Osborne should lay out euro crisis stimulus plans - IFS

Chancellor George Osborne should publish broad stimulus plans for an emergency such as a break-up of the euro zone in next month's budget, the country's leading fiscal policy think-tank said on Wednesday.

The Institute for Fiscal Studies said that while austerity is needed in the coming years to fix public finances, the case for some short-term stimulus had strengthened as the economy has probably entered a mild recession.

But it acknowledged the large risks to even a temporary spending boost, saying any loss in market trust could cost Britain dearly as it has to issue 740 billion pounds to fund new borrowing and refinance maturing bonds over the next five years.

Britain's Chancellor of the Exchequer
George Osborne arrives at the
Treasury in London January 25, 2012.
REUTERS/Suzanne Plunkett

"Regardless of whether or not Mr. Osborne thinks that a substantial short-term fiscal stimulus is appropriate at the moment, he should set out now broadly what he would do under alternative scenarios where the economic outlook for the UK is sharply weaker - such as were the Eurozone to collapse" it said.

IFS programme director Gemma Tetlow said clarity now could avoid accusations of any U-turn later.

"It might be reassuring for businesses and individuals that, if something were to go wrong, the government would be prepared and in a position to do something in the short-term," she said.

The debate about the need for a short-term boost is already heating up ahead of the budget, due on March 21, as the economy contracted by 0.2 percent at the end of 2011.

Chancellor Osborne has blamed the euro zone debt crisis for Britain's meagre economic performance over the past few months. The government has said it is working on plans for all eventualities but has so far refused to give any details.

Osborne announced more spending cuts in November to meet his main target to erase the budget deficit within five years as the weak economic outlook drives up borrowing.

A Treasury spokesman said the IFS's report supported the government's deficit policy. "The IFS say that ... any fiscal stimulus big enough to make a difference would undermine investor confidence and so risk higher interest rates," he said.

Consultancy Oxford Economics, which provided the IFS with alternative growth scenarios, said if the euro zone breaks up, Britain's economy would slump by 1.7 percent this year and 0.9 percent in 2012. Its central view is for 0.3 percent growth this year and 1.9 percent next, lower than the government fiscal watchdog Office for Budget Responsibility's forecast of 0.7 percent growth in 2011 and 2.1 percent in 2013.

The IFS said under its main scenario - using the OBR's growth forecasts - the government's net borrowing was likely to be nearly 3 billion pounds lower in 2011/2012, and some 9 billion pounds lower in 2016/2017 than the OBR itself predicts.

©Reuters 2012

Eurosceptic anger at Cameron U-turn

David Cameron is facing a backlash from Tory eurosceptics after abandoning his opposition to the European Court of Justice being used to enforce a new fiscal compact for the eurozone.

The Prime Minister has previously insisted that European Union institutions could not be used for a new pact because Britain will not be a signatory.

After his dramatic use of the veto last month to block a new treaty, he said the European Commission and the European Court of Justice could only carry out policies applying to all 27 member states.

David Cameron said the UK would only
make any challenge to a new EU treaty
 if the country's interests were 'threatened'

However after a further EU summit in Brussels, Mr Cameron did not press his case against the use of the institutions and said Britain would only make any challenge if its interests were "threatened".

The Prime Minister said: "We don't want to hold up the eurozone doing what is necessary to solve the crisis as long as it doesn't damage our national interests, so it's good that the new treaty states clearly that it cannot encroach upon the competences of the Union and that they must not take measures that undermine the EU single market."

He added: "The key point here for me is what is in our national interest, which is for them to get on and sort out the mess that is the euro. That's in our national interest. We will be watching like a hawk and if there is any sign that they are going to encroach on the single market we will take the appropriate action, if I may put it that way.

"The principle that the EU institutions can only be used with the permission of 27 (member states) has not changed. In as much as this (new treaty) is about fiscal union, fine: if it encroaches on the single market, not fine."

