Monday, April 30, 2012

Reuters News - Australia's NAB to restructure UK banks, H1 cash profit up

File photo of a Clydesdale Bank branch in London. Reuters-Handout
MELBOURNE | Mon Apr 30, 2012 7:40am BST
MELBOURNE (Reuters) - National Australia Bank will cut 1,400 jobs in the UK and take charges of $740 million (454.4 million pounds) after deciding it was too hard to sell or expand its UK banking business in a depressed market, it said on Monday as it flagged a record first-half cash profit.After a review of its UK unit, which comprises over 335 Clydesdale and Yorkshire branches, NAB said it would complete the job cuts by 2015, close some back offices, and take on most of the unit's commercial real estate exposure of 6.2 billion pounds.
NAB announced the review of its UK unit in February after concluding the UK economic recovery would take much longer than previously expected, and to arrest the rise in bad debts that were weighing on the group.
The move follows a 2004 review of UK operations that led to the sale of its Irish banks and a broader review of the group in 2009 where it hived off some of the UK assets into a vehicle called the Specialised Group Assets.
"They're focusing on the good bits...and ultimately trying to make that business a lot more profitable and potentially one day in the future more attractive to someone else, would be my guess," said Andrew Martin, a portfolio manager at Alphinity Investment Management, which manages more than A$300 million in funds.
"But that's not a near term thing. That's a long term thing," Martin said.
NAB said on Monday its first half cash earnings was seen at A$2.82 billion up 5.7 percent on-year, in line with analysts' expectations. On a statutory basis, net profit would fall 15.6 percent to A$2.05 billion to reflect non-cash charges largely from UK. NAB reports first half earnings on May 10. The UK unit was seen posting a loss of 25 million pounds in the first half.
In addition to 195 million pounds in restructuring costs, NAB will write down the goodwill associated with Clydesdale by 141 million pounds and set aside a further 120 million pounds in payment protection insurance.
Profits were roughly in line with what some analysts expected, although bad debt charges rose 14 percent to A$1.13 billion. NAB said it expected to increase its interim dividend to 90 cents a share.
NAB said the changes would cut the UK unit's reliance on wholesale funding that had become expensive after credit rating downgrades, move the business to a more deposit-funded base and reduce group funding support to the UK unit by 5 billion pounds.
NAB said an immediate sale of the unit, valued by analysts at $5.5 billion, was ruled out because it would fetch less than book value.
The transferred commercial real estate portfolio will be run off as the assets reach maturity.
The restructure would cut the stand-alone Tier I capital ratio, a measure of a bank's ability to absorb losses, of the group by 17 basis points. NAB said its group Tier 1 capital ratio would be about 10 percent as at March 2012.
NAB shares were flat in late morning trade on Monday lagging the 0.5 percent rise for the broader market. The shares have risen 7.6 percent so far in 2012, but NAB is the second-worst performer among Australia's top four banks.
NAB's latest move extends the poor track record for Australian banks' offshore forays, including NAB's A$3 billion in writedowns on its Homeside business in the United States and Australia and New Zealand Banking Group's exit from Grindlays in India and the Middle East in 2000.
(Reporting by Sonali Paul and Narayanan Somasundaram; Additional reporting by Amy Pyett; Editing by Lincoln Feast and Eric Meijer)


