Friday, September 28, 2012

Reuters News - Germany to make proposals to France on EADS-BAE merger

A BAE Systems sign is seen outside the company's Warton site near Preston, northern England, in this file picture taken October 1, 2009. REUTERS-Phil Noble-Files
A BAE Systems sign is seen outside the company's Warton site near Preston, northern England, in this file picture taken October 1, 2009.
Credit: Reuters/Phil Noble/Files
BERLIN | Fri Sep 28, 2012 4:46am EDT
(Reuters) - Germany will present France with a list of proposals concerning the planned merger of European aerospace group EADS (EAD.PA) and British defense contractor BAE Systems Plc (BAES.L), a German government source said on Friday.
The proposals, agreed by Chancellor Angela Merkel's office and the economy ministry, are aimed at preserving a balance of power between the two countries in a merged company, the source said.
France directly owns 15 percent of EADS, the maker of Airbus jets, and wants to retain its right to influence group strategy, currently conducted through a complex pact with 7.5-percent shareholder Lagardere (LAGA.PA).
In turn Germany is not a direct shareholder but sees the transaction as a chance to tighten its grip on a stake currently held by Daimler AG (DAIGn.DE) and a group of banks.
The German source gave no further details but his comments confirmed a report in Die Welt on Friday which also said Germany was ready to buy up the shares of Daimler and the banks via the state development bank KfW if France kept its own stake intact.
The merger to create the world's largest defense and aerospace company would dilute the influence of the French, German and Spanish governments in the company, prompting negotiations over their future roles.
The Financial Times Deutschland daily reported on Friday that Germany and France may try to secure a 27 percent combined shareholding in the new company, but said Britain was opposed.
The stake would create a shareholder counterweight with the power to block decisions by the management of the new company, the FTD said, citing sources familiar with the matter.
The move could also prove a deal breaker since EADS boss Tom Enders has repeatedly said he wants to reduce state influence in a combined company and Britain and the United States remain wary of further state involvement.
The FTD said the idea enjoys French support, but France has so far proved unwilling to be pressured into trading concessions for the sake of a common position with Germany, given the mismatch of share holdings.
It was an open question whether Germany would approve such a proposal, the paper said, quoting industry sources.
The two countries should also each get a seat on the board of directors of the merged company, the FTD said.
German reservations over the merger include how to safeguard jobs and protect the new company from any future hostile takeover, according to a government document obtained by Reuters on Monday.
Last Saturday France and Germany agreed at a summit to "consult" on the merger talks, but French President Francois Hollande avoided pledging to create a common position between the two countries, despite earlier German hopes of a joint initiative.
On paper, the idea of a core 27 percent shareholding suggests France would buy Lagardere's 7.5 percent stake and the German government would take over all of Daimler's voting interest of 22.5 percent. This would leave each side with a diluted stake of 13.5 percent under the proposed merger terms.
But two European defense experts who asked not to be named said this would hit opposition from Britain and the United States and nobody has yet come forward to claim ownership of the scheme.
Instead EADS and BAE have said they will offer the governments of France, Germany and Britain a "special share" in the new company, allowing them to block any future hostile takeover, but are determined to prevent meddling in other management decisions.
(Reporting by Gernot Heller, Gareth Jones, Edward Taylor and Tim Hepher. Writing by Gareth Jones. Editing by Andre Grenon and Greg Mahlich)