Tory MPs who were jubilant after Mr Cameron wielded the veto voiced their fears ahead of the summit that the Prime Minister would allow EU institutions to be used to police the new pact. The matter is likely to be discussed at the 1922 Committee of Tory backbenchers on Tuesday. Mr Cameron will report back to the Commons on the latest summit.

Leader of Britain's Tory MEPs Martin Callanan said government policy on the fiscal compact had changed, partly because of a need to mollify Nick Clegg, the pro-Europe Deputy Prime Minister.

Mr Callanan said: "There is no doubt that the Government's position has altered since the December summit when they were insisting the institutions could not be used I blame a combination of appeasing Nick Clegg, who is desperate to sign anything the EU puts in front of him, and the practical reality that this pact is actually quite hard to prevent: the Government would have to ask the European Court of Justice to rule against itself having a role."

EU summit: UK and Czechs refuse to join fiscal compact

EU summit: UK and Czechs refuse to join fiscal compact

The Czech Republic has joined Britain in refusing to sign a controversial EU treaty which proposed handing more powers to Brussels.

25 out of the 27 member countries have signed the new pact which is aimed is aimed at stopping overspending by eurozone countries. Its is hoped that the agreement will reassure investors that lessons have been learned in the current debt crisis.

EU leaders met in December but have struggled to implement fiscal harmony

Mr Cameron had said in December that the UK would not sign the new pact designed to shore up the eurozone. And today at a summit in Brussels, France's president Nicolas Sarkozy said the Czech Republic did not join for constitutional reasons.

At the talks, EU leaders admitted there were no "quick fixes" to the continent's sovereign debt woes but they promised to stimulate growth and create jobs. Approximately there are 23 million unemployed people in Europe.  The EU leaders pledged they must "do more to get Europe out of this crisis" as they pledged to offer more training to young people in their search for work.

They also pledged to reduce barriers to doing business across the EU's 27 countries, and ensure small firms have access to credit but there was no offer any new financial stimulus.

Over the course of Europe's two-year debt crisis, leaders have repeatedly tried to reassure investors by pledging to cut spending and reduce their deficits. But those austerity measures have hurt growth, and Europe is now facing a new recession.

Greece, creditors on verge of clinching debt deal

Greece and its private creditors said on Saturday they were piecing together the final elements of a debt swap and expected to have a deal ready next week, essential for sealing a new bailout and avoiding an uncontrolled default.

Greece and its private creditors said on Saturday they
were piecing together the final elements of a debt swap and expected to have a deal ready next week

After muddling through round after round of inconclusive talks, the negotiations are in their final phase - though it appeared unlikely that a preliminary deal would be secured in time for a European Union summit on Monday.

Greek bondholders said the two sides were finalising a deal along the lines of a proposal made by Jean-Claude Juncker, the chairman of euro zone finance ministers.

The proposal made by Jean-Claude Juncker,
 the chairman of euro zone finance ministers

The bondholders' comments suggested creditors had accepted Juncker's demand for a coupon, or interest rate, of below 4 percent on new, longer-dated bonds that Athens will swap for existing debt.

The coupon had been the main stumbling block in the talks, with euro zoneministers rejecting private creditors' demand for a coupon of at least 4 percent - above the 3.5 percent level Greece and its European partners had been holding out for.

"Next week we will be in a position to complete the debt swap," Finance Minister Evangelos Venizelos said, citing significant progress at Saturday's talks. "We are really one step away from the final deal."

He confirmed that the two sides were working along the "exact framework" provided by euro zone finance ministers.

Charles Dallara, chief of the Institute of International Finance that negotiates on behalf of banks and insurers, is due to leave Athens on Sunday but will remain in contact with Greek authorities, the IIF said.

Still, for Athens, progress on the debt swap is at risk of being overshadowed by increasingly problematic talks with its foreign lenders, whose inspectors are in town demanding unpopular reforms that no politician wants to be linked to.

DENSE, DIFFICULT AND CRUCIAL

Crushed by 350 billion euros of debt and running out of cash quickly, Greece is scrambling to appease the "troika" of its official lenders - the European Commission, European Central Bank and International Monetary Fund - and stitch up a deal with private creditors simultaneously.