Friday, April 27, 2012

Reuters News - S&P downgrades Spain, calls for EU action

A ''for sale'' sign hangs on the wall of an apartment block in Madrid, April 19, 2012. Spain managed to sell 2.5 billion euros ($3.3 billion) of bonds at auction as much as it wanted, but at a cost of rising yields as the country struggles to tame its deficit. REUTERS/Rocio Pelaez
A ''for sale'' sign hangs on the wall of an apartment block in Madrid, April 19, 2012. Spain managed to sell 2.5 billion euros ($3.3 billion) of bonds at auction as much as it wanted, but at a cost of rising yields as the country struggles to tame its deficit.
Credit: Reuters/Rocio Pelaez
MADRID/NEW YORK | Thu Apr 26, 2012 8:36pm EDT
(Reuters) - Standard & Poor's on Thursday cut its credit rating on Spain by two notches, citing expectations the government finances will deteriorate even more than previously thought as a result of a contracting economy and an ailing banking sector.
The ratings agency, which downgraded Spain to BBB-plus from A, also put a negative outlook on the credit and said Spain's situation could deteriorate further unless ambitious measures were taken at European level.
"We think risks are rising to fiscal performance and flexibility, and to the sovereign debt burden, particularly in light of the increased contingent liabilities that could materialize on the government's balance sheet," S&P said in a statement.
Moody's Investors Service rates Spain at A3 with a negative outlook, and Fitch Ratings at A, also with a negative outlook.
It was the first downgrade for Spain since Prime Minister Mariano Rajoy took office in December.
A spokeswoman for Spain's Economy Ministry said the S&P move did not properly reflect the impact that reforms announced by the government would have on reactivating an economy which has now entered in its second recession in three years.
"They haven't taken into consideration the reforms put forward by the Spanish government, which will have a strong impact on Spain's economic situation," Esther Barranco told Reuters.
The new centre-right government has announced a raft of reforms since being sworn in, including ones to make Spain's rigid labor market more flexible, strengthen its banking sector or prevent overspending in its highly devolved regions.
On Wednesday, the country's tightest budget since the 1970s passed its first hurdle in parliament after disappointing first-quarter figures fueled concerns the government would miss targets for reining in its deficit.
Spain spooked debt markets last month by unilaterally announcing a more modest budget deficit target. It has since agreed with the European Union to reach 5.3 percent of Gross Domestic Product this year and 3 percent by 2013, down from 8.5 percent of GDP in 2011.
But most economists view the task as being just impossible to achieve.
S&P, which forecast a 6.2 percent deficit in 2012 and 4.8 percent in 2013, said the front-loading of fiscal austerity in the country would likely exacerbate the numerous risks to growth over the medium term.
Sonny Kapoor, Managing Director at Re-Define, an economic think tank, said this would not be the last downgrade of both Spain and other euro zone countries "as the austerity-first approach starts to take its toll."
Several EU leaders backed a call on Thursday to aim the EU's stalling economy towards growth, saying that concentrating on budget savings alone could leave the continent in a prolonged slump.
S&P called on euro zone countries to manage better the sovereign debt crisis and said the Spanish economic outlook could deteriorate further unless strong measures were adopted at European level.
"Such measures at the eurozone level could include a greater pooling of fiscal resources and obligations, possibly direct bank support mechanisms to weaken the sovereign-bank links, and a consolidation of banking supervision or a greater harmonization of labor and wage policies," it said.
S&P also warned further downgrades could occur if it sees a rise in the net general government debt to more than 80 percent of GDP in the 2012-2014 period or political support for the reform agenda wanes.
(Reporting By Daniel Bases, Burton Frierson, and Pam Niimi; Editing by Dan Grebler and Sandra Maler)

Reuters News - Bank of Japan boosts bond buying by 10 trillion yen, extends duration