Reuters News - Israelis see no Iran war this year after Netanyahu's speech

Israeli Prime Minister Benjamin Netanyahu draws a red line on a graphic of a bomb as he addresses the 67th United Nations General Assembly at the U.N. headquarters in New York September 27, 2012. REUTERS/Lucas Jackson
Israeli Prime Minister Benjamin Netanyahu draws a red line on a graphic of a bomb as he addresses the 67th United Nations General Assembly at the U.N. headquarters in New York September 27, 2012.
Credit: Reuters/Lucas Jackson
JERUSALEM | Fri Sep 28, 2012 6:27am EDT
(Reuters) - Prime Minister Benjamin Netanyahu's U.N. speech about Iranian nuclear advances has dampened speculation in Israel that he could order a war this year.
Analyzing Thursday's address in which Netanyahu literally drew a "red line" on a cartoon bomb to show how close Iran was to building nuclear weaponry, commentators saw his deadline for any military action falling in early or mid-2013, well after U.S. elections in November and a possible snap Israeli poll.
"The 'decisive year' of 2012 will pass without decisiveness," wrote Ofer Shelah of Maariv newspaper on Friday.
Without explicitly saying so, Netanyahu implied Israel would attack Iran's uranium enrichment facilities if they were allowed to process potential weapons-grade material beyond his red line.
Maariv and another mass-circulation Israeli daily, Yedioth Ahronoth, said spring 2013 now looked like Netanyahu's target date, given his prediction that by then Iran may have amassed enough 20 percent-enriched uranium for a first bomb, if purified further.
But the front pages of the liberal Haaretz and pro-government Israel Hayom newspapers cited mid-2013 - Netanyahu's outside estimate for when the Iranians would be ready to embark on the last stage of building such a weapon, which could take only "a few months, possibly a few weeks".
Iran, which denies it is seeking nuclear arms, said Netanyahu's speech made "baseless and absurd allegations" and that the Islamic Republic "reserves its full right to retaliate with full force against any attack". Israel is widely assumed to have the Middle East's only atomic arsenal.
Israeli diplomats were reluctant to elaborate on Netanyahu's speech, saying its main aim was to illustrate the threat from Tehran.
Asked on Israel's Army Radio whether Netanyahu had signaled he would strike in the spring if U.S. and European Union sanctions fail to curb Iran's nuclear work, Foreign Minister Avigdor Lieberman said: "No, no, I would not go that far."
"The prime minister clarified a message to the international community (that) if they want to prevent the next war, they must prevent a nuclear Iran," Lieberman added.
Netanyahu's increasingly hawkish words on Iran in recent weeks and months strained relations with U.S. President Barack Obama, who has resisted the calls to set Tehran an ultimatum while fending off charges by his Republican rival, Mitt Romney, that he is soft on Israel's security.
Netanyahu praised Obama's resolve in his U.N. address, which the prime minister described as advancing their "common goal" - a strong signal that Israel would not blindside Washington with a unilateral attack on Iran.
Israel Hayom pundit Dan Margalit said the speech constituted "an almost explicit acknowledgment that he (Netanyahu) is declaring a truce in the public argument between him and the president. At least, until after the (U.S.) election."
Netanyahu has political worries too, given deadlock in his coalition government over the 2013 budget which, if not ratified by December, could trigger an early Israeli election next year.
In a broadcast editorial, Army Radio depicted war with Iran as no longer an imminent dilemma troubling the prime minister.
Instead, the station said, Netanyahu would have to decide "whether he is going to elections sooner, in January, February, or maybe March, or whether he will be able to pass the budget, take care of the Iranian issue and then go to elections in October (2013) as scheduled."
U.S. Defense Secretary Leon Panetta said this month that Washington would have "about a year" to stop Iran should it decide to cross the threshold of producing nuclear weaponry - a more expansive timeline than that put forward by Israel.
That could spell fresh clashes between the allies over Tehran's continued 20-percent uranium enrichment, a process the Iranians say they need for medical isotopes but that also brings the fissile material much closer to weapons grade.
An Israeli official briefed on the government's Iran strategy cautioned against interpreting dates Netanyahu gave at the United Nations as deadlines, saying the preparations had already been made for military strikes.
"When he says Iran will have a bomb by this-or-that point in time, that in no way means the war option must wait until then," the official told Reuters. "There are other considerations to the timing - operational and strategic."
(Writing by Dan Williams; Editing by Robin Pomeroy)

