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."

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.

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

Greece 'Names And Shames' Top Tax Dodgers

Debt-laden Greece has released a list of 4,000 of the country's biggest tax dodgers as part of a name-and-shame policy to get evaders to pay up.

A famous singer, retired basketball star and former media magnate are among those on the list published by the Greek government.

The debts listed total almost £13bn, with the worst offender owing the state nearly £8.4m.

Tax evasion is endemic in Greece and its international lenders, the EU and the IMF, have insisted that Athens improve its tax collection if they are to continue bankrolling the debt-crippled country.

Greece has about £50bn in unpaid taxes, a figure equivalent to about a quarter of its economy, according to an EU report published in November.

The 'name and shame' list came as EU finance ministers met to discuss the ongoing crisis in Greece and the rest of the eurozone.

The Institute of International Finance (IIF) , which represents Greece's creditors, is also holding a press conference on Tuesday ahead of this week's World Economic Forum in Davos.

The Greek tax evader list includes veteran singer Tolis Voskopoulos, former basketball player Michael Misounof and a whole host of business tycoons.

At the top is a 58-year-old accountant who is currently serving a 504-year prison sentence for tax fraud. He allegedly owes £794m, most of which is in surcharges and fines.

With many other tax dodgers on the list also in prison or bankrupt, Greece's finance ministry acknowledged that it would be extremely hard to collect many of the outstanding debts.

Finance ministry official Haris Theocharis said: "The truth is that these lists contain debtors who in some cases have owed the money for a long period of time, so after a certain point one does not expect to be able to collect the debts.

"But I'm sure that there are possibilities ... In some cases (publication) will push debtors to settle their debts, and tax offices to redouble their efforts."

Greece 'Names And
Shames' Top Tax Dodgers

Despite repeated pledges over the past two years, Greek officials have failed to make progress in collecting outstanding debts.

Little more than a tenth of the £50bn owed in tax is seen as collectible.

Greece's 2011 budget deficit is expected to be around £16.5bn. This compares to an annual gross domestic product of about £182bn.

The Greek government has acknowledged the grave shortcomings of its tax service, even admitting that a hugely unpopular new property tax, under which non-paying households will have their electricity cut off, might not have been imposed if the tax collection system was more efficient.

©Sky News

Eurozone must focus on growth: Britain

Eurozone countries must concentrate on boosting growth and cutting regulation following the downgrading of several nations in the bloc, British Foreign Secretary William Hague said Sunday.

Hague said the decision on Friday by ratings agency Standard and Poor's to downgrade more than half of the members of the debt-ridden eurozone -- including stripping France of its triple-A rating -- was "serious".

"It underlines the fact that the eurozone is not through its problems... Across Europe, including in the UK, we need to redouble our efforts to get growth going," Hague said.

"That means in Europe more free trade agreements with the rest of the world, it means really pushing for the single market, it means stopping passing regulations who've made life more difficult for businesses."

Hague: European countries need growth

Britain, which is not a member of the eurozone, was the only EU member to reject a Franco-German proposal in December for a treaty across the bloc on implementing stricter fiscal discipline.

Prime Minister David Cameron said he did so to protect the City of London from moves to introduce a financial services tax.

Britain was also involved in a slanging match with France last month after the French central bank governor and senior ministers said rating agencies should be mulling a debt downgrade of Britain rather than France.

Britain's AAA rating remains intact.

Hague said it was in Britain's interest for the eurozone, its biggest export market, to recover.

"We want the eurozone countries to recover. They can best do so through that kind of financial actions and to really setting a course for growth. No more time wasting bureaucratic directives, real emphasis on free trade."

AFP 2012

France, Austria and Italy - Downgraded In Credit Ratings Blitz

France, Austria and Italy have all had their credit ratings downgraded by ratings agency Standard & Poor's.
France and Austria now both hold AA+ ratings, while Italy, which formerly held a BBB+ rating, now finds itself on BBB.


More countries are expected to be downgraded in the next few hours.

Francios Barion-"half-surprised"

Speaking on France 2 television, Francois Baroin said his country's notification was a "half-surprise".
"It is not good news," he said, but insisted the country was taking the right direction.
"The markets had perhaps anticipated the move, which is why their reaction was moderated this afternoon."


The euro fell to a 17-month low on the currency markets amid early reports of the news - the latest in the eurozone crisis - and stock markets across the world also declined.


It is understood the agency will confirm the announcement after markets close in the US.

French President will hold crisis meetings.

French president Nicolas Sarkozy held crisis talks with key ministers after news of the downgrade emerged.


Other countries within the single market are also at risk of a downgrade by the prominent ratings agency, among them Slovakia.


Reuters columnist Peter Thal Larsen told Sky News: "If we are talking about expectations then clearly France is what we would consider to be most vulnerable to a potential downgrade."


A French downgrade would be significant due to the country's role as one of the AAA guarantors of the eurozone's rescue fund, the EFSF, which would in turn also need to be downgraded.


Germany would then become the only major AAA-rated economy underwriting the fund.
This would make it more difficult to raise funds to bail out weaker countries, like Italy and Spain, if the need arose.

Standard & Poor - Downgraded France, Italy and Austria's credit ratings with more to come.

But Mr Larsen added that the move by Standard & Poor's (S&P) would not be particularly surprising, as the ratings agency had put several eurozone countries, including Germany, on notice a few months ago.


