Friday, November 30, 2012

Reuters News - German lawmakers to approve Greek bailout despite unease

German Finance Minister Wolfgang Schaeuble speaks during a news conference in Berlin November 27, 2012. REUTERS/Thomas Peter
German Finance Minister Wolfgang Schaeuble speaks during a news conference in Berlin November 27, 2012.
Credit: Reuters/Thomas Peter
BERLIN | Thu Nov 29, 2012 6:49pm EST
(Reuters) - Germany's parliament will approve a fresh bailout for Greece on Friday in a vote seen as a test of Chancellor Angela Merkel's authority over her center-right coalition less than a year before federal elections.
The outcome of Friday's vote in the Bundestag lower house is not in doubt but Germans are deeply uneasy over the costs of the euro zone debt crisis and the number of coalition lawmakers voting against will be keenly watched.
The package of measures to be approved is aimed at reducing Greece's debt load to 124 percent of gross domestic product (GDP) by 2020. The government has acknowledged for the first time this week that the bailout will mean lost federal revenues.
Finance Minister Wolfgang Schaeuble, who will deliver the government's statement on the bailout in Friday's debate, said he was confident the package would pass comfortably and he defended Berlin's handling of the three-year-old debt crisis.
"We are trying to keep the costs and risks (of aid to Greece) as small as possible. We are just following the old rule of 'step by step'," he told a TV chat show late on Thursday.
Schaeuble said Germany was insisting on strict monitoring of Greece's reforms to ensure it met its fiscal targets but he also said the new conservative government in Athens was finally making headway in tackling the country's fiscal problems.
Echoing that view, Deputy Finance Minister Thomas Steffen told the economic council of Merkel's Christian Democratic Party (CDU) on Thursday evening: "The will for renewal exists (in Greece) ... I believe we have to give the Greeks another chance."
Others are less sanguine. All week, German newspapers have reverberated with predictions, including from some coalition lawmakers, that Germany and other euro zone countries will eventually have to write off some of their Greek debt holdings.
Jens Weidmann, head of Germany's central bank, said on Thursday the latest bailout did not mean the crisis was over.
"If Greece does not implement the agreed reforms and does not manage to put its budget on a solid footing, the effect of the new (aid) measures will evaporate," he said in a speech.
A minority of Merkel's lawmakers will vote against the package but criticism of the Greek bailouts within her coalition has softened in recent months after she decided the cost of expelling Greece from the euro zone would be far greater.
In a test vote on Wednesday, 15 of the 237 lawmakers in Merkel's own conservative bloc voted against the aid package and one abstained - though only about two thirds of lawmakers attended the meeting, participants said.
The Free Democrats, the CDU's junior coalition partner, expect about 10 of their 93 lawmakers to vote against or abstain, said a parliamentary source.
That means Merkel is heading for a bigger rebellion than in a Bundestag vote in July on a rescue package for Spanish banks, which saw 22 rebels from her centre-right coalition.
The opposition Social Democrats (SPD) and Greens have confirmed they will back the aid package.
They have accused the Merkel government of deceiving German voters about the true costs of the Greek bailouts but it is difficult for them to make political capital out of the issue as they are strongly pro-euro and support more EU integration.
"Basically they have no choice. If they behave in a way not supportive of the state, they will be berated as unpatriotic knaves," the head of the pollster Forsa, Manfred Guellner, told Spiegel online.
(Reporting by Gareth Jones; Editing by Sophie Hares)

Reuters News - Special report: After a bashing, BOJ weighs "big bang" war on deflation