Thursday, September 27, 2012

Reuters News - European lawmakers warn of banking union split

A Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt September 6, 2012. REUTERS-Alex Domanski
A Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt September 6, 2012.
Credit: Reuters/Alex Domanski
BRUSSELS | Wed Sep 26, 2012 7:24am EDT
(Reuters) - Creation of a banking union to help resolve the euro zone debt crisis could lead to a split within the wider European Union, lawmakers in the European Parliament warned during a debate that laid bare the extent of tensions in the bloc.
Brussels proposed earlier this month that the European Central Bank (ECB) take charge of supervising all banks in the euro currency zone, as a first step towards creating a banking union under which euro zone countries would eventually jointly back their lenders.
However, the plan has sparked concerns among the 10 EU countries which do not use the euro that they will be indirectly affected by the ECB's new supervisory powers and put at a competitive disadvantage, whether they join the scheme or not.
Legally, the European Parliament will have no say in writing much of the legislation for a banking union. But it has powers to amend other important financial regulations and can exert influence to change or even delay the new regime.
"What's the point of having a single supervisory mechanism (for the euro zone) when you have the UK with its 60 percent of the financial market not involved?" said Werner Langen, a German lawmaker, in the debate on Wednesday.
"Instead of a single supervisory mechanism, we have a division of Europe, a very explosive division."
Langen's views were echoed throughout the debate of the parliament's influential economic and monetary affairs committee, where members from around Europe voiced conflicting views about the shape of a banking union.
"What we don't want to do here is split the EU down the middle," said Wolf Klinz, a German member of parliament. "What we don't want to see is that the British push themselves into a corner where they have a referendum and they say ... that's enough for us."
A banking union, which would aim to restore confidence in an industry that has been battered by crisis for nearly five years, has three major steps: the ECB takes over monitoring euro zone banks and others that sign up; a single fund is created to close down and settle the debts of failed banks; and a comprehensive scheme to protect savers' deposits is established.
As well as building the foundation for better control of banks, the union would be important because it should allow the euro zone's rescue fund, the European Stability Mechanism (ESM), to directly inject much-needed capital into banks, such as those in Spain.
"We are under time pressure," said Sven Giegold, a German member of the parliament, who also flagged concerns about a two-tier scheme damaging those countries on the outside. "The banking union ... is linked to access to the ESM."
This pledge, made by euro zone leaders in June, appears to be unraveling, however, afterGermany, the Netherlands and Finland drew a distinction between future banking problems and "legacy" difficulties - which could mean that problem banks in Spain and Ireland remain the states' responsibility.
"This proposal is to allow for the direct recapitalization of Spanish banks because Spain doesn't want to put in a normal application (for aid)," said Langen, who is a member of the CDU, the same political party as German Chancellor Angela Merkel.
"The whole European system of banking supervision is being turned on its head for the sake of Spain. As this thing has been turned on its head, we need to turn it back again," Langen said.
The debate underscored a central problem of the union - that it could drive a wedge between those countries inside the scheme and those outside, whose banks may suffer as a result.
Swedish Finance Minister Anders Borg has said he would not accept ECB oversight of Nordea (NDA.ST), the Nordic region's biggest bank, as long as his country remains outside a banking union. Nordea has its headquarters outside the euro zone in Stockholm, but has major operations in Finland, the sole Nordic country to use the common currency.
While Britain will stay outside the scheme, many international banks in London - ranging from HSBC (HSBA.L) to Citi (C.N) - have operations in the euro zone that will be affected by the ECB's new supervisory reach.
London is worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as Europe's financial capital.
Some believe that the European Banking Authority (EBA), set up to coordinate the supervision of banks in response to the financial crisis and which is run by regulators from across the European Union, could act as a counterbalance.
The European Commission has already suggested a special voting mechanism among EU regulators as a counterweight to the power of those in the euro zone.
"Countries should be lured in, tempted in - it should be made difficult for a country to refuse," said Giegold, who will play a leading role in talks about the plan.
"The system should be so attractive that everyone will want to join," Giegold said, in an appeal which is likely to be ignored in London.
The close ties between some troubled governments and the banks they supervise - and on which they also rely to buy their debt - have dragged both ever-deeper into crisis.
A banking union would break this link by making the policing of banks supranational and establishing central schemes paid into collectively to cover the costs of closing failed lenders and protecting savers' deposits.
(Editing by David Stamp and David Holmes)

BBC News - The prospect of more government cuts has sparked violent protests in Madrid

