Jan 28th 2012 | Washington, dc | from the print edition

JAPAN holds the modern record for years spent with interest rates at zero; they were on the floor from 2001 to 2006. America is on track to break that record. Having cut its short-term rate to near zero in late 2008, the Federal Reserve said on January 25th it will probably stay there “at least through late 2014”, more than a year longer than its previous guidance.

On the same day the Fed for the first time published projections of the year individual members of the Federal Open Market Committee, its main policymaking body, expect the federal-funds rate to start rising and the path it would follow over the next three years. The median forecast for a rise in interest rates is 2014 (see chart) but the accompanying statement implies it will probably be later.

The Fed also took the long-awaited step of announcing an explicit inflation target—something that many other central banks adopted years ago and that the Fed chairman, Ben Bernanke, has long advocated. The central bank said it prefers inflation of 2%, also the target (or the midpoint in a target range) of the British, Canadian, Swedish and Israeli central banks.

Mr Bernanke characterised these steps as a way to make monetary policy more transparent and predictable, and therefore more effective. But the practical consideration is that the Fed needs new ways to kick-start economic growth. Promising lower rates for longer is one way to do this, because it will drive bond yields lower.

Some officials have argued that the Fed could better steer private-sector expectations with a framework that more explicitly committed it to lower unemployment or higher output. The Fed did not go that far but the inflation target (a word the Fed’s official documents didn’t use but Mr Bernanke did in a subsequent press conference) will help in two ways.

First, 2% is at the high end of the range that officials previously considered acceptable. Higher inflation implies lower, and thus more stimulative, real interest rates. Second, markets previously thought the Fed was so focused on inflation that it would tighten as soon as it topped 2%, no matter how high unemployment was. Mr Bernanke dispelled that notion by emphasising the Fed’s equal attention to unemployment. Should inflation overshoot 2% while the economy is unacceptably weak, the Fed will take its time about bringing it back down.

The increased transparency is helping. Since the Fed committed itself in August to two years of near-zero rates, the ten-year Treasury yield has fluctuated around 2% despite a run of better-than-expected economic news. The yield dropped on news of the Fed’s new projections, before rising back up again.

But this flurry of activity still may not be enough. The Fed actually lowered its projections for economic growth to between 2.2% and 2.7% in 2012; it projects growth of 2.8-3.2% in 2013. Unemployment, now 8.5%, is seen edging below 8% only by the end of 2013. Inflation, meanwhile, will be at or below the new target of 2%. With unemployment too high and inflation still weak, more monetary stimulus is easily justified. Mr Bernanke left the door open to that option. The odds are that he will walk through it.

A deal, but to what end?

Jan 31st 2012, 0:18 by The Economist | Brussels

BY THE standards of past summits, European leaders finished early—shortly before 10pm on January 30th. And by the acrimonious standards of past gatherings, notably last month’s bust-up with Britain, this event was uneventful, even amicable. Agreement was reached on the fiscal compact, the new treaty to toughen budget rules, in record time: less than two months.

A final row between France and Poland over who gets to attend which summits was resolved with a complicated compromise. This involves variable configurations of meetings involving 17 countries (the euro zone), 23 (the largely-forgotten Euro-Plus Pact, 25 (the signatories of the fiscal compact), 27 (all EU member states, still in charge of the single market) and 28 (involving soon-to-join Croatia).

It shows that, at the very least, European leaders can negotiate rapidly when they have the political will to do so—and when the British and the Czechs decide to step aside. Whether electorates will be quite so quick to shackle themselves to Germanic fiscal rules is another matter.

But did the leaders achieve anything useful to stem the crisis in the latest of their interminable summits? Their compact—now called the “treaty on stability, co-ordination and governance in the Economic and Monetary Union”, has as its main aim the imposition of balanced-budget rules on members. This may be a useful discipline in good times. But many worry that, at a time of widespread crisis, such pro-cyclical rules risk imposing too much austerity too widely, thus darkening the spectre of recession and making it even harder to balance budgets. This may explain why leaders suddenly want to be seen talking about their plan (declaration is here in PDF) for growth and jobs, particularly in tackling the problem of youth unemployment.

Nevertheless, Angela Merkel, the German chancellor who had pushed hard for the treaty, hailed it as a great success. Many others, however, dismiss the compact with so much faint praise. “It is an important distraction”, says one diplomat. “It has gone from damaging to merely useless,” says a member of the European Parliament. Even Mario Monti, these days everybody’s favourite Italian, judged the compact little more than “a decorative songbird”.

By contrast the two issues that could affect the course of the euro-zone debt crisis in the coming weeks—the fate of Greece and the possibility of creating a bigger firewall—were for the most part ignored or relegated to side-meetings. With Greece and its private creditors still negotiating the scale of haircuts to be imposed on bondholders, this may have been too delicate a time for leaders to discuss Greece. A statement from the euro zone says little that is new.

Moreover, Mrs Merkel was keen to dampen emotions after her officials floated the idea of placing the country under a commissar with the power to reject Greek budgets. When asked about such a prospect, Mrs Merkel expressed “frustration” with Greece’s lack of compliance with its austerity-and-reform programme, but backed away from imposing such a draconian loss of sovereignty on Greece. President Nicolas Sarkozy of France, for his part, said “there is no question of placing Greece under tutelage.”

All leaders of the euro zone are insisting that forcing private creditors to take a hit on Greek bonds constitutes a “unique” event, for fear of causing contagion. But spreads on Portuguese bonds are rising to alarming levels, and the outlook for Italy and Spain is still wobbly.

“An inability to tackle a problem the size of Greece inspires little confidence in the ability of the EU to tackle Italy and Spain,” says Sony Kapoor, head of Re-Define, a financial think-tank in Brussels.

Germany parried demands, from Mr Monti and others, to enlarge the firewall by merging the existing temporary European Financial Stability Facility (EFSF) and the permanent new European Stability Mechanism (ESM). This would enlarge the fund from €500 billion ($659 billion) to €750 billion. Mrs Merkel said the matter should be discussed in March, as decided in last December’s summit.

The British have decided not to be awkward about the compact, despite the falling-out at the previous summit, where Britain threatened to veto a change to the EU’s treaties unless it were able to secure greater protection from financial-services legislation. The stalemate forced the other 26 countries to negotiate the compact outside the EU treaties (with Britain sitting in as an observer).

Mr Cameron is under pressure from Eurosceptic backbenchers to wage legal warfare to prevent signatories to the pact from using EU institutions, such as the European Commission and the European Court of Justice. “We will only take action if our national interests are threatened. And I made clear today that we will be watching this closely,” said Mr Cameron.

Nevertheless, Mr Sarkozy and Mr Cameron are still sparring. The French president’s barb in a television interview a day earlier, when he mockingly said that Britain had “no industry left”, prompted Mr Cameron to rattle off a list of great British car companies—among them Honda, Toyota and Nissan (all Japanese). He said he relished the prospect of French banks moving operations across the Channel to London if Mr Sarkozy pressed ahead with his promise to impose a tax on financial transactions unilaterally.

Perhaps the most interesting dynamic was between France and Germany ahead of the French presidential elections in April and May. Mrs Merkel said that she would campaign for the re-election of Mr Sarkozy, saying he had done the same for her in the past. But she said she would not be worried if his opponent, François Hollande, who is leading opinion polls, were to win—even though he wants to renegotiate the fiscal compact and has blocked Mr Sarkozy’s attempt to enshrine a golden rule in the constitution.

Asked if she could envisage having to take France to court for failure to adopt a balanced-budget rule, as provided for by the compact, Mrs Merkel said: “I cannot imagine taking legal action against France because I cannot imagine that France will not institute a golden rule.”

BRUSSELS, Jan 31, 2012 (AFP)
EU leaders closed one chapter in the debt crisis Monday with a German-driven treaty meant to end deficits — then launched a race to resolve Greece’s bailout woes.

European Union president Herman Van Rompuy called after for a new deal with Athens “by the end of the week” on the conditions underpinning a long-delayed second bailout for Greece.

Greek Prime Minister Lucas Papademos went immediately into a post-EU summit huddle with a top official from his old employers at the European Central Bank (ECB) and senior EU officials.

“It’s too early now to say we need some extra funding,” Papademos said early Tuesday. “Our goal is to avert it.”

In October last year, Greece was promised a second bailout of 130 billion euros ($171 billion) if it could convince private investors to write off 100 billion euros of debt.

Despite a change of government late last year, new conditions have not been met and the ECB and other national central banks or EU institutions are now being nudged to agree their own write-downs.

With Greece facing a big bill for bond redemptions on March 20, EU partners are on edge amid unrelenting fears of default.

Wall Street was gripped with “renewed default concerns towards Greece and Portugal,” investment analysts Charles Schwab said.

Eurozone partners’ handling of Greece took a new turn at the weekend when Germany asked the other governments in the currency area to put Athens under control of EU guardians.

“There cannot be any talk of putting any nation under wardenship,” said French President Nicolas Sarkozy. “It would not be reasonable, democratic and efficient.”

Greece’s education minister called the idea “the product of a sick imagination,” and although Sweden and others showed sympathy, German Chancellor Angela Merkel did not push this plan further on this occasion.

For her, though, it is about “how Europe can help Greece accomplish the tasks given to it.”

The EU focus on bailouts was supposed to give way at Monday’s summit to a renewed push to stimulate growth and create jobs across European economies.

This idea even saw tentative moves to place an ambitious free-trade deal with the United States on the coming agenda.

But at its root was the announcement that 25 of 27 countries had adopted the new pact on budgetary discipline.

The Czech Republic joined Britain on the outside looking in, but a threat by Poland to withdraw evaporated after France gave ground in an argument about the influence of non-euro countries on eurozone summits.

Pushed by Germany and the ECB, the treaty — to be formally signed in March — will require governments to introduce laws on balanced budgets and impose near automatic sanctions on countries that violate deficit rules.

Only those countries that sign up will be able to access bailout aid from a new rescue fund whose legal basis was also ticked off at the talks. It will enter force after 12 nations ratify it.

The pact is a “first step toward a fiscal union,” said European Central Bank chief Mario Draghi amid hopes among some governments that the pact will prompt the ECB to step up a controversial bond purchase programme.

With Italy and Spain still fragile, EU leaders will discuss in March whether to add half as much again to a new rescue fund’s initial 500-billion-euro size, amid wider moves to beef up IMF resources.

“We are getting the feeling that there is a shift in Germany’s position and I am optimistic,” said Italian premier Mario Monti.

Leaders began their summit day by landing on a military airstrip to beat a Belgian general strike that grounded most public transport in protest at a new round of EU-ordered austerity.

Leaders, some facing imminent re-election campaigning, must contend with an unemployment rate averaging 10 percent across the 17-nation eurozone.

European Commission chief Jose Manuel Barroso said 82 billion euros of unspent EU funds could kick-start growth and job creation — but with the catch that money is matched locally.

He met earlier with premier Mariano Rajoy of Spain, where nearly half of all under-25s are out of work, to talk about a shortfall in meeting deficit reduction targets there.

Madrid plunged quicker into what Brussels deems a “moderate” recession looming large over Europe.

Among ideas adopted by the summit for boosting growth in Europe, there were calls to lower the tax burden on employers to get more people hired, and give all young people guaranteed options in work, training or study.

However, a summit statement concluded: “There are no quick fixes. Our action must be determined, persistent and broad-based.”

Europe signs up to German-led fiscal pact

By Julien Toyer and Paul Taylor

BRUSSELS | Mon Jan 30, 2012 8:00pm EST

(Reuters) – Chancellor Angela Merkel cemented her political ascendancy in Europe Monday when 25 out of 27 EU states agreed to a German-inspired pact for stricter budget discipline, even as they struggled to rekindle growth from the ashes of austerity.

Only Britain and the Czech Republic refused to sign a fiscal compact in March that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and will enshrine balanced budget rules in national law.

The accord was eagerly greeted by the European Central Bank which has long pressed euro zone governments to put their houses in order.

“It is the first step toward a fiscal union. It certainly will strengthen confidence in the euro area,” ECB President Mario Draghi said.

Officially, the half-day summit focused on a strategy to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.

But differences over the limits of austerity, and Greece’s unfinished debt restructuring negotiations, hampered efforts to convey a more optimistic message that Europe is getting on top of its debt crisis.

Merkel told a news conference the agreements on the fiscal pact and a permanent rescue fund for the euro zone were a “small but fine step on the path to restoring confidence.”

French President Nicolas Sarkozy said he expected a deal on reducing Greece’s debt to private bondholders within days and he believed independent European institutions – a clear reference to the ECB – would help meet a funding gap.

Greek Prime Minister Lucas Papademos said he hoped to reach a deal both with private creditors over restructuring 200 billion euros of debt and on conditions tied to a second bailout by its international lenders by the end of the week.

“Significant progress has been made in talks about private sector involvement … We are seeking to conclude negotiations with the troika by the end of the week,” Papademos told reporters after he and his finance minister met the heads of EU institutions.

Until there is a deal, EU leaders cannot move forward with a second, 130-billion-euro rescue program for Athens, which they originally pledged at a summit last October. Without it, Athens faces default in March when huge bond repayments fall due.

The EU leaders also agreed that a 500-billion-euro European Stability Mechanism will enter into force in July, a year earlier than planned, to back heavily indebted states.

Europe is already under pressure from the United States, China, the International Monetary Fund and some of its own members to increase the size of the financial firewall, but Merkel has refused to consider the issue before March.

EURO “MESS”

Many economists doubt the wisdom of so severely restricting deficit spending, and EU diplomats say the fiscal compact was mostly a political gesture to calm German voters angry at repeated euro zone bailouts and to restore market confidence.

“To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do,” a British official said.

There was no repetition of last month’s confrontation between British Prime Minister David Cameron and Sarkozy when Cameron vetoed efforts to amend the EU treaty to tighten euro zone budget discipline.

But the British and French leaders sniped at each other at separate news conferences while professing mutual respect.

Cameron told reporters: “Our national interest is that these countries get on and sort out the mess that is the euro.”

German Chancellor Angela Merkel said that although Cameron had shown no sign of relenting in his opposition to treaty change, the new pact could be easily slotted into EU law at a later date and she expected it would be within five years.

Financial markets fretted over the lack of tangible progress in the Greek debt talks and gloom about Europe’s economic outlook. The risk premium on southern European government bonds rose while the euro and stocks fell.

Highlighting those fears, Spain’s economy contracted in the last quarter of 2011 for the first time in two years and looks set to slip into a long recession.

France halved its 2012 growth forecast to a mere 0.5 percent in a potentially ominous sign for Sarkozy’s troubled bid for re-election in May. But the president said Paris could achieve its deficit reduction target without further savings.

Italy, rushing through sweeping economic reforms under new Prime Minister Mario Monti, was rewarded with a significant fall in its borrowing costs at an auction of 10- and 5-year bonds, despite two-notch downgrades of its credit rating by Standard & Poor’s and Fitch this month.

But Portugal’s slide toward becoming the next Greece – needing a second bailout to avoid chaotic bankruptcy – gathered pace as banks raised the cost of insuring government bonds against default and insisted the money be paid up front instead of over several years.

The yield spread on 10-year Portuguese bonds over safe haven German Bunds topped 15 percentage points for the first time in the euro era.

The ESM was meant to replace the European Financial Stability Facility, a temporary fund that has been used to bail out Ireland and Portugal. But pressure is mounting to combine the resources of the two funds to create a super-firewall of 750 billion euros ($1 trillion).

The IMF says if Europe puts up more of its own money, that will convince others to give more resources to the IMF, boosting its crisis-fighting abilities and improving market sentiment.

Germany has so far resisted such a step.

Merkel has said she will not discuss the issue of the ESM/EFSF’s ceiling until the next EU summit in March. Meanwhile, financial markets will continue to worry that there may not be sufficient rescue funds available to help the likes of Italy and Spain if they run into renewed debt funding problems.

The EU will consider how to deploy 82 billion euros of unspent funds from the EU’s 2007-2013 budget in an attempt to boost growth and employment. Some will be recycled toward job creation, especially among the young.

But with no new public money available for a stimulus, the leaders focused mainly on promoting structural reforms such as loosening labor market regulation, cutting red tape for business and promoting innovation.

($1 = 0.7615 euros)

(Additional reporting by Julien Toyer, Harry Papachristou, John O’Donnell, Matt Falloon and Robin Emmott in Brussels, Marius Zaharia, William James and Jeremy Gaunt in London, Axel Bugge in Lisbon; Writing by Paul Taylor, editing by Mike Peacock)
Some G20 countries soften stance on Europe: sources
ReutersReuters – 34 minutes ago

By Francesca Landini and Luis Rojas

MILAN/MEXICO CITY (Reuters) – Some of the world’s biggest economies want to move quickly on a cash injection for the International Monetary Fund to help rescue the euro zone, but hardliners may still scupper an early deal to boost the fund’s war chest, G20 sources said on Friday.

Officials from the Group of 20 leading economies are engaged in what one called a ‘chicken and egg’ game as they work toward a possible deal on boosting the IMF’s firepower at a meeting of the bloc’s finance ministers and central bank governors in Mexico City in one month’s time.

Emerging market powers Brazil and China are among the countries keen to pursue the two-track plan pushed by the current G20 president Mexico to work on additional IMF funding simultaneously with extra steps from Europe, one G20 official told Reuters, rather than insisting on European action upfront.

“There was a much more cooperative sentiment between G20 countries than in recent meetings,” said the official, referring last week’s discussions between G20 deputies in Mexico City.

“Some emerging countries are more open to consider contributions to increase IMF resources in parallel with euro zone efforts, so they are open to make commitments to increase IMF resources in the next few weeks,” the source added.

Mexican central bank governor Agustin Carstens said a consensus was building on boosting IMF resources to help European countries and others that need aid.

But the February 25-26 meeting deadline may prove ambitious, given the United States’ insistence that Europe boost its own crisis shield further before any pledges to the IMF – which estimates it needs $600 billion more to limit the fallout.

“Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall,” U.S. Treasury Secretary Timothy Geithner said at the World Economic Forum in Davos, Switzerland.

“If Europe is able and willing to do that, we believe the IMF is ready to play a constructive role.”

Canada is also taking a tough public stance, although a G20 official from another country said Ottawa was becoming more conciliatory, along with Japan.

“Canada and Japan are more flexible than in the past,” the second official said. “It could be a bit more difficult with the USA, although they too have softened their position, but it’s still early in the game.”

STANDOFF FEARS

Europe, for its part, supports the two-track approach, but officials are concerned that Germany’s reluctance so far to back increased funding for the euro zone’s own rescue fund may fuel a standoff at the G20.

Germany has insisted that the safety net should not exceed 500 billion euros, but officials close to the G20 talks estimate that a further 230 billion to 250 billion euros is needed.

“It is important that we should not let this be locked between the Americans and the Germans, or the IMF and the Germans, so that nobody would get any pretext or excuse to not do their part,” one senior euro zone official said.

A G20 official from a large emerging market economy said Europe accepted the need to put in more resources but “won’t say it for fear of” Germany.

“They will get to that point because they know not one cent of this IMF money will be made available unless they come up with their side … the majority view is that we move in parallel we have things ready, but we don’t have to deploy it until the Europeans have gotten their act together.”

European Union leaders will discuss increasing the bloc’s permanent rescue fund, the European Stability Mechanism (ESM), on March 1-2, just days after the February meeting in Mexico, with the timing creating extra difficulty for policymakers.

“If the parallel approach wins inside the G20, a deal on increasing IMF resources could be clinched by the G20 meeting in February,” the initial G20 source said. “Otherwise, the G20 will work on reaching a deal by next April in Washington, after an increase of ESM firepower is signed in March among euro zone countries.”

G20 finance ministers are due to meet in Washington on April 19-20 ahead of a leaders summit in Mexico’s Los Cabos on June 18-19.

Countries keen on the parallel approach are Brazil, Australia, Japan, Indonesia, China, Indonesia and South Korea, the source said.

A senior Brazilian government official confirmed Brazil was keen to push the two aims simultaneously, but said a commitment to a bigger ESM would definitely smooth the way.

“If the Europeans increase (funding to) the ESM then they increase the chances of additional resources to the IMF in support,” he said.

The extra funding may come in the form of bilateral loans between individual countries and the IMF or an increase in countries’ quotas, which could also give emerging economies more say in how the fund is managed.

(Additional reporting by Lesley Wroughton in Washington, Alonso Soto in Brasilia, Paul Carrel in Davos and Jan Strupczewski in Brussels; Writing by Krista Hughes; Editing by Andrea Evans, Gary Crosse)
Ketua The Federal Reserve (bank sentral AS) Ben S. Bernanke mengatakan, The Fed mempertimbangkan pembelian aset tambahan untuk menggenjot pertumbuhan. The Fed mempertahankan komitmen untuk menjaga suku bunga tetap rendah sampai 2014.

“Para pembuat kebijakan siap untuk memberikan akomodasi moneter lebih lanjut jika lapangan kerja tidak menunjukkan kemajuan sesuai level maksimum yang kami targetkan,” kata Bernanke, Rabu (25/1) waktu Washington.

Dia menambahkan, pembelian obligasi adalah salah satu pilihan yang tersedia.

Saham dan pasar obligasi naik The Fed mempertahankan komitmen untuk menjaga biaya pinjaman tetap rendah setidaknya hingga pertengahan 2013. The Fed memangkas proyeksi pertumbuhan ekonomi dan kenaikan harga tahun ini dan 2013 serta menargetkan inflasi jangka panjang sebesar 2%.

“Apa yang mereka lakukan adalah menyiapkan meja untuk beberapa pelonggaran moneter tambahan,” kata Scott Minerd, Chief Investment Officer Guggenheim Partners LLC.

Indeks Standard & Poor’s 500 naik 0,9% menjadi 1.326.06 pada pukul 16.07 waktu New York. Imbal hasil untuk obligasi bertenor 5 tahun turun 10 basis poin menjadi 0,8% setelah sempat menyentuh rekor terendah 0,76%.

http://internasional.kontan.co.id/news/the-fed-pertimbangkan-pembelian-aset-tambahan

Sumber : KONTAN.CO.ID
Washington (ANTARA News) – Federal Reserve pada Rabu memangkas prakiraannya untuk pertumbuhan ekonomi AS tahun ini dan berikutnya, mengutip pertumbuhan lebih lambat dalam investasi bisnis dan sektor perumahan masih depresi.

The Fed memproyeksikan pertumbuhan untuk tahun ini dalam kisaran 2,2-2,7 persen, dan 2,8-3,2 persen pada 2013, lapor AFP.

Dalam proyeksi ekonomi November, bank sentral telah memperkirakan pertumbuhan produk domestik bruto 2,5-2,9 persen untuk 2012, dan 3,0-3,5 persen untuk 2013.

Pengatur kebijakan Komite Pasar Terbuka Federal juga menetapkan target inflasi pada 2,0 persen, menandakan tingkat kenaikan harga di mana pihaknya bisa mulai memperketat kebijakan moneter.

“Mengkomunikasikan tujuan inflasi ini dengan jelas kepada publik membantu menjaga ekspektasi inflasi jangka panjang tertanam secara kuat,” kata FOMC, karena pihaknya mengatakan diharapkan untuk mempertahankan suku bunga utamanya mendekati nol selama tiga tahun lagi.

The Fed mengatakan itu adalah “komitmen kuat” untuk mandat hukum dari Kongres “mendorong kerja maksimum, harga stabil, dan suku bunga jangka panjang moderat.”

Setelah perbaikan baru-baru ini di pasar tenaga kerja yang bermasalah, FOMC menurunkan proyeksi tingkat pengangguran menjadi 8,2-8,5 persen untuk kuartal keempat.

Perkiraan November adalah untuk tingkat 8,5-8,7 persen.

Tingkat pengangguran telah jatuh selama empat bulan berturut-turut, menjadi 8,5 persen pada Desember, di tengah pemulihan rapuh dari resesi yang mendalam.

Perkiraan inflasi juga pada atau di bawah tingkat target baru untuk tiga tahun berikutnya.

http://www.antaranews.com/berita/294477/federal-reserve-as-pangkas-prakiraan-pertumbuhan

Sumber : ANTARANEWS.COM
Dow Average Rallies to Highest Level Since May
By Rita Nazareth – Jan 25, 2012

U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since May, as the Federal Reserve signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy.

A measure of commodity shares in the Standard & Poor’s 500 Index added 1.6 percent after gold rallied as record-low rates may boost its appeal as a hedge against inflation. Banks had the biggest drop in the S&P 500 among 24 groups as the industry may face pressure on margins from the Fed’s policy on rates. Apple (AAPL) Inc. climbed 6.2 percent to an all-time high as profit more than doubled. Textron Inc. (TXT), the maker of Cessna planes, surged 15 percent after forecasting higher-than-estimated earnings.

The S&P 500 added 0.9 percent to 1,326.06 at 4 p.m. New York time, after dropping 0.5 percent earlier. The Dow gained 83.10 points, or 0.7 percent, to 12,758.85. The Nasdaq-100 Index rose 1.3 percent to 2,465.66, the highest since 2001.

“The Fed is saying that money will stay easy and the cost of money will stay low,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The ability for businesses to find the money they need to grow and for consumers to find the money they need to buy things is going to be easier. That makes the growth path a little simpler.”

Benchmark gauges reversed losses as the Fed extended its previous pledge to keep rates low at least until the middle of 2013 as more than two years of economic growth have failed to push unemployment below 8.5 percent. Fed Chairman Ben S. Bernanke said central bankers are still debating additional asset purchases.
Earnings Season

Investors also watched earnings reports. Of the 112 S&P 500 companies that reported results since Jan. 9, 74 posted per- share earnings that beat projections, according to data compiled by Bloomberg. Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, the data show. The projection has fallen from 6.2 percent at the end of last year.

The Morgan Stanley Cyclical Index of companies most- dependent on economic growth added 1 percent. The Dow Jones Transportation Average advanced 1.5 percent. All 10 groups in the S&P 500 gained.

Gold producers rallied as the metal climbed to a six-week high. Newmont Mining Corp. (NEM), the largest U.S. gold producer, jumped 4.8 percent to $60.25. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, climbed 4.8 percent to $46.08.
Apple Rallies

Apple rallied 6.2 percent, the most since May 2010, to $446.66. The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. (HPQ) as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

Textron surged 15 percent, the most in the S&P 500, to $24.76. Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 11 companies jumped 4.5 percent. Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) reported fourth-quarter profits that topped analysts’ projections. Delta Air climbed 6.2 percent to $9.96. US Airways rallied 17 percent to $7.52.
M&A Deal

Illumina Inc. (ILMN) surged 46 percent to $55.15. Roche Holding AG offered $5.7 billion in a hostile bid for Illumina to bolster sales of gene-mapping equipment and services. Roche proposed paying $44.50 a share, 18 percent more than yesterday’s close.

Walter Energy Inc. (WLT) gained 3.9 percent to $70.14. The company may finally lure buyers willing to bet on a recovery in coal prices with the industry’s cheapest stock. After losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week, according to data compiled by Bloomberg. That was less than any North American coal-mining company with $1 billion in market capitalization.

Walter Energy, which bought Western Coal Corp. for $5.3 billion in April, is an attractive target because it produces high-grade steelmaking coal, Brean Murray Carret & Co. said. A buyer could spend double Walter Energy’s closing price of $67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year, data compiled by Bloomberg show.

Banks (S5BANKX) Decline

Banks had the biggest decline in the S&P 500 among 24 industries, falling 0.3 percent. Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it harder to boost profits and capital after the Fed’s pledge on low rates. Bank of America rose 0.8 percent to $7.35. Citigroup added 0.2 percent to $29.96.

“This is a very dovish Fed,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s an attempt to push down long-term interest rates. They are pushing the rates down to a level where consumers should find them very attractive, but banks will find them very unattractive.”

Corning Inc. (GLW) tumbled 11 percent, the biggest decline in the S&P 500, to $13.05. The largest maker of glass for flat-panel televisions said glass prices contributed to a 53 percent drop in fourth-quarter profit and are still sinking.
Xerox, WellPoint

Xerox Corp. (XRX) slumped 9.9 percent to $7.81. The provider of printers and business services gave earnings forecasts that trailed some analysts’ estimates as Europe weakens.

WellPoint Inc. (WLP) decreased 4.8 percent to $66.10. The largest U.S. health insurer by enrollment forecast 2012 earnings and reported fourth-quarter profit that were less than analyst estimates on higher medical costs.

“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a phone interview. His firm oversees $3.5 trillion as the world’s largest asset manager. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”
bloomberg 25 Jan 2012:
Germany, Europe’s dominant economic power, signaled on Jan. 23 that it might back an increase in the region’s overall rescue capacity to 750 billion euros ($983 billion) from 500 billion euros.
Stockbroker: Economy would have collapsed without ECB interventions

Published 23 January 2012

Europe’s economy would have ‘vanished into the underworld’ had the European Central Bank not intervened in the eurozone debt crisis, says stockbroker Dirk Müller. He argues that a European ratings agency would ease the crisis and that the current combination of loans and austerity in Greece will lead to default.

Dirk Müller is a German stockbroker and best-selling author. Also known as Mr Dax, he is one of the most familiar faces on Frankfurt’s stock exchange.

He spoke with EurActiv Germany’s Daniel Tost.

After France and Austria were stripped of their AAA ratings, S&P also cut the European Financial Stability Facility’s rating by one notch to AA+. EFSF Chief Executive Officer Klaus Regling and Eurogroup head Jean-Claude Juncker immediately issued statements saying the decision would not reduce the EFSF’s €440 billion lending capacity. Does the EFSF have enough firepower?

The fund is ready for the very urgent payments. Should something larger become necessary – we are talking about Spain and Italy – the fund would of course not be prepared.

It was said that one had to get money from somewhere in order to leverage the thing and in order to motivate others to throw in money – a lot of money.

This has not been successful in the past. This move now is not particularly helpful in improving that.

The fund received solid demand at its six-month debt sale on Tuesday. Is there a need for an increase in guarantees to the EFSF?

The question is: How much money will one need and what’s awaiting us in the next 12 or 24 months? The ESM is going to replace the fund, then we will be talking about different structures.

At the moment the fund should be able to deal with things. But either it needs higher liabilities from the AAA states or one has to accept slightly higher interest rates. Although I think that this will be a lesser problem.

S&P’s downgrade of nine euro countries has caused widespread criticism. There is talk of a targeted attack on Europe and of a sort of self-promotion of the agency. Is it time for a European rating agency?

I think this is absolutely sensible and long overdue. But such a neutral institution that facilitates assessments is actually only useful for private investors or the bulk of investors.

We have to be clear about this: the ratings agencies we are now talking about are private American companies. On what grounds banks, even central banks, trust these companies with their own decisions is not comprehensible for me. It is the very own task of banks to assess risks.

If you take out a loan as a private person today, banks will X-ray you down to your underwear and assess the risk for themselves. But when it comes to investing billions in bonds, banks just put this inspection into the hands of American companies that have both economically questionable and certainly politically dubious interests, if you look at the structures and the ownerships.

Thomas Mayer, chief economist of Deutsche Bank, says that it would actually be better if one would get away from the agencies as a whole and more investors would rely on their own analyses…

That I can only underline.

Are the downgrades comprehensible in light of the far-reaching reforms in many of the struggling countries in the eurozone?

I would agree to the extent that the rating agencies are right in their sceptical view considering national debts. What I am absolutely not pleased about and what raises many questions is the application of double standards.

The UK, the US and Japan are seen with completely different eyes than the European states. This is reprehensible.

Then there is the timing. One to two years ago the rating agencies themselves called upon the European countries for exactly these reforms.

They have taken these steps and the consequence is the agencies saying: What you are doing is really bad and we need to punish this. This is really crossing the Rubicon and one should not surrender to these rating agencies.

According to ECB board member Ewald Nowotny, the downgrading came at an inopportune time: the tensions surrounding the debt crisis had recently eased somewhat. Will they be rekindled now?

Interestingly, the markets seem to be going numb towards the downgrades. A year ago this move would have caused turmoil. Today it is accepted with a shrug. It is expected and not taken particularly seriously.

Immediately afterwards, we saw yields on French bonds even decrease because this sword of Damocles was gone. It is increasingly missing its intended effect.

It was a reassuring signal for the markets when the bond auctions of Italy and Spain, which started amidst great fear, went through painlessly – also due to the support of the ECB and the pressure of the Italian and Spanish governments on their own banks to buy these bonds.

But we have been seeing these downgrades happening at exactly the right moment again and again. One might no longer believe in a coincidence.

Does the ECB need a stronger role to resolve the euro debt crisis?

The ECB already is playing the “master role”. Without the support of the ECB, we would have vanished into the underworld long ago. It made 500 billion available to the banks, which they immediately parked back at the ECB.

Now due to pressure from their governments, they have invested the smallest amounts in government bonds of Italy and Spain, because they are sitting in the same boat and Spain is saying: If you are not buying them, then we are going to drown – and you are going to drown with us.

One might say that this is pulling oneself up by the bootstraps. That’s about what is happening with the government bond acquisitions of banks. But without the ECB, we would already be somewhere else.

S&P argues that politicians analyse the crisis as a budget crisis or a public debt crisis. The agency believes, however, that a large part of the crisis is due to diverging economic imbalances in the external field, but also to the competitive capabilities of nations. Do you agree?

This is correct. We in Europe have created a huge problem with the euro. Every state needs the currency that suits its own performance. We have seen this, when about half a year ago, the Swiss franc was somewhat increased in value by capital flows.

Immediately Switzerland’s strong and stable economy was in difficulties, because export trade came under pressure. Citizens drove across the border in droves and bought in Germany. Imbalances in the currencies immediately lead to big shifts in trade flows.

In the Swiss example, we could immediately see this on the border and in front of the news cameras. Elsewhere this happens via computer and large contracts between companies.

With a currency much too strong for their possibilities, the Greeks cannot build up a business model. Greek exports account for 6% of GNP.

These imbalances have been developing for 10 years now. It is not correct to say: The euro has been a success story for 10 years and suddenly problems are arising from nowhere.

Different currencies act as a buffer between the different states. If I take out of this buffer, I have a rigid system with still different forces pulling against each other.

These build up, and as with an earthquake, what we are seeing now erupts. These tensions have built up for over 10 years and have not arisen only suddenly.

Moritz Krämer from S&P says that the so-called power of his industry is also wanted by politicians, because they have wired ratings into the regulations for banks or investors. Is this correct?

One can agree in part. I find it incomprehensible why, for example, the decisions by insurance companies whether to purchase bonds or not bonds are based on the ratings of S&P and Moody’s.

That the ECB itself even makes its own political decisions based on the judgment of US companies is not at all comprehensible. They seem to put off every thought of whom the agencies belong to, what role they play and what interests they may have.

Why these rating agencies are so powerful has another background. The US capital market is the most important and largest capital market in the world. Without this market no big global investor can be active.

Everyone depends on this market. In order to sell bonds there, I must allow for a review of a rating agency licenced in the United States. This is American law.

This means that as long as any company, bank or state wants to sell its bonds in America – and they all want this, because that is the market where you can make the money – you have to let yourself be rated by an American agency.

They decide who gets money and who does not – and if so, at what price. Now the question arises, what sense a European rating agency would make if it were not approved in the US.

The probability of a Greek default seems to be increasing. There is disagreement among the central banks of the eurozone about how the monetary authorities should deal with the Greek government bonds on their balance sheets. Is there any solution?

I am almost at a loss for words. For two years we have been pumping money into Greece. What is happening now was predicted two years ago. At that time I warned about exactly this kind of development: Pushing more money down Greece’s throat and at the same time imposing these extreme austerity measures.

Greece is saving itself into a disaster, the Greek economy will completely collapse and the consequence will be that Greece cannot meet its obligations at all. The tax money that we have made available so far, will be eliminated.

What we are doing is bordering on the misappropriation of taxpayers’ money. We should have done this hair-cut for Greece two years ago, taken the country completely off of the capital market, externally financed it and slowly rebuilt the Greek system.

Governments allowed the private sector a long time to part with their bonds. The ECB has bought these bonds in a big fashion. But not only the ECB, but also hedge funds. These have also been buying these bonds and have no interest in rescuing Greece.

Hedge funds have bought Greek bonds as well as bad-debt insurance in the form of credit default swaps and tell themselves: Now there are two versions. Either Greece goes bankrupt, then I make big money with my insurance. Or we don’t participate in the voluntary debt restructuring, which means we get 100% returned.

Hedge funds were provided this business model because of the long manoeuvring. The consequence is that taxpayers now have to pay. One year ago he would have not been involved. One can only say: Thank you very much.

By Jan Strupczewski and Ingrid Melander

BRUSSELS/ATHENS (Reuters) – Euro zone finance ministers will decide on Monday what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens after negotiators for private creditors said they could not improve their offer.

Resolving the issue of a Greek debt swap is key to putting Athens’ debt on a sustainable path and avoiding a chaotic default that could threaten the whole currency bloc.

After several rounds of talks, Greece and its private creditors are converging on a deal in which private bondholders would take a real loss of 65 to 70 percent on their Greek bonds, officials close to the negotiations said.

But some details of the debt restructuring, which will involve swapping existing Greek bonds for new, longer-term bonds to bring Greek debt down to a more sustainable 120 percent of GDP in 2020 from 160 percent now, are unresolved.

“What I am confident of is that our offer, that was delivered to the prime minister, is the maximum offer consistent with a voluntary PSI deal,” Institute of International Finance chief Charles Dallara, who is negotiating on behalf of banks and insurers holding Greek debt, told Antenna TV on Sunday.

“We are at a crossroads and I remain quite hopeful,” said Dallara, who left Athens on Saturday without a deal in place.

“We will listen to the report on the negotiations, see how far they have gotten and have the ministers say what is acceptable and what is not in terms of outcome of the negotiations,” one Eurogroup official said.

Once the guidance from the finance ministers, known as the Eurogroup, is clear, talks on the restructuring could be finalized later in the week.

Talks on the extent of Private Sector Involvement (PSI) in the Greek debt restructuring are a vital part of a second financing package for Athens that would keep it funded until 2014.

“We are working for a deal in time for the January 30 summit of EU leaders. The restructuring offer needs to be made in the course of February,” the official said.

“Obviously there is a clear link between the PSI and the next programme and what we will be focusing on in the Eurogroup is making the next programme operational.”

Without the second bailout from the euro zone and the International Monetary Fund, Greece will not be able to pay back 14.5 billion euros in maturing bonds in March, triggering a messy default that would hurt the whole euro zone economy.

There are doubts that even with a new bailout Greece’s mountainous debt can be reduced to a still-painful 120 percent of GDP by 2020.

German Finance Minister Wolfgang Schaeuble said on Sunday the crucial factor was that Athens should have a level of debt that was sustainable by then. “This goal must be achieved,” he told German public broadcaster ARD.

STICKING POINT

Euro zone leaders agreed in October that the second bailout would total 130 billion euros, if private bondholders forgave half of what Greece owes them in nominal terms.

But Greek economic prospects have deteriorated since then, which means either euro zone governments or investors will have to contribute more than thought.

The main sticking point is coupon, or interest rate, the new Greek bonds would carry. Officials said the new bonds are likely to be 30 years in maturity and carry a progressively higher coupon, which would average out at around 4 percent.

“The euro zone ministers will examine the proposal and say whether we have a deal. If they say we don’t, we’re back to the negotiating table,” a banking source close to the talks said.

Progress will be presented to euro zone ministers by Greek Finance Minister Evangelos Venizelos.

“We then expect a discussion about the coupon,” a senior Greek banker close to the negotiations told Reuters.

“I believe that the private sector can accept a lower coupon than the 4 percent average, but the question then is: will the PSI still be on a voluntary basis?” he said.

The voluntary character of the debt restructuring is important to avoid triggering the pay-out of insurance against a Greek default.

While the sums of such insurance appear relatively small, euro zone officials said, such a “credit event” could trigger a chain reaction of events that would entail rapid and large scale contagion in euro zone debt markets, and is thus best avoided.

NEW RESCUE FUND

After dealing with Greece, euro zone ministers will choose a replacement for European Central Bank Board member Jose Manuel Gonzales Paramo, whose term ends in May.

The 17 ministers of the euro zone will then be joined by 10 ministers from the other European Union countries to finalise a treaty setting up the euro zone’s permanent bailout fund – the 500 billion euro European Stability Mechanism (ESM). Its predecessor, the EFSF, is widely viewed as insufficient.

The ESM is another crucial element in the bloc’s efforts to end the sovereign debt crisis that threatens to engulf Spain and Italy after claiming Greece, Ireland and Portugal.

The fund should boost market confidence in euro zone defences should Spain or Italy need emergency financing. Separately, the IMF has launched a proposal to boost its war chest by $600 billion.

IMF head Christine Lagarde is to discuss this during a meeting with German Chancellor Angela Merkel on Sunday. She will make a speech on Monday in which she is expected to urge euro zone leaders to act quickly while acknowledging it is not merely Europe’s problem because “innocent bystanders” will also be hit by a worsening debt crisis.

The 27 EU finance ministers will also prepare the final draft of another treaty to sharply tighten fiscal discipline in the euro zone, called the fiscal compact, that is designed to ensure another sovereign debt crisis cannot happen in future.

EU leaders are to sign off on both treaties on January 30, allowing the ESM to become operational in July.

To prepare for the January 30 summit, Merkel will meet European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy on Monday evening.

(Additional reporting by Lefteris Papadimas and Ingrid Melander in Athens; Reporting By Jan Strupczewski, editing by Mike Peacock)
European banks prepare for worst, hoard cash

10:43am EST

By Gareth Gore and Christopher Whittall

Jan 20 (IFR) – European banks are preparing for a potential worsening of the region’s sovereign and banking crisis, with many firms stockpiling cash and cutting back on loans to new clients as they seek to protect themselves against a possible seizing-up of financial markets.

Faced with 650 billion euros of debt coming due this year – almost 40 percent of which matures before the end of March – lenders are choosing to build up a cash cushion to ensure they can cover redemptions, creating a squeeze on the wider economy in the process.

Such hoarding illustrates the nervousness of lenders even after the European Central Bank injected 489 billion euros of cash into the banking system in December. Cash deposits at the ECB have ballooned since then, reaching a record 528 billion euros this week – higher than after the Lehman Brothers collapse.

“The big concern is that things might get worse,” said Bernd Hartwig, treasury manager at Nord/LB. “Political decisions are taking too long and most banks are building up liquidity just in case something happens. They are very worried that a new crisis could be a bigger than 2008.”

System-wide hoarding is the reverse of what happened the last time central banks injected hundreds of billions of long-term money into the system. Then, banks moved quickly to put the money to work and generate returns, sparking bond and equity market rallies – and economic growth.

The US Federal Reserve almost trebled the size of its balance sheet to more than $2 trillion in the months after the collapse of Lehman Brothers, pumping cash into the banking system through programs such as the Term Auction Facility. The ECB grew its balance sheet by about a quarter in that time.

WAIT AND SEE

But this time round, many banks have taken the decision to wait. While some have paid off interbank loans – so boosting the cash reserves of creditor banks – and a handful have bought some domestic government paper, most are choosing not to commit new cash to assets or to lending.

“For many banks it’s all about survival and they have just bought more time for themselves with the ECB money,” said the treasurer of one of Europe’s largest banks. “None of the fundamentals have been addressed. People are in standby mode – you might need lots of liquidity at short notice.”

There are other factors at work, too. Banks face strict new capital and liquidity rules, and many are planning to shrink their balance sheets in order to meet those targets – not buy more. They also do not want to commit to new assets because selling out could prove difficult should conditions worsen.

“The problem is completely different from 2009,” said Elie el Hayek, global head of interest rates at HSBC. “Back then, a big proportion of the money went into assets. This time, banks cannot do that simply because they need to protect their capital and liquidity. They know any mark-to-mark losses will eat into those buffers so they don’t want to take the risk.”

PREMATURE OPTIMISM?

Recent market optimism might also be premature. Although recent sovereign bond deals have been well bid, bankers say buying in secondary markets has been weak, and that there are few signs of banks using fresh cash to buy up European government bonds.

The lack of demand in secondary markets is partly due to the stigma now attached to peripheral bonds. Investors and regulators have started to ask more questions about such exposures, with the European Banking Authority penalizing banks for holding Spanish and Italian bonds during recent stress tests. Italian 10-year bond yields have fallen slightly in recent weeks, but have not dropped below 6.3 percent since early December.

“Banks are coming under political pressure to buy in the primary market,” said Pavan Wadhwa, head of global interest rate strategy at JP Morgan. “Given the lack of demand in the secondary market for peripheral paper, we estimate the ECB would need to more than double its current pace of purchases of Italian and Spanish paper to stabilize markets at the longer end.”

On the funding side, a recent fillip in bank bond deals also masks deep underlying problems. Banks have raised more through unsecured bond issues in January than they did in the whole of the second half of 2011. But only the highest rated banks have been able to get deals done.

That leaves hundreds of other firms with debts coming due and no prospect of tapping private investors. At the ECB’s first three-year long-term refinancing operation in December, 523 banks collectively borrowed 489 billion euros. Bankers expect the February three-year LTRO to be popular too.

“The concurrent increase in deposits at the ECB is consistent with banks building up funds to replace maturing debt,” Fitch Ratings said in a report this week. “We expect the next three-year funding round in February to see a similarly high level of take-up.”

NEGATIVE CARRY

Although banks earn little by depositing cash at the ECB – a measly 0.25 percent – and so effectively lose money because they are paying a much higher rate to borrow the cash in the first place either from the central bank or privately, treasury officials and CFOs feel justified making those losses.

“Running a liquidity position is a cost,” said the treasurer at a bank facing one of the highest refinancing hurdles this year, who confirmed that the bank had tapped the ECB in December only to deposit the money right back there. “But taking cheap money from the ECB is going to increase your liquidity and placate investors and shareholders.”

High deposits at the ECB are not necessarily being made by the same banks borrowing from the central bank – although there is some anecdotal evidence of a handful doing that. Rather, high deposits are indicative of cash being hoarded on a system-wide basis.

For now, banks say they will sit on the cash until the larger problems are sorted. “Do I want new customers with high risk and low rates? I don’t think so,” said one treasurer.

If, however, confidence returns to the markets and banks become less fearful, a huge bounce in asset prices is possible. Some believe that the slow build-up of cash at the ECB creates the potential for a massive asset binge should nervousness ease and bank funding stabilize. The ECB balance sheet recently reached a record 2.7 trillion euros, the highest in its short history.

(This story will appear in the January 21 issue of the International Financing Review, a Thomson Reuters Publication. www.ifre.com )

Lembaga pemeringkat internasional, Moody’s Rating, menyatakan peringkat Indonesia masih bisa naik lagi. Asalkan memenuhi beberapa syarat yang ditentukan.

Berdasarkan siaran pers Moody’s yang dikutip detikFinance, Rabu (18/1/2012), beberapa faktor yang bisa menyebabkan pangkat Indonesia naik lagi antara lain:

Melebarkan ruang fiskal untuk meningkatkan pendapatan

Kondisi neraca pembayaran yang sehat secara berkelanjutan

Rekam jejak stabilitas moneter dan harga barang

Perkembangan dalam menyelesaikan hambatan-hambatan dalam infrastruktur sehingga menamba potensi pertumbuhan ekonomi

Menggenjot permodalan dan kredit dalam negeri secara bertahap supaya mempermudah akses pinjaman ke luar negeri.

Akan tetapi, Moody’s juga tak hanya mengiming-imingi untuk kembali menaikkan peringkat Indonesia, tapi juga memberikan peringatan peringkat tersebut sewaktu-waktu bisa diturunkan juga.

Turunnya peringkat tersebut diakibatkan oleh beberapa faktor seperti di bawah ini:

Inflasi tak terkendali dan stabilitas moneter

Gejolak hebat akan fiskal dalam negeri

Utang dan nilai tukar mata uang yang berbalik arah, misalnya, gara-gara salah mengeluarkan kebijakan Situasi politik yang tiba-tiba menggucang dan menghilangkan kepercayaan masyarakat dan investor asing

Seperti diketahui, Moody’s Rating menaikkan peringkat utang luar negeri Indonesia menjadi Baa3 dari sebelumnya Ba1. Outlook untuk peringkat ini ditetapkan stabil.

Ini merupakan kali kedua Indonesia mendapatkan kenaikan peringkat. Sebelumnya, pada 15 Desember 2011 lalu salah satu dari tiga lembaga pemeringkat kelas dunia, Fitch’s Rating menaikkan peringkat Indonesia dari BB+ menjadi BBB-. Ini merupakan peringkat yang setara dengan investment grade alias negara yang layak menjadi tempat berinvestasi.

Sumber: detikcom
Dollar Slides on Signs of Economic Recovery
By Monami Yui and Masaki Kondo – Jan 18, 2012

The dollar fell against most of its major counterparts before U.S. data today forecast to show industrial production rose and confidence among homebuilders increased, reducing demand for safer assets.

The euro gained versus the greenback for a second day after a hedge-fund manager on a creditors’ committee for Greece said yesterday the country is nearing a deal on its debt. Greek Prime Minister Lucas Papademos will resume negotiations with private bondholders today. Australia’s dollar traded near the highest level in 11 weeks before a report tomorrow that may show the country’s employers added jobs in December.

“The U.S. economy is showing signs of recovery,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. Haven currencies including the dollar and the yen “will come under a bit more pressure” over the next 12 months, he said.

The dollar weakened 0.3 percent to $1.2777 per euro at 2:28 p.m. in Tokyo from New York yesterday. The yen slid 0.1 percent to 97.97 per euro, following a 0.6 percent decline yesterday. The dollar was at 76.68 yen from 76.83.

Output at U.S. factories, mines and utilities probably increased 0.5 percent in December after a 0.2 percent drop in the prior month, according to the median estimate of economists in a Bloomberg News survey before the Federal Reserve releases the figures. The National Association of Home Builders/Wells Fargo index of builder confidence is projected to rise to 22 this month, a separate poll shows. That would be the highest since May 2010 and an increase from December’s figure of 21.
Debt Negotiations

Greece will resume talks today with the Institute of International Finance, which represents private creditors. The Washington based IIF broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds.

Demand for the euro increased as Bruce Richards, chief executive officer of New York-based Marathon Asset Management LP, said Greece is nearing a deal with bondholders that would give them cash and securities with a market value of about 32 cents per euro of government debt.

“I’m highly confident the deal will get done,” Richards said in a telephone interview yesterday with Bloomberg Businessweek. Marathon is on the committee of 32 private creditors.
Shorting the Euro

Futures traders last week increased bets to a record that the euro would weaken against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise — so called net shorts — surged to 155,195 in the week ended Jan. 10, data from the Commodity Futures Trading Commission showed on Jan. 13.

“Because short positions have accumulated, there is an unwinding of these positions,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin trading services. “Only expectations are supporting the euro, including one that Greece’s debt-swap deal will be settled somehow.”

Fitch Ratings joined Standard & Poor’s in warning that Greece will fail to fully honor a bond payment, adding to concern that a first sovereign default in the euro area will further undermine investor confidence in the common currency.
Greek Default

“The so-called private sector involvement, for us, would count as a default,” Fitch Managing Director Edward Parker said yesterday in an interview. “So it won’t be a surprise when the Greek default actually happens and we expect it one way or the other to be relatively soon.”

Moritz Kraemer, S&P’s managing director of European sovereign ratings, said a day earlier that “Greece will default very shortly” because the proposed debt swap is considered a default.

The euro has weakened 4.1 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen has risen 8.6 percent, the best performance among the 10 currencies tracked by the gauges. The dollar advanced 6.7 percent.

“The possibility is rising that a Greek default will become a reality,” said Koji Iwata, a vice president in New York at Mizuho Corporate Bank Ltd., a unit of Japan’s third- biggest banking group by market value. “Concerns about the euro have yet to disappear, so it isn’t going to have a big rebound.”

Portugal is due to offer bills today maturing in 91, 182 and 336 days, after Spain yesterday auctioned 12-month debt at an average yield of 2.049 percent, compared with 4.05 percent at a sale on Dec. 13. Greece sold 1.625 billion euros ($2.1 billion) of 13-week bills yesterday with a yield of 4.64 percent, down from 4.68 percent on Dec. 20.
Aussie Dollar

The Australian dollar advanced for a second day before government data forecast to show the number of people employed in Australia rose by 10,000 last month after a decline of 6,300 in November. The jobless rate is projected to remain unchanged at 5.3 percent, according to the median of economists’ estimates in a Bloomberg survey.

“We could get a lift in the short term for the Aussie on the back of the jobs data, which is likely to be relatively strong,” said Jim Vrondas, a manager at the online foreign- exchange dealer OzForex Ltd. in Sydney. “When risk comes on the table again, the Aussie will go higher, but that would probably be a good opportunity to sell.”

The so-called Aussie strengthened 0.1 percent to $1.0391. It rose as high as $1.0450 yesterday, the strongest level since Nov. 1.

– With assistance from Candice Zachariahs in Sydney and Mika Otsuka in New York. Editors: Benjamin Purvis, Jonathan Annells
JAKARTA: Pencapaian rating layak investasi seperti tak berdampak secara langsung kepada Indonesia, karena ada permasalahan kompleks yang mendera perekonomian global. Namun, pelaku usaha harus memandang pencapaian rating itu sebagai momentum untuk tetap bergerak.

Hal tersebut disampaikan oleh Gubernur Bank Indonesia Darmin Nasution dalam keynote Financial Lecture “Pasca Investment Grade” What’s Next? Yang di gelar Bisnis Indonesia, pagi ini.

Darmin menyampaikan pencapaian peringkat layak investasi bisa dikatakan prestasi Indonesia setelah 14 tahun melakukan pembenahan. Namun, sambungnya, yang paling istimewa pencapaian itu diperoleh saat negara lain, terutama negara maju, mengalami penurunan peringkat.

“Kita perlu menghargai karena saat perekonomian dunia sedang bergejolak dimana sejumlah negara, bahkan yang rating AAA mengalami penurunan rating. Saya kira kontras itu betapa Indonesia telah belajar banyak memperbaiki banyak dari krisis yang berlaku sejak 1997-1998,” terangnya.

Namun, tuturnya, pencapaian peringkat layak investasi itu pada saat ekonomi Eropa dan Amerika tengah ‘tenggelam’ dalam krisis, sehingga dampak dari aliran dana asing tak begitu terasa, karena tiap pemodal mengamankan likuiditasnya.

Bahkan, lanjutnya, pemodal cenderung menarik modal dalam kondisi panik. Hal itu terlihat dari penempatan dana Sertifikat Bank Indonesia yang menurun pada level terendah pada posisi 13 Januari Rp2,7 triliun.

“Kenaikan rating itu dihadapkan pada situasi mix. Kita menghadapi situasi dimana persepsi pasar di suatu pihak mengapresiasi pasar kita, tapi pihak lain keuangan dunia sedang bergejolak yang sebenarnya sumber dari AS tapi kemudian ke zona Euro,” paparnya.

Satu sisi, ungkapnya, perlu ada pembenahan di dalam negeri guna mengantisipasi perbaikan ekonomi global. Pasalnya pada saat ekonomi membaik aliran dana akan meningkat, sehingga jika Indonesia tak siap justru akan sia-sia.

