EU under fire for spendthrift trillion-euro budget

Europe's austerity-driven governments rounded on Thursday on the European Commission's proposals for a record, more than trillion-euro, EU budget as 'unrealistic' and 'irresponsible'.

Almost immediately after being unveiled late on Wednesday, the draft budget for the next 2014-2020 period came under strong fire from two of the bloc's 'big three' powers — Britain and Germany — for a five-per cent rise geared to send spending soaring to 1,083 billion euros ($1,570 billion).

German foreign minister Guido Westerwelle, deeming it 'irresponsibly high', reminded the European Union's executive arm that 'in times of general budgetary consolidation Brussels must also send a message to frugally and sustainably economise.'

London issued the same message, demanding Brussels 'take the same tough measures as national governments are taking across Europe' and recalling that the union's top players had demanded zero budgetary growth for the future.

'We will stick to that,' said a British government spokesman.

The European parliament, which was clamouring for a five per cent increase to cover new needs and fresh policies, applauded the proposals.

Westerwelle said Germany saw one per cent of EU economic output — forecast as one trillion euros ($1.4 billion) for the period — as sufficient to cover EU spending during that time.

With a slight sleight of hand, commission officials put the budget at a total 1,025 billion euros, or 1.05 per cent of the 27-nation bloc's gross national income, while omitting 58.3 billion of emergency funds set aside for emergencies such as aid or farm crises.

Overall, the budget redefines EU priorities, reducing funds for farmers to invest instead in infrastructure and the greening of Europe — with a strong focus on building cross-border energy, telecoms and transport grids aimed at streamlining economic integration in the world's biggest market.

It also proposes the introduction of an EU sales tax and financial services tax to allow the bloc to raise its own funds rather than depend so heavily on funding from the EU member states.

While the commission has until late 2012 to hammer through a deal on its bombshell budget, the fiery immediate responses presage months of heated debate.

The Netherlands slapped down the idea of taxes, saying 'taxation is a national competence', while Britain warned against the introduction of a financial services tax in Europe that could send firms running for cover elsewhere.

'We think this should be done on a global level,' said a British diplomat.

Monies raised directly through an EU VAT — representing one or two percentage points of national sales tax — and a financial transactions tax worth some 30 billion euros a year, would bring in more than 40 per cent of EU revenue, said budget commissioner Janusz Lewandowski.

Stepping onto contentious ground, the commission also suggested a sweeping reform of EU 'rebates', a system of yearly paybacks to certain member states who claim excessive contributions into the EU coffer — and which notably includes a huge rebate to London negotiated decades back by Margaret Thatcher.

EU officials said complex routine haggling over the rebates — to Britain, Germany, the Netherlands and Sweden — could be replaced by a fixed lump sum in the interest of 'something very simple'.

Admitting the lump payments would be 'a little under current amounts', officials suggested 3.5 billion euros yearly to Britain, 2.5 billion to Germany, 1.05 billion to the Netherlands and 350 million to Sweden.

Sweden said that would 'substantially increase' its contribution to the EU budget while in Copenhagen, Denmark demanded its own rebate, saying: 'it is not reasonable that Denmark should have to finance the rebates of other wealthy countries without getting one itself.'

London 'will continue to protect the rebate', a government spokesman said.

'Without it, the UK's net contribution as a percentage of national income would be the largest across the EU, twice as large as France's and Italy's, and almost one and a half times bigger than Germany's.'

Italy said it had set itself a priority of obtaining a reduction of its contribution and would not accept that some countries should have a privileged position.

But also said that in general it accepted that the EU should have a budget to match its ambitions.

Source : New Age

S&P to deeply cut US ratings if debt payment missed

The United States would immediately have its top-notch credit rating slashed to 'selective default' if it misses a debt payment on August 4, Standard & Poor's managing director John Chambers told Reuters.

Chambers, who is also the chairman of S&P's sovereign ratings committee, said on Tuesday that US treasury bills maturing on August 4 would be rated 'D' if the government fails to honour them. Unaffected treasuries would be downgraded as well, but not as sharply, he said.

'If the US government misses a payment, it goes to D,' Chambers said. 'That would happen right after August 4, when the bills mature, because they don't have a grace period.'

Fears of a technical default have been rising after budget negotiations between Democrats and Republicans fell apart in Washington earlier this week. Even a brief default by the United States would immediately increase the country's borrowing costs, weighing on the fragile economic recovery and eroding the dollar's status as a reserve currency.

On August 4, the treasury department is due to pay off $30 billion in maturing short-term debt.

With the debt talks stalled, new ideas are surfacing such as prioritising debt payments. But treasury secretary Timothy Geithner warned lawmakers on Wednesday that such a move would still cause investors to shun treasury securities.