He said the downgrades would provide a "reality check" to the markets that the eurozone's problems are nowhere close to being solved.


Germany, The Netherlands, Finland and Luxembourg are among the countries not believed to be affected by a downgrade.


The announcement is particularly bad news for Nicolas Sarkozy who faces presidential elections later this year and has staked much of his reputation on being the man to lead France out of the crisis.
Valerie Pecresse, a French government spokeswoman, told a television channel in the country: "France today is a safe investment, it can repay its debt and the news concerning our deficit is better than expected."


Last December, when rumours of a potential French downgrade began, politicians in the country reacted strongly, suggesting that any downgrade would be unjustified.


It was even suggested publically by one senior figure that Britain should be downgraded before France because it had "as much debt, more inflation, less growth than us and...credit is slumping".
Reports of a breakdown in talks between Greece and its banks to restructure its debts also fuelled fears of a default.

French credit rating downgrade

Standard Poor's imminent downgrade of eurozone economic giant France's triple-A credit rating has sent stocks sliding and the euro plummeting.

In Brussels, EU government sources told AFP the ratings agency had warned members of the bloc France would be downgraded by one notch, while fellow top-line creditors Germany, Luxembourg and the Netherlands would be spared.


 'The Standard Poor's downgrade (for France) is by one notch,' one of the sources said. The credit rating agency had indicated in December that a cut of two notches could have been applied to the eurozone's second biggest economy.



The downgrade could force France's borrowing costs up at a time when it has already been forced to impose austerity measures to control its deficit, and is a political humiliation for President Nicolas Sarkozy.

Sarkozy faces a tough re-election battle in less than 100 days and reportedly told allies last month: 'If we lose the triple-A, I'm dead.'

France's budget minister and government spokeswoman Valerie Pecresse refused to confirm the imminent downgrade, insisting: 'France is a safe investment.'
But opposition Socialist lawmaker Jean-Marie Le Guen branded the loss of the triple-A 'a triple failure for Sarkozy', amid charges from the left that the president's tax cuts had left France more exposed than its neighbours.


European leaders are due to meet in Brussels on January 29 to nail down details of a fiscal pact designed to reassure bond markets that their deficit reduction plans are on course and their debts safe.
Earlier this week, ratings agency Fitch offered markets reassurance that it did not plan to downgrade France's top triple-A credit rating in 2012, unless the country suffered major economic shocks.

But Standard Poor's still had the eurozone bloc under scrutiny and - while the firm did not confirm it was to act after markets closed on Friday - the reports seemed to have ended the optimism.

France had been on notice that its triple-A debt rating was on the line, amid fears over its large public deficit and its own banks' exposure to even riskier sovereign debt in eurozone partners Greece and Italy.
Earlier on Friday, Italy raised 4.75 billion euros at mostly lower rates in a bond auction, reflecting what was then still improved market confidence and European Central Bank efforts to boost eurozone liquidity.
German Foreign Minister Guido Westerwelle said he would travel to Greece on Sunday for talks on the crisis, taking with him a message of 'encouragement' and 'expectation', Berlin said.

Meanwhile, German Chancellor Angela Merkel's spokesman said she will host the leaders of Portugal, Sweden and Austria next week for informal talks on the eurozone debt crisis and fiscal integration, her spokesman said.
Borrowing by Spain's struggling banks from the European Central Bank hit a 17-month high in December as it offered cheap long-term loans to the eurozone, the Bank of Spain said.

CAMERON WARNING ON THE EURO

The PM has warned the Eurozone leaders that  action is need to ensure the survival of the Euro

David Cameron issued a warning to eurozone leaders today that they need to take some "pretty decisive steps" if the single currency is to survive.

The Prime Minister said he believed the "most likely outcome" was that the euro would hold together, despite the current debt crisis.

But he stressed that in the longer term it was essential to address the "fundamental competitiveness divide" between the powerful German economy and the weaker southern states.

"I think that the most likely outcome is, yes, it will hold together but it has to take some pretty decisive steps," he told Sky News's Boulton & Co.

"There are the short-term sticking plaster steps of a proper firewall to prevent contagion around Europe, a much more decisive settlement for Greece which the problem still hasn't gone away, strengthening the European banks.

"But that is only the short term. The longer term is that you have got to address the fact that there is a lack of competitiveness between Germany on the one hand and many of the southern European countries on the other.

"You can't have a single currency with those fundamental competitiveness divides unless you have massive transfers of wealth from one part of Europe to another."

Mr Cameron stressed it was in Britain's interest to see the eurozone recover, as the current crisis was having a "chilling effect" on the UK economy.

"We have got to help deal with it," he said.

He did not rule out additional UK support for the International Monetary Fund on top of the £10 billion approved by the Commons in July - a move which would infuriate Tory MPs.

"We have set out our conditions for contributing more to the IMF. We support countries and not currencies or currency zones. The IMF shouldn't be doing what the eurozone itself should be doing," he said.

Mr Cameron acknowledged that his decision last month to wield the British veto to block a new treaty of all 27 EU member states had created a "pressure point" in his coalition with the Liberal Democrats.

However, he stressed that he continued to work closely with Deputy Prime Minister Nick Clegg.

"We both wanted a treaty at 27, but with safeguards for Britain," he said.

"We both agreed if we couldn't get those safeguards we couldn't agree a treaty. That is what happened. Of course the Liberal Democrats were disappointed with that," he said.

PA 2012