“Maaf saya tak pidato berbunga-bunga dalam investement grade, karena ini hanya tonggak mengukur diri kita untuk terus maju berjalan, karena kita akan sadar dilewati negara lain jika tak bergerak,” tegasnya.

http://www.bisnis.com/articles/financial-lecture-ekonomi-global-didera-masalah-kompleks

Sumber : BISNIS.COM
STRASBOURG, Jan 16, 2012 (AFP)
European Central Bank chief Mario Draghi on Monday downplayed the importance of ratings agencies after Standard & Poor’s mass downgrade of eurozone countries, saying markets had priced in the action.

“I think what we should do is to learn either to do without them or with them but to a much more limited way than we do today,” said Draghi, in his capacity as head of the European Systemic Risk Board (ESRB).

“To a great extent, markets anticipated these ratings changes and priced their assets as if these ratings had already been issued,” said Draghi, speaking at the European Parliament in Strasbourg.

Europe’s leading stock markets on Monday shrugged off a wave of ratings downgrades on Friday, including that of France’s triple-A status, while the euro remained essentially unchanged.

As Draghi was speaking, S&P also downgraded the EU bailout fund EFSF by one notch to AA+ but said it would restore the top AAA ranking if the fund obtains additional guarantees.

Asked about this, Draghi said that other top-ranked countries would have to put more cash into the EFSF if the bailout fund wanted the same firepower.

“If you want the same price and lending capacity … you have to have additional contributions from triple-A countries,” he said.

Following S&P’s lowering of former triple-A France and Austria, only four countries in the eurozone retain their top ranking: Germany, Netherlands, Luxembourg and Finland.

The ECB president also appeared to suggest widening out the number of ratings agencies.

“We don’t have competition in the rating industry, so whatever we do to increase this competition is well done,” he said.

“We should learn to assess creditworthiness in a way in which ratings, or credit ratings agencies, are one of the many components of our information, we don’t depend 100 percent on the ratings agencies,” he added.

Draghi also issued a dire warning on the eurozone financial crisis, saying it had got worse in the past few months, describing it as “very grave”.

“When my predecessor Jean-Claude Trichet addressed this committee last October, he characterised the current crisis as one that had reached systemic dimensions. Since then, the situation has worsened further,” he said.

“We are in a very grave state of affairs and we must not shy away from this fact,” added Draghi.

He also warned European leaders that efforts to tighten the bloc’s fiscal rules as a response to the crisis must be implemented quickly.

“The euro area heads of state and government have agreed on an important fiscal compact,” said Draghi.

“However, decisions without matching actions are not enough,” cautioned the ECB president.

The ESRB was set up by the European Union to identify any emerging problems in Europe’s financial system so that relevant authorities could act correspondingly.

Although officially speaking as head of the ESRB, Draghi also defended the ECB’s actions in providing nearly half a trillion euros of funds to banks in a bid to ease credit conditions in the eurozone.

The ECB decided last month to make unlimited amounts of liquidity available to eurozone banks at super-cheap rates for a period of three years, the longest refinancing operation conducted by the ECB yet.

With these actions, “we think we have avoided a major credit crunch even though in some parts of the (euro) area, this credit crunch is already on its way”.

Asked about Greece, Draghi said he could only offer generalised comments, given talks were ongoing between Athens and its creditors.

However, he said that “both because of much lower growth and because of some lack of implementation”, Greece’s fiscal programme “isn’t delivering what was expected”.

PARIS, Jan 16, 2012 (AFP)
The Standard and Poor’s ratings agency on Monday downgraded the EU bailout fund EFSF by one notch to AA+ but said it would restore the top AAA ranking if the fund obtains additional guarantees.

The decision was the result of downgrades to France’s and Austria’s ratings from AAA since they served as top-level guarantors of the European Financial Stability Facility, S&P said in a statement.

“The EFSF’s obligations are no longer fully supported either by guarantees from EFSF members rated ‘AAA’ by Standard & Poor’s, or by ‘AAA’ rated securities,” said S&P.

The eurozone’s temporary bailout fund uses guarantees from its top-rated members to borrow funds at low rates on the market to loan onwards to countries which can no longer borrow on their own at affordable rates.

S&P’s downgrade of France and Austria to AA+ deprived the eurozone of two of the six triple-A countries that had underpinned the EFSF’s top rating.

“The outlook is developing, which reflects that we could raise the EFSF’s long-term rating to ‘AAA’ if we see that additional credit enhancements are put in place,” said S&P.

Eurozone countries have already been looking at whether to boost the EFSF, as it is now seen as insufficient if either Spain or Italy stumble, but so far Germany has stood squarely against increasing its contribution.

German Finance Minister Wolfgang Schaeuble told Deutschlandfunk public radio: “The guarantees for the EFSF are largely enough for what it has to do in the coming months.”

Following the S&P downgrade the German finance ministry said no immediate action was needed on the EFSF.

However European Central Bank head Mario Draghi warned Monday that if the eurozone wanted to have the same level of rescue funds at the same cost it then top-rated countries would have to stump up more guarantees.

“If you want the same price and lending capacity … you have to have additional contributions from triple-A countries,” said Draghi, adding otherwise the EFSF would have less capacity or higher costs.

The EFSF, which started off with borrowing power of 440 billion euros, has 250 billion euros left following rescues of Portugal and Ireland.

Greece is also awaiting a second bailout, leaving scant funds to come to the aid of Italy or Spain, the eurozone’s third and fourth economies, which have been faced with elevated borrowing costs.

A permanent fund, the European Stability Mechanism (ESM), is due to begin operating in July. It will run in parallel with the EFSF, a temporary instrument, for one year.

The combined capacity of both funds is supposed to be capped at 500 billion euros, but several countries, the European Central Bank and the European Commission want it to be bigger.

S&P warned that if it concludes credit enhancements are not likely to be made on the EFSF it will switch its rating outlook to negative to mirror the outlooks on France and Austria, and continue to be linked to changes in their ratings.

Cooling economy leaves air
in China’s homes market
By Robert M Cutler

MONTREAL – Property prices continue to decrease in China, but there is no sound of a bubble popping. The China Index Academy, an institute focusing on real estate, reports that property prices declined in November for the third month in a row, down 0.3% from October after October was down 0.2% from September. Prices fell in all 10 of the biggest cities, and in 57 of the 100 that the Academy tracks.

This is in line with the report last month by China’s National Bureau of Statistics that that residential property prices fell in October in 33 of the 70 cities it tracks, double the number from September. In a report released on Monday, Credit Suisse forecasts residential property prices in China to decline 20% from their high in 2011 through the end of 2012.

Home prices in many second- and third-tier cities still grew

Dilbert

strongly, as the central government continued to enforce policies to restrict home purchases on the local governments. The latter, by contrast, have an interest in liberalizing such purchases because local authorities derive significant revenue from sales of land. That is easier for them than crafting policies to promote small and medium enterprises, which therefore suffer and have not driven job-creation as strongly as they might have done.

Other statistics released this week suggest a continuing slowdown in Chinese economic growth, also due to domestic rather than international factors. From China, economists look at two Purchasing Managers Indexes (PMIs), which are measures of manufacturing activity with a neutral value of 50. A figure over 50 indicates economic expansion, and under 50 contraction. The official PMI released by the China Federation of Logistics and Purchasing fell from 50.4 in October to 49 last month, while the PMI compiled by HSBC fell from 51 to 47.7.

The PMI news follows the November 29 action by the People’s Bank of China (PBoC – central bank) to cut the required reserve ratio for the country’s banks by half a percentage point to 21% for the largest banks. This had the effect of increasing the amount of capital available for transfers among banks and for lending, and was seen as an indicator of the end of a general policy of monetary tightening.

In response, the SSCI stock index in Shanghai jumped 2.3% in a single day, although it has since settled back down to its level of a week ago, before the move. The SSCI is now at its lowest level since March 2009 and is still imprisoned in a marked downtrend channel that began eight months ago. If the high 2,200s are violated, then the next potential technical support (based December 2008) is to be found at 2,020, with real terra firma only lower, in the low 1,700s. Short-term technical indicators are generally unfavorable, medium-term indicators likewise unfavorable although a bit less so.

Declining real property prices and the loosening by the PBoC have increased the impression, or at least the hope, that China may obtain its desired “soft landing”. However, the PBOC’s loosening together with an anticipation relaxation of central restrictions on local property sales may lead to inflating the property bubble once more.

But Morgan Stanley’s Stephen Roach is skeptical of the skeptics, telling Bloomberg News that while Europe, China’s biggest export market, is showing softening demand, nevertheless China can be expected to “make conventional policy adjustments to stimulate their economy”, which the US for example cannot do. Roach expects inflation to continue to fall in China.

If the central decision has been taken in Beijing that there should be no more property bubble, then there could be negative consequences for economic growth next year. Decreased home construction would have knock-on slowdown effects in related industries, and demand would also fall for products and materials whether domestic or imported. Such a slowdown could be felt worldwide through, for example, decreased prices for copper, which is widely used in home construction and home appliances.

Already there is discontent among recent home and apartment buyers who have seen prices fall by as much as 20% since their purchases were finalized. Developers will have to cut prices even more to unload inventories in order to service their debts. Housing starts in August were up by almost one-third over August 2010, but in October they were essentially the same as October a year ago.

Despite this and other social problems related to housing (for example, there are also older Chinese who have put their life savings into real estate), an expert consensus is forming that the real estate bubble in China has been exaggerated. That is not to say that problems do not exist and will not continue. However, even a generalization of price cuts across the board for homes would not produce a “systemic crisis” because of strict mortgage regulation and the requirements for large down payments.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.
Southeast Asia-China rise, fall together
By Shawn W Crispin

BANGKOK – If China slips, how far will Southeast Asia fall? With the United States and Europe facing prolonged and potentially worsening economic downturns, concerns are rising that China’s earlier resilience to global economic turmoil is starting to fade, darkening the outlook for the rest of emerging Asia.

China’s resilient growth helped Southeast Asia bounce back briskly from the 2008-9 global financial crisis, providing an alternative and fast growing source of demand for the region’s many export-geared economies. The recent rise of that intra-regional trade has been interpreted by some analysts as a sign that Southeast Asia has ”decoupled” from its past heavy reliance on Western export markets through greater integration with China.
Hard and soft commodities now account for 44% of Southeast

Asia’s total exports, a percentage that has risen this year while the region’s manufacturing shipments to the US and Europe have faltered. China’s emergence as a source of final demand for food, fuels and basic manufactured goods has contributed to the shift, a trade trend that has buoyed commodity exporters in Indonesia (coal, natural gas), Malaysia (palm and crude oil) and Thailand (foods).

At the same time, a much larger percentage of the region’s China-bound exports are processed in Chinese factories into products that are ultimately re-exported to the wider world. While China’s share of global imports has nearly doubled since 2003, rising from around 5% to 9%, its global share of domestic consumption is still small compared to the West. Consumption is a mere 35% of gross domestic product (GDP) in China, around half the amount in the US.

For Southeast Asia, China still serves more prominently as a regional assembly plant for re-export than as a final consumer of its commodities and products. Credit Suisse, an investment bank, shows in recent research that while official trade figures in Indonesia, Malaysia, Singapore and Thailand indicate that less than 30% of each countries’ total exports are sent directly to the West, the actual diversification is misleading when the final destination of the products is traced.

While less than 20% of Singapore’s exports are sent directly to the US and Europe, correlation statistics show that nearly 90% ultimately end up in either market. Only 20% of Indonesia’s shipments are sent directly to the West but 85% eventuate in the US and Europe after being re-exported from second countries, mainly China. In Thailand, where exports account for over 70% of GDP, the breakdown is 25% and 85% respectively. (Although less export-oriented, the Philippines has the most genuinely diversified trade in the region.)

Statistical haze
China’s dominant role in processing and re-exporting Southeast Asia’s commodity exports make the region especially vulnerable to a potential Chinese downturn. A residential property bubble, the impact of rising wages on global competitiveness and signs of weakening exports all threaten to undermine China’s 2012 growth prospects. The question to many analysts is whether China’s economy will merely slow or totally collapse.

Amid those signs of trouble, Chinese authorities are apparently doctoring official statistics more than normal to maintain confidence in the broad economy’s direction. Investment bank analysts note that robust export growth figures for November reported by China’s General Administration of Customs are at clear odds with more downcast container throughput statistics released by different Chinese ports.

The upbeat export growth statistics are also at seeming odds with the growing number of reported factory closures in the country’s southern export belt, which in recent months has been buffeted by rising worker unrest. Doubts have also been cast on last month’s official 16.9% jump in retail sales, which was out of step with a coincident month-on-month fall in inflation. China’s residential property problem, meanwhile, is the country’s largest statistical black hole.

With those contradictory indicators, economic analysts are now weighing hard and soft landing scenarios. The soft landing view foresees Chinese central technocrats responding timely with well-calibrated fiscal and monetary policies that maintain GDP growth of around 8%, the annual rate Beijing must achieve to absorb new graduates into the work force and keep unemployment manageable.

The hard landing scenario predicts that an uncontrolled implosion of the property market will unleash waves of wealth destruction, a credit crunch and consumption collapse that no amount of government intervention will be able to meaningfully forestall. That view sees worrying similarities, including a property bubble, questionably lending practices and deterioration in the current account, to the signs seen before Southeast Asia’s spectacular 1997-8 financial and economic collapse.

Blind consensus
Despite those signs of weakness, the consensus view among international investment banks, multilateral lenders and sovereign rating agencies is for a soft rather than hard landing. The World Bank’s 2012 economic growth forecasts for Southeast Asian countries are predicated on economic growth of around 8% in China. Investment banks CLSA, JP Morgan and UBS have all forecast in recent research notes a moderate rather than severe slowdown in China next year.

Kim Eng Tan, a director of sovereign and international public finance ratings at Standard & Poor’s, plays down the potential for a near-term hard landing, in part because the government will prioritize and has the policy tools at its disposal to maintain strong economic growth during the leadership transition from President Hu Jintao to Xi Jinping scheduled for the autumn of next year. He argues that China’s property bubble is less risky than the ones that have popped in the US and Europe because China’s banks have lent mainly to the rich and powerful rather than subprime borrowers who have defaulted en masse on their housing loans in the West.

Sriyan Pietersz, JP Morgan’s Bangkok-based head of research, believes there is room for China’s central technocrats to take a policy ”middle path”, one that maintains steady fast economic growth and continues to buoy Southeast Asia. He believes economic managers will respond in ”two step” fashion, with new stimulus measures targeting the productive side of the economy while other policy measures address problems in the non-productive sector, ie the property market.

Such a policy balance, Pietersz argues, would maintain strong Chinese demand for Southeast Asian commodities, an asset class he views as a ”safe haven” from global market volatility because most – including liquefied natural gas, coal and rice – are not traded on formal financial markets and thus are priced more by underlying demand than market-driven speculation.

Unlike the 2008-9 global financial crisis, when a crash in global manufacturing drove a collapse in global commodity prices, the two are moving in divergent directions (manufacturing down, commodities up) under current market pressures. Pietersz argues that’s because Chinese authorities are reacting more quickly to the threat of global weakening than they did in 2008, including a recent easing in reserve requirements for lenders and ramped up central government fiscal spending on infrastructure.

Tide of history
While China is reacting, other analysts have already raised doubts about the quality of the response and authorities’ ability to quarantine the economic good from the bad. A similar state-led push in 2008-9 bankrupted many provincial governments who were given a carte blanche to spend to maintain fast national growth. The head of research at an international investment bank, who requested anonymity because his personal views are at odds with his institution’s soft landing forecast, questions the economic wisdom of current fiscal plans to build as many as eight million new public housing units and thus boosting supply at a time the private residential market faces a price bubble.

He argues that no country in economic history has ever invested over 40% of GDP for five consecutive years – real-estate investments account for nearly half of the recent overall rise in total investment – and not eventually suffered a financial crisis. One of his top institutional investor clients is now short-selling consumption-related stocks worldwide in anticipation of an eventual Chinese, and by association, commodity price collapse.

Should that bearish view gain greater market currency, commodity prices would likely be among the first China-related asset classes to tumble. There were indications markets were moving in the direction in September when many Southeast Asian stock markets weakened, apparently amid concerns about the durability of China’s future growth. While Southeast Asia has benefited by piggybacking on China’s until now strong growth and demand for commodities, the region will inevitably be among the worst hit by a soft or hard landing in China.

Shawn W Crispin is Asia Times Online’s Southeast Asia Editor.
KRISIS EROPA: Tenang, benteng pertahanan Indonesia kuat

Oleh Arief Budisusilo

Jum’at, 13 Januari 2012 | 09:42 WIB

bisnis indonesia

Khawatir krisis Eropa memburuk? Tak perlu cemas berlebihan. Berikut ini adalah sejumlah langkah pengamanan untuk memadamkan risiko fiskal, yang disampaikan oleh Menteri Keuangan Agus Martowardojo di Jakarta, Kamis, 12 Januari.

LANGKAH MITIGASI KRISIS:

* Pemerintah akan mempercepat penyerapan anggaran sejak awal tahun, menyediakan protokol pengelolaan krisis bersama Bank Indonesia, dan menyediakan Dana Stabilisasi Obligasi.

* Kementerian Keuangan juga menyiapkan penggunaan Sisa Anggaran Lebih untuk stabilisasi Surat Berharga Negara jika terjadi penarikan secara tiba-tiba (sudden reversal), dan penyediaan pinjaman siaga untuk ketahanan pangan. Sisa anggaran hingga akhir 2011 mencapai Rp97 triliun.

* Ketahanan ekonomi kuat dari sisi cadangan devisa yang mencapai US$110 miliar

*Indonesia memiliki kesepakatan untuk memanfaatkan fasilitas keuangan dari ChiangMai Initiative senilai US$120 miliar serta fasilitas swap dengan China dan Jepang masing-masing US$15 miliar dan US$12 miliar.

* Pemerintah juga menyiapkan cadangan dana untuk mengatasi risiko fiskal tahun ini, antara lain pembentukan dana cadangan risiko fiskal senilai Rp15 triliun, alokasi dana bantuan sosial senilai Rp47,8 triliun, subsidi non energi Rp40,3 triliun, dan cadangan beras Rp2 triliun.

* Posisi Indonesia lebih aman lagi mengingat rasio utang, berdasarkan update terbaru, mencapai 24,9% terhadap PDB.

* Dengan investment grade, biaya pinjaman untuk Indonesia terus menurun, saat ini rata-rata bunga utang Indonesia lebih murah sekitar 3% dibandingkan rata-rata peer di emerging market.

* Dampak krisis Eropa ke Indonesia tidak terlalu besar mengingat pangsa ekspor Indonesia terhadap GDP hanya sekitar 45%, jauh berbeda dengan Singapura yang mencapai 377% atau Hong Kong yang mencapai 380%, menurut riset Standard Chartered Bank.

* Data terbaru ekspor Indonesia 2011 menembus US$200 miliar. Indonesia menjadi negara ke-21 di dunia yang memiliki nilai ekspor di atas US$200 miliar.

* Sejak tahun 2010 silam, investasi langsung kembali mengambil peran dalam pertumbuhan ekonomi Indonesia, yang diperkirakan akan semakin menguat menyusul level investment grade yang diraih akhir tahun lalu.

* Indonesia bersama negara berkembang Asia bahkan menyumbang 55% pertumbuhan ekonomi global selama tiga tahun terakhir. China dan India juga relatif tahan terhadap dampak penurunan permintaan global karena pangsa ekspor terhadap PDB kedua negara itu masing-masing hanya 47% dan 26%. Ini yang menjelaskan mengapa pada 2008 silam, China, India dan Indonesia menjadi tiga perekonomian terbaik di dunia meskipun krisis global yang dipicu kebangkrutan gadai kualitas rendah (subprime mortgage) berkecamuk di Amerika.

PENANGANAN SUBSIDI ENERGI

* Bila krisis Eropa memburuk disertai lonjakan harga minyak, pemerintah bisa mempercepat pengajuan perubahan APBN 2012. Jika itu dilakukan, opsi kenaikan harga bahan bakar minyak (BBM) yang sekarang ini belum diambil, bisa saja diambil dengan minta persetujuan DPR.

* Saat ini pemerintah memberikan dukungan fiskal untuk pengaturan BBM bersubsidi berupa kredit lunak untuk SPBU, penyediaan subsidi Konverter kit 200.000 unit, serta subsidi LGV sebesar Rp1.000 per liter.

* Pemerintah akan memastikan pembatasan konsumsi BBM bersubsidi secara bertahap mulai 1 April. Langkah itu diambil guna menjaga agar konsumsi premium tidak melebihi 40 juta kiloliter agar subsidi tidak membengkak seperti tahun lalu. Langkah itu diambil setelah pada 2011, subsidi BBM yang dianggarkan Rp85 triliun bengkak menjadi Rp165 triliun, sedangkan subsidi listrik yang diberi plafon Rp65 triliun membengkak menjadi Rp90 triliun. Akibatnya, realisasi subsidi energi tahun lalu bengkak Rp 195 triliun menjadi Rp255 triliun. Subsidi tambun itu terjadi akibat lonjakan konsumsi BBM bersubsidi yang semula dipatok 37 juta kiloliter menjadi di atas 40 juta kiloliter, yang berbarengan dengan kenaikan harga minyak dari asumsi US$95/barel menjadi US$111/barel.

PENERIMAAN PAJAK

* Risiko fiskal juga didekati dengan menggenjot penerimaan terutama perpajakan. Tahun ini pemerintah mematok target pajak Rp1.032 triliun. Penerimaan pajak itu telah meningkat 2,5 kali lipat dibandingkan dengan tahun 2006 yang mencapai Rp409 triliun.

* Namun demikian, pada tahun lalu pemerintah kecolongan dengan penerimaan pajak pertambahan nilai (PPN) sebesar Rp20 triliun, yang diduga akibat permainan sejumlah perusahaan wajib pajak di kawasan berikat, merujuk Dirjen Pajak Fuad Rahmany.

* Ditjen Pajak akan melakukan penelusuran dengan bantuan surveyor independen, termasuk terhadap perusahan pertambangan dan perusahaan perkebunan.

* Kementerian Keuangan juga akan melakukan sinergi basis data antara Ditjen Pajak dan Ditjen Bea dan Cukai untuk meningkatkan transparansi dan akurasi data, untuk membenahi berbagai fasilitas perpajakan karena disinyalir banyak digunakan oleh pihak-pihak yang tidak berhak.
Sabtu, 14/01/2012 12:09 WIB
Ini Dia 9 Negara Eropa yang Turun ‘Pangkat’
Wahyu Daniel – detikFinance

Jakarta – Lembaga pemeringkat internasional Standard & Poor’s menurunkan peringkat 9 negara di Eropa karena terlilit krisis utang yang cukup parah. Apa saja negara yang turun peringkatnya?

Dalam pengumumannya, ada empat negara yang peringkatnya turun dua tingkat yakni:

Italia
Spanyol
Portugal
Siprus

Kemudian, ada lima negara yang peringkatnya turun satu tingkat yaitu:

Prancis
Austria
Malta
Slowakia
Slovenia
“Keputusan peringkat baru ini didorong oleh hasil kajian kami bahwa inisiatif kebijakan yang diambil oleh pemerintah di Eropa dalam beberapa pekan ini belum cukup untuk memperbaiki sistem ekonomi di kawasan tersebut,” demikian isi pernyataan Standard & Poor’s yang dikutip dari Reuters, Sabtu (14/1/2012).

Keputusan Standard & Poor’s ini membuat peringkat Italia turun menjadi BBB+ yang berarti setingkat dengan Kazakhstan. Sementara peringkat Portugal makin merosot.

Meski begitu, Jerman lolos dari penurunan peringkat. Saat ini peringkat Jerman masih AAA. Pengumuman penurunan peringkat ini membuat ‘gerah’ pemerintah negara Eropa. Terutama Prancis dan Austria yang peringkatnya turun dari AAA.

Akibat peringkat yang turun ini, euro turun lebih dari 1%, Saham-saham di bursa Eropa yang awalnya naik langsung berbalik negatif setelah pengumuman penurunan peringkat tersebut.

(dnl/dnl)

ROME, Jan 14, 2012 (AFP)
Standard and Poor’s downgrade of Italy’s credit rating by two notches has made Rome even more determined to pursue reforms to tackle its debt crisis, a source in the prime minister’s office said Friday.

“This valuation increases the Italian government’s determination to continue on the path undertaken… balancing the budget, structural reforms and growth measures,” the source told AFP.

Standard and Poor’s downgraded Italy’s credit rating by two notches to BBB+ from A. The ratings agency had already downgraded it to A in September last year under then premier Silvio Berlusconi, who was replaced by Mario Monti.

The agency said the move was driven by “the risk the government’s mandate might be cut short, or the planned measures not adopted. This just increases the government’s determination,” the source said.

The downgrade puts Italy on the same Standard & Poor’s grading for long-term debt as Kazakhstan, South Africa and Thailand in a major setback for the eurozone’s third largest economy after France and Germany.

Since coming to power in November, Monti has pushed through a harsh austerity plan and has asked for European assistance in helping to drive down borrowing costs for Italy on the debt markets.

With sky-high public debt and an economy headed into a recession, Italy faces a daunting challenge this year as it needs to raise around 450 billion euros ($571 billion) on the markets at higher than usual rates.

PARIS, Jan 13, 2012 (AFP)
Standard and Poor’s said Friday it had downgraded France’s top AAA rating by one notch to AA+, with a negative outlook, while leaving European powerhouse Germany unchanged at AAA, stable.

S&P also downgraded Italy by two notches to BBB+, negative outlook, with Spain cut two notches to A, negative outlook, as part of a major overhaul of ratings on 16 of the 17 eurozone nations, with Greece excluded.

S&P said its rating actions reflected its view that “the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.”

S&P, one of the top three global ratings agencies, said it cut its long-term ratings on Cyprus, Italy, Portugal and Spain by two notches.

Austria, France, Malta, Slovakia and Slovenia were cut one notch while Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands all had their ratings affirmed.

Overall, seven eurozone countries had their ratings confirmed while nine were downgraded.

“We affirmed the ratings on the seven eurozone sovereigns that we believe are likely to be more resilient in light of their relatively strong external positions and less leveraged public and private sectors,” said S&P.

The ratings agency said the downgrade of France “…reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone.”

It said the outlook on the long-term rating on France is negative, which indicates that it believes that there is at least a one-in-three chance the rating could be lowered further in 2012 or 2013.

Failure to meet budgetary consolidation targets or growth targets of one percent this year and two percent in 2013 could spark a downgrade.

So could a heightening of financing and economic risks in the eurozone leading to an increase of France’s contingent liabilities or a worsening of borrowing conditions.

S&P said Italy’s downgrade “reflects what we view as Italy’s increasing vulnerabilities to external financing risks and the negative implications these could have for economic growth and hence public finances.”

Italy’s long-term borrowing rates have stubbornly held around seven percent in recent weeks, a level economists consider unsustainable in the long run.

While Spain was having extreme difficulty cutting its public deficit, S&P highlighted “…external financing risks in the private sector, which we believe could constrain growth and hamper the government’s efforts to narrow the fiscal deficit.”

In December, S&P announced that it was putting the eurozone countries on review for downgrade in view of the worsening debt crisis and the failure of EU leaders to put a halt to the problems.

Greece, which has seen its ratings repeatedly downgraded since it triggered the eurozone debt crisis last year, has a rating equivalent to that of a partial default from S&P at CC with negative outlook.

S&P gave the following list of ratings and outlook changes:
<pre> Country New rating/outlook Old rating/outlook
——- —————— ——————
Austria – AA+/Negative AAA/Watch Neg
Belgium – AA/Negative AA/Watch Neg
Cyprus – BB+/Negative BBB/Watch Neg
Estonia – AA-/Negative AA-/Watch Neg
Finland – AAA/Negative AAA/Watch Neg
France – AA+/Negative AAA/Watch Neg
Germany – AAA/Stable AAA/Watch Neg
Ireland – BBB+/Negative BBB+/Watch Neg
Italy – BBB+/Negative A/Watch Neg
Luxembourg – AAA/Negative AAA/Watch Neg
Malta – A-/Negative A/Watch Neg
Netherlands – AAA/Negative AAA/Watch Neg
Portugal – BB/Negative BBB-/Watch Neg
Slovakia – A/Stable A+/Watch Neg
Slovenia – A+/Negative AA-/Watch Neg
Spain – A/Negative AA-/Watch Neg
</pre>

Press watch, Jan 12
by George Gilson 12 Jan 2012

Three suicides every two days. Over 1,700 suicides in two years. The growing sense of desperation in Greece could hardly have been depicted more dramatically than in those statistics. The economic crisis and the brutal austerity imposed on the country by its lenders are destroying more and more lives, and families. The silent majority struggles and suffers increasingly harsh blows to their standard of living. European solidarity has been transformed into exemplary punishment.

The thought of cutting the bonuses earned by private sector employees, whose income has already been decimated, is the latest sign of the brutality of the troika, which in large measure is doing the bidding of Greek industry.

Interestingly, the latest reports, indicating that the IMF views the severe austerity as counter-productive, confirm that the punishment inflicted on the Greek people is “made in Germany”. The IMF maintains that Greece needs a much larger write-down than the 50 percent agreed to on October 26, and that tens of billions more in loans are needed to make the Greek debt viable.

The humiliating ultimatum given to Greek labour unions by Premier Lucas Papademos is evidence that he is completely in line with the troika. The government wants representatives of Greek business and the largest labour federations to agree on pay cuts within two weeks, otherwise the cuts will be imposed by decree. The idea is that pay cuts will help create jobs, but that is highly unlikely as long as no one – at home or abroad – wants to invest in the economy.

One report today, in Ta Nea, suggested that Papademos hopes that the two monthly salaries employees receive as holiday bonuses can be maintained, along with the minimum wage.

The restructuring of Greek debt continues to dominate front pages of Athens dailies. The accounts are conflicting about how well it is going, but some reports suggest it may be completed by the end of January.

“Difficulties and backroom activity on PSI+” reported Kathimerini’s headline. The paper reported that IMF chief Christine Lagarde says Greece should get tens of billions more in loans.

“Plan B for Greece” was Ta Nea’s headline, referring to the IMF’s proposal for additional loans. The paper reported that international speculators are holding up the haircut process, in the hopes of clinching a better deal. “Do it like Monti” read another title, which seemed to be advice to Premier Papademos. The story said that Italy’s technocrat premier told German Chancellor Angela Merkel that he can only convince Italians of the necessity of austerity if citizens can see the benefits of their sacrifices.
Draghi Says Credit Crunch Averted
By Matthew Brockett and Jeff Black – Jan 12, 2012
European Central Bank President Mario Draghi said the bank has averted a serious credit shortage and there are signs the economy is stabilizing, signaling policy makers may resist cutting interest rates further for now.

“According to some recent survey indicators, there are tentative signs of stabilization of economic activity at low levels,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at 1 percent following two straight reductions. While the debt crisis poses “substantial downside risks” to the economic outlook and the ECB remains “ready to act,” Draghi gave no indication that another rate cut is imminent.

With the euro area on the brink of a second recession in three years, some signs of economic resilience have given the ECB room to assess the impact of its stimulus measures to date, which include lending a record amount of cash to banks. Draghi said those loans prevented a “serious” credit contraction. He also noted that borrowing costs for governments across the 17- nation region have dropped.

The euro climbed to $1.2790 at 4.40 p.m. in Frankfurt from $1.2739 before Draghi’s press conference started.

‘Non-Committal’

“Draghi has been non-committal about policy going forward and the market had been anticipating that rates are going to be cut further,” said Steve Barrow, head of Group of 10 currency strategy at Standard Bank Plc in London. “He’s also spoken about tentative signs of stabilization, and maybe those two factors have helped the euro a little bit.”

Asked if the ECB is open to cutting rates further, Draghi said it depends on the inflation outlook. He indicated rates will remain low for an extended period.

“The monetary stance is and will remain accommodative,” Draghi said. “Uncertainty is very high. We will monitor all developments and stand ready to act.”

The Bank of England also refrained from announcing new stimulus today, maintaining its 275 billion-pound ($422 billion) bond-purchase target and holding its key rate at 0.5 percent, as the U.K. economy shows some signs of robustness.

Draghi’s remarks on signs of economic stabilization were “a recognition that we could have seen the trough in the fourth quarter,” said Tobias Blattner, a former ECB economist now working for Daiwa Capital Markets Europe in London. “If that is the case, they are unlikely to cut rates again. However, he left the door open for further rate cuts if needed, and if the data deteriorates rapidly next month then I don’t think they’ll hesitate.”

Signs of Stabilization

Data this week showed gains in German exports and French business confidence. Europe’s Stoxx 600 Index has gained 2 percent this year and is up 16 percent from its 2011 low on Sept. 22. The euro’s 10 percent drop against the dollar since late October and an easing of financial conditions may also provide support as leaders battle to restore investor faith in their region’s bond markets.

Italy sold 12 billion euros ($15 billion) of Treasury bills today, meeting its target. The rate on the one-year bills plunged to 2.735 percent from 5.952 percent at the last auction of similar-maturity securities on Dec. 12.

Spain sold 9.98 billion euros of bonds maturing in 2015 and 2016, twice the maximum target. The yield on a new benchmark bond, which matures in July 2015, was 3.384 percent, compared with 5.187 percent when Spain sold notes maturing in April 2015 at an auction in December.

German Recession?

The euro area may still struggle to stave off recession. German gross domestic product probably dropped 0.25 percent in the fourth quarter of last year from the third, the Federal Statistics Office said yesterday. Some economists predict another contraction this quarter, putting Europe’s largest economy into recession.

The ECB last month cut its 2012 growth forecast for the euro region to 0.3 percent from 1.3 percent.

The new estimate “looks optimistic,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “We think that further cuts in the central bank’s refinancing rate are likely going forward, taking it to a low of 0.5 percent.”

Draghi said while inflation will remain elevated for several months, it will then fall below the ECB’s 2 percent ceiling.

ECB Loans

The ECB last month loaned financial institutions an unprecedented 489 billion euros for three years and widened the pool of collateral they can use to obtain the funds. It will offer a second batch of three-year loans in February.

“We do think that at least this decision has prevented a credit contraction that would have been more serious, much more serious,” Draghi said.

He downplayed the surge in overnight deposits at the ECB to a record 486 billion euros this week, which suggests banks are parking the excess cash rather than lending it on.

“By and large, the banks that have borrowed the money from the ECB are not the same that are re-depositing the money with the ECB,” Draghi said.

The median forecast in a survey of 21 economists before today’s decision was for the ECB to keep its key rate at 1 percent through mid 2013.

“Unless there is marked deterioration in economic activity and credit availability, it does not seem very likely that the ECB will cut rates in February,” said Elga Bartsch, chief European economist at Morgan Stanley in London. “But then we are expecting the ECB to revise down its forecasts significantly in March.”
Kejahatan terorganisir telah mengencangkan cengkeramannya terhadap ekonomi Italia selama krisis ekonomi, menjadikan mafia bank terbesar negara itu dan meremas kehidupan dari ribuan perusahaan kecil.

“Pinjaman yang diperas oleh kelompok-kelompok kriminal itu telah menjadi ‘darurat nasional,’” kata laporan anti-crime group SOS Impresa seperti dikutip Reuters.

Kejahatan terorganisir sekarang menghasilkan omset tahunan sekitar 140 miliar euro (US$178,89 miliar) dan keuntungan lebih dari 100 miliar euro. “Dengan 65 miliar euro di likuiditas, mafia merupakan bank nomer satu Italia,” kata pernyataan dari grup, yang didirikan di Palermo satu dekade yang lalu untuk menentang pemerasan terhadap usaha kecil.

Kelompok-kelompok kejahatan teroganisir seperti Sisilia Cosa Nostra, Naples Camorra atau Calabria ‘Ndrangheta telah lama memiliki cekikan terhadap ekonomi Italia, menghasilkan keuntungan yang setara dengan sekitar 7 persen output nasional.

“Pinjaman yang diperas telah menjadi semakin canggih dan menguntungkan sumber pendapatan, bersama-sama dengan perdagangan narkoba, penyelundupan senjata, prostitusi, perjudian dan pemerasan,” kata laporan itu.

Lingkungan klasik atau pinjaman dengan pemerasan adalah jalan keluar, memberikan cara untuk mengatur lpinjaman tersebut yang terhubung dengan baik dengan kalangan profesional dan beroperasi dengan keterlibatan profesional tingkat tinggi. Diperkirakan sekitar 200.000 bisnis terikat dengan pinjaman pemerasan dan telah menyebabkan puluhan ribu otang kehilangan pekerjaan sebagai hasilnya.

http://pasarmodal.inilah.com/read/detail/1817479/mafia-jadi-bank-terbesar-italia

Sumber : INILAH.COM

Carmen Reinhart and financial repression

Jan 10th 2012, 16:34 by Buttonwood

Selasa, 10 Januari 2012 | 09:16 WIB
RI Terbitkan SUN Valas US$ 1,75 Miliar

TEMPO.CO, Jakarta – Pemerintah menjual surat utang negara (SUN) berdenominasi valuta asing dengan nilai nominal US$ 1,75 miliar atau sekitar Rp 15,76 triliun pekan depan. Obligasi seri RI0142 bertenor 30 tahun itu merupakan bagian dari program penerbitan Global Medium Term Notes (GMTN) Republik Indonesia yang mencapai US$ 15 miliar.

Penjualan SUN kali ini akan digunakan untuk pembiayaan anggaran pendapatan belanja negara. Dalam edaran yang diterbitkan Kementerian Keuangan, disebutkan bahwa tingkat kupon berada di posisi 5,250 persen, imbal hasil (yield) 5,375 persen, dan harga 98,148 persen. Obligasi ini akan diterbitkan pada 17 Januari 2012 dan jatuh tempo pada 17 Januari 2042. Tingkat kupon dan yield tersebut tercatat sebagai nilai terendah sepanjang sejarah penerbitan SUN bertenor 30 tahun.

Transaksi tersebut membukukan total penawaran masuk sebesar US$ 3,6 miliar atau oversubscription sebanyak 2,06 kali. Sebesar 51 persen penawaran datang dari investor Amerika Serikat, 37 persen dari investor Asia (15 persen di antaranya dari Indonesia), serta 12 persen dari investor Eropa.

Berdasarkan jenis investor, penawaran terbanyak dilakukan oleh assets managers (73 persen), bank (20 persen), asuransi dan dana pensiun (4 persen), serta private banking (3 persen). Joint Lead Managers dan Joint Bookrunners dalam transaksi SUN ini adalah HSBC, J.P. Morgan Chase, dan Standard Chartered. Sedangkan PT Mandiri Securitas bertindak sebagai co-managers.

Pemerintah Indonesia terakhir menerbitkan SUN dalam valas bertenor 30 tahun pada 2008. Transaksi SUN kali ini dilakukan dalam kondisi rating BBB- (Stable) dari Fitch, BB+ (Positive) dari S&P, dan Bal (Stable) dari Moody’s.

MARTHA THERTINA
Global Credit Research – 09 Jan 2012

Singapore, January 09, 2012 — Moody’s Investors Service will assign a provisional rating of (P)Ba1 to the Government of Indonesia’s forthcoming U.S. dollar-denominated bond issuance maturing in 2042.

RATINGS RATIONALE

Indonesia’s sovereign rating has been supported by increasingly robust domestic demand over the past few years, which has helped to shield the economy from the global financial crisis. In the ensuing recovery, the pickup in global commodity prices further bolstered the economic outlook. In contrast to many of its ratings and regional peers, Indonesia has been able to maintain its economic momentum despite a deterioration in external demand in the second half of 2011. Real GDP growth has averaged 6.5% year-on-year through the first three quarters of 2011, while inflation has trended downwards. This rapid pace of growth looks to be sustainable over the medium-term, aided by an improving track record of inflation management by the monetary authorities and enhanced prospects for infrastructure development.

In addition, government finances continue to be managed conservatively with deficits averaging below 2% of GDP since 2001. However, further improvement has been encumbered by the lack of progress on subsidy reform, while structural issues impede the effectiveness of government expenditure. Nonetheless, the government’s debt burden as a share of GDP has fallen even through the global recession and is likely to remain on a gradually improving trend, providing ample fiscal space to stimulate growth if necessary.

Indonesia’s foreign currency reserve adequacy has also benefited since the crisis from strength in non-oil and gas commodities exports and larger FDI and portfolio inflows, some of which may be reversible. As a result, the stock of foreign currency reserves have more than doubled from $51.6 billion at end-2008 to $111.3 billion in November 2011, more than two times residual short-term external debt.

Challenges to the rating include the relatively shallow depth of Indonesia’s capital markets, manifested in fairly large non-resident ownership of government securities. As this poses a key vulnerability in the event of substantial capital outflows, the government has put together a crisis management protocol to stabilize the bond market and mitigate any adverse effects on deficit financing.
January 9, 2012
Germany and France Warn Greece on Bailout Money
By NICHOLAS KULISH

BERLIN — Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France warned Greece on Monday that it needed to move forward with promised structural changes or risk losing the next installment of badly needed bailout money.

The leaders of the European Union’s two largest countries met in the German capital to discuss their next steps in combating the sovereign-debt crisis that has destabilized the Continent and threatened the common currency. Even as Mrs. Merkel and Mr. Sarkozy promised quick action to stem the crisis, investors signaled the depth of their continuing concern over the instability that has spread from Greece to the very heart of the euro zone, by purchasing German debt at a negative interest rate for the first time ever.

Mr. Sarkozy, speaking at a news conference after the two leaders met at the chancellery building here, acknowledged the uncertainty in the markets, saying, “The situation is very tense, very tense.”

There are increasing signs that Greece will fail to make the structural changes to its economy that its leaders have promised. Greece’s prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.

Mr. Sarkozy said that “our Greek friends must live up to their commitments,” while Mrs. Merkel said that if those commitments were not met by the Greek government, “it will not be possible to pay out the next tranche” of the bailout money.

The holidays may have created a lull in the action, but the new year promised to be just as hectic as the old for European leaders and Mrs. Merkel in particular. The head of the International Monetary Fund, Christine Lagarde, will arrive Tuesday evening for talks with the German chancellor. Italy’s prime minister, Mario Monti, is scheduled to come to Berlin on Wednesday.

Mrs. Merkel and Mr. Sarkozy are scheduled to travel to Rome on Jan. 20 for negotiations with the Italian government ahead of the next European Union summit in Brussels on Jan. 30.

“Everyone would like a grand design rather than a series of small steps going forward, some going backwards,” said André Sapir, an economist and senior fellow at Bruegel, a research group based in Brussels. “Sometimes there doesn’t seem to be a design at all, and that has been unnerving investors being asked to refinance debt both private and public.”

A drumbeat of bad economic news lately has led many economists to predict the imminent return to recession for many of the countries that use the euro. At the same time, European countries and financial institutions need to raise about $2.4 trillion in 2012.

Asked whether she feared that more European nations might be downgraded by ratings agencies, further spooking markets, Mrs. Merkel replied coolly, “Fear does not motivate my political actions.”

The gap between the countries with sound finances, and those like Italy and Spain that are forced to pay high rates, has widened to a chasm of five percentage points or more. Germany on Monday joined the likes of the Netherlands and Switzerland as perceived safe havens where buyers of short-term debt are willing to lose money in return for shelter from upheaval and the possibility of even greater losses.

Mrs. Merkel called the plan to stabilize the euro “an ambitious but attainable goal.” She hit several familiar themes, emphasizing that there were no quick solutions to the euro crisis and that Greece was an exception when it came to debt write-downs, often known as a “haircut,” for private investors.

“Our intention is that no country must withdraw from the euro area,” Mrs. Merkel said.

She and Mr. Sarkozy both voiced their determination to press ahead with a tax on financial transactions opposed by Britain, but they appeared to diverge on the timing. Mr. Sarkozy, facing a strong left-wing challenge in his bid for re-election in May, suggested France might go it alone and challenge other countries to follow suit.

The French prime minister, François Fillon, said Monday in Paris that France might present a bill on such a tax in February, hoping that other countries do the same. “Someone has to be the first to jump in the water,” Mr. Fillon said.

Mrs. Merkel expressed support for Mr. Sarkozy’s goal of moving quickly on the financial-transaction tax, saying that European Union finance ministers should make a formal proposal by March. Although an agreement between the 27 members of the union was preferable, one among the 17 members that use the euro was acceptable.

“If Sarkozy loses the election, which is entirely possible, the Socialists would certainly be a more difficult partner for Merkel,” said Frank Decker, a political scientist at the Institute for Political Sciences and Sociology at the University of Bonn. “As a result, she looks for ways that she can strengthen his position.”

Steven Erlanger in Paris contributed reporting.

http://media.economist.com/sites/default/files/media/2011InfoG/Interactive/China_US_GDP_20111129/China_US.swf

How to get a date

The year when the Chinese economy will truly eclipse America’s is in sight

Dec 31st 2011 | from the print edition

IN THE spring of 2011 the Pew Global Attitudes Survey asked thousands of people worldwide which country they thought was the leading economic power. Half of the Chinese polled reckoned that America remains number one, twice as many as said “China”. Americans are no longer sure: 43% of US respondents answered “China”; only 38% thought America was still the top dog. The answer depends on which measure you pick. An analysis of 21 different indicators chosen by The Economist (see the full set) finds that China has already overtaken America on over half of them and will be top on virtually all of them within a decade.

Economic power is best gauged by looking at absolute size rather than per-person measures. On a few indicators, such as steel consumption, ownership of mobile phones and beer-guzzling (a crucial test of economic superiority), the milestone was reached as long as a decade ago. Several more have been passed since. In 2011 China exported about 30% more than the United States and spent some 40% more on fixed capital investment. China is the world’s biggest manufacturer, and partly as a result it burns around 10% more energy and emits almost 40% more greenhouse gases than America (although its emissions per person are only one-third as big). The Chinese also buy more new cars each year than anybody else.

---

The country that invented the compass, gunpowder and printing is also challenging America in the innovation stakes. We estimate that in 2011 more patents were granted to residents in China than in America. The quality of some Chinese patents may be dubious but they will surely improve. The World Economic Forum’s “World Competitiveness Report” ranks China 31st out of 142 countries on the quality of its maths and science education, well ahead of America’s 51st place. China’s external financial clout also beats America’s hands down. It has total net foreign assets of $2 trillion; America has net debts of $2.5 trillion.

The chart shows our predictions for when China will overtake America on several other measures. Official figures show that China’s consumer spending is currently only one-fifth of that in America (although that may be understated because of China’s poor statistical coverage of services). Based on relative growth rates over the past five years it will remain smaller until 2023. Retail sales are catching up much faster, and could exceed America’s by 2014. In that same year China also looks set to become the world’s biggest importer—a huge turnaround from 2000, when America’s imports were six times those of China.

Find even more indicators and adjust the figures to make your own predictions using our interactive chart

What about GDP, the most widely used measure of economic power? The IMF predicts that China’s GDP will surpass America’s in 2016 if measured on a purchasing-power parity (PPP) basis, which adjusts for the fact that prices are lower in poorer countries. But America will only really be eclipsed when China’s GDP outstrips it in dollar terms, converted at market-exchange rates.

In 2011 America’s GDP was roughly twice as big as China’s, down from eight times bigger in 2000. To predict how quickly that gap might be closed, The Economist has updated its interactive online chart (also here) which allows you to plug in your own assumptions about real GDP growth in China and America, inflation rates and the yuan’s exchange rate against the dollar. Our best guess is that annual real GDP growth over the next decade averages 7.75% in China (down from 10.5% over the past decade) and 2.5% in America; that inflation (as measured by the GDP deflator) averages 4% and 1.5% respectively; and that the yuan appreciates by 3% a year. If so, then China will overtake America in 2018. That is a year earlier than our prediction in December 2010 because China’s GDP in dollar terms increased by more than expected in 2011.

Second place is for winners

Even if China became the world’s biggest economy by 2018, Americans would remain much richer, with a GDP per head four times that in China. But Rupert Hoogewerf, the founder of the annual Hurun Report on China’s richest citizens, reckons that it may already have more billionaires. His latest survey identified 270 dollar billionaires but the true total, he says, is probably double that because many Chinese are secretive about their wealth. According to the Forbes rich list, America has 400 billionaires or so.

America still tops a few league tables by a wide margin. Its stockmarket capitalisation is four times bigger than China’s and it has more than twice as many firms in the Fortune global 500, which lists the world’s biggest companies by revenue. Last but not least, America spends five times as much on defence as China does, and even though China’s defence budget is expanding faster, on recent growth rates America will remain top gun until 2025.

Being the biggest economy in the world does offer advantages. It helps to ensure military superiority and gives a country more say in fixing international rules. Historically, the biggest economy has become the issuer of the main reserve currency, which is why America has also been able to borrow more cheaply than it otherwise would. But it would be a mistake for American leaders to try to block China’s rise. China’s rapid growth benefits the whole global economy. It is better to be number two in a fast-growing world than top dog in a stagnant one.

from the print edition | Finance and economics

Self-induced sluggishness

This year will probably be a pretty bad one for the world economy; it doesn’t have to be

Jan 7th 2012 | from the print edition

POLITICIANS like to promise better times ahead. But these days many are peddling gloom. In her new year’s address, Angela Merkel, Germany’s chancellor, predicted that 2012 would be more difficult for the euro zone than 2011. Nicolas Sarkozy, France’s president, spoke of “the year of all risks”. Half a world away, Manmohan Singh, India’s prime minister, warned Indians not to take fast growth for granted.

In one way this pessimism looks a little overdone. The worst outcomes—a collapse of Europe’s single currency or a hard landing in China—are avoidable. The latest crop of statistics, particularly better-than-expected figures on global manufacturing prospects, argue against a sudden slump. America may do a bit better than forecast. The overall effect should be sluggish, not dire: global output may grow by 3%, the slowest since 2009 and well below the average of the past decade.

But in another way, the sombre warnings are apt, and profoundly depressing. One reason why the outlook is so lacklustre is that politicians—especially in the West—will do little to help (and may harm) their economies. It could be better.

Begin with Europe, the weakest cog in the global engine. The euro zone has almost certainly already slipped into recession, which most forecasters expect to be short and shallow: a group of seers polled regularly by The Economist estimates that output will fall by 0.5% in 2012. The case for a mild downturn assumes that Europe’s policymakers, however haltingly, are on course to solve their debt crisis; that the European Central Bank (ECB) has reduced the risk of a debt calamity with its recent provision of three-year liquidity to banks; and that the impact of fiscal austerity on growth will be brief and modest.

Those hopes may be misplaced. Uncertainty about the euro zone’s future is still acute, not least because its politicians are more focused on preventing future profligacy than supporting embattled economies today. Despite the ECB’s liquidity injection, banks seem reluctant to buy many government bonds. And since Italy and Spain alone need to roll over €150 billion ($195 billion) of debt in the first three months of this year, the odds are that worries about sovereign debt will intensify. A pernicious circle of weak growth, bigger deficits and more austerity is setting in. Look at Spain, where the new government revealed that the 2011 budget deficit would be worse than expected (8% of GDP rather than 6%) and immediately announced new spending cuts and tax increases to compensate (see article). If these contractionary forces feed on themselves, Europe’s downturn could be ghastly.

Some emerging concerns

The euro zone is thus the darkest shadow hanging over the world economy; but it is not the only one. Emerging markets may stumble. China’s economy is clearly cooling. And even if, as seems likely, Beijing loosens macroeconomic policy deftly enough to prevent a sharp slowdown, growth this year is likely to be no more than 8%. Slower growth in China is dampening commodity prices, hitting exporters in Latin America. Add in some home-grown problems (India, for example, faces a big budget deficit, declining confidence and high inflation—see article) and the ripple effects of the euro crisis (which will hit growth in eastern Europe and Turkey hard) and it is plausible that emerging economies will grow by only about 5%. That would be their weakest performance in a decade, aside from the global slump of 2009.

If there is a positive surprise, it is likely to come from the United States. That is not because growth there will soar, but because expectations for the world’s biggest economy are so low. The consensus among professional forecasters is that America’s GDP will grow by 2% in 2012, below its underlying speed limit, and far too slow to bring the jobless rate down.

That could prove a bit too gloomy. Unlike Europe, America has moderated the pace of its fiscal tightening, thanks to the temporary extension of the payroll-tax cut. Household-debt burdens have fallen, the housing market shows signs of stability and the labour market is showing flickers of life. But America’s outlook, like Europe’s, is darkened by political uncertainty. The payroll-tax cut has only been extended for two months, ensuring that the rest of the year will be punctuated with fiscal skirmishes, even as nothing is done to deal with America’s medium-term fiscal mess, or to smooth the huge tax hikes and spending cuts that loom at the end of 2012 under current law. It is a recipe for crushing confidence and scaring off investors.

History teaches that financial crises are followed by years of weakness. But some of the current pain is unnecessary. There is no excuse for the lack of clarity around the euro zone’s future, nor for America’s fiscal paralysis. Europeans do not need to compound the peripheral economies’ problems with even deeper austerity. A more calibrated approach with more financing and more structural reforms makes far more sense. Inept politicians have placed a big burden on central banks, which will have to take more unconventional measures, such as quantitative easing (see article). That will ease the agony, but it won’t make up for politicians’ mistakes. It looks like 2012 will be the year of self-induced sluggishness.

from the print edition | Leaders

SINGAPURA: Indeks saham di Asia bergairah sejalan dengan pertumbuhan manufaktur di Australia, China dan India yang menambah optimisme perekonomian di wilayah itu akan bertahan dari pengaruh buruk krisis Eropa.

Indeks MSCI Asia Pacific, tidak termasuk Jepang, naik 0,6% ke posisi 394,46 pada pukul 8:35 waktu Hong Kong. Penguatan ini terjadi bersamaan dengan langkah China untuk mendinginkan pasar propertinya dan Eropa yang berjuang mengtasi krisis utang.

Harga saham Samsung Electronics Co naik 1,7% di Seoul. Harga saham BHP Billiton Ltd meningkat 1,4% di Sydney. Harga saham Australia & New Zealand Banking Group Ltd naik 1,1% setelah lembaga itu meraih pengsa terbesar di pasar obligasi Australia.

Indeks Australia’s S&P/ASX 200 naik 1%, sedangkan indeks Kospi Korsel meningkat 1,7%. Pasar Jepang dan China masih tutup karena liburan Tahun Baru.

http://www.bisnis.com/articles/gairah-awal-tahun-di-bursa-asia

Sumber : BISNIS.COM
Ini Dia ‘Headline’ Ekonomi Global 2012

Oleh: Vina Ramitha
Ekonomi – Minggu, 1 Januari 2012 | 09:04 WIB

INILAH.COM, Jakarta – Beberapa isu dan peristiwa besar dunia masih mengendalikan perekonomian global. Apa saja?

Kondisi Eropa terkait krisis utang dan potensi berlanjutnya ketegangan di Timur Tengah tampaknya akan mendominasi headline pasar finansial dan komoditas tahun depan. Pengamat pasar menyatakan, volatilitas tahun ini juga akan menjadi lanskap 2012.

Hal ini juga bisa diartikan, pelaku pasar sebaiknya bersiap terhadap segala kemungkinan jika terjadi peningkatan aktivitas di kawasan-kawasan tersebut di atas. Meski beberapa peristiwa memang terjadi mendadak dan tak disangkap, tak ada salahnya investor bersiap.