Unimpressed with Athens dragging its feet on reforms, the troika has said they could hold up aid if more is not done to make the Greek economy more efficient.

"It's all very dense, difficult and crucial," a Greek finance ministry official said.

The IIF are one of Greece's lenders

European paymaster Germany is pushing for Athens to relinquish control over its budget policy to European institutions as part of discussions over a second rescue package, a European source told Reuters.

With many Greeks blaming Germans for the austerity medicine their country has been forced to swallow, officials in Athens dismissed the idea as out of the question. "The government stresses that this responsibility belongs exclusively to the Greek government," said government spokesman Pantelis Kapsis.

"The government has made a series of steps to improve the effectiveness of the public administration and a closer monitoring of the efforts to achieve fiscal targets.".

The European Commission, the executive arm of the 27-country bloc, said it wanted the Greek government to maintain autonomy.

"The Commission is committed to further reinforcing its monitoring capacity and is currently developing its capacity on the ground," a spokesman said. "But executive tasks must remain the full responsibility of the Greek Government, which is accountable before its citizens and its institutions. That responsibility lies on their shoulders and it must remain so."

A government source in Berlin said Germany's proposal was aimed not just at Greece but also at other struggling euro zone members which receive aid and are unable to make good on their obligations. "All options can obviously be introduced only with the agreement of, for example, the Greeks themselves," he added.

NEW BONDS FOR OLD

The debt swap, in which private creditors take a 50 percent cut in the nominal value of their Greek holdings in exchange for cash and new bonds, is also a prerequisite for the country to secure a 130-billion-euro rescue plan drawn up last year.

The two sides have broadly agreed that new bonds under the swap would have a 30-year maturity, but the talks ran into trouble over the coupon and whether the ECB and other public creditors must take losses on their holdings.

A deal, aimed at chopping 100 billion euros off Greece's debt load, must be sealed in about three weeks at the latest as Greece has to repay 14.5 billion euros of debt on March 20.

Otherwise Greece could sink into an uncontrolled default that might spread turmoil across the euro zone and tip the global economy back into recession.

"There is progress"- IMF Managing Director, Christine Lagarde

IMF Managing Director Christine Lagarde said on Saturday that euro zone members were making progress to overcome their crisis but must do more to strengthen their financial firewall to stop the crisis spreading, adding the IMF was ready to help.

"There is progress as we see it," Lagarde told a panel discussion at the World Economic Forum inDavos.

"But it is critical that the euro zone members actually develop a clear, simple, firewall that can operate both to limit the contagion and to provide this sort of act of trust in the euro zone so that the financing needs of that zone can actually be met."

Concern has also grown in recent days that the debt swap may not do enough to get the country's debt reduction plan back on track, and that Greece's European partners will be forced to stump up funds to cover the shortfall.

The German news magazine Der Spiegel reported on Saturday that Greece's international lenders thought Athens would need 145 billion euros of public money from the euro zone for its second bailout, rather than the planned 130 billion euros.

The magazine said the extra money was needed because of the deteriorating economic situation in Greece, echoing a Reuters report on Thursday.

Greece is in its fifth year of recession, and hopes of an end to the crisis in the near term have virtually gone, because of the combination of squabbling politicians, rising social anger and its inability to push through badly needed reforms.


©Reuters 2012

Fitch downgrades five eurozone economies

US ratings agency Fitch has said it is downgrading the credit ratings of five countries that use the euro, including economic heavyweights Italy and Spain.

Fitch rating agency has downgraded the
debt ratings of five eurozone states including Spain and Italy,
pointing to the growing vulnerability of their economies.

Fitch said the downgraded countries - also including Belgium, Cyprus and Slovenia - faced financial and economic headwinds from the eurozone's debt crisis that could diminish their ability to sustain their own debt loads.

The downgrade was largely expected as Fitch had said it was reviewing the country's ratings. It comes on top of a downgrade of nine eurozone countries by another ratings agency, Standard & Poor's, on January 13.

