EU finance ministers awaited the verdict of financial markets on Monday after unveiling a rescue package for Ireland and a long-term mechanism intended to prevent the debt crisis tearing the euro zone apart.
Under pressure to take action to arrest the threat to the currency before markets opened and prevent market contagion engulfing Portugal and Spain, they endorsed on Sunday an 85 billion-euro ($115 billion) loan package to help Dublin cover bad bank debts and bridge a huge budget deficit.
And they approved the outlines of a permanent crisis-resolution system called the European Stability Mechanism (ESM), based on a Franco-German proposal.
Crucially, the mechanism could make private bondholders share the burden of restructuring a euro zone country's sovereign debt bought after 2013, subject to a case-by-case evaluation, EU Monetary Affairs Commissioner Olli Rehn said.
The lack of detail in an earlier Franco-German deal on a crisis mechanism, agreed last month, and talk of private investors having to take losses, or "haircuts", on the value of sovereign bonds, helped drive Ireland over the cliff.
With anxiety rattling bond markets, the Irish government had been under intense pressure to accept a bailout despite repeatedly saying in recent weeks it did not need one.
"This agreement is necessary for our country and our people. The final agreed program represents the best available deal for Ireland," Irish Prime Minister Brian Cowen said.
The euro [EUR=X 1.3209 -0.0074 (-0.56%)] rose slightly against the dollar in early Asian trading on Monday.
But initial reactions from market analysts to the EU moves ranged from skeptical to bleak. "I don't think this is going to be a silver bullet. I think there are still going to be some question marks on Portugal and Spain," said Peter Westaway, chief economist at brokers Nomura.
"I think it is almost impossible now to stop the contagion," said Mark Grant, managing director of corporate syndicate and structured debt products at Southwest Securities in Florida.
"Bond owners will turn their attention to Portugal, Spain, Italy, Belgium et al as the monetary union is full of structural defects. With the possible exception of Germany, it appears to me that no sovereign debt is safe."
IMF Rules
International Monetary Fund procedures would apply in the ESM, Rehn said. The IMF's "lending into arrears" policy stipulates that the Fund will lend to a country that is making good-faith efforts to come to an agreement with bondholders.
European Central Bank President Jean-Claude Trichet said in Brussels the important points were that the IMF's doctrine would apply, the EU would not get involved in debt restructuring itself and bondholders would not be affected retroactively.
Jitters sent the shares of European banks which hold the debt of Irish banks tumbling on Friday. The euro also fell to a two-month low against the dollar and the borrowing costs of Ireland, Portugal and Spain stood near record highs.
European officials have been at pains to play down the links between Ireland and Portugal, widely seen as the next euro zone "domino" at risk. Troubles in Portugal could spread quickly to Spain because of their close economic ties.
Debt worries have driven the crisis for the past year, severely denting confidence in the 12-year-old euro currency and producing what amounts to a showdown between European politicians and financial markets.
Irish Banks
Some 35 billion euros was earmarked to help restructure the shattered Irish banks, of which 10 billion will be an immediate capital injection and the rest a contingency fund. Ireland will contribute 17.5 billion euros of its own cash and pension reserves towards the bank rescue.
The rest of the emergency loans, which Dublin said were granted at an average interest rate of 5.8 percent, will help cover the giant hole the banks have blown in public finances.
The IMF will contribute 22.5 billion euros.
Rehn said the final interest rate would only be decided next week but put the likely average at about 6 percent.
In a key concession, Ireland was given an extra year, until 2015, to bring its budget deficit down to the EU limit of 3 percent of gross domestic product. And Cowen, whose unpopular government is close to collapse over the EU/IMF bailout, said the deal did not involve any change to Ireland's jealously-guarded 12.5 percent corporate tax rate.
Sunday, November 28, 2010
Wednesday, November 24, 2010
Seoul Holds Urgent Meeting on Economy After Attack - CNBC
South Korean President Lee Myung-bak called an emergency meeting on Thursday to contain the economic impact of an artillery attack by North Korea while the United States asked China to rein in Pyongyang.