Kejatuhan kawasan Eropa karena krisis utang memiliki efek berkepanjangan bagi beberapa negara. Perdebatan apakah sejumlah anggota Uni Eropa akan default, menjadi perdebatan yang membuka 2012 mendatang.

“Waspadai negara-negara Eropa Tengah yang perekonomiannya bergantung pada Eropa Barat. Benua ini sedang di ujung tanduk,” ujar analis pasar dan penasihat komoditas Country Hedging, Sterling Smith.

Secara khusus, Smith mengawasai Hungaria, Ukraina dan Lithuania sebagai potensi sumber masalah jika Eropa Barat resesi. Meski tak kelihatan, Smith menyebut negara-negara itu juga memiliki masalah perbankan dan krisis utang.

Senada, Bob Siegel yang Presiden perusahaan manajeman dana, Cabot Capital Group menyatakan, Eropa merupakan isu yang paling menekan kondisi perekonomian dunia. Terutama karena arah perkembangannya masih belum diketahui.

“Hanya karena kita tahu apa yang terjadi, bukan berati itu tak berbahaya. Jika Eropa mulai bertindak seperti (Bank Sentral AS) The Fed, maka akan menolong. Skenario terburuknya, mereka tak menolong dan kita yang kelimpungan,” kata Siegel.

Kemungkinan pecahnya zona euro sudah tertanam di benak pelaku pasar. Namun tak ada yang tahu apakah benar memecah euro menjadi langkah selanjutnya. Presiden West Cooper Asset Management Rich DeFalco menyatakan, hal ini masih sulit dinilai sebagai kemungkinan.

Lebih mungkin yang terjadi, negara dengan perekonomian lemah seperti Yunani dikeluarkan daru Uni Eropa. Ia juga menyatakan ada kemungkinan Uni Eropa terbagi jadi dua blog, utara dan selatan. “Tak ada yang tahu. Jadi sebaiknya bersiap untuk hal baik dan buruk,” katanya.

Analis juga mengamati perkembangan situasi Timur Tengah yang sedang dilanda gelombang reformasi atau lebih dikenal sebagai ‘Arab Spring’. Pergantian kepemimpinan ini menentukan masa depan politik negara dan otomatis, kebijakan ekonominya.

Iran juga menjadi pusat perhatian, karena menghadapi kemungkinan sanksi tambahan terkait masalah nuklir. Segala macam aktivitas militer terkait Iran, mempengaruhi produksi minyak negara tersebut. Apalagi Uni Eropa berniat menghentikan pembelian 600 ribu barel, karena sanksi tersebut.

“Entah produksi dihentikan karena sanksi atau karena aksi militer, yang jelas akan lumpuh. Sulit menentukan seperti apa masa depan perdagangan minyak dengan Iran ini ke depannya,” ujar CEO IndexIQ Adam Patti.

Hal lain yang perlu diperhatikan adalah kondisi perekonomian Amerika Serikat (AS). The Fed berencana mempertahankan suku bunga rendah setidaknya hingga 2013. Ini dinilai analis sebagai masalah pada permintaan kuat untuk obligasi ultra-low. [mdr]

US job market ends year in better shape
Modest economic growth, fewer layoffs points to steady hiring gains next year
Associated PressBy Christopher s. Rugaber, AP Economics Writer | AP – 2 hours 9 minutes ago

29 December 2011

WASHINGTON (AP) — The long-suffering job market is ending the year better off than it began.

The number of people applying for unemployment benefits each week has dropped by 10 percent since January. The unemployment rate, 8.6 percent in November, is at its lowest level in nearly three years.

Factory output is rising, business owners say they’re more optimistic about hiring and consumer confidence has jumped to its highest level since April. Even the beleaguered housing market is looking slightly better.

“We are ending the year on an up note,” says Joel Naroff, president of Naroff Economic Advisors.

Still, 25 million Americans remain out of work or unable to find full-time jobs. Most analysts forecast a stronger economy and job growth in 2012 — and rule out a second recession — but they caution that could change if Europe’s debt crisis worsens or consumers pull back on spending.

On Thursday, the Labor Department said the number of people applying for unemployment benefits last week rose 15,000 to 381,000. But the four-week average, a less volatile measure, dropped to 375,000 — the lowest level since June 2008.

When applications for unemployment benefits consistently fall below 375,000, economists consider it a reasonable sign that hiring is rising enough to push the unemployment rate lower. The four-week average has remained below 400,000 for seven weeks, the longest stretch since April.

A mildly positive report on housing also came out on Thursday. The National Association of Realtors said the number of people who signed contracts to buy homes rose in November to its highest level in a year and a half.

The association sought to temper enthusiasm by noting that the number of canceled contracts is also on the rise. But financial markets seized on the good news in both reports.

The Dow Jones industrial average rose more than 113 points in afternoon trading.

“The recovery in the labor market is maintaining its momentum,” says Michael Gapen, an economist at Barclays Capital.

That’s noteworthy for an economy faced with a debt crisis in Europe and, as recently as last summer, scattered predictions of a second recession at home.

There was plenty of reason for gloom. A political standoff over the federal borrowing limit brought the United States to the brink of default and cost the nation its top-drawer credit rating.

Most analysts now say another recession is unlikely.

The economy likely grew at an annual rate of 3 percent or more in the final three months of this year, analysts say. That would top the 1.8 percent growth rate in the July-September quarter, and the 0.9 percent growth rate in the first half of the year.

Employers have added an average of 143,000 net jobs a month from September through November. That’s almost double the pace for the previous three months. Although it’s below the pace from the first quarter of 2011,

Next year should be even better for hiring. The Associated Press surveyed 36 economists this month who said they expect the economy to generate an average of about 175,000 jobs per month in 2012. That’s almost double the pace for the previous three months, but not as high as job growth in the first quarter of the year.

Job listings website Indeed.com says its revenue has more than doubled in the past year as companies spend more on recruiting. CEO Paul Forster says the healthcare, energy and information-technology sectors have the greatest increase in job openings.

More small businesses plan to hire than at any time in three years, a trade group said earlier this month. And a separate private-sector survey found more companies are planning to add workers in the first quarter of next year than at any time since 2008.

Consumers are also growing more confident. The Conference Board said Tuesday that its consumer confidence index rose to 64.5 in December, the highest reading since April.

Still, the economy and job market remain vulnerable to setbacks.

Economists view Europeas the biggest threat to the global economy in 2012. Europe is expected to fall into recession as banks reduce lending and countries cut spending and raise taxes in response to a simmering government-debt crisis.In the worst case, a government default could destabilize the eurozone financial system and trigger a global panic.Economists are also concerned that consumer spending in the U.S. could taper off if wages — which did not keep up with inflation in 2011 — do not rise faster or if families decide to purchase less on credit.In November, the unemployment rate fell to 8.6 percent from 9 percent to its lowest level since March 2009. About half that decline was attributed to the 315,000 people who gave up looking for work. When people stop looking for a job, the government no longer counts them as unemployed.Economists surveyed by the AP predict the unemployment rate will fall to 8.4 percent by Election Day.About 7.2 million people are receiving unemployment benefits. Congress agreed last week to keep the emergency benefits that half of them depend on for another two months, instead of letting them lapse at the end of this year.

Jan 9th 2012, 18:20 by B.U. | BERLIN

ANGELA MERKEL and Nicolas Sarkozy kicked off the 2012 season of the euro soap opera with a summit meeting in Berlin today. Neither said anything startling; certainly nothing that would betoken a swift and happy conclusion to the long-running saga.

The German chancellor and the French president muted their differences over such issues as how quickly to introduce a tax on financial transactions and what the role of the European Central Bank (ECB) should be in supporting shaky members of the euro zone. “Our analysis is the same,” said Mr Sarkozy at the post-summit press conference.

This did not calm markets’ nerves. The euro dropped to its lowest level against the dollar since September 2010 ($1.266) before the summit and recovered marginally as the two leaders met. Currency traders’ biggest worry is Greece’s failure to meet its fiscal targets, which means it may not get the fresh money it needs to avoid defaulting on its debt.

At the opposite end of the confidence spectrum, investors are so eager to finance Germany that they accepted a negative interest rate on an auction of six-month paper, in effect paying Germany’s government for the privilege of lending to it. Germans will see this as vindication of their prudent policies, but it also serves to underline the dangerous economic divergences within the euro zone.

The main significance of the Merkozy summit is that it seemed to signal a shift in emphasis. True, the austerity agenda—promoted by the Germans and grudgingly accepted by the French—is still there. Indeed, Mr Sarkozy boasted that France’s fiscal deficit was smaller than expected in 2011. Europe is making swift progress towards a “fiscal pact” to limit deficits, proclaimed Mrs Merkel, including German-style “debt brakes”. A new treaty should be signed by March.

But fiscal self-denial will now be supplemented by what Mrs Merkel called a “second leg”, meaning economic growth and job creation. This is partly meant to help Mr Sarkozy, who faces a tough re-election fight this spring.

All euro-zone countries, including Germany, are “prepared to do their homework” in this area, the chancellor promised, but it is not clear that much new is on offer. A big German stimulus package to boost growth in neighbouring countries is not in prospect (that would nobble the fiscal leg).

Mrs Merkel spoke of spreading best practice in labour-market regulation across the euro zone (which is German practice, Mr Sarkozy admits) and spending existing European funds more quickly and effectively. Both ideas make sense; neither will prevent further financial turmoil, or a European recession. In the latest sign of fragility, German industrial production dropped 1% in November.

The leaders tried to seem anything but complacent. Mr Sarkozy called the situation “very tense” and Mrs Merkel said they had “understood the needs of the hour.” The intention is to keep Greece from dropping out of the euro zone, but whatever happens Greece is an exceptional case, the leaders said (perhaps fearing that a Greek default or even an exit from the euro could not be avoided). As always, the chancellor dampened expectations of a quick “one-dimensional” solution to the crisis. The problem would be solved, she said, “step by step.”

The next steps involve Italy, an indebted giant that poses a far greater threat to the euro than Greece. Mrs Merkel will meet Italy’s unelected prime minister, Mario Monti, in Berlin on Wednesday; she and Mr Sarkozy will hold a three-way summit with him in Rome on January 20th. European heads of government are to gather, probably on January 30th, to put the finishing touches to the fiscal pact.

Also on the agenda, no doubt, will be a proposed financial-transactions tax. Britain is threatening a veto; Mr Sarkozy has said France will go it alone at first, if need be. Mrs Merkel wants the tax but her junior coalition partner, the Free Democrats, do not unless the British get on board. As the crisis sharpens, disagreements are likely to re-emerge over the role of the ECB and how to strengthen the euro zone’s bail-out funds. The soap opera has a long way to run.

bloomberg:

Following is a table of bond and bill redemptions and interest payments in 2012 for the Group of Seven countries, Brazil, China, India and Russia, in dollars, using data calculated by Bloomberg as of Dec. 29:

Country    2012 Bond, Bill Redemptions ($)      Coupon Payments
Japan             3,000 billion                   117 billion
U.S.              2,783 billion                   212 billion
Italy               428 billion                    72 billion
France              367 billion                    54 billion
Germany             285 billion                    45 billion
Canada              221 billion                    14 billion
Brazil              169 billion                    31 billion
U.K.                165 billion                    67 billion
China               121 billion                    41 billion
India                57 billion                    39 billion
Russia               13 billion                     9 billion

Dow Climbs to Highest Since July, Oil Surges
By Stephen Kirkland and Ksenia Galouchko – Jan 3, 2012
bloomberg
Stocks (MXWD) surged, driving the Dow Jones Industrial Average to the highest level since July, and commodities rallied on signs of increasing manufacturing output around the world. The dollar weakened and U.S. Treasuries fell.

The Dow increased 179.82 points, or 1.5 percent, to 12,397.38 and the S&P 500 jumped 1.6 percent to 1,277.06, the highest close since Oct. 28, at 4 p.m. in New York. The Stoxx Europe 600 Index (SXXP) added 1.6 percent and closed at a five-month high. The dollar slipped versus all 16 major peers, while 10- year Treasury yields increased seven basis points to 1.95 percent. Oil settled at an almost eight-month high near $103 a barrel as 23 of 24 commodities in the S&P GSCI Index rose.

Financial, industrial and commodity shares led the S&P 500’s gain as the Institute for Supply Management’s factory index expanded at the fastest pace in six months and government data showed construction spending grew at more than twice the forecast rate. Factory output (AIGPMI) in Australia grew for the first time in six months and reports in the past two days showed a pickup in Chinese and Indian manufacturing.

“You’re starting to see people want to take more risks,” Frank Ingarra, who helps manage the Can Slim Select Growth Fund at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.4 billion. “Manufacturing data has been pretty decent.”
New Year Rally

All 10 of the main industry groups (SPXL1)in the S&P 500 advanced today except for utilities, which climbed 15 percent last year for the biggest gain. Financials, the worst-performing group in 2011 with an 18 percent drop, climbed 2.8 percent as a group today to help lead gains. Alcoa Inc., JPMorgan Chase & Co., Bank of America Corp., Chevron Corp. and Caterpillar Inc. rallied at least 3.7 percent as the Dow extend its 5.5 percent 2011 advance.

The ISM’s manufacturing index rose to 53.9 in December from 52.7 a month before, above the reading of 50 that signals growth and topping the 53.5 median projection of economists in a survey. Construction spending climbed 1.2 percent in November, Commerce Department data showed.

Forecasters at securities firms are more conservative on U.S. stocks (MXWD) than any time in seven years, predicting the S&P 500 will rise 6.4 percent to 1,338 in 2012 as budget deficits around the world limit gains. That’s the smallest predicted return since 2005. Adam Parker of Morgan Stanley, whose estimate for 2011 proved the most accurate among current analysts, forecast a loss of 7.2 percent as Europe’s debt crisis will keep volatility above historical levels.

Federal Reserve officials will for the first time make public their own forecasts for the federal funds rate (FDTR) at their Jan. 24-25 meeting, minutes from the December 13 Federal Open Market Committee said today. FOMC “participants decided to incorporate information about their projections of appropriate monetary policy” into their Summary of Economic Projections starting with their next meeting, the minutes said.
European Shares

The Stoxx 600 (SPX) climbed to the highest level since August as the U.K.’s FTSE 100 Index and the Swiss Market Index, both of which were closed yesterday for a holiday, climbed more than 1.9 percent to lead gains in the region.

Rio Tinto Group led a rally in mining companies, gaining 6.4 percent. Afren Plc jumped 20 percent as the U.K. energy explorer focused on Africa said production topped its forecasts.

The MSCI All-Country World Index (MXWD) sank 9.4 percent last year, the most since 2008, as Europe’s debt crisis hurt global growth. The S&P 500 Index closed the year almost unchanged, slipping less than 0.1 percent, to beat benchmark indexes in all 24 developed markets except for Ireland, where the ISEQ Overall Index increased 0.6 percent.
Default Swaps Drop

A benchmark gauge of U.S. company credit risk dropped to the lowest level in two months. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 2.2 basis points to a mid-price of 118.09 basis points. The index fell as low as 117.6, the least since Oct. 31. Contracts on Bank of America Corp. and Goldman Sachs Group Inc. also fell.

The dollar weakened 0.9 percent today to $1.3051 per euro, which appreciated 0.6 percent against the yen after falling to an 11-year low yesterday. The yen weakened against 13 of its 16 most-traded peers monitored by Bloomberg, while the New Zealand dollar strengthened versus all but two of its major counterparts.

Moves by the Fed to flood the world with dollars are doing little to dent the currency’s value, bolstering the appeal of U.S. assets at a time when the government needs the support of foreign investors the most.
Dollar’s Share

The U.S. Dollar Index (DXY) appreciated 13 percent from a record low in March 2008 through the end of 2011 even as the Fed kept interest rates at about zero and printed cash to buy $2.3 trillion of Treasury and mortgage-related bonds, and is little changed since 1991. The International Monetary Fund said Dec. 30 that the dollar’s share of global foreign-exchange reserves rose in the third quarter by the most since 2008.

The 30-year Treasury yield rose eight basis points to 2.98 percent today as improving economic data damped demand for the relative safety of U.S. government debt.

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs. Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.
European Bonds

The German 10-year bund yield slipped less than one basis point to 1.899 percent. Italian 10-year bond yields were little changed at at 6.92. Austrian bonds slid, driving the difference in yield (.AUSTGER) with bunds nine basis points higher to 123 basis points. The French-German spread widened six basis points to 139 as France auctioned debt.

German unemployment fell more than forecast in December as exports of cars and machinery boomed and one of the mildest winters on record helped support jobs in construction. The number of people out of work fell by a seasonally adjusted 22,000 to 2.89 million and the adjusted jobless rate dropped to 6.8 percent.

Bank funding costs declined with the three-month cross- currency basis swap, the rate lenders pay to convert euro interest payments into dollars, slipping 10.5 basis points to 103.5 basis points below the euro interbank offered rate. That’s the lowest cost for dollar funding since Nov. 8, data compiled by Bloomberg show.
Oil Surges

Oil in New York jumped 4.2 percent to $102.96 a barrel, the highest settlement since May 11, as Iran’s Deputy Navy Commander Rear Admiral Mahmoud Mousavi told Press TV that any effort to harm the nation’s interests will lead to “reciprocal measures.” Copper advanced 2.7 percent to $3.5285 a pound in New York, a three-week high. All 24 commodities tracked by the S&P GSCI Index advanced except for Kansas wheat, sending the gauge up 3.4 percent for its biggest advance on a closing basis since May.

Speculators increased wagers on rising commodity prices by the most since August 2010 on signs that sustained economic growth will drive a rebound in raw materials from their first annual slump since the recession. Hedge funds and other money managers increased combined net-long positions across 18 U.S. futures and options by 18 percent to 536,907 contracts in the week ended Dec. 27, Commodity Futures Trading Commission data show.

The MSCI Emerging Markets Index (MXEF) rose 2.6 percent, the biggest advance in a month. The Hang Seng China Enterprises Index (HSCEI) jumped 3 percent as trading resumed in Hong Kong. Benchmark indexes gained more than 2.4 percent in Brazil, Argentina, Russia, India and South Korea.
The false predictions of 2011 unmasked
by Costas Papachlimintzos 1 Jan 2012
Believe none of what you hear and half of what you see,” Benjamin Franklin, one of the founding fathers of the United States, is thought to have said. This statement couldn’t be more fitting to what has been said and written for Greece this past year.

A quick overview of 2011 brings up the so-called predictions and grandiose statements made on crucial issues regarding the Greek crisis that later on proved to be hugely contradictory.

Since the beginning of the year, a great number of analysts, bankers and academics have stated that a Greek bankruptcy is inevitable and imminent, but the Greek state has not yet defaulted on its debt.

An even greater number have spoken against debt restructuring, while several top members of the Greek government denied that such an issue was even being discussed. Nevertheless, the July 21 EU summit concluded that, for the first time in the eurozone, a haircut would be imposed on the sovereign bonds of a member state.

Greek politicians have made several other major assertions that have never materialised. The most notable examples are the commitment of Prime Minister George Papandreou that national elections would be held in 2013, as well as his call for a referendum on the new bailout deal.

Impressive u-turns were also made by the European Central Bank, which did not cut the lifeline to Greece, and by the country’s creditors, who are about to accept far greater losses as part of the so-called private sector involvement (PSI) in the Greek rescue plan.

If there is one lesson to be learnt from 2011, it is that the political and economic landscape in Greece and the eurozone is changing so rapidly that any prediction on future developments will most likely be overturned, sometimes as soon as the very next day.

Bankruptcy now!

GREECE’s imminent bankruptcy was one of the favoured prophecies of pundits and financial institutions alike throughout 2011.
In September, the Royal Bank of Scotland (RBS) predicted that Greece will experience a hard default in December, a move it said would trigger “violent contagion” in global markets.

In a note to clients, RBS European rates strategist Harvinder Sian said Greece will default on, or around, the IMF’s December 11 review of its fiscal reforms. As reported by Investment Week, the note pointed to the country’s inability to implement reforms, over-ambitious austerity targets, an absence of further compromise from the IMF and EU, as well as the growing difficulty of Greece’s parliament passing laws. Sian called the December 11 review “a pivotal one”.

Privatisations galore

On March 11, eurozone leaders extended Greece’s EU loan maturity from 3 to 7½ years and reduced the interest rate by 100 basis points. In return, Papandreou pledged a renewed privatisation programme worth 50 billion euros, an amount to be raised by 2015, in order to write down part of the massive public debt. The aim for 2011 was to collect the little matter of at least 5 billion by year-end.

Delays in setting up the privatisation fund and the plunging stock market values on the Athens bourse soon forced the government to reduce the target to 4 billion euros. And by the end of December, Greece had collected only a paltry 392 million euros – the proceeds of selling off a 10 percent stake in Hellenic Telecommunications (OTE) to Germany’s Deutsche Telekom.

Truth be told, it came as no surprise to the European Commission, which conceded in its fifth review of the economic adjustment programme for this country that the targets for privatisation proceeds would be missed.

Echoing similar sentiments, the IMF’s Greek debt sustainability analysis of October 21 estimated that by 2020 total privatisation proceeds would amount to 46 billion euros, instead of the 66 billion assumed in the programme – ie the original 50bn target, plus an additional 16bn raised from the sale of additional assets created by bank recapitalisation.

Read my lips: No restructuring

Statements by Greek and EU officials against the restructuring of Greece’s public debt proved way off the mark. On April 28, Servaz Deruz, the European Union’s voice within the so-called troika, argued that restructuring would have dire consequences. He added that such a move wouldn’t offer much by way of easing the country’s debt burden. Nor was he short of support in this assertion. Antonio Borges, the head of the IMF’s European department, and Greek central banker Yiorgos Provopoulos also said that a restructuring could have catastrophic results.

On May 2, Finance Minister Yiorgos Papakonstantinou categorically ruled out debt restructuring, adding that he just “expressed the hope” that the EU and IMF would agree to extending bailout loan repayments. A few weeks later, Prime Minister George Papandreou and senior ECB officials added that Greece must avoid debt restructuring and push on with budget cuts and privatisations to overcome its debt crisis.

Most emphatic of all was European Central Bank (ECB) president Jean-Claude Trichet, who said that Greece must avoid any form of restructuring in tackling its debt crisis.
“We are not in favour of restructuring,” he said. On being pushed by reporters, he added: “I am not embarking on a dialogue with a particular minister here … No credit event, no selective default.”

Trichet added on July 14 that the ECB would have to intervene if Greece was given a default investment rating. “If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral,” he said in an interview with Financial Times Deutschland.
On July 21, the restructuring of the Greek debt was signed, sealed and delivered by eurozone leaders.

Poll dancing

“National elections will be held in 2013 as scheduled” was the refrain of the Papandreou government for many months, as the opposition parties and much of the press were pushing for snap elections.

Papandreou himself was emphatic on May 27, ahead of a meeting of party leaders chaired by President Karolos Papoulias, stressing: “I will state categorically that national elections will be held in 2013.” He added: “That is when we will be judged, when we will all be judged.”

On October 31, in a bid to stifle tacit calls for snap elections, Papandreou said his government intended to use the two remaining years of its mandate to implement its commitments.

So rapidly did events unfold that not only was Lucas Papademos sworn in as the head of an interim three-party government on November 11, but a deal was also struck between Pasok and New Democracy that national elections would be held on 19 February 2012 or soon thereafter.

The referendum that never was

“We trust citizens, we believe in their judgement, we believe in their decision” was how Papandreou presented to Pasok MPs, on October 31, his now infamous decision to call a national referendum on the latest EU bailout package. Papandreou also explained that he was calling a vote of confidence to secure the support for his policies for the remainder of his four-year term.

Speaking to his parliamentary group, Papandreou said it was the time for citizens “to reply responsibly: Do they want us to implement it or reject it?” He added that he had faith in people to make the right decision. “Let each person decide for his country and for himself,” he declared, adding confidently that the referendum would be held in a few weeks’ time.

What followed was an outpouring of anger and consternation both at home and abroad, with people fearful that a ‘no’ vote would send the country spinning into a whirlpool of disorderly default. Two days later, he called off the referendum and agreed to step down as prime minister.

‘Just a 21 percent trim’

In eurospeak, the EU leaders’ statement after the July 21 summit went something like this: “The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options further strengthening overall sustainability. The net contribution of the private sector is estimated at 37 billion euros.”

In simple terms, it meant that the process for a 21 percent haircut of Greek debt had been started.

However, on October 3, Eurogroup chairman Jean-Claude Juncker said that the EU was now reassessing the extent of the private sector’s role in the planned second package for Greece. “As far as the PSI [private sector initiative] is concerned, we have to take into account the fact that we have experienced changes since the decisions we took on the July 21, so we are considering technical revisions,” he told reporters.

The idea gathered pace a month later, when French Finance Minister Francois Baroin said the extent of private sector involvement in bailing out Greece may need to be re-examined after the volatility on financial markets over the summer. The comments marked a public acknowledgment from France – which up until then had argued that an agreement by eurozone heads of state on July 21 should be applied in full – that further participation from private sector creditors may be required as Greece‘s financial crisis deepens. “Given what’s happened over the last three months, we should perhaps look at the extent of the private sector involvement,” Baroin said on French radio station RTL.

Under the new deal struck at the eurozone summit of October 28, the writedown to be suffered by private holders of Greek debt was set at 50 percent.

What football cleanup?

More than 80 people were named on June 24 in connection with alleged football match-fixing. They included two Super League club presidents, club owners, players, referees and a chief of police who were charged with a variety of offences, including illegal gambling, fraud, extortion, money laundering and unlawful possession of firearms.

Culture Minister Pavlos Yeroulanos, also in charge of sports, told parliament: “There will be no more state funding for football, no access for teams to state-owned stadiums and no coverage of matches by state television unless the game is cleaned up.”

The deputy culture minister, Yiorgos Nikitiadis, described the alleged scandal as “the darkest page in the history of Greek football”. He promised the investigation to clean up the sport would go “as deep and as high as necessary”.

Six months later, the Super League is running as if nothing happened, teams are using state-owned stadiums, Makis Psomiadis (one of the accused club presidents) has fled to Fyrom and – needless to say – there is no cleanup in sight.
Data Jerman Picu Bursa Eropa Menguat

Oleh: Wahid Ma’ruf
Pasar Modal – Senin, 2 Januari 2012 | 21:58 WIB

INILAH.COM, London – Bursa Eropa menguat pada perdagangan Senin (2/1/2012) siang setelah manufaktur Jerman naik dan diperkiraan mengalahkan China.

Indeks DAX Jerman naik 2,2% saat indeks FTSE, London dan Wall Street AS masih libur tahun baru 2012. Bursa Asia juga tergelincir 0,3% dengan masih liburnya bursa China, Jepang dan Australia.

Sementara lelang obligasi Prancis untuk 10 tahun turun sehingga menaikkan imbal hasil hingga enam basis poin menjadi 3,2%. Prancis akan melelang obligasi hingga 16,9 miliar euro atau senilai US$21,9 miliar pada pekan ini.

Untuk data indeks pembelian manajer Jerman naik 48,4 pada bulan Desember 2011. Hal ini mendekati data manufaktur China yang naik 50,3. Demikian mengutip bloomberg.com.

“Pada perdagangan hari pertama tahun ini, banyak investor telah membersihkan portofolio mereka sehingga memiliki likuiditas untuk berinvestasi. Jerman dapat dilihat sebagai tempat yang aman dengan pertumbuhan yang kuat dibandingkan negara Eropa lainnya. Orang-orang berinvestasi di industri dengan banyak visibilitas seperti utilitas,” kata Arnoud Scarpaci, analis dari Agilis Gertion SA di Paris.

Untuk lelang obligasi Prancis yang jatuh tempo dua tahun naik tiga basis poin menajdi 0,83%. Prancis menyiapkan akan melelang threasury 8,9 miliar euro besok dan 8 miliar euro dari obligasi yang akan jatuh tempo pada 2021, 2023, 2035 dan 2041 pada 5 Januari mendatang.

Sedangkan Obligasi Jerman menurun untuk pertama kalinya dalam lima hari sehingga mendorong imbal hasil obligasi 10 tahun naik enam basis poin menjadi 1,89%. Jerman akan melelang 5 miliar euro yang jatuh tempo pada 2022 pada 4 Januari besok. Sedangkan imbal hasil obligasi Italia untuk 10 tahun turun 15 basis poin menjadi 6,96%.

Sementara kurs euro jatuh terhadap 11 dari 16 mata uang utama dunia. Euro turun 0,15 terhadap yen dari 98,66 yen per euro. Sebab utang milik Uni Eropa senilai 157 miliar euro akan jatuh tempo pada kuartal I 2012.

Dec. 28, 2011, 3:53 p.m. EST
Look for 2012 to be the year of the dollar
Commentary: Currency wars favor the greenback

By David Callaway, MarketWatch

SAN FRANCISCO (MarketWatch) — At a meeting in London last month I listened with mild amusement as a senior sales executive discussed the rollout of a banking campaign to promote the rise of China’s renminbi as a global currency.

Advertising in the U.S. would make little sense, as Americans aren’t ready to believe in — much less prepare for — the inevitable day when the Chinese currency overtakes the U.S. dollar as a major reserve currency, ran the strategy, detailed by the executive with the requisite cultural dig.

It’s certainly just coincidence that the U.S. Dollar Index (NYE:DXY) is up more than 4% since that meeting, while the China story line has degenerated into a series of ominous collapse scenarios for 2012, much like the Europe and emerging-markets stories.

Indeed, if the crises of the past several months have taught us anything, it’s that despite the allure of a new Asian currency champion, despite the potential for the European project to be saved, despite the weakness of the dollar and the gains in gold over the last decade, when large institutional investors truly get scared, they buy U.S. dollars.

They buy dollars when European banks look weak. They buy them when U.S. banks look weak. They even buy them when the U.S. loses its triple-A credit rating at Standard & Poor’s, because, after all, what else are they going to buy? The dollar index is up more than 6% since that early-August rating reduction, which provoked such anxiety at the time.

And this week, as investors bide time until the markets come back to life in January, the dollar is the only game in town. The thing to watch for is whether the dollar maintains its strength when the scary, end-of-year headlines are gone and Europe and China begin a fresh effort in 2012 to confront their economic challenges.

Whether Europe’s leaders save the single currency for another year — or two, or three — is important to large banks and global markets. But the idea of the euro’s emergence from the crisis as a strong reserve currency is now indefensibly out the window. As for the renminbi, it’s time may come, but not before China stops manipulating it and allows it to truly trade against its monetary brethren. So don’t hold your breath.

What we are witnessing is instead a trend shift back into U.S. dollars as investors look out on the 2012 investment horizon and see no other credible global story out there to put their money on. While the crisis in Europe and China’s slowdown might hold the U.S. economic recovery back or even pull the U.S. economy back into recession next year, the data at the moment suggest it’s the U.S. that will pull everybody out of the economic abyss this time, whenever it happens. Bullish for the dollar.

Reuters
The quadrupling of the price of gold — shown here in bar form at a jeweler’s shop in Hong Kong — is evidence that the biggest moves are often slow-developing ones.

When following financial markets day to day, week to week, or even just a few times a month, it’s easy to get caught up in the flavor of the moment, be it tech stocks or emerging-markets ETFs or even solar energy. But often the biggest moves in securities happen over a longer period of time, with gold’s quadrupling in the last decade as the best example.

A trend shift in the dollar is long overdue, and when it happens it will happen despite which cast of characters is presiding in Washington or whether it’s an election year or not. Our politicians simply react to global asset migrations. They don’t manage them.

The era of financial engineering and the global investment banker was poor for the dollar because there were so many sexier things to buy. Now that, one by one, those have all blown apart or had their underlying fragility exposed, investors are returning to the comfort zone of the greenback.

Not as fun as waiting for Santa Claus to declare another bull market in stocks this week, I know. But perhaps a sign that the days of financial magic may finally be behind us.
BRIC Decade Ends as Growth Peaked: Goldman

By Michael Patterson and Shiyin Chen – Dec 28, 2011 3:35 PM GMT+0700

Dec. 27 (Bloomberg) — Mary Ann Bartels, head of technical and market analysis at Bank of America Merrill Lynch, discusses the outlook for the stock market, currencies, gold prices and investment strategy. Bartels speaks with Sara Eisen and Scarlet Fu on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)
Korea Stocks, Asia, Latin America, Emerging Markets

Play Video

Dec. 23 (Bloomberg) — Mark Mobius, executive chairman of Franklin Templeton Investments’ Emerging Markets Group, talks about the outlook for China’s economic growth and stock market. Mobius also discusses Korea stocks following the death of North Korean leader Kim Jong Il, and Argentina stocks. He speaks with John Dawson on Bloomberg Television’s “Fist Up.” (Source: Bloomberg)
Central Banks Can `Do More QE,’ Blanchflower Says

Play Video

Dec. 28 (Bloomberg) — David Blanchflower, a professor at Dartmouth College and a Bloomberg Television contributing editor, talks about the need for more quantitative easing by central banks and the outlook for emerging-market economies. Blanchflower speaks with Sara Eisen and Scarlet Fu on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s.

Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.

BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.

“In emerging markets, we’re waiting for things to get worse before they get better,” said Michael Shaoul, the chairman of Marketfield Asset Management in New York who predicted in February that developing-nation stocks would fall this year. The $845 million Marketfield Fund (VONEMBI) has topped 97 percent of peers in 2011, data compiled by Bloomberg show.

BRIC indexes may fall another 20 percent next year, buffeted by the liquidity squeeze stemming from Europe’s sovereign debt crisis, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees about $499 billion, said in an interview. Nations such as Indonesia, Nigeria and Turkey may overshadow the BRICS in the next five years as they expand from lower levels of growth, he said.
BRICs Slowdown

“The slowdown we’re seeing in the BRICs will continue for most of the first half,” Mahendran said. “Compared to the U.S., corporate profits haven’t been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we’ll only start to see the effects of monetary policy loosening in the second half of 2012.”

Gross domestic product in the four countries rose at the slowest pace in almost two years last quarter and Goldman Sachs said this month that their potential economic growth rates have probably peaked because of a smaller supply of new workers. Even as Brazilian and Russian policy makers start to lower borrowing costs, profit growth in the MSCI index will slow to 5 percent next year from 19 percent in 2011, trailing the S&P 500 by five percentage points, according to more than 12,000 analyst estimates compiled by Bloomberg.

Average economic growth in the BRIC countries will decelerate to 6.1 percent next year from a high of 9.7 percent in 2007, according to September estimates by the International Monetary Fund. That would narrow the gap over America’s expansion to 4.3 percentage points, the smallest since 2004, the IMF data show. Global GDP may increase 4 percent next year, restrained by 1.1 percent growth in the euro area, the Washington-based fund said.
‘Meaningfully Slower’

Slowing exports to Europe and government restrictions on real-estate investment are curbing the expansion in China, the biggest emerging economy. India’s growth has been hampered by the fastest interest-rate increases since 1935 and the rupee’s decline to a record low, which fueled inflation and deterred foreign investment. Brazil and Russia, whose growth during the past decade was spurred by surging commodity demand, have been hurt by falling metals prices and the slowdown in China.

“In emerging markets across the board, all the numbers are pointing toward meaningfully slower growth” next year, Rajiv Jain, who oversees about $15 billion as a money manager at Vontobel Asset Management Inc. in New York, said in a Dec. 5 phone interview.

Jain’s emerging-market equity fund beat 98 percent of peers this year, buoyed by holdings of beverage and tobacco companies whose profits are resilient to economic slowdowns.
2011 Losses

The BSE India Sensitive Index led declines among BRIC equity gauges this year, falling 23 percent. China’s Shanghai Composite Index also dropped 23 percent, while Russia’s Micex retreated 18 percent and Brazil’s Bovespa sank 16 percent. The 21-country MSCI Emerging Markets Index (MXEF) lost 20 percent, while the S&P 500 gained 0.6 percent.

The MSCI BRIC Index slid 0.8 percent as of 8:30 a.m. in London and the MSCI Emerging Markets Index dipped 0.6 percent, set for the lowest close in a week. The Shanghai Composite gained 0.2 percent, the Sensex dropped 1.1 percent, while the Micex was little changed.

Egypt’s EGX30 Index (EGX30) tumbled 49 percent this year, the biggest decline in emerging markets, as political turmoil stifled tourism and deterred foreign investment following the popular uprising that ousted President Hosni Mubarak. The Philippine Stock Exchange Index posted this year’s largest gain, advancing 3.2 percent after higher consumer spending countered the global economic slowdown.
Peak Expansions

Longer-term economic growth rates in the BRIC nations are poised to drop as their working-age populations increase more slowly and then eventually shrink, according to a Goldman Sachs report on Dec. 7 titled “The BRICs 10 Years On: Halfway Through The Great Transformation.”

“We have likely seen the peak in potential growth for the BRICs as a group,” Dominic Wilson, an economist at Goldman Sachs, wrote in the report. Wilson made the New York-based firm’s first detailed long-term forecasts for the BRIC nations in 2003, two years after Jim O’Neill, then head of economic research, coined the term.

O’Neill, now chairman of Goldman Sachs’s asset-management unit, declined an interview request for this story. His latest book, “The Growth Map,” talks of “rosy prospects” for the BRICs as well as the potential of the “Next Eleven” most populous emerging economies.
Fund Flows

Goldman Sachs’s bullish outlook for the BRIC nations proved prescient as the economies expanded at an average pace of 6.6 percent during the past decade, more than four times faster than America, according to IMF data. Investors poured about $67 billion into Brazil, Russia, India, China and BRIC mutual funds from 2001 to 2010, data compiled by Cambridge, Massachusetts- based EPFR Global show.

This year’s fund outflows were the biggest on an annual basis since at least 1996, according to EPFR Global. India equity funds recorded about $4 billion of net withdrawals, while China funds lost $3.6 billion. Investors pulled $2.2 billion from Brazil, $326 million from Russia and $5.3 billion from funds that invest in all four of the BRIC countries. All emerging-market funds tracked by EPFR Global had about $47 billion of outflows, leaving assets under management at $605 billion.
Rate Cuts

Large fund outflows are a contrarian indicator because they may signal pessimistic investors have already sold, setting the stage for a trough in share prices, according to Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong. Emerging-market funds recorded about $48 billion of outflows in the five months ended October 2008, when developing-nation stocks began a rally that sent the MSCI emerging-market index up 108 percent in 12 months.

Emerging-market stocks will probably outperform U.S. equities next year as central banks in developing countries cut interest rates to stimulate economic growth, said James Paulsen, the chief investment strategist at Wells Capital Management in Minneapolis. The MSCI emerging-markets gauge (MXBRIC) rose an average 35 percent after the BRIC nations began cutting interest rates in 2003, 2005 and 2008.

Brazil has reduced its benchmark Selic interest rate by 1.5 percentage points since August to 11 percent. China lowered banks’ reserve requirements in November for the first time since 2008, while forwards contracts in Russia and India show that traders are betting on interest-rate cuts in the next 12 months.

In the U.S., the Federal Reserve has pledged to hold interest rates near zero until at least mid-2013.
Easing Policies

“I like the emerging markets better than anything right now,” Paulsen said in a Dec. 7 interview on Bloomberg Television. “Most of these emerging-market policy officials are turning to easing policies.”

While the MSCI BRIC index has dropped to 8.4 times estimated profit from 13 times at the start of the year, valuations are still higher than they were a decade ago. The MSCI India Index trades for 15 times profit, up from 13 times in 2001, according to data compiled by MSCI Inc.

India’s price-earnings ratios have climbed to an 8 percent premium over U.S. stocks from a 63 percent discount 10 years ago, data compiled by MSCI show. The discount on Chinese shares narrowed to 35 percent from 59 percent, while it shrank to 29 percent from 76 percent in Brazil and dropped to 60 percent from 87 percent in Russia, based on MSCI indexes.
Relative Valuations

Compared to the U.S., valuations for BRIC markets don’t look cheap enough, said Ok Hye Eun, a Seoul-based fund manager at Woori Asset Management Co., which oversees the equivalent of $15 billion.

“BRIC markets won’t be an attractive destination for a while because there are still ongoing risks,” said Ok, citing the prospects of a potential collapse in China’s real estate market and the outlook for economic reforms in India. “I see more opportunities in the U.S.”

ICICI Bank Ltd. (ICICIBC), India’s biggest private lender, trades for 14 times profits, a 42 percent premium over San Francisco-based Wells Fargo & Co., even as analysts predict slower earnings growth at the Mumbai-based bank, according to data compiled by Bloomberg. ICICI Bank profits will increase 10 percent in the current fiscal year, compared with 28 percent at Wells Fargo, the biggest U.S. bank by market value, the estimates show.
Want Want, Redecard

Want Want China Holdings Ltd. (151), a Shanghai-based maker of food and beverages, is valued at 36 times profits and analysts project earnings will increase 7.7 percent this year. The Hong Kong-listed shares are twice as expensive as Northfield, Illinois-based Kraft Foods Inc., which trades for 17 times earnings and may boost profits 13 percent, analyst estimates compiled by Bloomberg show.

Redecard SA (RDCD3), Brazil’s second-biggest card-payment processor, trades for 15 times profits, versus 12 times for New York-based American Express Co. Sao Paulo-based Redecard’s earnings will probably slip 3.8 percent this year while American Express posts a 19 percent gain, analyst projections compiled by Bloomberg show.

Outflows from emerging-market funds may continue next year as economic growth and company results disappoint investors, according to John-Paul Smith, the London-based emerging-market strategist at Deutsche Bank AG. Money managers surveyed by Bank of America Corp. from Dec. 2 to Dec. 8 said their emerging- market holdings are still 23 percent higher than benchmark weightings even after they cut positions from last month.
‘Structural Weaknesses’

“There will be a lot of volatility, but as people realize the underlying structural weaknesses of the BRIC economies, you’ll see money coming out,” Deutsche Bank’s Smith said in a telephone interview on Dec. 19.

China’s economic data have trailed estimates for the past two months, based on Citigroup Inc.’s Economic Surprise Index, a gauge of how much reports are missing economist projections in Bloomberg News surveys. Chinese manufacturing contracted by the most since 2009 in November, while new home prices declined in 49 of 70 cities tracked by the government the same month.

By contrast, U.S. data is beating analyst expectations by the most in nine months, according to the country’s Citigroup surprise index. Manufacturing in America expanded at the fastest pace in five months in November, the Institute for Supply Management said. Initial jobless claims fell to the lowest level since 2008 in the week ended Dec. 10, while U.S. housing starts in November climbed the most in 19 months, government data show.

Per-share earnings in the MSCI BRIC index trailed analysts’ estimates by 13 percent last quarter, according to data compiled by Bloomberg. S&P 500 profits beat projections by 4.4 percent, the data show.
Labor Supply

While Goldman Sachs still expects the BRICs to join the U.S. and Japan as the world’s biggest economies by 2050, the bank predicted this month that the four nations’ contribution to the global expansion will diminish during the next few decades. Economic growth in the BRICs may fall to about 4 percent by 2050 as working-age populations dwindle, Goldman Sachs said.

The number of people aged 15 to 64 in Russia has already started to drop, while Chinese workers may peak at around 1 billion and begin falling by 2020, according to estimates by the United Nations. Brazil’s peak may come by 2040, with India’s topping out by 2060, the New York-based United Nations said. The U.S. will keep adding workers through 2100, the forecasts show.

“In the last decade, simply recognizing that the BRICs were the story was largely enough to propel outsized investment returns,” Goldman’s Wilson wrote in this month’s outlook report. “It is much harder to accept that simply believing in their long-term growth dynamics can be a sufficient investment thesis now, if it ever was.”
JAKARTA – Sekira dua minggu lalu, Indonesia telah mengantongi peringkat Investment Grade dari lembaga pemeringkat Fitch di Hong Kong. Meskipun begitu, dua lembaga pemeringkat lain belum menyematkannya pada Indonesia. Hal ini disinyalir terkendala kebijakan pemerintah terkait BBM subsidi.

“Mereka (S&P 500 dan Moodys) masih melihat subsidi BBM yang tinggi. Menurut mereka itu tidak efisien, makanya pemerintah harus melihat lagi keefektifan program ini, karena tahun ini kuotanya juga jebol lagi,” ujar ekonom Center For Information and Development Studies (Cides) Umar Juoro, dalam diskusi tentang Prediksi Pertumbuhan Ekonomi 2012, di Hotel Ambhara, Jalan Iskandarsyah, Jakarta, Selasa (27/12/2011).

Dalam APBN-P 2011, pemerintah memang menganggarkan kuota BBM subsidi sebesar 40,49 juta kiloliter (kl) atau sekira lebih dari Rp100 triliun. Nyatanya, kuota ini jebol juga di akhir tahun sehingga pemerintah perlu menambah Rp30 triliun lagi untuk subsidi BBM ini.

“Subsidi BBM masih cukup tinggi, dan pemerintah melihat itu. Ke depan kouta subsidi BBM akan dibatasi, atau dengan rendahnya inflasi harusnya ini menjadi momentum pemerintah untuk penyesuaian harga BBM,” lanjut Umar.

Di tahun depan, jika pemerintah melakukan salah satu di antara opsi ini, rentang angka inflasi masih bergerak stabil di angka lima persen. “Tahun depan kalau ada kenaikan ataupun pembatasan BBM, inflasi masih akan terjaga di angka 5,1-5,2 persen,” tambah dia lagi.

Meskipun begitu, dengan melihat kondisi makro Indonesia, rasio GDP terhadap utang, dan standar keamanan berinvestasi, Umar yakin bahwa peringkat investment grade dari dua lembaga pemeringkat tersebut hanya tinggal menunggu waktu.

“Kalau pemerintah semakin efisien, saya pikir triwulan pertama tahun depan mereka akan memberikan peringkat investment untuk Indonesia,” pungkasnya.

http://www.sindonews.com/read/2011/12/27/20/547755/investment-grade-dari-moodys-s-p-terhalang-bbm-subsidi

Sumber : SINDONEWS.COM
TOKYO, Dec 21, 2011 (AFP)
Exports tumbled in November, data showed Wednesday, leaving Japan with a trade deficit for a second straight month, with exports to the key European market floundering as the debt crisis grips.

Flooding in Thailand and a stronger yen also weighed on Asia’s second-largest economy, which is still running to catch up from the effects of the March 11 quake and tsunami disaster, a government official said.

Exports fell 4.5 percent in the month from a year earlier, increasing the trade deficit to 684.73 billion yen ($8.79 billion), the largest trade loss ever for the month of November, the finance ministry said.

Japan’s trade surplus with Europe fell to 27.59 billion yen, with exports down 4.6 percent, the lowest figure for the month of November since January 1979 when records began, a finance ministry official said.

The smallest trade surplus ever with Europe was 26.8 billion yen posted in January 2009, he added.

“Factors behind the latest trade readings are the sovereign debt crisis in Europe and a surging yen, which has forced Japanese manufacturers to move production plants overseas,” he said.

Japanese exports stood at 5.20 trillion yen in November, down for the second straight month.

Electronics, notably computer chips and video equipment were particularly hard hit in the month, the finance ministry said.

“It is not a seasonal trend to see such a deficit for this time of the year,” said the finance ministry official.

“One other factor is the flooding in Thailand, which stopped electronic parts supply to Japan and hindered the export of finished products from here,” he said.

Imports rose 11.4 percent to 5.88 trillion yen in the month, as a result of higher fuel costs, the finance ministry said.

Japan, which is still grappling with the world’s worst nuclear accident since Chernobyl, has shut down most of its atomic reactors as concerns over the safety of the technology grip the nation.

Power companies have instead been forced to ramp up the use — and therefore the imports to resource-poor Japan — of fossil fuels to supply the country’s electricity-hungry industries and households.

The reading for the November trade deficit was worse than the 440 billion yen deficit expected by economists surveyed by Dow Jones Newswires and the Nikkei newspaper.

Japan’s exports to Asia also tumbled 8.0 percent in November from a year ago, the data showed.

In October, the balance of Japan’s trade in goods stood at a revised 280.17 billion yen in the red.

“At the bottom line is the economic slowdown, especially in Europe… in addition to a high yen,” said Taro Saito, senior economist at NLI Research Institute.

“Flooding in Thailand came on top of that,” he said.

“I think the European economy is already in a state of recession, and it will continue to face a very tough time into next year.”
New York- Jika Anda menganggap perekonomian Amerika masih sehat, ubahlah persepsi Anda. Opini inilah yang ingin disampaikan pengelola blog ekonomi The Economy Collapse (TEC) kemarin.

Berdasarkan survei yang mereka lakukan, TEC mengatakan sebagian besar penduduk Amerika tidak memahami betapa buruknya perekonomian negara mereka saat ini. Demi mengubah pandangan itu TEC pun melansir 10 fakta mengejutkan tentang ekonomi Amerika.

Beberapa dari fakta itu terbilang mengerikan. Mau tahu apa saja hal-hal buruk itu? Ini dia:

1. Total utang Amerika Serikat saat ini mencapai 15 triliun dolar, naik 4,4 triliun dari besaran utang ketika Presiden Obama pertama kali menjabat.

2. Seluruh kekayaan Bill Gates hanya mampu membiayai defisit anggaran Amerika selama 15 hari.

3. Saat ini 48 persen penduduk Amerika dinyatakan hidup dalam kemiskinan.

4. Ada 33 persen lebih banyak anak gelandangan dibandingkan pada 2007

5. Penduduk Amerika rata-rata menganggur atau menunggu panggilan kerja lebih dari 40 minggu

6. Saat ini lebih dari 40 persen pekerjaan di Amerika masuk kategori pekerjaan berpenghasilan rendah. Padahal pada era 1980-an pekerjaan bergaji rendah hanya kurang dari 30 persen.

7. Satu dari 3 orang Amerika kemungkinan tidak dapat membayar sewa rumah di bulan berikutnya jika ia kehilangan pekerjaan, begitu disebutkan dalam suatu survei.

8. Perusahaan Pos Amerika mengalami kerugian 5 miliar dolar di tahun ini

9. Satu dari tujuh penduduk Amerika memiliki lebih dari 10 kartu kredit.

10. Sebuah survei menunjukkan bahwa 77 persen bisnis skala kecil di Amerika tidak berencana menambah karyawan.

http://www.tempo.co/read/news/2011/12/20/090372699/10-Fakta-Bobroknya-Perekonomian-Amerika

Sumber : TEMPO.CO
Uni Eropa Ajak Dunia Bantu Zona Euro
| Tri Wahono | Selasa, 20 Desember 2011 | 05:58 WIB

BRUSSEL, KOMPAS.com – Uni Eropa mendesak negara-negara G20 dan negara besar lainnya di seluruh dunia untuk membantu upaya penyelamatan zona euro melalui Dana Moneter Internasional atau IMF. Demikian Kepala Zona Euro Jean-Claude Juncker mengatakan, Senin (19/12/2011), setelah gagal mencapai target tambahan dana talangan yang dibutuhkan sebesar 200 miliar euro.

“Uni Eropa akan menyambut anggota G20 dan anggota IMF kuat lainnya untuk mendukung upaya menjaga stabilitas keuangan global dengan berkontribusi pada peningkatan sumber daya IMF sehingga bisa mengisi kesenjangan pembiayaan global,” kata Juncker dalam sebuah pernyataan setelah pembicaraan jarak jauh selama 3,5 jam.

Para menteri keuangan zona euro baru berhasil mengumpulkan pinjaman baru sebesar 150 miliar euro atau setara 195 miliar dolar AS untuk digunakan IMF menstabilkan mata uang. Inggris yang diharapkan bisa menyumbang 30 miliar euro menolak memberikan pinjaman. IMF sendiri saat ini memiliki sekitar 250 miliar euro untuk dipinjamkan kepada negara-negara yang menjalankan program reformasi keuangan.

Sumber :
ANT, AFP

Investors prepare for more volatility in 2012
Dec 15, 2011 10:50 EST

reuters

Whether or not Europe resolves its banking crisis, the United States its deficit or China its cooling economy, U.S. investors should be prepared for more volatility in 2012.

This year’s roller coaster sent billions of dollars to the sidelines but also rewarded many investors who stuck with bonds and dividend-producing funds. These are some of the key issues fund managers, such as Dan Fuss of Loomis Sayles and David Giroux of T. Rowe Price (TROW.O), will examine during the 2012 Reuters’ Global Investment Summit Outlook taking place next week in New York, London and Hong Kong.

THE BIG PICTURE

The U.S. fund business saw net outflows of $62.9 billion through November 30, according to Lipper, a Thomson Reuters unit that tracks mutual fund data. While equity funds were down by almost $21 billion, taxable fixed-income funds took in almost $167 billion, says Tom Roseen, a senior analyst at Lipper.

“There was a tale of two cities in the equity universe,” Roseen says. “Open-end funds witnessed outflows of $51.35 billion, while their ETF counterparts saw net inflows of almost $30.5 billion.” Why? ETFs appeal to investors — especially institutional investors — because unlike mutual funds, they can be traded all day. “They could be in and out in a matter of moments,” he says.

Cost and availability also make ETFs appealing, especially to institutional and large investors, says Fran Kinniry, a principal in Vanguard’s Investment Strategy Group.

EQUITY WINNERS

With interest rates low and volatility high, investors sought returns from bonds and dividend-producing equities. Winners include commodity and precious metals funds, which top the list with gains of 5.56 percent through mid-November. Other winners: traditional income payers such as utility funds with 5.24 percent gains and real estate funds, which rose 2.26 percent. “People are now saying we are looking for growth, but we also want to get paid,” says Roseen. “We want dividends.”

James Swanson, chief investment strategist, MFS Investment, says many companies have great balance sheets and likely will continue “to keep paying those dividends or even increase them,” Swanson says. He especially likes the tech sector, which has little debt and a worldwide market.

One loser: world equity funds, which posted the worst performance of the equity macro groups. This category fell 14 percent through mid-November, even though it attracted $24.9 billion in new money, according to Lipper. The category was dragged down by the financial crisis in Europe as well as growing concerns about China, says Roseen.

FIXED-INCOME FUND

In 2011, fund winners were with the ones with the word “Treasury,” says Roseen. General U.S. Treasury funds returned 15.67 percent as of mid-November. Treasury inflation-protected securities (TIPS) posted an almost 11 percent gain. Global income funds with 3.47 percent growth in assets gained $20.6 billion, the largest amount of net new money.

TAX-EXEMPT FIXED-INCOME

Even though investors got frightened by the headlines of massive defaults and naysayers pulled out, these funds had positive returns. In some instances, the gains were quite significant, says Roseen. For example, California municipal debt funds gained 9.31 percent through mid-November. He says there wasn’t the massive melt down of the muni bond market that analyst Meredith Whitney had predicted, and returns were fairly strong.

Analysts agree one thing is for certain: 2012 will likely be another volatile year. That, says Kinniry, makes diversification and long-term planning even more important. “If investors are going to get this right,” he says. “They need to develop an asset allocation plan and really try not to get the short-term market to run their emotions.”

Senin, 26 Desember 2011 | 11:53 oleh Dyah Megasari, Bloomberg
ANCAMAN KRISIS GLOBAL
S&P umumkan review downgrade 15 negara Januari mendatang
kontan

LONDON. Standard & Poor’s dikabarkan bakal mengumumkan hasil review terhadap peringkat utang 15 negara zona Eropa Januari mendatang. Berita ini diperoleh dari sumber pemerintahan Eropa yang mengetahui secara langsung rencana lembaga S&P.