Geithner said that because the United States now borrows roughly 40 cents of every dollar it spends, prioritising payments with no debt limit increase would require cutting 40 per cent of all government expenditures.

S&P is not the first agency to say it will downgrade the United States if a payment is missed. Rival credit rater Moody's on June 2 was the first to say it would downgrade the United States shortly after a possible ceiling-related default to the Aa range.

Moody's on Wednesday said a US credit downgrade would also affect the ratings of some states and municipalities with strong credit links to the federal government.

Chambers insisted that the likelihood of a US default is 'extremely low,' as S&P expects a last-minute increase to the country's debt ceiling just like it has happened more than 70 times since the 1960s.

He also noted a default on US treasuries — a benchmark against which all other debt is measured — would dwarf any worries about US credit ratings as global markets would crumble.

Chambers made clear, however, that S&P is more worried about the ability of the government to meaningfully cut its deficit over the next two years, with presidential elections in 2012 making a bipartisan agreement much tougher.

Source : New Age

Beijing-Shanghai high-speed train makes debut

High-speed trains linking Beijing and Shanghai made their passenger debut Thursday on a $33 billion track China hopes will help ease its overloaded transport system.

Premier Wen Jiabao declared the link 'in operation' at Beijing South rail station before boarding the first sleek-nosed white train that will take passengers to Shanghai, the country's commercial hub, in less than five hours.

He said the high-speed line — launched on the eve of celebrations to mark the 90th birthday of China's communist party — would be key to 'improving the modern transport system... and satisfying people's travelling needs.'

The line, which has been operating on a trial basis since mid-May, halves the journey time between the country's two main cities and could hurt airlines on the busy route plagued by delays and cancellations.

'The high-speed train is fast and more convenient than a plane,' 38-year-old Xu Yuhua told the AFP as she waited with her 10-year-old daughter to board the first train for Shanghai, which left promptly at 3:00pm (0700 GMT).

Source : New Age

British public sector workers strike in pension row

Hundreds of thousands of British public sector workers went on strike Thursday to defend their pensions, causing widespread school closures in a major challenge to the year-old government.

Jobcentres, tax offices and museums were also closed across the country as four unions called out up to 6,00,000 workers to protest against plans to make them work longer and pay more into their pensions.

However, airport operator BAA said fears of delays at London Heathrow from a walkout by immigration and customs staff had failed to materialise on Thursday morning.

Prime minister David Cameron said the strike was premature as the changes were still being negotiated, and warned that with an ageing population reform was inevitable because 'the pension system is in danger of going broke'.

Action by three education unions caused the closure of about a third of schools in England and the disruption of another third, according to the Department for Education. There was also widespread disruption in Wales.

Picket lines were also set up outside government buildings, law courts and even the British Museum, and several thousand people gathered for a march in London, brandishing banners calling for 'Fair pensions for all'.

'I will lose £60,000 (66,000 euros, $96,000), I'll pay an extra £60 a month and I'll have to work seven or eight years longer' under the reforms, said Richard Jones, a 39-year-old civil servant on the march.

It looks set to be the largest public sector strike since one million local government workers walked out in March 2006, and some union leaders have warned it may only be the beginning of months of industrial unrest over pensions.

Cameron's Conservative-Liberal Democrat coalition has been the focal point of public sector anger after it announced a two-year pay freeze and 3,30,000 job losses by 2015 in an attempt to rein in a record budget deficit.

Source : New Age

Euro up after Greek vote on austerity package

The euro rose to a three-week high against the dollar in Asia on Thursday, as concern over Greece's debt problems eased after its parliament passed an austerity package that will help it avoid a default.

The euro rose to $1.4511 in Tokyo afternoon trading from $1.4429 in New York late Wednesday, topping $1.45 while the European unit edged up to 116.63 yen from 116.61 yen.

The dollar fell to 80.34 yen from 80.80 yen.

Greek lawmakers on Wednesday approved 28.4 billion euros package of spending cuts, unlocking a 12-billion-euro payout from the European Union and the International Monetary Fund.

The funds represent the fifth tranche of a 110-billion-euro aid package agreed last year with the EU and IMF, and are needed for Greece to pay off its mammoth debts.

Markets are still closely watching a second vote on the detail behind the measures that will take place later Thursday.

'Although the vote outcome came in line with expectation, the market is confirming risks to the euro stemming from the Greek debt problem are diminishing step by step,' said Dai Sato, dealer at Mizuho Corporate Bank.

'Upbeat stock markets are also helping improve risk sentiment, lifting the euro against the dollar,' Sato said.