Bank of Japan Governor Masaaki Shirakawa speaks during a news conference in Tokyo, in this file photo taken November 20, 2012. REUTERS-Yuriko Nakao-Files
1 of 14. Bank of Japan Governor Masaaki Shirakawa speaks during a news conference in Tokyo, in this file photo taken November 20, 2012.
Credit: Reuters/Yuriko Nakao/Files
TOKYO | Thu Nov 29, 2012 8:01pm EST
(Reuters) - Bank of Japan Governor Masaaki Shirakawa was feeling the heat in February when he was summoned to parliament five times to explain what he planned to do to get Japan out of its deflation doldrums.
Shirakawa tried to defend his cautious approach to easing monetary policy, but his tremulous voice was often drowned out by jeers from the benches. "We need a new governor," one MP shouted during one session. Some angry lawmakers even questioned whether the Bank of Japanshould retain its independence from the government.
Shirakawa had been opposed to another round of policy easing, though most members of his policy board were actually arguing for it at that time, according to sources familiar with the bank's internal discussions.
The threat from lawmakers to withdraw the BOJ's charter granting its independence was what changed his mind, the sources said. So the central bank surprised the markets in February by setting an inflation target for the first time of 1 percent and announcing a $122 billion increase in its asset-buying program.
Those five days of intense grilling and the ones that have followed have been among the most intense ever faced by a Japanese central bank governor. Shirakawa has been summoned 29 times so far in 2012, a decade-long record. And the pressure is having a big impact: it was the catalyst for a radical rethink in central bank policy. The full effect of that pivot is expected after April when Shirakawa is due to step down, according to more than a dozen interviews with those involved in the process.
"The central bank, as an institution, was under threat and people there were getting pretty desperate, feeling that something had to be done," said a former BOJ official who remains in touch with central bank executives.
The 63-year-old Shirakawa, a University of Chicago-trained economist, insists monetary policy can have only a limited impact in the battle against persistent deflation that has come to define two decades of Japan's economic stagnation. Pumping unlimited amounts of cash into the banking system or underwriting government debt, the solutions pushed by his critics, could thrust Japan into a financial crisis, he says.
But the terms of the debate are already changing within the BOJ's nine-member policy board, where Shirakawa is now outflanked by newcomers who pushed - unsuccessfully for now - for a bolder commitment to an ultra-easy policy last month, minutes released by the board in November showed.
Members of the BOJ's elite monetary affairs department have been drawing up plans for a bolder set of policy options since late last year, people with knowledge of those discussions say.
One unifying concern, many of those interviewed say, is a belief that in order to keep lawmakers from undermining its legal independence the BOJ needs to step into uncharted territory by running an ultra-loose policy for years to come.
Masaaki Kanno, a former BOJ official and now chief economist at JPMorgan Securities in Japan, said Shirakawa will go down in history as the last "normal" governor of the central bank.
"Shirakawa is unpopular because he tells the hard truth people don't want to hear," Kanno said. "He may not necessarily be the best cheerleader, but then, do we really want the central bank governor to be just a good cheerleader?"
Shirakawa has also become a lightning rod. With a series of headline-grabbing comments that jolted financial markets, Shinzo Abe, the former prime minister whose Liberal Democratic Party (LDP) is favored to return to power after a nationwide election on December 16, has made BOJ bashing a centerpiece of his campaign.
Abe has called on the BOJ to set an inflation target of at least 2 percent - doubling its current target - and to commit to open-ended monetary easing. Short-term interest rates should be set below zero, he has said, and the central bank should stand ready to buy all the bonds needed tofinance public works investment from the market - an extreme step economists warn is dangerously close to "monetizing" debt, or directly underwriting debt from the government.
If needed, Abe also says, the 1998 law that granted the BOJ its long-sought independence should be rewritten.
Proposals to rewrite the law governing the BOJ first came from a number of junior Democratic Party lawmakers who formed an "Anti-Deflation League" in 2010. Initially seen as a fringe initiative without real chance of succeeding, their ideas gradually drew allies from other parties and has become a cross-party movement, winning endorsements from party heavyweights such as Abe.
As a 130-year-old institution, the BOJ is proud of its traditions and of having been on the right side of Japan's modern history. Visitors to the bank's hulking Meiji-era headquarters are told how the central bank had the foresight to buy one of Japan's first elevators - and a vault that withstood the bombing of Tokyo by the U.S. military.
They are sometimes shown a portrait of Korekiyo Takahashi, a former BOJ governor and later prime minister, who stands as something of a martyr for economic policy. Known as Japan's Keynes, Takahashi advocated fiscal expansion and an abandonment of the gold standard and is credited with pulling the economy out of the Great Depression. He was assassinated in 1936 by military officers who blamed him for cuts in arms spending.
The BOJ's legal independence came only in 1998 after officials had argued for decades for more autonomy. The bank's previous charter, based on the Reichsbank of Nazi Germany, was enacted as part of Japan's World War Two-era mobilization.