The downgrade was another setback to European leaders' efforts to contain a crisis over too much government debt in some euro member countries. Ireland, Greece and Portugal have been cut off from bond market borrowing by fears that they might default and have had to take bailout loans from other eurozone governments and the International Monetary Fund.

Fitch cited the European Union's (EU) slow-moving approach to fundamental reform of how the euro currency is set up, as well as the lack in the interim of a credible financial firewall with enough money to keep countries that suddenly have trouble borrowing from defaulting.

The agency lowered ratings for the five by one notch and placed a negative outlook on all of them. Italy went down to A- credit rating while Spain was downgraded to A. Additionally, a sixth country, Ireland, saw its BBB+ rating affirmed but it also received a negative outlook.

Italian Prime Minister Mario Monti has implemented
a number of measures to strengthen Italy's finances

Fitch Ratings blamed the revisions on "the marked deterioration in the economic outlook" in Europe and "the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises".

It said that European leaders' "gradualist" approach to tackling the crisis meant that Europe will continue to face episodes of severe financial volatility that would erode governments' ability to repay debt.

It said those fears would be compounded by a shrinking economy, now that many economists expect at least a mild recession.

"The eurozone crisis will only be resolved as and when there is broad economic recovery," Fitch said. "It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration."

Copyright © 2012 The Press Association. All rights reserved.

EU and US economic leaders spar at Davos

EU and US economic leaders spar at Davos 

Key policy-makers from Europe and the United States thrashed out ideas for pulling the eurozone out of its debt crisis at the Davos forum on Friday, days ahead of a key European summit.

While cloistered in a snow-bound conference centre high in the Swiss Alps, the global political and business elite had one eye on Greece, hoping that a long-awaited deal to write down its debt might at last fall into place.

Greek Prime Minister Lucas Papademos is in talks with banks and insurers on a voluntary exchange of bonds that would wipe 100 billion euros ($130 billion) off the country's debt of 350 billion euros.

The deal under discussion would see private creditors take a "haircut" of at least 50 percent on 200 billion euros in debt. Previous talks stalled over the amount of interest to be paid on the remaining debt.

Any failure to strike a deal could trigger a messy default, which would be an economic disaster for Greece itself, a threat to banks holding too much sovereign debt and pile on the pressure on other eurozone state.

World markets and delegates in Davos have begun to show signs of cautious optimism that a deal is near, and that Monday's EU summit will draw a line under the debt crisis and allow governments to move on to pro-growth measures.

The finance ministers of Germany and France and the head of the European Central Bank were in Davos to debate strategy and defend the beleaguered single currency area after it was attacked by Britain's leader.

They will all then meet again on Monday in Brussels for the latest in a series of high stakes EU summits, the bloc's first since Standard & Poor's downgraded the credit rating of a slew of eurozone member states.

And US Treasury Secretary Timothy Geithner was to debate the outlook for world economy after the Obama administration acknowledged that the eurozone slump is undermining American growth ahead of the November election.

The annual forum has been marked by gloom about the state of the global economy, and in particular about Europe's struggle to cope with yawning public deficits while at the same time seeking growth and jobs.

The euro has been under pressure -- amid fears that Greece or even eventually a giant like Spain or Italy could default on its debts -- and the 17-nation bloc's economy in on the brink of renewed recession.

A fortnight after France was stripped of its triple A credit rating, Finance Minister Francois Baroin will join his German counterpart Wolfgang Schaeuble in a debate entitled: "How will the eurozone emerge from the euro crisis?"

After the Friday the 13th downgrade by Standard and Poor's, Baroin said the development was "not a catastrophe" and insisted that the government rather than the ratings agencies would decide French policy.

But the Davos meeting has reverberated with calls for eurozone nations to act decisively to restore confidence, Canada's leader Stephen Harper said that Europe's capitals have been guilty of complacency.

British Prime Minister David Cameron also piled on the pressure, reviving his simmering feud with the rest of Europe on Thursday by savaging France and Germany's plans for a new financial transactions tax.