“Lembaga pemeringkat sudah mengisyaratkan itu,” jelas sumber yang enggan disebut namanya. Masih dari sumber yang sama, ia hanya dibolehkan memberi informasi ini pada negaranya. Meskipun 15 negara dinyatakan tengah di bawah pengawasan dan akan mendapat keputusan dalam waktu bersamaan.

6 Desember 2011, lembaga pemeringkat kelas dunia ini menegaskan tak ragu melakukan down grade secara massal dan belum pernah terjadi sebelumnya. Pemangkasan peringkat menjadi keputusan bulat jika para pemimpin Uni Eropa gagal memberikan solusi krisis keuangan yang menjangkiti kawasan.

S&P memberi sinyal, pengumuman akan rilis tak lama setelah KTT Uni Eropa berakhir.

Kamis, 22 Desember 2011 | 09:22 WIB
Rencana Pelonggaran Likuiditas Eropa Lemahkan Euro

TEMPO.CO, Jakarta – Euro kembali tergelincir terhadap dolar setelah Bank Sentral Eropa mengumumkan rencana pertama pinjaman jangka panjang untuk menguatkan permintaan obligasi Eropa. Mata uang euro turun dari posisi tertingginya di US$ 1,3198 ke level US$ 1,3023. Namun, pagi ini, euro ditransaksikan pada level US$ 1,3049.

Indeks dolar AS terhadap enam mata uang utama dunia dalam perdagangan New York semalam menguat 0,14 poin (0,18 persen) ke level 80,022. Namun, di pasar Asia hari ini, indeks dolar AS turun tipis 0,014 persen ke level 80,008.

Mata uang tunggal Uni Eropa itu jatuh setelah 523 bank di kawasan Eropa meminta pinjaman selama tiga tahun kepada Bank Sentral Eropa senilai 489 miliar euro (US$ 641 miliar). Pinjaman ini dikenal sebagai Longer-Term Refinancing Operations (LTROs).

Besarnya nilai pinjaman dari perbankan Eropa ini menimbulkan kekhawatiran bahwa bank akan menumpuk uangnya dalam kegiatan carry trade (meminjam uang dalam mata uang yang berbunga rendah dan mengalihkan ke dalam mata uang yang berimbal hasil tinggi). Yakni dari euro yang suku bunganya turun untuk membeli aset-aset dalam mata uang yang berimbal hasil lebih tinggi.

“Inti dari permasalahan ini adalah ke mana uang dengan bunga rendah ini akan dihabiskan,” kata Chris Fernandes, penasihat pelanggan corporate valas dari Bank of West. “Sebenarnya langkah ini positif untuk menambah likuiditas di zona Eropa, tetapi masih adanya harapan turunnya suku bunga ECB membuat euro kembali terpuruk terhadap dolar AS,” ujarnya. Pada dasarnya, kebijakan yang dilakukan bank sentral ini untuk mendorong pelonggaran kuantitatif.

Fernandes menilai hal itu merupakan quantitative easing (pelonggaran kuantitatif). Langkah ini bisa menjadi sentimen negatif bagi euro karena pasar akan kebanjiran likuiditas. “Tapi jika Anda melihat turunnya imbal hasil obligasi jangka panjang Italia dan Spanyol akan positif bagi euro,” ujarnya.

Direktur bagian suku bunga dan strategi TD Securities, Richard Gilhooly, mengungkapkan, investor pasang posisi beli saat ada rumor dan jual euro setelah faktanya keluar, membuat mata uang Eropa kembali melemah ke US$ 1,3.

Investor dan bank membeli agunan utang dan lainnya untuk menerima pinjaman dana murah dari Bank Sentral Eropa selama tiga tahun. “Pinjaman tiga tahun ini tidak akan sampai bulan Februari mendatang, namun kita telah melihat aksi ambil untung di euro,” kata Richard.

MARKETWATCH | VIVA B K

World GDP

Dec 20th 2011, 21:33 by The Economist Online

DECEMBER 21, 2011, 2:03 P.M. ET

Euro-Zone Banks Tap Big ECB Loans
By DAVID ENRICH

Hundreds of euro-zone lenders took out a total of €489.19 billion ($639.96 billion) in low-interest loans from the European Central Bank on Wednesday, as the currency area extended a massive financial lifeline to its struggling banking industry.

The ECB said 523 banks borrowed under the central bank’s newly activated three-year lending facility. The unexpectedly heavy demand for the loans highlighted the severity of the funding crisis, but simultaneously stirred hopes that the rescue will help defuse Europe’s two-year financial crisis—or at least prevent it from getting worse.

European Banks took €490 Billion from the European Central Bank’s Long Term Refinancing Operation. Could this provide the turning point in the euro-zone crisis? Simon Nixon and Geoffrey Smith discuss the latest developments.

Through the loan program, the Frankfurt-based ECB is trying to address a crucial weakness in the euro zone’s financial system. Nervous investors have essentially stopped lending to banks, fearful of their heavy holdings of government bonds and other assets that appear to be at growing risk of default.

If the dry spell persists into 2012, it could become a major problem. European banks face more than €700 billion in debt maturing next year, including more than €200 billion in the first three months, according to regulators and analysts.

ECB officials had feared that without intervention, many banks would cut lending to small businesses and households, strangling Europe’s already weak economy. The three-year loans, another batch of which will be available in February, are intended to avert such a scenario.

“It’s much better to have this funding locked in rather than praying the market reopens,” said John Raymond, an analyst with CreditSights in London. “I don’t think you can say it’s a game-changer…but it sort of slows down the vicious circle.”

The loan program appears to be the ECB’s main weapon, at least for now, in combating Europe’s crisis. The central bank has resisted pressure from politicians and market participants to aggressively buy euro-zone government bonds, arguing that such a move is outside its purview. But if the ECB eases fears about the Continent’s banks, that would go a long way toward relieving anxiety about many countries’ overall financial health.

Still, the lofty hopes of some leaders might be disappointed. Politicians including French President Nicolas Sarkozy have floated the concept of banks using the new ECB cash to snap up government bonds in financially shaky countries, where lackluster demand for their bonds in recent months has pushed their borrowing costs to unsustainable levels. But bankers and analysts play down the odds of that happening on a large scale, given the perceived riskiness of such bonds.

And the loan program isn’t without risks. Some experts and regulators worry that banks are growing even more addicted to central-bank assistance, making it harder for them to eventually stand on their own. At the same time, the loan program encourages banks in countries like Spain and Italy to grow even more entangled with their national governments—a phenomenon that has fueled today’s crisis.
Related Reading

Heard on the Street: ECB Buys Itself a Quiet Christmas

While the banks on Wednesday borrowed €489.19 billion, much of that was simply replacing other outstanding ECB loans that were coming due. Analysts estimated that Wednesday’s loans injected about €190 billion of new liquidity into the banking system.

Some experts said Wednesday’s ECB lending isn’t likely to fully quench European banks’ immediate funding needs. Nick Matthews, an economist at the Royal Bank of Scotland, said European banks face about €230 billion of debt maturing in the first three months of 2012 alone.

“This operation is not going to cover all the maturities,” he said.

Another €250 billion of European government bonds also need to be refinanced in the first quarter.

Traditionally, banks satisfied much of their day-to-day financing needs by issuing unsecured bonds to institutional investors around the world. But the market for such debt largely evaporated in July, when Europe’s crisis intensified. Investors haven’t regained their appetite.

In the second half of 2011, European banks have issued about €80 billion of senior unsecured bonds, according to data provider Dealogic. That compares with €240 billion in the same period last year and €257 billion in 2009.

So far, that hasn’t been an acute problem. Most banks satisfied the bulk of their 2011 funding needs in the first half of the year. They have been able to close any gaps by issuing safe but expensive secured bonds or by borrowing on a short-term basis from the ECB.

The decision by the ECB’s new president, Mario Draghi, to offer an unlimited supply of three-year loans reflects the growing recognition among regulators and bankers possibility that funding markets could remain shut well into the new year. If banks can’t replace their maturing debts, they are likely to compensate by reducing lending and other activities.

The ECB’s loans are attractive largely because of their price. The ECB will charge an interest rate that is the average of its benchmark rate over the three-year life of the loans. That rate is currently 1%. It’s likely to remain well below what most banks would have to pay to borrow from market sources.

The ECB didn’t disclose which banks borrowed under the new program, hoping to shield them from any potential stigma associated with the loans. “It appears that a very large majority of the large financial institutions” in Europe participated, said Laurence Mutkin, head of European interest-rate strategy at Morgan Stanley. “They’ve taken a lot of their issuance needs out of the market.”

One of the few banks to publicly confirm its participation was Italy’s second-largest lender, Intesa Sanpaolo SpA, which said it borrowed €12 billion. Ireland’s finance ministry said its banks also participated.

The loan program could further entwine the fortunes of Europe’s banks and governments.

In Spain on Tuesday, the government sold €5.6 billion of bonds in an auction that saw interest rates dive to 1.7% from 5.1% a month earlier. That is a sign of surging demand, which analysts say most likely stemmed from small and midsize Spanish banks buying the bonds in order to use them as collateral for this week’s ECB loans.

Such a trade could prove lucrative for the banks, given the considerable gap between the interest rates the Spanish bonds generate and the amount the banks are paying to borrow from the ECB. But it also means that Spanish banks are even more vulnerable to the Spanish government’s financial woes.

A similar phenomenon occurred in Italy. Fourteen banks this week issued a total of €38.4 billion of government-guaranteed bonds that will be eligible to serve as collateral with the ECB, according to a document released on Wednesday by the Italian stock exchange.

Those banks already have seen their stocks and bonds battered this year by investors who worry that they are holding excessive quantities of potentially risky Italian government debt.

“The bank-sovereign nexus still has not been successfully broken and if anything is being reinforced,” said Mr. Matthews, the RBS economist.
Zona Euro Setujui Tambahan “Bail Out” 150 Miliar Euro
| Tri Wahono | Selasa, 20 Desember 2011 | 04:34 WIB

BRUSSELS, KOMPAS.com — Pemerintah 17 negara zona euro, Senin (19/12/2011), setuju untuk menambahkan dana talangan atau bail out sebesar 150 miliar euro atau setara 195 miliar dollar AS kepada Dana Moneter Internasional (IMF).

Seperti dilaporkan AFP, negara-negara Uni Eropa masih berupaya mencapai target sebesar 200 miliar euro yang telah ditetapkan para pemimpin Uni Eropa pada pertemuan puncak 9 Desember 2011 lalu. Semua negara Uni Eropa secara implisit akan berpartisipasi untuk mengakhiri krisis dengan melaksanakan target yang telah dirancang.

Hanya Inggris yang menolak untuk turut berpartisipasi memberikan dana bantuan tersebut. Dalam konferensi jarak jauh yang berlangsung 3,5 jam, Menteri Keuangan Inggris George Osborne menyatakan bahwa Otoritas Keuangan Inggris tidak akan memberikan kontribusi apa-apa untuk bantuan yang hanya bisa dipakai negara-negara di zona euro.

Sumber Pemerintah Inggris menambahkan, “Juga kita tidak akan berpartisipasi dalam peningkatan sumber daya IMF yang hanya berasal dari negara-negara Uni Eropa tanpa partisipasi negara-negara G-20 lainnya di luar Uni Eropa.”
Sumber :
ANT, AFP

LONDON, Dec 19, 2011 (AFP)
European Union ministers will ask Britain to contribute 30.9 billion euros towards an International Monetary Fund (IMF) package aimed at rescuing the single currency, the Daily Telegraph reported Monday.

Britain will be asked for the cash injection, equivalent to $40.3 billion, when European finance ministers hold talks over the 200-billion-euro fund later Monday, an EU official told the Telegraph.

If Britain agrees, it would be the second biggest contributor to the package behind Germany and level with France.

However, British Prime Minister David Cameron, who blocked plans for EU treaty changes aimed at saving the currency, has repeatedly promised not to directly fund a bailout kitty.

Britain is already liable for 14.3 billion euros of loans and guarantees to Greece, Ireland and Portugal.

With several members of the 17-strong eurozone, of which Britain is not a part, under threat of credit rating downgrades, the key focus of the telephone conference will be boosting coffers to enable the new fund to come to the aid of floundering economies.

A government source told AFP on condition of anonymity that the so-called Eurogroup ministers will from around 1500 GMT “discuss what happens after the European summit of December 8 and 9″ on saving the eurozone.

At that summit, member countries announced plans to pump 200 billion euros into the warchest.

Eurozone members were to provide about three quarters, and other EU countries the rest. The aim was to allow the Washington-based IMF to come to the aid of eurozone countries in trouble, and the summit gave leaders 10 days to work out the details.

The eurosceptic wing of Cameron’s Conservative Party is urging their leader to resist attempts to make Britain pay towards any bailout of heavily-indebted eurozone nations.

“We did not agree any increase in bilateral resources last week,” a spokesman for Prime Minister David Cameron said Friday. “We made very clear in that meeting that we were not contributing to that 200 billion euros.”

BRUSSELS, Dec 18, 2011 (AFP)
Eurozone finance ministers will hold talks on the debt crisis on Monday to flesh out plans made at a Brussels summit this month to save the European currency.

With several members under threat of credit rating downgrades, a key focus of the telephone conference will be boosting International Monetary Fund (IMF) coffers to enable it to come to the aid of floundering economies.

A government source told AFP on condition of anonymity that the so-called Eurogroup ministers will from around 1500 GMT “discuss what happens after the European summit of December 8 and 9″ on saving the eurozone.

European Union members who are not part of the monetary union will also take part.

At the recent summit, which saw Britain block plans for EU treaty change to save the currency, member countries announced plans to pump 200 billion euros ($260 billion) into an IMF warchest.

Eurozone members were to provide about three quarters, and other EU countries the rest. The aim was to allow the Washington-based institution to come to the aid of eurozone countries in trouble, and the summit gave leaders 10 days to work out the details.

Several countries have agreed to the move in principle, without saying how much they would be willing to contribute. Belgium has promised 9.5 billion euros, Denmark 5.4 billion euros and Sweden 11 billion euros.

But non-euro country Britain has refused to take part.

“We did not agree any increase in bilateral resources last week. We made very clear in that meeting that we were not contributing to that 200 billion euros,” a spokesman for Prime Minister David Cameron said Friday.

European Central Bank chief Mario Draghi said he was saddened by the spat between Britain and the rest of the EU over London’s refusal to join the fiscal package to solve the bloc’s debt crisis.

“Britain certainly has shown a capacity to undertake a fiscal correction of an extraordinary size,” Draghi said in an interview to be published in Monday’s Financial Times.

“My more general reaction to all this is that it’s sad. I think the UK needs Europe and Europe needs the UK.”

On December 7, ratings agency Standard and Poor’s placed major EU economies on watch for downgrades of their AAA credit ratings.

Fitch Ratings expressed doubt Friday that an envisaged European budget discipline pact would solve the debt crisis and warned it may soon downgrade six countries, including Spain and Italy.

All EU states except Britain agreed last week to draft a strict pact with penalties to ensure they cut budget deficits and reduce their debt, aiming to get it drafted and signed by March.

The pact will also be on the agenda Monday, as will Europe’s future bailout fund, the European Stability Mechanism (ESM).

British Deputy Prime Minister Nick Clegg sought Sunday to draw a line under a row with France that erupted after the Brussels summit when the French central bank governor and senior ministers suggested rating agencies should be mulling a debt downgrade of Britain rather than France.

“It’s always a bit of a tug of war relationship, but history shows that France and Britain always do best when we pull in the same direction which is exactly what I hope we will do,” Clegg told Sky News television.

A poll showed that Cameron’s Conservative Party had opened up a wider lead on the opposition in the wake of the stormy EU summit.

German Chancellor Angela Merkel, however, has not been so lucky — facing a crisis within her coalition allies over Europe.

A junior partner in Merkel’s two-year centre-right coalition, the Free Democratic Party, narrowly avoided disaster Friday when a bid by rebels to force it to change its pro-Europe stance failed.

Meanwhile, the chairman of one of the eurozone’s biggest banks, BNP Paribas, Baudouin Prot, said the euro will come out stronger from the debt crisis but urged governments to act quickly to put their plans into action.
Fragile and unbalanced in 2012
Dec 15, 2011 10:37 EST
reuters

eurozon recession | global economy

Nouriel Roubini
The opinions expressed are his own.

The outlook for the global economy in 2012 is clear, but it isn’t pretty: recession in Europe, anemic growth at best in the United States, and a sharp slowdown in China and in most emerging-market economies. Asian economies are exposed to China. Latin America is exposed to lower commodity prices (as both China and the advanced economies slow). Central and Eastern Europe are exposed to the eurozone. And turmoil in the Middle East is causing serious economic risks – both there and elsewhere – as geopolitical risk remains high and thus high oil prices will constrain global growth.

At this point, a eurozone recession is certain. While its depth and length cannot be predicted, a continued credit crunch, sovereign-debt problems, lack of competitiveness, and fiscal austerity imply a serious downturn.

The US – growing at a snail’s pace since 2010 – faces considerable downside risks from the eurozone crisis. It must also contend with significant fiscal drag, ongoing deleveraging in the household sector (amid weak job creation, stagnant incomes, and persistent downward pressure on real estate and financial wealth), rising inequality, and political gridlock.

Elsewhere among the major advanced economies, the United Kingdom is double dipping, as front-loaded fiscal consolidation and eurozone exposure undermine growth. In Japan, the post-earthquake recovery will fizzle out as weak governments fail to implement structural reforms.

Meanwhile, flaws in China’s growth model are becoming obvious. Falling property prices are starting a chain reaction that will have a negative effect on developers, investment, and government revenue. The construction boom is starting to stall, just as net exports have become a drag on growth, owing to weakening US and especially eurozone demand. Having sought to cool the property market by reining in runaway prices, Chinese leaders will be hard put to restart growth.

They are not alone. On the policy side, the US, Europe, and Japan, too, have been postponing the serious economic, fiscal, and financial reforms that are needed to restore sustainable and balanced growth.

Private- and public-sector deleveraging in the advanced economies has barely begun, with balance sheets of households, banks and financial institutions, and local and central governments still strained. Only the high-grade corporate sector has improved. But, with so many persistent tail risks and global uncertainties weighing on final demand, and with excess capacity remaining high, owing to past over-investment in real estate in many countries and China’s surge in manufacturing investment in recent years, these companies’ capital spending and hiring have remained muted.

Rising inequality – owing partly to job-slashing corporate restructuring – is reducing aggregate demand further, because households, poorer individuals, and labor-income earners have a higher marginal propensity to spend than corporations, richer households, and capital-income earners. Moreover, as inequality fuels popular protest around the world, social and political instability could pose an additional risk to economic performance.

At the same time, key current-account imbalances – between the US and China (and other emerging-market economies), and within the eurozone between the core and the periphery – remain large. Orderly adjustment requires lower domestic demand in over-spending countries with large current-account deficits and lower trade surpluses in over-saving countries via nominal and real currency appreciation. To maintain growth, over-spending countries need nominal and real depreciation to improve trade balances, while surplus countries need to boost domestic demand, especially consumption.

But this adjustment of relative prices via currency movements is stalled, because surplus countries are resisting exchange-rate appreciation in favor of imposing recessionary deflation on deficit countries. The ensuing currency battles are being fought on several fronts: foreign-exchange intervention, quantitative easing, and capital controls on inflows. And, with global growth weakening further in 2012, those battles could escalate into trade wars.

Finally, policymakers are running out of options. Currency devaluation is a zero-sum game, because not all countries can depreciate and improve net exports at the same time. Monetary policy will be eased as inflation becomes a non-issue in advanced economies (and a lesser issue in emerging markets). But monetary policy is increasingly ineffective in advanced economies, where the problems stem from insolvency – and thus creditworthiness – rather than liquidity.

Meanwhile, fiscal policy is constrained by the rise of deficits and debts, bond vigilantes, and new fiscal rules in Europe. Backstopping and bailing out financial institutions is politically unpopular, while near-insolvent governments don’t have the money to do so. And, politically, the promise of the G-20 has given way to the reality of the G-0: weak governments find it increasingly difficult to implement international policy coordination, as the worldviews, goals, and interests of advanced economies and emerging markets come into conflict.

As a result, dealing with stock imbalances – the large debts of households, financial institutions, and governments – by papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings. Likewise, addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.

Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition. But that is the challenge that a fragile and unbalanced global economy faces in 2012. To paraphrase Bette Davis in All About Eve, “Fasten your seatbelts, it’s going to be a bumpy year!”

HONG KONG/SINGAPURA. Indonesia berhasil menggenggam predikat investment grade setelah 14 tahun menunggu. Lembaga pemeringkat kelas dunia, Fitch Ratings menyematkan posisi istimewa ini.

Ranking utang Indonesia naik menjadi BBB- dari BB. “Prospek Indonesia stabil,” jelas Fitch melalui rilis Kamis (15/12). Indonesia, kehilangan peringkat ini pada Desember 1997 saat krisis keuangan menghantam Asia.

“Upgrade ini mencerminkan pertumbuhan yang kuat dan ekonomi negara yang tangguh. Penurunan rasio utang publik dan cukup rendah memperkuat likuiditas eksternal dan kerangka kebijakan makro secara keseluruhan,” terang Director in Fitch’s Asia-Pacific Sovereign Ratings group Philip McNicholas.
Setelah 14 tahun, RI akhirnya kembali ke peringkat investasi

Oleh Irvin Avriano A., M. Tahir Saleh

Kamis, 15 Desember 2011 | 18:46 WIB

bisnis indonesia

JAKARTA: Setelah menunggu selama 14 tahun, Indonesia akhirnya kembali meraih peringkat investasi (investment grade) dari lembaga pemeringkat internasional, Fitch Ratings, dari BB+ menjadi BBB- yang berarti termasuk kategori negara layak investasi.

Kenaikan peringkat Indonesia itu adalah untuk peringkat utang jangka panjang dalam mata uang asing dan rupiah dengan prospek stabil. Fitch juga menakan peringkat Country Ceiling Indonesia menjadi BBB- dari BB+ dan peringkat utang jangka pendek pada F3.

Dalam kategori Fitch, peringkat terendah layak investasi adalah BBB- dan peringkat tertinggi adalah AAA. Indonesia kehilangan peringkat investasi pada 1997, sesaat setelah negara oleng dihantam krisis moneter yang serta-merta diikuti pergantian rezim.

“Penaikan peringkat merefleksikan pertumbuhan ekonomi yang kokoh, tingkat rasio utang rendah, memperkuat likuiditas eksternal, dan kebijakan makro yang cukup hati-hati,” ujar Director Asia-Pacific Sovereign Ratings Fitch Philip McNicholas melalui situs resmi di Singapura, hari ini.

Fitch memproyeksikan pertumbuhan PDB Indonesia rata-rata lebih dari 6,0% per tahun selama periode proyeksi hingga 2013 meskipun di tengah pusaran kurang kondusifnya perekonomian global.

Philip menilai salah satu kekuatan ekonomi Indonesia adalah ekonomi berorientasikan konsumsi domestik. Keunggulan itu mendorong pertumbuhan ekonomi yang relatif kokoh tanpa terganggu ketidakseimbangan eksternal. (Bsi)
Indonesia gets back investment-rade rating; easier attract investment

Oleh Ratna Ariyanti

Kamis, 15 Desember 2011 | 18:28 WIB

bisnis indonesia

JAKARTA: Indonesia gets its investment-grade rating back as Fitch Ratings has upgraded the rating of the country’s sovereign debt.

In a statement published today, Fitch said the long-term foreign and local currency debt was raised to BBB- from BB+. The outlook on both ratings is stable.

“The upgrades reflect the country’s strong and resilient economic growth, low and declining public debt ratios, strengthened external liquidity and a prudent overall macro policy framework,” said Philip McNicholas, Director in Fitch’s Asia-Pacific Sovereign Ratings group.

Fitch projects gross domestic product growth to average more than 6.0% per annum over the forecast period to 2013, despite a less conducive global economic backdrop.

Indonesia’s domestically-oriented economy and success in delivering relatively strong economic growth without the creation of external imbalances, or a reliance on short-term external financing suggests economic growth prospects should prove resilient to external shocks, as was the case in 2008.

As earlier reported, the return of investment grade rating would enable the country to attract more foreign investment. Despite Europe economic turmoil, Indonesia’s gross domestic product in 2012 is projected to remain robust. (msw)

Kamis, 15 Desember 2011 | 18:01 oleh Herlina KD
IKLIM INVESTASI
Indonesia optimis investment grade
kontan

JAKARTA. Meski dampak krisis Eropa bisa merembet ke berbagai negara di dunia, termasuk Indonesia, pemerintah optimis tidak lama lagi Indonesia bisa mencapai peringkat investasi alias investment grade.

Direktur Jenderal Pengelolaan Utang Rahmat Waluyanto mengungkapkan Indonesia tinggal menunggu waktu untuk bisa meraih peringkat investasi. Pasalnya, beberapa indikator makro Indonesia mendukung untuk mencapai peringkat investasi.

“Tidak ada yang menjadi perhatian serius (dari lembaga pemeringkat). Debt to GDP kita turun, inflasi terjaga, fiskal juga bagus, defisit kita masih sangat rendah,” ujarnya Kamis (15/12).

Indikator lainnya, tutur Rahmat imbal hasil (yield) obligasi pemerintah sudah cukup landai. Ia mencontohkan, imbal hasil global sukuk yang diterbitkan pemerintah ada November lalu hanya sebesar 4%. “Credit Default Swap (CDS) Indonesia juga sudah sekitar 150 basis poin untuk (surat utang bertenor) lima tahun, itu sudah masuk dalam kategori investment grade,” ungkapnya.

Menurut Rahmat, pihaknya sudah bertemu dengan beberapa lembaga pemeringkat investasi (rating agency) dan semua lembaga ini memberikan sinyal positif terhadap peringkat investasi Indonesia dan siap memberikan investment grade. Hanya saja, lembaga pemeringkat ini masih melihat situasi pasar global yang penuh ketidakpastian. “Mereka relatif hati-hati, jadi kemungkinan mereka menunggu dulu,” terang Rahmat.

Meski krisis Eropa bisa berisiko merambat ke negara lain, tapi Rahmat berharap krisis ini tidak akan menghambat Indonesia untuk mendapatkan peringkat investasi.

“Mudah-mudahan tidak (terhambat) karena eksposur perbankan kita dengan (perbankan) Eropa dan perbankan Eropa ke kita sangat minimal dan ekspor kita (ke Eropa) juga kecil. Jadi transmisi krisis melalui financial market, banking dan sektor riil itu kecil terhadap Eropa. Seharusnya Indonesia tidak ada masalah,” jelasnya.

TOKYO, Dec 14, 2011 (AFP)
Japan has purchased 13 percent of the eurozone rescue fund’s latest bond sale, a government official said Wednesday, as the region continues fundraising to help contain its sovereign debt crisis.

The Japanese government bought 260 million euros ($338 million) of the three-month bills, or 13 percent of the 1.972 billion euros raised by the bailout fund, the official said.

Data published by Germany’s Bundesbank showed there was strong demand for the debt issued by the European Financial Stability Facility (EFSF).

The sale was oversubscribed by more than three times with investors bidding a total 6.286 billion euros, the German central bank said.

Japan bought 10 percent, or 300 million euros worth of an earlier sale in November, lower than the average 20 percent it purchased in three other bond sales from the start of the year.

The four previous sales comprised medium and long-term bonds while the latest issue was short-term bills.

Tokyo has voiced concern over the deepening crisis with worries it will dent the country’s fragile economic recovery following Japan’s devastating March quake and tsunami. Europe is a key export market for Japanese products.

The 440-billion-euro rescue fund was created last year to protect vulnerable eurozone nations after Greece was bailed out by the European Union and the International Monetary Fund.

The eurozone wanted to boost the firepower of the EFSF to one trillion euros in case bigger economies such as Italy and Spain need bailouts, but officials have acknowledged that due to the worsening of the debt crisis they will fall well short of the target.

Beijing, (Analisa). Para pemimpin terkemuka China membuka pertemuan yang berlangsung tiga hari pada Senin (12/12) guna menetapkan berbagai prioritas ekonomi negara tersebut untuk 2012.
Pertemuan tahunan tertutup di Beijing itu akan memutuskan berbagai kebijakan menjelang akhir tahun terhadap berbagai ketidakpastian ekonomi yang terjadi di Eropa dan juga Amerika Seirkat, pasar ekspor kunci bagi ekonomi terbesar ke dua dunia itu.

“Central Economic Work Meeting”, yang akan menetapkan kebijakan moneter, dibuka Senin dan akan berakhir Rabu mendatang, pemerintah mengumumkan dalam pemberitaan utama di website-nya.

Pertemuan itu diselenggarakan setelah partai Komunis berkuasa China mengatakan Jumat bahwa negara itu akan menerapkan kebijakan moneter “prudent” pada 2012.

China telah melihat permintaan untuk produk-produknya menurun dalam beberapa bulan terakhir karena para konsumen dari Paris hingga New York menekan pengeluaran karena semakin memburuknya prospek ekonomi.

Harga konsumen naik pada posisi terlemah mereka dalam lebih dari satu tahun pada November dan produk industri tumbuh pada tingkat terendahnya dalam lebih dari dua tahun, menurut data resmi yang dirilis Jumat lalu.

Aktivitas manufaktur sebaliknya mengalami kontraksi pada November untuk pertama kalinya dalam 33 bulan, menambah kekhawatiran ekonomi tersebut. (Ant/AFP)

http://www.analisadaily.com/news/read/2011/12/13/25801/pemimpin_china_bahas_berbagai_prioritas_ekonomi_2012/#.TubXJ1amSfc

Sumber : ANALISADAILY.COM
FDI will grow in RI, region: Survey
kontan english

JAKARTA. A.T. Kearney, a global management consulting firm, says that Indonesia made significant gains as a destination for foreign direct investment (FDI), moving from 20th place in 2010 to 9th place in its recent survey.

Indonesia’s FDI inflows were US$13 billion in 2010, up 160 percent from 2009, fueled by strong growth, a large consumer market and abundant natural resources, according to the survey.

Other major economies in Southeast Asia also recorded a huge upswing in FDI this year, reaping the benefits of low cost labor that was once primarily China’s domain, the firm said in a statement on Thursday.

Malaysia experienced a significant jump on the 2012 FDICI (Foreign Direct Investment Confidence Index) moving from 21st to 10th place with inflows up 537 percent in 2010 to $9 billion. This figure would likely be surpassed in 2011 and growth would likely continue based on the sentiments reflected in the index, the firm said.

Singapore, a global financial center and a regional hub for many multinationals, benefited considerably from increasing investment in Southeast Asia, moving to 7th place from 24th in 2010.

The study said that these countries were luring investors with large and increasingly wealthy consumer markets because the region has nearly 600 million people and an economy bigger than India’s.

Two other Southeast Asian countries in the index’s top 25 are Vietnam (14th) and Thailand (16th).

China maintained its No. 1 position because investors are looking to capitalize on its growing consumer market and service industry, as well as its move up the value chain in the technology sector.

India also advanced in the standings, displacing the US in second place. “Given its strong growth and huge market potential, India should see a sustainable rebound if it can continue to reassure investors that it is committed to its current reform path,” A.T Kearney managing director Erik Peterson said in a statement.

Brazil was also a magnet of opportunity, moving to third place from last year’s fourth-place ranking, attracting more than half of all the FDI in South America.

China became Brazil’s largest foreign direct investor in 2010, with the focus of the inflows on commodities and energy, the survey said.(The Jakarta Post)

DECEMBER 8, 2011, 5:01 A.M. ET

Asian Central Banks Hold Rates on Euro Uncertainty
By FARIDA HUSNA And ANDREAS ISMAR
wsj

JAKARTA—The central banks of Indonesia, South Korea and New Zealand held key interest rates Thursday in the absence of clear direction ahead of the European Union summit.

Although Indonesia was one of the first emerging Asian economies to start cutting rates this year and Bank Indonesia has cut rates twice so far this year by a total of 0.75 percentage point, the central bank is widely regarded as one of the most dovish in the region and its decision to hold its overnight benchmark rate at 6% Thursday was in line with expectations.

“Bank Indonesia expects global economic growth to weaken this year, therefore counter-cyclical measures will be needed in the future,” BI spokesman Difi Johansyah said, without disclosing any specific measures.

Mr. Johansyah said the central bank was waiting for the outcome of the EU summit scheduled to take place in Brussels later Thursday and Friday, because Europe is “an important consideration that we factored in.”

Although Indonesia’s headline inflation eased from a year earlier for the third straight month in November, nine of the 13 economists surveyed earlier by Dow Jones Newswires said they expected the central bank to stand pat after recent aggressive loosening measures, adding that the rupiah remains under pressure as global investors seek perceived safe havens amid heightened concerns about the euro-zone sovereign debt crisis.

A Eric Sugandi, an economist at Standard Chartered, said: “It is expected since the rupiah is currently under pressure…Next year, we believe that further cuts may be possible if the global economy worsens.”

Bank Indonesia was widely expected to hold the policy rate steady after data showed core inflation of 4.44% in November, up a tad from 4.43% in October.

However, consumer price index growth eased to 4.15% in November from a year-to-date high of 7.02% in January, and the central bank said it expects 2011 inflation to be below 4%.

The Bank of Korea kept its benchmark interest rate on hold for a sixth straight month, but turned gloomier in its outlook on the global and domestic economies, raising expectations the central bank may start monetary easing next year to underpin growth.

The central bank, as expected, held its policy rate at 3.25%, where it has stood since a 0.25 percentage point increase in June. All 15 analysts surveyed this week by Dow Jones Newswires had forecast the BOK would stand pat at its final rate review of the year.

“The [Monetary Policy] Committee expects the pace of global economic recovery to be very moderate, and judges that downside risks to growth are high, due mostly to the sovereign debt crisis in Europe and to the possibilities of the slumps in major country economies,” the BOK said in a policy statement.

The Reserve Bank of New Zealand held the official cash rate steady at 2.50%, and watered down its mild tightening bias, but, in contrast to other central banks in the region, New Zealand’s central bank continues to expect its next move will be to raise rates.

“Given the current unusual degree of uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent for now to keep the OCR on hold at 2.5%,” RBNZ Gov. Alan Bollard said. He added that there is a risk that conditions weaken further.

“There were few surprises in the statement. The key message is the RBNZ will remain on hold for a considerable time, until offshore risks—both financial and economic—have receded substantially,” said ASB Bank Chief Economist Nick Tuffley.

Australia’s central bank cut its benchmark cash rate by one quarter of a percentage point to 4.25% Monday, its second cut in as many months.
—In-Soo Nam in Seoul and Lucy Craymer in Wellington contributed to this article.
Indonesia Raih ‘Investment Grade’ Tiga Bulan Lagi
Tribun Jogja – Selasa, 6 Desember 2011 12:07 WIB

JAKARTA, TRIBUN – Indonesia memiliki peluang besar untuk meningkatkan nilai investasi asing, setelah negara ini diprediksi meraih “investment grade” dalam tiga hingga enam bulan mendatang.
“Dari informasi AEI, analis dan ‘researcher’, Indonesia akan masuk ‘investment grade’ tiga hingga enam bulan lagi,” kata Ketua Umum Asosiasi Emiten Indonesia (AEI) Airlangga Hartarto di Jakarta, Selasa (6/12/2011).
Namun, kata Airlangga, bersamaan dengan pencapaian itu, cuaca di Eropa dan AS sedang tidak mendukung sehingga dapat mengganggu arus investasi ke Indonesia. “Dengan Indonesia masuk ‘investment grade’, maka para investor akan menganggap investasi di Indonesia akan bagus. Tapi, sayangnya cuaca di Eropa dan AS sedang jelek,” katanya.
Meski begitu, Airlangga tetap yakin dalam waktu tak terlalu lama, atau paling tidak hingga semester pertama tahun depan Indonesia masuk “investment grade”. “Dengan demikian ini akan meningkatkan total investasi, dan kita akan keluar dari krisis ini,” katanya.
Lembaga pemeringkat internasional Fitch Ratings pernah mengatakan akan mempertimbangkan untuk menaikkan peringkat Indonesia menjadi “investment grade” paling cepat 12 bulan ke depan karena rumitnya perhitungan. “Kita masih mempertimbangkan untuk menaikkan Indonesia menjadi ‘investment grade’ kurang lebih 12-18 bulan ke depan. Itu karena ‘credit rating’ itu cukup rumit perhitungannya, tidak bisa hanya satu faktor saja. Ada beberapa faktor yang diperhatikan untuk Indonesia,” kata Head of Sovereign Ratings Asia Pacific Fitch, Andrew Colquhoun, beberapa waktu lalu.
Faktor pertama yang diperhatikan adalah laju inflasi sampai akhir tahun. Menurut Andrew, Bank Indonesia harus bisa mengendalikan inflasi agar terus stabil. Selain itu, infrastruktur juga harus menjadi perhatian. Nasib infrastruktur ini mengacu kepada kebijakan pemerintah yang harus segera melakukan aksi. “Kemudian diperlukan partisipasi asing di pasar obligasi. Karena saya lihat krisis 2008 kemarin Indonesia cukup kuat menghadapinya,” ujar Andrew. (ant)

Sydney, Dec 14, 2011 (AFP)
Australia’s deputy central bank chief Wednesday warned a major change in the troubled euro area could not be ruled out, with its debt woes escalating to create an “unfavourable” cycle with the banks.

However, Ric Battellino said that despite the ongoing crisis, Australia was well placed to avoid any massive effects because local banks were well capitalised and had low exposure to Europe.

He told banking conference in Sydney that wide divergences in interest rates paid by European banks had begun resembling pre-euro levels as concerns grew about the sustainability of debt in some countries.

“The formation of the euro area brought convergence of interest rates towards the low levels previously enjoyed only by Germany, but pre-euro relativities are now re-asserting themselves,” the Reserve Bank of Australia deputy said.

“This suggests that markets are pricing in the possibility of a break-up of the euro area or a significant risk of default by some governments, or both.”

A “change in the composition of the euro area” could not be ruled out, he added.

Greece’s inability trouble to balance its books and the lingering fear that it could default on its huge debts have led many analyst to suggest the country could end up falling out of the euro club.

Battellino said Europe’s sovereign debt problems had escalated in recent months, creating an “unfavourable feedback loop” between government debt, the banking sector and broader global economy.

A succession of measures had been announced to counter the problem, each offering only limited relief, and Battellino said most commentators saw greater fiscal coordination and discipline as key in the long-term.

In the short-term, he said it was “highly likely that part of the solution will involve substantial financial assistance from outside the region or the purchase of sovereign debt by the (European Central Bank), or some combination of both.”

“It remains to be seen whether the latest measures will be more successful,” he said.

On Friday, 26 of the 27 European Union member states agreed to back a Franco-German drive for tighter budget policing in a bid to save the embattled single currency.

Britain’s decision not to join prevented leaders from making crucial treaty changes, but the other 26 states signalled their willingness to join a “new fiscal compact” imposing tougher budget rules.

Battellino said Europe’s banks and others with exposures to the region had been hard hit by the sovereign debt issues, leaving them with valuation losses which have raised questions about their own financial soundness.

But he said that Australian banks’ exposure to the euro area was small, with claims on the troubled region accounting for just 2.7 percent of total assets and strong domestic inflows of deposits meaning they were relatively shielded.

“I remain confident that Australia, with its strong government finances, resilient banking system, relatively low exposures to the troubled countries and strong links to the dynamic Asian region, is well placed to deal with events that may unfold,” he added, according to Dow Jones Newswires.

Diam-diam, investor kelas kakap yaitu George Soros masuk ke pasar obligasi Eropa dengan jumlah yang sangat besar. Melalui perusahaan investasi miliknya yaitu Soros Fund Management LLC, miliarder kelas dunia itu membeli surat utang Eropa dari MF Global Holdings Ltd.

Sumber yang mengetahui secara persis atas transaksi ini menyebutkan, Soros merogoh kocek hingga US$ 2 miliar. Tawaran Soros datang tak lama setelah MF Global mengajukan perlindungan kebangkrutan pada 31 Oktober lalu.

Di bawah kepemimpinan Jon S Corzine, MG Global bangkrut karena eksposurnya yang terlalu besar pada pasar obligasi Eropa yaitu mencapai US$ 6,3 miliar. Akumulasi itu berasal dari utang jangka pendek yang diterbitkan beberapa anggota Uni Eropa, terutama Italia.

Selama musim panas 2011, pasar Eropa dilanda kepanikan investor, regulator dan perusahaan pemeringkat. Wajar, MF Global ambruk dalam waktu sebulan. Laporan beberapa anggota Uni Eropa memburuk. Harga obligasi tergerus hebat diiringi meroketnya imbal hasil.

Menariknya dan perlu disoroti, dalam transaksi ini Soros diduga meraup keuntungan besar. Menurut pedagang yang membeli obligasi serupa, setidaknya dana kelolaan Soros Fund Management LLC sudah bertambah lebih dari US$ 130 juta, dihitung dari pergerakan pasar. Memang, tidak ada perhitungan yang tepat atas keuntungan Soros mengingat transaksi tersebut sangat rumit.

Yang jelas, Soros masuk ke obligasi Eropa dengan harga diskon. Perusahaannya membayar obligasi di level 89, padahal nilai pasar saat itu berada di titik 94. JPMorgan dan satu hedge fund besar dikabarkan terlibat dalam transaksi ini.

Kemarin (13/12) obligasi tersebut kembali merangkak naik ke level 96. Pasar melihat, sangat sulit menjual obligasi itu pada level tertentu sebelum jatuh tempo Desember 2012. Hal inilah yang ditebak-tebak oleh pasar, manuver apa yang sedang dijalani Soros. Akankah menjual surat utang di tengah jalan, atau memegangnya hingga jatuh tempo.

Sebenarnya, dengan mempertimbangkan aspek risiko krisis, memegang obligasi Eropa sangat riskan bagi investor dengan jumlah kepemilikan tak sedikit. Pasar obligasi gampang terkoreksi oleh berita masalah keuangan negara. Apalagi, rasio utang beberapa anggota Uni Eropa sangat besar.

http://internasional.kontan.co.id/v2/read/1323836817/85185/Diam-diam-Soros-borong-obligasi-Eropa-

Sumber : KONTAN.CO.ID
WASHINGTON–MICOM: Pembuat kebijakan utama Federal Reserve mempertahankan suku bunga mendekati nol (ultra rendah) pada Selasa (13/12).

Tingkat itu telah bertahan selama tiga tahun karena mereka menggambarkan sebuah ekspansi ekonomi yang moderat penuh dengan masalah.

The Fed menegaskan kembali janjinya untuk mempertahankan suku bunga pada tingkat sangat rendah, setidaknya sampai pertengahan 2013.

Kehati-hatian bahwa penurunan pengangguran menjadi 8,6 persen tidak berjalan lancar ke depan, The Fed memperingatkan pengangguran masih tinggi dan stimulus lebih mungkin di atas kartu. (Ant/OL-5)

http://www.mediaindonesia.com/read/2011/12/14/283918/4/2/The-Fed-Pertahankan-Suku-Bunga-Hampir-Nol

Sumber : MEDIA INDONESIA
Dec. 13, 2011, 12:01 a.m. EST
Our decade from hell will get worse in 2012
Commentary: Market crash, political gridlock, revolution, new class wars

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Fasten your seat belts: 2011 was far worse than expected. Our earlier predictions for America’s Worst Decade just got worse.

As financial historian Niall Ferguson writes in Newsweek: “Double-Dip Depression … We forget that the Great Depression was like a soccer match, there were two halves.” The 1929 crash kicked off the first half. But what “made the depression truly ‘great’ …began with the European banking crisis of 1931.” Sound familiar?

Commodity Futures Trading Corp, Invesco Technology Sector, Aston Value are among companies Chuck Jaffe has singled out to give his Lumps of Coal awards.

Yes, huge warnings: But America’s deaf. In denial. When we predicted the 2011-2020 “decade from hell” we didn’t see the big macro events dead ahead: Arab Spring virus that’s now Occupy Wall Street, promising to explode into an even more powerful force in 2012 … war on the middle class … widening inequality gap. … Washington gridlock … the Super Rich’s blind resistance to all new taxes.

As Ferguson puts it: “To understand what has been happening in our own borderline depression, you need to know this history. But hardly anyone does.” Get it? America’s already in a “borderline depression,” and virtually nobody gets it. American leaders are dummies about history. Worse, nobody may be able to stop our depression from turning “great.”

Investors beware: Please, protect your assets: “Those who don’t remember history are doomed to repeat it.” We’ve already forgotten the lessons of the 2008 disaster. No wonder we’re doomed to repeat the mistakes of the 1930’s triggering the Second Great Depression. Soccer anyone?
More bad news for 2012: from Gross, Grantham, Shilling and Stiglitz

Ferguson’s in good company with his dark forecast. Pimco’s Bill Gross asks rhetorically: “Where is the euro headed? More than likely down, perhaps significantly.” Gross warns of a “terrifying situation” where “the euro may fall … and take the U.S. recovery with it.”

Then there’s Jeremy Grantham, whose GMO firm manages $100 billion. He predicted the 2008 crash a couple years in advance. Predicts ‘Seven Lean Years” ahead, till 2016, the end of the next presidential term. Now, in his latest newsletter he feels “sadly … vindicated by my ‘seven lean years’ forecast.” The world “will not easily recover from the current level of debt,” as our self-destructive American and European leaders have “permanently slowed their GDP growth.”

More bad news: As we close out the first year of the “Worst Decade in American History,” economist and long-time Forbes columnist Gary Shilling just issued his semi-annual outlook: “Global Recession Likely” in 2012. OK, the best he can say is that this one “will be milder than the 2007-2008 nosedive.” Of course, you’ve already forgotten those pains, right?

And over at Vanity Fair, Nobel Economist Joseph Stiglitz also reexamines the dark history of the Great Depression, warning that in our ignorance of history we’re missing a fundamental economic “shift in the ‘real’ economy,” missing what will generate future jobs, just as we did back in the ‘30s. Yes, we “risk a tragic replay” of the Great Depression.
10 predictions for America’s Worst Decade Ever

Over the past decade we predicted the 2000 crash, the 2008 meltdown, the short-lived 2009 rally. Future historians will look back on the 2011-2020 decade as America’s Worst Decade. Worse than the 1930s Great Depression. Totally predictable. Totally denied.

So here’s an update of the 10 predictions of a chain reaction of events that are building to a critical mass, will consume America in what economist Joseph Shumpeter called “creative destruction” that will eventually, after cleansing the greed from America’s toxic capitalism, trigger a renewal of the American Spirit, as happened in the Great Depression.

Here’s how all this will generally unfold in the coming decade:
2011. Super Rich keep spending billions to control Washington

The conservative takeover of America’s democracy the past three decades became total and complete last year when an activist Supreme Court overturned long-established legal precedent giving soulless corporations — whose sole allegiance is to wealthy shareholders — the same inalienable rights as humans, accelerating their quest for absolute power. Hopefully Senator Bernie Sander’s proposed 28th Amendment will change that, but doubtful.
2012. Super Rich solidifies absolute power over our political system

That Supreme Court decision legalized political bribery. Now, billions pass through lobbyists to politicians with one goal: A promise that politicians vote for their special interests. Our middle class is in a rapid trickle-down into third-world status. The inequality gap steadily widens. Doesn’t matter who wins the 2012 race. Democracy is systemically corrupt by money. Obama, Mitt, Newt, all pawns of the system.
2013. Global population bubble exploding, rapidly wasting resources

America’s Conspiracy of the Super Rich drains trillions from middle-class taxpayers. They see the global population growth explosion of 100 million annually not as exhausting the world’s scarce resources, but as a tool to get richer through free-market capitalism and globalization. They ignore the tragedies as global population climbs to 10 billion, fail to hear the warnings of environmentalists like Bill McKibben that it may “be too late. The science is settled, the damage has already begun,” we can’t save the planet.
2014. Pentagon’s global commodity wars accelerate toward 2020 peak

At the outset of the Iraq War, Fortune analyzed a classified Pentagon report predicting “climate could change radically and fast. That would be the mother of all national security issues.” And billions of new people will spread unrest worldwide as “massive droughts turn farmland into dust bowls and forests to ashes.” Another history lesson forgotten: “An old pattern could emerge; warfare defining human life.” Yes, in denial politicians chose war and catastrophes over cooperation.
2015. Gilded Age globalization explodes America’s Global Empire

About the time of the Pentagon’s prediction of WWIII in 2020, Kevin Phillips warned in “Wealth & Democracy:” “Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out.” Similarly, Ferguson, warns in “Colossus: The Rise and Fall of The American Empire,” that we are in denial, thinking “about the political process in seasonal, cyclical terms.”
2016. Reaganomics capitalism self-destructs, crashes, bank bankruptcies

“But what if history is not cyclical and slow-moving but arrhythmic,” asks Ferguson. “What if collapse does not arrive over a number of centuries but comes suddenly,” too rapid to respond in time. True to form, a new conservative president will keep ignoring the lessons of history. And, as Jared Diamond’s warns in “Collapse:” “One of the disturbing facts of history is that so many civilizations share a sharp curve of decline … demise may begin only a decade or two after it reaches its peak in population, wealth and power.”
2017. Class war and revolution: Rich class loses big, surrenders

Warren Buffett saw the revolution long ago: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” But by the 2016 presidential election, political rage explodes into a new American Civil War over inequality. The gaping income gap pops a bubble, causes economic collapse. Riots spread preventing another massive bailout of our too-greedy-to-fail banks. New depression ignites class rebellion.
2018. The Fed and Wall Street banks collapse, Glass-Steagall reinstated

Diamond warned us: Leaders need “the courage to practice long-term thinking, make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions.” Instead, they fail to act boldly, delay. History tells us leaders act in short-term self-interest, not long-term public interests, especially politicians backed by billionaires who see only quarterly earnings, year-end bonuses, next election.
2019. Global commodity wars spread, killing millions, wasting trillions

Over half our federal budget goes to the Pentagon’s war machine, limiting America’s domestic priorities. Predictably, new commodity wars are ignited by an accelerating global population versus a decline in the world’s scarce resources. That also forces a total rethinking of the balance between spending to protect against external enemies and a rapid deterioration of domestic programs: employment, education, health care, retirement.
2020. America’s first woman president, patriarchal dominance is dead

By the end of the decade, it is finally obvious that patriarchy — male dominance of leadership roles in philosophy, economics, politics and culture throughout history — has failed our civilization, bringing the world to the brink of total destruction.

Why do male leaders consistently fail us? Jeremy Grantham brilliantly captured that fundamental flaw in our nation’s character a few years ago: Male leaders are actually quite emotional, myopic and “impatient … management types who focus on what they are doing this quarter or this annual budget.” But true leadership “requires more people with a historical perspective who are more thoughtful and more right-brained.”

Unfortunately, “we end up with an army of left-brained immediate doers.” And that guarantees “every time we get an outlying, obscure event that has never happened before in history, they are always to miss it.”

Worse, today’s male brain is so rigidly hard-wired in short-term myopia, it quickly forgets history’s most recent lessons, like 2008. As a result, our males leaders “collectively miss even totally obvious events that happen over and over in history.”

Class war? Or Gender War? By 2020 we’ll have an answer, but by then it may be too late.
Washington, (Analisa). Menteri Luar Negeri Inggris William Hague, Senin (12/12), bertemu dengan Menteri Luar Negeri Amerika Serikat Hillary Clinton di tengah-tengah kabar keretakan hubungan antara Inggris dan mitra Eropanya atas masalah utang zona euro.
Inggris telah memilih untuk keluar dari kesepakatan yang disepakati oleh 26 negara Uni Eropa lainnya untuk bergabung dengan “kesepakatan fiskal baru,” suatu sikap yang memicu kemarahan sebagian besar Eropa yang sedang berjuang untuk menopang euro.

Perdana Menteri konservatif David Cameron mengatakan ia menggunakan hak vetonya untuk melawan perubahan menyeluruh atas perjanjian Uni Eropa setelah para pemimpin Eropa yang lain menolak upayanya untuk mengamankan perlindungan bagi industri jasa keuangan penting Inggris. (Ant/AFP)

http://www.analisadaily.com/news/read/2011/12/13/25797/pascapenolakan_kesepakatan_ue_menlu_inggris_ke_as/#.TubXMlamSfc

Sumber : ANALISADAILY.COM
Europe back under pressure after summit
Published: 12 December 2011

Financial markets gave the thumbs down on Monday (12 December) to a landmark EU deal to deepen economic integration, pushing European stocks and the euro lower as investors judged its debt crisis would continue to worsen.
Background

EU leaders on 9 December agreed on a new treaty to tighten fiscal discipline in the eurozone, aiming to draw a line under the bloc’s debt problems.

This new fiscal compact was backed by all 27 EU countries – except Great Britain – and means more automatic sanctions will be applied on budget rule-breakers in the future.

Countries committed to enshrine a “golden rule” to run budgets which are balanced or in surplus into their national constitutions “or equivalent level”. The signatories also recognise the European Court of Justice “to verify the transposition of this rule at national level”.

All EU countries except Britain agreed at a summit on Friday to pursue stricter budget rules and a stronger fiscal union, and to give up to €200 billion in bilateral loans to the International Monetary Fund to help tackle the crisis.

But the capacity of the euro zone’s bailout fund was capped and it was not granted a banking license. There was no sign the European Central Bank was ready to take the stronger action analysts say is needed to quell the crisis – even if the ECB was reportedly back in buying Italian bonds on Monday.

“Yes, we have a plan in place to tackle the longer term problems but…it doesn’t tackle the shorter term problems,” said Peter Dixon, economist at Commerzbank.

“I’ll be very surprised if it actually generates the results many EU leaders are currently hoping for.”

The euro was down 0.5% on the day at $1.3300, finding some support ahead of Friday’s low of $1.3280. It is now almost 6% below its October peak and 10% off its 2011 high of just under $1.50, struck in early May.

“There is a deflated feeling for the euro this morning after the EU summit. People were looking for a greater response and more importantly the ECB refused to significantly step up their bond buying,” said Beat Siegenthaler, currency strategist at UBS.

Prone to shocks

Moody’s Investors Service said it would look again at the ratings of European nations in the first quarter of 2012, judging the summit did not produce decisive initiatives and left the euro area prone to further shocks.

“The absence of measures to stabilize credit markets over the short term means that the euro area, and the wider EU, remain prone to further shocks and the cohesion of the euro area under continued threat,” it said in a report.

The agency said the crisis remained in a critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain.

Bund futures were about 30 ticks higher at 135.83, after opening lower. German 10-year yields were 4 basis points down at 2.062%.

However, 10-year Italian government bond yields jumped 22 basis points to 6.6%, pushing its premium versus German Bunds 18 basis points wider to 447 basis points.

The 10-year Spanish government bond yield rose 15 basis points to 5.95%.

An early test of sentiment toward European government assets will come later on Monday when France, the Netherlands and Italy issue new Treasury bills.

The International Monetary Fund’s chief economist Olivier Blanchard said on Sunday the agreement reached by European countries was a step in the right direction but not a complete solution for the euro zone’s debt crisis.

“What happened last week is important: it’s part of the solution, but it’s not the solution,” Blanchard told the Globes business conference in Tel Aviv.