Its independence was granted in part because of a string of financial scandals and the fallout from the collapse of Japan's asset bubble in 1991. The charter states the BOJ's objective is to pursue "price stability." But Japan's long bout of falling prices, which began back in mid-1998, has actually destabilized the economy, undermining the central bank's ability to claim the intellectual high ground. Somewhat like Germany's central bankers, whose collective memory is seared by hyper-inflation nearly a century ago, Bank of Japan officials were shaped by past bouts of asset bubbles and price inflation - an impulse they found hard to abandon.
In December 2011, a group of the most senior bureaucrats from the Monetary Affairs Department decided it was time for bold action that would impress both lawmakers and markets alike, with an objective of fighting deflation more forcefully. They were worried that the old approach - doling out monetary stimulus in measured doses at times of heightened market stress, usually coinciding with yen rallies - was no longer working.
Although final policy decisions are made by the BOJ's nine-member board, the bank's Monetary Affairs Department hammers out policy options. Nearly all of the 50 or so members of the predominately male group were recruited from the University of Tokyo with degrees in law or economics. All have done stints with other departments at the BOJ before being called in to serve in the inner sanctum of policy.
"It's a very close-knit society. Most of us have known each other for a long time," one member said.
Many officials in the current team had their first stint at the bank in the late 1990s when Japan was struggling with a banking crisis that forced the BOJ to cut interest rates to zero.
"Dealing with inflation isn't really on the minds of the younger generation. They seem to doubt whether Japan may ever see inflation driven by economic strength," said a person in regular contact with central bank officials.
Some inside this circle advocate a shock to the system with a "big-bang" increase in government bond buying to the tune of 100 trillion yen ($1.22 trillion) in one go, instead of the much-criticized baby-step approach of incremental increases, people familiar with the discussions say.
Another idea being floated would have the BOJ buy foreign bonds, a step intended in part to drive down the value of the yen and ease pressure on exporters such as Toyota Motor and beleaguered consumer electronic giants like Sony and Panasonic. Carrying out the latter step would require creating a new fund to give the BOJ legal cover, those familiar with the discussions say.
The emerging shift in central bank strategy carries risks: the BOJ would be expanding its balance sheet at a time when Japan's public debt is already off the charts because of the ballooning costs of providing healthcare and pensions to its rapidly ageing population.
If it goes too far, some worry, it could trigger a loss of confidence and a debt crisis.
But among the firebreaks against runaway price increases is a banking sector that keeps pouring money into government bonds, rather than lending it out, and individuals who continue to save against uncertainty, rather than splurging. The same factors could give the BOJ more room to buy government bonds aggressively without igniting panic-inducing price increases, or so the argument goes.
Those who have worked for the soft-spoken Shirakawa describe him as a workaholic and a perfectionist. His few pleasures outside work include listening to the music of the Beatles and catching an occasional movie. A recent favorite: "Always Sunset on Third Street," a 2005 drama that captures Tokyo on the cusp of economic boom in 1958.
Shirakawa joined the BOJ in 1972, months before inflation began sharply rising to near 25 percent. The chaos of those months around the oil price shock was a formative experience for him, as was the "asset bubble" that formed in the late 1980s, people close to him say.
He was among the cadre of BOJ officials who masterminded the central bank's previous spell of quantitative easing, which involved pumping vast amounts of money into the financial system. That spell lasted for five years until 2006 and helped Japan emerge from a domestic banking crisis. But he remains wary of the risks of that policy.
Shirakawa declined to be interviewed for this story.
One worrying trend Shirakawa and others have cited to support their caution over easing monetary policy was that much of the money the BOJ has injected into the economy recently has simply been piling up in bank accounts, rather than feeding into the productive economy via bank loans. That poses the risk of inflating financial assets, if the account holders plough it into stocks.
Until the mid-1990s, cash and deposits held by companies and households were around 1.1 times the size of Japan's GDP. They have now grown to 1.7 times GDP, the highest among major economies.
The real problem is that the economy has been running below its potential for years, according to a paper published in July by a team of BOJ researchers. They identified the yawning "output gap" as a key factor behind Japan's long-running, mild deflation.
Market and consumer psychology was one reason for the weak output and falling prices, the study concluded. Japanese companies and consumers had come to expect prices would fall and were behaving accordingly, the study noted. In fact, inflation expectations had been in retreat since 1990 and plunged in 2008. The BOJ researchers believe expectations of falling prices could become dangerously self-fulfilling.
Advocates of an ultra-easy monetary policy argue that cycle could be broken by pumping a river of money into the system - economist Paul Krugman, a commentator Shirakawa is said to admire -- has urged the BOJ to do just that and "credibly commit to being irresponsible".
