope you find time to watch it. Some of his examples are simplified to serve an explanatory purpose. So let’s not quibble about every detail. Let’s see where these explanations correspond with our reality and use that as a starting point to understand our reality. In the first segment he correctly points out at about the 3:30 mark that banks do not lend for productive purposes (in general). They lend on existing assets and cash flow streams. This is particularly the case with large banks that have much standardization and centralization of functions. As Amar Bhidé states in his book: The financial system has been giving up, albeit unwittingly, on the decentralization of judgment and responsibility. Case-by-case judgments by many, widely dispersed financiers with the necessary ‘local knowledge’ have been banished to the edges, to activities such as venture capital, which accounts for a useful, but tiny proportion of financing activity. Without this decentralized judgement and responsibility, banks are simply incapable of providing productive risk capital as Hudson describes. Instead, capital is consistently deployed to increase the values of existing assets, much like Bernanke proposes to do today. All Tea Party supporters should watch this speech because it explains how America is becoming the new Latvia and how labor (90% of us) is and will continue to pay the freight. The greater public has been co-opted by a blind faith in the Neo-Classical economic paradigm. They believe that their angst, created by flat to decreasing real incomes for those still employed, high unemployment, and extreme volatility in perceived wealth, has been caused essentially by too much regulation and too much government. While I agree that inefficient or ineffective government is a problem, it pales relative to the effects of the power structures dividing up the wealth in a way the average citizen cannot grasp. Further in the speech, Hudson refers to this increasingly debt based system and how all cash flow streams and assets are ultimately “capitalized”. In other words, debt is issued against them and profits are extracted by those able to do so. Perhaps you have seen this as we have more and more toll roads, red light cameras, and prisons run by private companies for profit. Those who outsource these things see one part of the picture, the part where government outlays are supposedly reduced. They do not see the part of the picture where those assets and cash flow streams are used to move wealth to the top of the social structure. Tea Party favorite Rand Paul unwittingly plays into this with his ideas on privatization. From an interview this weekend comes this quote: When pressed on This Week about which programs the he would cut, Paul declined to identify individual programs. “All across the board,” the senator-elect said. Amanpour challenged Paul, saying, “But you can’t just keep saying all across the board.” Still, the newly elected senator refused to budge. “No, I can. I’m going to look at every program, every program.” He later continued on the theme: “You need to ask of every program — and we take no program off the table. Can it be downsized? Can it be privatized? Can it be made smaller?” This things that are privatized will then be leveraged and the profits will be extracted up front. Any change in the cash flow stream will then create future losses on that leverage and those losses will be allocated to taxpayers or the most unwary investors who bought the residuals after all the fees and equity dilutions for management have been stripped. While John Hussman is writing on a different topic, the Bubble Crash cycle, his points tie in as well. After acknowledging that the markets already rose on the Fed action, Hussman effectively makes it clear that this has little to do with real wealth. As a result of Bernanke’s actions, investors now own higher priced securities that can be expected to deliver commensurately lower long-term returns, leaving their

Read the full article →

Estonia to Become Euro’s 17th Member as EU Ministers Override ECB’s Qualms

June 8, 2010

By James G. Neuger and Agnes Lovasz June 8 (Bloomberg) — European finance ministers backed Estonia’s bid to become the 17th country using the euro, overriding the European Central Bank’s warning that the Baltic state may struggle to keep inflation under control. Today’s decision to admit Estonia, a former Soviet republic that entered the European Union in 2004, shows that the EU won’t let the Greece-fueled debt crisis in western Europe prevent it from widening the currency bloc to the east. Political backing for Estonia to switch to the euro next Jan. 1 comes in the face of the ECB’s concerns that the country’s inflation rate, at 2.5 percent in April, may jump in years ahead as economic growth outstrips the euro-area average. “There’s no room for high inflation,” Estonian Finance Minister Jurgen Ligi told reporters before a meeting of EU finance ministers in Luxembourg today. “The ECB always expressed concerns about inflation during previous accessions.” European governments have the formal power over euro entry, with the ECB relegated to an advisory role. Officials from the 16 euro countries approved Estonia yesterday, followed by all 27 EU finance ministers today. The endorsement will be reviewed by government leaders at a June 17 summit, with a final decision by finance ministers on July 13. With economic output of 14 billion euros ($17 billion), Estonia would rank as the euro’s second-smallest economy, ahead of Malta. Its central bank governor, Andres Lipstok , would take a seat on the ECB’s interest-rate-setting council in January. Test Period Estonia’s policies are geared to “implementing further structural reforms, maintaining fiscal discipline, preserving financial stability and avoiding the emergence of imbalances,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday. Inflation in Estonia jumped as high as 10.6 percent in 2008, the fourth-highest in the 27-nation EU that year. In the 12 months to March, the test period for euro entry, the rate was minus 0.7 percent, compared with a euro-admission target of 1 percent. Estonia’s conquest of price pressures reflects “temporary factors” and “it may be difficult to prevent macroeconomic imbalances, including high rates of inflation, from building up again,” the ECB said in its non-binding opinion on May 12. Full-year inflation is likely to rise to 1.3 percent in 2010 and 2 percent in 2011, the commission forecasts. Estonia passes the other four economic tests for euro users: targets for budget deficits, debt, long-term interest rates and currency stability. Estonia’s admission would probably mark the currency union’s last expansion for years. Lithuania and Latvia, the next in line, are aiming to join in 2014. Poland, the largest eastern European economy, and the Czech Republic haven’t set target dates. To contact the reporters on this story: James G. Neuger in Luxembourg at jneuger@bloomberg.net ; Agnes Lovasz in Luxembourg at alovasz@bloomberg.net .

Read the full article →

EU Readies Emergency Fund Said to Be $645 Billion to Fight Off `Wolfpack’

May 9, 2010

By James G. Neuger and Meera Louis May 9 (Bloomberg) — European Union finance ministers pledged to stop a sovereign-debt crisis from shattering confidence in the euro as they held an emergency summit to hammer out a lending mechanism that may be worth around $645 billion. Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, leaders of the 16 euro nations agreed on the backstop yesterday and told ministers to get it ready before Asian markets open. The European facility may be worth around 500 billion euros, said an official familiar with the talks. “We are going to defend the euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair today’s Brussels meeting. “We think we have a duty for more stability for our currency. We will do whatever is necessary.” Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers Holdings Inc.’s collapse. It prompted the U.S. and Asia to urge broader steps to prevent a debt crisis from pitching the world back into a recession. President Barack Obama spoke by phone with German Chancellor Angela Merkel for the second time in three days, adding to the international pressure Europe has faced since a hurriedly arranged conference call of Group of Seven finance chiefs on May 7. Obama today emphasized “the importance of the members of the European Union taking resolute steps to build confidence in the markets,” White House spokesman Bill Burton told reporters in Hampton, Virginia. ‘Wolfpack Behavior’ “In the night, when the markets are opening, we cannot afford a disappointment,” said Finance Minister Anders Borg of Sweden, one of 11 EU nations not in the euro. “We now see herd behavior in the markets that are really pack behavior, wolfpack behavior.” European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the EU’s central authorities with guarantees by national governments. The meeting started just after 3 p.m. Expectations of decisive action buoyed the euro as trading began in Asia. It jumped more than 1 percent to $1.2897 as of 6:11 a.m. in Sydney, according to pricing from Westpac Banking Corp. Several Alternatives Germany, the bloc’s largest economy, is being represented by Interior Minister Thomas de Maiziere after wheelchair-bound Finance Minister Wolfgang Schaeuble , 67, was rushed to a Brussels hospital due to an adverse reaction to new medication. Part of a new lending mechanism could be based on the balance-of-payments aid model that the EU granted to Hungary, Romania and Latvia when their budgets buckled in the financial crisis, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc in London. The initial funding available could be 70 billion euros, he said. “There is some discussion about what the solution will be,” Dutch Finance Minister Jan Kees de Jager said. “There are several alternatives at the moment.” Separately, European Central Bank council members were slated to hold a teleconference today. “Europe is getting its act together,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Time will tell if this statement is enough to satisfy the European bond market vigilantes.” Stiffest Test Government officials said they won’t push the independent ECB to, for example, buy government bonds. President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure. Trichet is in Basel, Switzerland, today for a scheduled meeting of central bankers from the Group of 10 nations. Vice President Lucas Papademos is attending the Brussels talks. With the euro facing the stiffest test since its debut in 1999, the weekend turned into a crisis-management exercise to restore faith in the currency and prevent a European debt crisis from cascading around the world. The purpose is to “decide on a mechanism that enables us to assure the stability of the euro, stability in the zone and, beyond that, stability in financial markets,” French Finance Minister Christine Lagarde said. The euro slid to $1.2715 from $1.3293 in the past week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18. Stability The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain. Britain, the EU’s third-largest economy, won’t contribute to a fund to shore up euro countries, though it backs efforts to restore stability, Chancellor of the Exchequer Alistair Darling said. “When it comes to supporting the euro, that is for the eurogroup countries,” Darling told Sky News. “We need to show again today that by acting together we can stabilize the situation.” At yesterday’s leaders’ summit in Brussels, Germany stepped up calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules. The vow to push budget shortfalls below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The euro region’s overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011. Consideration Plans for a European credit-rating authority are already under consideration at the European Commission, the bloc’s Brussels-based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments. Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, European Commission President Jose Barroso said “some of the points you have mentioned will be contemplated.” The political leadership of the $12 trillion economy yesterday also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens. To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net ; Meera Louis in Brussels at mlouis1@bloomberg.net .

Read the full article →

European Stocks Post Biggest Weekly Drop Since February on Greece Concerns

April 30, 2010

By Adria Cimino May 1 (Bloomberg) — European stocks posted the biggest weekly drop since February on concern that Greece’s debt crisis will spread across the region. Credit Agricole SA paced declines in bank shares. Rio Tinto Group led mining shares lower as copper prices retreated. Nobel Biocare Holding AG , the world’s largest maker of tooth implants, fell after first-quarter sales missed analyst estimates. BP Plc dropped on concern about the costs of containing a worsening oil spill in the Gulf of Mexico. The Stoxx Europe 600 lost 2.8 percent to 259.91 for a third weekly decline. The benchmark gauge slipped 1.4 percent in April. Stocks fell as Standard & Poor’s downgraded the credit ratings of Greece, Portugal and Spain and investors speculated Greece’s credit troubles would spread further. The declines have trimmed this year’s gain to 2.4 percent. “What’s weighed on the market is the downgrade of Greece, renewing uncertainty,” said Chicuong Dang , an analyst at KBL Richelieu Gestion in Paris, which oversees about $4.5 billion. “Greece is in an urgent situation. The downgrades of peripheral countries also weighed on stocks. The market is asking who will be next.” S&P on April 27 lowered its ratings on Greek debt three steps to junk, while Portugal’s was cut two steps. A day later, S&P cut Spain’s rating by one step to AA. Overcome Crisis Almost $1 trillion of worldwide equity value was erased April 27, prompting German Chancellor Angela Merkel and the International Monetary Fund to step up efforts to overcome the Greek fiscal crisis. Greece’s benchmark index erased declines as European Commission President Jose Barroso on April 30 said he is confident a rescue package for Greece will be completed “in days,” easing investor concern that the nation may default. Greek officials aim to reach an agreement with the European Union and the IMF in coming days on budget cuts that may be worth 24 billion euros ($32 billion). Greece’s ASE rose 0.7 percent as National Bank of Greece SA and EFG Eurobank Ergasias rebounded. The banks climbed 7.2 percent and 8.4 percent, respectively. National benchmark indexes fell in 15 out of the 18 western European markets. Germany’s DAX slid 2 percent and France’s CAC 40 tumbled 3.4 percent, while the U.K.’s FTSE 100 retreated 3 percent. Banks Retreat All nineteen industry groups in the Stoxx 600 declined. Credit Agricole, France’s biggest bank by branches, lost 12 percent. Banca Popolare di Milano Scrl slid 7.2 percent. Barclays Plc, the U.K.’s third-largest lender by assets, fell 6.6 percent as it reported a larger-than-forecast 26 percent slump in investment banking revenue. Rio Tinto, the world’s third-largest mining company, sank 9.7 percent. Vedanta Resources Plc , India’s largest copper producer, slipped 6.9 percent. Xstrata Plc, the world’s fourth- largest copper producer, retreated 6.9 percent. Copper slid 4.2 percent this week and fell 5.5 percent this month. Nobel Biocare tumbled 20 percent. The company reported first-quarter sales and operating profit missed analyst estimates , signaling it is losing share to competitors. Revenue fell 7.1 percent to 136.7 million euros ($180 million), the company said on April 28. Analysts predicted sales of 145.9 million euros, according to the average of 14 estimates in a Bloomberg survey. Operating profit slid 11 percent. BP, which vies with Royal Dutch Shell Plc for the title of Europe’s biggest oil company, sank 10 percent. The U.S. Coast Guard said on April 29 a damaged BP well in the Gulf of Mexico is leaking about 5,000 barrels a day, five times more than previously estimated. At that rate the spill will exceed the Alaska’s Exxon Valdez disaster in 1989 by the third week of June. Meda AB slumped 11 percent. Sweden’s second-largest health- care company on April 27 was downgraded to “reduce” from “buy” at Svenska Handelsbanken AB. Swedbank AB jumped 10 percent for the biggest gain in the Stoxx 600. The largest lender in the Baltic countries on April 27 reported its first quarterly profit in more than a year and said earnings are likely to improve as loan impairments decline in Estonia, Latvia and Lithuania. To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