People walk past the Bank of Japan headquarters as cherry blossoms are in full bloom in Tokyo April 10, 2012. REUTERS/Yuriko Nakao
People walk past the Bank of Japan headquarters as cherry blossoms are in full bloom in Tokyo April 10, 2012.
Credit: Reuters/Yuriko Nakao
TOKYO | Fri Apr 27, 2012 2:40am EDT
(Reuters) - The Bank of Japan, facing mounting government pressure, eased monetary policy further on Friday by boosting asset purchases by 10 trillion yen ($124 billion), more than markets had expected, and pledging to buy longer-term government bonds in a show of resolve to pull the economy out of deflation.
But in what might serve to cool expectations of further aggressive easing, the central bank said consumer inflation may approach its 1 percent target as early as in 2014 as the world's third-largest economy shifts towards a recovery.
The central bank surprised markets by boosting government bond purchases under its asset-buying scheme by 10 trillion yen, double the usual amount, and increasing buying of riskier assets: exchange-traded funds (ETFs) and real-estate linked funds (REITs).
The increase in ETF purchases buoyed Tokyo share prices .N225, while the yen fell against the dollar, as many domestic players had bet on a more cautious 5 trillion yen move. The currency later recovered all of its initial losses.
"The BOJ did a little bit more than we had expected, so their decision comes as a positive surprise. We didn't expect they would increase purchases of ETFs and REITs," said Masamichi Adachi, senior economist at JPMmorgan Securities in Tokyo.
"The bank is trying to send a message that they are supporting the market and the economic recovery, just like they did in February. It is a step in the right direction and we think the BOJ needs to do even more to boost the economy."
The second easing in just over two months was widely seen as a response to political pressure for greater efforts to end deflation that has dogged Japan for over a decade, depressing consumption and business investment.
Borrowing costs are already low, with two-year bond yields trading at BOJ's overnight rate target ceiling of 0.1 percent, so pumping in more money is seen as a largely symbolic move which will do little to directly spur the economy.
"The leopard doesn't change its spots. It (the BOJ) doesn't view monetary accommodation as a cure capable of reversing Japan's deflation," said Tim Condon, chief Asia economist at ING in Singapore.
"They seem motivated by politics and political pressure in these last couple of moves ... so I think they will do the minimum that they feel they are forced to do."
As expected, the BOJ also said it would extend the duration of government bonds targeted under its asset-buying scheme to three years from the current two years.
While Friday's move adds to the BOJ's surprise easing in February, some analysts were not too excited, saying the BOJ has not actually expanded its balance sheet, nor has it committed to accelerate asset purchases that much.
With interest rates virtually at zero, the BOJ has created as its main policy tool a pool of funds to buy government bonds with up to two years until maturity, as well as corporate debt, ETFs and REITs.
The BOJ helped weaken the yen and lift stocks in February by boosting asset purchases by 10 trillion yen and setting the 1 percent inflation target. But lawmakers have continued to pile pressure on the BOJ with prices barely rising.
While boosting the pool for asset purchases by 10 trillion yen, the central bank slashed by 5 trillion yen another fund for fixed-rate market operations because it has been having trouble force-feeding cash to markets already awash with liquidity.
As a result, the combined amount of the asset-buying and loan program was boosted by 5 trillion yen to 70 trillion yen.
The BOJ also extended the deadline for meeting the new asset buying target by six months. The year-end target remains at 65 trillion yen, and the new 70 trillion yen target will be only be met in June 2013, a sign that the pace of government bond purchases will not change that much.
"I find these moves disappointing. Yes, the BoJ will own more JGBs by mid 2013. Indeed they will own more JGBs by end of 2012. However, the total size of the asset purchase program has not increased by the end of this year ... This is the disappointing part for me," said Westpac chief currency strategist Robert Rennie in Sydney.
In a sign of the economy's resilience, data earlier in the day showed factory output rose in March at the fastest pace in three months as exports picked up. But the 1 percent rise undershot expectations and companies expected to cut production next month.
Consumer prices rose just 0.2 percent in March from a year earlier in a sign Japan still had a long way to achieve the BOJ's 1 percent target, which the central bank believes is consistent with its idea of price stability.
Because of the impact on the yen and the currency's importance for Japan's export machine, analysts say that the BOJ has found itself locked in a policy easing competition with the U.S. Federal Reserve and, to a lesser extent, the European Central Bank.
The Fed stood pat on policy earlier this week, but Chairman Ben Bernanke said the central bank would not hesitate to launch another round of government bond buying if the U.S. economy were to weaken.
In such a scenario, the yen could rise again, threatening the economic recovery and putting the BOJ under pressure to act, too.
Finance Minister Jun Azumi welcomed Friday's move, describing it as "another bold easing step", but also kept up the pressure by saying he hoped the central bank would continue to take such steps to help the long struggling economy.
($1 = 80.7900 Japanese yen)
(Writing by Leika Kihara and Tomasz Janowski; Editing by Kim Coghill)