Masayoshi Amamiya was a key figure in the Monetary Affairs Department group that is overhauling BOJ policy. He oversaw the division until May this year when he was sent to head the bank's Osaka branch, a step expected to set him up for an eventual stint on the bank's policy board.
A 57-year-old fan of the music of Bartok and Prokofiev, who jokes he feels more comfortable talking about classical scores than monetary policy, won praise for bringing a newfound flexibility to BOJ policy since the previous round of quantitative easing. Admirers inside the bank refer to "Amamiya magic" for his skill at handling communication with lawmakers, and coming up with creative banking ideas.
Amamiya was at the center of deliberations leading up to the BOJ's surprise easing in February, when it announced an inflation target of 1 percent and raised its asset-buying target by 10 trillion ($122 billion). Amamiya also helped make the case for a follow-up easing in April on the belief that, when necessary, the central bank must aim for a "shock" effect.
The most recent appointments to the policy board -- former economists Takehiro Sato and Takahide Kiuchi -- are also more strongly committed to an easing policy. Both warned on October 30 that the central bank's consumer price inflation forecasts were too optimistic. Their appointments came after the Diet turned down a nominee --- Ryutaro Kono, an economist at BNP Paribas -- because lawmakers thought he would not be aggressive enough. Rarely if ever has a government nominee for a board member been rejected in parliament.
Kono's rejection and the recent board appointments sent a clear message to the central bank that it needed to change, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. "It will certainly have an effect on who will be chosen as governor."
At the working level, the BOJ is preparing for a leadership change next spring when the terms of Shirakawa and both of his deputies expire. The bank has appointed 50-year-old Shinichi Uchida as head of the Monetary Affairs Department, making him the youngest of the bank's 15 department heads and surprising many in an organization where posts are almost universally assigned according to seniority.
Miyako Suda, who served on the BOJ board for a decade before leaving in March 2011, had been Shirakawa's last dependable ally. Suda stood out as the only woman on the policy board during her tenure, and because she was so open with her dissent.
Suda warned that too much easing might forestall more important economic reforms, such as deregulation and opening up Japanese markets to foreign competition. For Shirakawa, Suda also had been something of a soulmate and sounding board, someone who shared his core set of beliefs, people close to the policy board say.
The pressure for a shakeup at the BOJ has mounted both from the LDP and key members of the ruling Democratic Party. The new generation of BOJ critics mostly started their careers during Japan's lost decades. They have witnessed how fiscal policy tools such as subsidies, tax breaks and massive public works failed to jolt the economy back to life.
As a matter of tradition the top BOJ job long rotated between career central bankers and finance ministry bureaucrats, though BOJ insiders have dominated the post for the past 15 years. Now lawmakers and finance ministry officials are putting on the pressure to bring in someone from outside to replace Shirakawa.
That favors candidates such as Toshiro Muto, 69, a former finance ministry bureaucrat who served as deputy governor from 2003 to 2008 and Kazumasa Iwata, 66, a former deputy governor who now sits on a government panel discussing ways to boost Japan's productivity. Both advocate a radical expansion of the BOJ bond-buying program and both play down the threat of inflation or another market bubble.
"The effect of non-traditional policy may not be clear, but neither are the side-effects. The chance of Japan seeing inflation flare up soon is small," Muto told Reuters.
The BOJ's post-Shirakawa policies could have global reverberations. If the experiment with radical monetary expansion fails, it would strengthen the opponents of quantitative easing policies that have been in vogue among central banks across the world. Foes warn of its diminishing returns and risks for long-term financial stability. Success in Japan would have the opposite effect, perhaps ushering in a new era of experimental central banking - with an additional side effect of realignment among major currencies, weakening the yen in a lasting manner.
There is no guarantee the BOJ will succeed. The last time price increases were over 2 percent was in 1992, just after the collapse of the bubble in property and stock prices. That was the end of the boom era when growth had averaged over 4 percent for nearly two decades.
Bolstered by a pioneering round of quantitative easing Shirakawa helped engineer as a working-level official, Japan's economy staggered back to average growth of 1.6 percent between 2002 and 2007.
But the 2008 global financial crisis sent Japan into recession as did the March 2011 earthquake and tsunami. Some members of the BOJ's policy board have warned the third recession since Shirakawa took the central bank's helm may have begun in the past quarter.
Some economists say Shirakawa did well guiding the economy through crisis, though failing to win allies or communicate effectively with markets and lawmakers. Others are not so kind.
When asked to grade Shirakawa's nearly five-year tenure, economists at major Tokyo banks surveyed by Reuters at the end of September gave him a grade of 60 percent. Twelve of 16 said they expected him to leave when his term ends in April. Most rejected the need to change the BOJ law.
Yasutoshi Nishimura, 50, a LDP lawmaker who is expected to have a big say in the choice of the next BOJ chief, underscores the consensus. "The next governor should be someone who does not have the ‘inflation fighter' DNA," Nishimura told Reuters.
(Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto and Kaori Kaneko; Editing by Tomasz Janowski and Bill Tarrant)