Local media said the meeting of senior security and economic officials in Seoul would discuss ways to prevent tensions with North Korea from hurting Asia's fourth-biggest economy, which is becoming more reliant on domestic consumer spending for growth as exports begin to lose steam.
In the United States, Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said Washington was working with allies on ways to respond to the attack, adding: "It's very important for China to lead."
"The one country that has influence in Pyongyang is China and so their leadership is absolutely critical," Mullen told a U.S. television talk show.
North Korean rained artillery shells on Tuesday at the island of Yeonpyeong, south of the disputed maritime boundary with the South. Two villagers were among the four killed, the first time civilians have died in an attack by the North since 1987.
The civilian deaths have added to the anger in the South.
"The biggest task of South Korea is to contain (North Korea's) Kim dynasty so that they cannot cause a national, ethnic tragedy again," the influential Chosun Ilbo daily said on Thursday.
"But South Korea failed to fulfill the task again this time."
The newspaper also said China, reclusive North Korea's only major ally, must take a more pro-active stance in containing Pyongyang.
"If China does not put public pressure on North Korea, provocations by North Korea will continue. If the Korean peninsula is in flames, Chinese prosperity will shake from the bottom."
Global markets have recovered from Tuesday's attack, and the stock market opened up in Seoul on Thursday and looked likely to head back to pre-attack levels. However, the won currency remained under pressure due to lingering caution.
The United States has dispatched an aircraft carrier group headed by the USS George Washington to the Yellow Sea off the Korean peninsula to take part in joint drills with South Korea.
Although the U.S. Forces Korea said the exercise had been planned well before the attack, many thought the move would enrage the North and unsettle China.
Beijing has said previously that it sees any joint U.S.-South Korea exercises in the waters between the Korean peninsula and China as a threat to its security and to regional stability.
China's Role Key
China has long propped up the Pyongyang leadership, worried that a collapse of the North could bring instability to its own borders. Beijing is and also wary of a unified Korea that would be dominated by the United States, the key ally of the South.
Mullen said he believed the attack was linked to the upcoming succession in North Korea's leadership.
Widely thought to be in failing health, Kim Jong-il appointed his younger son to key posts in September, a move seen as grooming him to be the North's next leader. But Kim Jong-un has no real support base, and with the economy in dire straits there is a risk powerful military or government figures may decide the time is opportune for a power grab.
Tuesday's attack by the North was the heaviest since the Korean War ended in 1953 and marked the first civilian deaths in an assault since the bombing of a South Korean airliner in 1987.
It was one of a series of provocations by Pyongyang in recent years, which have included two nuclear tests, several missile tests, and the sinking of a South Korean warship in March that killed 46 sailors.
North Korea said the shelling was in self-defense after Seoul fired shells into its waters near the disputed maritime border. The North's KCNA news agency said the South was driving the peninsula to the "brink of war" with "reckless military provocation" and by postponing humanitarian aid.
Prior to the public comments from Washington, China's Foreign Ministry had urged the two Koreas to show "calm and restraint" and engage in talks as quickly as possible to avoid an escalation of tensions.
"China takes this incident very seriously, and expresses pain and regret at the loss of life and property, and we feel anxious about developments," said spokesman Hong Lei.
South Korea, its armed forces technically superior though about half the size of the North's one-million-plus army, warned of "massive retaliation" if its neighbor attacked again.
But it was careful to avoid any immediate threat of retaliation, which might spark an escalation of fighting across the Cold War's last frontier.
Local media said the meeting of senior security and economic officials in Seoul would discuss ways to prevent tensions with North Korea from hurting Asia's fourth-biggest economy, which is becoming more reliant on domestic consumer spending for growth as exports begin to lose steam.