Read the full article →

Cameron’s Failure to Top Clegg in Debate Polls Signals Minority Government

April 22, 2010

By Robert Hutton and Kitty Donaldson April 23 (Bloomberg) — Conservative David Cameron failed to derail Nick Clegg in the U.K. campaign’s second debate, four instant polls showed, pointing to a hung parliament with Prime Minister Gordon Brown ’s Labour Party as the largest bloc. In a 90-minute televised debate, Brown, 59, compared his 43-year-old opponents to children “squabbling at bathtime.” Cameron, who led polls until Clegg’s surge after last week’s debate, said a government without a majority would prevent “decisive action” to narrow a record budget deficit . Clegg dismissed such warnings as “ludicrous scare stories.” Of four surveys released immediately after the event, two showed Clegg won and a pair favored Cameron. That suggests the debate will produce little change in polls on the overall race in coming days. Most since last week show Labour winning a plurality of seats in the May 6 election. “It would have been a game-changer if Clegg had crashed and burned,” said Justin Fisher, professor of politics at Brunel University in London. “Clegg held up better than I thought he would. He won’t fall back to his pre-debate levels” — about 10 points below where he is now. A YouGov Plc daily poll before last night’s debate put the Conservatives at 34 percent and Labour at 29 percent, with the Liberal Democrats at 28 percent . That would leave Labour with 278 seats to 251 for the Conservatives and 88 for the Liberal Democrats, according to the standard calculations used by academics and pollsters. YouGov questioned 1,576 people April 21 and yesterday. No margin of error was given. Pound Weakens Such a result may roil markets because a divided government would be too weak to fix Britain’s finances, some economists say. The pound slumped 1 percent in the two days after the debate last week and weakened in early Asian trading, dropping 0.2 percent at 8:16 a.m. in Tokyo. It has lost 5.1 percent against the dollar this year. In last night’s debate, Brown, whose party has controlled the government since 1997, addressed his own unpopularity. “Like me or not, I can deliver,” he said. He later told his opponents: “David, you’re a risk to the economy, Nick is a risk to our security.” Brown told Clegg to “get real” and stop opposing nuclear weapons. He criticized Cameron over his European policy and Conservative proposals to cut spending this year as Britain emerges from recession . ‘Get Real’ “Iran, you’re saying, might be able to have a nuclear weapon and you wouldn’t take action against them, but you’re also saying give up our Trident submarines,” Brown told Clegg on the stage of an arts center in Bristol. “Get real about the danger we face if we have North Korea, Iran and other countries with nuclear weapons and we give up our own.” Clegg opposes updating Britain’s submarine-based Trident missile system. Brown said Cameron’s “ anti-Europeanism becomes more and more obvious as this debate goes on.” Cameron said he wanted to be “in Europe but not run by Europe.” Cameron made some direct attacks on Clegg, at one point taking on the Liberal Democrat leader’s claim that his party had escaped censure following disclosures that scores of lawmakers were reimbursed with taxpayer money for personal expenses. “Frankly, Nick, we all had problems with this,” the Conservative said. “Don’t let’s anyone put themselves on a pedestal.” Clegg criticized Cameron over his decision to end the Conservatives’ alliance in the European Parliament with the parties of German Chancellor Angela Merkel and French President Nicolas Sarkozy . EU Allies The Conservatives joined with eastern European parties that include Latvia’s For Fatherland and Freedom, which has come under fire from academics for its links to Latvians who fought with the Nazi SS in World War II. Clegg described the Conservatives’ allies as “a bunch of nutters, anti-Semites, people who deny climate change exists, homophobes.” All three changed their debating tactics, switching away from last week’s emphasis on anecdotes about voters they’d met in the campaign. Brown and Cameron both copied Clegg’s technique from the previous debate of addressing the camera directly, rather than the studio audience. “David Cameron made a really concerted attempt to highlight the differences between the three parties, and how hard it would be to reach agreement in a hung Parliament,” said Jane Green, a lecturer in politics at Manchester University. “But I was surprised he didn’t make more of the message that a vote for Clegg is a vote for Brown.” To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in Bristol at kdonaldson1@bloomberg.net

Read the full article →

Ash Zones Breed Confusion as Paris Airports Open, Heathrow Remains Closed

April 20, 2010

By Steve Rothwell and Alex Morales April 20 (Bloomberg) — Europe’s air-traffic controllers can’t agree on whether it’s safe to fly through the Icelandic ash cloud as airports in Paris, Frankfurt and Amsterdam reopen while London’s Heathrow hub remains closed. Services from Paris’s Charles de Gaulle and Orly terminals resumed this morning, with 30 percent of flights likely to operate, according to French Transport Minister Dominique Bussereau . Heathrow, Europe’s busiest airport, probably won’t reopen today, Britain’s National Air Traffic Services said. “They are using a different model in Paris and other parts of Europe and we are speaking to the authorities about this,” said Richard Goodfellow , a spokesman for British Airways Plc , which uses Heathrow as its main hub. The carrier said NATS was to blame for six days of disruption to its services. About 14,000 flights should take place in Europe today, or 50 percent of the usual total, as flight bans imposed after the eruption of Iceland’s Eyjafjallajökull volcano are eased, according to Brussels -based Eurocontrol, which oversees flight paths in the region. Airspace is still restricted in 10 countries, based on decisions by local traffic control bodies. Ash represents a threat to jetliners because it could stop their engines by melting and congealing in turbines. European Union transport ministers agreed yesterday to loosen limits on flying after airline losses reached as much as $300 million a day, according the International Air Transport Association . Under the EU accord, the U.K. Met Office’s Volcanic Ash Advisory Centre is supplying maps showing areas where ash concentrations are more than 10 times normal levels and flights are banned, together with ones where the dust is thinner. Local controllers must decide whether to permit flying in those zones. ‘Safest Thing’ “They have to make a decision about the safest thing to do,” Eurocontrol spokeswoman Kyla Evans said in an interview. “Using the more detailed information available, some have decided to open a little bit, some are waiting a bit longer and some have said that flying will open up completely.” As of midday, the ash plume covered a swath of Europe from Ireland to Russia, including northern France and Italy and the whole of Germany, Denmark, the Benelux nations, Switzerland, Austria, Poland, the Czech Republic, Latvia and Lithuania, according to the Met Office. Most of Scandinavia and Scotland are ash free, as is the Iberian peninsula. BA Thwarted British Airways, the largest carrier between London and New York, said after yesterday’s EU meeting that it would resume flights from the U.K. capital at 7 p.m. today. It later scrapped short-haul services throughout the country after NATS warned of a new ash cloud, together with all long-haul departures. The company, losing 20 million pounds ($30 million) a day in revenue , still wants to operate more than a dozen inter- continental routes into Heathrow and with aircraft already in the air is monitoring airport availability, Goodfellow said. Among Air France arrivals at Charles de Gaulle this morning were services from Los Angeles and New York, while planes departed for Beirut, Algiers and Cairo. Flights to European destinations were schedule to resume at noon. France’s civil-aviation authority, the DGAC, opened Paris- area airports after Air France completed test flights from the capital to Bordeaux, Toulouse, Marseille and Nice without incident, spokesman Eric Heraud said by telephone. Paris and London are both under the same ash cloud as modeled by the Met Office and a British Airways plane also flew a three-hour test flight from the U.K. capital without incident. Faced with similar data, “it’s for each authority to reach the interpretation it considers most appropriate,” Heraud said. Lufthansa Flights Deutsche Lufthansa AG intends to operate 200 flights today under visual flight rules after receiving special clearance from German air-traffic regulator Deutsche Flugsicherung, spokeswoman Claudia Lange said in a telephone interview today. The carrier will operate the majority of long-haul services to destinations including New York, Boston and Miami, as well as some flights within Europe and Germany, she said. German airspace is officially closed for normal flight rules until 8 p.m. local time, DFS said in a statement on its Web site. With planes out of position and airlines concentrating on repatriating stranded passengers, the restoration of full timetables may take six days, according to IATA. Flight bans imposed after the April 14 eruption in Iceland grounded 95,000 services through today, Eurocontrol said in a statement. Restrictions remain in Denmark, Estonia, Finland, Latvia, Slovenia, Slovakia, Ukraine and parts of France and Italy. Airspace above 20,000 feet (6,100 meters) is also open. Not Normal “It’s a long way short of any semblance of normal operations,” said John Strickland , an analyst at JLS Consulting Ltd. in London. In the U.K., skies over Glasgow, Edinburgh and Aberdeen were reopened to limited services at 7 a.m., though they may close later today, according to BAA Ltd., which owns the airports in the Scottish cities. European airlines have asked governments and the European Union for aid, British Airways Chief Executive Officer Willie Walsh said yesterday, adding that money was paid after the Sept. 11 terror attacks on the U.S. “and clearly the impact of the current situation is more considerable.” European Union Competition Commissioner Joaquin Almunia said restrictions on aid may be eased as the impact of the disruption is discussed by ministers. U.K. Prime Minister Gordon Brown said today that “every aspect of contingency planning is being looked at” in order to restore flights and repatriate stranded Britons. ‘Safe Corridors’ “We know that further volcanic ash will be in the clouds over the next day or two, so we are taking advantage of the window of opportunity,” Brown told reporters in London. “We are having discussions with the manufacturers, airline authorities, safety representatives and the Met Office about what would be safe corridors that we might be able to use.” The Eyjafjallajökull eruption began on March 20 with a lava flow on the eastern flank of the volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the glacier that covers most of the mountain. The previous eruption of the 1,666-meter peak in December 1821 continued until January 1823. Asian carriers including Singapore Airlines Ltd., Cathay Pacific Airways Ltd. and Air China Ltd. have added extra flights or larger planes on services to Rome and other open airports to help stranded passengers. U.S. Services Delta Air Lines Inc. , the world’s largest carrier, aimed to have overnight flights to Madrid, Barcelona, Rome, Athens and Istanbul, spokesman Anthony Black said. The company canceled 90 services yesterday and 39 for today until European airspace controllers provide further updates, he said. UAL Corp.’s United Airlines intends to operate all of its flights from the U.S. to Europe later today and have a “full recovery” with normal schedules by tomorrow, said Robin Urbanski , a spokeswoman for the Chicago-based carrier. AMR Corp. ’s American Airlines canceled 62 European flights today because of ash from a new eruption, spokesman Tim Wagner said in an e-mail. The airline will operate flights between the U.S. and Madrid, Barcelona and Rome, he said. To contact the reporters on this story: Steve Rothwell in London at srothwell@bloomberg.net ; Alex Morales in London at amorales2@bloomberg.net .

Read the full article →

U.S., European Stocks, Commodities Drop; Greek Bonds Slump on Default Risk

April 7, 2010

By Michael P. Regan and Whitney Kisling April 7 (Bloomberg) — U.S. and European stocks fell, led by energy producers as oil dropped, while the premium investors demand to hold Greek bonds widened to the most since 1998 on speculation the nation may default. Equities pared losses and Treasuries rallied as an auction of 10-year notes drew a yield of 3.9 percent. The Standard & Poor’s 500 Index fell 0.1 percent at 1:09 p.m. in New York, retreating from the highest level since September 2008. The MSCI World Index of 23 developed nations’ stocks slipped less than 0.1 percent. Oil dropped from an 18- month high on a bigger-than-forecast increase in inventories. Greece’s 10-year bond yields rose 0.19 percentage point to 7.18 percent and the yield premium to German debt widened to 4.06 percentage points, the most since before the euro was introduced in 1999. Greece is more likely to default than all the European Union’s members in eastern Europe, including three that needed International Monetary Fund-led bailouts, credit default swaps show. Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar-denominated bonds, according to Paris- based Axa Investment Managers, which oversees about $669 billion. “This issue with Greece is still hanging out there,” said Michael Mullaney , who helps manage $9 billion at Fiduciary Trust Co. in Boston. “The debt crisis that’s happening right now in Euroland is causing some consternation with investors.” S&P 500 energy companies snapped a seven-day stretch of gains, falling 0.6 percent as a group. Occidental Petroleum Corp. lost 1.7 percent and Exxon Mobil Corp. slipped 0.7 percent. The S&P 500 retreated from its highest level in 18 months as a 76 percent rally since March 2009 spurred concern equities have risen too far, too fast. ‘Short-Term Losses’ More than three-quarters of stocks in the S&P 500 were “overbought” as of the April 5 close, according to Bespoke Investment Group LLC, which identified shares that are at least one standard deviation above their 50-day moving average. That reading is the highest since the bull market began in March 2009 and indicates equities may see “short-term losses,” Harrison, New York-based Bespoke said in a note to clients. Crude oil slid 0.6 percent to $86.28 a barrel in New York trading. U.S. supplies rose 1.98 million barrels to 356.2 million in the week ended April 2, the Energy Department said today in a weekly report. Inventories were forecast to climb by 1.35 million barrels, according to the median of 14 analyst estimates in a Bloomberg News survey. The euro weakened 0.3 percent against the dollar, trading near its lowest level in almost two weeks, after a report showed the economy of the 16 nations sharing the currency failed to grow in the fourth quarter. The euro fell against 12 of 16 major counterparts. Dollar Greek Bonds Greece’s government plans to start marketing dollar- denominated bonds to U.S. investors this month. Credit-default swaps on five-year debt from Latvia, whose BB foreign-currency rating at S&P is four levels below investment-grade Greek debt, dropped below Greek default swaps yesterday. Greece is now more likely to default than all the EU’s eastern members, two of which are junk rated, CDS markets indicate. Latvia, Hungary and Romania needed IMF-led bailouts at the height of the global crisis to avert defaults. A technical team from the IMF is in Athens today, though the Greek government maintains there is no need for an international loan. Greek bonds declined yesterday on concern an EU-led rescue package may falter. “A default may be ultimately unavoidable,” said Stephen Jen , managing director at BlueGold Capital Management LLP. “It’s an increasingly difficult proposition for the creditors to expect full repayment.” The Stoxx Europe 600 Index slipped 0.3 percent as basic resources companies dropped. Declines were limited as Allied Irish Banks Plc surged 14 percent in Dublin after Royal Bank of Scotland Group Plc recommended buying the shares. Emerging Markets Emerging-market stocks bucked the trend, rising for a ninth day for their longest rally since October. The MSCI Emerging Markets Index increased 0.4 percent and has rallied 5.4 percent since March 25. The Taiwan dollar led gains in higher-yielding currencies, rising 0.3 percent against the U.S. currency, after the Federal Reserve indicated yesterday that U.S. interest rates will stay near record lows. Yuan forwards advanced on speculation China will let its currency appreciate. Fed minutes showed the U.S. is likely to keep rates on hold, nurturing the recovery in the world’s biggest economy, at the same time as Treasury Secretary Timothy F. Geithner prods China to revalue the yuan. Policy makers are considering allowing the yuan to trade against the ruble, the South Korean won and the Malaysian ringgit, according to an official at the China Foreign Exchange Trade System, as the nation diversifies its foreign reserves from the dollar. Among emerging markets, Pakistan’s Karachi 100 Index climbed 1 percent while Indonesia’s Jakarta Composite Index and the Stock Exchange of Thailand Index added 0.6 percent. The MSCI Asia Pacific Index rose 0.8 percent for a fifth day of gains, its longest winning streak since July, as the Bank of Japan said the recovery in the world’s second-largest economy is intact and Malaysia’s Prime Minister Najib Razak said growth may exceed forecasts this year. Mitsubishi UFJ Financial Group Inc. gained 2.7 percent in Tokyo. To contact the reporters for this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Whitney Kisling in New York at wkisling@bloomberg.net .