Thursday, November 29, 2012

BBC News - Energy Bill to create 'low carbon economy', says Davey

Energy minister Ed Davey has unveiled the government's much-trailed Energy Bill, setting out the roadmap for the UK's switch to "a low-carbon economy".
Energy Secretary Ed Davey says the Bill will transform the energy landscape

Energy firms can increase the "green" levy from £3bn to £7.6bn a year by 2020, potentially increasing household bills by £100.
But big, energy-intensive companies could be exempt from the extra costs of the switch to renewable energy.
There are also proposals for financial incentives to reduce energy demand.
The "transformation" will cost the UK £110bn over ten years, Mr Davey said.
He told MPs: "Britain's energy sector is embarking on a period of exceptional renewal and expansion.
"The scale of the investment required is huge, representing close to half the UK's total infrastructure investment pipeline."
The government's plan formed the "biggest transformation of Britain's electricity market since privatisation," he said.
Measures proposed in the Bill and consultations include:
  • Household energy bills to rise £100 on average by 2020
  • "Green" levy charged by energy firms to rise from £3bn to £7.6bn
  • Switch to clean energy to cost £110bn over ten years
  • Bill aims to encourage investment in low-carbon power production
  • Energy-intensive companies may be exempt from additional charges
  • Possible financial incentives to reduce energy consumption
Mr Davey said government policy was "designed specifically to reduce consumer bills", arguing that without a move to renewable energy, bills would be higher because of a reliance on expensive and volatile gas prices.
The Energy Bill aims to move the UK's energy production from a dependence on fossil fuels to a more diverse mix of energy sources, such as wind, nuclear and biomass.
This is to fill the energy gap from closing a number of coal and nuclear power stations over the next two decades, and to meet the government's carbon dioxide emissions targets.
By allowing energy companies to charge more, the government hopes they will have the confidence to invest the huge sums of money that are needed to build renewable energy infrastructure such as windfarms.
But the opposition said that investment in renewable energy had fallen under the coalition.
"The reason that's happened is because of the uncertainty the government has created - that's why firms have put investment on hold, or scrapped it altogether," said shadow energy and climate change secretary Caroline Flint.
She added that the absence of a carbon cap for the energy sector for 2030 further undermined investment in renewables.
But in a consultation paper published alongside the Bill, Mr Davey said energy-intensive industries, such as steel and cement producers, would be exempt from additional costs arising from measures to encourage investment in new low-carbon production.
"Decarbonisation should not mean deindustrialisation", Mr Davey said.
"The transition to the low carbon economy will depend on products made by energy intensive industries - a wind turbine for example needing steel, cement and high-tech textiles.
"This exemption will ensure the UK retains the industrial capacity to support a low carbon economy."
Without the exemption, the government fears big companies would cut jobs and relocate abroad.
Reducing demand
The government proposals to reduce electricity demand include financial incentives for consumers and businesses alike.
For example, firms could be paid for each kilowatt-hour they save as a result of taking energy-reduction measures, such as low-energy lighting.
Householders and businesses could be given discounts and incentives to replace old equipment with more energy-efficient versions.
The government believes a 10% reduction in electricity demand could save £4bn by 2030.
But research by management consultancy McKinsey suggests there is the potential to reduce demand by as much as 26%, equivalent to 92 terawatt-hours, or the electricity generated by nine power stations in one year.
Audrey Gallacher, director of energy at Consumer Focus, said: "The government's commitment to reduce energy demand through incentives for consumers and businesses is welcome.
"But it will come at a cost - which again will be passed onto customers."

Wednesday, November 28, 2012

BBC News - US says China not a currency manipulator

The US has decided not to declare China as having manipulated its currency to gain an unfair trade advantage.
A 100 yuan noteMany believe that China's currency is well below what it would be worth if it floated freely
In its semi-annual report, it said Beijing did not meet the criteria to be called a currency manipulator, which could have sparked US trade sanctions.
Critics of China say it keeps the yuan low to keep its exports cheap.
"The Chinese authorities have substantially reduced the level of official intervention in exchange markets since the third quarter of 2011, and China has taken a series of steps to liberalise controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime," the Treasury said.
But it noted there was more to do and that "further appreciation" against the US dollar and other major currencies was "warranted".
The issue of whether China manipulates its currency is an important political issue and an ongoing source of tension between the world's two biggest economies.
Defeated US presidential candidate Mitt Romney had said he would have branded China a currency manipulator on his first day in office.
Twice a year, the Treasury gives a report to Congress on China's yuan policy. Previous reports have also found China keeps the yuan undervalued, but have fallen short of calling China a currency manipulator.
China has, since 2005, had a managed currency, whereby the yuan is pegged against a basket of foreign currencies. It has been slowing appreciating against the US dollar.
In its report, the Treasury said that the yuan had appreciated by 9.3% against the dollar since June 2010, while China's trade and current account surpluses have both fallen from their peaks.