Euro-Crisis: ’Double A is the New Triple A’
By John Glover and Esteban Duarte – Dec 12, 2011

Europe’s failure to agree on a comprehensive solution to the sovereign debt crisis threatens to consign AAA rated bonds in the region to history.

Top-rated agencies in the 17-nation euro area have at least 847.5 billion euros ($1.1 trillion) of debt outstanding, according to data compiled by Bloomberg, and will be at risk should their sovereigns be downgraded. Moody’s Investors Service said today it will review the ratings of all European Union nations after last week’s summit failed to produce “decisive policy measures,” while Standard & Poor’s announced Dec. 5 it may cut 15 euro members, including AAA rated Germany and France.

“Double A is the new triple A,” said Raphael Gallardo, the head of economic research at Axa Investment Managers in Paris, which manages about $690 billion. “De facto, there are no more highly liquid, risk-free assets. It’s a dangerous problem because in a market crash, liquid AAA assets are the dam that contains the total exodus of liquidity.”

European leaders’ fifth attempt to draw a line under their debt woes ended in a fiscal accord that will bring tighter deficit rules, though with many details still to be ironed out and the U.K. vetoing an agreement among all 27 EU members. A lack of top-rated sovereigns would make it harder to gauge a risk-free benchmark for securities, reduce participation in euro-region debt markets and threaten ratings of agencies and supranationals such as the European Investment Bank and World Bank.
Market Reaction

Markets signaled investors are disappointed with the outcome of the Brussels talks. Yields on 10-year bonds sold by Italy, which according to UBS AG data must repay about 53 billion euros in the first quarter of next year, climbed above 6.50 percent after falling on Dec. 9. France’s note yield was at 3.29 percent, from 3.13 percent a week ago.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments jumped 15 basis points to 378.5, approaching the record 385 set on Nov. 25. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

“The rating agencies are likely to be underwhelmed” by the summit, said Peter Tchir, the founder of TF Market Advisors in New York. “Countries will still be on watch and might still be downgraded.”
‘Soon as Possible’

S&P said it will publish a decision “as soon as possible” after the EU talks. Moody’s said there was the chance of “more severe scenarios,” including “multiple defaults” and “exits from the euro area.”

Banks use government bonds to make a return on their funds while they seek more profitable uses for them. The practice was encouraged by regulators, which agreed to view the securities as risk-free, and has now rebounded against the lenders. The European Banking Authority published last week the results of tests calculating the additional capital needs of banks that had to mark their sovereign bonds to market prices, finding a 114.7 billion-euro shortfall.

While a downgrade from AAA may make European assets less attractive to investors, the effects would be muted should ratings firms cut a wide group of sovereigns, according to David Watts, a strategist at CreditSights Inc. in London. When the U.S. lost its AAA status, its bonds rallied, he said.
Risk-Free

“A government is the only supplier of risk-free assets for a particular currency because it can tax and, in the end, it can print money,” said Watts. “In Europe there are alternatives. If France gets downgraded, say, you can shift to Germany. But if Germany gets downgraded too, and their relative positions stay the same, then it shouldn’t make any difference.”

Supranationals, institutions backed by groups of countries and whose ratings depend on their backers’ creditworthiness, would also be under threat if sovereigns were downgraded, as would national state agencies.

German agencies including state-owned development and investment bank Kreditanstalt fuer Wiederaufbau, so-called bad bank FMS Wertmanagement AoR and agricultural financier Landwirtschaftliche Rentenbank have 563 billion euros of bonds outstanding, according to data compiled by Bloomberg. Similar agencies in France, the Netherlands and Austria have another 284.5 billion euros of bonds and bills.
Bailout Fund

Ratings of the European Financial Stability Facility, the region’s bailout fund, would be the same as the lowest grade of the current AAA backers, S&P said this month. The EIB, which is backed by the 27 members of the EU, is also under review for a possible downgrade.

“There is no direct relationship between our rating and our shareholders that is so strong it would automatically lead to a downgrade,” said Marius Cara, an investor relations executive at the EIB in Luxembourg. “Our capital isn’t structured on guarantees and our portfolio of assets doesn’t depend on the credit of the member states.”

Caisse d’Amortissement de la Dette Sociale, the French agency known as Cades that was set up in 1996 to refinance social security debt, also challenged the link between its top rating and that of its sovereign Dec. 7.

The yield premium investors demand to hold the EIB’s 5 billion euros of 3.5 percent bonds due 2016 instead of benchmark German debt is 166 basis points, up from 88 at the beginning of August, according to Bloomberg Bond Trader prices. The spread on the EFSF’s 3 billion euros of 2.75 percent notes maturing in 2016 was 156 basis points, up from 94 basis points Aug. 1.

“The fact that we’re talking about triple-A downgrades and the kind of volatility we’re seeing in spreads indicates that paradigms are changing,” said Ben Bennett, a strategist at Legal & General Investment Management in London, which oversees about $500 million. “We’re starting to get unhappy holders, people who thought they held one thing and then realized that wasn’t what they held after all.”
Euro zone fiscal pact fails to restore confidence

By Marius Zaharia and Matthias Blamont

LONDON/PARIS | Mon Dec 12, 2011 4:38pm EST

(Reuters) – A European summit deal to strengthen budget discipline in the euro zone failed to restore financial market confidence on Monday, forcing the European Central Bank to step in again gingerly.

The euro fell, stocks slid and borrowing costs for Italy and Spain rose as investors weighed the outcome of last week’s summit that split the European Union, with Britain blocking treaty change and forcing euro zone countries to negotiate a fiscal accord outside the Union.

Friday’s initial market rally quickly petered out due to legal uncertainty surrounding the new pact and the absence of an unlimited financial backstop for the single currency.

French President Nicolas Sarkozy said the legal basis of a new accord to enforce debt and deficit rules in the 17-nation euro area with quasi-automatic sanctions and intrusive powers to reject national budgets would be worked out before Christmas.

“In the next fortnight, we will put together the legal content of our agreement. The aim is to have a treaty by March,” Sarkozy told newspaper Le Monde in an interview.

An EU diplomat said the first draft of the new treaty would be ready by early next week. Sarkozy said the aim was to have it ratified by all member states except Britain by June.

“You have to understand this is the birth of a different Europe – the Europe of the euro zone, in which the watchwords will be the convergence of economies, budget rules and fiscal policy,” the French leader said.

Traders said the ECB intervened to buy short-term Italian debt after yields on Italian and Spanish debt spiked.

The central bank revealed on Monday it had slashed bond purchases in the week before the EU summit as it raised pressure on the bloc’s leaders to act. It bought just 635 million euros in bonds in the week to December 9 compared to 3.66 billion the previous week.

ECB sources told Reuters on Friday purchases would remain limited, with no prospect of a “big bazooka” to shock markets.

Italian 5-year bond yields shot up above 7 percent, widely seen as a danger level while 10-year yields spiked above 6.8 percent and Spanish 10-year yields topped 6 percent.

Investors’ appetite for short-term paper drove Italian one-year borrowing costs down just below 6 percent at an auction but yields remain uncomfortably high.

RATINGS AGENCIES

The major ratings agencies could make matters worse.

Sarkozy prepared French voters for a possible downgrade of the country’s AAA credit rating but insisted he could cut the deficit without cutting salaries and pensions.

Moody’s Investors Service said it intends to review the ratings of all 27 members of the European Union in the first quarter of 2012 after EU leaders offered “few new measures” to resolve the crisis at their summit on Friday.

Fitch Ratings said the summit failed to provide a “comprehensive” solution to the crisis, thus increasing short-term pressure on euro zone sovereign ratings.

Standard & Poor’s, which warned last week of a possible downgrade of 15 euro zone countries shortly after the summit, still has to announce its decision.

But its chief European economist, Jean-Michel Six, told a business conference in Tel Aviv: “Time is running out and action is needed on both sides of the equation, on the fiscal and monetary side.”

If some of the euro zone’s AAA-rated members are downgraded, it would call into question the solidity of the euro zone’s rescue fund, which would likely suffer a similar fate. Its permanent successor will not come on stream until mid-2012 at the earliest.

“We have a nice agreement: a fiscal compact, commitments to keep fiscal deficits down. But, actually, does any of this solve the euro crisis? No it doesn’t,” said Victoria Cadman, economist at Investec in London. “We still sit here searching for the big bazooka solution.”

The euro area faces the next potential crunch point in mid-January when Italy, which has a debt mountain of 1.9 billion euros or 120 percent of its annual output, has to start issuing tens of billions of euros in bonds towards a 2012 total of 340 billion euros needed to roll over maturing debt.

POLITICAL FALLOUT

Political aftershocks from Friday’s historic rift between Britain and the rest of the 27-nation bloc continued to shake Europe, with Prime Minister David Cameron facing tension in his coalition and doubts in the business community.

Cameron was given a hero’s welcome by Eurosceptics in his Conservative party but faced a backlash from his Liberal Democrat coalition allies after he wielded a veto that has cast Britain adrift from its continental partners.

“Britain remains a full member of the EU and the events of the last week do nothing to change that,” he told parliament.

In a defiant statement, he told lawmakers he made no apology for having demanded safeguards for the City of London financial centre in any new EU treaty.

LibDem Deputy Prime Minister Nick Clegg said on Sunday he was “bitterly disappointed” with an outcome that would diminish Britain’s global influence and was bad for jobs and business. Clegg was conspicuously absent during Cameron’s address.

In Brussels, officials were groping for a strong legal basis for the planned fiscal compact, with Britain arguing that the euro zone cannot use the EU treaty institutions – the European Commission and the European Court of Justice.

European Economic and Monetary Affairs Commissioner Olli Rehn said most of the measures to strengthen budget enforcement could be implemented immediately under a set of rules known as the “six-pack” agreed in October.

He said he regretted Britain’s decision and warned London: “If this move was intended to prevent bankers and financial corporations of the City from being regulated, that’s not going to happen. We must all draw the lessons from the ongoing crisis and help to solve it and this goes for the financial sector as well.”

The crucible of the crisis, Greece, could yet cause havoc if negotiations over a second bailout fall apart, leading to a rapid default.

Greek Finance Minister Evangelos Venizelos said he wanted to move fast in talks with the EU, IMF and bankers, reaffirming the aim of clinching a voluntary debt restructuring deal by end-January before the country heads to elections.

“We will proceed smoothly and with the maximum possible speed,” Venizelos said after separate meetings with the head of bank lobby IIF and with EU, IMF and ECB inspectors, on key aspects of a 130 billion euro bailout plan.

EU leaders have now said banks may not take a hit in any future sovereign rescues after they were roped into the Greek bailout, a move which proved a final straw for many investors.

Commerzbank and the German government have been in talks for several days over possible state aid, five people familiar with the matter told Reuters. The lender, 25 percent-owned by the government, wants to avoid forced recapitalization but needs to find 5.3 billion euros in capital by mid-2012 to meet new European capital rules.

(Additional reporting by Alexandra Za in Milan, Keith Weir and Sudip Kar-Gupta in London, George Georgiopoulos in Athens and Walter Brandimarte in New York; Writing by Paul Taylor/Mike Peacock; Editing by Alistair Lyon)
Latest update: 12/12/2011

‘There are now clearly two Europes’ says Sarkozy

French President Nicolas Sarkozy told French newspaper Le Monde on Monday that he and German Chancellor Angela Merkel ‘did everything’ to convince Britain to join the new EU treaty, adding that ‘there are now clearly two Europe’s’.
By News Wires (text)

AFP – EU Economic Affairs Commissioner Olli Rehn on Monday expressed regret over Britain’s veto of a new EU treaty to boost integration and warned it would not protect the City of London from new financial regulation.

“I regret very much that the UK was not willing to join the fiscal compact,” Rehn said. “I regret it not only for the sake of Europe, as for the sake of British citizens.

“We want a strong and constructive Britain in Europe and we want Britain to be at the centre of Europe, not on the sidelines,” Rehn said, three days after British Prime Minister David Cameron refused to sign up to a new treaty to allow the EU to press ahead with greater fiscal and economic integration.

He said he would have preferred to see all 27 EU states agree to the new moves together.

Cameron took his decision after failing to secure agreement from French President Nicolas Sarkozy and German Chancellor Angela Merkel for Britain’s huge financial services sector to be exempted from certain EU regulations and a drive to impose new EU taxes.

“If this move was aimed at preventing bankers and financial corporations of the City (of London) from being regulated, that’s not going to happen,” Rehn stressed.

“We must all draw the lessons of the crisis and help to solve it and this goes for the financial sector as well.”

Sarkozy said in an interview with the French daily Le Monde released on Monday that he and Merkel “did everything” to persuade Britain to join in.

“There are now clearly two Europe’s,” he added.

Cameron’s reluctance to sign up to a deal was due in large part to pressure from both his own lawmakers and the right-wing press in Britain who have been urging him to hold a referendum on any treaty change.

In October, Cameron suffered the largest rebellion of his premiership when 79 Tory lawmakers voted in favour of a referendum on Britain’s relationship with Europe.

Cameron also faces pressure from Scotland, where a majority nationalist government in Edinburgh is preparing a referendum on full independence from Britain.

In an angry letter on his return from trade talks in China, Scotland’s First Minister Alex Salmond accused Cameron of “blundering” without prior consultation and called for an urgent meeting on what had happened.

ATHENS, Dec 9, 2011 (AFP)
Greece’s economy remained trapped in a deep recession in the third quarter but shrank less than previously thought, at a revised 5.0 percent from an initial 5.2 percent, official figures showed on Friday.

“Available non-seasonally adjusted data indicate that in the third quarter of 2011, gross domestic product at constant prices (base 2005) … decreased by 5.0 percent in comparison with the third quarter of 2010,” the Elstat agency said.

It said exports at constant prices increased 3.2 percent in the period to 13.8 billion euros while imports fell 4.3 percent 14.23 billion euros, driving a sharp fall of 71.4 percent in the trade deficit.

The government expects the economy to shrink by 5.5 percent this year and by 2.8 percent in 2012.

According to EU estimates, it has contracted by 15 percent overall since Greece’s slump began in the final quarter of 2008.

Brussel, (Analisa). Bursa saham dan nilai mata uang euro naik setelah sebagian besar anggota Uni Eropa menyetujui kesepakatan baru hari Jumat untuk meningkatkan ikatan ekonomi mereka demi menyelamatkan zona euro yang kesulitan. Tapi reaksi beragam tentang kesepakatan itu, yang tercapai setelah pembicaraan maraton antara pemimpin Eropa di Brussels.
Kepala Bank Sentral Eropa Mario Draghi menanggapi positif kesepakatan atas ikatan fiskal yang lebih kokoh itu dan pengendalian lebih ketat atas anggaran pemerintah.

Ia mengatakan, “Hasil kesepakatan ini sangat baik untuk zona euro, sangat baik. Ini hampir mendekati kesepakatan fiskal yang padat, dan tentu akan menjadi dasar bagi kebijakan ekonomi yang jauh lebih berdisiplin bagi negara-negara anggota euro, dan tentunya akan bermanfaat dalam situasi saat ini.”

Dua puluh tiga dari ke-27 negara anggota Uni Eropa sudah menyetujui kesepakatan itu, yang diperjuangkan oleh negara-negara ekonomi kuat; Prancis dan Jerman untuk menjamin agar krisis utang dan krisis perbankan Eropa tidak terjadi lagi. Ini termasuk ke-17 negara anggota zona euro yang kesulitan.

Namun, dalam konferensi pers terakhir hari Jumat, presiden Uni Eropa Herman Von Rompuy mengatakan tiga negara lagi sedang mempertimbangkan untuk bergabung – ini akan membuat Inggris sebagai satu-satunya negara yang tidak menyetujuinya.

Ia mengatakan, “Kami lebih suka pada perubahan kesepakatan penuh dengan ke-27 negara itu, mengubah semua perjanjian Uni Eropa. Kami telah mencobanya, tapi karena tidak ada keputusan dengan suara bulat, kami harus mengambil keputusan lain.”

Kanselir Jerman Angela Merkel memuji kesepakatan itu sebagai sebuah keberhasilan.

Kanselir Merkel mengatakan negara-negara yang memilih untuk membentuk persatuan fiskal yang baru memilih masa depan yang pertalian ekonominya lebih solider, yang akan membuat mata uang euro lebih aman.

Anggota Uni Eropa yang mematuhi kesepakatan baru itu harus berkomitmen untuk menjaga defisit anggarannya di bawah 0,5 persen dari output ekonomi mereka – atau berisiko dikenakan sanksi.

Kesepakatan itu diperkirakan akan ditandatangani bulan Maret. Para pemimpin Eropa juga menyepakati langkah-langkah lain untuk menghentikan meluasnya krisis zona euro – seperti memberi Dana Moneter Internasional dana 260 miliar dolar lagi untuk menopang perlindungan keuangan. (voa)

http://www.analisadaily.com/news/read/2011/12/12/25705/ue_capai_kesepakatan_baru_untuk_selamatkan_zona_euro/#.TuVz-1amSfc

Sumber : ANALISADAILY.COM
EU treaty: David Cameron has done ‘bad deal’ on Europe, Nick Clegg says
Nick Clegg, the Deputy Prime Minister, has warned that David Cameron’s decision to opt out of Europe is “bad for Britain”, revealing a deep split in the Coalition.
Rowena Mason

By Rowena Mason, Political Correspondent

11:02AM GMT 11 Dec 2011

Mr Clegg said he was “bitterly disappointed” that David Cameron has vetoed European treaty changes.

The UK is the only one of 27 European Union members to opt out of closer ties this week.

The Liberal Democrat leader said any further withdrawal from Europe risks making Britain “a pygmy in the world”.

He spoke the Prime Minister straight after the European summit at 4am on Friday morning, warning that the decision to veto the treaty was wrong.

“I made it clear to the PM it was untenable for me to welcome it,” he told BBC1′s Andrew Marr Show.

Mr Clegg blamed the “intransigence” of France and German for Britain’s isolation. But he also criticised Eurosceptic MPs in the Conservative Party, who have been pressing Mr Cameron to show “bulldog spirit” in negotiations with Europe.

“There’s nothing bulldog aout Britain hovering somewhere in the mid-Atlantic, not standing tall in Europe and not being taken seriously in Washington,” Mr Clegg said.

He said Britain must now work extra hard to make sure it is not ignored by both Europe and the US.

The Deputy Prime Minister said any further withdrawal from Europe would mean the UK is “considered irrevelant by Washington and a pygmy in the world”.

“I will now do everything I can to make sure this setback does not become a permanent divide,” he said.

Mr Clegg, the leader of the Liberal Democrats, is considered one of the most pro-European politicians in Britain.

However, he dismissed suggestions that the Coalition would break up.

“It would be even more damaging for us as a country if the coalition Government was to fall apart,” he said.

“That would cause economic disaster for the country at a time of great economic uncertainty.”

Mr Clegg’s comments drew a stinging rebuke from Mark Pritchard, a leading Tory eurosceptic and secretary of the 1922 Committee.

“Better to be a British bulldog than a Brussels poodle,” he said. “People are getting rather fed up of the self-righteous whinging of some Lib Dems who are totally out of step with public and mainstream euroscepticism and have called it wrong on Europe for years.”

However, a number of prominent Liberal Democrats rallied round their leader.

Lord Oakeshott, the former Liberal Democrat Treasury spokesman, said he thought it was possible the dispute could bring down the coalition.

EU treaty: a tale of two dinners
In the space of 24 hours David Cameron experienced two meals that speak volumes – in their very different ways – about the seismic events of the past few days and Britain’s new relationship with Europe.

By Robert Watts, and Patrick Hennessy

9:00PM GMT 10 Dec 2011

At the first, the Prime Minister was the outsider. For more than eight hours he was enclosed in a Brussels conference room with 26 European leaders bent on closer integration. He was isolated from his closest advisers, with just his Blackberry smartphone for company.

Mr Cameron sat in silence for hours as he was accused of selfishly putting petty national interests before plans to ward off the threat of an epic financial crisis that could plunge Europe – and perhaps the world – into another Great Depression.

Less than 24 hours later, Mr Cameron had returned to Chequers, his country retreat.

There he was cheered and feted over best British beef by Conservative MPs as “the heir to Margaret Thatcher” and praised as the man who had safeguarded Britain’s economic future, reunited his divided party and paved the way for a new relationship with Europe and its lawmakers.

This weekend, as the dust begins to settle from last week’s momentous EU summit, the questions about what it all means have begun in earnest.

Is Britain now dangerously isolated in Europe? How can the Prime Minister shield the country from new EU regulations if he has absented Britain from the top table? And could the past few days represent the first step in Britain’s departure from the single market?

When Mr Cameron woke on Thursday morning his position for the European summit had already been agreed with Nick Clegg and other Liberal Democrat members of the coalition.

After a visit to the suburban London constituency of Feltham and Heston, to campaign for in the by-election being held there this week, the Prime Minister enjoyed the brief respite of watching his five-year-old son Elwen perform in his school’s nativity play.

From there, Mr Cameron was rushed to RAF Northolt in west London, where he and a team of five from Downing Street boarded a small aircraft bound for Brussels.

With Britain in the grip of a winter storm, it was a turbulent flight. But the Prime Minister faced an equally bumpy ride when he landed in Belgium’s capital an hour later.

Within an hour of touching down the Prime Minister went into his first meeting, a 15-minute chat with Mario Monti, the new Italian prime minister brought into restore credibility to his country’s debt-laden public finances.

Then Mr Cameron was whisked down the corridor for a tense 45 minutes with Nicholas Sarkozy, the French president, and Angela Merkel, the German chancellor. Those close to the Prime Minister say it was at this meeting that it started to become clear just how dramatic the night could become.

After it, one French official uttered the bizarre jibe that Mr Cameron was like a husband who arrives at a wife-swapping party without a wife.

At 8.10 the leaders sat down for the marathon working dinner that would not end until nearly 5am the next morning.

Only the leaders are granted a seat at the meeting room’s vast oval table. The lobster bisque, cod with pumpkin and chervil mousse, followed by dessert of chocolate cake and ice cream, accompanied by soft drinks, must have left a sour taste in Mr Cameron’s mouth.

Mr Sarkozy and Mrs Merkel were no doubt hoping they could employ all the customary wiles of Brussels-style negotiations to bend Mr Cameron into agreeing wholesale changes to the Lisbon treaty that would take the continent on a path to closer fiscal integration.

William Hague, the Foreign Secretary, Sir Jon Cunliffe, the Downing Street European adviser, and Ed Llewellyn, Mr Cameron’s chief of staff, were all confined to the next room.

The Prime Minister’s lifeline was his Blackberry, which Mr Cameron would use to send a round robin emails to his advisers updating them on the snail-like progress of the talks.

For hour after hour, there was not even any negotiation – merely a tedious prologue as the 27 leaders set out their positions.

Away from the meeting room, in the council building’s marble-floored atrium, tensions were building. As the hours ticked by, early optimism gave way to frustration and disbelief that progress had been so slow.

One Downing Street aide admitted that little substantive had been discussed until after 1am.

Although most people in the room knew what was coming, it is understood it was not until 2.30am that Mr Cameron was given an opportunity to deliver his list of demands if Britain was to be willing to sign up to changes to the Lisbon treaty, itself only agreed in 2007.

These included a legally-binding “protocol” to protect the City of London from more EU regulations, safeguards for American banks based in the UK and a guarantee that the proposed “Robin Hood” tax on financial transactions would require the unanimous backing of all member states.

Each of these demands were knocked back. Mr Sarkozy, said to have reacted angrily to Mr Cameron’s points, insisted it was the lack of financial regulation that lead to the crisis. Any “waiver” for Britain was untenable to France’s leader.

At 3.30am, with the talks seemingly deadlocked, Herman Van Rompuy, the president of the European Council and chair of the meeting, allowed a five minute break.

The talks reconvened for a further hour before finishing shortly before 5am, when Mr Sarkozy hastily called a press conference where he attacked his British counterpart for scuppering the talks.

Frustrated at the French leader’s rush to the microphones, Mr Cameron summoned his own press conference in which he repeated his position.

“We wish them well,” the Prime Minister said of the European leaders battling to save the euro, as if he was bidding farewell to a lover.

The sour mood loomed over the conference hall as the sun rose. The 14 foot high television screen inside the building atrium’s displayed a video on a three-minute loop seeking to trumpet what had supposed to be the great highlight of the day – the ratification of Croatia’s full membership of the EU.

Below, all the talk on the floor was of a member state leaving the single market. European journalists berated their British peers for moving back into the dark ages. Initially, it looked like Britain and Hungary would not agree the treaty changes – but soon talk grew that only Mr Cameron was taking the hard line.

“I think Hungary have left you on your own now,” one German correspondent chided his British peers.

The negotiations recommenced at 11am, after Mr Cameron had enjoyed an hour’s sleep and a breakfast of scrambled egg and strong coffee.

Outside the United Kingdom room in the European Council’s Brussels offices hang a series of framed Shakespearean quotations, which speak of courage and defiance.

A passage from Richard II alluding to “jousting tournaments” follows the opening line of Richard III in which the monarch speaks of the “winter of our discontent”; appropriate words on Friday afternoon.

Despite hours of draining talks and precious little sleep, Mr Cameron looked relaxed but determined as he justified his stance.

“I was very clear on what assurances Britain needed when I came here,” the Prime Minister said.

“Last night it became clear to me that we were not going to get what was necessary. It’s very important in life that when you set a bottom line, you stick to your guns and do the right thing.”

He stressed his plea for Europe to show the flexibility of a network, adding that Britain is at the heart of the single market and the Nato defence treaty, even if it has rejected a place in the euro.

And in a move that set some tongues wagging he even suggested that Britain would only continue in the European Union “if” it continued to be in our national interest.

“It must be in Britain’s interests”, he said repeatedly.

Within minutes he was setting off home.

Just a few hours later, at the Buckinghamshire house which has provided a country retreat for Prime Ministers for almost a century, Mr Cameron hosted a very different gathering – the latest in a series of meals at which he has tried to rebuild relations with his party after 81 Tory MPs defied him in a Commons vote over a referendum on whether Britain should leave the EU.

The guest list had been drawn up before this week, The Sunday Telegraph understands, and represented all sides of Conservative opinion – although there was a high proportion of women MPs and backbenchers first elected to parliament last year.

Andrew Rosindell, the hardline eurosceptic MP who last week in the Commons urged Mr Cameron to be a “British bulldog” in Brussels, was there, as was Maria Miller, the well-regarded minister for disabled people.

Mr Rossindel showed the Prime Minister his Union flag cufflinks, worn to celebrate the perceived British “victory” that morning.

Other MPs who attended were understood to include Andrew Selous, Lee Scott, Heather Wheeler, Henry Smith, Amber Rudd, Jessica Lee, Jesse Norman, Jackie Doyle-Price, Helen Grant, Dan Poulter, Sajid Javid and Jason McCartney. At least four of them – Ms Wheeler, Mr Smith, Mr McCartney and Mr Rossindell – were among the 81 “referendum rebels”.

In all, it is thought about 20 MPs were at Chequers – around half of whom brought their partners.

The atmosphere was said to be “extremely informal and relaxed” – with the Prime Minister and most of the men in open-necked shirts.

Over a salmon starter, British roast beef (naturally) with mashed potatoes, and melon and strawberries, conversation ranged over several topics – including football and music. Mr Cameron’s wife, Samantha, was not there but Elwyn was “running around” at the start of the evening.

One topic dominated all others, however – the Prime Minister’s use of the veto in the early hours. All his guests congratulated him and at one point a cheer went up.

Mr Rossindell said: “Last week I called on David Cameron to be a bulldog prime minister and he did exactly that. He did what I would have expected Margaret Thatcher to have done.”

Mr McCartney added: “There was a lot of energy. I couldn’t believe he had only had a couple of hours sleep. he was focused and interested and calm. He was there at 7.30pm when. He moved around the room and we all congratulated him and said he had done a fantastic job. You could hear everyone saying it as he went round.”

While wine was on offer with the meal, round a large oval shaped table in Chequers’s main dining room, nobody drank very much, according to those present. Many were driving home and the evening came to an end at about 10.30pm.

“We knew,” said Mr McCartney, with commendable understatement, “that he needed some sleep.”

Europe’s great divorce

Dec 9th 2011, 8:03 by Charlemagne | BRUSSELS

WE JOURNALISTS are probably too bleary-eyed after a sleepless night to understand the full significance of what has just happened in Brussels. But after a long, hard and rancorous negotiation, the European Union split in a fundamental way at about 5am this morning.

France, Germany and 21 other countries have decided to draft their own treaty to impose more central control over national budgets in an effort to stabilise the euro zone. Britain and three others have decided to stay out. But in the coming weeks, Britain may find itself even more isolated. Sweden, the Czech Republic and Hungary want time to consult their parliaments and political parties before deciding on whether to join the new union-within-the-union.

So two decades to the day after the Maastricht Treaty was concluded, launching the process towards the single European currency, the EU’s tectonic plates have slipped momentously along the fault line that has always existed—the English Channel.

Confronted by the financial crisis, the euro zone is having to integrate more deeply, with a consequent loss of national sovereignty to the EU (or some other central co-ordinating body); Britain, which had secured a formal opt-out from the euro, has decided to let them go.

Whether the agreement does anything to stabilise the euro is moot. The agreement is heavily tilted towards budget discipline and austerity. It does little to generate more money in the short term to arrest the run on sovereigns, or to provide a longer-term perspective of jointly-issued bonds. Much will depend on how the European Central Bank responds in the coming days and weeks.

Some doubt remains over whether and how the “euro-plus” zone will have access to EU institutions—such as the European Commission, which conducts economic assessments and recommends action, and the European Court of Justice, which Germany hopes will ensure countries adopt proper balanced-budget rules—over the objections of Britain.

But especially for France, on brink of losing its AAA credit-rating and now the junior partner to Germany, this is a famous political victory. President Nicolas Sarkozy had long favoured the creation of a smaller core euro zone, without the awkward British, Scandinavians and eastern Europeans that generally pursue more liberal, market-oriented policies. And he has wanted the core run on an inter-governmental basis, ie by leaders rather than by supranational European institutions. This allows France, and Mr Sarkozy in particular, to maximise its impact.

Mr Sarkozy made substantial progress on both fronts. The president tried not to gloat when he emerged at 5am to explain that an agreement endorsed by all 27 members of the EU had proved impossible because of British obstruction. “You cannot have an opt-out and then ask to participate in all the discussion about the euro that you did not want to have, and which you also criticised,” declared the French president.

With the entry next year of Croatia, which will sign its accession treaty today, the EU was still growing, said Mr Sarkozy. “The bigger Europe is, the less integrated it can be. That is an obvious truth.”

For Britain the benefit of the bargain in Brussels is far from clear. It took a good half an hour after the end of Mr Sarkozy’s appearance for Mr Cameron to emerge to explain his action. The prime minister claimed he had taken a “tough decision but the right one” in the British interest—particularly of its financial-services industry. In return for his agreement to changing the EU treaties, Mr Cameron had wanted a number of safeguards for Britain. When he did not get them, he used his veto.

After much studied vagueness about Britain’ objectives, Mr Cameron’s demand came down to a protocol that would ensure Britain would be given a veto on financial-services regulation (see PDF copy here). The British government has become convinced that the European Commission, usually a bastion of liberalism in Europe, has been issuing regulations hostile to the City of London under the influence of the French single-market commissioner, Michel Barnier. And yet strangely, given the accusations that Brussels was taking aim at the heart of the British economy, almost all of the new rules issued so far have been passed with British approval (albeit after much bitter backroom fighting). Tactically, too, it seemed odd to make a stand in defence of the financiers that politicians, both in Britain and across the rest of European, like to denounce.

Mr Cameron said he was “relaxed” about the separation. The EU has always been about multiple speeds; he was glad Britain had stayed out of the euro and of the Schengen passport-free area. He said life in the EU, particularly the single market, would continue as normal. “We wish them well as we want the euro zone to sort out its problems, to achieve stability and growth that all of Europe needs.” The drawn faces of senior officials seemed to say otherwise.

The 23 members of the new pact, if they act as a block, can outvote Britain. They are divided among themselves, of course. But the habit of working together and cutting deals with each other will, inevitably, begin to weigh against Britain over time.

Mr Sarkozy and Angela Merkel, the German chancellor, have given notice of their desire for the euro zone to act in all manner of domains that would normally be the remit of all 27 members—for example, labour-market regulations and the corporate-tax base.

Britain may assume it will benefit from extra business for the City if the euro zone ever passes a financial-transaction tax. But what if the new club starts imposing financial regulations among the 17 euro-zone members, or the 23 members of the euro-plus pact? That could begin to force euro-denominated transactions into the euro zone, say Paris or Frankfurt. Britain would, surely, have had more influence had the countries of the euro zone remained under an EU-wide system.

It says much about the dire state of the debate on Europe in Britain’s Conservative party that, as Mr Cameron set out to Brussels, one Tory MP should invoke the memory of Neville Chamberlain, who had infamously come back from Munich with empty assurances from Adolf Hitler. Mr Cameron may have made a grievous mistake over Britain’s long-term interest. But at least nobody can accuse him of returning from Brussels with a piece of paper in his hand.

Most European Leaders Agree on Fiscal Treaty

By STEVEN ERLANGER and STEPHEN CASTLE

Cash for credibility

Laundering European rescue funds through the IMF

Dec 10th 2011 | Washington, DC | from the print edition

AS A new game plan for saving the euro by enforcing fiscal discipline takes shape (see article), there is growing speculation that Europe’s central bankers could help in another way—by channelling rescue funds through the IMF.

The ECB is not allowed to fund member governments, but it or national central banks could lend to the IMF. Those national central banks have provided resources to the fund before, which is why the ultra-orthodox Bundesbank does not object to filling the IMF’s coffers—even if that money were then used to provide rescue funds for countries such as Italy or Spain.

In many ways this money-laundering would be a clever wheeze. It gets around the central bankers’ hang-ups. It provides discipline, since the fund’s conditionality would help to keep Europe’s peripheral economies on track. And it could elicit funds from others. America won’t contribute anything more to the IMF, but big emerging markets seem willing to top up the fund’s resources, provided the Europeans do so too. With Europe’s own rescue fund—the European Financial Stability Facility—floundering, the IMF may be the best route to raising real money.

How much could be raised is still up for grabs. Eswar Prasad, an economist at Cornell University who follows the IMF closely, reckons that if Europeans come up with $150 billion-200 billion, then emerging economies might add a similar sum to the pot. Those are the kind of sums that would be needed. The IMF currently has some $390 billion of lendable cash in its kitty (see chart). That’s enough to deal with smaller economies, but not to back stop Italy and Spain, which need to refinance some €320 billion ($430 billion) and €142 billion respectively in 2012.

Unfortunately, like many clever wheezes, this one is full of pitfalls, both for the Europeans and for the IMF. The fund, which already has over half of its outstanding loans in the euro zone, would become even more heavily exposed to one region. For Italy or Spain, borrowing from the IMF is not the same as the ECB buying their bonds. The IMF is a preferred creditor, which means it always gets paid back first. Thus the more the fund lends to a country, the bigger the write-down for private creditors if there were ever a default.

An IMF rescue plan could spook investors rather than reassure them, particularly if parallels were drawn with Greece, Portugal and Ireland, which have already had rescue packages from the IMF and the Europeans, and show no sign of regaining access to financial markets. The experience of those countries does not bode well for the IMF’s credibility either. In each case the Fund’s technocrats are not in sole charge. Against their better judgment, they have often compromised on reform plans with European rescuers, who usually push for harsher austerity.

The same danger exists for Italy or Spain. Even if the Europeans launder rescue funds through the IMF, they are unlikely to outsource fiscal oversight entirely. The inevitable compromises could easily lead to rescue plans that fail. If the euro then falls apart, the IMF, the one institution that could pick up the pieces, will lack both the cash and credibility to do the job.

SPIEGEL ONLINE
12/07/2011 12:53 PM
Battle to Save the Euro
Summit Seen Backing ‘Merkozy’ Plan – But Then What?

By Carsten Volkery and Philipp Wittrock

The pressure on the euro zone is so great that the German-French plan for treaty changes to punish budget rule-breakers is likely to be approved at a make-or-break EU summit starting Thursday. But it could still be thwarted by political wrangling in the coming months.

Last-minute discussions are underway ahead of the EU summit on Thursday and Friday that could decide the fate of the single currency. A French-German plan for European treaty changes to enshrine automatic sanctions is likely to be approved by leaders, but their three-month timetable for the amendments to come into force looks highly ambitious, and could be upset by post-summit horsetrading and ratification votes.

Officials from the EU member states are also discussing the option of doubling the firepower of the euro bailout fund at the summit, the Financial Times reported on Wednesday. The report, citing senior European officials, said the the temporary European Financial Stability Facility (EFSF) bailout fund could be strengthened by keeping it going even after the permanent fund that had been due to replace it comes into force in 2012.

The EFSF has available assets totalling €440 billion, and the European Stability Mechanism (ESM), the replacement long-term fund, will have €500 billion at its disposal.

The leaders of Germany and France, Chancellor Angela Merkel and President Nicolas Sarkozy, agreed on Monday that the launch of the ESM should be brought forward to 2012 from 2013 to help calm markets.

They also proposed rapid changes to the European treaties in order to enforce budget discipline across the euro zone through automatic sanctions and budget-balancing rules enshrined in national constitutions.

If everything goes according to their plan, the amendments would take effect next March — either among all the EU’s 27 members or just among the 17 euro countries. But it’s uncertain whether such rapid treaty changes will be possible. The EU struggled for almost a decade to put the Lisbon Treaty in place.

Though France and Germany are only proposing amendments to existing agreements, their plan for rescuing the euro by whipping treaty changes through in just three months looks more than ambitious.

The devil is in the detail. And history has shown that the Europeans can spend ages passionately arguing about details.

Treaty Change Looking More Likely

But most European nations know the EU needs to get serious about fiscal discipline, because it is the only way to tackle the roots of the debt crisis. The treaties will be amended — the pressure to show unity and determination at the summit is so great that resistance seems pointless.

Even the Irish government has accepted that, although it had voiced deep skepticism. Prime Minister Enda Kenny had long resisted treaty change because he wanted to avoid another referendum on Europe at all costs. The Irish held two referendums on the Lisbon Treaty, in 2008 and 2009. But now Dublin is saying it won’t block treaty amendments if a majority of the euro countries want them.

The 10 EU countries that aren’t in the euro zone also appear ready to back the planned fiscal union among the 17 currency zone members. British Prime Minister David Cameron has signalled his support, along with his Danish counterpart Helle Thorning-Schmidt and Poland’s Donald Tusk. Their conditions are that the amendments should be as limited as possible and should not detract from more immediately necessary measures to contain the euro crisis. They don’t regard treaty change as the top priority, but they don’t want to block it either.

As the euro zone agreement wouldn’t affect their own national sovereignty, the British and Danish governments will refrain from calling national referendums on the amendments.

Thus, Merkel and Sarkozy can hope that they won’t have to enforce their threat to confine the treaty changes just to the 17 euro countries, a move that would cement divisions in the EU.

But the summit won’t be a rubber-stamping affair. Cameron will be determined to placate the many euroskeptics in his Conservative party by negotiating some sort of concessions in Brussels that allows him to claim he defended British national interests.

There is likely to be fierce debate on two main points at the summit:

What will the automatic sanctions against budget rule-breakers look like? Merkel and Sarkozy haven’t given any details yet. In the past, there has been talk about halting EU subsidies, imposing fines or even withdrawing voting rights. The question about which authority will carry out and monitor the punishment also remains undecided. Will there be an Austerity Commissioner or will the punishment be decided by the EU governments? It is clear though that no country will have a veto any longer. The German-French plan envisages that only a qualified majority will be able to prevent sanctions. EU Social Social Affairs Commissioner László Andor of Hungary condemned the plan on Tuesday, saying on Twitter: “Automatic sanctions are a joke.” He added that: “Fiscal union needs collective, democratic decision making.”

What will the relationship between the 17 euro states and the rest of the EU look like? The leaders of the euro zone governments will convene once a month, according to the German-French plan, at least for as long as the crisis continues. The non-euro countries fear they will be degraded to second-class members of the EU. They want to retain a say in key decisions. The Polish government warned in a preparatory paper for the summit that the creation of exclusive structures “could deepen possible rifts,” Financial Times Deutschland reported. The British government wants written assurance that it will continue to have a say in decisions that affect Britain’s national interest. It is unclear whether Cameron will demand further concessions for his country.

If the summit decides on Friday to start amending the treaties for all 27 EU member states, a range of contentious issues will remain open, and several governments will expect some form of payback in exchange for concessions. And every such negotiating maneuver will make the talks more complicated and threaten to upset “Merkozy’s” timetable.

But the most recent warnings from ratings agency Standard & Poor’s could end up playing into their hands. The threat to downgrade the ratings of 15 euro countries has piled pressure on leaders to come up with a concrete deal in Brussels. Perhaps that is why the German government’s response to the surprise announcement, which could end up costing Germany as well as the euro rescue fund their triple-A rating, has been so low-key.

German Finance Minister Wolfgang Schäuble called on the EU to seize on the S&P warning as an incentive to regain the confidence of financial markets. After all, S&P said it would closely monitor the outcome of the EU summit.

But even if the 27 governments agree to amendments in record time, further dangers will loom when nations set about ratifying the changes. The Irish could trigger the next euro crisis if they held a referendum with a negative outcome. Dublin has said there will have to be a referendum, regardless of how limited the amendments turn out to be.

EU critics in Ireland would find it easy to mobilize voters fed up with the austerity program imposed last year in return for EU aid. They would only have to label the planned automatic sanctions as a German-French dictate.

URL:

http://www.spiegel.de/international/europe/0,1518,802221,00.html

© SPIEGEL ONLINE 2011

Why is EU treaty change needed to stabilise euro?
08 December 2011, 13:42 CET
— filed under: Finance, public, debt, treaty, FACTS
EUB
(BRUSSELS) – Potentially explosive EU treaty change takes centre stage at an EU summit opening Thursday as Europe’s power couple Angela Merkel and Nicolas Sarkozy push to throw a fiscal strait-jacket on the eurozone.

The French-German demand for a rewrite of the European Union rulebook, which history has shown to be a long and politically dangerous road, aims to enshrine tough rules ensuring budgetary rigour across the 17 nations sharing the euro.

Nations agree tighter rules and better policing can help overcome the debt crisis in the long term, but are sharply divided over how to implement change and how far to go.

Question: Why treaty change?

Answer: Because Berlin wants it. As one European diplomat put it: “The Germans fundamentally feel they were wronged by agreeing to replace the deutsche mark with the euro because member nations failed to respect the rules of the game demanding budgetary discipline in return.”

Given the failure of the initial and loosely-implemented Stability and Growth Pact governing the single currency, which France and Germany were the first to flout in 2004, Merkel is now calling for a “fiscal union” carving rules in stone that would be legally binding.

Q: What changes are under consideration?

A: Germany had wanted the European Court of Justice to have the authority to sanction repeated budget offenders, but France was cool to that idea. So the suggestion is for the court to verify states meet the obligation of introducing a so-called “golden rule” into their legislation, requiring a balanced budget. This way, eurozone debt levels could be brought back within a fixed threshold. Sanctions would be automatic and immediate and Brussels could be given guardianship of countries in dire straits.

Special powers too could be conferred on a European commissioner to step in and intervene directly in national budgets when deemed necessary.

Q: Are all the changes about tightening fiscal discipline?

A: No. EU president Herman Van Rompuy wants to also improve economic policy convergence in the 17-nation eurozone on issues such as tax, which Ireland is expected to resist to safeguard its cheaper corporate tax.

With national interests and political stakes at play, others may demand a quid pro quo, notably Britain which has already threatened to scupper a deal failing EU pledges to protect the country’s profitable financial sector.

Q: How can the treaty be changed?

A: How to change the EU’s rule-book is highly contentious. Because of a widening rift between the 17 eurozone nations and the 10 states outside the single currency, the European Commission wants treaty change to be submitted to the entire 27 to avoid deepening the chasm.

But the leaders will be asked to consider a change affecting only eurozone countries — as treaty change requires ratification by unanimous vote. This is when non-euro members, such as British Prime Minister David Cameron, may be tempted to ask for a pay-back. Under pressure from eurosceptics in his Conservative party, he could even ask to repatriate powers touching on labour laws and financial regulation to London.

Q: Can it be done quickly?

A: This is likely to be the crux of the problem. The European Commission and Van Rompuy see a quick light option to the fore for the most urgent changes — a deal during the summit to amend Protocol 12 of the Lisbon Treaty which would speedily reassure the markets. It would need approval by parliaments and would take two to three months in all.

But Germany, which has an almost religious belief in the constitution, is opposed because it would not enable tougher automatic sanctions against debt and deficit offenders.

Carving into stone quasi-automatic sanctions against sinners would require a “limited” treaty amendment of Article 136 that would take up to two years to implement. It would stunt a country’s ability to wriggle out of sanctions by changing voting procedures and bolster the Commission’s right to meddle in national budget plans.

Q: What does Germany want?

A: Germany is digging in its heels for the second longer option. But if this is rejected by the 27 leaders or gets bogged down in political haggling, then it could be put to the 17 eurozone nations under a simpler intergovernmental procedure likely to lead to a two-speed Europe.

December 7, 2011
On Eve of Key Meeting, New Rifts on Euro Emerge
By STEVEN ERLANGER and STEPHEN CASTLE

PARIS — Disagreements over how to enforce better economic discipline and centralized oversight over nations in the European Union emerged on Wednesday, the day before a crucial summit meeting to deal with the euro crisis, including disputes over how extensively and how quickly to change European treaties.

French officials promised not to leave Brussels until a “powerful” deal was reached to save the euro. But senior German officials expressed more pessimism, saying that Berlin opposed a “quick fix” agreement. Instead, they insisted on full treaty changes and disagreed with the idea of combining two bailout funds, one temporary and one permanent, to create a larger pot of money to protect Italy and Spain.

Britain said that it would ask for special protections if there were any treaty changes, raising the possibility that changes would be limited to the 17 nations of the euro zone and those who want to join, and not to all 27 members of the European Union.

Still, Wednesday was a day of some posturing and public negotiating by national officials who demanded anonymity, with different nations staking out their positions before the meeting begins in earnest late Thursday afternoon.

“It’s internal politics,” said a senior European official. “This is macho-style, old politics.”

German officials sounded the toughest, seeing this summit meeting as a chance to achieve permanent changes to the way the euro is managed, an important goal for them. The Germans want firmer debt limits and sanctions for violators written into the treaty. They prefer a treaty of all countries in the European Union, even though the changes would apply only to countries in the euro zone.

But treaty changes can take two years and could involve a referendum in Ireland and other nations, so European Union officials, wanting to move quickly, have been exploring other options. In a paper that emerged on Wednesday, the president of the European Council and of the euro zone, Herman Van Rompuy, suggested a fast-track route to a “fiscal compact” that would avoid the problems and delays of a full treaty change.

The idea laid out by Mr. Van Rompuy, who organizes the European summit meetings, would avoid a full treaty change, which could involve a convention, referendums or parliamentary ratification, but it would still achieve much of what Germany wants.

This would mean amending a protocol of the treaty; leaders would simply have to consult with the European Central Bank and the European Parliament. Under this plan, also supported by the president of the European Commission, José Manuel Barroso, leaders could ensure that countries write into their own law an obligation “to reach and maintain a balanced budget over the economic cycle.” This could be complemented with pledges of “automatic reductions in expenditures, increases in taxes or a combination of both” if the rule was broken.

Britain insisted that such an amendment would still require at least parliamentary ratification, and a senior German official, briefing reporters, decried the quick fix as “a typical Brussels bag of tricks” and a “rotten compromise.”

More fundamental changes that would assure fully automatic sanctions against budget sinners, and give European institutions the power to overrule national budgets, would require full treaty change.

The German official said he was “more pessimistic than last week about reaching an overall deal,” adding, “A lot of the protagonists still have not understood how serious the situation is.” Berlin’s idea appeared to be to increase the pressure on partners to come to terms that Germany favored.

The American Treasury secretary, Timothy F. Geithner, was building the pressure in a softer way on Wednesday. He continued his public tour of meetings with German, French and Italian leaders to underscore how important reaching a deal this week was to the Obama administration. The administration says it believes that the euro zone crisis is dragging down the global and the American economy and could cause another full-fledged banking crisis.

But one senior European official said that an answer might be a “two-phase solution,” with a quick change to the protocol followed by work on treaty change.

European officials say that a less ambitious but faster strengthening of euro zone discipline will be more credible with investors and the European Central Bank than the promise to make larger reforms that could take two years to put into place.

As one French official said Wednesday, “The E.C.B. is not going to commit suicide” and oversee the destruction of the euro currency it is charged with keeping stable.

But Austria, like Germany, also tried to play down expectations for a “quick fix” solution to the euro crisis. The summit meeting “will not meet the goal of creating a comprehensive firewall for the euro zone for the next three to five years,” Austria’s chancellor, Werner Faymann, told lawmakers in Vienna, speaking of the effort to create a large “wall of money” in bailout funds to protect vulnerable euro zone states.

What was achievable, however, he said, was a “massive increase in voluntary coordination,” including measures to encourage greater budgetary discipline and to sanction countries running excessively high deficits.

The Americans have regularly counseled using ready bailout money as a firewall in the crisis. But it has not been easy for the Europeans, as they have tried to leverage a temporary, 440-billion-euro European Financial Stability Facility upward. One French-German idea is to move forward, to 2012, the establishment of the larger, permanent 500-billion-euro European Stability Mechanism. But Berlin is rejecting the idea of running the two in parallel.

The Europeans are also talking to the International Monetary Fund, where Washington has the largest voice, about helping to enlarge the firewall with money that the European central banks could loan to the fund.

An announcement is also expected late Thursday on how European banks would comply with the tougher capital requirements.

Steven Erlanger reported from Paris, and Stephen Castle from Brussels.

Latest update: 23/10/2011
- debt – European Union – eurozone – financial crisis – history – Nobel Prize – USA

US history holds key to resolution of eurozone debt crisis, Nobel laureates say
US history holds key to resolution of eurozone debt crisis, Nobel laureates say
Thomas Sargent (right) and Christopher Sims (left), winners of the 2011 Nobel Prize for economics, said Tuesday that a decision by the first 13 US states to combine their individual debt under a federal government holds the key to the EU debt crisis.
By News Wires (text)

AFP – The American winners of this year’s Nobel prize in economics said Tuesday that the solutions to the eurozone crisis are clear, economically, and the issue is mainly political.

New York University’s Thomas Sargent, who with Princeton University colleague Christopher Sims captured the annual prize for economics, said the history of the founding of the United States shows what the issues and solutions are.

“There are no new issues in economic theory with Europe and the euro… the difficult thing is the politics,” Sargent told a news conference in Princeton.

“In the 1780s, the United States is a basket case,” he said, with 13 sovereign governments — the 13 original states — each of which could raise taxes and print money.

Meanwhile, he said, the new country had a very weak center, not having yet established a central bank or gained taxing power.

“Does this remind you of anything?… They (the states) all have debt, and the center has debt. Like eurobonds, they are going at deep discount.”

Sims said the crisis of the European Monetary Union, focused now on Greece’s inability to service its debts, and with two other members, Ireland and Portugal, in tough bailout programs, was predictable — and that he had predicted it.

“I wrote a paper a few years ago on the precarious fiscal foundations of the EMU,” Sims said hours after the Nobel announcement.

“The euro was founded with a central bank but no unified fiscal authority,” he said, which “raised questions about what would happen when the need for fiscal and monetary coordination arose.”

The eurozone nations “will have to work out a way to share fiscal burdens and connect fiscal authorities to the ECB,” the European Central Bank.

to share fiscal burdens and connect fiscal authorities to the ECB

“Right now none of those connections are clear… and the prospects for the euro are dim.”

Sargent said the way the 13 states came together in 1787 to combine their debt under the new federal government and allow the federal government to levy taxes to be able to service the debt points the way for the eurozone.

a huge, complex and bold political decision.

But he said achieving that took a huge, complex and bold political decision.

“We were born with a determined solution to the problem that Europe is facing now. And it was a comprehensive solution,” he told journalists.

“It was all done simultaneously, through a process that looks like a miracle.

“The older you get, and the more you watch Europe, the more miraculous that you will see.”

Kicking out a weak eurozone state — as is often suggested for Greece — is not the solution, Sims added.

The notion “that things will get settled in the euro only if some weak countries leave is unrealistic,” he said.

“It’s in no sense a cure for the problems that face the euro.”

Longtime freinds and sometime rivals, Sims and Sargent, both 68, were named Monday as this year’s winners of the Nobel prize for economics for the work analyzing the causal relationships between economic activity and policy actions.
IMF denies report on $600 billion lending facility
4:56pm EST

(Reuters) – The International Monetary Fund on Wednesday denied a report in Japan’s Nikkei newspaper that the Group of 20 nations were planning to assemble a $600 billion IMF lending facility that could be used to bolster euro zone countries.

“There has been no such discussion with the IMF,” an IMF spokesman said in response to the Nikkei report.

Separately, a G20 official also said the report was untrue.

(Reporting by Leslie Wroughton in Washington and David Lawder in Milan, Editing by Chizu Nomiyama)

Geithner Sees ‘Progress’ in Efforts to Shore Up Euro
By DAVID JOLLY
Published: December 7, 2011

PARIS — Germany helped allay market jitters Wednesday with a successful bond offering, as the United States Treasury Secretary Timothy F. Geithner stressed the importance of restoring confidence in the euro for growth around the world.

European leaders are to gather Thursday night in Brussels to begin seeking agreement on the latest series of measures to support euro-zone governments that are facing a crisis of confidence in their finances.

After meetings in Germany on Tuesday, Mr. Geithner arrived in Paris for talks with French officials including Prime Minister François Fillon and President Nicolas Sarkozy.

Mr. Geithner said he had confidence in what French officials “are doing with Germany to try to build a stronger Europe,” adding that he was “encouraged by the progress they’re making.”

“I want to emphasize again how important it is to the United States and to countries around the world that Europe succeeds in this effort to build a stronger Europe, and I’m confident they will succeed,” he added.

He spoke as the German Finance Agency sold €4.1 billion, or $5.5 billion, of 5-year debt securities at an average yield of 1.11 percent, up slightly from the 1.0 percent it paid to sell similar debt on Nov. 2. Investors had been watching the auction carefully, after a November offering of 10-year bonds flopped, sending markets reeling.

This time, there were a healthy 2.1 bids for each of the 5-year bonds sold, up from 1.5 on Nov. 2. Stock markets in Europe were generally flat Wednesday, after early gains.

“Today’s tender reflects volatile and uncertain market conditions,” Reuters quoted the agency as saying in a statement. “Investors are looking for, and trust, the quality of the paper from the euro zone’s benchmark issuer.”

The European Union’s main bailout fund, known as the European Financial Stability Facility, will provide another test of investor confidence later this month, when the German debt management office begins auctioning the fund’s 3-, 6- and 12-month bills.

“The launch of a short-term funding program is in line with the enlarged scope of activity of E.F.S.F. to use its new instruments efficiently,” Klaus Regling, the fund’s chief executive, said Wednesday in a statement.

The fund currently enjoys the highest short-term credit ratings from all three of the major agencies, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.

But analysts are skeptical that it can maintain that rating if the top-rated European governments cannot maintain their own ratings.