"Even to be considering this at a time when we are struggling to get our economies growing is quite simply madness," he declared.

The eurozone has caused alarm far beyond the continent and Mexican President Felipe Calderon used his speech Thursday to urge Europe to "bring out the bazooka immediately" to prevent the problem from sinking Italy and Spain.

"It is necessary to bring out the bazooka immediately, before the gunpowder gets wet," said Calderon, who holds the rotating chair of G20 world powers.

"Don't forget that we are in the same boat. It is not just a question of a possible implosion of the euro, but a crisis across the world."

Geithner's address comes a day after the Federal Reserve cut its US growth forecast to 2.2-2.7 percent, about one-quarter percentage point below the previous forecasts, citing the eurozone crisis.

"We continue to see headwinds coming from Europe," Fed chairman Ben Bernanke said at a news conference.

The third day of the Davos gathering also focused on events in the Middle East and North Africa, with an address from Hamadi Jebali, the post-revolution Islamist premier of Tunisia, and a debate on Iran's nuclear ambitions.

Jebali's appearance is designed to imbue a rare spirit of optimism but he will speak just as eyes will be turned towards the head of the UN's atomic watchdog as he discusses the implications of Iran acquiring a nuclear bomb.

International Atomic Energy Agency chief Yukiya Amano will be joined at the debate by Ehud Barak, the defence minister of Iran's arch foe Israel.

Copyright © 2012 AFP. All rights reserved.

UK signs ACTA as activists urge resistance

The UK and 21 other European Union member states have signed the Anti-Counterfeiting Trade Agreement, better known as ACTA.

The countries signed the treaty, which aims to harmonise copyright enforcement across much of the world, in Tokyo on Thursday. However, the signatures of the EU member states and the EU itself will count for nothing unless the European Parliament gives its approval to ACTA in June, and digital activists have urged citizens to lobby their MEPs against voting yes.

Only five EU countries did not sign ACTA, which aims to harmonise copyright enforcement.

Poland, which was one of the signatories, saw thousands demonstrate in the streets on Wednesday, protesting against the signing.

An EU diplomat also added his signature. However, five EU countries did not sign, namely Germany, the Netherlands, Estonia, Cyprus and Slovakia. Many other countries, such as the US, Japan and Australia, signed the document in September.

Although ACTA is primarily concerned with the enforcement of intellectual property rights (IPR), its designation as a trade treaty meant it could be negotiated behind closed doors. This lengthy process, led by the US and Japan, was exposed in a series of leaks — some via Wikileaks — that revealed what was going on.

The final version of ACTA is very different to earlier drafts, which would have forced countries to disconnect internet users if they were found to be repeatedly sharing copyrighted content. TheEU rejected this proposal, and other ideas, such as criminalising the use of a mobile phone camera in a cinema, also fell by the wayside.

The European Commission maintains that ACTA will not require any legal changes in the Union. It argues that the treaty will align IPR enforcement standards in other countries with those already enshrined in EU legislation.

"It simply does not change EU law," trade commission spokesman John Clancy told ZDNet UK. "The freedom of the internet that existed before — people's access and the way they use the internet — will not change because of ACTA."

"The ACTA agreement is about trying to bring other key partners' standards of intellectual property protection up to the level of the EU and other leading players in IPR," he said.

Threat to freedom of speech?

Others say the toned-down treaty still poses a threat. La Quadrature du Net, for example, has complained that ACTA will lead to harsher copyright infringement laws in non-EU countries lacking the freedom-of-speech safeguards of the EU. The French digital rights organisation has also argued that the agreement will make it harder to make and distribute generic medicines.

"In the last few days, we have seen encouraging protests by Polish and other EU citizens, who are rightly concerned with the effect of ACTA on freedom of expression, access to medicines, but also access to culture and knowledge," La Quad spokesman Jérémie Zimmermann said in a statement.

"This important movement will further build up," Zimmermann added, noting the defeat in the US of the SOPA and PIPA copyright enforcement bills. "European citizens must reclaim democracy, against the harmful influence of corporate interests over global policy-making."