Tuesday, November 27, 2012

Reuters News - Euro zone, IMF reach deal to cut long-term Greek debt

A Greek flag flutters in front of the moon in Athens November 26, 2012. REUTERS-Yorgos Karahalis
1 of 13. A Greek flag flutters in front of the moon in Athens November 26, 2012.
Credit: Reuters/Yorgos Karahalis
BRUSSELS | Tue Nov 27, 2012 1:49am EST
(Reuters) - Euro zone finance ministers and the International Monetary Fund clinched agreement on reducing Greece's debt on Monday in a breakthrough to release urgently needed loans to keep the near-bankrupt economy afloat.
After 12 hours of talks at their third meeting in as many weeks, Greece's international lenders agreed on a package of measures to reduce Greek debt by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020.
In a significant new pledge, ministers committed themselves to take further steps to lower Greece's debt to "significantly below 110 percent" in 2022 -- the most explicit recognition so far that some write-off of loans may be necessary from 2016, the point when Greece is forecast to reach a primary budget surplus.
"When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt," German Finance Minister Wolfgang Schaeuble said.
Eurogroup Chairman Jean-Claude Juncker said ministers would formally approve the release of a major aid installment needed to recapitalize Greece's teetering banks and enable the government to pay wages, pensions and suppliers on December 13.
Greece will receive up to 43.7 billion euros in stages as it fulfills the conditions. The December installment will comprise 23.8 billion for banks and 10.6 billion in budget assistance.
The IMF's share, less than a third of the total, will only be paid out once a buy-back of Greek debt has occurred in the coming weeks, but IMF Managing Director Christine Lagarde said the Fund had no intention of pulling out of the program.
To reduce Greece's debt pile, ministers agreed to cut the interest rate on official loans, extend their maturity by 15 years to 30 years, and grant Athens a 10-year interest repayment deferral.
They promised to hand back 11 billion euros in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.
They also agreed to finance Greece to buy back its own bonds from private investors at what officials said was a target cost of around 35 cents in the euro.
European Central Bank President Mario Draghi said on leaving the talks: "I very much welcome the decisions taken by the ministers of finance. They will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece."
The euro strengthened against the dollar after news of the deal was first reported by Reuters.
Juncker said the accord opened new hope for Greeks.
"This is not just about money. This is the promise of a better future for the Greek people and for the euro area as a whole, a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum, declining debt ratios and a return to growth," he told a 2 a.m. news conference.
Greek Finance Minister Yannis Stournaras said earlier that Athens had fulfilled its part of the deal by enacting tough austerity measures and economic reforms, and it was now up to the lenders to do their part.
Greece, where the euro zone's debt crisis erupted in late 2009, is the currency area's most heavily indebted country, despite a big "haircut" this year on privately-held bonds. Its economy has shrunk by nearly 25 percent in five years.
Negotiations had been stalled over how Greece's debt, forecast to peak at 190-200 percent of GDP in the coming two years, could be cut to a more sustainable 120 percent by 2020.
The agreed figure fell slightly short of that goal, and the IMF was still insisting that euro zoneministers should make a firm commitment to further steps to reduce the debt stock if Athens implements its adjustment program faithfully.
The key question remains whether Greek debt can become sustainable without euro zone governments having to write off some of the loans they have made to Athens.
Germany and its northern European allies have hitherto rejected any idea of forgiving official loans to Athens, but EU officials believe that line may soften after next year's German general election.
Schaeuble told reporters earlier that debt forgiveness was legally impossible, not just for Germany but for other euro zone countries, if it was linked to a new guarantee of loans.
"You cannot guarantee something if you're cutting debt at the same time," he said. That did not preclude possible debt relief at a later stage if Greece completed its adjustment program and no longer needs new loans.
At Germany's insistence, earmarked revenue and aid payments will go into a strengthened "segregated account" to ensure that Greece services its debts.
A source familiar with IMF thinking said a loan write-off once Greece has fulfilled its adjustment program would be the simplest way to make its debt viable, but other methods such as forgoing interest payments, or lending at below market rates and extending maturities could all help.
The German banking association (BDB) said a fresh "haircut" or forced reduction in the value of Greek sovereign debt, must only happen as a last resort.
The ministers agreed to reduce interest on already extended bilateral loans from the current 150 basis points above financing costs to 50 bps.
No figures were announced for the debt buy-back in an effort to avoid triggering a rise in market prices in anticipation of a buyer. But before the meetings, officials had spoken of a 10 billion euro buy-back, that would achieve a net reduction of about 20 billion euros in the debt stock.
German central bank governor Jens Weidmann has suggested that Greece could "earn" a reduction in debt it owes to euro zone governments in a few years if it diligently implements all the agreed reforms. The European Commission backs that view.
An opinion poll published on Monday showed Greece's anti-bailout SYRIZA party with a four-percent lead over the Conservatives who won election in June, adding to uncertainty over the future of reforms.
(Additional reporting by Robert-Jan Bartunek, Ethan Bilby, Luke Baker in Brussels, Reinhardt Becker in Berlin; Writing by Paul Taylor; Editing by Luke Baker)