S.&P. warned Monday that the ratings of 15 euro-zone countries, including Germany and France, faced a possible downgrade, and it said Tuesday that the bailout fund also faced a downgrade if top governments’ ratings were cut.

The fund said the auctions would be held “before year end.”

Annie Lowrey contributed reporting.

Why The Latest Euro Bank Bailout is Bullish for America
By Stephen Gandel | @stephengandel | November 30, 2011 | 14
time.com

The bottom-line truth about today’s Federal Reserve-led coordinated effort by six of the developed worlds’ central banks to ease the liquidity problems of European financial institutions is this: It doesn’t change anything. European leaders still have the same tough decision to make. Either impose even stricter austerity measures on Europe’s struggling nations or force Germany and other stronger European nations to come forward with an even bigger bailout, or, of course, kiss the Euro good-bye. And in fact that choice got a little tougher last night, after European bank leaders said that the plan to lever up the funds already in place to help the struggling Eurozone nations may not work.

stricter austerity measures
bigger bailout
the funds may not work
inflation
slow the entire global economy

Another wrinkle: If the move leads to an even bigger bailout the result could be a new round of inflation, particularly in the emerging market countries. That would lead to more rate hikes in China and elsewhere, which could slow the entire global economy.

So if that’s the case, why did U.S. stocks, which have taken a beating recently on fears that the Eurozone’s problems will spread to U.S. banks and the rest of the American economy, rise 490 points on Wednesday on news of the latest effort to prop up Europe’s banks? As one analyst put it, the amount of people who bought stocks this morning on the news that central banks around the world were lowering currency swap lines probably far outweights the number of people who know what currency swap lines are.

In fact, the deal struck today says more about the strength of the U.S. and the U.S. economy than it does about how and whether Europe’s issues will be resolved.

some Euro banks would fail

The latest European bank bailout measure is a coordinated effort by six central banks, but the heavy lifting is being done by the U.S. Fed. Recently, overnight lending rates among European banks had been rising on fears that some Euro banks would fail, and not be able to pay off their debts. It turns out the plan to relieve this problem is to put more U.S. dollars in the hands of banks around the world. The six large central banks – including the Bank of Canada, the Bank of Japan, the European Central Bank and others – have all agreed to allow their local banks to effectively borrow dollars at half the rate that they used to be able to. That should drive down lending rates, because if you can get dollars for cheap to fund your short-term borrowing costs why would you do anything else.

The effort is being made possible by the U.S. Fed, which has agreed to make the dollars available to the other five central banks to lend to their local banks. And the Fed has agreed to keep the rate low on dollars for those other central banks until February 2013.

There was a fear after the financial crisis, and there still is, that the U.S. would lose its place as the leading financial power, and all the advantages that entails. But even after the financial crisis, the crippling recession and the building up of $15 trillion dollars in debt, America remains the world’s lender of last resort. The move today by central banks, and the fact that the bailout deal is being made in dollars, says that, for all the worry about the fall of the American economy, the U.S.’s standing in the world remains, for now at least, strong. So strong, that essentially the U.S. is setting rates low for the rest of the developed world through early 2013. And that alone should make U.S. investors feel better about the U.S. economy and stock market, even if they don’t know for certain what currency swaps are – or that they won’t do all that much to solve Europe’s true problems.

Stephen Gandel is a senior writer at TIME.

Read more: http://curiouscapitalist.blogs.time.com/2011/11/30/why-the-lastest-euro-bank-bailout-is-bullish-for-america/#ixzz1fthXzef7
Monday, Aug. 22, 2011
The End Of Europe
By Rana Foroohar

Britain is burning. Strange that it should be so. After all, the catastrophic economic news of recent days, including the highly controversial downgrading of U.S. debt by Standard & Poor’s, the burgeoning euro crisis in continental Europe and the market turmoil that followed both, has been made in New York City, Brussels and Berlin, not in the streets of North London. But if you look closer, it all makes sense. Britain, like the U.S., has been a center of both great wealth creation and a widening wealth divide over the past 20 years, thanks to the rise and, more recently, fall of the markets and global economic growth.

Now the U.K. is sharing the suffering of the rest of Europe — namely, deep budget cuts that are hurting vulnerable populations the most. As youth programs, education subsidies and housing allowances are axed by a state desperate to get out from under crushing sovereign debt, it’s clear why the poorest populations in the most economically unequal large European nation are taking to the streets. (See the 25 People to Blame for the Financial Crisis.)

The only surprising thing is that it didn’t happen sooner. We’ve known since the beginning of the financial crisis and subsequent economic downturn that the world order was changing in profound ways. But we’ve tried to wish it all away with talk of temporary blips and cyclical recessions. We’ve come up with every possible excuse, from tsunamis to a lack of market certainty, to explain why rich-country economies aren’t rebounding.

But the past two weeks of dismal economic news have made the new reality impossible to ignore: the West — and most immediately Europe — is in serious trouble. This is no blip but a crisis of the old order, a phrase once used by historian Arthur Schlesinger Jr. to describe the failures of capitalism in the 1920s. It is a crisis that is shaking not only markets, jobs and national growth prospects but an entire way of thinking about how the world works — in this case, the assumption that life gets better and opportunities richer for each successive generation in the West.

As bad as things might seem in the U.S., the smoldering center of the crisis is Europe. Volatile continental markets and angry demonstrations from Athens to Madrid are manifestations of the desperate scramble by European politicians to contain the euro-zone debt crisis that threatens to unravel the single currency and destabilize the region. The European Union and the euro zone were supposed to bring about economic stability and remove traditional barriers to growth, such as tariffs and regulations. Instead it’s become a selfish union in which flailing economies feed rising nationalism, angst over immigration and simmering distrust between rich and less affluent countries. “Europe is at the center of the global financial problems,” wrote Michael Hartnett, chief global equity strategist for Bank of America Merrill Lynch, in a recent note to investors. “Those problems have been exacerbated by the inability, or the unwillingness, of policymakers … to address the debt issues.”

Why the Euro Is Everyone’s Problem

While the crisis may seem to be Europe’s problem, if it results in a breakup of the euro zone or even a growth-dampening series of costly bailouts, it will reverberate from Beijing to Boston and back. Europe is the largest trading partner of both the U.S. and China. It’s home to one of the world’s largest pools of wealthy consumers. If they stop buying our stuff, everyone suffers. Meanwhile, a dramatic depreciation of the euro or a dissolution of the union would make nations from Asia to Latin America that hold the euro as a reserve currency much weaker. Even the mere effort to contain the crisis with looser monetary policy on either side of the Atlantic creates a risk of inflation and hot money that could punish emerging markets, economists like Goldman Sachs’ Jim O’Neill have warned.

See the top 10 government showdowns.

The worries have now come to a head. Borrowing costs for Europe’s weaker economies, like Greece, Ireland, Portugal, Spain and Italy, have skyrocketed as halfhearted measures to stabilize markets have made investors suddenly wary that the European center is not going to hold and that richer countries like Germany simply aren’t committed to the monetary union. That’s why bond spreads are widening, European stocks are tanking and the European Central Bank is desperately trying to calm markets by buying up weaker countries’ debt.

All this could have happened six months ago or three months ago or three months from now. But the crisis exploded in the past week because of the slow-growth news coming out of the U.S. As improbable as it sounds, “Europe’s Plan A, B and C was to outgrow its debt problem via the normalization of the economic situation in the U.S.,” says Harvard economist Kenneth Rogoff. “When they saw the U.S. growth numbers coming in so much weaker than they expected, it became clear that the world wasn’t going to normalize. And they panicked.” (See 5 Economists Judge Congress’s Last-Minute Debt Bargain.)

While economists were betting on 4% growth in the U.S. earlier this year, numbers released in recent days show that the American economy grew a paltry 1.3% in the second quarter of this year, after a truly anemic first-quarter figure of 0.4%. With growth like that, we can’t even save ourselves from 9%-plus unemployment at home, let alone save the world. The much feared 2% economy, now the consensus prediction for U.S. growth this year, has become a reality. We are no longer the economic counterweight to Europe. We are Europe.

According to Rogoff, the pre-eminent seer of the crisis, who wrote the sovereign-debt history This Time Is Different: Eight Centuries of Financial Follies with economist Carmen Reinhart in 2009, Europe and the U.S. are not experiencing a typical recession or even a double-dip Great Recession. That problem can ultimately be corrected with the right mix of conventional policy tools like quantitative easing and massive bailouts. Rather, the West is going through something much more profound: a second Great Contraction of growth, the first being the period after the Great Depression. It is a slow- or no-growth waltz that plays out not over months but over many years. That’s what happens after deep financial crises that require bailouts by beleaguered states, which are then left with few resources and tools to cope with a stagnant, high-unemployment environment rife with populist politics, social instability and violence of the kind we’ve most likely only begun to see in the streets of Athens and London.

It’s a very different era than the historically exceptional period of rapid global growth from 1991 to 2008, the period in which the European Union, the euro and the dream of greater European integration were born. The linchpin of this age of optimism was, of course, the U.S. It helped rebuild Europe after World War II and toppled its main ideological competitor, the Soviet Union. The dollar and U.S. government debt, backed by America’s well-functioning democracy and strong growth prospects, remained the largest, most liquid and (seemingly) safest investments on the planet. It was in this environment, in which all boats were rising, that the euro began to gain strength.

Needless to say, the global picture has changed. It is a measure not only of the long tail of America’s special position in the global economy but also of just how bad things are in Europe and elsewhere that there hasn’t been a rush out of U.S. Treasuries. Following the S&P downgrade, ascribed to our slower growth and debt-ceiling shenanigans, investors piled into Treasuries as the market tanked. China, the largest foreign holder of T-bills, issued a stern warning to the U.S. to “cure its addiction to debt.” But central bankers from Beijing aren’t breaking down doors in Frankfurt to convert their dollar holdings to euros. The euro is the only viable alternative to the dollar as a global reserve currency. The British pound is history, and emerging-market currencies are still too small, volatile and controlled. And while plenty of investors are fleeing into gold, the world gold market isn’t big enough to accommodate serious dollar diversification without massive inflation in gold itself. Prices are already at record levels.

See how F.D.R led the U.S through a depression.

It’s unclear at this stage whether the euro will even survive the debt crisis that has engulfed Europe, one that is in many ways worse than the one we’re experiencing in the U.S. On the surface, the picture doesn’t seem so bleak. After all, the average euro-zone deficit is only 6% of GDP, compared with 10.6% in the U.S., and Europe’s debt-to-GDP ratio, while similar to America’s, isn’t rising as fast. The difference is that the U.S. has time and favorable borrowing rates on its side; Europe has neither. Also, the U.S. can tackle its fiscal problems if it finds the will to rise above partisan politics; the politics of the E.U. — and in particular its lack of true political integration — makes it impossible for it to actually get to the root of the euro crisis.

That’s because the euro zone is essentially a selfish union. Europeans want to benefit economically from their proximity to one another and want at all costs to avoid expensive and destructive wars — either trade or shooting — with their neighbors. Beyond that, many of their political, cultural and social agendas diverge. At each stage in the development of modern Europe, from the creation of the European Union to the introduction of the euro, it has always been difficult to get nations to agree to deeper political integration, which is hardly surprising given what a heterogeneous place Europe is. That’s why in 2005 voters rejected a European constitution that would have required member states to cede much more power to the E.U. (See photos of the dangers of printing money.)

The Casino Continent

The result is a monetary union that can sometimes resemble a casino. The existence of a European Central Bank (ECB) means that countries like Greece, Belgium and Ireland are free to borrow from the credit window and take on more debt than they can handle. But the fact that there’s no centralized political control or accountability means that more-prudent member countries like Germany have no way to stop weaker states from undermining the viability of their shared currency.

Of course, there’s also no one to tell Germany that it shouldn’t let its state-owned banks leverage themselves 50 to 1 on junk assets. The hypocrisy of it all is evidenced by the fact that nearly all the euro-zone countries have flouted the core economic rule that in theory limits annual budget deficits to 3% and debt-to-GDP ratios to 60% for all members. “We created the stability pact as a set of rules for the euro. But it has become a pact of cheaters and liars,” says Jean Arthuis, a centrist politician and head of the finance commission in the upper house of France’s Parliament.

The euro zone’s early doubters always believed that Greece or other weak nations would cheat on the deficit issue. The result now is a continent — and a common currency — that is shaky, requiring perhaps trillions in capital injections from France and Germany, first among others, into a rescue fund to prevent the euro’s collapse.

Even in good times, it is never easy to balance the fiscal needs of a high-cost exporter like Germany with those of cheap and cheerful service economies like Greece, Spain and Portugal. In bad times, it’s impossible. The poorer peripheral countries in Europe used to be able to devalue their individual currencies to maintain global competitiveness. Post-euro, with that quiver removed, they have two choices. They can make painful structural reforms that are unpopular with voters, including cutting welfare programs, reforming tax collection, trimming pensions and increasing competitiveness by working harder and longer (starting with the politicians currently sunning themselves while the euro crumbles). Or they can borrow from the ECB and hope to grow their way out of trouble. It’s obvious from the debt loads of European nations which road was chosen. “Europe is about to blow,” says Rogoff. “There is no longer any question of standing still … They are going to have to fix things at home.”

See the top 10 things you didn’t know about money.

That’s not so easy on a continent with a currency and a monetary system underpinned by multiple political systems, economies and fiscal priorities. Figuring out how to bail out the euro zone is a lot tougher than figuring out how to bail out the U.S. financial system, although throwing money at the problem is a certainty. For starters, there’s no single institution or figure, like former Treasury Secretary Henry Paulson, that can marshal the troops and put together a TARP-style program for indebted nations. The head of the ECB, Jean-Claude Trichet, has been trying to play that role, buying up billions of euros’ worth of shaky Italian and Spanish bonds. But even as the two most important leaders in Europe, German Chancellor Angela Merkel and French President Nicolas Sarkozy, have been patting him on the back for his efforts, they’ve also been reluctant to get serious about giving more money to the euro-zone rescue fund that was set up to deal with crises exactly like this one. (See the five destructive myths about the economic recovery.)

The message is clear: the two strongest nations in the euro zone don’t yet have the stomach to commit to saving the common currency. The markets, which as ever loathe uncertainty, have reacted badly because investors know the ECB’s efforts are just a Band-Aid. The central bank simply doesn’t have the firepower to stem the crisis.

How to Bail Out Europe

There is a way out. Germany, one of the strongest and most solvent economies not only in Europe but in the rich world, could swoop in and save the day by leading an effort to guarantee all Spanish and Italian debt as well as the debt of the major European banks. This would calm markets. But it would be hugely expensive, not to mention politically contentious. After all, why should prudent Germans — who have their economic house in order — have to rescue a bunch of spendthrift, books-cooking Greeks and Italians? It’s a tough sell politically, as evidenced by a June poll showing that 71% of Germans have little confidence in the euro, up from 46% in 2008.

The reality is, the Germans are in for pain no matter what. Euroskeptics like to argue that Europe might be better off economically without the common currency — the Germans would enjoy the privileges of a strong deutsche mark, and Greece could devalue the drachma enough that its hotels would be full of even more sunburned German tourists. But if the euro goes under, most experts believe there would be, as HSBC chief economist Stephen King put it, “unmitigated financial chaos.” Skyrocketing borrowing costs for many of Europe’s slow-growth, highly indebted countries would result in a recession or even a depression that wouldn’t leave Germany unscathed. After all, about 40% of German exports stay in Europe. Meanwhile, competitors like Italy (which has a strong manufacturing sector) could nibble at Germany’s economic edge by offering lower prices thanks to their highly devalued currency.

Bailing out Europe would represent a huge economic and political cost. Assuming it became politically acceptable, Germany would need to be able to make sure that Portugal, Italy, Greece and Spain — and any other European “PIGS” — cleaned up their act. And that, in turn, would require a real political union in Europe, one in which Brussels, the euro capital, and perhaps to a disproportionate extent Berlin had control of the purse strings and fiscal policies of the euro zone.

See “The Euro Crisis: How Much Worse Can It Get?”.

As difficult and politically improbable as it sounds, experts like Rogoff, as well as many politicians and economists in Europe, believe it will happen, and possibly quite soon. But that would be only the beginning of the hard work. Fixing the crisis of the old order will require serious reforms of everything from Europe’s sclerotic labor markets to its still vulnerable financial sector. (American banks, despite their troubles, are much better run and capitalized than European ones.) Most important, it will require painful and deeply unpopular austerity measures that could lead to more violence among populations already struggling to cope with the downturn.

Rioting of the kind we’ve seen in London and Athens is just one side effect of the new age of austerity. Populist politics is another. Just as the economic downturn in the U.S. helped fuel the Tea Party, Europe’s debt crisis is fueling a resurgence of polarizing, right-wing politics embodied by figures like Marine Le Pen in France. Xenophobia and anti-immigrant sentiment are rife, a fact most dramatically illustrated by the mass shootings at a Norwegian youth camp in July. Even in mainstream politics, there’s a sense that unity is impossible. Within the past few months, Sarkozy, Merkel and British Prime Minister David Cameron have all spoken about the end of the European dream of multiculturalism.

The turmoil is a portent for the U.S. We are ultimately facing the same problem as old Europe: how to grow amid a continuing downturn when the public sector can’t or won’t spend more to jump-start the economy. It’s clear that we’ve still got a lot of work to do before that problem is solved.

In the meantime, both Europe and the U.S. will continue to struggle with the crisis of the old order. Populations will have to come to terms with no longer being able to afford the public services they want. Investors will have to cope with a world in which AAA assets aren’t what they used to be. Businesses will deal with stagnating demand, and workers will face flat wages and high unemployment. All this will take place at a time that is in many ways the opposite of the optimistic two decades that preceded the financial crisis. Think the 1970s, without inflation (though there are those who think a whiff of inflation to wipe out debt might not be a bad idea). It’s the end of an era in which the West and Western ideas of how to create prosperity succeeded. The crisis in Europe and the challenges yet to come on either side of the Atlantic take us into a whole new era. The rules and risks of it are only just becoming clear.

a whole new era

Wednesday, Dec. 07, 2011
Europe’s Financial Crisis
By Ishaan Tharoor
time 10 best of anything

The aftereffects of the financial crisis laid bare the clumsy and at times irresponsible state of affairs underlying growth and prosperity in a number of euro-zone economies, particularly in Greece, where a proposed IMF and European bailout package mandated crippling budget cuts and other austerity measures. In response, tens of thousands took to the streets in Athens and elsewhere to protest the prevailing financial institutions and feckless political elites that got them into the mess in the first place. Similar antiausterity demonstrations rocked Spain, where the indignados, the outraged, occupied Madrid’s iconic Puerta del Sol square for weeks.

In both countries, incumbent governments fell and beleaguered Prime Ministers departed. The threat of fiscal contagion from Greece spreading elsewhere pushed Italy — the euro zone’s third biggest economy — to the brink and forced the departure of controversial Prime Minister Silvio Berlusconi, a man who had been unbowed by an earlier string of sex and corporate scandals. The crisis has strained the very fabric of the E.U. and threatened the dissolution of the common euro currency, as disgruntled voters in Germany — the continent’s main economic engine and biggest lender — and elsewhere chafe at Brussels-imposed austerity measures and at their own governments’ obligation to bail out struggling neighbors.

Angka tersebut US$94,88 miliar lebih tinggi ketimbang cadangan devisa pada Oktober , kata kementerian Keuangan dan melampaui capaian sebelumnya sebesar US$11,22 triliun pada Agustus lalu.

Cadangan devisa tersebut terutama didominasi oleh mata uang asing, surat-surat berharga dan obligasi selain emas dan juga aset lainnya, menurut data kementerian keuangan setempat.

Cadangan devisa negara itu meningkat menyusul intervensi Jepang di pasar-pasar uang yang dilakukan pada 31 Oktober, setelah yen mencapai tingkat tinggi baru terhadap dolar pada posisi 75,32.

Pada bulan itu sampai 28 November, Tokyo menjual 9,09 triliun yen (sekitar 116,99 dolar AS) untuk memperlemah apresiasi unit mata uang tersebut, kata kementerian keuangan sebelumnya.

Pemerintah tidak menyebutkan berapa kali pihaknya intervensi ke pasar-pasar uang antara 28 Oktober hingga 28 November, intervensi keempat sejak September 2010.

Tetapi para pengamat pasar percaya bahwa para penguasa kemungkinan membuat “masked interventions” lainnya selama periode tersebut, di mana mereka tidak mengumumkannya, menurut Jiji Press.

Penguatan nilai tukar yen telah membebani para eksportir Jepang dan menjadikan produk-produk mereka secara relatif lebih mahal di luar negeri.

Dolar telah dipindahtangankan pada posisi 77,80 di Tokyo selama perdagangan Rabu pagi.(ant/hrb)

http://www.investor.co.id/international/cadangan-devisa-jepang-capai-rekor-tertinggi/25796

Sumber : INVESTOR DAILY
TOKYO, Dec 7, 2011 (AFP)
Japan said Wednesday its foreign exchange reserves hit a record high $1.3 trillion in November after authorities intervened in currency markets to stem the yen’s rise.

The level was $94.88 billion higher than in October, the finance ministry said, and surpassed a previous record of $1.22 trillion set in August.

The reserves are composed mainly of foreign-currency denominated securities and bank deposits along with gold and other assets, according to ministry data.

The country’s forex reserves, the second-biggest in the world after China, expanded following Japan’s intervention in currency markets on October 31, after the yen hit a fresh post-war high of 75.32 against the dollar.

In the month to November 28, Tokyo sold 9.09 trillion yen ($116.99 billion) to tame the unit’s appreciation, the ministry said earlier.

The government did not reveal how many times it stepped into currency markets between October 28 and November 28, but it was the fourth intervention since September 2010.

Market observers believe authorities likely made other “masked interventions” during the period, which they did not announce, Jiji Press said.

A strong yen hurts Japanese exporters by making their products relatively more expensive overseas and shrinking their foreign earnings when repatriated.

The latest data did not break down foreign exchange assets by currency, but Japan has bought 2.975 billion euros worth of debt issued by the eurozone bailout fund, the European Financial Stability Facility, so far this year.

Tokyo fears any further deterioration in the European crisis could cause serious problems for Japan’s export-dependent economy as it gradually recovers from the impact of the March 11 earthquake and tsunami.

The dollar was changing hands at 77.72 yen in Tokyo trade on Wednesday.

Perlambatan Ekonomi China Ancam Pasar Komoditas

Oleh: Wahid Ma’ruf
Pasar Modal – Minggu, 4 Desember 2011 | 13:46 WIB

INILAH.COM, Beijing – Pasar komoditas akan menerima tekanan berat dengan perlambatan ekonomi China. Harga bijih besi, tembaga, nikel, emas dan lainnya akan melemah bila PDB China di bawah 10%.

Saat perhatian pasar dunia tertuju ke krisis Eropa. Perlambatan ekonomi China tidak kalah mengkhawatirkan. Ekonomi China tergantung pada belanja modal yang cenderung stabil dan memiliki miltiplier efek kuat ke perekonomian.

Perekonomin China terdiri dari banyak sektor dan saya pikir beberapa sektor mungkin sudah dalam resesi. Pertumbuhan menjadi lebih rendah dan berpotensi terjadi kontraksi dengan tidak ada pertumbuhan sama sekali,” kata Marc Faber, dari lembaga The Gloom yang menurunkan laporan Boom & Doom, seperti dikutip dari cnbc.com.

Sementara resesi di Eropa mempengaruhi PDB 1-2%. Kalau Ekonomi China lesu maka memiliki dampak yang lebih luas dengan skala global.

Dengan terancamnya pasar komoditas, maka akan menggerogoti negara penghasil sumber daya alam. Dalam kelompok ini terdiri dari negara Brazil, Australia, Timur Tengah dan Afrika.

Menurut Faber, harga emas akan mendapat dukungan dalam jangka pendek dan memengah. Sentimen dari bank-bank sentral di Eropa dan AS untuk mencetak lebih banyak uang sebagai upaya menopang ekonomi mereka. Ia menyarankan investor untuk menghindari dolar Australia dan dolar Kanada. Serta saham berbasis sumber daya alam.

Saran untuk investasi ke depan dengan diversifikasi portofolio dalam empat sektor. Investasi yang masih menarik seperti emas, real estate, saham dan uang tunai serta obligasi.

China Can’t Use Reserves to ‘Rescue’ Countries: Fu
By Bloomberg News – Dec 2, 2011

China can’t use its $3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.

“Foreign reserves are not revenues,” Fu, whose portfolio is European affairs, said in a question and answer session following a speech in Beijing yesterday. “It’s not money that can be used by the premier or the finance minister.”

Fu said China can’t use its reserves to fund poverty alleviation at home or to bail out foreign countries. The country learned from the 1997 Asian Financial Crisis that it needs to keep large reserves to maintain liquidity in order to honor obligations, she said.

Europe is struggling to contain a sovereign debt crisis that has forced Portugal, Ireland and Greece to seek bailouts. After leaders in October agreed to increase the region’s rescue fund, French President Nicolas Sarkozy said he planned to call Chinese President Hu Jintao to discuss how the Asian country can contribute.

China’s foreign exchange reserves, the world’s largest, stood at $3.2 trillion at the end of September. The country invests in U.S. Treasuries, sovereign debt sold by European Union countries and other international bonds. A portion is also invested in equities and other financial instruments by China Investment Corp., the country’s sovereign wealth fund.

U.S. Investment

China wants to convert some of those reserves into investments in the U.S., Chinese Commerce Minister Chen Deming said separately in a speech to the American Chamber of Commerce in Beijing yesterday evening.

China is “willing to convert some of the holdings of debt into investment in the U.S.,” Chen said, without giving details. He also said that the government is also very concerned that a further “festering” of the debt crisis in Europe will affect the nation’s economy.

The nation’s sovereign wealth fund, China Investment Corp., may give “indirect” support to Europe through investments without being the nation’s main route to any aid, fund Executive Vice President Jesse Wang said Nov. 24.

The fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Wang said in an interview at a forum in Beijing yesterday. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.”
Central Bank’s Call

The Foreign Ministry does not control the country’s foreign exchange reserves, and the ministry’s Fu said yesterday it would have been more appropriate for People’s Bank of China Governor Zhou Xiaochuan to make the remarks, which were in response to a question. Fu is one of six vice foreign ministers, according the the ministry’s website.

Fu also said “now is not the time” for China to have a contingency plan in the event a euro zone country defaults on its debts or exits from the 17-nation single currency. The government has already done its part to help Europe, which has the “wisdom” and strong economic fundamentals to solve its sovereign debt crisis, she said.

“The argument that China should rescue Europe does not stand,” Fu said.
November 30, 2011
China, in Surprising Reversal, Moves to Spur Bank Lending
By KEITH BRADSHER

HONG KONG – Faced with an economy that appears to be slowing faster than economists expected even a month ago, the Chinese government on Wednesday evening unexpectedly reversed its year-long move toward tighter monetary policy and took an important step to encourage banks to resume lending.

The central bank said Wednesday that commercial banks would be allowed to keep a slightly lower percentage of their deposits as reserves at the central bank. The change, which will take effect on Monday, means that commercial banks will have more money available to lend, which could help to rekindle economic growth and a slumping real estate market.

Real estate developers, small businesses and other borrowers have been complaining strenuously in recent weeks of weakening sales and scarce credit. Prices have dropped up to 28 percent for new apartments in some Chinese cities this autumn, real estate brokers have been laying off thousands of agents as transactions have dried up, and export orders have slumped.

The Chinese move was a particular surprise because the central bank usually announces moves on Friday evenings, to allow banks and markets plenty of time to digest the news.

The Chinese announcement came after the Shanghai stock market had slumped 3.3 percent on Wednesday, its worst one-day loss in four months, on worries that the government might not act.

The reduction in the so-called reserve requirement ratio came after the central bank had increased the same ratio six times this year, and raised interest rates three times. The monetary policy moves earlier this year had been aimed at curbing inflation, which persists but appears to have been replaced by weakening economic growth as the top worry for policymakers.

Monetary policy changes are made not by the country’s central bank but by the State Council, the country’s cabinet. Shifts in the broad direction of policy are usually made only with the approval of the Standing Committee of the Politburo of the Chinese Communist Party – the nine men who really run China.

Analysts said that the central bank’s decision to announce a change in reserve requirements instead of quietly nudging state-controlled banks to make more loans showed an important political decision had been made.

“The public nature of this move – a move that would have gone through the State Council – is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation,” wrote Stephen Green, a China economist at Standard Chartered Bank, in a research note. “This is a big move, it signals China is now in loosening mode.”

The People’s Bank of China, the country’s central bank, cut the reserve requirement ratio by 0.5 percentage points as of Monday, to 21 percent for large banks and to 19 percent for smaller banks.

The Chinese move was such a surprise that one of the 15 members of the central bank’s monetary policy committee, Xia Bin, had just said at a seminar in Beijing on Wednesday morning that China would only “fine tune” its monetary policy and would maintain an overall stance that he characterized as “prudent.”

Those remarks triggered the slump in share prices during Wednesday’s trading in Shanghai; the stock market there had been closed for several hours by the time the central bank announced its policy reversal.

It was unclear if the Chinese move had been coordinated with the six central banks in the United States, Europe and Japan that agreed an hour later to provide more liquidity to world financial markets.

The United States Treasury notifies the Chinese government of policy moves by the Obama administration, so as to reassure the United States government’s largest foreign creditor. But economists say that there has been little international coordination of monetary policy by China’s central bank.

The People’s Bank of China is considerably more secretive than central banks in the West and particularly wary of foreign governments because of years of international pressure to allow faster appreciation of the renminbi, China’s currency.

The Chinese central bank provided no explanation for its move on Thursday evening. The one-sentence statement only said, “The People’s Bank of China decided to cut financial institutions’ renminbi deposit reserve ratio by 0.5 percentage points.”

Easing domestic monetary policy makes it harder to maintain for China to maintain its policy of strictly limiting the appreciation of its currency, the renminbi, against the dollar. The Chinese central bank has been taking most of the money that commercial banks park with it as reserves and then using it to buy dollars in international markets, so as to slow the renminbi’s appreciation.

But economists have seen signs in the past month that international investors are losing their appetite for speculative investments in China’s currency and have been buying fewer renminbi. That in turn has reduced the pressure from markets for the renminbi to appreciate and has meant that the central bank no longer needs to maintain its reserve requirements at record-high levels to raise the cash for its huge currency market intervention program.

Among the most widely watched economic indicators in China are the various monthly indexes of orders, backlogs and other details, gathered through surveys of companies’ purchasing managers. HSBC’s preliminary survey for November, released last week, showed an overall index of 48; a reading below 50 suggests a slowing economy, and it was the lowest reading since March 2009, when the world economy was struggling to recover from the Lehman bankruptcy and ensuing financial shocks.

The monthly release of the government’s survey is scheduled for Thursday morning in Beijing. It is widely expected to show a dip below 50 for the first time in more than two years.

The central bank’s move on reserve requirements comes as inflation in consumer prices has started to slow, from a peak of 6.5 percent in May down to 5.5 percent in October, according to official data. But private economists say that the true rate of consumer inflation is up to twice as fast, as the official data has a series of methodological shortcomings; China’s National Bureau of Statistics has acknowledged some of these shortcomings, although not the extent of their effect on inflation measurements, and is working on solutions.

Inflation in any case remains well above the government’s target of 4 percent. HSBC predicted in a research note on Wednesday evening that the government would not start reducing regulated interest rates for loans of various maturities until the official inflation rate falls below 3 percent.
Budget surplus to narrow to $1.5b
Tim Lester
November 29, 2011 – 11:16AM

The Gillard government’s planned budget surplus next financial year has narrowed to $1.5 billion from the $3.5 billion forecast in its May budget.

The government continues to target a surplus even with the current year’s deficit now projected to blow out to more than $37 billion from less than $23 billion forecast six months ago.

The new figures are contained in the government’s midyear budget review released in Canberra this morning, including cuts flagged earlier. The savings unveiled today total $11.5 billion over four years to 2014-15.
Advertisement: Story continues below

The budget’s return to the black by next fiscal year has become a key political test of the Gillard government’s economic management, even though some economists argue too much emphasis is being placed on achieving a surplus.

Slower growth

In the May budget, the government trumpeted its planned surplus in 2012-13, at that time forecasting it would be $3.5 billion.

Since then, a slowing global economy – including the worsening sovereign debt crisis in Europe – has savaged government revenues, slashing an expected $20 billion across the next 3½ years covered in the budget’s forward estimates.

The expected weaker growth has also prompted Treasury to trim its forecasts for the surpluses in 2013-14 and 2014/15 to $1.9 billion and $3.1 billion, respectively, from $3.7 billion and $5.8 billion forecast in May.

While smaller than earlier projected, Australia’s fiscal position is the envy of most rich nations. The US, for instance, is projecting a deficit this year in the order of 8.6 per cent of gross domestic product – or about $1 trillion. The UK’s deficit is more than 10 per cent of GDP.

The midyear review has also been made public just as the global rating agency, Fitch earlier today upgraded Australia’s credit rating to AAA (from AA+).

This move marks the first time Australia has had a AAA rating from all three ratings agencies, Standard and Poor’s, Fitch and Moody’s.

Slower growth

The budget update targets come as Australia’s economy is expected to grow at a slower pace than forecast in May.

Australia’s real GDP is now forecast to expand 3.25 per cent in 2011-12 and 2012-13, today’s update shows.

“Compared with Budget, the forecasts have been downgraded by 0.75 of a percentage point in 2011-12 and half of a percentage point in 2012-13, largely reflecting the deterioration in global economic and financial conditions,” the Treasury update said.

Robert Brooker National Australia Bank head of Australian Economics and Commodities said today’s numbers reflected a slower global and local economy.

“The numbers look a lot more realistic than they had in Budget time,” said Robert Brooker, National Australia Bank’s head of Australian Economics and Commodities. “They have taken into account of all the bad news since the Budget (in May).”

“Treasury has moved the numbers in line with where the people think the econmy is going at the moment and they point out the risks are still to the downside,” said Mr Brooker.

Savings

To keep alive hopes for a surplus next year, Treasurer Wayne Swan has announced $6.8 billion in net savings over the period.

These include a crackdown on the living away from home allowance tax concessions which the government claims are being rorted by foreign workers and highly paid executives. This move is expected to save $710 million.

The government will also lift the eligibility age for the dependent-spouse offset, reduce the baby bonus from $5400 to $5000 and increase charges for some non resident visas to meet its surplus goals.

Tim Lester, is Fairfax Media’s National Bureau Chief, with Chris Zappone

Read more: http://www.smh.com.au/business/budget-surplus-to-narrow-to-15b-20111129-1o45z.html#ixzz1f3IbOjuq

Nov. 27, 2011, 6:53 p.m. EST
China economist: Chinese slowdown will be mild

By China Bureau

SHANGHAI (MarketWatch) — China’s economic-growth slowdown will be mild as investments are unlikely fall sharply in the near term and consumption will expand steadily, the official People’s Daily reported Monday, citing a senior Chinese researcher.

Pan Jiancheng, deputy director of the China Economic Monitoring & Analysis Center under the National Bureau of Statistics, said that although the growth in exports may fall due to the European debt crisis, it won’t suffer as it did in the financial crisis three years ago.

Pan also said Chinese companies are exporting less to Europe and the U.S. now and they are shifting to Southeast Asia, Africa, Russia and Brazil.

Newspaper website: http://www.people.com.cn
CIC May Give ‘Indirect’ Support to Europe: Wang
Q
By Bloomberg News – Nov 25, 2011 9:31 AM GMT+0700

China’s sovereign wealth fund may give “indirect” support to Europe through investments without being the nation’s main route for any aid, said Jesse Wang, the executive vice president of China Investment Corp.

The fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Wang said in an interview at a forum in Beijing yesterday. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.”

European leaders are looking to China, the holder of the world’s largest foreign-exchange reserves at $3.2 trillion, as a source of funds as the region’s crisis threatens to trigger a global slump. China is among countries that may be willing to support Europe through the International Monetary Fund if policy makers agree on a plan, World Bank President Robert Zoellick said in a Nov. 17 interview.

In tackling the crisis, “China would like to be seen as a constructive force rather than as a savior,” said Ding Shuang, a Hong Kong-based economist for Citigroup Inc., who formerly worked at the IMF and the Chinese central bank. “The nation may aid Europe through the IMF as a safer method” than other alternatives, he said.
Stocks Slide

Asian stocks fell for a third day today on signs that Europe’s debt crisis is yet to be contained, with the MSCI Asia Pacific Index down 0.6 percent as of 11:22 a.m. in Tokyo. Hungary lost its investment-grade rating at Moody’s Investors Service after 15 years, while German Chancellor Angela Merkel sent equity markets tumbling by rejecting joint euro-area bonds.

CIC managed $409.6 billion at the end of 2010.

“As a commercial entity, CIC is seeking reasonable returns with controllable risks,” Wang said. He cited an investment in the exploration and production business of Paris-based GDF Suez SA, Europe’s largest natural-gas network operator, as an example of what appeals.

“CIC is under no obligation to follow the government’s policy orders in its operations because it’s a commercial entity,” Wang said. “If the government carried out certain policy moves, CIC usually wouldn’t participate because it has different operational targets and risk-taking capabilities.”

Asked if China will buy European bonds, he said the Chinese government is studying “which way and through which products” to support the region.

On Germany’s failure to sell all the 10-year bonds offered at an auction Nov. 23, he said: “One shouldn’t rush to some decisive judgment about the sales or worry that the debt crisis has spread to the core euro zone.”
Envelopes Stuffed With Cash Show Indonesia Corruption Rivaling Suharto Era
Q
By Femi Adi and Sunil Jagtiani – Nov 24, 2011 11:16 AM GMT+0700

Maersk ’s only investment in Indonesia, made in the 1980s and 1990s, is a $20 million warehouse in Cakung, south of Jakarta’s Tanjung Priok port. The company would have invested more if it wasn’t for corruption. Photographer: Stephen Morton/Bloomberg

Indonesian anticorruption officers watched Wafid Muharam for five hours before raiding his office to seize envelopes stuffed with $151,550, sparking a scandal that’s roiling President Susilo Bambang Yudhoyono’s party.

“The envelopes contained rupiah, U.S. dollars, Australian dollars and euros,” said Johan Budi, a spokesman for the Corruption Eradication Commission, or KPK, in Jakarta. “We caught the official, a secretary in the youth and sport ministry, red-handed” in the April operation, he said.

With the cash were checks worth 3.2 billion rupiah ($350,000), part of a bribery trail that led to Muhammad Nazaruddin, treasurer of Yudhoyono’s Democrat Party, who was arrested four months later by Interpol in Colombia after fleeing the country, Budi said. The scandal has undermined Yudhoyono’s election pledge to tackle graft, sending his popularity to a record low and hampering efforts to match investment levels in rival Asian nations.

Investing in Southeast Asia’s biggest economy is now more complex than in the 1980s and 1990s, during the rule of former President Suharto, according to Hal Hill, a professor of Southeast Asian economies at Australian National University in Canberra who advises the World Bank and Asian Development Bank. Suharto allegedly embezzled $15 billion to $35 billion, Transparency International said in a 2004 report.
‘Who to Pay’

“Under the old regime, corruption was highly organized and predictable, and now it’s highly disorganized and unpredictable,” said Hill. “You knew who to pay, how much and what the payoff would be. Now, none of those are clear.”

Corruption is discouraging spending on roads and plants that HSBC Holdings Plc says the country needs to catch up with the region’s fastest-growing economies. Foreign direct investment in Indonesia, the world’s fourth-most populous nation, fell to 1.9 percent of gross domestic product last year from 2.9 percent in 2005, World Bank data show.

Gross investment isn’t yet a key driver of the nation’s economic growth, DBS Group Holdings Ltd. said in a June note. Gross fixed capital formation was 24 percent of GDP in 2010, below China’s 46 percent, Vietnam’s 41 percent and the 35 percent in India, the bank estimated.

After the arrest of Muharam, Nazaruddin made his own corruption allegations to Indonesian media while on the run. He was brought back to Indonesia in a chartered Gulfstream jet, surrounded by a retinue of officers from Interpol, KPK, the Indonesian police force and immigration officials, said Budi.
Trial Looms

Nazaruddin was sacked by the Democrat Party and faces trial over alleged bribes for building projects for this month’s Southeast Asian Games. He has connections to businesses worth at least 6 trillion rupiah, the KPK said.

Hotman Paris Hutapea, a lawyer for Nazaruddin, declined to comment on whether his client is guilty of the charges, saying in a Nov. 18 telephone interview that the investigation into the case is “legally flawed.” Erman Umar, a lawyer for Muharam, who is currently on trial in Jakarta, denied his client was involved in bribery when reached by telephone Nov. 17.

As news of the arrests broke, Yudhoyono’s popularity slumped. A poll by Indonesian Survey Circle published Oct. 16, the most recently released, showed 46.2 percent approved of his performance, down from 63.1 percent in January 2010.

The president, 62, said after Nazaruddin’s arrest that he hoped the case would be handled transparently, objectively and with accountability. Yudhoyono told parliament on Aug. 16 that “efforts to weaken the anti-graft body should be prevented.”

Yudhoyono’s spokesman, Teuku Faizasyah, said the president isn’t available for further comment as he’s preparing for his son’s wedding.
Agency’s Record

The KPK has received more than 50,000 complaints from the public since 2004, Budi said. The agency says it’s recovered 157.3 trillion rupiah in cash and assets since 2005 and convicted more than 100 officials.

Graft has become more complex since the end of Suharto’s 32-year reign in 1998 because of involvement of lower-level officials, according to Jakob Friis Sorensen, Jakarta-based president director of PT Maersk Indonesia, a unit of A.P. Moeller-Maersk A/S, owner of the world’s biggest container shipping line.

“The complication now is with more power being transferred to the provinces, obviously you will see a decentralization of people trying to get a piece of that cake,” Sorensen said in a Nov. 8 telephone interview. “Domestic and overseas investors are increasingly confused and frustrated about this environment.”

Decentralization is part of Indonesia’s democratic transformation, an evolution that will still take a long time to get right, he said.
Maersk Concern

Maersk’s only investment in Indonesia, made in the 1980s and 1990s, is a $20 million warehouse in Cakung, south of Jakarta’s Tanjung Priok port, Sorensen said. The company would have invested more if it weren’t for corruption, said Sorensen, who worked for Maersk in Indonesia in Suharto’s era and returned in 2006.

“Worldwide data tells us that corruption is a significant ‘tax’ on domestic and foreign investors,” said Daniel Kaufmann, a senior fellow at the Brookings Institution in Washington and former World Bank Institute director of global governance and anti-corruption. If Indonesia reduced graft to the level of Taiwan, per capita income could rise about 300 percent, he said.

Indonesia’s gross domestic product per person this year is $3,469, while Taiwan’s is $21,592, International Monetary Fund estimates show.

Increased investment in Indonesia would help lift growth to more than 8 percent by 2020, HSBC analysts estimated in July. By comparison, the nation’s annual average expansion rate in the decade through 2010 was 5.2 percent.
Going Elsewhere

Businesses from Espoo, Finland-based Nokia Oyj (NOK1V), the biggest mobile-phone maker by volume, to Santa Clara, California-based Intel Corp. (INTC), the largest chipmaker, are building plants elsewhere in Southeast Asia.

Intel began operations at a $1 billion assembly and testing plant in Vietnam’s Ho Chi Minh City in June 2010, similar to its plants in Malaysia and China. Nokia, which also has plants in China, India and South Korea, plans to open a factory for low- end handsets near Vietnam’s capital, Hanoi, in 2012. Stuttgart, Germany-based Robert Bosch GmbH said in June it plans to invest 520 million euros ($700 million) in a solar cell plant in Malaysia.

Malaysia’s infrastructure, reliable power supply and workforce quality attracted Bosch, said spokeswoman Martina Horton. The company never gives reasons why investment isn’t made in a competing country, she said.
Vietnam’s Appeal

Vietnam offered proximity to end customers, “good prospects for a solid talent pipeline” and government incentives, said Nick Jacobs, a regional spokesman for Intel. Nokia declined to comment on whether it plans to manufacture products in Indonesia, spokeswoman Mona Kokkonen said.

“Foreign companies don’t have the stomach for this,” said Mohamad Ikhsan, a special adviser to Indonesian Vice President Boediono, referring to Indonesia’s pattern of corruption. “For investors who don’t know how to handle and solve it, they prefer to avoid the country.”

Revelations of graft pose a risk for equity investors as well. PT Perusahaan Gas Negara (PGAS), Indonesia’s biggest distributor of the fuel, tumbled 7.1 percent on May 25 last year after the Jakarta-based company said it had suspended a director who’d been named as a suspect in a graft case by the KPK. The benchmark Jakarta Composite Index declined 3.7 percent that day.

Nazaruddin, the arrested former treasurer of Yudhoyono’s Democrat Party, accused PT Wijaya Karya (WIKA), a building company, and PT Adhi Karya, a construction business, of offering bribes to win contracts, the official Antara newswire reported on July 25. Both Jakarta-based enterprises denied involvement in graft.
Impact on Stocks

Shares in Wijaya Karya have slumped 27.3 percent since the start of July, while Adhi Karya (ADHI)’s stock price has tumbled 42.5 percent. That’s more than the 5.6 percent fall in the Jakarta Composite Index (JCI) in the same period.

For companies such as Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, and Greenwood Village, Colorado-based Newmont Mining Corp. (NEM), the biggest U.S. gold producer, potential returns from Indonesia’s deposits of oil, coal, copper and gold, outweigh the risks.

The district around Phoenix-based Freeport’s (FCX) Grasberg mine in Mimika, Papua province, about 1,940 miles (3,122 kilometers) east of Jakarta, contains the world’s largest recoverable reserve of copper and the biggest gold reserve, according to the company’s website.

Newmont’s local unit said in June it had agreed on a $600 million loan with banks to expand its gold and copper mine in West Nusa Tenggara province.
Middle Class

Other foreign investors are looking to tap an expanding middle class in the nation of 237 million people. Toyota Motor Corp., Asia’s biggest carmaker, said in September it plans to build a second factory in Indonesia at a cost of 26.3 billion yen ($342 million).

The revival of corruption scandals comes after foreign direct investment jumped almost 173 percent to $13.3 billion in 2010 from a four-year low of $4.9 billion in the previous year, according to United Nations data. Fiscal stability under Yudhoyono has put the economy on the verge of its first investment-grade credit rating since the 1990s.

Sorensen said he’s optimistic Maersk can invest more in Indonesia without being involved in graft by refusing to tolerate it. He banned so-called “facilitation payments” of up to $50 and said the company will take major problems it encounters to senior government officials if necessary or walk away from a project.
Eschewing Payments

“It’s often implied by tax auditors that they will go away if you pay them to do so,” said Sorensen. “We don’t do that. We give them a place to sit. We give them all the documents they want. We will actually inundate them in papers until they simply realize there is nothing here to come for and they go away.”

Even when projects proceed, a culture of corruption can lead to poor quality execution, said Richard Messick, a senior operations specialist at the World Bank. In one case, an Indonesian road was 40 percent thinner than specified and had 13 percent less asphalt than required because of fraudulent construction, the World Bank said in a June report.

Such concerns threaten to undermine Yudhoyono’s plans to tap private investment in doubling spending on roads, ports and airports to $140 billion by the end of his term in 2014.

“Corruption within the Democrat Party is an important political issue for Yudhoyono, which could damage the image of the party in the next election,” said Maswadi Rauf, professor of political science at Universitas Indonesia in Jakarta. “If corruption is proven in the court later, it would be very detrimental. The party needs to take steps to clean up.”
November 23, 2011
West’s Economic Slump Catching Up With Asia
By BETTINA WASSENER

HONG KONG — Asia’s resistance to the West’s economic troubles is slowly wearing thin.

For much of this year, the economies of the Asia-Pacific region appeared to be blissfully isolated from the turmoil in other parts of the world. Asian stock markets fell along with those in the West, but the region’s economies continued to power ahead.

Within the past few weeks, however, cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States struggles to pick up speed.

“The potential risks for Asia have increased” as the European crisis has moved beyond small peripheral economies like Greece, enveloping larger countries like Italy, Spain and even France, said Frederic Neumann, co-head of Asian economics at HSBC in Hong Kong. “It’s a whole different ball game now.”

The spreading economic troubles were underscored Wednesday when a closely watched gauge showed that Chinese manufacturing was contracting. The reading, published by HSBC, dropped from 51 in October to 48 in November, the lowest level in nearly three years and much lower than economists had expected. A reading of 50 is the dividing line between expansion and contraction.

The steep decline fanned worries about the spillover of the West’s problems into Asia. But it also reinforced nervousness about the effect in the opposite direction: the West increasingly needs a strong Asia to buy its goods as consumers at home stay on the sidelines.

The concern is that things are going to get worse before they get better.

“Europe is only at the beginning of its crisis,” said Pranay Gupta, chief investment officer for the Asia-Pacific region at ING Investment Management in Hong Kong. “Europe is now where the United States was three years ago: The economic contraction is only just beginning.”

So far, the economic pain in Asia has been relatively muted, and much of the region remains on course for growth rates that most Western nations can only dream of.

The Chinese economy is set to expand 9.5 percent this year, according to projections from the International Monetary Fund last month. India is expected to grow 7.8 percent, Indonesia 6.4 percent, and many other Southeast Asian nations more than 5 percent, the I.M.F. estimates.

Those figures, however, are generally below the growth rates seen in 2010, and are likely to ease off further next year, the I.M.F. and most economists say.

Exports from Asia have been softening for months as demand in Europe, in particular, has slowed. Although many countries depend less on exports than they once did, the sector remains crucial for economies like those of Taiwan and South Korea and for the small, open economies of Hong Kong and Singapore, economists say.

Reacting to the worsening global environment, Indonesia and Australia have lowered interest rates in recent weeks. Most other central banks in the region have put off rate increases that seemed likely only months ago as they have become less concerned about inflation and more worried about growth.

In Japan, the pain has been compounded by the results of the devastating earthquake and tsunami of last March and by the persistent strength of the yen. Fanned by the economic difficulties in other parts of the world, the Japanese currency’s rise has made Japanese goods more expensive for shoppers abroad and has helped dent exporters’ profits.

With no room to lower already-low interest rates further, the government has resorted to direct intervention in the currency markets — selling yen for U.S. dollars — four times in little more than a year in its battle to weaken the yen.

In the financial sector, meanwhile, banks like HSBC, UBS and Nomura are cutting jobs around the globe. And although many would like to grow, rather than shrink, in the Asia-Pacific region, financial centers like Hong Kong and Singapore have not escaped the hiring freezes and job cuts.

“There are still pockets of hiring in the Asian financial sector, but it has got a lot tougher in recent months,” said Matthew Bennett, managing director at the recruitment firm Robert Walters in Hong Kong.

With the crisis in the euro zone spilling into ever-bigger economies, the worry now is that the ripples into Asia could grow. In particular, analysts have begun to fret that beleaguered European banks could sharply scale back their lending to Asia and other emerging markets as they adjust to tighter capital rules that are to be introduced next year.

So far, the signs of any such pullback have been limited.

Commerzbank of Germany, for example, said earlier this month that it would restrict new lending to its core markets of Germany and Poland.

Overall bank lending remained stable through the first half of 2011, the World Bank wrote in a report on the economies of East Asia, released Tuesday. Any sudden shutdown in credit markets, of the sort that happened after the collapse of Lehman Brothers in September 2008, would have painful repercussions for Asia.

In the six months after that crisis, the World Bank said in its report, international banks reduced their exposure to companies in developing East Asian countries by $36 billion.

“Asia’s financial systems overall have sufficient liquidity to finance more growth and could step into the breach. But if European banks were to withdraw lending from the region, that would be highly disruptive, as it would take some adjustment time before lending shortfalls are bridged,” said Mr. Neumann of HSBC, adding that growth in Asia had, moreover, become more dependent on credit in recent years.

The ability of companies to raise cash via the capital markets has already been crimped.

Asian stock markets have largely shrugged off the region’s favorable economic fundamentals this year and have fallen sharply. The key indexes in Hong Kong, India and Taiwan are all down about 20 percent since the start of this year; that is more or less in line with the Eurostoxx 50’s performance.

Proceeds from stock market debuts in the Asia-Pacific region have likewise tumbled, to about $74 billion so far this year, compared with nearly $159 billion during the same period last year, according to data from Reuters.

Despite all that, however, many economists and investment strategists believe that the region as a whole remains relatively well positioned.

Hiring outside the financial sector — especially in retail, consumer goods and hospitality — remains dynamic, headhunters like Mr. Bennett report.

Unemployment rates across the region are far below those in the West (3.3 percent in Hong Kong, for example; 3.1 percent in South Korea; 5.2 percent in Australia — compared with 9 percent in the United States and 10.2 percent in the euro zone), so consumers remain confident and willing to spend.

Rising affluence also has turned populous nations like China, India and Indonesia into major markets for goods, helping to make up for some of the demand drop-off from Europe and the United States.

Moreover, most Asian economies — with the exception of Japan — do not have sovereign debt mountains of the sort that are weighing on Europe and the United States. The yield on 10-year bonds issued by Indonesia, for example, is now below those of Spain and Italy — a previously almost inconceivable situation that illustrates how confidence levels have shifted.

Finally, most nations in the region also have plenty of firepower to prop up their economies by lowering rates or announcing other stimulus measures.

If they do, Asia is well positioned to bounce back relatively quickly from a downturn, as it did after the Lehman crisis three years ago. But in the meantime, any major credit crunch and a full-blown recession in Europe are likely to leave many companies and investors in the region reeling.

“We will continue to live in interesting times for some time to come,” Andrew Colquhoun, an analyst with Fitch Ratings, said in a media conference call on Asia’s prospects Tuesday.
Krisis Global, Indonesia Malah Pesan 230 Pesawat
Jum’at, 18 November 2011 20:47 wib

NUSA DUA – Kondisi perekonomian global menemui titik slowdown, dengan melambatnya pertumbuhan di negara-negara maju seperti Amerika Serikat (AS) dan kawasan Eropa.

Keadaan pun seakan berbalik dengan apa yang terjadi di kawasan yang biasa disebut emerging countries. Indonesia dalam KTT ASEAN ke-19 yang berlangsung di Nusa Dua, Bali dalam hal ini maskapai penerbangan Lion Air telah menyepakati Memorandum of Understanding (MoU) dengan produsen pesawat asal AS, Boeing.

Pemesanan sebanyak 230 unit pesawat Boeing dengan nilai investasi USD21,7 miliar yang dilakukan Lion Air kemarin, membuktikan bahwa perekonomian ASEAN saat ini memasuki era emasnya.

Di saat banyak negara-negara maju sedang berusaha keras menstabilkan dan menata kembali pembangunan ekonomi negaranya, kawasan yang berada di benua terpadat ini justru melakukan ekspansi-ekspansi perekonomiannya yang banyak mengejutkan berbagai pihak.

Presiden AS Barack Obama yang juga menghadiri penandatangan MoU ini menyampaikan dalam sambutannya bahwa dirinya sangat menyambut baik perjanjian bernilai miliaran dolar ini. Obama mengatakan perjanjian tersebut akan saling menguntungkan kedua belah pihak negara yaitu AS dan Indonesia.