Source : New Age

Change in temperature unlikely

Light to moderate rain or thundershowers accompanied by temporary gusty or squally wind is likely at most places over the Barisal, Chittagong and Sylhet divisions and at many places over the Rajshahi, Khulna and Dhaka divisions till 6:00pm today.

Moderately heavy to heavy falls are also likely at places over the country, the Meteorology Office said in a forecast on Thursday.

Day temperature may remain nearly unchanged over the country.

The sun sets in Dhaka today at 6:50pm and rises tomorrow at 5:15am.

The country's highest temperature, 33.8 degrees Celsius, was recorded on Thursday in Jessore and the lowest, 23.9 degrees Celsius, in Feni.

Source : New Age

Portugal delays high speed rail link as part of austerity

Portugal's new centre-right government sacrificed on Tuesday the completion a high-speed rail link with Spain as part of efforts to beat austerity targets agreed in its EU-IMF bailout.

The suspension of the construction of the Lisbon-Madrid high speed rail link that was due to be completed by 2013 was included in the government's four-year programme which it submitted to parliament.

The programme of Portuguese Prime Minister Pedro Passos Coelho vowed to 'apply scrupulously the measures negotiated with the International Monetary Fund and the European Union.'

Under Portugal's 78-billion-euro ($112 billion) bailout Lisbon must implement tough measures to control public finances and introduce reforms and sell-off state assets to improve the weak structure of the economy.

However, the government signalled it wants to be 'more ambitious in the adjustment process for the Portuguese economy' in order to 'prevent against possible external and internal risks.'

There have been increasing concerns that a Greek default could spread a new wave of contagion throughout the eurozone, further damaging weaker economies such as Portugal.

Source : New Age

Compromise unblocks US trade deals

The White House and top lawmakers have finally reached a deal to allow long-stalled trade pacts with South Korea, Colombia and Panama to move ahead in Congress, officials said Tuesday.

The deal will allow a Senate panel to start work this week on the pacts, worth billions of dollars, which slash tariffs and are designed to boost exports and speed up slow US jobs growth, Capitol Hill officials said.

The White House said the breakthrough resulted from an agreement with lawmakers to fund Trade Adjustment Assistance, which offers health care and retraining for US workers who lose jobs to overseas markets through 2014.

The White House had insisted on renewing TAA as a condition for moving forward on the deals, drawing Republican fire that it was loading down the pacts with unrelated legislation and blocking vital trade deals.

'As a result of extensive negotiations, we now have an agreement on the underlying terms for a meaningful renewal of a strengthened TAA,' White House spokesman Jay Carney said in a statement.

'President Obama has fought for an ambitious trade agenda that doubles exports in five years, levels the playing field for American workers, and reflects American values,' he said.

Trade organizations and free trade advocates had been cranking up pressure on the White House to move on the deals before campaigning for the 2012 election further poisons the political atmosphere.

The deals may offer a boost to Obama's efforts to double US exports and create jobs in a sluggish economy with unemployment pegged at 9.1 per cent, a perilous political reality for the president.

Trade groups, which have mounted a vocal campaign for action on the pacts, welcomed the breakthrough.

'With our economic recovery stalling, the time is now for Congress to act on these deals,' said Thomas Donohue, president and CEO of the US Chamber of Commerce.

'For members of Congress who care about American jobs, this is a moment of truth,' he said.

Mitch McConnell, who leads the Republican minority in the Senate, however, suggested the ratification of the deals remained in doubt, saying the expansion of TAA in the South Korea pact was opposed by his party.

'I would strongly urge the Administration to re-think this action, and urge them to send up all three pending trade agreements without delay and without extraneous poison pills included,' he said.

But Democratic Senator Max Baucus said the TAA deal had been put together in talks which included top House of Representatives Republicans, adding his finance committee would begin to consider the deals on Thursday.

And a senior Obama administration official said on condition of anonymity that the White House was confident there was sufficient support in Congress to ratify the three deals and pass the extension of TAA.

Lori Wallach, Director of the global trade watch for Public Citizen, a consumer advocacy group, warned though that ratifying the deals could come at a political price.

'Given that polls show most Americans oppose more... trade pacts because they are job-killers, announcing that three more such agreements are ready to move... sure will make them mad.'

The Colombia trade pact, a fulcrum of US policy towards Latin America, was signed with Washington in 2006, but has languished in Congress ever since amid fierce debate among pro and -anti free traders.

In April, US president Barack Obama said the United States and Colombia had agreed a plan to boost labour rights in the Latin American nation and unblock a free trade agreement between their countries.

Source : New Age

Inflation fears give active managers new chance

Rising inflation is giving active fund managers a chance to claw back business lost to low-cost funds after the market crisis cast doubts over their ability to make money for clients.