Spain is due to set out its austerity budget for 2013 later, against a backdrop of a deteriorating economy and 25% unemployment rate.
Demonstrators against government cuts in Madrid
The prospect of more government cuts has sparked violent protests in Madrid
Madrid is expected to outline 39bn euros ($50bn; £31bn) worth of savings, tax rises, and structural reforms.
It comes amid further protests this week, and growing expectations that Spain will seek a bailout from its eurozone partners.
On Friday, results of a stress test on Spain's banks are due to be released.
The Spanish stock exchange's Ibex index rose 0.5% at the start of trading on Thursday, having lost 3.9% the previous day.
Other European stock markets also experienced modest rebounds.
Stocks fell sharply on Wednesday, as markets were rattled by violent protests in Madrid and Athens, as well as a statement from the Spanish central bank that the country's economy had continued to shrink in the third quarter of the year.
On the bond markets, the Spanish government's long-term cost of borrowing stabilised in early trading, at an implied interest rate of just over 6% for 10-year debt.
The 10-year rate had risen by a quarter percentage point on Wednesday, as lenders' fears over the government's ability to repay its debts, or stay within the euro, resurfaced.
The BBC's Tom Burridge, in Madrid, says that it seems investors are losing patience.
Spain will hope that Thursday's austerity measures will mean fewer economic conditions if it asks for a second bailout.
'Significant' fall
Prime Minister Mariano Rajoy fuelled expectations that Spain would ask for a bailout when he told the Wall Street Journal on Wednesday that if borrowing costs were "too high for too long", then "I can assure you 100% that I would ask for this bailout".
The economic situation remains grim, with comments from the central bank on Wednesday indicating that the country's recession deepened in the last three months.
"Available data for the third quarter of the year suggest output continued to fall at a significant pace, in an environment in which financial tension remained at very high levels," the Bank of Spain said in a monthly report.
Last week, Spain's second biggest bank, BBVA, estimated that up to another 60bn euros (£48bn; $78bn) will be needed to bail out the banking sector.
About 20bn euros has already been allocated to troubled banks.
Spain, the eurozone's fourth largest economy, fell back into recession in the last quarter of 2011, the second recession since the bursting of the country's property bubble.
But with a shrinking economy and unrest in the country, reducing the deficit via further austerity measures may prove a difficult task for the government.
The government has predicted a budget deficit this year of about 6.3%, but many analysts estimate it will be nearer 7% or higher.
The basic outline for the budget has been known since July, but not exactly where the cuts and savings will come from.
'Not credible'
There has been speculation that the budget could include such measures as taxes on shares transactions, "green taxes" on emissions or eliminating tax breaks, and even possibly ending inflation-linked pensions.
Madrid has already said that it wants to claw back a total of more than 150bn euros between 2012 and 2014: 62bn euros this year, 39bn euros in 2013, and 50bn euros in 2014.
But many analysts remain sceptical that this will be enough to resolve Spain's economic woes.
Sony Kapoor, managing director of the think-tank Re-Define, told the BBC: "I'm afraid we're going to get a budget which is credible neither for the markets, nor for the European partners.
"It's going to try and meet too many objectives all at the same time, serve too many masters, and end up not serving any of them."
The prospect of further cuts sparked off another wave of demonstrations, and more speculation about the secession of the wealthy Catalonia region.
Despite the public anger, Mr Rajoy said sacrifices were necessary.
"We know what we have to do, and since we know it, we're doing it," he said in a speech in New York.
"We also know this entails a lot of sacrifices distributed... evenly throughout the Spanish society," he said.
But Boris Schlossberg, managing director at New York-based BK Asset, said: "Spain is in a vicious cycle, because austerity is hurting economic activity and revenues, which causes greater fiscal gaps.
"People are starting to realise this, and the political will to absorb these sacrifices is diminishing by the hour," he said.

Wednesday, September 26, 2012

BBC News - Greece set for anti-austerity general strike

Trade unions in Greece have called the first general strike since the conservative-led coalition government came to power in June.
Banners announce Greece's general strike in Athens 25/09/2012Posters reading 'All together' and 'No' announce Greece's general strike in Athens
Wednesday's 24-hour walkout is to protest at new planned spending cuts of more than 11.5bn euros ($15bn; £9bn).
The savings are a pre-condition to Greece receiving its next tranche of bailout funds, without which the country could face bankruptcy in weeks.
Large anti-austerity demonstrations are also planned.
Greece needs the next 31bn-euro instalment of its international bailout, but with record unemployment and a third of Greeks pushed below the poverty line, there is strong resistance to further cuts.
The government of conservative Prime Minister Antonis Samaras is also proposing to slash pensions and raise the retirement age to 67.
Fears of violence
Workers from a diverse range of sectors are taking part in the strike, from doctors to air traffic controllers.
It was called by the country's two biggest unions, which between them represent half the workforce.
A survey conducted by the MRB polling agency last week found that more than 90% of Greeks believed the planned cuts were unfair and a burden on the poor.
The BBC's Mark Lowen in Athens says that, with demonstrations planned, many people fear a repeat of the violence that has hit the streets in previous protests.
Thousands of police have been deployed in the centre of Athens to prevent a flare-up.
Greece is currently trying to qualify for the next instalment of its 130bn-euro bailout, which is backed by the IMF and the other 16 euro nations.
The country was given a 110bn-euro package in May 2010 and a further 130bn euros in October 2011, but correspondents say its neighbours are reluctant to stump up more money.
Greece needs the next tranche of its bailout to make repayments on its debt burden. A default could result in the country leaving the euro.