Bagi Indonesia, ujar Obama hal ini akan mempercepat laju bisnis dari Lion Air sendiri, sementara bagi negaranya perjanjian ini akan banyak membuka lapangan kerja ke depan.

“Ini sangat luar biasa. Contoh yang sangat baik dalam investasi perdagangan dan peluang komersial yang ada di kawasan Asia Pasifik. Saya ucapkan terima kasih kepada semua. Kedatangan kami di sini juga dalam rangka bagaimana meningkatkan lapangan pekerjaan di AS. Ini merupakan sebuah kesepakatan terbesar sepanjang sejarah Boeing, akan ada 230 unit pesawat dan 100 ribu lapangan kerja menanti,” ujar Presiden Obama dalam pidatonya di Bali Nusa Dua Convention Center (BNDCC), Nusa Dua, Bali, Jumat (18/11/2011).

Pemesanan pesawat yang dimulai pada 2017 dan akan selesai hingga 2025 ini menurut Presiden Obama adalah merupakan salah satu contoh upaya pemerintah AS dalam mencapai salah satu tujuan jangka panjang yaitu meningkatkan sektor ekspor AS sebanyak dua kali lipat dalam beberapa tahun ke depan.

(Rini Harumi W/Koran SI/ade)

It was the kind of impervious reaction to market gyrations that many critics said was at the core of the euro crisis. Mrs. Merkel, they say, has rarely acted quickly or boldly enough to halt the downward spiral of the euro.

To American officials, Mrs. Merkel, 57, seems at times shockingly aloof about market turmoil. But as European leaders prepare for crucial meetings this week in Brussels, what may have seemed like timid or even bumbling leadership is looking more like a consistent strategy of brinkmanship aimed at remaking the euro zone in Germany’s likeness.

At critical junctures throughout the crisis, Mrs. Merkel has resisted appeals to appease the financial markets by lowering borrowing costs. Instead, she has wielded the pain of soaring interest rates as a cudgel to extract painful changes — and demand leadership changes — in countries like Greece and Italy that have proven resistant to those changes in the past.

It is a clever strategy, one that allows her to juggle divergent interests at home, where the German people do not want her offering more guarantees of taxpayer money to combat the sovereign debt crisis, and abroad, where they are begging her to do so. It is also highly risky.

If the euro is preserved and Europe moves toward a more unified future, Mrs. Merkel will probably win the lion’s share of the credit, perhaps one day being hailed as Europe’s savior. But if her prescriptions turn out to be inadequate, she could reap the blame for presiding over the collapse of the euro, with untold consequences for the world economy.

Either way, Mrs. Merkel, a steely champion of austerity and fiscal discipline, seems to have assumed the nickname of her 19th-century predecessor Otto von Bismarck: the Iron Chancellor.

Mrs. Merkel is in nearly daily contact with Obama administration officials who hope she will master the crisis — or, at the very least, win tacit approval for the European Central Bank to step in more forcefully — even though she deflects their demands for more aggressive action.

Treasury Secretary Timothy F. Geithner flew to Germany on Tuesday, meeting first in Frankfurt with the president of the European Central Bank, Mario Draghi, and the president of the Bundesbank, Jens Weidmann. He then spent an hour with Wolfgang Schäuble, his German counterpart, at the Finance Ministry in Berlin. Mr. Geithner said he was “very encouraged by the developments in Europe in the past few weeks.”

Mrs. Merkel’s leadership has come at a high cost for indebted countries, especially those on the periphery, with cuts in public spending biting just as joblessness has surged. Youth unemployment in Spain is nearly 50 percent, a fact Mrs. Merkel raises with domestic audiences when cautiously selling more intervention.

The treaty changes she and President Nicolas Sarkozy of France proposed in Paris on Monday would have been inconceivable at the beginning of the crisis, since it requires states to cede a significant degree of economic sovereignty. It is a process that many observers, in particular the populist British press, say is well underway. German dominance of the euro zone, they say — with Mrs. Merkel as the unofficial but unchallenged leader of Europe — has in fact already arrived.

Silvio Berlusconi’s resignation as Italy’s prime minister was interpreted as an omen for Europe’s German-directed future. And confidential draft proposals of Ireland’s December budget were found to have circulated among lawmakers in Berlin last month before opposition lawmakers in Dublin saw them.

Despite her global prominence, Mrs. Merkel, an East German physicist turned politician, cuts a modest figure in Berlin. She still lives with her media-shy second husband, a quantum chemist, in the same apartment in the central Mitte District that they lived in before she became chancellor. Her daily commute carries her across the former path of the Berlin Wall, a reminder of her years trapped behind it.

The future of the European Union could well be decided at this week’s summit meeting in Brussels. But a routine day in Mrs. Merkel’s schedule here in the German capital illustrates the unique demands on her, as both a leader who is the unlikely fulcrum of the world’s financial future and as someone who must play the role of legislator and party leader.

Last week, she gave a closely watched government address in the historic Reichstag building, where she compared the steps to strengthen the 17-member currency zone to a marathon.

Mrs. Merkel is not a charismatic speaker but she possesses a commanding air. At one point, a buzz of chuckles and chatter rose from the ranks of the opposition Green Party. Mrs. Merkel looked up from her notes, cast a glare at the murmuring politicians seated before her and said, “It appears to be incredibly funny to the Greens. To me, it’s incredibly logical. That’s just the difference.”

Her critics silenced, she continued. When the official transcript of her speech appeared, the withering aside was conspicuously absent, excised from the record.

After the speech, she sat with her fellow members of Parliament, listening to opposition leaders as they railed about her failure to stem the crisis. With the cameras off her for a moment, Mrs. Merkel yawned and slumped slightly in her chair, a rare down moment but one that did not last long. Soon she was holding a series of impromptu whispered discussions, speaking quietly to the economy minister and vice chancellor, Philipp Rösler, and Mr. Schäuble, her powerful finance minister.

After an hour and a half of working the room, she left to go record her weekly podcast, this week on the subject of energy efficiency, and to prepare to receive the chancellor of Austria, Werner Faymann. The two chancellors talked budgets and bailouts over a lunch of beef roulade in the penthouse dining room, joined by the governor of the Austrian National Bank, Ewald Nowotny, and others.

After a joint news conference with Mr. Faymann, Mrs. Merkel climbed into a black Audi sedan to race to the headquarters of her party, the Christian Democratic Union. She hustled past a table with copies of the magazine Silesia Today and the newspaper Süddeutsche Zeitung to address the party’s East and Central German Association, survivors of the forced migration from lost German territories at the end of World War II and their children.

With the ease of a big-city mayor stroking local constituents, Mrs. Merkel smoothly dropped a reference to the margin of re-election for the association chairman. She thanked members by name for their hard work.

Before the crisis began, Mrs. Merkel had the reputation of a caretaker chancellor, a politician who liked to give voters what they wanted and preferred not to create waves. “Perhaps a few of us thought that after German unification there would not be so much more to do,” she said. “We were wrong there.”

Annie Lowrey contributed reporting.

Geithner backs EU crisis plan, stresses ECB role

6:33pm EST

By Luke Baker and David Lawder

BRUSSELS/BERLIN (Reuters) – Treasury Secretary Timothy Geithner threw his weight on Tuesday behind a Franco-German plan to tackle the euro zone’s sovereign debt crisis and said the European Central Bank had to play a major role in any solution.

Geithner offered his support after Standard & Poor’s agency fired a second warning shot at the bloc in 24 hours by threatening to cut the credit rating of its rescue fund.

German Chancellor Angela Merkel and French President Nicolas Sarkozy want to change the EU treaty to impose mandatory penalties on euro zone states that exceed deficit targets, aiming to restore market trust and prevent the crisis spiraling out of control.

Geithner said he was encouraged by moves towards “fiscal union” – under which euro zone states would obey a common set of tight budget rules – and stressed the central role in tackling the crisis of the ECB, which has been reluctant to take decisive steps until governments get to grips with their budget problems.

Speaking after talks in Berlin with German Finance Minister Wolfgang Schaeuble, Geithner said euro zone countries needed reforms to lay the foundations for the economic growth which is essential if Europe is to solve its debt problems.

He also called for “reforms to create the architecture of fiscal union to make monetary union more viable for the long run”. Likewise, governments and central banks needed to offer financial support to protect the European financial system and allow states to borrow at sustainable interest rates.

“The ECB has been playing a central role in this crisis. It’s obviously going to continue to do that. Of course ultimately, these things only get solved by governments and central banks doing what’s necessary, but their rules are different,” Geithner said.

He also met ECB President Mario Draghi in Frankfurt before an EU summit in Brussels on Thursday and Friday, a sign that Washington shares the view that the event may be a decisive moment for the global economy.

Geithner will also meet the leaders of France, Italy, Spain, and EU institutions to press for decisive action.

Draghi has signaled that a euro zone “fiscal compact” could encourage the ECB to act more decisively. It has been reluctant to buy up debt from distressed euro states more aggressively, arguing that doing so would take pressure off governments to fix their finances.

CONTINUING DISAGREEMENTS

A few hours after Sarkozy and Merkel announced they would put their plan involving changes to the EU treaty to the Brussels summit, Standard and Poor’s put the credit ratings of 15 countries, including Germany and France, on review late on Monday for a downgrade by one to two notches.

The U.S.-based agency cited “continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis”.

S&P went a step further on Tuesday, placing the top-notch rating of the euro zone’s 440 billion euro rescue fund, the European Financial Stability Facility (EFSF), on negative watch since it depends on the creditworthiness of the currency bloc’s six AAA-rated countries.

European Council President Herman Van Rompuy, who will chair the summit of the 27-nation European Union this week, proposed giving a bigger, permanent euro zone rescue mechanism the status of a bank that would allow it to access ECB funding.

Germany has so far opposed any such move, which it says would breach a treaty ban on the ECB financing governments.

Van Rompuy said tighter budget oversight sought by Paris and Berlin for the 17-nation euro area could be achieved quickly with only minor tweaks to the EU treaty, that might not require full ratification procedures in many countries.

“To restore market confidence in the euro area, and to ensure the political sustainability of solidarity mechanisms, it is crucial to enhance the credibility of our budget rules (deficit and debt levels) and to ensure full compliance,” he wrote in a report to EU leaders obtained by Reuters.

He also said the issuance of joint euro zone bonds should be a long-term objective, challenging another German red line in a text likely to be the object of heated negotiations.

S&P warned of slowing economic growth amid so much austerity, predicting a 40 percent chance of a fall in euro zone output. A downgrade could automatically require some investment funds to sell bonds of affected states, making those countries’ borrowing costs rise still further.

Merkel brushed off the S & P threat, saying: “What a ratings agency does is its own responsibility.” Her finance minister, Wolfgang Schaeuble, said the wake-up call was S&P’s way of urging European leaders to act.

But Jean-Claude Juncker, chairman of euro zone finance ministers, said he was astonished by S&P’s announcement, which he called “a wild exaggeration and also unfair” because it failed to take account of Italy’s new austerity plan.

In Paris, Sarkozy’s office said S&P had taken its decision last Tuesday, before both the Italian budget and the Franco-German plan for stricter budget rules.

SPANISH BOOST

Sarkozy and Merkel say they want treaty changes to be agreed in March and ratified after France wraps up presidential and legislative elections in June.

They won a boost on Tuesday when incoming Spanish Prime Minister Mariano Rajoy said he would support a new treaty. Although not yet in office, Rajoy is expected to meet Merkel and Sarkozy and outline his policies at a congress of European conservative leaders in Marseille on Thursday.

However, some other EU governments, notably Britain, Ireland and the Netherlands, are reluctant to amend the EU treaty, either due to euroskeptics at home or because they fear losing possible referendums on ratification.

British Prime Minister David Cameron, under pressure from the euroskeptic wing of his Conservative party, said he would demand safeguards, such as ensuring the EU’s market is not distorted by closer cooperation between euro zone countries.

“Euro zone countries do need to come together, do need to do more things together,” he told BBC TV. “If they choose to use the European treaty to do that, Britain will be insisting on some safeguards too. And as long as we get those, then that treaty can go ahead. If we can’t get those, it won’t.”

However, Merkel and Sarkozy said that if countries such as euro outsider Britain blocked a treaty change for all 27 EU members, the 17 states that use the common currency could proceed with an agreement on their own.

(Additional reporting by Michael Shields and Sylvia Westall in Vienna, Catherine Bremer in Paris, Andreas Rinke in Berlin, Tim Castle in London; Writing by Peter Graff, Paul Taylor; and David Stamp)

WASHINGTON, Dec 5, 2011 (AFP)
With Europe’s finances in tatters and the continent battling recession, eurobashing is resurgent in the United States, leading some to warn US public opinion is diverging dangerously from the national interest.

The Greeks, according to billionaire investor Charlie Munger, “don’t want to pay taxes or do much work.”

Intoned in the flattened vowels of the American Midwest, it was a claim that resonated with an arena full of nodding Berkshire Hathaway shareholders in Omaha, Nebraska last April.

And despite Munger’s lack of credentials as a Hellenist, his take on Greece’s woes — and others like it — have a good deal of weight across the United States.

Throughout the crisis, the stereotype of lazy southern Europeans has resurfaced in the United States, as it is in northern Europe.

For every person pointing to statistics showing that Greeks work on average 41 hours a week compared to Americans roughly 34 hours, there are many more pointing to government waste and cultural deficiencies perceived or otherwise.

When the US media talks about remedies for Europe’s crisis, austerity measures are as likely to be portrayed as less prosecco or panettone for Italians this Christmas than a grinding slog ahead.

“When you hear the stereotypes it is very much along the lines of, ‘oh those Greeks, they lived beyond their means and now they are going to have to pay up,’” said Alexei Monsarrat, head of global business and economics at the Atlantic Council.

Nowhere is that view more easily found than in Washington.

Republicans, keen to discredit “big government” and social handouts, warn darkly that the United States could “end up like Europe” if public spending is not cut dramatically and immediately.

“There is a view that the Germans are right: make these people suck it up and tighten their belts, without any appreciation that this is a tightening of belts beyond which any American would put up with,” said Bruce Stokes, an expert in trans-Atlantic economics at the German Marshall Fund.

But Stokes and others on this side of the Atlantic now worry about the implications of blaming all the crisis on lazy and profligate Europeans.

“It confuses the debate and makes it more difficult to manage,” he said.

“You get people saying ‘we don’t want to be another Greece,’ and the reality is Spain was running a surplus before this crisis started, Italy has a huge debt but their deficit was not that bad.”

First and foremost, this view makes US participation in any bailout politically improbable, despite President Barack Obama and others repeatedly stressing the importance of Europe for the health of the US economy.

“It is inexcusable that the US is not considering (a plan) to protect its own economic self interest, to be able to help on this crisis,” said Stokes.

According to Jacob Funk Kirkegaard, a Danish researcher now with Peterson Institute in Washington, the common diagnosis of Europe’s problems leads to at least one fundamental mistake that continues to cause unease.

“A lot of the criticism that we hear here is about why isn’t the ECB doing what the Fed did and why aren’t the Europeans doing what the Treasury did in terms of its crisis management strategy.”

“In some ways it is a legitimate criticism, if you view the European crisis as similar to that in the United States — a financial crisis and a fiscal solvency crisis.

“I would argue that Europe’s is a very different crisis, it is a political crisis, it is about the institutions that the euro area has.”

While financial deals may be about quickly producing a big enough weapon to instill confidence and scare the markets into submission, political deals are about brinkmanship and lengthy wrangling — something Europe has been repeatedly criticized for.

“I think there is a very basic concern about the speed that we have seen this moving,” said the Atlantic Council’s Monsarrat.

“Their complaint has been… there does not seem to be a responsible adult willing to stand up and say, ‘This is how it is going to be,’” he said.

“Unfortunately that is not how Europe works.”

Did Monti give them a raw deal?

Dec 5th 2011, 17:50 by J.H. | ROME
the economist
WELL, the markets liked it. Today, after Italy’s new prime minister, Mario Monti, outlined a three-year package of fiscal adjustments worth €30 billion ($40 billion), the Milan bourse took wing. Shares closed almost 3% up on the day, by far the best performance among the bigger European stock exchanges.

More significantly, perhaps, the yield on Italian sovereign bonds plunged. The spread over safe-haven German debt securities fell below 400 basis points for the first time in more than a month.

The markets’ reaction to Mr Monti’s announcement made for an encouraging start to a decisive week for the euro, and indeed the European Union itself. The package has unquestionably put Italy in a stronger position to face the capital markets next year, when more than €300 billion of its €1.9 trillion debt will need to be refinanced.

It contained yet another raft of austerity measures to add to the many already loaded on to Italians by Silvio Berlusconi’s government. But Mr Monti also (and for the first time) signalled that he was serious about promoting growth in sluggish Italy. Fully €10 billion of the savings are to be reinvested with this aim. The package includes a tax break aimed at encouraging firms to expand their workforces, a liberalisation of shop opening hours and measures to promote infrastructure development.

Not that results are expected any time soon. Mr Monti’s deputy finance minister, Vittorio Grilli (Mr Monti is serving as his own finance minister), said that the government was pencilling in a fall in GDP of up to 0.5% next year, with the outlook flat for 2013.

That, and the risk (noted by Mr Monti) that Italy could go way the way of Greece, will make it harder for Italians to protest at the steps taken by the government. Even so, the draft budget, which was approved in an emergency cabinet session yesterday, arrived in parliament amid widespread dissatisfaction.

There were two main criticisms. Economists and commentators were almost united in decrying the package’s heavy reliance on tax increases— €17-18 billion of the total, according to Mr Grilli. The same criticism was repeatedly levelled at measures introduced by the last government under Mr Berlusconi.

A property tax on first houses—a levy abolished by Mr Berlusconi—is to be reintroduced; capital repatriated under a 2009 amnesty is to be taxed for a second time (a questionably retrospective measure); there are proposed new levies on private aircraft and luxury cars and higher excise on petrol. Just to be sure, the government has tucked up its sleeve the possibility of a 2% rise in value-added tax next September.

The cuts are more timid: the scrapping of a few public bodies and the reduction (but not abolition) of the provincial administrations, with the rest of the savings foisted on to regional governments in a manner also reminiscent of Mr Berlusconi’s approach.

Though they will not be immediate, significant savings will come from the budget’s shake-up of pensions. But that is also a reason for the second main criticism of the package: that, despite Mr Monti’s promises of fairness, too much is being loaded on to the poor. It worried not only the trade unions and the centre-left, but also the Catholic church. A representative of the Italian Bishops’ Conference said the budget “could have been fairer”.

The government has, in effect, abolished Italy’s unique years-in-work system of calculating pensionable age so that, from the beginning of next year, women will be unable to retire before the age of 62 and men before the age of 66. That may not stir much sympathy for Italians in the rest of Europe, where retirement ages are already mostly higher.

But for existing pensioners the budget held a genuinely nasty surprise: only the minimum pensions will be protected from inflation next year. The effect that could have on some of the most vulnerable members of Italian society was acknowledged in dramatic fashion at a press conference when the welfare minister, Elsa Fornero, was overcome by emotion as she announced the decision.

The budget did not include a one-off wealth tax. Nor did it raise the top rate of income tax. But that was because of pressure from Mr Berlusconi’s party. It still has the power to bring down Mr Monti’s new, “technocratic” government in the Senate. And the budget, though endorsed by the cabinet, has yet to be approved in parliament.

S&P Places 15 Euro Nations on Warning for Downgrade
By Mark Deen and Ben Livesey – Dec 5, 2011

Standard & Poor’s said Germany and France may be stripped of their AAA credit ratings as the debt crisis prompts 15 euro nations to be put on review for possible downgrade.

The euro area’s six AAA rated countries are among the nations to be placed on a negative outlook, and their credit ratings may be cut depending on

the result of a summit of European Union leaders on Dec. 9

, S&P said today in a statement. The euro reversed its gains and U.S. Treasuries rose earlier today after the Financial Times reported that the credit-ranking firm planned to reduce six AAA outlooks.

“Systemic stress in the eurozone has risen in recent weeks and reached such a level that a review of all eurozone sovereign ratings is warranted,” S&P said in a statement.

The downgrade warnings come as German Chancellor Angela Merkel and French President Nicolas Sarkozy push for a rewrite of the EU’s governing rules to tighten economic cooperation in a demonstration of unity on ending the debt crisis. With the fate of the currency shared by the 17 euro countries at risk, Merkel and Sarkozy presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels that aims to halt the crisis now in its third year.

“The S&P move is yet another signal that euro area countries must take decisive action to deal with the crisis or else the problems will spread from Greece and others with the most acute fiscal problems to the rest of the euro zone,” said Phillip Swagel, a professor of economics at the University of Maryland’s School of Public Policy who was an assistant secretary for economic policy in the George W. Bush administration. “It is time for Germany and France to act — either to save Greece and the others or to let them fail.”

Germany, Belgium

The firm said that ratings could be cut by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and by up to two notches for the other governments. The euro pared gains against the dollar, trading at $1.3401 per euro at 5:01 p.m. in New York after rising as high as $1.3487.

S&P said it maintained the negative outlook for Cyprus, and Greece wasn’t put on “creditwatch.”

In a joint statement, the governments of France and Germany said they “recognize” the move by S&P and “affirm their conviction that the common proposals made today will strengthen coordination of budget and economic policy, and promote stability, competitiveness and growth.”

S&P roiled global equity, bond, currency and commodity markets on Nov. 10, when it sent and then corrected an erroneous message to subscribers suggesting France’s rating had been downgraded.
Stability Facility

Downgrades of Germany and France would affect the rating of the European Financial Stability Facility, the bailout fund for struggling euro member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for indebted nations.

Yields on EFSF 3.375 percent bonds due in July 2021 2 basis points, snapping a five-day rally, to 3.6 percent, according to Bloomberg prices.

“Negative news is going to continue to spur rallies in the Treasury markets, at least until the ECB steps in to end this mess once and for all,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the announcement. “With the euro currency in a state of flux, the U.S. markets remain the only true safe haven.”

U.S. Downgrade

S&P downgraded the U.S.’s AAA credit rating by one level to AA+ for the first time Aug. 5, citing the nation’s political process and criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget deficits.

Investors nevertheless sought Treasuries after the S&P rating cut sparked financial market turmoil. Treasuries gained 6.4 percent last quarter, their best performance since the last three months of 2008, according to Bank of America Merrill Lynch index data.

The rating company’s decision on the U.S. was flawed by a $2 trillion error, according to the Treasury Department. S&P disputed the Treasury’s assertions and said using the department’s preferred spending measures in its analysis didn’t affect its credit grade.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill ending an impasse with lawmakers over raising the nation’s debt ceiling.

Federal Reserve Chairman Ben S. Bernanke said Treasury securities remain a core holding for investors. “The downgrade didn’t scare off any investors,” and the action, along with the prospect of other downgrades, hasn’t done “significant damage” to the economy, Bernanke said at a Nov. 10 at a town-hall-style event in El Paso, Texas.

German bunds are underperforming Treasuries for the first time since the European debt crisis began in 2009.
Best-Performing

Treasuries due in 10 years or more are 2011’s best- performing sovereign securities, returning 26 percent as of Nov. 30, according to Bloomberg/EFFAS indexes. German 30-year bunds yielded more than their U.S. peers last month for the first time since May 2009 as the government was only able to find buyers for 65 percent of a 6 billion euro ($8.1 billion) offering on Nov. 23, its worst auction in 16 years.

Credit-default swaps tied to France climbed 4 basis points on Dec. 2 to 196 basis points, while contracts insuring against a default on Germany’s debt were about unchanged 97 basis points, CMA data show. That compares with 51 basis points for credit swaps on the U.S. and 90 basis points for the U.K.

A basis point on a credit-swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Bond yields of countries stripped of their AAA ratings since 1998 have historically been little changed following the credit grade change, according to an Oct. 28 report from JPMorgan Chase & Co. analysts led by Terry Belton, global head of fixed-income and foreign-exchange research. The yield on 10- year Japanese government debt rose 10 basis points the week after it was cut to Aa1 by Moody’s in November 1998. The interest rate declined 3 basis points following the cut by S&P to AA+ in February 2001.

Dec. 4, 2011, 6:57 p.m. EST
Italy’s government approves austerity plan

SYDNEY (MarketWatch) — The Italian government approved a three-year austerity plan late Sunday, ahead of a crucial week for European leaders’ campaign to save the euro zone from collapse. “This is essential to reinforce the credibility on the Italian economy but also to regain control on the very high debt and alleviate the burden on future generations of Italians,” vice president of the European Commission in charge of economic and monetary affairs and the euro, Olli Rehn, said in a statement late Sunday. Rehn said the package, which contains spending cuts, tax hikes and pension reforms, “is crucial to keep the momentum in economic reform and in the political renewal.”
Tingkat Pengangguran AS Tercatat Terendah
Sabtu, 3 Desember 2011 11:03 wib
okezone
WASHINGTON – Tingkat pengangguran Amerika Serikat (AS) turun ke level terendahnya dalam dua setengah tahun terakhir pada bulan November seiring terciptanya lapangan kerja baru.

Departemen tenaga kerja AS menuturkan, data tenaga kerja meningkat sebanyak 120.000 pekerjaan. Atau setara dengan 8,6 persen, ini merupakan lebel terendah sejak Maret 2009, sementara pada Oktober pertumbuhan tercatat sembilan persen.

Ini adalah penurunan bulanan terbesar sejak Januari. Penurunan itu terjadi karena angkatan kerja berkurang. Survei yang dilakukan departemen tenaga kerja juga menunjukan adanya penurunan jumlah pengangguran.

“Perekonomian masih melaju ke arah yang benar,” kata analis TD Securities Millan Mulraine di New York seperti dikutip dari Reuters, Sabtu (3/12/2011).

“Namun, tes akhir dari keberlanjutan pemulihan bagi perekonomian untuk menciptakan sejumlah pekerjaan yang cukup untuk mempertahankan tingkat konsumsi harus menonjol. Pada saat ini, laporan menunjukan hal ini mengalami pelemahan pendek,” katanya.

Meskipun ada penambahan dalam jumlah pekerjaan yang tercipta terkonsentrasi di sektor ritel, kenaikan lapangan kerja melampaui yang terjadi pada bulan Oktober, yang direvisi naik 100.000 meningkat. Secara keseluruhan, sebanyak 72.000 pekerjaan yang muncul pada bulan Oktober dan September. Itu lebih banyak dari yang dilaporkan sebelumnya. (//wdi)

Unemployment falls to 8.6% as US adds 120,000 jobs in November

Jobless figures lowest since March 2009 – but Republicans say rate is still too high and Obama’s policies are not working

guardian uk
Unemployment in the US fell to 8.6% in November, its lowest level since March 2009, as private employers continued to add jobs at a healthy pace.

The government’s closely watched non-farm payroll figures rose by 120,000 last month. Growth was driven by private companies, which added 140,000 jobs. Cuts in the public sector led to the loss of 20,000 jobs, the US Department of Labor reported on Friday.

The unemployment rate fell to 8.6% in November from 9.0% the previous month. The rate is the lowest since March 2009, when it was also 8.6%.

The drop in unemployment figures is a welcome boost for Barack Obama going into an election year. Recent political history shows that no president has managed to win re-election with unemployment as high as 9%, where it had been stuck.

In a statement from the White House, Alan Krueger, chairman of the council of economic advisers, said: “Today’s employment report provides further evidence that the economy is continuing to heal from the worst downturn since the Great Depression. But the pace of improvement is still not fast enough given the large job losses from the recession that began in December 2007.”

The Department of Labor revised its October figure to show a gain of 100,000 from a previously reported 80,000. September’s numbers, too, were revised up to 210,000 from 158,000.

Some industries and some groups fared better than others: retail added 50,000 jobs, leisure and hospitality jobs rose by 22,000, and professional and business services saw a gain of 33,000. Healthcare jobs rose 17,000.

Although the White House can take no comfort until a clear downward trend in unemployment is established, it is a bonus for Obama in the short term in his battle with the Republicans over extending the payroll tax cut beyond December 31.

The president can conceivably claim that his policies are working and that failure to extend the tax breaks risks sending the downward trend into reverse.

Krueger said:”It would be a setback for the economy and American families if Congress were to allow extended unemployment benefits to expire at the end of the year.”

Republicans in Congress are in a bind. As the party of tax cuts, they do not want to be seen as blocking the tax breaks, but at the same time do not want to support increased spending. Reflecting the confusion, the Senate on Thursday night blocked both a Democratic and Republican tax plan, with many Republicans voting to kill off their own party leadership’s proposals.

Negotiations are underway between Democratic and Republican leaders in Congress to find a compromise that will allow the tax breaks to continue.

The House speaker, John Boehner, who on Thursday for the first time came out in support of extending the tax breaks, welcomed the unemployment drop, but maintained the figure was still too high.

“As you may remember, the Obama administration promised unemployment would stay below 8% if its ‘stimulus’ was enacted. That promise has gone unfulfilled,” Boehner said.

One of the leading presidential candidates, Mitt Romney, told Fox: “It’s very good news, obviously, going into the holiday season. People are shopping again. It’s very good news that the unemployment rate is down. People are going back to work.

“But look: overall, the president’s record on the economy – it’s been miserable.”

Ken Goldstein, economist at the Conference Board in New York, said the figures were encouraging but that the recovery remained fragile.

“We are not near levels that economists would call robust growth. There’s a chance we could be there by this time next year,” he said.

Goldstein said the figures added further evidence that younger men were finally finding jobs, but said the numbers for long-term unemployed remained stubbornly high at 6 million.

“This is good news on unemployment. Consumer confidence has been rising as well since the summer, but I think the lack of wage growth could put a damper on recovery,” he said.

The unemployment rate for adult men fell by 0.5% to 8.3% in November. The jobless rate for whites (7.6%) also declined, while the rates for adult women (7.8%), teenagers (23.7%), black people (15.5%), and Hispanics (11.4%) showed little or no change. The jobless rate for Asians was 6.5%.

The number of people employed part-time for economic reasons – sometimes referred to as involuntary part-time workers – dropped by 378,000 over the month to 8.5 million.

Friday’s report also showed Americans’ hourly earnings declined by 2¢ to $23.18 in November. Wages are up by 1.8% over the past 12 months, below overall inflation.

PARIS, Dec 2, 2011 (AFP)
France and Germany will push for a new European Union treaty to impose tough budgetary discipline on the debt-ravaged eurozone, President Nicolas Sarkozy declared ahead of a critical week for the euro.

The French leader was to meet Britain’s Prime Minister David Cameron on Friday to discuss the crisis and then Germany’s Chancellor Angela Merkel on Monday to agree a joint Franco-German proposal to save the single currency.

Then, on December 8 and 9, all 27 European leaders will meet at the EU Summit in Brussels, a meeting which some observers have billed as their last chance to restore the credibility of eurozone economic governance.

In a landmark speech Thursday in front of 5,000 cheering supporters, Sarkozy warned that the developed world was entering a “new economic cycle” dominated by debt reduction, heralding tough times ahead for jobs and business.

“Europe will have to make crucial choices in the weeks to come,” he warned in the southern port city of Toulon, adding: “Europe is not a choice, it is a necessity, but it needs to be rethought, refounded.”

“We must confront with total solidarity those who doubt the stability of the euro and speculate on its break-up,” he declared.

“France is fighting with Germany for a new treaty. More discipline, more solidarity, more responsibility … true economic government” he said, urging members to adopt a “Golden Rule” obliging them to balance their budgets.

The stability of the European economy has been rocked by a sovereign debt crisis spreading from the eurozone’s highly indebted peripheral states like Greece and Ireland towards major economies such as Spain and Italy.

France has also seen borrowing costs rise, and ratings agencies have warned that its prized Triple-A status is at risk — a potential humiliation for Sarkozy six months before he is due to seek re-election.

European leaders have struggled to convince markets that they will be able to stave off the risk of a massive default that could bring down banks, cause a global credit crunch and bring down their single currency.

Next week’s Brussels summit is now seen as key to halting the crisis, but there have been reports that the eurozone’s two biggest players — France and Germany — are at odds over which course to take.

French officials have been pushing for the European Central Bank to become the eurozone’s lender of last resort — effectively permitting it to print money in order to buy up member states’ debt and relieve fiscal pressure.

But this is anathema to Germany, which nurses grim memories of inter-war hyperinflation and insists the ECB should stick to its price stability mandate.

Sarkozy appeared to partially concede this point, saying the bank should remain “independent” but added that he was sure that it would act.

“It is for it to decide how and with what means. That’s its responsibility. No one doubts that it will meet it, and I welcome what it has begun to do,” Sarkozy said, in comments that observers said risked riling Berlin.

ECB chief Mario Draghi had already warned Thursday the central bank cannot act beyond its mandate — although he left the door open to a more activist role if states agreed tougher fiscal rules of the kind Merkel wants.

Some EU members have opposed the idea of a new treaty, which would take time to agree and might trigger referendums in some countries — votes that governments would struggle to win against a backdrop of economic austerity.

Sarkozy said the existing Maastricht Treaty had proved “imperfect” as it allowed states with lax budget discipline to escape punishment. Germany is pressing for automatic sanctions to be imposed on backsliders.

Eurogroup signs off on 8bn euro aid payment
29 Nov 2011
Eurozone finance ministers agreed on Tuesday to release an 8bn euro aid payment to Greece, part of an 110bn euro package of support agreed with the government last year, an EU diplomat said.

The joint EU/IMF payment is the sixth installment of loans to help Greece finance itself since being cut off from financial markets. Without the payment, the country risks going bankrupt.

The payment was dependent on a written commitment from Greece that it would meet its obligations to cut its budget deficit and keep finances in check.

“The Eurogroup endorsed the payout of the sixth tranche to Greece”, the diplomat said.

The payment has been held up for a month because of delays in Greece’s commitment to cut spending and increase taxes. (Reuters)

Central banks act as euro zone crisis rages

11:09am EST

By Robin Emmott and Kirsten Donovan

BRUSSELS/LONDON (Reuters) – The world’s major central banks acted jointly on Wednesday to provide cheaper dollar liquidity to starved European banks facing a credit crunch as the euro zone’s sovereign debt crisis threatened to bring financial disaster.

The surprise emergency move by the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the central banks of Britain, Canada and Switzerland recalled coordinated action to steady global markets in the 2008 financial crisis.

The euro and European shares surged on the news, which came after euro zone finance ministers agreed to ramp up the firepower of their bailout fund but acknowledged they may have to turn to the International Monetary Fund for more help.

In a related move, Italy’s central bank started emergency cash tenders for banks which have been squeezed particularly hard in recent weeks as Rome’s borrowing costs have soared towards 8 percent, a level seen as unaffordable in the long term.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” Economic and Monetary Affairs Commissioner Olli Rehn said as EU finance ministers met.

Two years into Europe’s debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fuelling doubts about the survival of the single currency.

Euro zone leaders have agreed belatedly on one half-measure after another but have failed to restore confidence and now face a crunch moment at a December 9 Brussels summit seen by some analysts as a make-or-break moment for the euro.

Finance ministers agreed on Tuesday night on detailed plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.

“We are now looking at a true financial crisis — that is a broad-based disruption in financial markets,” Christian Noyer, France’s central bank governor and a governing council member of the European Central Bank, told a conference in Singapore.

Italian and Spanish bond yields resumed their inexorable climb towards unsustainable levels on Wednesday, as markets assessed the rescue fund boost as inadequate.

“It must also be remembered that the EFSF is already funding at very wide (borrowing) levels over Germany, struggled in its last auction to raise the required funds and would have its rating put under severe pressure by any rating downgrade of France,” Rabobank strategists said in a note.

“This must call into question any plans related to the EFSF. It is yesterday’s solution and the market has simply moved on.”

IMF TO MATCH?

The 17-nation Eurogroup adopted detailed plans to insure the first 20-30 percent of new bond issues for countries having funding difficulties and to create co-investment funds to attract foreign investors to buy euro zone government bonds.

Both schemes would be operational by January with about 250 billion euros from the euro zone’s EFSF bailout fund available to leverage after funding a second rescue program for Greece, Eurogroup chairman Jean-Claude Juncker said.

The aim was for the IMF to match and support the new firepower of the EFSF, Juncker told a news conference.

But with China and other major sovereign funds cautious about investing more in euro zone debt, EFSF chief Klaus Regling said he did not expect investors to commit major amounts to the leveraging options in the next days or weeks, and he could not put a figure on the final size of the leveraged fund.

“It is really not possible to give one number for leveraging because it is a process. We will not give out a hundred billion next month, we will need money as we go along,” Regling said.

Most analysts agree that only more radical measures such as massive intervention by the ECB to buy government bonds directly or indirectly can staunch the crisis.

The prospects of drawing the IMF more deeply into supporting the euro zone are uncertain. Several big economies are skeptical of European calls for more resources for the global lender.

The United States, Japan and other Asian states are hesitant to chip in unless Europe commits to first use its own resources to fix the problem and peripheral euro zone states map out more concrete steps on fiscal and economic reforms.

“Nobody wants to spend money on something they doubt would work,” a G20 official said.

“That goes not only for Europe but for any other country outside Europe. The threshold for seeking IMF help is quite high. Those seeking help need to be willing to give up some of their jurisdiction on fiscal policy and willing to undergo painful reform. Mere pledges and speeches won’t do.”

MONTI DENIES IMF BID

New Italian Prime Minister Mario Monti said he had received a very positive reaction from the euro zone ministers to his fiscal plans, although he was told to take extra deficit cutting measures beyond an austerity plan already adopted to meet its balanced budget promise in 2013.

He said he had met the head of the International Monetary Fund’s European department on Wednesday but Italy had not considered taking help from the IMF.

Reuters reported on Tuesday that Italian and IMF officials have held preliminary discussions on some form of financial support for Rome, although no decision has been taken, according to sources familiar with the talks.

Italian bond yields are now above the levels at which Greece, Ireland and Portugal were forced to apply for EU/IMF bailouts, and Rome has a wall of issuance due from late January to roll over maturing debt.

The Eurogroup ministers agreed to release their portion of an 8 billion euro aid payment to Greece, the sixth installment of 110 billion euros of EU/IMF loans agreed last year and necessary to help Athens stave off the immediate threat of default.

Juncker said the money would be released by mid-December, once the IMF signs off on its portion early next month.

G20 leaders promised this month to boost the global lender’s warchest. However, another G20 source said policymakers had made no progress since then in efforts to boost IMF resources, which at current levels may not be sufficient to overcome the crisis.

EU sources said one option being explored is for euro system central banks to lend to the IMF so it can in turn lend to Italy and Spain while applying IMF borrowing conditions.

With Germany opposed to the idea of the ECB providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of calming markets and fast.

The ECB shows no sign yet of responding to widespread calls to massively increase its bond-buying although EU officials said it may have to shift, even if the EFSF gained IMF help.

A Reuters poll of economists showed a 40 percent chance of the ECB stepping up purchases with freshly printed money within six months, something it has opposed so far.

The poll forecast a 60 percent chance of an ECB rate cut to 1.0 percent next week and a big majority of economists said they expect the central bank to announce new long-term liquidity tenders to help keep banks afloat at its next meeting on Dec 8.

EU powerhouse Germany has pinned its efforts on a drive for closer fiscal integration among euro zone members with coercive powers to veto euro zone members’ budgets that breach EU rules.

Chancellor Angela Merkel told lawmakers she would not make a deal at a December 9 European Union summit to drop resistance to joint euro zone bonds in exchange for progress on strengthening fiscal rules, MPs quoted her as saying.

(Additional reporting by Marius Zaharia in London, Erik Kirschbaum in Berlin, Robin Emmott and John O’Donnell in Brussels, Saeed Azhar and Kevin Lim in Singapore; Writing by Paul Taylor/Mike Peacock; Editing by Janet McBride)

Nov. 29, 2011, 5:47 p.m. EST
EU agrees to EFSF leverage expansion rules

SAN FRANCISCO (MarketWatch) — European finance ministers agreed late Tuesday on terms for two options to expand the capacity of the region’s bailout fund, according to a statement released by officials following a meeting in Brussels. Under the first option, bond holders would get partial risk protection of 20% to 30% backed by the European Financial Stability Facility. Under the second option, one or more so-called co-investment funds would be created allowing for the combination of public and private funding to buy bonds on the primary and secondary markets. Both options are expected to be ready to use by early 2012. Also, president of the Eurogroup finance ministers Jean-Claude Juncker said ministers agreed to a sixth disbursement of Greek bailout funds and that they will be available by mid-December.
Washington (ANTARA News/AFP) – Amerika Serikat (AS) menegaskan bahwa Eropa perlu bertindak segera untuk menyerang krisis utang zona euro sehubungan Presiden AS, Barack Obam,a menjadi tuan rumah pertemuan puncak dengan para pejabat Eropa.

Konperensi Tingkat Tinggi (KTT) AS-Eropa dilakukan di tengah peringatan baru yang mencolok tentang kedalaman gejolak zona euro dan kekhawatiran baru bahwa paparan ke Eropa dari bank-bank AS bisa memukul pemulihan ekonomi AS yang lambat.

“Ini adalah sesuatu yang mereka butuhkan untuk menghentikan krisis dan mereka memiliki kapasitas untuk mengentikannya,” kata jurubicara Gedung Putih, Jay Carney.

Ia menimpali, “Posisi kami adalah bahwa hal itu penting bagi Eropa untuk bergerak dengan kekuatan dan ketegasan sekarang, terutama dengan pemerintah-pemerintah baru datang ke tempatnya di Italia, Yunani dan Spanyol.”

Obama menerima tamu Presiden Dewan Eropa, Herman Van Rompuy, Presiden Komisi Eropa, Jose Manuel Barroso, Perwakilan Tinggi, Catherine Ashton, dan para pejabat untuk pembicaraan dan makan siang di Gedung Putih.

Pembicaraan, juga termasuk Menlu AS Hillary Clinton dan Menteri Keuangan Timothy Geithner, dibuka dengan singkat dan kemudian menyimpulkan dengan pernyataan dari kedua belah pihak.

http://www.antaranews.com/berita/286880/eropa-harus-bertindak-tegas-atasi-krisis-utang

Sumber : ANTARANEWS.COM
WASHINGTON, Nov 28, 2011 (AFP)
Ratings agency Fitch reaffirmed the United States’ top credit rating on Monday, but downgraded the outlook to negative as it projected slow growth, political stalemate and rising levels of debt this decade.

Citing “still strong economic and credit fundamentals,” Fitch nonetheless said that the recent failure of Congress to reach a short-term deficit cutting deal could delay more fundamental reforms.

Fitch added that there was “considerable uncertainty surrounding the economy’s potential output.”

Taken together, political failures and slower growth could result in a full-fledged downgrade.

“The negative outlook indicates a slightly greater than 50 percent chance of a downgrade over a two-year horizon.”

Fitch said a key trigger would be the government’s failure to reach agreement in 2013 on a “credible deficit reduction plan” as the economy slows. That, Fitch said “would likely result in a downgrade of the US sovereign rating.”

“The longer productive capacity remains idle and unemployment high, the greater the likelihood that the loss of output (and tax receipts) is greater than currently estimated.”

Fitch said that had “negative implications for the medium to long-term fiscal outlook.”

Fitch projected federal debt would rise to 90 percent of GDP by the end of the decade.

“In Fitch’s opinion, such a level of government indebtedness would no longer be consistent with the US retaining its ‘AAA’ status despite its underlying strengths.”

November 28, 2011
Pressure Mounts for Urgent Action to Avert a Euro Zone Split
By LIZ ALDERMAN AND STEPHEN CASTLE

PARIS — European leaders faced mounting pressure Monday to overcome divisions and move ahead quickly with new plans to prevent the euro zone from fracturing, as warnings multiplied that the crisis could endanger the global economy and cause credit to dry up in the banking system.

The Organization for Economic Cooperation and Development said Monday that the euro crisis remained “a key risk to the world economy.” The research group, which is based in Paris, sharply cut its forecasts for wealthy Western countries and cautioned that growth in Europe could come to a standstill.

The warning came just hours after Moody’s Investors Service issued its own bleak report on Europe’s sovereign debt crisis. Moody’s, a leading credit rating agency, warned that the problems could lead multiple countries to default on their debts or exit the euro, which would threaten the credit standing of all 17 countries in the currency union.

Despite the gloomy predictions, stock indexes rose sharply in Europe and Asia, and were surging in Wall Street trading, and the euro strengthened, on hopes that European leaders were working on a new approach to resolve the crisis.

Finance ministers from the euro zone were to meet Tuesday in Brussels to try to agree on how to increase the firepower of their bailout fund, and also hope to sign off on an €8 billion, or $10.7 billion, loan installment to prevent Greece from defaulting. A proposal for a Europe-wide solution to the crisis is expected before a summit meeting of European Union leaders on Dec. 9.

Concerns about the European crisis hung over a meeting Monday at the White House between President Barack Obama and three European leaders: José Manuel Barroso, the president of the European Commission; Catherine Ashton, the European foreign policy chief; and Herman Van Rompuy, the president of the European Council.

Those concerns also surfaced during a White House news briefing, when a questioner asked the press secretary, Jay Carney, whether the White House shared the view that “the euro is in a particularly perilous state, perhaps poised to collapse within days.”

Without going that far, Mr. Carney replied that “our position is and has been that it’s critical for Europe to move with force and decisiveness now, particularly with new governments coming into place in Italy, Greece and Spain.”

He added: “We continue to believe that this is a European issue, that Europe has the resources and capacity to deal with it and that they need to act decisively and conclusively to resolve this problem.”

In Brussels, European officials rejected suggestions that the euro was days away from breaking up, pointing out that countries have completed most of their bond issuance for this year, though they know the respite will only be a matter of weeks.

Belgium had to pay higher interest rates to borrow money in the markets on Monday, illustrating how the country’s failure to form a government has increased concerns about its ability to tackle its debts. The yield on 10-year bonds was 5.66 percent as opposed to 4.37 percent last month.

Concern also mounted regarding Italy, where borrowing rates skyrocketed at a bond auction Monday for the second consecutive business day. The interest rate Italy had to pay to get investors to part with their cash for 12-year issues soared to 7.20 percent, a full 2.7 percentage points higher than the previous similar auction.

There was alarm in several capitals Monday over French-German plans to create strict new budget rules for countries that use the common currency — something seen in Berlin as a precondition of further steps to save the euro zone.

On Sunday, France, Germany and Italy signaled they were ready to agree on new rules to enforce budget discipline in the euro zone, and to encourage more coordination of economic and fiscal policy.

On Monday the German Finance Ministry published comments from the finance minister, Wolfgang Schäuble, suggesting that this could be done by amending a protocol of the E.U. treaty, though officials said this would still need approval by all 27 E.U. members.

An alternative, favored by some French policy makers, is to reach agreement among euro zone nations outside the framework of the E.U. treaty. Some news reports have suggested an even smaller group might be involved.

Finland’s prime minister, Jyrki Katainen, made it clear Monday that he did not favor a solution outside the current system, a view echoed by the prime minister of Luxembourg, Jean-Claude Juncker, who is also chairman of the Eurogroup, a forum for the finance ministers of the euro zone.

“I don’t think we would be best advised to look for instruments outside the treaty,” Mr. Juncker said, according to Reuters. “Trying to divide even the 17 member states of the euro area and having them organized in two different groupings seems to me to be a very bad idea.”

With growing signs of a looming credit crunch, the O.E.C.D. report warned that Europe’s politicians had so far moved too slowly to prevent the crisis from spreading. Its report said that the problems that started in Greece almost two years ago would start to infect even rich European countries thought to have relatively solid public finances if leaders dallied, a development that would “massively escalate economic disruption.”

“We are concerned that policy makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” the O.E.C.D.’s chief economist, Pier Carlo Padoan, said.

In its warning, Moody’s underlined that “the probability of multiple defaults by euro area countries is no longer negligible,” and that “a series of defaults would also increase the likelihood of one or more members not simply defaulting, but also leaving the euro area.”

Efforts at greater European integration have so far been overshadowed by the failure of euro zone countries to follow through on promises made back in July to bolster mechanisms to fight the crisis. In particular, the authorities have been slow to implement an expansion of the bailout fund, known as the European Financial Stability Facility, that was meant to raise money by issuing bonds backed by the stronger European countries and loan it to shakier countries facing high interest rates on their debt.

The head of the fund, Klaus Regling, has said that, under current conditions, the leveraging of the resources left at his disposal — thought to be around €250 billion — will be in a multiple of three or four times. That means that the €1 trillion target is likely to be a maximum. If the guidelines are approved by euro zone finance ministers, the expanded fund could start to operate early next year.

The O.E.C.D. called on politicians to get the expanded bailout fund running as fast as possible, and said the European Central Bank must be allowed to step in more than it has to stem the crisis.

“We know there is a lot of disagreement, but the E.C.B. should decide to send a very strong message to markets by saying, ‘We will put a cap on interest rates and we will do that credibly because we have the resources to do that,”’ Mr. Padoan told Reuters.

Germany last week made clear its opposition to issuance of a common bond that would be backed by euro zone countries, something investors said could help calm the crisis during the long time that it will take to expand the rescue fund.

The government in Berlin has also resisted calls to allow the E.C.B. to act as a lender of last resort to put out financial fires during the transition to a more federalist structure in the euro zone.

Many observers expect the next fire to come from Italy, where investors are so nervous about the country’s debts that the International Monetary Fund took the unusual step Monday of denying reports in the Italian press that it was in talks with Rome on a program for I.M.F. financing.

But observers say eventual I.M.F. involvement is likely.

The fund has about $390 billion available to lend worldwide — a sum too small to help Italy, whose economy is seven times the size of Greece’s. Thus, in recent weeks, European leaders have floated numerous ways to augment I.M.F. resources. The fund could oversee a loan package that uses E.C.B. or European rescue fund money. It could allow Italy to borrow by asking all its member nations to contribute. Cash-rich, emerging-market countries like Brazil and China have also signaled their willingness to provide more money to the fund.

“The odds that the I.M.F. will step in have increased substantially,” said Domenico Lombardi, a senior fellow at the Brookings Institution, a research group in Washington. “By having a program with the I.M.F., the newly established Italian authorities will be able to isolate the implementation of an ambitious reform agenda from the intrinsically unstable political outlook. The I.M.F. provides an external anchor, boosting the chances that a reformist agenda will be implemented,” Mr. Lombardi said.

In the coming days, the I.M.F. is due to send a team of observers to Italy to verify the implementation of an overhaul program agreed to by the government of Silvio Berlusconi, who recently stepped down as prime minister.

Stephen Castle reported from Brussels. Reporting was contributed by Steven Erlanger in Paris, and Annie Lowrey and Brian Knowlton in Washington.
WASHINGTON, Nov 28, 2011 (AFP)
The euro regained ground on the dollar Monday propelled by rumors that Italy was negotiating a rescue package with the IMF and that EU leaders were moving toward a crisis resolution deal.

But a denial by the International Monetary Fund, and a dire warning from the OECD that Europe’s economies are one step away from plunging into recession, tempered the rise.

At 2200 GMT the euro was at $1.3318, up from $1.3240 late Friday.

Earlier it traded near the $1.34 level.

The euro also picked up to 103.83 yen from 102.90 yen, while the dollar edged up to 77.97 yen from 77.72.

Underpinning the euro’s tentative rebound was hope that meetings by Europe’s top finance officials on this week will offer a convincing path out of crisis for the eurozone.

“With Eurozone finance ministers meeting in Brussels tomorrow and EU finance Ministers meeting on Wednesday, there is a realistic chance of progress and that is the main reason why the euro has rallied,” said Kathy Lien of currency specialists GFT.

However, she added, “until there is substance to any of the rumors and speculation in Europe, euro traders should be cautious. With Italian bonds being auctioned off on Tuesday and Spanish and French bonds being auctioned on Thursday, expect more volatility in the euro.”

The dollar eased to 0.9224 Swiss francs from 0.9299. The British pound rose to $1.5508, from $1.5436 Friday.

EU May Shield Banks From Costs During Crisis
Q
By Aoife White and Esteban Duarte – Nov 26, 2011 3:56 AM GMT+0700
bloomberg

Banks in states roiled by Europe’s sovereign-debt crisis may be partly shielded from extra costs when they seek government guarantees, according to two people familiar with the situation.

The European Commission will publish rules on state aid for lenders that may dilute the effect of turmoil in the euro area on the fees that banks have to pay for guarantees on their loans and bonds, said the people who couldn’t be identified because the discussions aren’t public. Under the plans, the formula for setting the fees would reduce the impact of soaring debt- insurance costs for the country giving the backstops, one of the people said.

“Renewed tensions” in financial markets are forcing European Union regulators to extend into 2012 special state aid rules for banks that have allowed governments to inject billions of euros into the industry, said EU Competition Commissioner Joaquin Almunia this month. He said he was planning to “clarify and update the rules on pricing and other conditions.”

The cost of insuring against default on European sovereign and financial company debt rose to records as the euro-region’s crisis deepened with Italy paying the highest yields to sell short-dated bills in 14 years. The Markit iTraxx Financial Index on senior debt of 25 banks and insurers increased to 354 and the subordinated gauge gained six basis points to 601, according to JPMorgan Chase & Co. An increase signals worsening perceptions of credit quality.
Shrunk Balance Sheets

EU governments spent 757 billion euros ($1 trillion) in state guarantees for banks from October 2008 until December 2010. EU regulators have ordered banks that received bailouts to shrink their balance sheets and change their business models.

Under current rules, a bank that gets a state guarantee pays a fee to the government according to a pricing formula partly based on the lender’s credit-default swaps between January 2007 and August 2008.

The revised measures, to be published on Nov. 30, will adjust the price of the guarantee and use a three-year period for the lender’s credit-default swaps to mitigate the effects of higher prices of the contracts, the people said.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming

Nov 26th 2011 | from the print edition

EVEN as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic that no sensible policymaker could stand by and let it happen.

A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see article). The euro zone could shatter into different pieces, or a large block in the north and a fragmented south. Amid the recriminations and broken treaties after the failure of the European Union’s biggest economic project, wild currency swings between those in the core and those in the periphery would almost certainly bring the single market to a shuddering halt. The survival of the EU itself would be in doubt.

Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast.

Markets, manias and panics

Investors’ growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. The latest example is Spain. Despite a sweeping election victory on November 20th for the People’s Party, committed to reform and austerity, the country’s borrowing costs have surged again. The government has just had to pay a 5.1% yield on three-month paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italy’s new technocratic government under Mario Monti has not seen any relief either: ten-year yields remain well above 6%. Belgian and French borrowing costs are rising. And this week, an auction of German government Bunds flopped.

The panic engulfing Europe’s banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries’ banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed.

Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits.

Past financial crises show that this downward spiral can be arrested only by bold policies to regain market confidence. But Europe’s policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency—more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing today’s conflagration.
Browse all The Economist’s euro crisis covers with our interactive carousel

Germany’s cautious chancellor, Angela Merkel, can be ruthlessly efficient in politics: witness the way she helped to pull the rug from under Silvio Berlusconi. A credit crunch is harder to manipulate. Along with leaders of other creditor countries, she refuses to acknowledge the extent of the markets’ panic (see article). The European Central Bank (ECB) rejects the idea of acting as a lender of last resort to embattled, but solvent, governments. The fear of creating moral hazard, under which the offer of help eases the pressure on debtor countries to embrace reform, is seemingly enough to stop all rescue plans in their tracks. Yet that only reinforces investors’ nervousness about all euro-zone bonds, even Germany’s, and makes an eventual collapse of the currency more likely.