Thursday, April 26, 2012

Reuters News - Europe awaiting France to temper austerity - Hollande

France's President and UMP party candidate for the 2012 French presidential elections Nicolas Sarkozy delivers a speech during a political campaign rally in Cernay near Mulhouse, April 25, 2012. REUTERS/Vincent Kessler
France's President and UMP party candidate for the 2012 French presidential elections Nicolas Sarkozy delivers a speech during a political campaign rally in Cernay near Mulhouse, April 25, 2012.
Credit: Reuters/Vincent Kessler
PARIS | Wed Apr 25, 2012 7:54pm BST
(Reuters) - France's Socialist presidential frontrunner Francois Hollande said on Wednesday that leaders across Europe were awaiting his election to back away from German-inspired austerity, and he welcomed a call by ECB President Mario Draghi for a growth pact.
Hollande says a budget discipline treaty signed by 25 EU leaders in March would plunge Europe into a deep recession.

At a presidential-style news conference, the self-confident favourite said that if he wins a May 6 runoff against President Nicolas Sarkozy he would set out his ideas for reforming the pact in a letter to European leaders the very next day.
The conservative Sarkozy has been German Chancellor Angela Merkel's main partner in managing the euro zone debt crisis that erupted in late 2009, jointly crafting the fiscal compact that Hollande has vowed to renegotiate.
"On this front things are already moving forward. Before Sunday's election, heads of state were already starting to say what I was proposing - the ambition for growth, the willingness to include more in the treaty than just fiscal discipline and sanctions," Hollande said.
"Today many heads of state and government are waiting for the French election to open these discussions," he said, citing Spain and Italy among countries resisting excessive austerity.
The Socialist leads the incumbent by around 10 points in opinion polls, but a record showing by the far-right National Front anti-immigration crusader Marine Le Pen in Sunday's first round has forced both finalists to make a pitch for her voters.
Sarkozy, who has veered sharply to the right with tougher talk on immigration and security, ruled out any election pact with the National Front on Wednesday. He sought to cast his challenger as a mortal danger to France's economy.
Insisting that he was not questioning the principle of balanced budgets, Hollande said he would have a "firm and friendly" discussion with Merkel on the pace of fiscal consolidation.
In the first clear indication that he would not necessarily seek to change the existing text, he said that whether a growth pact was added to the treaty or agreed in a separate document was a matter for negotiation, he said.
Hollande said his letter to EU leaders would suggest four changes, including the creation of joint European bonds to finance infrastructure projects and greater investment by the European Investment Bank (EIB).
He also backed a financial transaction tax levied by like-minded countries to help fund youth and education projects and a more efficient deployment of EU regional development resources.
Hollande welcomed Draghi's call for a "growth compact" in the European Parliament on Wednesday, although he recognised that the central bank chief did not necessarily envisage the same kinds of measures he was advocating.
Draghi did not question the thrust of the fiscal compact - of which he was a leading advocate. He has long argued in favour of structural reforms to labour, goods and services markets, which would increase the flexibility of European economies and their growth potential.
"This goes in the direction which I was talking about," Hollande said. "He is not necessarily talking about the same measures as me to stimulate growth."
The fiscal pact, which would oblige countries to write a commitment to run a balanced budget into national laws, was a key condition of Germany's support for bailouts of struggling euro zone economies such as Greece and Portugal. Three countries have already ratified the budget discipline treaty, which is due to take effect from the start of next year.
Sarkozy, fighting for his political survival, said he would put the balanced budget "golden rule" to a referendum later this year if he was re-elected and a Socialist-controlled Senate refused to ratify it. Hollande has insisted it is not necessary to write a balanced budget rule into France's constitution.
The prospect of Hollande seeking to renegotiate the fiscal compact has sent jitters through financial markets, even though his proposals are already on the European Commission agenda.
Hollande said that in addition to his proposals on growth, EU leaders would need to discuss with the ECB measures to halt speculation and encourage more lending by banks.
"The main risk at the moment is that European economy remains mired in recession due to a lack of credit for companies," Hollande said.
While he supports changing the ECB's mandate to include supporting economic growth - as is the case with the U.S. Federal Reserve - Hollande said this was not a prerequisite for the central bank taking a more active role. He acknowledged strong German opposition to any deviation from the ECB's sole mission to ensure price stability.
Sarkozy warned that Hollande's election would make France a target for speculators. But with French voters angry at his brash personal style and unemployment running at a 12-year high, he faces a tough battle for re-election.
In another blow to Sarkozy, centrist Francois Bayrou, who came fifth with 9.1 percent of the vote, accused the president of being "absurd and offensive" in comparing his voters with those of Le Pen. In an open letter to both candidates, he called for more civil, clean and moderate politics, appearing to lean towards Hollande without explicitly endorsing him.
An opinion poll this week showed two-thirds of Sarkozy supporters want his conservative UMP party to break with past policy and strike a deal with the National Front after Le Pen's 17.9 percent score on Sunday made her 6.4 million backers key to the May 6 presidential election runoff.
Sarkozy ruled out any alliance with the far-right National Front that would give it cabinet jobs or seats in parliament.
"There will be no pact with the National Front," Sarkozy told France Info radio on Wednesday, saying the parties disagreed on too many issues to imagine far-right ministers.
With only 10 days to turn public opinion in his favour, he vowed to further toughen a crackdown on immigration and combat industrial offshoring in response to the Le Pen vote.
The National Front has barely been in parliament since 1988, when a change in the voting system ended its 35-seat bloc. It briefly won a single seat in 1997. Le Pen is now determined to break through with several seats in June.
Based on Sunday's vote, the party could reach the second-round in up to 345 constituencies in which more than 12.5 percent of registered voters voted for Le Pen. That is more than half the lower chamber's 577 seats and could decimate the UMP by splitting the right-wing vote.
(Additional reporting by Brian LoveElizabeth Pineau, Emmanuel Jarry; Editing by Paul Taylor andJanet Lawrence)