Tuesday, September 25, 2012

Reuters News - German business mood worsens for fifth straight month

A container ship is loaded at a terminal in the harbour of Hamburg, late September 23, 2012. REUTERS/Fabian Bimmer
BERLIN | Mon Sep 24, 2012 12:11pm EDT
(Reuters) - German business sentiment dropped for a fifth straight month in September, raising fears of recession, as companies struggled with a bleaker economic outlook and the European Central Bank's bond buying plan failed to create much boardroom cheer.
Germany's relative resilience to the euro zone debt crisis has been steadily fraying as its firms see falling demand for their products from European partners and signs of a slowdown in other markets.
The European Central Bank's plan for potentially unlimited government bond-buying has raised hopes on financial markets of an end to the most acute phase of the crisis, but that optimism has not spread to the real economy.
The Munich-based Ifo institute's monthly sentiment index reached its lowest since early 2010 and the outlook component hit its worst level since May 2009.
"Today's Ifo index shows that German companies remain skeptical about the economic impact of (ECB president) Mario Draghi's magic," ING Bank economist Carsten Brzeski said.
"Despite fears of a looming Eurozone break-up clearly fading away, German businesses are downscaling their expectations. The German economy could see a contraction in the third quarter."
Ifo said its business climate index, based on a monthly survey of some 7,000 firms, fell to 101.4 in September from 102.3 in August, defying expectations for a slight rise to 102.5 in a Reuters poll of 45 economists..
The expectations index dipped to 93.2 from a previous 94.2, and fell well short of a forecast 95.0.
In its monthly report, the Bundesbank said the domestic economy was robust, but added it saw signs of "weaker dynamics" and "great uncertainty".
Foreign trade could be hit more strongly than before by developments in the euro area, the central bank added, also pointed to the labor market, where the rise in employment is slowing as companies become less willing to hire.
Dutch business confidence also fell in September to -6.7 points from -4.6 in August, other data showed on Monday, adding to signs that the euro zone's stronger "core" economies are succumbing to the downturn.
While they have not been punished by debt markets like much of the euro's southern half, bothGermany and the Netherlands have slashed public spending to secure the future of public finances.
"The drop in Ifo business confidence is a potent reminder that the outlook for the German and Eurozone economies still hangs in the balance," said Holger Schmieding, German economist at investment bank Berenberg.
"Further policy steps to contain the Euro crisis may be needed for the Eurozone to turn the corner."
While the German economy steamed ahead in the first three months of the year, saving the euro zone from recession by growing 0.5 percent, it lost momentum in the second quarter, with growth slowing to 0.3 percent.
Dragging on the Ifo index in September was a sharp decline in sentiment among manufacturers, although companies in retailing and wholesaling reported a slightly brighter mood. Last week's ZEW survey also showed German analyst and investor morale picked up in September.
Industrial group Bosch and steelmaker ThyssenKrupp, have announced plans to introduce "Kurzarbeit" or government-subsidized short-time work at German plants.
The index would have fallen further had it not been for a ruling by Germany's constitutional court on Sept 12 in favor of the ratification of Europe's permanent bailout fund. Half of the responses in the survey came after the ruling.
The Finance Ministry warned in its monthly report last Friday that data pointed to weaker growth in the remainder of the year. Many economists are now predicting a contraction for the third and possibly the fourth quarters.
Another forward-looking indicator, the Purchasing Managers Index (PMI), last week showed Germany's private sector shrank for a fifth month, and a separate index for the euro zone showed that the ECB's bond-buying plan had so far failed to inspire any major improvement in business at ailing euro zone companies.
However, economist Gerd Hassel said he believed news of the ECB's bond-buying plan had yet to fully sink in.
"I'm optimistic that the Ifo climate index will rise again in the coming months," he said.
(Reporting by Berlin bureau; writing by Alexandra Hudson; editing by Gareth Jones and Patrick Graham)

BBC News - China's super-rich feel slowdown says report

Some of China's richest people have felt the effects of economic slowdown in the country, their wealth reducing in the past year, according to the Hurun Rich List.
A employee walks past the boss Zong Qinghou's picture at Wahaha GroupZong Qinghou, of drink company Wahaha, topped the list this year
China has 251 people worth $1bn (£616m) or more, 20 fewer than last year.
However, the number is still a huge increase compared with 2006, when there were only 15.
It is the first time in seven years that the number of billionaires in China has fallen.
The Chinese economy has slowed in recent months with growth falling to a three-year low of 7.6%, compared with the previous year.
The benchmark gauge of shares listed at the Shanghai Stock Exchange has fallen 23% this year and the property market has declined, subdued by government measures to bring down prices.
Of the 1,000 richest people tracked by Hurun, nearly half saw their wealth shrink in the past year.
Topping the list this year is Zong Qinghou, from the beverage company Wahaha, who is worth $12.6bn.