In the United States, Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said Washington was working with allies on ways to respond to the attack, adding: "It's very important for China to lead."
"The one country that has influence in Pyongyang is China and so their leadership is absolutely critical," Mullen told a U.S. television talk show.
North Korean rained artillery shells on Tuesday at the island of Yeonpyeong, south of the disputed maritime boundary with the South. Two villagers were among the four killed, the first time civilians have died in an attack by the North since 1987.
The civilian deaths have added to the anger in the South.
"The biggest task of South Korea is to contain (North Korea's) Kim dynasty so that they cannot cause a national, ethnic tragedy again," the influential Chosun Ilbo daily said on Thursday.
"But South Korea failed to fulfill the task again this time."
The newspaper also said China, reclusive North Korea's only major ally, must take a more pro-active stance in containing Pyongyang.
"If China does not put public pressure on North Korea, provocations by North Korea will continue. If the Korean peninsula is in flames, Chinese prosperity will shake from the bottom."
Global markets have recovered from Tuesday's attack, and the stock market opened up in Seoul on Thursday and looked likely to head back to pre-attack levels. However, the won currency remained under pressure due to lingering caution.
The United States has dispatched an aircraft carrier group headed by the USS George Washington to the Yellow Sea off the Korean peninsula to take part in joint drills with South Korea.
Although the U.S. Forces Korea said the exercise had been planned well before the attack, many thought the move would enrage the North and unsettle China.
Beijing has said previously that it sees any joint U.S.-South Korea exercises in the waters between the Korean peninsula and China as a threat to its security and to regional stability.
China's Role Key
China has long propped up the Pyongyang leadership, worried that a collapse of the North could bring instability to its own borders. Beijing is and also wary of a unified Korea that would be dominated by the United States, the key ally of the South.
Mullen said he believed the attack was linked to the upcoming succession in North Korea's leadership.
Widely thought to be in failing health, Kim Jong-il appointed his younger son to key posts in September, a move seen as grooming him to be the North's next leader. But Kim Jong-un has no real support base, and with the economy in dire straits there is a risk powerful military or government figures may decide the time is opportune for a power grab.
Tuesday's attack by the North was the heaviest since the Korean War ended in 1953 and marked the first civilian deaths in an assault since the bombing of a South Korean airliner in 1987.
It was one of a series of provocations by Pyongyang in recent years, which have included two nuclear tests, several missile tests, and the sinking of a South Korean warship in March that killed 46 sailors.
North Korea said the shelling was in self-defense after Seoul fired shells into its waters near the disputed maritime border. The North's KCNA news agency said the South was driving the peninsula to the "brink of war" with "reckless military provocation" and by postponing humanitarian aid.
Prior to the public comments from Washington, China's Foreign Ministry had urged the two Koreas to show "calm and restraint" and engage in talks as quickly as possible to avoid an escalation of tensions.
"China takes this incident very seriously, and expresses pain and regret at the loss of life and property, and we feel anxious about developments," said spokesman Hong Lei.
South Korea, its armed forces technically superior though about half the size of the North's one-million-plus army, warned of "massive retaliation" if its neighbor attacked again.
But it was careful to avoid any immediate threat of retaliation, which might spark an escalation of fighting across the Cold War's last frontier.
Sunday, November 21, 2010
Nissan to Shift Output to Dollar Economies - CNBC
Nissan is planning to shift the balance of its production and support functions towards dollar-linked economies, including the U.S. and China, to protect itself against currency volatility, the Japanese carmaker’s chief executive has said.
Carlos Ghosn, CEO of Nissan [NSANY 19.45 0.12 (+0.62%) ] and its French partner Renault, told the Financial Times that they wanted to correct a “big imbalance” in costs and revenues caused by producing cars in Japan to sell in the U.S. and dollar-linked economies in Asia.
“What we [want] to do is shift more of our cost from a yen base to a dollar base,” he said. That would not mean closing down facilities in Japan, he added, but that the company could not expand there.