Wednesday, April 25, 2012

Reuters News - Economy slides back into recession in first double dip since 1970s

Cranes are seen on the dusk skyline in central London January 22, 2009. REUTERS/Toby Melville (BRITAIN)
Cranes are seen on the dusk skyline in central London January 22, 2009.
Credit: Reuters/Toby Melville (BRITAIN)
LONDON | Wed Apr 25, 2012 9:56am BST
(Reuters) - The economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on Prime Minister David Cameron's embattled coalition government.
The Office for National Statistics said Britain's gross domestic product fell 0.2 percent in the first quarter of 2012 after contracting by 0.3 percent at the end of 2011, confounding forecasts for 0.1 percent growth.
Most economists had expected Britain's $2.4 trillion economy to eke out modest growth in the early 2012, but these forecasts were upset by the biggest fall in construction output in three years coupled with anaemic service sector growth and a fall in industrial output.
Wednesday's figures will be a deep blow for Britain's Conservative / Liberal Democrat coalition, which has slid in opinion polls since a poorly received annual budget statement in
March and risks embarrassment at local elections on May 3. The government is also under pressure over revelations about its close relationship with media tycoon Rupert Murdoch.
The government desperately needs growth to achieve its overriding goal of eliminating Britain's large budget deficit over the next five years.
Britain's economy contracted by 7.1 percent during its 2008-2009 recession and recovery since has been slow, with headwinds from the euro zone debt crisis, government spending cuts, high inflation and a damaged banking sector.
Wednesday's data showed that output was still 4.3 percent below its peak in the first quarter of 2008, and the economy has only grown by 0.4 percent since the government came t o power in the second quarter of 2010.
Output in Britain's service sector - which makes up more than three quarters of GDP - rose by just 0.1 percent in the first quarter after falling 0.1 percent in Q4 2011, kept down by a fall in output in the large business services and finance sector.
Industrial output was 0.4 percent lower, while construction - which accounts for less than 8 percent of GDP - contracted by 3.0 percent, the biggest fall since Q1 2009.
Britain's Office for Budget Responsibility forecasts growth of 0.8 percent this year. Wednesday's data shows that first quarter output was no higher than a year earlier.
The Bank of England has warned that there is a risk of another contraction in the second quarter of 2012, due to an extra public holiday. But unlike during the previous two quarters, it does not appear keen to provide further monetary stimulus through quantitative easing asset purchases, due to above-target inflation which looks stickier than before.
The BoE, and a number of private-sector economists, had argued before Wednesday that the underlying health of Britain's economy was stronger than ONS data suggested, due to relatively upbeat private-sector surveys and a fall in unemployment.
The ONS's preliminary estimates of GDP are the first released in the European Union, and are based partly on estimated data. On average, they are revised by 0.1 percentage points up or down by the time a second revision is published two months later, but bigger moves are not uncommon.
(Reporting by David Milliken and Fiona Shaikh)