European Parliament vote

Regardless of the signatures that took place on Thursday, ACTA will not become EU law if the European Parliament votes against it in June. Should this happen, the signatures of the 22 EU member states and the EU itself would effectively be worthless.

The treaty will first have to be discussed by the EU International Trade Committee (INTA) at the end of February or in early March, then voted on by INTA in April or May.

The key final plenary vote is scheduled to take place in the European Parliament between 11 and 14 June. Until then, according to MEP and INTA member Marietje Schaake, the "confidence boost" following the defeat of SOPA and PIPA may provide a chance to head the new treaty off.

Read this

Web takedowns come under EU scrutiny

Read more

"If you are concerned about ACTA, you can convince the EP to vote against ACTA," Schaake noted on Wednesday in aReddit post. "In November 2010 we proposed an alternative resolution on ACTA, which intended to take away the main concerns. It was voted down by a very slight majority [... ] the difference is only 16 votes, out of 736 (or 754 as it stands now)."

"I believe internet offers tremendous opportunities to bring makers of music, film and other cultural content closer to audiences at lower prices," Schaake wrote. "However, while Europe offers the most attractive and diverse content in the world, much of it is locked behind fragmented copyright laws. Instead of focusing on enforcement, we must focus on reform, while keeping in mind that it is not the government's job to preserve certain business models against the forces of the free market."

Commission spokesman Clancy also pointed to the importance of the creative industries to the EU economy, referring to intellectual property as "Europe's raw material".

However, while Clancy said the Commission urged MEPs to back ACTA, he conceded that "if they say no, it's entirely rejected — it's back to the drawing board".

"The signature ceremony in Tokyo was just another step in the procedure that allows ACTA to now be taken to the European Parliament for a free, open and vigorous debate that we fully support," he said.


Originally posted: http://www.zdnet.co.uk/news/networking/2012/01/26/uk-signs-acta-as-activists-urge-resistance-40094914/

PM: EU transaction tax plan madness

PM: EU transaction tax plan madness

David Cameron delivered a scathing assessment of Europe's failure to promote economic growth as he urged it to be "bold" to promote business.

The Prime Minister said it was no time for "tinkering" and described European Union plans for a financial transactions tax as "madness". In a speech to the World Economic Forum in Davos, he was strongly critical of what he said were anti-competitive Brussels regulations and the flawed framework for the euro.

"In Britain we are taking bold steps necessary to get our economy back on track, but my argument today is that the need for bold action at European level is equally great," he said. "Europe's lack of competitiveness remains its Achilles heel."

The annual gathering comes amid renewed gloom about the economy after the International Monetary Fund this week downgraded its forecasts for global growth. Britain is facing the prospect of a return to recession after the Office of National Statistics on Wednesday reported a 0.2% contraction in the UK economy in the final quarter of 2011.

Mr Cameron accused the EU, despite the economic challenge, of "doing things to make life even harder". He attacked the "unnecessary " regulations on business that "can destroy jobs" and said the proposed financial transactions tax could cost hundreds of thousands of jobs.

David Cameron described EU plans for a
financial transactions tax as 'madness

"Even to be considering this at a time when we are struggling to get our economies growing is quite simply madness," he said.

The Prime Minister suggested the eurozone had none of the features common to successful currency unions like the US dollar and British sterling.

In a message to his European counterparts, Mr Cameron went on: "This is a time to show the leadership our people are demanding. Tinkering here and there and hoping we'll drift to a solution simply won't cut it any more. This is a time for boldness, not caution. Boldness in what we do nationally - and together as a continent."

But he sought to reassure his European counterparts that, despite vetoing a new EU treaty to deal with the eurozone crisis in December, he wanted Britain to remain within the EU - contrary to the demands of some Tory backbenchers.

He said: "To those who think that not signing the treaty means Britain is somehow walking away from Europe let me tell you, nothing could be further from the truth. Britain is part of the European Union. Not by default but by choice. It fundamentally reflects our national interest to be part of the single market on our doorstep and we have no intention of walking away."

©YahooNews 2012