His remarks may fuel concerns among other countries, and Japan in particular, about the effects of loose U.S. monetary policy and China’s currency link to the dollar.
The dollar has lost 10 percent of its value against the yen [JPY=X 83.48 0.01 (+0.01%) ] this year.
Mr Ghosn said exchange rate volatility of any kind was damaging to business, because it militated against long-term strategy. “The only way you can protect yourself is by making sure your currency footprint is balanced. If there is any imbalance, it should be small.”
He contrasted the position at Renault, which is relatively well-balanced in terms of the match between its cost base and its sales, with Nissan, which has “an unbalanced footprint, and the big imbalance is the yen to the dollar”.
That means Nissan needs to have more of its factories and administrative costs outside Japan, in the U.S. or dollar-linked economies. Nissan’s expansion in the U.S. is being led by its new Leaf electric car, which will initially be exported from Japan, but from 2012 manufactured, with its batteries, in Tennessee.
Mr Ghosn also spoke enthusiastically about the prospects for the Renault-Nissan alliance in Russia, where it has been invited by Vladimir Putin, prime minister, to raise its stake in Avtovaz, the manufacturer of the Lada, to up to 50 percent.
Renault currently owns 25 percent plus one share.
Asked if he would accept Mr Putin’s invitation, he replied: “We’re going to look at the timing, the conditions, but very likely, yes.
“We are going to put in a lot of technology, develop a lot of capacity, do a lot of things together between Avtovaz Lada, Renault and Nissan.”
Carlos Ghosn, CEO of Nissan [NSANY 19.45 0.12 (+0.62%) ] and its French partner Renault, told the Financial Times that they wanted to correct a “big imbalance” in costs and revenues caused by producing cars in Japan to sell in the U.S. and dollar-linked economies in Asia.
“What we [want] to do is shift more of our cost from a yen base to a dollar base,” he said. That would not mean closing down facilities in Japan, he added, but that the company could not expand there.
His remarks may fuel concerns among other countries, and Japan in particular, about the effects of loose U.S. monetary policy and China’s currency link to the dollar.
The dollar has lost 10 percent of its value against the yen [JPY=X 83.48 0.01 (+0.01%) ] this year.
Mr Ghosn said exchange rate volatility of any kind was damaging to business, because it militated against long-term strategy. “The only way you can protect yourself is by making sure your currency footprint is balanced. If there is any imbalance, it should be small.”
He contrasted the position at Renault, which is relatively well-balanced in terms of the match between its cost base and its sales, with Nissan, which has “an unbalanced footprint, and the big imbalance is the yen to the dollar”.
That means Nissan needs to have more of its factories and administrative costs outside Japan, in the U.S. or dollar-linked economies. Nissan’s expansion in the U.S. is being led by its new Leaf electric car, which will initially be exported from Japan, but from 2012 manufactured, with its batteries, in Tennessee.
Mr Ghosn also spoke enthusiastically about the prospects for the Renault-Nissan alliance in Russia, where it has been invited by Vladimir Putin, prime minister, to raise its stake in Avtovaz, the manufacturer of the Lada, to up to 50 percent.
Renault currently owns 25 percent plus one share.
Asked if he would accept Mr Putin’s invitation, he replied: “We’re going to look at the timing, the conditions, but very likely, yes.
“We are going to put in a lot of technology, develop a lot of capacity, do a lot of things together between Avtovaz Lada, Renault and Nissan.”
Obama Faces Democratic Doubts on Tax Cut Strategy - CNBC
Democratic fury at President Barack Obama over the party's rout in U.S. congressional elections is jeopardizing a consensus on tax-cut extensions and poses a leadership test for Obama.
Just a few weeks before Democrats are forced to surrender control of the House of Representatives and contend with a weakened majority in the Senate, Obama is scrambling to pass measures that would prevent middle-income Americans from facing higher taxes in 2011.