Reuters News - Analysis: Politics force growth back on to Europe's agenda

LONDON | Wed Apr 25, 2012 2:00am EDT
(Reuters) - It's early days, but powerful political currents could be sweeping Europe away from its hair-shirt obsession with reducing debt and deficits regardless of the economic cost.
Any course correction will be a tug on the tiller rather than a U-turn. The euro zone will not suddenly abandon budget discipline and spend its way back to growth as Germany, Europe's paymaster, would not stand for it. Nor, in their current mood, would the bond markets.
But one three-pronged strategy under discussion, according to economists and academics, would give governments more time to lower their budget deficits to the mandated threshold of 3 percent of national output in return for a demonstrated commitment to far-reaching reforms that improve growth over the medium term.
At the same time, more funds would be mobilized from the European Union budget and the European Investment Bank to finance infrastructure and other development schemes, boosting the euro area's chronically weak demand.
If all went well, the vicious circle of contracting output triggering ever more growth-sapping budget cuts to meet self-imposed deficit reduction targets would be broken.
Andre Sapir, a scholar at Bruegel, an influential think tank in Brussels, believes a political commitment to a deal along these lines, if not agreement on a detailed package, could crystallize in time for the next meeting of EU leaders in June.
"We are headed for a June summit where there will be a growth initiative of some sort," Sapir said.
Pressure on Europe to take it easier on fiscal retrenchment has been growing. The impeccably orthodox International Monetary Fund and the Organisation for Economic Cooperation and Development have both warned of the economic dangers of over-rapid budget cuts. But international institutions do not vote. It's the ballot box that is transforming the debate.
On Sunday, candidates broadly opposed to the EU won almost 30 percent of votes in the first round of France's presidential election. Socialist candidate Francois Hollande, who has promised to add a pro-growth dimension to the EU's fiscal discipline treaty, is favorite to beat incumbent Nicolas Sarkozy in the second round on May 6.
Greeks elect a new parliament on the same day and opinion polls suggest that, as in France, fringe parties will do well because of popular fatigue with austerity.
Sapir said the challenge for mainstream politicians was to craft a package that switches the focus from short-term austerity to medium-term sustainability of public finances.
Winning the agreement of Germany and other discipline-minded countries to allow more time for deficit reduction would be difficult. But Sapir saw scope for a trade-off if free-spending governments were making reforms to tackle labor market rigidities and critical budget problems related to ageing, notably spending on pensions and health care.
There are already signs of a marginal shift in official thinking in this direction, according to Riccardo Barbieri, chief European economist at Mizuho in London.
The European Commission softened Spain's 2012 deficit reduction target after Madrid brusquely rejected its initial proposal as too demanding.
For its part, Italy is postponing its goal for achieving a balanced headline budget - presumably with the blessing of the Commission, the EU's executive arm, which is due to rule soon on the viability of each member country's plans.
Barbieri would go further and allow governments in budget planning to use more optimistic forecasts of their countries' economic growth potential if they can show convincingly that they are making fundamental changes to how their economies work.
"Personally, I would hope to see a change in the fiscal approach," he said. "I would favor a more explicit policy that combines in an intelligent way deficit reduction goals with structural reforms."
Watering down the euro zone's new fiscal compact would be difficult for German Chancellor Angela Merkel to accept.
But the collapse of the Dutch coalition government after it failed to win enough support for budget cuts was likely to make an impression on fellow fiscal hawks, said Malcolm Barr, an economist with JP Morgan in London.
As a result, Germany and the European Central Bank would probably tolerate some slippage in near-term fiscal targets in return for a program of structural reforms and acceptance of the fiscal compact's medium-term rules, Barr said in a note.
Such reforms are all well and good; they are indispensable for reversing the divergence in economic performance within the euro zone that has brought the single currency close to collapse.
But Philip Whyte, a senior research fellow at the Centre for European Reform, a London think-tank, is skeptical that the euro zone can regain the path of growth unless it corrects what he sees as fatal flaws in the design of the single currency.
In the absence of a fiscal union similar to that in the United States, heavily indebted euro zone members such as Spain and Italy are vulnerable to sudden stops in private-sector capital flows, robbing them of policy autonomy, Whyte argued.
"The euro zone would still be working as an austerity machine without the fiscal compact because flaws in the structure force countries to pursue self-defeating economic policies," he said.
George Magnus, senior economic adviser to UBS in London, agreed that fiscal integration was necessary to put the euro zone on a stable footing; the other requirements were pan-European banking supervision and a recovery of competitiveness by the euro zone periphery to drive growth.
Crucial in this last respect, Magnus said, would be the recognition by Germany that it must tolerate higher inflation to help its southern neighbors narrow differentials in real costs without driving their economies into a deep recession.
Would Germany, with its loathing of inflation, ever sign up for such a program? In the course of the euro zone debt and banking crisis, Berlin has drawn red lines more than once, only to cross them in extremis.
But even if Hollande wins the French presidency and follows a growth agenda that attracts broad support from the euro zone periphery, Magnus said Germany would have great difficulty yielding power in the three areas he identified as critical.
"The spectre of a euro break-up fills most people with dread, so it is assumed the Germans will ultimately do whatever they have to do in order to keep the euro together. But this is beginning to test the limits of realpolitik in a serious way," Magnus said.
(editing by David Stamp)