Friday, September 21, 2012

BBC News - Microsoft and HP rapped by US Senate over tax havens

The US Senate has criticised Microsoft and Hewlett-Packard for their use of tax avoidance schemes, which it says is rampant in the tech sector.
Microsoft logoThe Senate panel said Microsoft had reduced its tax bill by $4.5bn
The Senate's Permanent Subcommittee on Investigations said the companies used places such as the Cayman Islands so they did not have to pay US taxes.
The chairman of the panel said their practices ranged from "egregious to dubious validity".
Microsoft and HP denied any wrongdoing.
Carl Levin has been investigating offshore tax havens for years.
He said the industry was probably the number one user of these offshore entities to transfer intellectual property.
Five of the top 10 companies with the biggest offshore cash balances are in the technology sector.
Low-tax nations
The committee said that between 2009 and 2011, Microsoft moved $21bn (£13bn) offshore, almost half its US retail sales revenue.
The panel said the moved saved it up to $4.5bn in taxes on goods sold within the US.
It also said the company moves royalty revenue to divisions in lower-tax nations, including Singapore and the Republic of Ireland.
Microsoft's vice president for tax, William Sample, said the main reasons for moving operations outside of the US was not tax, although he admitted they came into consideration: "While the primary objective of our regional structure is to improve our competitiveness and efficiency in each of the three regions, we evaluated available tax incentives."
The panel said Hewlett-Packard funded US operations with inter-company loans, using an exception in the law for short-term loans, to avoid billions of dollars in taxes.
A spokesman for Hewlett-Packard said that the company complied fully with tax law adding that the Internal Revenue Service had never raised any concerns about the systems cited by the Senate panel.
HP spokesman Michael Thacker said: "We are disappointed to see what appears to be a politically motivated attack on one of America's largest employers."
The top Republican on the panel, Senator Tom Coburn, signed off the new report, but blamed Congress for the tax system that made such activities possible: "Tax avoidance is not illegal. Congress has created this situation."
US corporation tax is one of the highest in the world at 35%. However, companies typically pay far less, thanks to numerous deductions and exemptions.

Thursday, September 20, 2012

BBC News - Business bank will need £40bn to work, says think tank

The government-backed "business bank" planned by Business Secretary Vince Cable will need £40bn to successfully boost lending to UK firms, says the think tank IPPR.
Vince CableThere are few details as yet as to how Vince Cable's planned business bank will work
It says the bank must also be able to tap bond markets for up to £100bn.
The IPPR also suggests the government allow the bank to invest in infrastructure projects such as road building to help reflate the economy.
Mr Cable announced plans for the business bank last week.
He hopes such a bank will "shake up the market" and help boost overall lending to firms.
How the bank will be structured and funded is still being worked out.
Details on what form the business bank will take have yet to be revealed. Nor have any details been released about what firms it will aim to lend to, or the length in years of any loan agreements.

Mr Cable, a Liberal Democrat member of the coalition government, has said the details are still in "gestation" but "may" involve some state lending, although the Treasury, with Conservative Chancellor George Osborne in charge, is understood to be against this.
The IPPR's chief economist, Tony Dolphin, said: "Because the chancellor will not spend more government money boosting aggregate demand in the economy, he has been reduced to indirect schemes like funding for lending to support growth.
"What we need in the UK is a fully-fledged British investment bank designed to suit the particular circumstances of our economy."
The think tank points out that the £40bn of government capital it believes is needed to kick start the project is unlikely to appeal to the chancellor as it would make it unlikely he would meet his fiscal targets designed to rein in government spending and cut the gap between income and spending.

Reuters News - Spain 10-year bond cost to ease despite bailout hesitancy

The Bank of Spain is seen behind a sign in Madrid March 10, 2011. REUTERS/Andrea Comas
MADRID | Thu Sep 20, 2012 7:45am BST
(Reuters) - Spain's 10-year borrowing costs are likely to fall sharply at an auction on Thursday compared with a month ago but remain uncomfortably high as Prime Minister Mariano Rajoy holds back from requesting a rescue that many regard as inevitable.
Just two days after selling 4.6 billion euros (3 billion pounds) of short-dated debt, the Treasury will test demand for Spanish risk in the tougher 10-year maturity and sell a new three-year bond, aiming to raise 4.5 billion euros in total.
The yield on the benchmark 2022 bond is seen falling to around 5.75 percent according to analysts, close to its lowest level in four months, and down from 6.65 percent when it was last sold on August 2. The new 2015 bond was quoted at around 3.9 percent in the grey market on Wednesday, an indication of where it is likely to sell.
But recent relief from market pressure may not last if Madrid fails to make the request for an international package that would allow the European Central Bank to buy its bonds and keep its funding costs at affordable levels.
Spain is at the heart of the euro zone debt crisis, now in its third year, with investors concerned it will not be able to bring down its massive public deficit and control its soaring debt in the midst of a harsh and prolonged recession.
As well as reassuring investors it will be able to meet repayments on its debt, a bailout would mean fiscal targets the country has consistently missed in recent years are subjected to more rigorous control, analysts say.
"The auction should not be a problem for Spain. But markets want to see more credibility to Spain's fiscal targets, which could be better assured under a rescue package, and ease the threat of losing its investment grade (credit ratings)," said Orlando Green, strategist at Credit Agricole.
Spain is rated Baa3 by Moody's, which is due to complete a review in September. Rival Standard & Poor's said on Wednesday it was unlikely to cut Spain's rating below investment grade in the near future given the lifeline promised by the ECB's new bond-buying programme.
Green said the bulk of demand at Thursday's auction is likely to be for the shorter-dated bond, which would be eligible for purchase by the ECB if Spain asks for a rescue.
Spain has managed to complete around 80 percent of its medium- and long-term borrowing plan for this year, but faces a refinancing hump of 27.5 billion euros in October.
It has increasingly depended on domestic banks to buy its debt at auctions, however, a reliance that would be reduced if it sought a rescue package.
Spain has already requested 100 billion euros of aid for its banks, crippled when a massive property bubble burst, but Rajoy has said he will not sign up for a full-scale bailout that would impose further tough budget conditions. His government has already committed to austerity measures worth 10 percent of gross domestic product up to the end of 2014 and believes more would lead to a public backlash.
But a fresh spike in yields, more calls for cash from indebted regional governments or problems hitting this year's EU-agreed deficit targets could all push Spain into seeking ECB and European aid despite its hesitancy over the conditions.
ECB Governing Council member Luc Coene warned Rajoy on Monday not to delay triggering the programme, which would involve requesting aid from the euro zone's new ESM bailout fund, and risk another rapid rise in yields.
(Editing by Catherine Evans)