But Obama's colleagues in Congress, fresh from losing 60 seats in the House of Representatives, are bitter about his role in their loss and divided about how to move forward — a situation that could overshadow his next two years of governing as well as his priorities for the "lame duck" session now.
"Congressional Democrats are pissed. We just lost 60 seats. And we lost 60 seats for a lot of reasons ... One of those reasons was the president," said Democratic strategist Liz Chadderdon.
"Democrats are divided and ... not interested in carrying his water right now."
That bitterness is spilling into the tax debate. Confusion about the president's position and division over how hard to fight Republicans' push to extend tax breaks for the rich are complicating the discussion just as Obama seeks a united front with his allies on Capitol Hill.
Democrats are especially wary about Obama's willingness to compromise with Republicans, who, bolstered by their Nov. 2 election victory, insist that Bush-era tax cuts be extended for everyone, not just families making less than $250,000 a year.
"There's anxiety from the House Democrats about what the White House is going to do," said one Democratic strategist and former Clinton administration official.
"Are they going to make a bad deal with the Republicans that is going to be bad policy ... for the Democrats politically who were out there fighting for a more progressive outcome?"
The administration may have more riding on the success of efforts to extend the cuts than lawmakers. Though some Democrats view taking a strong stand against Republicans as politically savvy, Obama must show he has learned a lesson from the election he described as a "shellacking."
AMBIGUITY AND THE NEXT ELECTION
Perhaps more importantly, with an eye toward re-election in 2012, the president cannot allow an effective tax hike to hurt prized middle class voters in a sluggish economy, even if that means allowing an extension of tax breaks for the rich.
"The problem is right now everyone is calculating their approach to all of these things in terms of 2012," said Ross Baker, political scientist at New Jersey's Rutgers University, who recommended an "intervention" to allow Democrats to vent their frustration with the White House.
Obama's dilemma is that he wants to score a political win for Democrats by extending the tax cuts in 2010. But Republicans may see little advantage in allowing him to do that since it would mean passing up the chance to enact the legislation in January, when they could claim credit.
The challenge for the White House and congressional Democrats will be ensuring that Republicans get the blame if tax rates go up on Jan. 1.
Obama's critics say a reluctance to take a firm stand on policy issues was one reason for the election losses, and they want to see decisive leadership from him on taxes.
"The president needs to put down a marker," said Representative Earl Blumenauer, a Democrat from Oregon.
"There is more confusion on the Senate side and there is a little ambiguity about what the president is going to do."
Obama has a chance to do that before he meets with Republican leaders at the White House on Nov. 30. Analysts said he needs to offer a clear stance on whether he favors continuing all the cuts or just those for the middle class.
"We're sort of all waiting for the president to tell us where he is," said one senior Democratic aide on Capitol Hill. The White House wants more information before that happens.
Obama challenged Democratic leaders last week to offer ideas on on a strategy for extending the middle class tax cuts. His aides have made clear he would be the first to advocate extending only the middle-income tax breaks — if there were the votes in Congress to do that.
But that is not the political reality he faces, and the debate will test Obama's frayed relationship with his party and also his attempts to reach out to opposition Republicans.
Rutgers' Baker said Democrats are "dazed by the enormity of the defeat" and need to transition from months of campaigning to governing in a situation where Republicans hold more sway and are showing little inclination to give ground.
"It takes time to adjust from being a combatant to being a prisoner of war," Baker said.
Steny Hoyer, the No. 2 Democrat in the House, on Sunday played down differences with Obama on the tax-cut strategy, emphasizing that all Democrats wanted to avoid increasing the tax burden on "average working Americans."
And while he was noncommittal about whether congressional Democrats would compromise with Republicans on extending tax cuts for the rich, Hoyer said on CBS' "Face the Nation" he would talk to Obama about "how we move the ball forward."
Just a few weeks before Democrats are forced to surrender control of the House of Representatives and contend with a weakened majority in the Senate, Obama is scrambling to pass measures that would prevent middle-income Americans from facing higher taxes in 2011.