Read the full article →

Video: Dombrovskis Affirms Latvia Euro Goal, Unswayed by Greece

March 26, 2010

March 26 (Bloomberg) — Latvia’s Prime Minister Valdis Dombrovskis talks about plans to join the euro-zone and the European Union’s aid plan for Greece. He speaks with Bloomberg’s Francine Lacqua in Brussels.

Read the full article →

East Europe Speeds Up Debt Sales as Greek-Weary Investors Reward Austerity

March 22, 2010

By Agnes Lovasz March 23 (Bloomberg) — Emerging European governments are bringing forward debt sales and investors are lining up to buy it as the region benefits from an anti-Greece sentiment that’s overshadowing the euro area, said analysts at RBC Capital, BNP Paribas S.A. and Societe Generale S.A. Governments from Poland to Romania “are trying to issue as much as possible in the first half of the year because the conditions are favorable,” said Bartosz Pawlowski , a London-based emerging-market strategist at BNP Paribas SA, France’s biggest bank. “Central and Eastern Europe have been the beneficiaries. They are trying to frontload.” Heightened investor focus on debt and deficits is rewarding emerging Europe for pushing through the EU’s severest austerity packages. Greece, whose deficit of 12.7 percent of economic output means it needs external help to stay afloat, doesn’t know whether it will get a European Union bailout or must go to the International Monetary Fund. The uncertainty has forced the euro down 10.4 percent against the dollar since a Nov. 25 peak. Euro area debt as a percentage of gross domestic product will average 84 percent this year and may be 125 percent in Greece, the European Commission estimates. In emerging EU, only Hungary will exceed the 60 percent limit, with debt set to swell to 79.8 percent of output, the commission says. ‘Tempting Fate’ “The problems in the euro zone with Greece and how it will sort out its budget problem are attracting people to central and eastern Europe,” said Nigel Rendell , senior emerging-market economist at RBC Capital Markets in London. “I hesitate to say they are safe havens because I might be tempting fate, but if you look at budget deficits they are considerably lower in central and eastern Europe than the deficit of Greece and debt levels are much lower.” On average, euro area deficits will swell to 6.9 percent of GDP, more than twice the EU’s threshold. Hungary, Romania and the Czech Republic will have smaller shortfalls. Debt sales in those three countries this month have been about three times oversubscribed on average and yields have slipped. In Hungary, a March 16 auction of 30 billion forint ($153 million) had a bid-to-cover ratio of 4.28, and an average yield of 5.37 percent. A March 18 auction had a bid-to-cover ratio of 3.16 and an average yield of 5.3 percent, compared with the central bank’s benchmark of 5.75 percent. Bond Sales Romania’s 1 billion euro ($1.35 billion) bond rose on its first day of trading after the sale was more than 4.5 times oversubscribed. Poland said yesterday it’s seeking to raise 1 billion euros in its third international sale of bonds in as many months to take advantage of its lowest borrowing costs on record. The government raised 3 billion euros from the sale of 15-year notes in euros in January. It also sold 475 million Swiss francs ($448 million) of bonds maturing in 2014 this month. The Czech government wants to sell a record $15 billion in debt this year and Poland targets total sales of about $70 billion. Bailout-reliant Romania hasn’t announced a 2010 debt sale target, though the success of the Eurobond sale this month pushed Finance Minister Sebastian Vladescu to say on March 15 he can’t rule out more such auctions. The difference between Polish and Hungarian yields versus German debt has narrowed. Hungary’s euro denominated bonds maturing in February 2020 yielded 1.73 percentage points more than German debt of a comparable maturity on March 19, down from 2.02 points at the end of last year. ‘Regime Shift’ Austerity measures imposed in Latvia, Hungary and Romania to comply with IMF programs contrast with euro area stimulus plans pushed through to support demand. Eastern governments are approaching the end of tightening programs that a number of their western counterparts have yet to start. “What we’re seeing is a massive regime shift that’s ongoing between the developed world and the emerging market world,” said Scott Mather , head of global portfolio management at Pacific Investment Management Co., in a March 18 Bloomberg Television interview. “You see the debt dynamics deteriorate sharply for the developed world, whilst they are improving in the emerging market world. Advanced economies face “acute” challenges in tackling high public debt, IMF First Deputy Managing Director John Lipsky , said on March 21. He warned that unwinding stimulus measures won’t be enough to restore budgets and estimates that all G7 countries, except Canada and Germany, will have debt-to-GDP ratios close to or exceeding 100 percent by 2014. That compares with Hungary, which BNP’s Pawlowski says is the best example of a fiscal turnaround. Prime Minister Gordon Bajnai has cut spending by 1.3 trillion forint over two years to comply with a $27 billion IMF loan. Last year’s budget shortfall was 3.9 percent of GDP, compared with 9.3 percent in 2006. Greek Prime Minister George Papandreou visited Hungary on April 16 to discuss crisis management with Bajnai. Credit default swaps on Hungary, which Standard and Poor’s rates BBB-, have traded below those of BBB+ rated Greece since December. “Emerging bond markets have certainly benefited from the periphery,” said Esther Law , an emerging-markets strategist at Societe Generale SA in London. To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net .

Read the full article →

Greece Must Follow Lithuania Adjustment, Avoiding Bailout, Sarkinas Says

March 10, 2010

By Milda Seputyte March 10 (Bloomberg) — Lithuania’s central bank governor said Greece should avoid seeking international aid and follow the example of the Baltic nation, which suffered the European Union’s second-deepest recession last year without a bailout. “Greece must show determination that it is willing to solve its problems,” Reinoldijus Sarkinas , 63, said in an interview in Vilnius. The EU will probably assist Greece “with loans to tackle the most acute problems. But only Greeks can solve their problems, nobody else will do that for them.” Lithuania, Latvia and Estonia pushed their economies through the EU’s steepest economic contractions in an effort to comply with fiscal rules. Lithuania, unlike neighboring Latvia, managed the adjustment without turning to the International Monetary Fund or the EU. The lessons learned by the former Soviet region may serve as an example to Greece, which faces similar austerity programs to resolve its fiscal crisis, Sarkinas said. “We must save because we can’t live endlessly on debt and by simply consuming borrowed money,” the central banker said. Lithuania’s budget deficit last year widened to 9.1 percent of gross domestic product, compared with Greece’s 12.7 percent of GDP shortfall. The Baltic state’s economy contracted an annual 12.8 percent last quarter, compared with Greece’s 2.6 percent output decline in the same period. Distressed Members The three Baltic states have pushed through the EU’s toughest austerity measures to protect their budgets and to help keep their currencies pegged to the euro within the exchange rate mechanism. Lithuania targets euro adoption by 2014. Greece’s fiscal crisis has prompted calls inside the EU for a European Monetary Fund that would rescue distressed euro members. Concern that Greece may need a bailout from European partners has weakened the euro, while investors are demanding double the premium to buy Greek 10-year debt, compared with German bonds of the same maturity. Greek and Lithuanian yields on 10-year debt maturing in 2020 converged yesterday. The EU’s failure to prevent euro members from breaching the bloc’s 3 percent budget deficit cap, threatening to reduce the monetary union’s fiscal credibility and standing as a safe haven, hasn’t prompted Lithuania to soften efforts to join the region, Sarkinas said. “It’s not the euro that’s to blame for the fact that some of the euro area members had policies of overspending and accumulated large debts,” said Sarkinas, who has been Lithuania’s central bank chief for 14 years. “Even in the euro zone, countries must run wise policies and assess their means.” ‘Painful Decisions’ Lithuania has been preparing to adopt the euro since it joined the EU in 2004. The government of Prime Minister Andrius Kubilius cut spending and raised taxes to save about 8 percent of gross domestic product last year, winning praise from the European Commission and ratings companies Standard & Poor’s and Fitch Ratings. Without the cuts, the deficit might have widened to 17 percent last year, Fitch said. The Cabinet plans a further fiscal consolidation of 5 percent of GDP in this year’s budget. “The painful decisions are not for the euro,” Sarkinas said. “Introduction of the euro as such doesn’t solve all the problems.” Lithuania’s budget deficit may narrow to 8 percent this year, Fitch estimates. Sarkinas said the Lithuanian government has “no further area to cut spending” and must concentrate on raising revenue. The economy may return to growth on an annual basis in the second half of the year and expansion may average 0.5 percent to 1 percent for all of 2010, according to Sarkinas. The Lithuanian banking industry, which suffered losses in 2009, will “significantly narrow its losses and some may return to profit” this year, Sarkinas said. Loan portfolios, which shrank 14 percent last year, are “almost unchanged” through the first two months this year and will probably grow in the second half of the year. To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

Read the full article →

Naked Driving Gives New Meaning to Toyota Crisis: William Pesek

February 8, 2010

Commentary by William Pesek Feb. 9 (Bloomberg) — You know Japan’s world is upside down when the fabled Toyota Motor Corp . is a global laughingstock. A name once synonymous with quality has fallen so far that Americans are actually rushing out to buy Detroit’s clunkers. You have to love a corporate scandal that boosts General Motors Co. and Ford Motor Co. and gins up consumer advocate Ralph Nader in one fell swoop. Toyota President Akio Toyoda has done just that and it’s time for him to resign. He must go not because of the company’s biggest-ever and growing recall, but to take responsibility for how pathetically he is handling the crisis. Thanks to unsteady leadership, Toyota’s market value has lost the equivalent of Latvia’s annual gross domestic product since Jan. 21. Last week’s hastily arranged press conference with Toyoda changed nothing. This is still a textbook case of how not to tackle a public-relations debacle. Toyota’s strategy — denial, downplaying problems, avoiding the media — turned a safety problem into a scandal that M.B.A. students will study for years. It also sheds light on where Japan finds itself in 2010. Toyota needs to reverse course, and fast. Too bad the “For Dummies” book publishers have yet to add “PR-crisis” to their stable of how-to titles. Toyota needs all the help it can find. As this costly tale unfolds, it’s worthwhile to take stock of some early lessons for corporate Japan . Here are five. 1. The cover-up can be worse than the problem itself. Design glitches happen. The key is to act quickly and boldly, especially when you are dealing with personal safety and negative newspaper coverage around the globe. Toyota is stuck in a crisis of its own making. There’s a perception that Toyota dragged its feet on its sudden-acceleration and braking-system woes. And it seems well deserved. The fact the company’s president has largely avoided public statements smacks of guilt. That U.S. Transportation Secretary Ray LaHood is spending more time at the microphone than top Toyota officials demonstrates how poorly the company is playing things. 2. Beware driving naked. It’s hard not to conclude that one of history’s most-trusted brands has just been found unclothed in the Warren Buffett sense. The reference here is to the oft-cited Buffett comment that it’s only when the tide goes out that you learn who has been swimming naked. First, the global credit crisis hammered the mightiest of carmakers as liquidity and demand dried up. Next came the recall crisis. Toyota may eventually come back from the brink. It isn’t about to ask for government lifelines, as General Motors Co. and Chrysler Group LLC did. Yet who knew Toyota had been driving with its shorts down all these years? 3. Don’t make your competitors’ day. Toyoda has his work cut out for him as he tries to steer around the biggest crisis since his grandfather founded the company in 1937. Judging from how ineptly and non-transparently he has handled things, Toyoda’s management abilities aren’t commensurate with the reverence with which Japanese hold his family name. That, no doubt, has executives from Detroit to Seoul dancing in their offices. A year ago, GM, Hyundai Motor Co . and the world’s other big automakers quaked at Toyota’s success. Now they marvel at the extent to which a once bullet-proof competitor is shooting itself in both feet. Corporate leaders stumble from time to time. The key is not delivering a massive windfall to rivals. 4. Don’t become a national microcosm. Japan’s economy is about to become No. 2 in Asia as deflation worsens. Like Japan, Toyota succeeded in its headlong drive to become No. 1, got there and then let the forces of complacency seep in. Sadly for the economy, Prime Minister Yukio Hatoyama’s Democratic Party of Japan is in disarray. Fund-raising scandals tied to the party’s No. 2 official, Ichiro Ozawa , are rapidly sinking the government. Ozawa should step down, and fast. One wonders if Toyoda will be far behind. Just as Toyota needs to reverse course, Japan must get serious about retooling the economy. A country and an automaker make for a bumpy comparison. Even so, much of what’s wrong in the halls of Japanese power — denial and becoming too big for your own good — is wrong with Toyota. Coasting is no longer an option for either. 5. Things can only get worse. When North America President Yoshimi Inaba was called to testify before Congress on Feb. 10, Toyota’s top brass should have seen it for what it is: a shot across Toyota’s bow. There are midterm elections in Washington this year, and many officials will slap Toyota around for political gain. Sure, the U.S. media is hyping Toyota’s woes, and some consumers are overreacting. Yet Toyota must work hard to repair a brand that has been badly dented globally. If not, where will Toyota find itself? Driving naked and relegated to fighting for second or third place. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