Tuesday, April 24, 2012

Reuters News - Greeks detect hypocrisy as Dutch coalition stumbles

AMSTERDAM/ATHENS | Mon Apr 23, 2012 1:47pm EDT
(Reuters) - For months Dutch Finance Minister Jan Kees de Jager has subjected Athens to regular dressings-down on the dire state of its finances. Now, with his coalition brought to its knees by a row over budget cuts, Greeks may detect a whiff of hypocrisy.
Even by the standards of the blunt-talking Dutch, De Jager hasn't minced his words in demanding that Greek leaders submit to EU demands for punitive austerity measures - or forget about getting any help to avoid bankruptcy.
So blunt were some of his comments that he helped to provoke a response from the Greek head of state, who normally stays above the rough and tumble of daily politics. "Who are the Dutch?" asked an angry President Karolos Papoulias in February.
Monday's resignation of the Dutch coalition over a failure to agree on budget cuts which are modest compared with those endured by Greeks aroused no sympathy in Athens.
"This serves the Dutch right. They haven't understood that the crisis is pretty much hitting the whole of Europe, not just Greece," said Nikos Karagiannis, 32, a state employee whose pay has been cut 40 percent under the austerity regime.
The problems of the Netherlands, one of the euro zone's strongest economies and most stable democracies, are minor compared with those of Greece, which is suffering the fifth year of what some politicians call a depression.
De Jager himself dismissed any thought that the Dutch crisis put his country in the same league as Europe's sick economies. "There is no correlation whatsoever between the Netherlands and the countries of southern Europe," he told Reuters on Monday.
Dutch state debt is about 65 percent of annual economic output, he noted. Greece, by contrast, hopes to cut its debts to almost twice that by 2020 from 165.3 percent last year.
The Dutch row is over whether to cut the budget deficit to the EU target of three percent of GDP next year. For Greece, such levels are only a dream: last year Athens got its deficit down to 9.1 percent, but only after cuts which have helped to send unemployment to record levels.
De Jager, a short, plump figure who looks younger than his years, has rarely held back in saying that European countries in trouble will have to accept greater oversight of their budgets.
"You can't solve a debt crisis with more money, that is the lesson from this crisis," the 43-year-old minister said last year. "You need more tools, you need budget oversight."
Only last year De Jager and Prime Minister Mark Rutte - who offered the cabinet's resignation after a party it relies for support on refused to back the austerity cuts - proposed an EU budget authority run by a powerful commissioner.
This could intervene in government budgets if countries ignored debt targets, gradually taking over their finances and potentially expelling them from the euro zone.
Greek conservative leader Antonis Samaras, a frontrunner to become prime minister after the May 6 election, dared to question whether policies which have destroyed economic growth might be modified.
This drew another lecture from De Jager, who backed in blunt terms an EU demand that Greek leaders make written undertakings on implementing austerity laid down in a 130 billion euro bailout deal. Words were not enough, he said.
"We have passed that stage. We want a signature from this Mr. Samaras," De Jager told RTL. "Otherwise they won't get money, absolutely not."