This cannot go on for much longer. Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks. Any number of events, from the failure of a big bank to the collapse of a government to more dud bond auctions, could cause its demise. In the last week of January, Italy must refinance more than €30 billion ($40 billion) of bonds. If the markets balk, and the ECB refuses to blink, the world’s third-biggest sovereign borrower could be pushed into default.

The perils of brinkmanship

Can anything be done to avert disaster? The answer is still yes, but the scale of action needed is growing even as the time to act is running out. The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral. Even if the ECB rejects this logic for governments—wrongly, in our view—large-scale bond-buying is surely now justified by the ECB’s own narrow interpretation of prudent central banking. That is because much looser monetary policy is necessary to stave off recession and deflation in the euro zone. If the ECB is to fulfil its mandate of price stability, it must prevent prices falling. That means cutting short-term rates and embarking on “quantitative easing” (buying government bonds) on a large scale. And since conditions are tightest in the peripheral economies, the ECB will have to buy their bonds disproportionately.

Vast monetary loosening should cushion the recession and buy time. Yet reviving confidence and luring investors back into sovereign bonds now needs more than ECB support, restructuring Greece’s debt and reforming Italy and Spain—ambitious though all this is. It also means creating a debt instrument that investors can believe in. And that requires a political bargain: financial support that peripheral countries need in exchange for rule changes that Germany and others demand.

This instrument must involve some joint liability for government debts. Unlimited Eurobonds have been ruled out by Mrs Merkel; they would probably fall foul of Germany’s constitutional court. But compromises exist, as suggested this week by the European Commission (see Charlemagne). One promising idea, from Germany’s Council of Economic Experts, is to mutualise all euro-zone debt above 60% of each country’s GDP, and to set aside a tranche of tax revenue to pay it off over the next 25 years. Yet Germany, still fretful about turning a currency union into a transfer union in which it forever supports the weaker members, has dismissed the idea.

This attitude has to change, or the euro will break up. Fears of moral hazard mean less now that all peripheral-country governments are committed to austerity and reform. Debt mutualisation can be devised to stop short of a permanent transfer union. Mrs Merkel and the ECB cannot continue to threaten feckless economies with exclusion from the euro in one breath and reassure markets by promising the euro’s salvation with the next. Unless she chooses soon, Germany’s chancellor will find that the choice has been made for her.

Berlin says “Yes” to Samaras’ letter
Δημοσίευση : Πέμπτη, 24 Νοέμβριος 2011 12:42 Εκτύπωση | E-mail
Ανανέωση : Πέμπτη, 24 Νοέμβριος 2011 12:51:29

0
The Sixth tranche’s release is ever closer, since, probably, Berlin will be accepting Samaras’ letter to the Troika as a “written commitment” to meeting the 26 and 27 of October summit decisions.

As reported to protothema.gr by a relevant source of the Finance Ministry of the German government, which, however wants to remain anonymous, “the letter from the ND chairman is perceived as a written commitment to the observance of what has been agreed at the Summit, whose application is an absolute priority for Athens, according to the assurances given to European officials by PM Lucas Papademos, during his recent visits to Brussels, Luxembourg and Frankfurt”.

The same sources has express the chancellery’s satisfaction, estimating that the release of the sixth tranche is now unlocked. The source also added “we made an error with Greece. Even though top economists were part of the attempt, we should have given a bigger aid package to Greece. The second is that from the outset the haircut should have been greater, with a bigger private sector participation”.

This followed the publication of Antonis Samaras’ letter to theTroika, which also confirmed relevant reports of protothema.gr that had taken place at noon.

Syngrou Avenue had already estimated that the letter would be accepted, while protothema.gr had reported yesterday that there was a solution in the works, on the matter of signatures.
Sarkozy, Merkel agree to stop sniping on ECB crisis
ReutersReuters – 2 hours 56 minutes ago

By Daniel Flynn and Emmanuel Jarry

STRASBOURG, France (Reuters) – France and Germany agreed on Thursday to stop arguing in public over whether the European Central Bank should do more to rescue the euro zone from a deepening sovereign debt crisis.

President Nicolas Sarkozy and Chancellor Angela Merkel said after talks with Italian Prime Minister Mario Monti that they trusted the independent central bank and would not touch its inflation-fighting mandate when they propose changes of the European Union’s treaty to achieve closer fiscal union.

They also demonstrated their backing for Monti, an unelected technocrat, to surmount Italy’s daunting economic challenges, in contrast to the barely concealed disdain they showed for his predecessor, media billionaire Silvio Berlusconi.

“We all stated our confidence in the ECB and its leaders and stated that in respect of the independence of this essential institution we must refrain from making positive or negative demands of it,” Sarkozy told a joint news conference in the eastern French city of Strasbourg.

French ministers have called for the central bank to intervene massively to counter a market stampede out of euro zone government bonds, while Merkel and her ministers have said the EU treaty bars it from acting as a lender of last resort.

The Netherlands however moved closer to endorsing the ECB as lender of last resort, apparently breaking ranks with Germany.

Finance Minister Jan Kees de Jager said he would prefer that the European Financial Stability Facility, the euro zone bailout fund, should be strengthened. But if the EFSF did not succeed, other measures would have to be considered.

“In a crisis one should never exclude anything beforehand. In the end, something has to happen,” he said.

Sarkozy said Paris and Berlin would circulate joint proposals before a December 9 EU summit for treaty amendments to entrench tougher budget discipline in the 17-nation euro area.

Merkel said the proposals for more intrusive powers to enforce EU budget rules, including the right to take delinquent governments to the European Court of Justice, were a first step toward deeper fiscal union.

But she said they would not modify the statute and mission of the central bank, nor soften her opposition to issuing joint euro zone bonds, except perhaps at the end of a long process of fiscal integration.

Some French and EU officials hoped Berlin would soften its resistance to a bigger crisis-fighting role for the ECB after Germany itself suffered a failed bond auction on Wednesday, showing how investors are wary even of Europe’s safest haven.

“There is urgency (for ECB intervention),” Foreign Minister Alain Juppe told France Inter radio before the meeting.

Sarkozy took a step toward Merkel this week by agreeing to amend the treaty to insert powers to override national budgets in euro area states that go off the rails. But there was no sign of a German concession on euro zone bonds or the ECB’s role.

“This is not about give and take,” Merkel said. Only when European countries reformed their economies and cut their deficits would borrowing costs converge. “To try to achieve this by compulsion would weaken us all.”

With contagion spreading fast, a majority of 20 leading economists polled by Reuters predicted that the euro zone was unlikely to survive the crisis in its current form, with some envisaging a “core” group that would exclude Greece.

Analysts believe that sense of crisis will in the end force dramatic action. “I think we are moving closer to a policy response probably, which could be either more aggressive ECB action or the idea of euro bonds could gain some traction,” said Rainer Guntermann, strategist at Commerzbank.

RESISTANCE

In signs of public resistance to austerity in two southern states under EU/IMF bailout programs, riot police clashed with workers at Greece’s biggest power producer protesting against a new property tax, and Portuguese workers staged a 24-hour general strike.

Credit ratings agency Fitch downgraded Portugal’s rating to junk status, saying a deepening recession made it “much more challenging” for the government to cut the budget deficit, highlighting a vicious circle facing Europe’s debtors.

German bonds fell to their lowest level in nearly a month after Wednesday’s auction, in which the German debt agency found no buyers for half of a 6 billion euro 10-year bond offering at a record low 2.0 percent interest rate.

The shortage of bids drove Germany’s cost of borrowing over 10 years to 2.2 percent, above the 1.88 percent markets charge the United States and the 2.18 percent that heavily indebted Britain has to pay.

Bond investors are effectively on strike in the euro zone, interbank lending to euro area banks is freezing up, ever more banks are dependent on the ECB for funding, and depositors are withdrawing increasing amounts from southern European banks.

“It’s quite telling that there has been upward pressure on yields in Germany – it might begin to change perceptions in Germany,” Standard and Poor’s head of sovereign ratings, David Beers, told an economic conference in Dublin.

In one possible response, people familiar with the matter said the ECB is looking at extending the term of loans it offers banks to two or even three years to try to prevent a credit crunch that chokes the bloc’s economy.

Monti repeated Italy’s goal of achieving a balanced budget by 2013 but said there was room for a broader discussion about how fiscal targets could be adjusted in a worse-than-expected recession.

Italian bond yields’ jumped this month to levels above 7 percent widely seen as unbearable in the long term, despite stop-go intervention by the ECB to buy limited quantities, triggering Berlusconi’s fall.

Keeping Italy solvent and able to borrow on capital markets is vital to the sustainability of the euro zone. Key Italian bond auctions early next week will test market confidence.

GERMAN EXPOSURE

German officials said the failed auction did not mean the government had refinancing problems and several analysts said Berlin just needed to offer a more attractive yield.

But it was a sign that, as the bloc’s paymaster, Germany may face creeping pressure as the crisis deepens that may cause it to re-examine its refusal to embrace a broader solution.

Economy Minister Philipp Roesler of the Free Democratic junior coalition partner called for parliament to reject euro zone bonds “because we don’t want German interest rates to rise dramatically.”

But some market analysts are convinced joint debt issuance will eventually have to be part of a political solution to hold the euro zone together.

“Although it is not easy to see how the region will get to a fiscal union with Eurobonds, we believe that this is the path that will be chosen,” JP Morgan economist David Mackie said in a research note.

With time running out for politicians to forge a crisis plan that is seen as credible by the markets, the European Commission presented a study on Wednesday of joint euro zone bonds as a medium-term way to stabilize debt markets alongside tougher fiscal rules for member states.

The borrowing costs of almost all euro zone states, even those previously seen as safe such as France, Austria and the Netherlands, have spiked in the last two weeks as panicky investors dumped paper no longer seen as risk-free.

(Reporting by Stephen Brown, Noah Barkin, Natalia Drozdiak, Veronica Ek, Eva Kuehnen, Ana Nicolaci da Costa, Giselda Vagnoni, Padraic Halpin; Writing by Paul Taylor, editing by Mike Peacock/Janet McBride/Giles Elgood)
Make or break time for eurozone: EU economic chief Rehn
24 November 2011, 15:48 CET
— filed under: Rehn, Finland, debt, economy

(HELSINKI) – The eurozone crisis has placed the monetary union at a critical crossroads that could make or break the single currency, EU Economic and Monetary Affairs Commissioner Olli Rehn warned Thursday.

“Ahead lies either the slow disintegration of the euro area or a significant strengthening of the monetary union,” Rehn told journalists in Helsinki.

Rehn declined comment on the disappointing outcome of a German bond auction Wednesday, when just 3.9 billion of 6.0 billion euros in government bonds were taken up by investors.

“It is not our practice to comment on day-to-day developments in the markets,” Rehn said, but added that “the situation is very serious” as the contagion from the Greek debt crisis had now touched the heart of the EU.

“The contagion effect that started in Greece and spread to different EU countries has recently affected countries close to the heart of the EU area and has now touched even the hardest core of the EU,” he said.

Rehn said what was needed were “courageous and determined decisions without delay in next week’s EU meetings” of the eurozone group in Brussels on November 29.

The Finn said that beating the current crisis required proactive stabilisation and strengthening of the union, as well as the correction of imbalances.

“Without this, the (proposed) eurobond would become junk bonds that no one would want, neither European nor other states,” he declared.

PM Monti vows to balance Italian budget by 2013
24 November 2011, 18:03 CET
— filed under: Italy, finance, Headline, budget, debt, Economy, public, euro
PM Monti vows to balance Italian budget by 2013

(STRASBOURG) – Italy’s new Prime Minister Mario Monti insisted at eurozone debt crisis talks Thursday that his country would balance its budget in 2013, after raising doubts over its ability to do so.

Monti said after the talks with French President Nicolas Sarkozy and German Chancellor Angela Merkel that he had laid out his economic programme to the leaders, “confirming the objective of a balanced budget in 2013.”

On Tuesday, Monti had raised doubts about his chances of balancing the budget by 2013, saying his government would “respect” the commitments made by his predecessor Silvio Berlusconi, who was toppled by the crisis.

But he said of the 2013 budget: “We want to see how to take into account the (economic) cycle to calculate this objective.”

On Thursday, Monti said: “The objective of balancing the budget in 2013 is not called into question.

“Italy must make a particular effort because it has a very high debt,” said Monti, who took office earlier this month at the head of a technocrat government of national unity.

Quoting Merkel, Monti said each country “must do its own duty at home.”

“We will do our duty at home,” he added.

However, Monti said there is “a more general problem, for the world economy and for the European economy, concerning what happens if we go into a phase of recession.”

“If, how and by how much must budgetary policies be adjusted to take into account the cycle’s variation, this is a known theme that could be raised at the level of the entire European Union,” he said.

Athens, November 23, 2011

As stated in the meeting of the three Party Leaders under the auspices of the President of the Hellenic Republic C. Papoulias: “it has been agreed upon that the task of the new Government will be to materialize the decisions taken at the European Council of October 26th 2011 and to implement the economic policies linked to those decisions”.

The new Prime Minister has already pledged to fulfil this task.

Nea Demokratia [New Democracy] is committed to support the new Prime Minister.

Nea Demokratia is strongly committed to the success of fiscal consolidation and structural reforms, rebuilding market confidence and fostering economic growth.

Nea Demokratia fully supports the targets of fiscal adjustment, regarding all issues on eliminating the deficit and reversing the debt dynamics; it also supports “tools” already implemented (albeit poorly); namely, public expenditure cutting, fighting tax evasion, structural reforms, privatization programs and capitalizing on idle real estate public property.

On the evidence of the budget execution so far, we believe that certain policies have to be modified, so as to guarantee the Program’s success. This is more so, since according to the latest European Economic forecasts, Greece in 2012 will be the only European country with 5 consecutive years in recession!

We intend to bring these issues to discussion, along with viable policy alternatives, strictly within the framework outlined by the Program. We give great emphasis to allowing for prompt recovery, so that public revenues generated will help us achieve the targets set.

We also attribute special emphasis to the implementation procedures which have to be streamlined and upgraded.

The commitment of the Greek people and of Nea Demokratia to the European Union and the Euro is strong and irrevocable.

Nea Demokratia believes that Greece can get out of the crisis and safeguard its social cohesion.
We are committed to make that happen.

Sincerely,

Antonis C. Samaras
President of Nea Demokratia
NEW YORK, Nov 23, 2011 (AFP)
The euro fell heavily Wednesday, sent reeling by news of a lackluster German bond auction that struck at the heart of the eurozone’s fiscal credibility.

The single European currency lost over one percent of its value against the dollar, hitting $1.3347, down from from $1.3507 in New York late Tuesday.

The tone was set early in the day.

Germany was able to sell only 3.6 billion euros’ worth of its benchmark 10-year “Bund” out of the 6.0 billion euros on offer, an outcome reflecting “extraordinarily nervous market conditions,” according a German spokesman.

“There’s been a lot of talk lately that perhaps Germany isn’t the safe-haven that many people thought it was,” UBS currency strategist Chris Walker commented.

The dollar rose to 77.29 yen from 76.92 yen.

The pound weakened to $1.5530 from $1.5647.

NEW YORK, Nov 22, 2011 (AFP)
The euro strengthened against the dollar on Tuesday as the IMF rolled out a new tool to help “bystander” countries protect themselves from contagion during financial crises.

The euro rose slightly to $1.3518 from $1.3494 on Monday.

With at least one eye on Europe’s rolling debt crisis, the IMF announced a mechanism that could see Italy borrow some 45.5 billion euros ($61.5 billion) and Spain borrow 23.3 billion euros ($31.5 billion) over six months.

Kathy Lien of GFT asked: “The International Monetary Fund has come to the eurozone’s rescue but is their attempt to provide additional liquidity to cash strapped nations enough?”

While the answer appeared to be negative, it was enough to prop up the under-siege single currency.

“This new instrument is too small and too limited to help countries like Italy and Spain but some help is better than no help at all which is why the euro has held onto its gains and why European bond yields will probably decline on Wednesday,” she said.

The dollar fetched 76.97 yen versus 76.94 yen the day before, and 0.9132 Swiss francs versus 0.9169 francs.

The pound strengthened to $1.5647 from $1.5642.

Choose your poison

Nov 21st 2011, 14:24 by Buttonwood

ANOTHER bad day for the markets. Investors seem to have taken little heart from the sweeping victory of the Popular Party in Spain, focusing instead on the failure of the US super-committee to agree on a deal and rather gloomy statement on the global economy from Chinese vice premier Wang Qishan.

In the euro zone, investors may be suffering from what Lombard Street Research neatly describes as “crisis solution fatigue”. An FT story suggested a plan for eurobonds may be issued this week; last week, the market was pinning its hopes on the ECB and the IMF and it was long ago that the European Financial Stability Facility was the rescue vehicle of choice.

The idea behind eurobonds is to allow the weaker countries to benefit from the financial strength of the likes of Germany and the Netherlands. After all, at the aggregate level, eurozone government indebtedness is no worse than that of the US. But the quid pro quo for such a deal is some kind of central control over the fiscal policies of euro zone governments.As Lombard remarks

we remain a long way from any kind of comprehensive solution to Europe’s crisis. To start, the most draconian form of Eurobond – probably the one that would appeal most to the Germans who have to fund it, will face stiff opposition everywhere else. Many countries will oppose the loss of sovereignty this scheme seeks to impose on them. Sure, there are times when democratic deficits are manageable, but deep recession/depression is not typically one of them.

To be fair to European leaders, they have an extremely difficult circle to square. Euro zone countries have variants of six problems; slow growth; high private sector debt; high government debt-to-GDP ratios; wide fiscal deficits; high funding costs; and uncompetitive economies. There is no way of solving all these problems at once. If you think that the problem of slow growth is caused by uncompetitive economies (as the ECB seems to do), then the answer is to push governments into reform. As Jacob Kirkegaard of the Peterson Institute argues in a recent paper, this strategy has been rather successful, with new governments in place in all five PIIGS countries, all of which are committed to reform.

It is now clear that the ECB under the new presidency of Mario Draghi, the former governor of the Bank of Italy, has been vindicated in its strategy of refusing to defend Italian bond spreads around the 400–450 basis points, thereby forcing Italy to implement the reforms the central bank sought in August. In the end, it was the Italian political class that blinked first in this latest game of chicken and pushed Berlusconi out.

But others disagree violently. David Zervos of Jefferies describes the Kirkegaard paper as

one of the most misguided pieces of research on the euro crisis

describing the strategy as “sado-fiscalism”. To many people, the danger is clear. The crisis is steadily spreading from country to country with bond yields rising outside Germany. We risk a bond buyers’ strike. Higher bond yields also add to the contractionary pressures placed on the economy by fiscal austerity packages. And the iced botulism on this cake is the threat to the banking system. Banks are having difficulty getting finance; many are turning to the US for (very expensive) finance in the form of collateral swaps that allow the Europeans to get access to the ECB.

So for the expansionist camp, the answer is for the ECB simply to turn on the taps, buying all the government bonds it can, as well as supporting the banks. Of course, that won’t deal with the competitiveness problem. But if the euro zone is not careful, it may blunder into a very deep recession.

The ECB is getting a lot of flak at the moment. But on one crucial point, it was right. It warned that forcing Greek bond investors to take a writedown would unleash contagion effects; ever since the idea was floated that the Greeks would impose a 50% hit, contagion has duly occurred.

Foreign Banks Double Deposits at Fed
By Catarina Saraiva – Nov 21, 2011

Foreign bank deposits at the Federal Reserve have more than doubled to $715 billion from $350 billion since the end of 2010 amid Europe’s debt turmoil, buttressing the dollar’s status as the world’s reserve currency.

Forty-seven non-U.S. banks held balances of more than $1 billion at the New York Fed as of Sept. 30, up from 22 at the end of 2010, according to a survey of 80 financial institutions by ICAP Plc, the world’s largest inter-dealer broker. The dollar has appreciated 7.2 percent since Standard & Poor’s cut the nation’s AAA credit rating Aug. 5, the second-best performance after the yen among developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indexes.

A budget deficit of more than $1 trillion, a deadlock among Congressional supercommittee members on spending cuts and 9 percent unemployment haven’t deterred investors from seeking safety in the world’s biggest economy. The euro has been undermined by the region’s sovereign debt crisis, while the Swiss franc and yen have fallen as their governments buy billions of dollars to weaken them.

“There’s not anything close to a substitute and part of it is the deepness of the market, the liquidity,” Jack McIntyre, a fund manager who oversees $23 billion in debt at Brandywine Global Investment Management, a unit of Legg Mason Inc., said Nov. 15 in a telephone interview from Philadelphia. “There’s a perception, right or wrong, that we’re going to make good on all of our assets.”
Demand Rises

The Fed’s record-low target interest rate for overnight loans among banks at between zero and 0.25 percent hasn’t discouraged dollar buying as slowing global growth and turmoil in Europe spur central banks from Australia to Brazil to cut rates, reducing their appeal to investors seeking higher returns.

Foreign demand for U.S. assets rose the most in 10 months in September. Net buying of long-term equities, notes and bonds totaled $68.6 billion, the highest since November 2010, compared with net buying of $58 billion in August, the Treasury Department said Nov. 16.

The dollar is up 6.5 percent in the past three months, recovering to about level this year with its nine peers, which include the Swedish krona and the Swiss franc. It’s trading about 4 percent below where it was in 1975, two years after President Richard Nixon ended the currency’s official ties to gold.

The U.S. currency rose 1.7 percent to $1.3525 per euro in the five days ended Nov. 18, gaining for a third week in a row. It fell 0.4 percent to 76.91 yen. The greenback traded at $1.3515 per euro and 76.94 yen at 1:13 p.m. in New York.
Banks Seek Safety

Demand for Treasury securities that mature in under a year has increased as financial institutions boost holdings of the highest-quality assets to meet new regulations set by the Bank for International Settlements in Basel, Switzerland. Bank holdings of Treasuries and government-related debt totaled a record $1.69 trillion at the end of October, up from less than $1.1 trillion in 2008.

“With the heightened emphasis on stronger liquidity positions for financial institutions around the world, we’ve seen an increase in the regulatory demand for liquid assets, but we’re not necessarily seeing an increase in the supply of liquid assets,” Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, a unit of ICAP, said in a Nov. 14 interview. “They’re meeting that need by holding Fed balances.”
‘Hoarding Cash’

Rates on three-month bills ended last week at zero, down from this year’s high of 0.157 percent in February and 5 percent in mid-2007, just before credit markets froze as losses on subprime mortgages accelerated.

“People are hoarding cash because they see that there’s some difficulty in the U.S. dollar funding market” as banks shed euro-denominated assets, Charles St-Arnaud, a foreign- exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview Nov. 14.

Three-month cross-currency basis swaps, the rates banks pay to convert euro payments into dollars, were as low as 132 basis points, or 1.32 percentage point, below the euro interbank offered rate Nov. 18, the most expensive since December 2008.

The cost of dollar funding is increasing as Europe’s debt crisis escalates. Last week, yields on German two-year bunds dropped below 0.3 percent for the first time, while the extra yield investors demand to hold 10-year bonds from France, Belgium, Spain and Austria instead of bunds climbed to euro-era records. The spread between German and French bonds of that maturity widened to 190 basis points on Nov. 15, the highest in the euro union’s history.
Europe Cuts Rates

European Central Bank policy makers cut the benchmark interest rate by 0.25 percent at their Nov. 3 meeting, after increasing it by 50 basis points earlier this year. Expectations for further cuts rose after Europe’s third quarter gross domestic product expanded 0.2 percent from the previous three months, a Nov. 15 report showed, signaling the region may be headed for a recession.

Slowing growth drove the Reserve Bank of Australia to cut its interest rate this month for the first time since April 2009, reducing it to 4.5 percent. Brazil’s central bank has lowered its rate twice since July to 11.5 percent, after raising it to 12.5 percent during the past 1 1/2 years.
Fed Stays Low

Cuts in central bank rates around the world have made the carry trade of selling dollars to buy the currencies of higher- yielding countries unprofitable. The trade, when borrowing dollars to buy the Australian, Swedish, Brazilian and South African currencies, has lost 30 percent since July, according to Bloomberg data.

The Fed said it will keep its rate at an all-time low through mid-2013 as the unemployment rate has remained stuck at or above 9 percent since March.

Consumer confidence rose to 64.2 this month, the highest since June, according to the Thomson Reuters/University of Michigan preliminary index of sentiment. Retail sales rose 0.5 percent in October, increasing for the fifth-straight month, according to a government report.

The economy expanded at a 2.5 percent pace in the third quarter, from 1.3 percent in second quarter, the Commerce Department said Oct. 27. Economists have increased their fourth- quarter economic forecasts to an expansion of 2.3 percent, from 2 percent estimated in October, according to two Bloomberg News surveys.
Bretton Woods

Faster growth may boost investor appetite for riskier assets, decreasing demand for the dollar’s safety, said Lane Newman, director of foreign exchange at ING Groep NV in New York. “This is perhaps a temporary respite from the dollar losing its reserve status,” he said. “I see this as a decades- long trend. Ultimately, it’s the devaluation and the end of the hegemony of the big dollar.”

The dollar has been the world’s reserve currency since World War II, when the U.S. and allies agreed at the 1944 Bretton Woods conference to peg it to a rate of $35 per ounce of gold. After global currencies began freely floating in 1973, it has remained the most-traded legal tender, accounting for 85 percent of the $4 trillion per day foreign exchange market, according to the BIS.

Its share of foreign-exchange holdings has held steady at 61.6 percent since 2009 after peaking at 72.7 percent in 2001. The euro has stabilized at an average of 26.6 percent of reserves since 2007, up from 18 percent at its inception in 1999.
Deficit Panel

Options traders are increasingly betting that the dollar will strengthen. They paid 4.4 percentage points more for the right to sell the euro against the dollar than to buy it on Nov. 17, the most since the common currency’s inception in 1999. The so-called three-month 25-delta risk reversal rate has widened for all developed-nation currencies versus the dollar and for emerging-markets such as the real and Mexican peso.

The dollar’s rise comes as a Congressional panel of six Democrats and six Republicans, known as the supercommittee, has until Nov. 23 to find $1.2 trillion in deficit reduction, or cause that much in spending cuts to go into effect beginning in 2013.

Senator Jon Kyl of Arizona, a Republican on the 12-member panel, said on CNBC today the Republican and Democratic committee co-chairmen, Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington, would make a formal announcement “toward the end of the day.” They are expected to say the panel can’t agree on deficit reduction of at least $1.2 trillion, triggering across-the-board cuts of the same amount starting in 2013.
Budget Deficit

If Congress removes the automatic deficit cuts, Standard and Poor’s may drop the nation’s credit rating to AA, after reducing it to AA+ following the debt-cutting agreement, the ratings company said in a statement Aug. 5 when it announced the downgrade.

The U.S. budget deficit was $1.3 trillion in the fiscal year ended Sept. 30, up from $1.29 trillion in 2010 and the second-highest on record, according to Treasury Department data. It reached $1.42 trillion in 2009, the most ever.

Other traditional havens in times of market stress, the Swiss franc and yen, reached record highs against the euro and dollar, respectively, this year before their central banks acted in September and October to drive them from their peaks.

“The U.S. picks up an awful lot of the slack,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG, the world’s biggest currency trader according to Euromoney Institutional Investor Plc, said in a Nov. 17 telephone interview. “Particularly for large reserve portfolios, that need very liquid markets, they’re only really going to be accommodated in the U.S. market.”

S&P Keeps U.S. Rating at AA+ After Panel Failure
By Zeke Faux and John Detrixhe – Nov 21, 2011

Standard & Poor’s said it would keep the U.S. government’s credit rating at AA+ after a congressional committee that was supposed to break partisan gridlock and cut the budget deficit didn’t reach an agreement.

S&P, which stripped the U.S. of its top AAA grade on Aug. 5, said it decided that the supercommittee’s failure didn’t merit another downgrade for the country because the failure will trigger $1.2 trillion in automatic spending cuts. While the firm expects the Budget Control Act to “remain in force,” easing those spending limits may cause “downward pressure on the ratings,” S&P analysts Nikola Swann and John Chambers said today in a statement.

S&P, Moody’s Investors Service and Fitch Ratings, the world’s three biggest providers of debt grades, have criticized the U.S. as Democrats and Republicans in Washington have made little progress in negotiations to reduce the budget deficit. That’s had little impact on the bond market with Treasuries returning 6.4 percent last quarter, the most since the three months ended December 2008.

“Investors look right through the agencies,” Greg Peters, global head of fixed-income research at Morgan Stanley, said today in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan.” “They’re going to invest how they see fit.”

Both parties have blamed each other for the stalemate, with Democrats saying Republicans wouldn’t relent on taxes and Republicans accusing Democrats of rejecting an offer to raise revenue along with spending cuts.
Automatic Cuts

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” said panel co-chairmen Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington.

The supercommittee’s collapse triggers across-the-board spending cuts to domestic and defense programs set to take effect starting in January 2013. Some lawmakers were already looking at ways to lessen the cuts.

Moody’s, which rates the U.S. Aaa and put the country on ‘‘negative outlook” in August, said the committee’s deadlock wouldn’t on its own cause the U.S. to lose its top rating because of the automatic cuts. Fitch, which also gives the U.S. its highest ranking, said on Aug. 16 that a failure by the committee would “likely result in negative rating action.
August Downgrade

After the government almost reached its borrowing limit before striking the deal that created the supercommittee, S&P lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. The ratings firm said the government is becoming “less stable, less effective and less predictable.”

The S&P 500 Index of U.S. stocks plunged 6.7 percent on the first trading day after the downgrade, while government bonds rallied as investors sought safety.

House Majority Leader John Boehner, an Ohio Republican, and House Minority Leader Nancy Pelosi, a California Democrat, have said they support the automatic cuts. “The markets should know that the deficit reduction will occur,” Pelosi said on Nov. 3. Boehner has said he “personally” feels a moral obligation to uphold the agreement.

“There is time for Congress to change the rules again,” Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ, said in an e-mail before the announcement. “The supercommittee deadline was never make or break anyway.”
A sense of surrealism

Nov 18th 2011, 15:23 by J.R. | FRANKFURT
the economist
TIMING in central banking, just as in politics, is everything. Originally, Jens Weidmann, the head of the Bundesbank, was supposed to speak before Mario Draghi, the new president of the European Central Bank (ECB) at the European Banking Congress, held today in Frankfurt. But a late change of the agenda had Mr Draghi be the first to take the stage in Frankfurt’s old opera house (which, ironically, only a few weeks ago was the site of a furious argument over the ECB’s role in the crisis between Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president).

Yet even more than the speaking order, it was the stridency of views in his first public speech outside the ECB, which drove home the point that Mr Draghi has no intention of playing second fiddle to Mr Wiedmann.

Mr Draghi dwelled on the need for discipline and reform in the euro zone’s periphery. While stressing the consistency of the ECB’s efforts to control inflation, and the need for it to maintain the credibility of its inflation target, Mr Draghi passed responsibility for solving the sovereign debt crisis right back to Europe’s politicians:

We are more than one and a half years after the summit that launched the EFSF as part of a financial support package amounting to 750 billion euros or one trillion dollars; we are four months after the summit that decided to make the full EFSF guarantee volume available; and we are four weeks after the summit that agreed on leveraging of the resources by a factor of up to four or five and that declared the EFSF would be fully operational and that all its tools will be used in an effective way to ensure financial stability in the euro area. Where is the implementation of these long-standing decisions?

For veteran readers of central-banking tea leaves, Mr Draghi appeared to offer just one concession. The ECB, he suggested, might do more to help banks obtain longer term financing, which has essentially dried up since early July.

If Mr Draghi had indeed set out to be holier than the Bundesbank, he failed. For Mr Weidmann went even further. Departing from his prepared comments, Mr Weidmann sounded alarm that the current approach to crisis management may in fact be making matters worse “by diminishing incentives for reform.”

Adding to the sense of surrealism was Wolfgang Schäuble, Germany’s finance minister, whose talk at the event was mainly a sermon against the “Chicago School” of “unregulated markets” and a defence of the Financial Transaction Tax. It would act against “herd behaviour” in financial markets, he argued. Mr Schäuble also said that if the ECB became a lender of last resort and started intervening massively, “the financial markets would simply presume the euro would not remain a stable currency”.

Bond markets took all these comments in their stride, although some of them have now become so dysfunctional that it is difficult to discern too much information from prices. Spanish and Italian bonds rose during the day, helped by bond buying by the ECB.

Even in Frankfurt, at the centre of Germany’s financial system, it is difficult to discern whether Germany and the ECB are playing an elaborate game of brinkmanship—or are acting out of firm conviction. There is a case to be made for keeping up the heat on countries such as Italy and Greece to extract badly-needed economic reforms. But investors are ever more likely to take Germany and the ECB at their word that they will not provide support on the scale needed to keep Italy afloat.

That could be the beginning of the end. If investors truly believe that no support will be forthcoming, it is difficult to see that any amount of structural reform or austerity could turn around perceptions in time to prevent a liquidity crisis from turning into a solvency one.

NEW YORK, Nov 18, 2011 (AFP)
The euro edged up against the dollar Friday despite new open EU discord over how to muster funds to strengthen the eurozone against contagion.

The euro picked up to $1.3519 from $1.3457 late Thursday, after having jumped as high as $1.3614.

The euro also pushed up to 104.00 Japanese yen from 103.60 yen, while the dollar lost to 76.93 yen from 76.98 Thursday.

While there were some encouraging signs from Greece and Italy on political acceptance of austerity programs, European Central Bank chief Mario Draghi’s blunt rebuff to suggestions that the ECB can supply rescue funds for the eurozone added a new layer of risk in the markets.

Draghi called on Europe’s leaders to follow through with their own plans to raise more money for the EU emergency fund instead — a plan of weeks ago that appeared to have hit a wall.

With a comprehensive deal to protect the eurozone still not in sight, traders warned of more danger ahead for the euro.

“The rebound in the single-currency could be short-lived as the fundamental outlook for the region remains bleak,” said David Song of DailyFX.

“The crisis out of Europe has entered a new scary chapter as the events of the past couple weeks have exposed the inherent flaws of the zone,” said George Goncalves of Nomura Fixed Income Research.

“It’s clear downside risks remain. In fact, we could be approaching the point of no return for the fate of the euro.”

The US dollar ended the day lower against the Swiss franc, at 0.9162 francs from 0.9219 francs.

The British pound pushed higher to $1.5798 from $1.5751.
Sofjan Wanandi: Lupakan Eropa!
| Erlangga Djumena | Jumat, 18 November 2011 | 16:04 WIB

NUSA DUA, KOMPAS.com – Kekuatan ekonomi Eropa makin lemah setelah krisis terus menjalar dan melebar ke negara-negara anggota Uni Eropa. Tidak hanya mata uang Euro saja yang tak stabil, gejolak dalam negeri personel Masyarakat Eropa tersebut juga nyaris tak terkendali.

Walhasil, Eropa menjadi tempat yang paling riskan untuk urusan perdagangan dan investasi. Tak pelak, inilah momentum yang penting untuk segera melupakan Eropa. “Eropa sudah masa lalu, lupakan Eropa!. Kini masa depan ada di China, India dan ASEAN, termasuk di dalamnya Indonesia sebagai kekuatan potensial di kawasan Asia Tenggara,” sebut Sofyan Wanandi, Ketua Umum Asosiasi Pengusaha Indonesia (Apindo), kepada Tribunnews.com, Jumat (18/11/2011), di restoran Portraits, Hotel Westin, Nusa Dua, Bali.

Pria berusia 71 tahun tersebut menegaskan, saat ini pusat perhatian dunia tengah tertuju pada Asia. Diprediksi, dalam waktu tidak lama lagi, Asia bakal menjadi sentra kekuatan perekonomian, yang mengatur jalannya ekonomi di jagad raya ini. “Asia akan menjadi rasa masa depan. Kondisi ini harus dimanfaatkan secara maksimum oleh Indonesia. Otomatis, setelah China dan India, para pelaku bisnis dunia akan melirik ASEAN, dan kita harus lebih atraktif,” tegas Sofyan.

Pengusaha kawakan ini yakin, iklim investasi di Asia yang makin mudah, menjadi gimmick tersendiri bagi investor. Nantinya, Asia akan menjadi kawasan yang diperebutkan banyak pihak di saat kondisi ekonomi di Eropa dan Amerika mulai menurun. “Ciri yang paling kentara adalah kepastian. China, India dan ASEAN tak hanya sekedar memerbanyak MoU, melainkan sudah pada level realisasi dan optimalisas, jadi bukan hanya hitam di atas putih saja,” tukas Sofyan.

Pengusaha Darjoto Setyawan setuju dengan pendapat seniornya itu. Pria yang juga Managing Director Grup Rajawali tersebut optimis level pertumbuhan ekonomi dan realisasi investasi akan semakin membaik, terutama saat ASEAN berlari kencang hingga tahun 2030 mendatang, dengan “Beyond ASEAN”-nya. (Nurfahmi Budi)
Saham Eropa Jumat (18/11) terindikasi untuk dibuka melemah untuk hari keempat dipicu kekhawatiran yang tumbuh atas biaya pinjaman Eropa.

CNBC melaporkan indeks FTSE diperkirakan akan turun 50 poin, indeks DAX turun sebesar 60 poin, dan indeks CAC 40 turun 30 poin.

Pemerintah Spanyol dipaksa untuk membayar biaya pinjaman tertinggi sejak tahun 1997 pada hari Kamis dalam lelang obligasi 10 tahun, di mana yieldnya 1,5 poin di atas rata-rata pembayaran untuk penjualan serupa tahun ini. Kekhawatiran bahwa pengetatan dana tersebut dapat menyebar ke Asia yang meningkat ketika rate euro / yen berjangka jatuh ke level terendah dalam 8 bulan pada Jumat di tengah kekhawatiran bahwa strain di pasar keuangan dolar bisa melihat bank-bank di luar Jepang meningkatkan rate mata uang Jepang.

Perdana Menteri baru Italia Mario Monti meluncurkan reformasi ekonomi pada hari Kamis, memperingatkan bahwa negara sedang berurusan dengan masalah utang yang darurat serius. Monti memenangkan mosi percaya di Senat Italia pada hari Kamis oleh 281 suara untuk 25 dan ia diperkirakan untuk memenangkan suara kepercayaan lain di Ruang Deputi pada hari Jumat.

Pemerintahan kesatuan nasional baru pemerintah di Yunani, yang dipimpin oleh Perdana Menteri Lucas Papademos, sejauh ini belum mendapat dukungan dari mitra Italia dan 50.000 orang Yunani turun ke jalan-jalan di Athena pada hari Kamis untuk memprotes langkah-langkah penghematan yang dikondisikan Uni Eropa / IMF untuk syarat baliout.

Pejabat IMF, Uni Eropa dan European Central Bank tiba di Athena pada hari Jumat untuk diskusi tentang apa yang harus dilakukan bagi Yunani untuk mengamankan tahap bantuan berikutnya, namun Ketua Partai Konservatif New Denodracy, Antonis Samaras menilak untuk menandatangani komitmen untuk melakukan apa pun yang diperlukan untuk mengamankan bailout yang kemungkinan akan tetap bermasalah.

Di Brussels, Pejabat Uni Eropa akan bertemu Jumat untuk membahas anggaran Uni Eropa berikutnya untuk tahun 2012. Jika kesepakatan tercapai, Parlemen Eropa dan Dewan Eropa harus secara resmi menyetujui dalam waktu 14 hari. Perdana Menteri Inggris David Cameron akan bertemu dengan Kanselir Jerman Angela Merkel di Berlin pada Jumat, dengan konferensi pers yang dijadwalkan pada pukul 12.45 am waktu London.

Cameron telah mendapatkan kritik dari Partai Angela Merkel CDU yang telah menuduhnya bertindak semata-mata untuk kepentingan Inggris dengan mengorbankan Uni Eropa yang lebih luas.

Data ekonomi Jumat termasuk angka PPI Jerman untuk Oktober, keluar pukul 07.00 waktu London. Omset industri Italia untuk September akan diumumkan pada pukul 09:00.

http://pasarmodal.inilah.com/read/detail/1798009/kondisi-pinjaman-eropa-bakal-hantam-saham-eropa

Sumber : INILAH.COM
Obama reads riot act to European leaders in late night phone calls and orders them to take more dramatic action on debt crisis

U.S. Treasury Secretary: ‘The crisis in Europe remains the central challenge to global growth’
Obama embarks on eight day Asia-Pacific tour to ‘hitch’ U.S. economy to growth opportunities

By Daily Mail Reporter

Last updated at 12:55 PM on 11th November 2011

Late night calls: Barack Obama made contact with several European leaders to demand faster action

Late night calls: Barack Obama made contact with several European leaders to demand faster action

Barack Obama has read the riot act to the leaders of several European countries – saying more dramatic action is needed to avert a eurozone meltdown.

The U.S. President made telephone calls to German Chancellor Angela Merkel, French President Nicolas Sarkozy and Italian President Giorgio Napolitano late last night.

Treasury Secretary Timothy Geithner said the president had demanded faster action from Europe.

It came as Hong Kong revealed it had plunged into recession.

Speaking from the Asia-Pacific Economic Co-operation conference, Geithner said: ‘The crisis in Europe remains the central challenge to global growth.

‘It is crucial that Europe move quickly to put in place a strong plan to restore financial stability.’

He said all of the 21 APEC countries were directly affected by the Eurozone crisis, and encouraged them to take steps to ‘strengthen growth in the face of these pressures from Europe’.

And he revealed that Obama was looking to hitch the U.S. economy to growth opportunities in Asia, where he is embarking on an eight day tour, that he hoped would help power the recovery he needs for re-election.

More…

Look who rolled out the White House: The toilet paper with Obama’s face on every sheet
U.S. aircraft carrier that buried bin Laden transformed into basketball arena for Veterans Day
‘He’s a madman’: Sarkozy tells Obama what he really thinks of former Greek PM… as country’s new leader is finally named
‘Oops!’: Rick Perry’s presidential hopes go up in flames as he forgets his own policies in biggest GOP debate flop yet

Developments in Europe saw U.S. stocks rise yesterday. The Dow Jones Industrial Average finished up 1 per cent at 11893.79, and the Nasdaq Composite tacked on 0.1 per cent to 2625.13.

The warning to Europe comes as Italy’s Senate today votes, after months of dithering and delay, on austerity measures demanded by the EU.

The Italian upper house is due to vote on a package of cuts. The law should pass easily, as it should in the lower house on Saturday.
German chancellor Angela Merkel
Sarkozy

Midnight chat: German chancellor Angela Merkel (left) and French President Nicolas Sarkozy (right) received calls from the U.S. President last night
Graphic showing the latest EC GDP growth and debt forecasts

Voting for the first time in the upper house will be Mario Monti, the former European Commissioner who has emerged as favourite to replace Silvio Berlusconi as prime minister.
EUROPEAN CRISIS: AT A GLANCE

Greece: Appointed Lucas Papademos as new Prime Minister, who hopes to secure 130bn euro debt deal from the eurozone to keep the country in the single currency.

Italy: PM Silvio Berlusconi has promised to quit once economic reforms have been passed, possibly as early on Sunday. Likely to be replaced by former European Commissioner Mario Monti.

Fears Italy would have to be bailed out after interest on its 10-year bonds rose past critical 7 per cent figure which saw Ireland, Portugal and Greece default.

Resignation of Berlusconi has calmed the waters, and yields are now down to 6.8 per cent.

Britain: Government making contingency plans for if the euro collapses. Worried that it will drag the UK into a double-dip recession.

Berlusconi, who lost his majority in a vote on Tuesday, has promised to resign after the financial stability law is passed by both houses of parliament.

If the votes pass smoothly, Napolitano may accept Berlusconi’s resignation as early as Saturday night and formally mandate Monti to try to form a new government soon afterwards.

At first, Berlusconi had insisted that early elections were the only option. But he has since softened his stand and is said by sources to be open to a new government.

Markets were calmed at the prospect of an interim government, rather than a three-month vacuum before elections are held.

Monti, a highly respected international figure, has been pushed for weeks as the most suitable figure to lead a national unity government to push through painful austerity measures.

It also comes as Greece’s prime minister designate was set to name a new crisis cabinet today to calm the political turmoil that has threatened to bankrupt the country and force it out of the euro zone.

Greece’s two main parties agreed yesterday to make Lucas Papademos head of a new unity government.

It ended a chaotic search for a leader to save the country from default. He must now fulfill the terms of a 130 billion euro bailout plan agreed with European partners in October.

Papademos said: ‘The path will not be easy but I am convinced the problems will be resolved faster and at a smaller cost if there is unity, understanding and prudence.’

Sources in the two parties – the ruling Socialists and the opposition New Democracy – said Evangelos Venizelos was likely to remain as finance minister when President Karolos Papoulias swears in the new cabinet, scheduled for 12noon GMT.

The weak global economy has today pushed Hong Kong into a recession with GDP figures showing a third-quarter contraction, the second straight quarterly decline.

The Hong Kong government said exports dropped off sharply towards the end of the quarter ‘amid an increasingly austere global economic environment’.

The economy grew 4.3 per cent in the third quarter, smaller than the revised 5.1 per cent growth in the second quarter, which was itself less than the 7.5 per cent expansion notched up in the first quarter.

Some economists define a recession as two straight quarters of economic contraction while others say it is a significant decline in across-the-board economic activity lasting more than a year.
Obama

Read more: http://www.dailymail.co.uk/news/article-2060227/Eurozone-crisis-Obama-orders-European-leaders-dramatic-action.html#ixzz1e25tD2N3

France’s President Nicolas Sarkozy (R) and Germany’s Chancellor Angela Merkel attend a joint press conference after crisis talks with Greece’s Prime Minister on the eve of a G20 summit of major world economies in Cannes, November 2, 2011. REUTERS/Charles Platiau

By Daniel Flynn and Emmanuel Jarry

STRASBOURG, France (Reuters) – France and Germany agreed on Thursday to stop arguing in public over whether the European Central Bank should do more to rescue the euro zone from a deepening sovereign debt crisis.

President Nicolas Sarkozy and Chancellor Angela Merkel said after talks with Italian Prime Minister Mario Monti that they trusted the independent central bank and would not touch its inflation-fighting mandate when they propose changes of the European Union’s treaty to achieve closer fiscal union.

They also demonstrated their backing for Monti, an unelected technocrat, to surmount Italy’s daunting economic challenges, in contrast to the barely concealed disdain they showed for his predecessor, media billionaire Silvio Berlusconi.

“We all stated our confidence in the ECB and its leaders and stated that in respect of the independence of this essential institution we must refrain from making positive or negative demands of it,” Sarkozy told a joint news conference in the eastern French city of Strasbourg.

French ministers have called for the central bank to intervene massively to counter a market stampede out of euro zone government bonds, while Merkel and her ministers have said the EU treaty bars it from acting as a lender of last resort.

The Netherlands however moved closer to endorsing the ECB as lender of last resort, apparently breaking ranks with Germany.

Finance Minister Jan Kees de Jager said he would prefer that the European Financial Stability Facility, the euro zone bailout fund, should be strengthened. But if the EFSF did not succeed, other measures would have to be considered.

“In a crisis one should never exclude anything beforehand. In the end, something has to happen,” he said.

Sarkozy said Paris and Berlin would circulate joint proposals before a December 9 EU summit for treaty amendments to entrench tougher budget discipline in the 17-nation euro area.

Merkel said the proposals for more intrusive powers to enforce EU budget rules, including the right to take delinquent governments to the European Court of Justice, were a first step toward deeper fiscal union.

But she said they would not modify the statute and mission of the central bank, nor soften her opposition to issuing joint euro zone bonds, except perhaps at the end of a long process of fiscal integration.

Some French and EU officials hoped Berlin would soften its resistance to a bigger crisis-fighting role for the ECB after Germany itself suffered a failed bond auction on Wednesday, showing how investors are wary even of Europe’s safest haven.

“There is urgency (for ECB intervention),” Foreign Minister Alain Juppe told France Inter radio before the meeting.

Sarkozy took a step toward Merkel this week by agreeing to amend the treaty to insert powers to override national budgets in euro area states that go off the rails. But there was no sign of a German concession on euro zone bonds or the ECB’s role.

“This is not about give and take,” Merkel said. Only when European countries reformed their economies and cut their deficits would borrowing costs converge. “To try to achieve this by compulsion would weaken us all.”

With contagion spreading fast, a majority of 20 leading economists polled by Reuters predicted that the euro zone was unlikely to survive the crisis in its current form, with some envisaging a “core” group that would exclude Greece.

Analysts believe that sense of crisis will in the end force dramatic action. “I think we are moving closer to a policy response probably, which could be either more aggressive ECB action or the idea of euro bonds could gain some traction,” said Rainer Guntermann, strategist at Commerzbank.

RESISTANCE

In signs of public resistance to austerity in two southern states under EU/IMF bailout programs, riot police clashed with workers at Greece’s biggest power producer protesting against a new property tax, and Portuguese workers staged a 24-hour general strike.

Credit ratings agency Fitch downgraded Portugal’s rating to junk status, saying a deepening recession made it “much more challenging” for the government to cut the budget deficit, highlighting a vicious circle facing Europe’s debtors.

German bonds fell to their lowest level in nearly a month after Wednesday’s auction, in which the German debt agency found no buyers for half of a 6 billion euro 10-year bond offering at a record low 2.0 percent interest rate.

The shortage of bids drove Germany’s cost of borrowing over 10 years to 2.2 percent, above the 1.88 percent markets charge the United States and the 2.18 percent that heavily indebted Britain has to pay.

Bond investors are effectively on strike in the euro zone, interbank lending to euro area banks is freezing up, ever more banks are dependent on the ECB for funding, and depositors are withdrawing increasing amounts from southern European banks.

“It’s quite telling that there has been upward pressure on yields in Germany – it might begin to change perceptions in Germany,” Standard and Poor’s head of sovereign ratings, David Beers, told an economic conference in Dublin.

In one possible response, people familiar with the matter said the ECB is looking at extending the term of loans it offers banks to two or even three years to try to prevent a credit crunch that chokes the bloc’s economy.

Monti repeated Italy’s goal of achieving a balanced budget by 2013 but said there was room for a broader discussion about how fiscal targets could be adjusted in a worse-than-expected recession.

Italian bond yields’ jumped this month to levels above 7 percent widely seen as unbearable in the long term, despite stop-go intervention by the ECB to buy limited quantities, triggering Berlusconi’s fall.

Keeping Italy solvent and able to borrow on capital markets is vital to the sustainability of the euro zone. Key Italian bond auctions early next week will test market confidence.

GERMAN EXPOSURE

German officials said the failed auction did not mean the government had refinancing problems and several analysts said Berlin just needed to offer a more attractive yield.

But it was a sign that, as the bloc’s paymaster, Germany may face creeping pressure as the crisis deepens that may cause it to re-examine its refusal to embrace a broader solution.

Economy Minister Philipp Roesler of the Free Democratic junior coalition partner called for parliament to reject euro zone bonds “because we don’t want German interest rates to rise dramatically.”

But some market analysts are convinced joint debt issuance will eventually have to be part of a political solution to hold the euro zone together.

“Although it is not easy to see how the region will get to a fiscal union with Eurobonds, we believe that this is the path that will be chosen,” JP Morgan economist David Mackie said in a research note.

With time running out for politicians to forge a crisis plan that is seen as credible by the markets, the European Commission presented a study on Wednesday of joint euro zone bonds as a medium-term way to stabilize debt markets alongside tougher fiscal rules for member states.

The borrowing costs of almost all euro zone states, even those previously seen as safe such as France, Austria and the Netherlands, have spiked in the last two weeks as panicky investors dumped paper no longer seen as risk-free.

(Reporting by Stephen Brown, Noah Barkin, Natalia Drozdiak, Veronica Ek, Eva Kuehnen, Ana Nicolaci da Costa, Giselda Vagnoni, Padraic Halpin; Writing by Paul Taylor, editing by Mike Peacock/Janet McBride/Giles Elgood)
December to Remember? The Case for a Year-End Market Rally
By Jeff Macke | Breakout – 6 hours ago

yahoo finance

Russell Investments’ Steve Wood has a 1,300 year-end target for the S&P 500 and he’s sticking to it. From current levels that means Mr. Wood needs about a 9% rally between now and the market close on December 30th. Markets certainly have the volatility to pull off a move of that size but it’s going to require a sharp u-turn in sentiment. With the “headwinds” blowing like a gale, the onus is on Mr. Wood to explain how we get there from here.

Wood starts by acknowledging the concerns. “You’ve got a huge question mark which is ‘how badly can politicians screw things up this week?’” He’s talking about Europe, but clearly the question applies to the entire Western world at this point. Despite domestic bungling Wood insists “the source of risk causing volatility is coming from Europe.”

Wood says getting the Eurozone off our front page is the first step for his rally. “When those European dark clouds pull aside and earnings and economic strength in the U.S. show through you’re getting close to that 1,275 – 1,300 on the S&P,” he says.

An improvement would seem impossible at the moment but Wood says they already have the playbook. “Europe is clearly in a Bear Stearns environment,” he says. That’s a good and a bad thing. The bad is a seizure of the financial markets as interbank lending comes to a terrifying halt. The good part is America dealt with the real Bear Stearns and came up with a solution, stop gap and flawed though it was.

In addition to “Les TARP” Wood says the Eurozone needs to rid itself of Greece and create enough liquidity to stop the run on the banks, thereby eliminating the contagion risk making investors so tweaky. Do that, says Wood, and investors will finally see an improving economic picture in the U.S., a resumption of growth in China, and improved emerging markets.

Plug those into the mix and Wood sees 1,275 to 1,300 on the S&P 500 as a conservative target, if not for year end then certainly during the first quarter of 2012.

There are a lot of “ifs” in Wood’s thesis, not the least of which being the idea that Europe can deal with the amputation of Greece and what he says is the end of Europe as we know it without triggering a global market crash. The jury is out on whether or not a plan that could save Europe would be possible with a unified Europe, let alone what we have now.

IF such Europe stops fighting long enough to put together a coherent centralized banking arm, THEN 1,300 is a realistic level. Until then even Wood realizes his target is on hold, at best.
Doing business in Greece
by (KT) 13 Nov 2011
IT STILL isn’t easy doing business in Greece – though not as hard as last year, according to the World Bank’s recent report titled Doing Business 2012. Greece ranked 100th for 2012 in the international “ease of doing business” survey. The country was in 149th position last year.

The report, which was released on October 20, assessed regulations affecting businesses in 183 countries and ranked them in 10 areas, such as starting a business, resolving insolvency and trading across borders.

According to the report, Greece is making it “easier” to start a business by implementing an electronic platform that connects several state agencies. The government’s recent decision to reduce the corporate income tax rate was also highlighted.

Nevertheless, it’s easier doing business in countries like Guatemala (ranked 97th), Vietnam (98) and Yemen (99).

In Greece, it still takes more than 10 days to start a business, about two months to get electricity, 18 days to register a property, and as many as 800 days to enforce a contract.

But in the country that leads on the ease of doing business, Singapore, it takes three days to set up a business and only 180 days to enforce a contract. Singapore is followed by Hong Kong, New Zealand, the United States and Denmark. The United Kingdom ranks 7th and Ireland is in 10th position.