Read the full article →

Clinton Rejects Russia’s Call for New Europe Treaties, Says Troops to Stay

January 29, 2010

By Indira A.R. Lakshmanan Jan. 29 (Bloomberg) — U.S. Secretary of State Hillary Clinton rejected Russia’s calls for new European security treaties and said American forces will remain on the continent to “deter attacks and to respond quickly if any occur.” “European security remains an anchor of U.S. foreign and security policy,” Clinton said in a speech today in Paris, adding that “some questions” had been raised in recent months about the depth of the Obama administration’s commitment to Europe. Clinton dismissed two Russian initiatives seen as a bid to boost Russian influence over countries once part of the Soviet Union and the Warsaw Pact and to halt the North Atlantic Treaty Organization’s expansion. A plan put forward last month would have effectively given Russia a veto over allied military planning, especially in eastern Europe, said four allied officials who declined to be named. “The Russian government has put forth proposals for new security treaties for Europe,” Clinton said. “However, we believe that these common goals are best pursued in the context of existing institutions, such as the OSCE and the NATO-Russia Council, rather than by negotiating new treaties, as Russia has suggested.” The OSCE is the Vienna-based Organization for Security and Cooperation in Europe . Clinton said that a “cornerstone” of European security is the “sovereignty and territorial integrity of all states.” She repeated U.S. calls on Russia to honor the terms of a cease-fire agreement that ended the August 2008 Russia-Georgia war and the administration’s refusal to recognize Russia’s claims of independence for the breakaway Georgian regions of Abkhazia and South Ossetia. Spheres of Influence “More broadly, we object to any spheres of influence in Europe in which one country seeks to control another’s future,” Clinton said, adding that even amid Russian opposition, “ NATO must and will remain open to any country that aspires to become a member and can meet the requirements of membership.” Russian Prime Minister Vladimir Putin has accused NATO of violating a 1998 pledge not to permanently station “substantial combat forces” on former Warsaw Pact territory. NATO absorbed former Soviet allies starting in 1999 — including three former Soviet republics, Estonia, Latvia and Lithuania — at a time when a Russia shorn of its Cold War satellites was struggling to regain its economic footing after defaulting on $40 billion of debt. Under Putin since 2000, energy-rich Russia has seized on an oil price that peaked at $147 per barrel in July 2008 to revive its economy and gain leverage over oil- and gas-importing states in Europe. Russia Pushes Back Russia pushed back against further NATO enlargement with its 2008 invasion of Western-leaning Georgia and attempts to reassert control over Ukraine. The U.S. will maintain its “unwavering commitment” to Article 5 of the NATO treaty “that an attack on one is an attack on all,” said Clinton. “As proof of that commitment, we will continue to station American troops in Europe, both to deter attacks and to respond quickly if any occur,” she said. To be sure, Clinton underlined that even when Russia and the U.S. don’t agree “we will seek constructive ways to discuss and manage our differences.” She noted that “Russia is no longer our adversary” and pointed to Russian-U.S. cooperation on Afghanistan, Iran and North Korea. She also highlighted progress in discussions on a new START treaty to reduce the size of the Russian and U.S. nuclear arsenals. Cooperate With Russia Clinton said the U.S. is serious about exploring ways to cooperate with Russia to develop a missile defense system that would provide security for both Europe and Russia. “Missile defense we believe will make this continent a safer place,” said Clinton. “That safety could extend to Russia, if Russia decides to cooperate with us.” Clinton called on Russia to back the Conventional Forces in Europe Treaty and urged the Russian leadership to lift its two- year-old suspension of the implementation of the CFE Treaty. She said an updated treaty should take into account developments since the original treaty was signed in 1990 and include “the right of host countries to consent to stationing foreign troops in their territory.” The OSCE’s ability to defend and promote human rights needs to be strengthened and it needs a “Crisis Prevention Mechanism” that would allow it to send rapid humanitarian aid and provide impartial monitoring, Clinton said. NATO has pointed to the 56-nation Organization for Security and Cooperation in Europe , an East-West forum created in 1975, as the best arena for discussing Russia’s security concerns. “We are continuing the enterprise we began at the end of the Cold War to expand the zone of democracy and stability across Europe,” Clinton said. To contact the reporter on this story: Indira Lakshmanan in London at ilakshmanan@bloomberg.net .

Read the full article →

Orange Revolution Promise Fades as Yushchenko Rivals Surge to Jan. 17 Vote

January 13, 2010

By James M. Gomez and Daryna Krasnolutska Jan. 13 (Bloomberg) — Ukrainian President Viktor Yushchenko has feuded with Russia and struggled to forge links with the European Union since taking power in the 2004 Orange Revolution . Voters may now turn to his rivals to mend ties with both East and West. Yushchenko is unlikely to survive the Jan. 17 first round of the presidential election, according to two December polls showing 3.7 percent of respondents supported him. Opposition leader Viktor Yanukovych , who favors closer links with Russia, and Prime Minister Yulia Timoshenko , another Yushchenko adversary, placed first and second and probably will face each other in the Feb. 7 second round. A Yushchenko departure may bolster Ukrainian markets, unfreeze a $16.4 billion bailout loan from the International Monetary Fund, ease conflicts with Russia and improve the prospects for a free-trade accord with the EU, said Sacha Tessier-Stall, head of foreign policy at the International Centre for Policy Studies in Kiev. “No matter who wins, there will be an improvement,” said Tessier-Stall. “Yushchenko exacerbated tensions with Russia, thinking it would get himself into the EU. But he failed to see that bad relations with Russia are bad relations with the EU.” Yushchenko yesterday said the election would be “a national referendum about Ukraine’s European future.” Speaking to reporters in Kiev, he said his policies were “simple and clear: Let’s go home, to Europe.” Stalled Accord Both Timoshenko, 49, and Yanukovych, 59, have promised better relations with Russia and publicly supported concluding a free-trade agreement that has stalled over European objections to the country’s economic management. “I want a new president to be flexible,” 60-year-old accountant Valentyna Lozova, an undecided voter, said yesterday in Kiev. “I want the president to be oriented to the European Union, but at the same time the president must set up good relations with all neighbors. I do not like conflicts.” The former Soviet republic’s disputes with Russia led to two gas cutoffs to Europe, in January 2006 and in January last year, as Prime Minister Vladimir Putin accused Ukraine of stealing the fuel. Yushchenko, 55, Timoshenko and state-run NAK Naftogaz Ukrainy denied the charge. About 80 percent of Russian natural gas destined for Europe is shipped through Ukraine, a country of 46 million people that lies between Russia and the EU. A quarter of the gas the EU consumes comes from Russia. Orange Revolution Yushchenko was swept to power in 2004 in the so-called Orange Revolution, when millions of demonstrators demanded new elections. A ruling by the Supreme Court found that Yanukovych’s initial victory was based on fraud. The president, whose face still bears the scars from what his Austrian physicians said was dioxin poisoning, won the re- vote. His victory over Russia-backed Yanukovych raised investor optimism he would make it easier to exploit Ukraine’s geographic position and wealth of raw materials. Ukraine attracted $36 billion in foreign direct investment from the start of Yushchenko’s presidency through November 2009. FDI totaled $5.7 billion between 1999 and 2004. The country also won membership in the World Trade Organization and the EU declared Ukraine a market economy. Timoshenko has served as prime minister twice in an off- again, on-again alliance with Yushchenko. Parties loyal to her and Yanukovych prevented parliamentary votes last year on improving the banking system and passing the 2010 budget. Record Decline That violated requirements for the IMF loan, accorded when the credit crisis undermined demand for exports and crippled the financial sector. The IMF delayed Ukraine’s $3.4 billion tranche due in November as a result of the lack of spending discipline. Ukraine’s economy shrank a record 20.3 percent on an annual basis in the first quarter of 2009. Gross domestic product declined 17.8 percent in the second quarter and 15.9 percent in the third. It is the second-least creditworthy of economies behind Argentina, as measured by the cost of credit-default swaps that protect bondholders against default. Contracts on Ukraine’s debt were trading at 943.113 basis points as of 10:53 a.m. in Kiev, compared with 500.330 basis points for Latvia, according to prices from CMA Datavision in London. Goals ‘Partly Met’ The currency, the hryvnia, was the world’s worst performer versus the dollar from September 2008 to September 2009. The 6.75 percent government bond maturing in 2017 sank to a record- low 34.215 on March 9. It was unchanged today at 83.36. EU Commission President Jose Barroso said on Dec. 4 that Yushchenko “only partly met” goals to prepare Ukraine for closer trade ties and eventual EU membership. Barroso delayed signing a so-called Association Agreement, which includes a free-trade component. A Dec. 12-24 poll by the International Institute of Sociology in Kiev found Yushchenko would get just 3.7 percent of the vote, putting him in fifth place. Timoshenko had 19.2 percent and Yanukovych led with 30.3 percent. The margin of error was 2 percentage points and more than 4,000 people were surveyed. The Kiev-based Democratic Initiatives Foundation, in a poll of 2,010 people from Dec. 12-26, found the same percentages for Yushchenko and Timoshenko and 33.6 percent for Yanukovych. The margin of error was 2.3 points. A Yushchenko departure would allow the country to regain its footing and attract investors, said Ivan Tchakarov , an analyst at London-based Nomura Holdings Inc. “Ukraine can be a positive surprise this year,” he said. “A lot more political capital has been expended building up spheres of influence than doing good. It is high time to change that.” To contact the reporters on this story: James M. Gomez in Prague jagomez@bloomberg.net ;

Read the full article →

Baltic States Risk New Crisis if Fiscal Plan Inadequate, ECB Document Says

December 10, 2009

By Ott Ummelas and Milda Seputyte Dec. 10 (Bloomberg) — The Baltic states risk being sucked into a second debt-fuelled economic crisis if their governments fail to impose adequate austerity measures that support their euro pegs, the European Central Bank said. Latvia, Lithuania and Estonia suffered a deeper economic slump than the rest of the European Union because tight euro pegs too early in the convergence cycle led to asset bubbles, the ECB said in a confidential document obtained by Bloomberg News. The narrow currency bands add to pressure on fiscal policy to ensure the economies aren’t prone to imbalances, it said. Absent tighter fiscal measures, “the authorities in the Baltic states may not be able to prevent a renewed emergence of macro-economic imbalances and a repetition of the boom-bust cycle,” the ECB said in a document dated Nov. 17 and prepared for a meeting of the EU’s economic and finance committee. The three countries this year suffered the deepest recessions in the EU after their 2004 accession to the bloc fuelled borrowing and sent wages up by as much as 85 percent, leaving their overheated economies vulnerable to the credit vacuum created by the global crisis. Their central banks enforce tighter euro pegs than the 15 percent mandated by the exchange rate mechanism, with Latvia defending a 1 percent band. “The experience of the Baltic states suggests that, for countries that have opted for pegging tightly their exchange rates, there is a significant risk that relatively low interest rates lead to excessive domestic borrowing and the emergence of asset price bubbles,” the ECB said. An ECB press spokeswoman declined to comment yesterday. Sharper Adjustment Since being engulfed by the credit crisis, the Baltic economies have contracted as much as 20 percent on an annual basis. Latvia’s gross domestic product shrank 19 percent last quarter, Estonia’s output fell 15.6 percent and Lithuania’s economy declined 14.2 percent. The region’s “adjustment is much sharper than that in other central and eastern European EU member states that have allowed their exchange rates to fluctuate,” the ECB said. “The tight peg of the exchange rate of the Baltics has implied that these countries have lost significantly on competitiveness versus their neighboring countries.” Latvia, which is relying on a 7.5 billion euro ($11.1 billion) loan from the European Union and the International Monetary Fund to stay afloat, has pledged to cut its budget deficit by 500 million lati ($1 billion) every year through 2012 to satisfy donor demands. The country joined ERM II in January 2005, though it never applied to switch currencies. Euro Borrowing Lithuania, which joined ERM in 2004, is targeting budget cuts equivalent to 5 percent of GDP next year. Lithuania’s attempt to join the euro in 2007 was rejected because the country’s inflation breached EU caps. Estonia, which entered ERM II the same year as Lithuania and is due to adopt the single currency in 2011, has cut its budget by 9 percent of GDP this year, sacrificing demand to fulfill convergence criteria. The country had planned to join the euro in January 2007, though it was forced to abandon that target because it didn’t fulfill EU inflation criteria. The boom-to-bust fate of the Baltic states has been exacerbated by euro-denominated borrowing since the countries joined the EU more than five years ago. That’s obliged central banks to stick more rigorously to their euro pegs or risk leaving households and businesses unable to service their debt. The ECB said the three countries need to improve regulation of their banking systems, which are dominated by Nordic lenders such as Stockholm-based Swedbank AB and SEB AB. Measures should include imposing restrictions on foreign currency lending, the bank said. Competitiveness The countries also need to make their labor markets more competitive, the ECB said. Wage setting should be made more flexible, more resources should be pooled into export-oriented industries and competition in product markets must increase, the bank said. The ECB criticized the bloc’s mechanisms for monitoring the progress of ERM states on their way to euro adoption. Tracking methods need to be more country specific with a view to preventing any regional contagion if currency pegs are deemed to be under threat. “Surveillance procedures for countries participating in ERM II have been clearly deficient,” the bank said. It is “crucial” to improve surveillance of ERM countries, it said. The bank said ERM central banks should make clear to market participants that unilateral euro pegs don’t rule out the option of revaluations or devaluations. “In countries with unilateral pegs or currency boards, it is crucial to communicate transparently to the public that, until the eventual adoption of the euro, exchange rate changes against the euro remain a possibility,” the bank said. To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