Wednesday, September 19, 2012

Reuters News - Germany's big worry: China, not Greece

German Chancellor Angela Merkel addresses a news conference at Bundespressekonferenz in Berlin, September 17, 2012. REUTERS/Tobias Schwarz
BERLIN | Wed Sep 19, 2012 1:18am EDT
(Reuters) - Berlin, not Brussels, will decide the future of the ailing eurozone because Germany's economic power and its status as the European Union's main paymaster give it an effective veto over key decisions.
So it comes as a surprise to find that in Berlin's corridors of power, the main worry is not whether Greece sticks to its reform pledges or Spain demands an EU bailout.
As the world's third largest exporting nation, Germans are far more concerned about whether China loses its appetite for their machine tools and cars, or about what the famed Teutonic manufacturers should make in the year 2030.
Dominating the stage in Germany is the towering political presence of Chancellor Angela Merkel. Just over a year before federal elections, she looks unbeatable.
Opinion polls show her CDU/CSU party winning between 35-39 percent, well ahead of the next biggest grouping, the opposition Social Democrats on 26-30 percent. The opposition Greens are in third place on 12-15 percent, with three smaller parties splitting the remainder.
Coalitions are the norm in Germany so it is mathematically possible to imagine a combination of parties which could unseat the Chancellor next year. But few people expect this. "Quite honestly I don't see any risks for Merkel inside Germany," one senior opposition politician commented. "She is very strong and highly trusted by the population as a crisis manager."
Ranked by Forbes as the world's most powerful woman, Merkel has ruled since 2005 through a canny mixture of political maneuvering, ruthlessness, determination and a good feel for the concerns of the ordinary German.
Her reluctance to embrace bold, comprehensive solutions to the eurozone crisis from the outset has exasperated some foreign critics. But at home, it chimes well with the national predilection for cautiousness, deliberation, thrift and hard work.
"Southern European countries face a situation like the one I had at school," said one senior government official. "I went to a good school and unfortunately I found that other students were cleverer than me in certain subjects, so I had to work harder. I could have gone to a different school but I wanted to stay at that school, so I worked harder."
Merkel took the eurozone close to the brink earlier this year by blocking proposals for European governments to jointly guarantee government borrowing and bank deposits. But she calmed markets in recent weeks by dropping her opposition to the European Central Bank buying the debt of vulnerable southern European governments to lower borrowing costs, provided those nations agree to reform their economies.
"What we're now saying is that if you're drowning, we'll throw you a lifebelt but we'll only pull you out of the water if you start to make visible swimming movements," said Michael Naumann, a former SPD minister, publisher and editor.
Such "conditional solidarity" with Germany's neighbors appeals to a public who are suspicious of the final bill for a eurozone rescue. Germans do not want their hard-fought economic prowess jeopardized by what they regard as irresponsible, free-spending neighbors who failed to embrace necessary economic reform as Germany did earlier this century.
"The key to Merkel's success is the way she portrays herself as the defender of the German taxpayer, only reluctantly going along with Eurozone rescue deals and doing so at the last minute under duress," said one ambassador in Berlin.
While other European countries still debate whether Greece should be allowed to stay in the eurozone after failing to meet targets to cut public spending, privatize state assets and open up its economy, officials in Berlin say Germany has already quietly decided to let Athens remain.
"Chancellor Merkel was much more interested in throwing Greece out six months ago, but not now, even though their credibility is close to zero", one official said. "If you want to know why, look at North Africa and the eastern Mediterranean. With all that's going on there, who wants a NATO member on the southeastern border of the EU to turn into a failed state ?"
In any case, there is little political opposition to Merkel's Europe policy in a country where strong pro-Europeanism is an article of political faith. "I can't imagine that a coalition between the SPD (Social Democrats) and the Greens would actually do anything differently to her," said a second ambassador. "All the main parties support her strategy."
That includes the German Greens. Foreign observers who remember the unkempt, anti-establishment Bonn radicals of the 1980s may be surprised to meet today's sharp-suited, smooth-talking Green leadership, who project a keen interest in power, rather than protest.