But Obama's colleagues in Congress, fresh from losing 60 seats in the House of Representatives, are bitter about his role in their loss and divided about how to move forward — a situation that could overshadow his next two years of governing as well as his priorities for the "lame duck" session now.
"Congressional Democrats are pissed. We just lost 60 seats. And we lost 60 seats for a lot of reasons ... One of those reasons was the president," said Democratic strategist Liz Chadderdon.
"Democrats are divided and ... not interested in carrying his water right now."
That bitterness is spilling into the tax debate. Confusion about the president's position and division over how hard to fight Republicans' push to extend tax breaks for the rich are complicating the discussion just as Obama seeks a united front with his allies on Capitol Hill.
Democrats are especially wary about Obama's willingness to compromise with Republicans, who, bolstered by their Nov. 2 election victory, insist that Bush-era tax cuts be extended for everyone, not just families making less than $250,000 a year.
"There's anxiety from the House Democrats about what the White House is going to do," said one Democratic strategist and former Clinton administration official.
"Are they going to make a bad deal with the Republicans that is going to be bad policy ... for the Democrats politically who were out there fighting for a more progressive outcome?"
The administration may have more riding on the success of efforts to extend the cuts than lawmakers. Though some Democrats view taking a strong stand against Republicans as politically savvy, Obama must show he has learned a lesson from the election he described as a "shellacking."
AMBIGUITY AND THE NEXT ELECTION
Perhaps more importantly, with an eye toward re-election in 2012, the president cannot allow an effective tax hike to hurt prized middle class voters in a sluggish economy, even if that means allowing an extension of tax breaks for the rich.
"The problem is right now everyone is calculating their approach to all of these things in terms of 2012," said Ross Baker, political scientist at New Jersey's Rutgers University, who recommended an "intervention" to allow Democrats to vent their frustration with the White House.
Obama's dilemma is that he wants to score a political win for Democrats by extending the tax cuts in 2010. But Republicans may see little advantage in allowing him to do that since it would mean passing up the chance to enact the legislation in January, when they could claim credit.
The challenge for the White House and congressional Democrats will be ensuring that Republicans get the blame if tax rates go up on Jan. 1.
Obama's critics say a reluctance to take a firm stand on policy issues was one reason for the election losses, and they want to see decisive leadership from him on taxes.
"The president needs to put down a marker," said Representative Earl Blumenauer, a Democrat from Oregon.
"There is more confusion on the Senate side and there is a little ambiguity about what the president is going to do."
Obama has a chance to do that before he meets with Republican leaders at the White House on Nov. 30. Analysts said he needs to offer a clear stance on whether he favors continuing all the cuts or just those for the middle class.
"We're sort of all waiting for the president to tell us where he is," said one senior Democratic aide on Capitol Hill. The White House wants more information before that happens.
Obama challenged Democratic leaders last week to offer ideas on on a strategy for extending the middle class tax cuts. His aides have made clear he would be the first to advocate extending only the middle-income tax breaks — if there were the votes in Congress to do that.
But that is not the political reality he faces, and the debate will test Obama's frayed relationship with his party and also his attempts to reach out to opposition Republicans.
Rutgers' Baker said Democrats are "dazed by the enormity of the defeat" and need to transition from months of campaigning to governing in a situation where Republicans hold more sway and are showing little inclination to give ground.
"It takes time to adjust from being a combatant to being a prisoner of war," Baker said.
Steny Hoyer, the No. 2 Democrat in the House, on Sunday played down differences with Obama on the tax-cut strategy, emphasizing that all Democrats wanted to avoid increasing the tax burden on "average working Americans."
And while he was noncommittal about whether congressional Democrats would compromise with Republicans on extending tax cuts for the rich, Hoyer said on CBS' "Face the Nation" he would talk to Obama about "how we move the ball forward."
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