Read the full article →

Almunia Named as EU’s Competition Commissioner, Barnier to Oversee Finance

November 27, 2009

By Jonathan Stearns Nov. 27 (Bloomberg) — Jose Barroso picked Spain’s Joaquin Almunia to be the European Union’s antitrust chief and France’s Michel Barnier to lead a push for tougher bank regulation on a new team that will manage the EU’s $15 trillion economy as it emerges from the recession . Barroso, president of the European Commission, also chose Olli Rehn of Finland as economy commissioner and Karel De Gucht of Belgium as the EU’s top trade negotiator. Denmark’s Connie Hedegaard will be climate commissioner, Germany’s Guenther Oettinger energy chief and Italy’s Antonio Tajani industrial- policy head. The new five-year team will take office as Europe is recovering from the credit crunch and the worst recession in more than half a century. Under Barroso, the EU’s executive arm has cracked down on cartels, pledged to sharpen scrutiny of banks, hedge funds and credit-rating companies , forced industry to reduce emissions blamed for climate change and broken down national barriers in the EU electricity and natural-gas markets. “ This team is a perfect blend of experience and new thinking,” Barroso told reporters today in Brussels. Almunia, Rehn, De Gucht and Tajani are currently commissioners in other areas, while Barnier is a French member of the European Parliament and Hedegaard and Oettinger are newcomers to EU jobs. Global Clout Europe aims for more global clout as a new European governing treaty takes effect and the top EU political and regulatory jobs are filled. Last week, European government heads named Belgium’s Herman Van Rompuy as the EU’s first president and Catherine Ashton of the U.K. as top diplomat — two posts created by the new treaty. The commission proposes legislation, enforces antitrust laws, manages trade policy and administers the bloc’s 123 billion-euro ($184 billion) budget. The leadership team generally balances the demands of big countries for the most influential posts and a need to ensure a degree of independence from national governments, which put forward the candidates for commissioners while letting Barroso assign the portfolios. The lineup proposed today by Barroso will have to win approval from the EU Parliament, which plans to hold hearings with individual commissioners in mid-January before a vote. In 2004, the assembly delayed the start of Barroso’s first term for three weeks by forcing changes to some of his initial team of commissioners. Five Years Barroso, a former Portuguese prime minister, himself won reappointment as commission president in September. In the past five years, the commission has used its regulatory powers to impose record antitrust fines, including a penalty of 1.06 billion euros on Intel Corp. for abuses of competition and fines of 553 million euros each on GDF Suez SA of France and Germany’s E.ON AG for colluding on gas sales. Neelie Kroes , the current EU competition commissioner, led that campaign and will stay on as the Dutch appointee to the new commission to become European telecommunications chief. Almunia will take over the antitrust job after being economy commission, overseeing the expansion of countries using the euro and seeking to maintain the credibility of EU budget- deficit limits as national spending surged amid the recession. Barroso called the Spanish Socialist “one of the best commissioners of the last five years.” Almunia’s Finnish successor in the economy post has been EU enlargement commissioner, steering policy toward aspiring members in the Balkans including Turkey, Croatia and Serbia after 10 mainly ex-communist countries joined in 2004. The Czech Republic’s Stefan Fule is moving from his job as that country’s European affairs minister to be the new EU enlargement chief, who must also manage a membership bid from Iceland. Trade Job Belgium’s De Gucht moves from development commissioner to the top EU trade job, marking the first time in more than a decade that an appointee from a smaller EU state will hold that post. Ashton has been trade commissioner since succeeding fellow Briton Peter Mandelson , who followed France’s Pascal Lamy , now head of the World Trade Organization. The fallout from the 2008 collapse of Lehman Brothers Holdings Inc. prompted the commission to turn its sights to stricter financial-market rules — the focus of Barnier’s job and a priority of French President Nicolas Sarkozy . The commission proposed in April the first EU law on hedge funds and buyout firms, seeking to force money managers to report regularly on their main investments, performance and risks. In September, as part of plans for the most sweeping overhaul of financial regulation, the commission presented draft legislation that would create an economic-risk watchdog led by central bankers and agencies to unify oversight of banks, insurers, investment firms and credit-rating companies. Money Managers Charlie McCreevy oversaw these initiatives and is being replaced as Ireland’s appointee to the commission by Maire Geoghegan-Quinn, who is due to become research commissioner. Hedegaard, now Danish climate and energy minister, will oversee a possible EU decision to force energy and manufacturing companies in the world’s biggest greenhouse-gas market to deepen emissions cuts. The EU is already on course to cut greenhouse gases including carbon dioxide by 20 percent in 2020 compared with 1990. The bloc is due to decide at a United Nations climate summit in Copenhagen next month whether to deepen that reduction target to 30 percent over the period. Tajani has held the post of transport commissioner, which will go to Estonia’s Siim Kallas , currently commissioner for administration. Oettinger, who has been governor of the German state of Baden-Wuerttemberg, takes over the energy job from Latvia’s Andris Piebalgs , who becomes development commissioner. To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

Read the full article →

Eastern Europe Proving Too Good to Last as Runaway Debt Erodes 50% Returns

November 22, 2009

By Tasneem Brogger and Agnes Lovasz Nov. 23 (Bloomberg) — Eastern Europe, where currencies and equities combined to produce total dollar-denominated returns of about 50 percent this year, is showing signs of unraveling as the continent’s favorite investment because of runaway debts. Hungary’s forint is the second-worst performer in the past month of 26 emerging-market currencies, cutting its gain against the dollar since March 10 to 32 percent. Slovakia, Poland, Bulgaria and the Czech Republic are among seven countries showing the steepest increase in credit risk of 21 sovereign credit-default swaps tracked by Bloomberg. The NTX New Europe Blue Chip Index has fallen 2.7 percent after closing at 1,208.60 on Nov. 16, the highest since Oct. 7, 2008. “Some investors might really underestimate the setback potential” for bonds and currencies, said Tim Haaf , who helps oversee $60 billion in emerging-market assets for Newport Beach, California-based Pacific Investment Management Co., a unit of Munich-based insurer Allianz SE . “The world is coming out of the doldrums, but eastern Europe still has to burn off these higher debt levels, the external debt levels, and it will take longer to grow out of that.” Swelling public deficits have forced European Union members, including Poland and Latvia, to shelve euro adoption targets. Romania and Hungary have had to implement budget cuts that exacerbated their recessions to meet requirements for loans of 20 billion euros ($30 billion) each to finance their current- account and budget deficits. Berlin Wall Countries east of the Berlin Wall abandoned communism 20 years ago and embraced free markets with the ambition of achieving Western living standards, leading to expansion at or above double digits. Those countries are now relying on bailouts totaling $100 billion, 69 percent of the global total, from sources led by the International Monetary Fund and World Bank, according to data compiled by Bloomberg. The European Commission forecasts government debt in Hungary will exceed 75 percent of gross domestic product for the next three years, and in Poland debt will rise to as much as 61 percent of GDP in 2011. The commission sees Latvia’s budget deficit at 12.3 percent of GDP in 2010 and Poland’s swelling to 7.5 percent of GDP next year. “Growth is unlikely to recover to pre-crisis levels,” said Arend Kapteyn , chief economist for Europe, the Middle East and Africa at Deutsche Bank AG in London. Emerging European nations benefited from 2002 through 2008 from foreign-capital inflows equal to about 8 percent of the average annual gross domestic product to finance a credit boom, he said. “We don’t think those flows are going to come back at the old level.” Economic Prospects The region’s equity indexes climbed this year even as central and eastern Europe will shrink 6.3 percent in 2009, with the contraction stretching into 2010 in four former communist states, including Hungary, the European Bank for Reconstruction and Development said Nov. 2. It estimates six of the region’s economies will grow 1 percent or less next year, while overall growth will average 2.5 percent. Romania’s Bucharest Exchange Trading Index has risen 77 percent this year in U.S. dollar terms, including reinvested dividends. The index’s top gainers are oil refinery Rompetrol Rafinare SA , up 281 percent this year, and drugmaker Biofarm Bucuresti SA , up 169 percent. The country’s government collapsed last month after Premier Emil Boc lost a confidence vote amid disagreements over budget cuts, and lawmakers have yet to appoint a new coalition. Hungary’s benchmark Budapest Stock Exchange Index gained 89 percent in dollar terms. The nation’s economy will contract 6.5 percent this year and a further 0.5 percent in 2010, the European Commission said on Nov. 3. Ukrainian Bonds Ukraine’s PFTS Index climbed 107 percent since January, with engineering company Motor Sich JSC rising more than 300 percent, even as political wrangling stalled budget cuts needed to draw the next $3.4 billion tranche of a $16.4 billion IMF loan. The country won’t have enough money to pay for Russian gas ahead of winter unless it gets the bailout payment by Dec. 7. Ukrainian bonds fell the most in the world during the past month. The NTX New Europe Blue Chip Index, the region’s benchmark, has almost doubled since it declined to a five-year low in March. The rally stalled in the past month with the index trading between 1,100 and 1,200. It rose above 1,200 four times in the period and then declined. ‘Started to Lag’ “They’ve outperformed for the past six months but have started to lag a little,” said Ralph Acampora , who left Knight Capital Group Inc. in 2007 where he ranked among Wall Street’s most experienced technical analysts and now helps manage money in New York at Geneva-based Altaira Wealth Management SA. “The hot money is getting a little less aggressive.” Radoslaw Bodys , central and eastern Europe economist in London at BofA Merrill Lynch Global Research, said he doesn’t see “significant risks over time.” Eastern Europe will “definitely lag Asia and probably also lag Latin America, at least early on,” because Eastern Europe is more developed, “so by definition, potential growth is lower. Initially it’s going to be slower than western Europe’s recovery, but quite soon I think it’s going to do better.” Rachel Ziemba , senior emerging-markets research analyst at New York-based Roubini Global Economics , is less optimistic and says some assumptions about the drivers of growth may be overblown. Eastern Europe is “lagging and will continue to lag behind the rest of the emerging markets,” she said. “There are a lot of expectations of an export-led recovery, but western Europe is only going to be able to absorb so much of their goods.” Export Economies Exports account for about three quarters of the economies of the Czech Republic, Hungary and Slovakia. That compares with about 50 percent in Germany, according to data compiled by the Organization for Economic Cooperation and Development . Ziemba’s skepticism about the region’s resurgence by selling more overseas is shared by economist and Nobel laureate Paul Krugman . “How can we have an export-led recovery unless we find another planet to export to,” he said in a Sept. 21 speech in Helsinki. Eastern Europe got a boost in exports after Germany and France handed out checks to people trading in used cars for new models — the equivalent of the cash-for-clunkers program in the U.S. The stimulus temporarily increased demand and production for the Czech Republic’s Skoda cars and Audis made in Hungary. The rate of decline in industrial output eased to an annual 15 percent in Hungary during September from 25 percent in April. It dropped to 11.9 percent in the Czech Republic in September, compared with a 22 percent slump in April. Auto Stimulus The auto program “explains about 50 percent to 80 percent of the improvement,” according to Deutsche Bank’s Kapteyn. “Profitability of exports will largely depend on exchange rates, which in our view could be too strong,” said Bartosz Pawlowski , senior currency and fixed-income strategist at BNP Paribas SA in London. The Czech koruna, Polish zloty and Hungarian forint have all gained ground against the dollar this year. The cost of insuring against risk is rising with credit- default swaps tied to Ukrainian government debt rising 395 basis points to 1,548 on Nov. 20 from 1,153 two months ago. Poland CDSs advanced to 126 basis points on Nov. 20 from a six-month low of 110 on Oct. 15, data compiled by Bloomberg show. A basis point on swap contracts protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Flow of Investments The region’s bonds may not be a safer bet for emerging- market investors as deficits threaten to hamper the flow of investment to companies, Pawlowski said. The European Commission estimated Nov. 3 that Hungary’s deficit is 4.1 percent of GDP this year, Poland’s shortfall is 6.4 percent and the Czech Republic’s is 6.6 percent, all above the EU’s threshold. Governments across the region “will have to issue very sizable amounts of debt and that debt will probably be snapped up by banks, which in turn means there won’t be much left to lend to the economy,” Pawlowski said. “There are still substantial issues with the fiscal outlook, which isn’t the case in Asia or Latin America.” The yield on Romania’s 8 percent note due October 2011 has risen 8 basis points, or 0.08 of a percentage point, since the beginning of November. The yield on Bulgaria’s 4.75 percent note due February 2011 gained 25 basis points in the same period, Bloomberg data show. Yields move inversely to bond prices. Credit Risks Adding to credit risks is a reliance on foreign-currency loans. Consumers and companies in Latvia, Lithuania, Estonia, Hungary, the Czech Republic and Poland borrowed in euros, which carried lower interest rates than debt in their own currencies, after the countries joined the EU in 2004. Romania and Bulgaria followed suit in 2007. A 19 percent drop in the zloty against the euro during the second half of 2008, an 11 percent slide in Hungary’s forint in the same period and a 9.5 percent decline in Romania’s leu left borrowers struggling to service debt. Latvia, Lithuania, Estonia and Bulgaria all peg their currencies to the euro. Maintaining those pegs proved costly as the governments cut budgets to satisfy EU rules. Foreign-currency borrowing by businesses and households, including mortgages, is about 48 percent of GDP in Hungary and 28 percent in Poland, according to a report by Bodys . “This region will again be more vulnerable if there’s a setback in the markets for whatever reason,” Pimco’s Haaf said. Political Instability Political instability is another malaise. Since the onset of the credit crisis, the government has fallen in Latvia and Hungary’s Prime Minister Ferenc Gyurcsany was ousted, as was the Czech Republic’s Mirek Topolanek , who didn’t have to turn to outside sources for a bailout. Romania’s Boc lost a no- confidence vote on Oct. 13, and Romanians went to the polls yesterday to elect a president, the next step before lawmakers can agree on a new government. Presidential elections are due in 2010 in Ukraine and Poland. “The problem at the moment is there are a lot of elections in the next year and there are very difficult macro stories,” said Tim Ash , chief emerging Europe economist at Edinburgh-based Royal Bank of Scotland Group Plc. “The region is underperforming. In terms of the export story, we’re not seeing very much of a recovery. I don’t really see a compelling bounce- back story.” To contact the reporter on this story: Tasneem Brogger in London at tbrogger@bloomberg.net Agnes Lovasz in London at alovasz@bloomberg.net