Sunday, November 25, 2012

Reuters News - Congo miners pin hopes on distance from rebel push

Miners work in the Kalimbi tin mine near the small town of Nyabibwe, October 31, 2012. REUTERS/Jonny Hogg
Miners work in the Kalimbi tin mine near the small town of Nyabibwe, October 31, 2012.
Credit: Reuters/Jonny Hogg
LONDON | Fri Nov 23, 2012 1:52pm EST
(Reuters) - Never a destination for the faint-hearted investor, the Democratic Republic of Congo is again worrying those betting on its mines and vast mineral wealth, as rebels battle government troops in the country's east.
Goma - a lakeside trade town at the centre of an eastern region that once exported significant quantities of tin, gold and tantalum, a metal used inelectronics - has been taken by the M23 fighters, who are now progressing south.
The eastern Kivu regions had seen exports tumble even before the recent months of fighting, as tighter controls on companies' supply chains hit the mostly artisanal mining operations. Without tags to certify origin, buyers like electronics powerhouses Apple or Intel steer clear of the region'smetals.
Industry sources and analysts say the fighting - in an area that has seen recurring ethnic strife - is unlikely to spread far beyond the region, certainly not as far south as the major copper mines of Katanga, a region more than 1,000 kilometers (625 miles) south of Goma that has been the heart of Congo's mining industry.
"This is not national. You can't correlate it with (the civil war of) 2003; it is a different conflict," said Mark Bristow, CEO of Randgold, which works in Mali and Ivory Coast and is developing the Kibali project in Congo's northeast.
"Without wanting to downplay the seriousness of this - and it is serious - it is fairly well defined to the region. We don't see it spreading, and it is very encouraging the population at large is clear about (wanting) national unity."
But campaigners and industry analysts say the unrest will set back efforts to boost legitimate mining in the east, and to clean up Congo's tarnished reputation.
Unchecked progress towards Bukavu - 200 km by road from Goma, south along Lake Kivu - will bring the rebels closer to Canadian miner Banro's Twangiza operation, Congo's first new gold mining project for more than half a century, and hailed at its debut last year as a symbol of revival in a war-scarred region.
Banro's shares have lost more than a quarter of their value since reports of fighting began to emerge this month, though the company has said operations are normal.
Congo is the world's 24th-largest gold producer, according to GFMS.
Still recovering from years of under-investment in its mining infrastructure, Congo attracts most attention for its vast reserves of copper. It produced 435,400 metric tons last year, according tometals research group GFMS, making it the world's 10th largest producer of the metal.
Congo's major international copper miners, from Freeport McMoRan to Glencore and ENRC, operate in Katanga, and have soothed investors by emphasizing their distance from the fighting, hundreds of kilometers away.
Company officials from the major miners told Reuters they were monitoring the situation, but all said their export routes and production were unaffected.
Canadian-listed Alphamin is drilling in the Bisie tin deposit in North Kivu, one of the biggest in the region and a project that has long been fought over by the army and rebels. Alphamin did not respond to a request for comment.
The main impact, industry analysts say, is likely to be on longer-term efforts to bring "bag and tag" initiatives to the volatile east - allowing electronic giants like Apple and other buyers to come back without falling foul of the Dodd Frank law.
Under rules only finalized this year, the law requires U.S. companies to ensure their supply does not come from areas controlled by armed groups or corrupt soldiers.
As a result of concerns over conflict minerals, Congo made up only 1.5 percent of the global tin market last year - down from 4 percent in 2008.
But the region has pushed ahead with initiatives like the cooperative-operated Kalimbi mine in South Kivu, which has been tagging its tin to secure legitimate - and better priced - sales.
"Considerable efforts are being made in the region to set up responsible, conflict-free supply chains. We need to make sure this progress isn't reversed by the M23's advance," said Annie Dunnebacke, a senior campaigner at Global Witness.
Fighting in the region has long been linked to the plundering of its mineral wealth - illegally mined tin, gold and coltan, shorthand for an ore that is mined for tantalum.
United Nations investigators have said that rebel groups and rogue elements in the army have smuggled minerals abroad, circumventing government mining and export bans on metals. Much "conflict" metal is shipped through Rwanda, experts say.
Though only a small portion of the world's tantalum reserves are in central Africa - less than 10 percent according to research firm Roskill - a large portion of tantalum comes out of the conflict region. Roskill estimates conflict tantalum made up 23 percent of primary supply in 2011.
(Additional reporting by Edward Stoddard in Johannesburg; Editing by Will Waterman)