With low interest rates and rising inflation making cash-like products unappealing and market volatility diminishing the allure of cheap index tracking funds, many investors are being forced back into active funds.

'There is a tremendous opportunity for investment managers to provide propositions — for a fee — to deal with that risk. In a high and rising inflation scenario, active management ought to be really key,' said Tom Brown, head of investment management for the EMEA region at KPMG.

Research house Cerulli Associates estimated while global assets recovered to pre-crisis levels last year, revenues were still $10 billion short of 2007, partly because of a reallocation to passive from active management.

'Institutional investors are moving again to ... very high conviction portfolios. That is because of their need for returns and that includes inflation (rises),' said Bernhard Langer, chief investment officer of global quantitative equity at Invesco.

Langer, who oversees $25 billion, told Reuters he was seeing especially strong demand for high conviction equity products in the United States.

Products aiming to deliver returns above markets while managing downside risks were in demand, said Elizabeth Corley, Europe chief executive of Allianz Global Investors and a speaker at the Fund Forum industry conference in Monaco.

'That is what clients like, and that is growing faster than any other part of our business,' she said.

Rick Lacaille, global CIO at State Street Global Advisors said on the sidelines of the conference on Monday that while index-tracking investments remained popular, demand for more sophisticated funds offering potentially market beating returns was on the rise.

'There is still great appetite for indexed funds but that much more concentrated, high-return portfolio is also growing,' Lacaille said.

There is still plenty of criticism of active fund management which charges relatively high fees for a premium service that can fail to deliver.

A separate Cerulli study conducted earlier this year revealed that out of a sample of 69 European absolute return funds — meant to deliver returns in any market condition — with more than five years track record, only six posted positive annual returns since inception.

The respondents told Cerulli that absolute return was 'more an aspiration' than something they would necessarily deliver every year said Yoon Ng, the report's author.

In a rare acknowledgement of the industry's limits, Bill Gross, co-CIO at PIMCO, the Allianz fixed income subsidiary, recently said fund managers sold 'hope' in exchange for generous fees.

But despite the criticism, Fund Forum attendees said they have seen no significant fee pressure.

'I would almost go as far as saying that in the last three years the prices were constant,' Langer said.

Allan Polack, chief executive of Nordea Asset Management, said the largest Scandinavian asset manager had seen no big challenges in defending fee levels, while SSgA's Lacaille said fees for the active management range were stable.

Source : New Age

Same method, same result: France keeps IMF job

Despite pledges of new transparency, the IMF again gave its top job to a French candidate Tuesday, assuring continued ire from developing countries at Europe's hold on the job.

To the surprise of few, the global crisis lender's executive board named French finance minister Christine Lagarde as managing director, replacing her countryman Dominique Strauss-Kahn, who resigned on May 18 to fight charges of sexual assault in New York.

That made her the 11th European to hold the job since 1946, and the fifth from France—a record that comes thanks to a gentleman's agreement dating to their creation at the end of World War II that an American would be president of the World Bank and a European would lead the International Monetary Fund.

Despite a challenge by Mexico's central bank chief Agustin Carstens, few had doubted Lagarde's chances: Europe aggressively declared itself united behind her days after Strauss-Kahn departed and before any other candidates had a chance to surface.

A top European official at the time called it a 'done deal.'

Carstens persevered, while others—including the respected South African Trevor Manuel—stayed out, saying Lagarde already had the job sewn up.

'I think a lot more could be done, a lot more should have been done to persuade Europeans that this birthright is not a birthright that should find a resonance in an institution as important as the International Monetary Fund,' Carstens said at the time.

When Strauss-Kahn was chosen in 2007, Jean-Claude Juncker, who chaired the Eurogroup of countries, predicted that would be the last time a European got the job.

'The next director will certainly not be a European' he said.

That came after more than a decade of anger at the IMF's hectoring approach to developing country members, especially in the 1997 Asian crisis when it dictated reforms based on a developed country ideology that has since been partially jettisoned—especially its then-rejection of capital controls.

But the 'consensus' choice of Lagarde proved Juncker wrong, even though the same developed countries that dominate the fund plunged into their own financial crises beginning in 2007.

'The process is rigged,' said Arvind Subramanian, a former IMF economist.

'Fundamentally, the system must be made fairer by ensuring that no one group of countries gets an unfair advantage in the race to become the managing director of the IMF.'

Sarah Wynn-Williams, head of IMF relations at global poverty fighting group Oxfam, said ahead of the decision that the managing director nominee is 'not even decided by the board, it's not even decided in Washington.'

Source : New Age