Read the full article →

Eastern Europe Proving Too Good to Last as Runaway Debt Erodes 50% Returns

November 22, 2009

By Tasneem Brogger and Agnes Lovasz Nov. 23 (Bloomberg) — Eastern Europe, where currencies and equities combined to produce total dollar-denominated returns of about 50 percent this year, is showing signs of unraveling as the continent’s favorite investment because of runaway debts. Hungary’s forint is the second-worst performer in the past month of 26 emerging-market currencies, cutting its gain against the dollar since March 10 to 32 percent. Slovakia, Poland, Bulgaria and the Czech Republic are among seven countries showing the steepest increase in credit risk of 21 sovereign credit-default swaps tracked by Bloomberg. The NTX New Europe Blue Chip Index has fallen 2.7 percent after closing at 1,208.60 on Nov. 16, the highest since Oct. 7, 2008. “Some investors might really underestimate the setback potential” for bonds and currencies, said Tim Haaf , who helps oversee $60 billion in emerging-market assets for Newport Beach, California-based Pacific Investment Management Co., a unit of Munich-based insurer Allianz SE . “The world is coming out of the doldrums, but eastern Europe still has to burn off these higher debt levels, the external debt levels, and it will take longer to grow out of that.” Swelling public deficits have forced European Union members, including Poland and Latvia, to shelve euro adoption targets. Romania and Hungary have had to implement budget cuts that exacerbated their recessions to meet requirements for loans of 20 billion euros ($30 billion) each to finance their current- account and budget deficits. Berlin Wall Countries east of the Berlin Wall abandoned communism 20 years ago and embraced free markets with the ambition of achieving Western living standards, leading to expansion at or above double digits. Those countries are now relying on bailouts totaling $100 billion, 69 percent of the global total, from sources led by the International Monetary Fund and World Bank, according to data compiled by Bloomberg. The European Commission forecasts government debt in Hungary will exceed 75 percent of gross domestic product for the next three years, and in Poland debt will rise to as much as 61 percent of GDP in 2011. The commission sees Latvia’s budget deficit at 12.3 percent of GDP in 2010 and Poland’s swelling to 7.5 percent of GDP next year. “Growth is unlikely to recover to pre-crisis levels,” said Arend Kapteyn , chief economist for Europe, the Middle East and Africa at Deutsche Bank AG in London. Emerging European nations benefited from 2002 through 2008 from foreign-capital inflows equal to about 8 percent of the average annual gross domestic product to finance a credit boom, he said. “We don’t think those flows are going to come back at the old level.” Economic Prospects The region’s equity indexes climbed this year even as central and eastern Europe will shrink 6.3 percent in 2009, with the contraction stretching into 2010 in four former communist states, including Hungary, the European Bank for Reconstruction and Development said Nov. 2. It estimates six of the region’s economies will grow 1 percent or less next year, while overall growth will average 2.5 percent. Romania’s Bucharest Exchange Trading Index has risen 77 percent this year in U.S. dollar terms, including reinvested dividends. The index’s top gainers are oil refinery Rompetrol Rafinare SA , up 281 percent this year, and drugmaker Biofarm Bucuresti SA , up 169 percent. The country’s government collapsed last month after Premier Emil Boc lost a confidence vote amid disagreements over budget cuts, and lawmakers have yet to appoint a new coalition. Hungary’s benchmark Budapest Stock Exchange Index gained 89 percent in dollar terms. The nation’s economy will contract 6.5 percent this year and a further 0.5 percent in 2010, the European Commission said on Nov. 3. Ukrainian Bonds Ukraine’s PFTS Index climbed 107 percent since January, with engineering company Motor Sich JSC rising more than 300 percent, even as political wrangling stalled budget cuts needed to draw the next $3.4 billion tranche of a $16.4 billion IMF loan. The country won’t have enough money to pay for Russian gas ahead of winter unless it gets the bailout payment by Dec. 7. Ukrainian bonds fell the most in the world during the past month. The NTX New Europe Blue Chip Index, the region’s benchmark, has almost doubled since it declined to a five-year low in March. The rally stalled in the past month with the index trading between 1,100 and 1,200. It rose above 1,200 four times in the period and then declined. ‘Started to Lag’ “They’ve outperformed for the past six months but have started to lag a little,” said Ralph Acampora , who left Knight Capital Group Inc. in 2007 where he ranked among Wall Street’s most experienced technical analysts and now helps manage money in New York at Geneva-based Altaira Wealth Management SA. “The hot money is getting a little less aggressive.” Radoslaw Bodys , central and eastern Europe economist in London at BofA Merrill Lynch Global Research, said he doesn’t see “significant risks over time.” Eastern Europe will “definitely lag Asia and probably also lag Latin America, at least early on,” because Eastern Europe is more developed, “so by definition, potential growth is lower. Initially it’s going to be slower than western Europe’s recovery, but quite soon I think it’s going to do better.” Rachel Ziemba , senior emerging-markets research analyst at New York-based Roubini Global Economics , is less optimistic and says some assumptions about the drivers of growth may be overblown. Eastern Europe is “lagging and will continue to lag behind the rest of the emerging markets,” she said. “There are a lot of expectations of an export-led recovery, but western Europe is only going to be able to absorb so much of their goods.” Export Economies Exports account for about three quarters of the economies of the Czech Republic, Hungary and Slovakia. That compares with about 50 percent in Germany, according to data compiled by the Organization for Economic Cooperation and Development . Ziemba’s skepticism about the region’s resurgence by selling more overseas is shared by economist and Nobel laureate Paul Krugman . “How can we have an export-led recovery unless we find another planet to export to,” he said in a Sept. 21 speech in Helsinki. Eastern Europe got a boost in exports after Germany and France handed out checks to people trading in used cars for new models — the equivalent of the cash-for-clunkers program in the U.S. The stimulus temporarily increased demand and production for the Czech Republic’s Skoda cars and Audis made in Hungary. The rate of decline in industrial output eased to an annual 15 percent in Hungary during September from 25 percent in April. It dropped to 11.9 percent in the Czech Republic in September, compared with a 22 percent slump in April. Auto Stimulus The auto program “explains about 50 percent to 80 percent of the improvement,” according to Deutsche Bank’s Kapteyn. “Profitability of exports will largely depend on exchange rates, which in our view could be too strong,” said Bartosz Pawlowski , senior currency and fixed-income strategist at BNP Paribas SA in London. The Czech koruna, Polish zloty and Hungarian forint have all gained ground against the dollar this year. The cost of insuring against risk is rising with credit- default swaps tied to Ukrainian government debt rising 395 basis points to 1,548 on Nov. 20 from 1,153 two months ago. Poland CDSs advanced to 126 basis points on Nov. 20 from a six-month low of 110 on Oct. 15, data compiled by Bloomberg show. A basis point on swap contracts protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Flow of Investments The region’s bonds may not be a safer bet for emerging- market investors as deficits threaten to hamper the flow of investment to companies, Pawlowski said. The European Commission estimated Nov. 3 that Hungary’s deficit is 4.1 percent of GDP this year, Poland’s shortfall is 6.4 percent and the Czech Republic’s is 6.6 percent, all above the EU’s threshold. Governments across the region “will have to issue very sizable amounts of debt and that debt will probably be snapped up by banks, which in turn means there won’t be much left to lend to the economy,” Pawlowski said. “There are still substantial issues with the fiscal outlook, which isn’t the case in Asia or Latin America.” The yield on Romania’s 8 percent note due October 2011 has risen 8 basis points, or 0.08 of a percentage point, since the beginning of November. The yield on Bulgaria’s 4.75 percent note due February 2011 gained 25 basis points in the same period, Bloomberg data show. Yields move inversely to bond prices. Credit Risks Adding to credit risks is a reliance on foreign-currency loans. Consumers and companies in Latvia, Lithuania, Estonia, Hungary, the Czech Republic and Poland borrowed in euros, which carried lower interest rates than debt in their own currencies, after the countries joined the EU in 2004. Romania and Bulgaria followed suit in 2007. A 19 percent drop in the zloty against the euro during the second half of 2008, an 11 percent slide in Hungary’s forint in the same period and a 9.5 percent decline in Romania’s leu left borrowers struggling to service debt. Latvia, Lithuania, Estonia and Bulgaria all peg their currencies to the euro. Maintaining those pegs proved costly as the governments cut budgets to satisfy EU rules. Foreign-currency borrowing by businesses and households, including mortgages, is about 48 percent of GDP in Hungary and 28 percent in Poland, according to a report by Bodys . “This region will again be more vulnerable if there’s a setback in the markets for whatever reason,” Pimco’s Haaf said. Political Instability Political instability is another malaise. Since the onset of the credit crisis, the government has fallen in Latvia and Hungary’s Prime Minister Ferenc Gyurcsany was ousted, as was the Czech Republic’s Mirek Topolanek , who didn’t have to turn to outside sources for a bailout. Romania’s Boc lost a no- confidence vote on Oct. 13, and Romanians went to the polls yesterday to elect a president, the next step before lawmakers can agree on a new government. Presidential elections are due in 2010 in Ukraine and Poland. “The problem at the moment is there are a lot of elections in the next year and there are very difficult macro stories,” said Tim Ash , chief emerging Europe economist at Edinburgh-based Royal Bank of Scotland Group Plc. “The region is underperforming. In terms of the export story, we’re not seeing very much of a recovery. I don’t really see a compelling bounce- back story.” To contact the reporter on this story: Tasneem Brogger in London at tbrogger@bloomberg.net Agnes Lovasz in London at alovasz@bloomberg.net

Read the full article →

Paris Youths Squat in 17th-Century Mansion to Protest Record Unemployment

November 12, 2009

By Helene Fouquet Nov. 12 (Bloomberg) — A group of French students and workers, protesting against record youth unemployment and a lack of state help, are squatting at a mansion on one of Paris’s oldest and most fashionable squares, the Place des Vosges . “Squatting here is maybe the best thing for my morale, but as far as the rest is concerned, I can’t see a light at the end of the tunnel,” said Margaux, a 24-year-old urban planning student at Paris University, who declined to provide her last name. “I’m struggling to find a home and in the future I know I will struggle to find a job. You’d be surprised how little there is for young people to look forward to in France.” The worst economic crisis since World War II has hit French youth hard. Their jobless rate rose at the fastest pace of any age group, with a record 24 percent of them now unemployed, more than two-and-a-half times the national average, government statistics show. Their disenchantment resonates in opinion polls as 61 percent of them say they disapprove of President Nicolas Sarkozy’s policies, according to the Paris-based Ifop institute. Margaux and 30 other activists broke into and occupied the three-storey, 17th-century building late last month. With its high, carved and painted ceilings and oak floors, the stone mansion stands in same square where Victor Hugo , the author of “Les Miserables,” once lived . It is also near a house owned by International Monetary Fund Chief Dominique Strauss-Kahn’s wife Anne Sinclair . The squatters, who may be ejected by the police, will try to stay in the house, once owned by the Marquise de Sevigne , until winter ends in March. The 2,000 square-meter (21,528 sq- feet) house overlooking a manicured lawn and other red and white mansions with dark blue slate roofs, belongs to an 84-year-old French woman, who bought it in 1963 and has never lived in it. Hurting Youth Data from the French statistics office, Insee, shows that unemployment among people aged 15 to 24 rose at the fastest pace on record during the economic crisis, adding 6.5 percentage points between the first quarter of 2008 and the second quarter of this year. During the 1993 crisis, youth unemployment rose 3.3 percentage points. “Young people are the shock absorbers of the French labor market,” said Corinne Prost , an economist and labor market specialist at Insee . “They are hit the hardest in times of crisis and they take the longest to recover.” The number of jobseekers in France rose in September to the highest in almost four years and the euro zone’s second-largest economy expects more jobs to be lost. French unemployment will rise to 11.2 percent in 2010 from 7.4 percent in 2008, the Organization for Economic Cooperation and Development estimates. Young people in France along with those in Spain, Latvia and Hungary are among the most affected, figures from Eurostat , the European Union’s statistics office, show. ‘Not Aid, Jobs’ Unemployment among those aged between 15 and 24 in the 27- member nations added on average 4.5 percentage points in the 12 months ended Sept. 30 to 20.2 percent. The Netherlands, where many young people work and study at the same time, has a youth unemployment rate of 6.8 percent. A survey ordered in October by Martin Hirsch , France’s High Commissioner for social inclusion and youth employment, showed students who completed their studies face “exceptional difficulties this year” to get an internship or a job. Sarkozy asked him to come up with measures to boost youth housing and employment . “Action for Youth,” as the plan was dubbed , has incentives for employers, sponsorships for unqualified school leavers and training. It also extends aid to jobseekers aged 25 or less, who have held a job for at least two years over a three-year period. ‘Black Thursday’ Action “Youth has been the first casualty of our inability to reform,” Sarkozy said in Avignon , southern France, in September when he presented the plan. Margaux said that “instead of trying to change that lose- lose situation, Sarkozy is institutionalizing our precarious situation. It’s not aid we ask for, it’s homes and jobs.” The group of activists she is squatting with is called ”Black Thursday .” The group is named after the 1929 crash that brought on the Great Depression, and also the day classified ads for home rentals are published in French newspapers. It claims Sarkozy isn’t improving housing for students as promised in the 2007 presidential campaign. France today has 2.2 million university students and houses 157,000 of them, according to Crous, the state-run organization in charge . About 40 years ago, the country had a student population of about 400,000 and about 100,000 homes for them. The state is running behind on its construction program. The Black Thursday action comes as Sarkozy’s approval rating has fallen to its lowest since his May 2007 election. “There is no love lost between him and the country’s youth,” Frederic Dabi , head of Ifop said in a telephone interview. “Those starting their working life are those with whom he is least popular.” To contact the reporters on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net