Nevertheless, while the Netherlands enters a dangerous period of uncertainty, Greece is enjoying at least a temporary period of relative calm following several years of turmoil.
Greece's national unity government is due to step aside after elections next month having achieved its aims of passing a 2012 austerity budget, pushing through a bond swap to reduce its debts, and securing the bailout from the European Union and IMF.
Many Greeks feel critics like De Jager are dangerously out of touch in a crisis which threatens the entire euro zone. "I think there's a possibility that the euro will break down," said Karagiannis. "It seems the Dutch and others don't get it."
The comments hurt. "I don't care what happens to the Dutch," said the owner of an Athens coffee shop who declined to be named. "What really bothers me is that all politicians in the big European powers are saying vote for me so that you don't end up like Greece," he said, adding that his sales had dropped 50 percent and taxes almost doubled under the austerity regime.
De Jager, an entrepreneur from the Christian Democrat party, in fact doesn't hold back from predicting dire trouble, albeit with the blame beyond Dutch borders.
"If Greece falls, many European banks will fall as well," he tweeted in March 2010 as acting financeminister. "All hell will break loose if there is another crisis," he said on Twitter, drawing fire in parliament.
(Additional reporting by Thomas Escritt in The Hague; Writing by David Stamp)

Reuters News - North Korea's nuclear test ready "soon": source

BEIJING | Tue Apr 24, 2012 2:54am EDT
(Reuters) - North Korea has almost completed preparations for a third nuclear test and has the capacity to carry it out "soon," a senior source with close ties to Pyongyang and Beijing told Reuters.
"Soon. Preparations are almost complete," the source said when asked whether North Korea was planning to undertake a nuclear test.
North Korea said last week it was ready to retaliate in the face of international condemnation over this month's failed rocket launch, increasing the likelihood the hermit state will push ahead with a third nuclear test in defiance of U.N. sanctions.
The source has correctly predicted events in the past, telling Reuters about North Korea's first nuclear test in 2006 days before it took place.
This is the first time an official with knowledge of Pyongyang's intentions has confirmed the test is set to happen.
South Korean newspapers have quoted officials in Seoul as saying the test could take place as early as in two weeks.
The source did not specify whether the test would be a third test using plutonium or whether Pyongyang would use highly enriched uranium.
Many analysts expect that North Korea will for the first time try a nuclear device using highly enriched uranium, something it was long suspected of developing but which it only publicly admitted to about two years ago.
Defense experts say that by successfully enriching uranium, to make bombs of the type dropped on Hiroshima nearly 70 years ago, the North would be able to significantly build it up stocks of weapons-grade nuclear material.
It would also allow it more easily to manufacture a nuclear warhead to mount on a long-range missile.
"North Korea may consider abandoning (the test) if the United States agrees to a peace treaty," the source said, reiterating a long-standing demand by Pyongyang for recognition by Washington and a treaty to end the 1950-1953 Korean War, which ended in a truce.
(Reporting by Benjamin Kang Lim; Writing by David Chance; Editing byNick Macfie)