The radical baton has instead passed to Die Linke, the successors to the East German Communist Party and Germany's hardest left. "Mrs Merkel is so popular because with the exception of Die Linke, there are practically no alternatives to her," said Sahra Wagenknecht, the elegantly attired deputy leader of the party, who bears more than a passing resemblance to German revolutionary Rosa Luxemburg.
"The SPD runs faithfully after her and nods through her ideas...Merkel's Europe policy is not questioned at all by anyone apart from us."
Wagenknecht opposes the eurozone bailout because she says it has benefited bankers and the rich disproportionately and hurt the poor and the unemployed. But her party bumps along at around four percent in polls, a result she blames on a prolonged bout of in-fighting. Others say Germany is simply too prosperous for a hard-left party to flourish.
Senior Social Democrats have a different problem: Merkel keeps adopting their best ideas.
"She has stolen practically 80 percent of our political program," muttered one well-connected SPD supporter, noting Merkel's abrupt U-turn last year announcing an end to nuclear power. "She has no ideas or principles of her own and is only interested in power. She is destroying party politics in this country."
With so much consensus among the country's political elite over the need for Germany to rescue less fortunate members of the eurozone, the harshest criticism of Merkel's policy on Europe has come from outside parliament: the conservative media, members of the public and the country's revered central bank, the Bundesbank.
Moritz Schuller, who edits the opinion page for the capital's daily newspaper Der Tagesspiegel, is among those critical voices. "We are following an ideological project," he said. "We sold the Greeks Mercedes cars and Bosch fridges which they bought with money they didn't have."
"Now we are making the same mistakes with Greece that we made with East Germany during unification. We are pouring money into a system which doesn't function."
"East Germany didn't become an economic powerhouse because of our ‘Marshall Plan'. People left and went west in search of jobs instead. Compare that with Poland: they succeeded because they had 10 years of pain where they let companies go bust and joblessness rise, while they restructured."
Outside Germany, the most commonly heard complaint about the Chancellor is a different one: Merkel is too cautious and hesitant in her moves to solve the Eurozone crisis. "Why can't she show more leadership ?" is a cry often heard in southern Europe or Brussels.
Viewed from Berlin, things look different.
"Translate ‘leadership' into German and what do you get ?" asked one senior politician here. "Fuehrung. People round here have learned that you have to be careful with Fuehrers".
The biggest risk on the horizon for Merkel is economic, rather than political. Germany's economy is slowing down and the OECD predicts it faces a mild recession. Again, though, nobody expects a tough economic climate unless China catches a cold or another external calamity occurs.
The German Industry Federation has just surveyed its constituent members - operating at a healthy 84 percent of capacity -- and found none expects a sharp slowdown. But industrialists do worry about the yawning imbalances between the prosperous north of the eurozone and its debt-ridden, crisis-prone south.
"A monetary union needs a minimum degree of homogeneity," said one industrial leader. "If other countries don't want a large tradeable sector with plenty of manufactured goods, the eurozone is not sustainable." Southern Europe, he suggested, might want to try using its unwanted properties built during the boom years for medical treatment, and develop an industry treating patients better and more cost-effectively than elsewhere.
Others in Berlin worry about the eurozone's endless ability to spring unpleasant surprises.
"At the moment the bloc is like a group of skittles," one senior government official said. "Some are unstable and there is a danger that one falls over and knocks others down with it. But we don't know which one it will be. It could be the Greek skittle or the Italian one or the Spanish one. Or there could be a skittle flying in from the outside such as a Chinese one."
But all in all, there are no major worries at home, where political stability, economic prosperity and one of the world's highest standards of living survive largely intact, even as other parts of Europe teeter on the edge of the abyss.
So with such a benign domestic political and economic landscape, is Germany celebrating? Unbridled joy does not come easily to the Berlin elite. "It is not true that we have no problems," said one minister. "We are one of the fastest-ageing countries in the world and from 2020 onwards we face a difficult situation in this respect."
That's a problem the Greeks can only dream of having.
(editing by Janet McBride)