Read the full article →

Latvia Will Seek Last-Minute Deal on Budget Cuts to Appease Bailout Donors

October 12, 2009

By Ott Ummelas and Aaron Eglitis Oct. 12 (Bloomberg) — Latvia will seek to strike a last- minute agreement on budget cuts today to satisfy bailout terms in the latest round of brinkmanship that has tested the patience of the country’s international loan donors. Prime Minister Valdis Dombrovskis has signaled his Cabinet will agree on an additional 175 million lati ($362 million) in cuts at a meeting today to satisfy the International Monetary Fund, the European Union and Sweden. Coalition members are due to meet at 12 noon in Riga. European Union Monetary Affairs Commissioner Joaquin Almunia will visit Riga tomorrow. “They’re in the clear for the time being, but similar temporary disagreements will likely recur,” said Richard Segal , a fixed-income desk strategist at Knight Libertas U.K. “There is a history of Latvian politicians becoming complacent and trying to sneak in lower budget cuts, which the EU and IMF notice at the last minute. I wouldn’t rule this out in future.” The IMF, the EU and Sweden agreed to give Latvia a 7.5 billion-euro ($11 billion) loan in December and urged the government to adopt tougher austerity measures. Swedish Prime Minister Fredrik Reinfeldt , who holds the EU presidency, on Oct. 5 said Latvia “must correct” its deficit while Riksbank Governor Stefan Ingves has said the country risks being “left in the cold.” ‘Fruitful’ International admonitions grew more strident in tone after Latvia said it could achieve a targeted 8.5 percent deficit of gross domestic product in 2010 by cutting 325 million lati off the budget, 175 million lati less than the IMF, the EU and Sweden had demanded. Latvian coalition parties are ready to discuss a tax on real estate, which Parliament voted against sending to committee stage on Sept. 17, the Diena newspaper reported today. All coalition parties agreed to introduce the tax when they signed agreements with the EU and IMF. The IMF on Oct. 9 said it concluded a visit to Latvia that included “fruitful” discussions about the loan program. An IMF staff team visited Latvia as part of a technical mission in consultation with the European Commission and plans to return in November, together with the EU, for a review of the program, it said in a statement. Finance Minister Einars Repse said if the bailout program is suspended, Latvia will be forced to balance its budget next year and “live hand to mouth.” In the event of a suspension, Moody’s Investor’s Service will cut the Baltic country’s credit rating, and the country may have to repay part of its loan early, depleting its reserves, Repse said in an interview on national television broadcast last night. ‘Wrong Kind’ Billionaire George Soros called on the EU to ease its budget-cut demands to slash budget spending in an interview with Swedish public radio on Oct. 10. “The pressure for them to reduce government spending when the problem is in the private sector is a wrong kind of policy that ought to be avoided,” said Soros. “I think the European Union countries are in a position and ought to help Latvia more than they are currently doing,” he said. Soros said he had no currency positions in the Baltics. Less severe loan terms might have saved both sides some pain, Knight’s Segal said, adding that Latvia, which pegs the lats to the euro, and its creditors would benefit from making agreements more flexible, with policy requirements contingent on economic developments. Dombrovskis is trying to limit the pain the budget cuts are inflicting on the economy through legislative changes. The premier on Oct. 6 asked his civil servants to investigate the option of capping mortgage holders’ liability, a move perceived by some investors as a first step toward shielding the internal economy from a devaluation. Little Impact According to Segal, the proposal “would not have as much of an impact as a lot of people seem to think.” Swedish lenders would suffer the deepest blow from the plan, which would swell loan losses. The krona dropped as much as 1.5 percent against the euro on Oct. 7, after investors learned the news. Stockholm-based Swedbank AB, the region’s biggest bank, lost 2.4 percent the same day. Investors need to take loan losses at Swedbank and SEB AB, the second-biggest Baltic lender, into account when assessing the potential harm the mortgage proposal may inflict, Segal said. “The impact of any plan on the future value of the Swedish banks in Latvia has to be compared with what they have already written down and I think a lot of commentators have overlooked that,” he said. Swedbank’s gross provisions for Latvian loans were 4.5 billion kronor in the first half, or 12.77 percent of total lending, the bank said on July 17. SEB, which doesn’t provide country-specific figures for the region, said net credit losses in the Baltics for the same period were 4.93 percent. That compares with Swedbank’s 7.36 percent loss ratio for the region. ‘Bottom Occurred’ “Clearly the bottom of the economic cycle has occurred, we couldn’t have said this three or four months ago and therefore I’m pretty sure that a compromise will happen sooner or later,” Segal said. The $34 billion Latvian economy “probably bottomed out during the second and third quarter,” Dombrovskis said on Oct. 2, citing Economy Ministry forecasts. Fitch Ratings on Oct. 6 forecast a 4 percent output contraction next year after an 18 percent slump in 2009. Swedbank expects Latvia’s GDP to shrink 2 percent next year, it said on Sept. 29. To contact the reporters on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

Read the full article →

Latvia’s Mortgage Proposal Isn’t Prelude to Devaluation, Commerzbank Says

October 8, 2009

By Ott Ummelas Oct. 8 (Bloomberg) — Latvia’s plan to cap mortgage holders’ liability won’t make it easier for the government to devalue the lats, Commerzbank AG said, adding that dropping the currency’s peg to the euro still entails “substantial difficulties.” A devaluation would still hit corporate loans and bring with it “a wave of insolvencies,” said Lutz Karpowitz and Antje Praefcke , Frankfurt-based currency strategists at Germany’s second-biggest bank. “Inflation would probably be even more difficult to get under control. The relief would be short-lived.” The proposal by Prime Minister Valdis Dombrovskis on Oct. 6 to cap mortgage holders’ liability ignited speculation that the country’s authorities might be contemplating a currency devaluation by limiting the domestic losses that such a move would incur. Sweden’s krona dropped against the euro on concern the mortgage proposal may trigger bigger losses at the country’s banks, which dominate lending in the Baltic region. Latvia is relying on a 7.5 billion euro ($11 billion) bailout led by the European Union, the International Monetary Fund and Sweden to avert a default. The country’s parliament has yet to pass budget cuts needed to comply with the terms of the loan and keep disbursements flowing. Dombrovskis said on the Kas Notiek Latvija program on local television last night that the country is working with its international lenders to find a solution, adding it would like to cut less in spending since more decreases may harm the economy further and increase social tensions. ‘Rock Confidence’ The government has “quite high” chances of convincing the market that the legislative move would be a one-off measure, Commerzbank said. “The planned legislation would seriously rock confidence in the security of contracts, which could scare off investors for years to come,” according to Karpowitz and Praefcke. “Overall it seems unlikely that the legislation would be beneficial for Latvia medium to long term.” Latvia is having problems selling T-bills this week after interest rates on the Rigibor, the country’s interbank lending market, rose higher than the yields on offer for government paper, Kristaps Strazds, head of trading and capital markets at SEB AB’s Latvian unit in Riga, said today. The Treasury failed to sell six-month bills at an auction yesterday, though it received more bids than offered for three- month and 12-month bills. Latvia today sold 1.7 million lati ($3.5 million) in local currency denominated debt through domestic auctions. To contact the reporters on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

Read the full article →

Romanian Central Bank Cuts Benchmark Interest Rate to Lowest in 19 Months

September 29, 2009

By Irina Savu Sept. 29 (Bloomberg) — Romania’s central bank cut its main interest rate to the lowest in 19 months as a deepening recession saps price pressures in the east European country. The Banca Nationala a Romaniei lowered the monetary policy rate to 8 percent from 8.5 percent, the Bucharest-based bank said in an e-mail today. The decision matched the expectations of all 13 economists surveyed by Bloomberg. The rate remains the highest in the European Union after Hungary cut its rate to 7.5 percent yesterday. “Given the fact that Romania has one of the highest rates in the region and that it started the easing cycle quite late, we may see the NBR preserving a dovish bias longer than other central banks in the region,” ING Bank Romania economists Nicolaie Alexandru-Chidesciuc and Vlad Muscalu in Bucharest, wrote in a note before the announcement. Twenty of the 53 central banks tracked by Bloomberg eased monetary conditions in the past three months to fight the recession, including east European countries such as Russia and the Czech Republic in August and September. Romania’s economy contracted an annual 8.7 percent in the second quarter, the most on record, as consumption dropped and the global crisis forced the government to seek an international bailout. Lucian Croitoru , a monetary policy adviser to central bank Governor Mugur Isarescu , said on Sept. 17 that the bank will keep lowering rates as inflation slows. The bank has lowered the rate four times since February as government austerity measures linked to the country’s international bailout made room for a monetary easing needed to soften the impact of a recession. Inflation Inflation slowed to a two-year low of 5 percent in August compared with 5.1 percent in July. The central bank forecasts the inflation rate will fall to 4.3 percent by the end of this year and 2.6 percent in 2010. The government predicts the economy will shrink about 8.5 percent this year, after growing 7.1 percent last year, the fastest pace in the EU. It predicts an emergence from a recession in the fourth quarter and growth of about 0.5 percent next year. Romania obtained a 20 billion-euro ($29 billion) international loan led by the International Monetary Fund and the EU this year to finance its budget and current-account gaps. As a condition for receiving the credit, the government froze state wages this year and pledged to cut spending to meet a budget target of 7.3 percent of gross domestic product in 2009. Hungary, Ukraine, Belarus, Latvia and Serbia have also sought bailouts to prevent defaults and aid banks. To contact the reporter on this story: Irina Savu in Bucharest isavu@bloomberg.net .

Read the full article →

Obesity Linked to 8% of Cancers in Women, Set to Be Top Preventable Cause

September 24, 2009

By Michelle Fay Cortez and Naomi Kresge Sept. 24 (Bloomberg) — Obesity may have caused 124,050 new cases of cancer last year in Europe, researchers said. Women were most affected, with 8.6 percent of new cancers linked to excess weight, compared with 3.2 percent of the diagnoses in men, a study found. Most new cases involved endometrial, breast or colorectal tumors, according to the report, which was based on a computer model designed by scientists in the U.K., Switzerland and the Netherlands. The risk was 77 percent higher last year than in 2002, when 70,000 of the 2.2 million cancers diagnosed across Europe could be linked to extra weight, the researchers said. Obesity may become the biggest preventable cause of cancer in women in the next decade if the trend continues, said scientists led by Andrew Renehan , senior lecturer in cancer studies at the University of Manchester in the U.K. Other risk factors such as smoking and taking hormone replacement therapy are diminishing in importance as the number of females engaging in such activities declines, he said. “It is clear that, in both relative and absolute terms, obesity-related cancer is a greater problem for women than for men,” said Renehan. “In the face of an unabating obesity epidemic, and apparent failure of public health policies to control weight gain, there is a need to look at alternative strategies, including pharmacological approaches.” BMI The estimate was based on information from sources including the World Health Organization and the International Agency for Research on Cancer that looked at the disease in 30 European countries. The researchers examined cancer risk in men and women with a score of greater than 25 on the body mass index, a ratio of weight to height that is typically used to determine overweight and obesity. People in eastern Europe were most strongly affected by the impact of extra pounds. The risk was greatest in the Czech Republic, Latvia, Slovenia and Bulgaria, according to the study. In the U.K., obesity-related cancers accounted for 4 percent of tumors in women and 3.4 percent in men, compared with 8.2 percent of tumors in women and 3.5 percent in men from the Czech Republic. “We are now shifting our emphasis to people who already have cancer,” Renehan, an oncology surgeon, said in an interview. Researchers are looking at whether obesity makes people who have already had cancer more likely to develop a second type of tumor or decrease their response to chemotherapy, he said. The results were presented at the European Cancer Organization and European Society for Medical Oncology conference in Berlin. To contact the reporter on this story: Michelle Fay Cortez in London at mcortez@bloomberg.net or Naomi Kresge in Berlin at nkresge@bloomberg.net

Read the full article →

Sweden Predicts Lower Budget Deficits as Tax Cuts, Spending Revive Economy

September 20, 2009

By Johan Carlstrom and Niklas Magnusson Sept. 20 (Bloomberg) — Sweden’s budget deficits will be narrower than the government predicted earlier as the economy returns to growth and the country boosts spending and cuts taxes to support its export-dependent economy . The deficit of the Nordic region’s largest economy will be 2.2 percent of gross domestic product in 2009 and 3.4 percent in 2010, according to the 2010 budget presented by Swedish Finance Minister Anders Borg in Stockholm today. The deficit will shrink to 2.1 percent in 2011 and 1.1 percent in 2012, Borg said. “The public finances have developed somewhat better than forecast in the 2009 economic spring budget both because of higher income and lower expenses,” Borg said in the budget for 2010. “Expectations of stronger export orders, a more positive purchase managers index, further improvements on the financial markets and a stronger global cyclical recovery are factors that may make the recovery faster than expected.” Sweden has suffered a deeper economic decline than neighbors Norway and Denmark after a slump in global trade undermined demand for exports from companies like SKF AB , the world’s biggest bearings maker, and Volvo AB , the world’s second biggest producer of heavy trucks. Exports make up about half of Swedish economy. Elections Next Year The government last month forecast the deficit would amount to 2.4 percent of gross domestic product this year and 3.7 percent in 2010. Prices will rise 0.4 percent in 2010 after falling 0.4 percent this year, the government predicted today. Total government income next year will be 723 billion kronor ($105 billion), according to the budget. Prime Minister Fredrik Reinfeldt’s government plans to cut taxes and raise spending on schools, hospitals and measures to support the unemployed next year as it faces national elections in September. Earlier and new stimulus measures, which follow Sweden’s worst economic decline in at least 15 years in the first half of 2009, will contribute 1.7 percentage points to economic growth next year, according to the budget. Borg today reiterated forecasts from last month that the economy will return to growth of 0.6 percent in 2010 and 3.1 percent in 2011 after shrinking 5.2 percent this year. Unemployment will peak at 11.6 percent in 2011 from 8.8 percent this year. More Tax Cuts The government had prior to today announced plans to cut income taxes for a fourth time since coming to power in 2006 after 12 consecutive years of Social Democratic rule. In today’s budget, the government raised spending on new stimulus measures by 32 billion kronor for next year and by 24 billion kronor for 2011. Reinfeldt came to power in September 2006, pledging to increase employment by cutting taxes, lower benefits and making it cheaper for companies to hire staff. The government trails the three-party opposition bloc, which includes the Social Democrats, Left party and the Greens, by 3.4 percentage points, according to an opinion poll by Sifo Research International published this week. The Social Democratic party wants to raise income taxes and re-introduce the country’s wealth tax in a different shape to create more jobs and invest in hospitals and schools. The “most serious risk” to the government’s economic forecasts and budget stems from the Baltic countries of Estonia, Latvia and Lithuania, where Sweden’s Swedbank AB and SEB AB are the biggest lenders, Borg said. A deepening of the crisis in the Baltics will “affect the entire Nordic region,” he said. Estonia, Latvia and Lithuania, the European Union’s fastest-growing economies from 2004 through 2006, have since toppled into the bloc’s deepest recessions. Property-investment and spending booms, financed mainly by bank lending, turned to bust as inflation soared, cheap credit evaporated and demand for exports ebbed. To contact the reporters on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net Niklas Magnusson at nmagnusson1@bloomberg.net

Read the full article →

Hacker Gonzalez to Admit Guilt in Credit Card Theft, Forfeit $1.65 Million

August 28, 2009

By Patricia Hurtado and Linda Sandler Aug. 29 (Bloomberg) — Albert Gonzalez, the computer hacker charged with stealing 130 million credit and debit card numbers, will plead guilty to previous data-theft charges in New York and Massachusetts and forfeit assets, U.S. prosecutors said. Gonzalez faces 15 years to 25 years in prison, authorities said in a Massachusetts court filing yesterday. The sentences imposed in Massachusetts will run concurrently with any handed out in New Jersey, where Gonzalez was charged this month with stealing the credit card numbers, and New York, they said. Federal prosecutors in Boston charged Gonzalez and others with stealing credit and debit card numbers from companies including TJX Cos. , BJ’s Wholesale Club Inc. , OfficeMax Inc. , Barnes & Noble Inc. and Sports Authority Inc. The hackers scouted potential victims on a list of Fortune 500 companies and then visited retail stores to identify the payment processing systems and their vulnerabilities, prosecutors said. Gonzalez agreed to forfeit more than $1.65 million in U.S. currency, a condominium in Miami, a blue 2006 BMW automobile, IBM and Toshiba laptop computers and related equipment, a Glock 27 firearm, a Nokia cell phone, a Tiffany diamond ring and three Rolex watches, according to the filing. Gonzalez, who is in federal custody in Brooklyn, New York, was indicted last year by federal grand juries in Massachusetts and New York for data breaches at companies. He was a federal informant after his arrest in New Jersey by the U.S. Secret Service in 2003 in a case involving hackers known as the Shadowcrew, the U.S. Attorney’s Office in Boston said in a statement after indicting him on Aug. 5, 2008. Informant The Secret Service later discovered that Gonzalez, who was working as an informant for it, was criminally involved in the case, federal officials said last year. In the Shadowcrew case, the Secret Service arrested 21 people in the U.S. in October 2004 for their role in one of the largest online centers for trafficking in stolen credit and bank card numbers. Gonzalez wasn’t indicted in that case. Gonzalez and the two hackers were charged in Newark earlier this month with two counts of conspiracy in a scheme to sell data they stole using computers in New Jersey, California, Illinois, Latvia, Ukraine and the Netherlands, according to the indictment. He faces as many as 35 years in prison in the new case. ‘Accepted Responsibility’ “As evidenced from the plea agreement, Albert has accepted responsibility for his actions and looks forward to a resolution of these cases,” said George Farkas, a lawyer who is representing Gonzalez. Gonzalez was scheduled to go to trial Sept. 14 in federal court in Central Islip, N.Y., before U.S. District Judge Sandra Feuerstein . Among the charges is operating a fraud scheme from April through September in 2007, including hacking into computers at the corporate headquarters of Dave & Buster’s Inc. , a restaurant chain, and stealing debit and credit card numbers. In the new case, the hackers used software known as malware and so-called injection strings to attack the computers and steal data, prosecutors said. They installed “sniffer” programs to capture data “on a real-time basis” as it moved through the computer networks and used instant messaging services to advise each other on how to navigate the systems, according to the indictment. They also programmed malware to evade detection by anti-virus software and erase files that might detect its presence, prosecutors said. The Massachusetts case is U.S. v. Albert Gonzalez, 08-CR-10223, U.S. District Court, District of Massachusetts (Boston). The New York case is U.S. v. Yastremskiy, 08-CR-00160, U.S. District Court, Eastern District of New York (Central Islip). To contact the reporters on this story: Patricia Hurtado in New York State Supreme Court in Manhattan at pathurtado@bloomberg.net ; Linda Sandler in New York at lsandler@bloomberg.net .

Read the full article →

Russia Detains Eight People Over Hijacking of Freighter Found in Atlantic

August 18, 2009

By Torrey Clark and Paul Abelsky Aug. 18 (Bloomberg) — Russia’s navy detained eight people suspected of involvement in the hijacking of the Maltese-flagged freighter Arctic Sea, Defense Minister Anatoly Serdyukov said. “The investigation is ongoing,” Serdyukov told reporters at the Moscow air show, declining to elaborate. Serdyukov earlier today told President Dmitry Medvedev that the eight hijackers are citizens of Estonia, Latvia and Russia, the state-run RIA Novosti news service reported. They boarded the Arctic Sea near Sweden last month after faking engine trouble in their own boat, the minister was cited as saying. Serdyukov said yesterday that Russian forces had found the Arctic Sea among the Cape Verde islands off the west coast of Africa and were debriefing its 15 Russian crewmembers. He said details of the odyssey would be revealed later. The Russian government’s official newspaper, Rossiyskaya Gazeta , today cited unidentified Russian officials as saying that the Defense Ministry learned of the missing ship’s location “several days ago” and kept that information secret to give its warship time to navigate the archipelago and catch the hijackers by surprise, with logistical support from the North Atlantic Treaty Organization. The hijackers managed to escape in a high-speed boat before the Russian ship arrived, according to the newspaper. NATO, Submarines Defense Ministry spokesman Alexei Kuznetsov said by phone in Moscow today that he couldn’t confirm or deny the Rossiyskaya Gazeta report that NATO cooperated in the investigation. He would only say that the crew of the Arctic Sea was still aboard the warship Ladny near Cape Verde and was being questioned. Carmen Romero , a spokeswoman for NATO in Brussels, couldn’t be reached for comment immediately. Rossiyskaya Gazeta said the Arctic Sea was hijacked in the Baltic Sea and steered to the Cape Verde area because the waters there are difficult for submarines to navigate. Russia initially planned to involve its submarine fleet, the newspaper said. The freighter was en route from Finland to Algeria with a cargo of timber valued at 1.3 million euros ($1.8 million). The seller was Rets Timber, a joint venture between Europe’s largest papermaker, Stora Enso Oyj, and UPM-Kymmene Oyj, Kari Naumanen, chief executive officer for Helsinki-based Rets, said by phone today. Most of the lumber came from other companies, he said. Rets knows “nothing more than what’s public,” and wasn’t contacted by the hijackers, Naumanen said. Finland, Sweden Finnish police didn’t contact Rets before going public with their investigation and haven’t shared internal information, he said. “They have not put one single question to us.” The owner of the Arctic Sea, Helsinki-based Oy Solchart Management AB, received a ransom demand, Finnish police said on Aug. 15, before the ship was located. The vessel will continue to Algeria to deliver its shipment, which is the property of three importers in Algeria, Naumanen said, declining to identify them. Rets has used Solchart for shipments to Algeria and Egypt for about 13 years, he said. Swedish police said July 30 that the ship’s Finnish owner reported the vessel was boarded on July 24 in Swedish waters by a group that claimed to be police officers, and allegedly tied up the crew, then fled in an inflatable speedboat, the Associated Press reported. Finnish investigators have been cooperating in the probe along with Malta and Sweden, Superintendent Rabbe von Herzen of the Finnish National Bureau of Investigation said. “At the moment the Russians have a part of the key to the investigation in their hands,” von Herzen said by phone from Vantaa, Finland. “The jurisdiction in which this case will be pursued is still not known.” International Mystery The disappearance of the 98-meter (320-foot) cargo ship created an international mystery. After the alleged encounter with pirates, the ship continued through the North Sea and the English Channel to the Atlantic. Radio contact was lost when it was off the coast of Portugal, Rossiyskaya Gazeta said today. The boat may have been attacked a second time off Portugal, Martin Selmayr , a spokesman for the European Commission, the 27- nation European Union’s executive arm in Brussels, said Aug. 14. President Medvedev last week ordered Serdyukov to conduct a thorough investigation of the incident and to inform “all interested parties,” including the media, of the results. Russia used satellites and naval vessels, led by the Ladny, to search for the freighter. The ship was scheduled to deliver its cargo to Bejaia, Algeria, on Aug. 4, the Sovfracht maritime news service reported. To contact the reporters on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net ; Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net .

Read the full article →

Yen Gains a Second Day as China Industrial Output Rises Less Than Forecast

August 10, 2009

By Theresa Barraclough and Ron Harui Aug. 11 (Bloomberg) — The yen rose for a second day against the euro and the dollar after a Chinese government report showed industrial output expanded less than economists expected, spurring demand for the safety of Japan’s currency. The yen strengthened versus all of the 16 major currencies after China also said producer prices and consumer prices both declined. The euro dropped to the lowest in almost a week against the yen after Standard & Poor’s Ratings Services cut the credit ratings of Estonia and Latvia, citing concern about the region’s recession. “The data indicate China’s economy may not be growing as strongly as people are hoping,” said Takashi Kudo , director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is leading to risk aversion, with the yen being bought.” The yen advanced to 136.70 per euro as of 12:03 p.m. in Tokyo from 137.36 in New York yesterday, after rising to 136.46, the strongest since Aug. 5. It climbed to 96.70 per dollar from 97.15. The euro traded at $1.4137 from $1.4140, and bought 85.84 British pence from 85.79 pence. China’s statistics bureau said industrial production expanded 10.8 percent in July, below the median estimate for a 11.5 percent increase in a Bloomberg News survey. Consumer prices fell 1.8 percent last month, and producer prices dropped a record 8.2 percent, the statistics bureau also reported. Standard & Poor’s lowered Estonia’s long-term sovereign credit rating to A-, and cut Latvia’s rating to two notches below investment grade. ‘Variety of Problems’ “The European economy is facing a variety of problems, especially Eastern Europe,” said Kyohei Morita , chief economist at Barclays Capital in Tokyo. “This may give the foreign- exchange market the motivation to be driven by the search for safety” offered by the dollar and the yen, he said. Japan’s currency rose the most versus South Korea’s won and the New Zealand dollar. The yen rose 1.7 percent to 12.856 won, and advanced 0.9 percent to 65.12 against the New Zealand dollar. The euro traded near a one-week low versus the dollar before a German report economists said will show wholesale prices fell for a ninth month, giving the European Central Bank more reason to keep borrowing costs low. German prices fell 9.7 percent in July from a year earlier, after declining 8.8 percent the previous month, according to a Bloomberg News survey of economists. The Federal Statistics Office will release the data in Wiesbaden today. Euro to ‘Struggle’ “We suspect the euro-dollar will struggle this week, given the relatively anemic economic performance of the euro-zone,” said Danica Hampton , a currency strategist at Bank of New Zealand Ltd. in Wellington. It will take time before recovery in the 16-nation euro region begins, ECB council member Erkki Liikanen said, according to the Finnish newspaper Uutispaeivae Demari yesterday. The euro is likely to weaken to 130 yen by year-end after the 16-nation currency failed to rise through so-called resistance at 141.04 yen, according to Deutsche Bank AG, citing trading patterns. Resistance at that level represents the 50 percent retracement of the euro’s decline from last year’s high of 169.96 yen reached on July 23, to this year’s low of 112.12 on Jan. 21, based on a series of numbers known as the Fibonacci sequence. Resistance refers to levels where sell orders may be clustered. Since reaching January’s low, the euro has gained 22 percent versus the yen. “The European currency has strengthened too quickly,” said Koji Fukaya , a senior currency strategist at the Tokyo unit of Deutsche Bank, the world’s biggest foreign-exchange trader. “It will struggle to break 140 yen.” To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

Read the full article →

Duncan Wields Obama’s $100 Billion to Make U.S. Schools More Like Chicago

August 4, 2009

By Molly Peterson and Flynn McRoberts Aug. 4 (Bloomberg) — Sue Duncan has taught poor kids at her after-school center on Chicago’s South Side for 48 years. She says her son Arne spent seven days a week there as he was growing up. “It was absolutely formative,” Arne Duncan , 44, said of working with his mother.

Read the full article →