Thursday, November 22, 2012

BBC News - EU budget summit offers hours of hard bargaining

EU leaders are to begin talks on the bloc's seven-year budget, with many of them calling for cuts in line with the savings they are making nationally.
EU Commission President Jose Manuel Barroso in Brussels, 22 NovemberJose Manuel Barroso is seen here arriving for the summit
Countries that rely heavily on EU funding, including Poland and its ex-communist neighbours, want current spending levels maintained or raised.
The UK and some other net contributors say cuts have to be made. At stake are 973bn euros (£782.5bn; $1,245bn).
The bargaining in Brussels will continue on Friday, or even longer.
The draft budget - officially called the 2014-2020 Multi-Annual Financial Framework (MFF) - was drawn up by European Council President Herman Van Rompuy, who made cuts to the European Commission's original plan.
France objects to the proposed cuts in agriculture, while countries in Central and Eastern Europe oppose cuts to cohesion spending - that is, EU money that helps to improve infrastructure in poorer regions.
They are the biggest budget items. The Van Rompuy plan envisages 309.5bn euros for cohesion (32% of total spending) and 364.5bn euros for agriculture (37.5%).
The EU budget is a small fraction of what the 27 member states' governments spend in total.
Many hurdles
German Chancellor Angela Merkel says another summit may be necessary early next year if no deal can be reached in Brussels now.
In a speech to the European Parliament on Wednesday, the EU Commission President, Jose Manuel Barroso, complained, "No one is discussing the quality of investments, it's all cut, cut, cut."
Arriving in Brussels, UK Prime Minister David Cameron said: "These are very important negotiations.
"Clearly at a time when we are making difficult decisions at home over public spending it would be quite wrong, it is quite wrong, for there to be proposals for this increased extra spending in the EU."
Mr Cameron, who was due to meet Mr Barroso and Mr Van Rompuy, has warned he may use his veto if other EU countries call for any rise in EU spending. The Netherlands and Sweden back his call for a freeze in spending, allowing for inflation.
Any of the 27 countries can veto a deal, and the European Parliament will also have to vote on the MFF even if a deal is reached.
Failure to agree would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.
If that were to happen it could leave Mr Cameron in a worse position, because the 2013 budget is bigger than the preceding years of the 2007-2013 MFF. So the UK government could end up with an EU budget higher than what it will accept now.
The European Commission says that the EU budget accounts for less than 2% of public spending EU-wide and that for every euro spent by the EU the national governments collectively spend 50 euros.

Reuters News - China must speed up financial reform to sustain GDP growth: Moody's

(Reuters) - China must accelerate the pace of financial reform in coming months to sustain economic growth, ratings agency Moody's Investor Services said, forecasting the world's No. 2 economy will grow 7.5 percent each year from 2012 to 2014.
Expectations of steady expansion means China is unlikely to suffer any economic "hard landing," or abrupt slowdown, Moody's said, but warned that the days of easy growth for the world's fastest-growing major economyare over.
Difficult financial reforms that make space for a more market-driven system must be made to cut inefficiencies, it said. At the same time, China no longer enjoys the wide berth it had before to bolster growth in unforeseen downturns.
"Without more market-based price signals driving the efficient allocation of capital and improving the competitive delivery of services, China's trend growth rate will likely slow more rapidly than otherwise," Moody's said in a report.
Crucial areas of reform include increasing market-based competition, improving regulation to allow greater certainty and transparency on future rules and decisions, and making China's hulking state firms more efficient, Moody's said.
While these changes should uncover new engines of growth, the road will not be smooth sailing.
The 4 trillion yuan stimulus from Beijing four years ago that led to explosive growth in China's local government debt and rapid expansion of its banks means the country can no longer indulge in a credit binge if the economy swoons, Moody's said.
Banks were especially imperiled by China's previous credit extravagance, it said, noting China's total bank assets doubled in the past four years, leaving them exposed to industries now mired in excess production capacity.
Total assets in China's banking system are now worth 240 percent of the country's gross domestic product at 113.3 trillion yuan ($18.2 trillion), substantially higher than any other major emerging economy, Moody's said.
As a result, the agency judged Chinese bank asset quality to be "negative" for the next 12-18 months, even though it assessed the banking system to have a "stable" outlook in the period.
China's stabilizing economic growth has arrested the uptick in its banks' bad loan ratio, Moody's said, and there are no indications that asset quality will worsen materially in coming months.
China's four biggest state-owned banks which control about half of the country's total bank assets all have non-performing loan ratios of below 1.5 percent, drawing criticisms from analysts who say the numbers are too low and not to be trusted.
Christine Kuo, vice president of Moody's Financial Institutions Group, said while the agency too has its concerns about China's bad loan data, it cannot prove that the numbers are false.
"We have our concerns, but we have no evidence," Kuo said.
For state-owned enterprises, the economic slowdown will impact different sectors differently, said Kai Hu, vice president for corporate finance at Moody's.
Strategic sectors such as oil and natural gas production and the power grid will hang onto their monopolies, but consolidation measures recently announced by the government will be a blow to the dominance of state-owned enterprises (SOE) in other sectors.
Overcapacity remains a key obstacle, particularly in cyclical industries, Moody's said in its report, pointing out that capacity utilization in China had fallen to 60 percent in 2011 from 90 percent in 2000.
"We think the economic slowdown will be a challenge for SOE adaptability," Hu said.
Growing per capita income will increase cost pressure on companies, he added. Recent market reforms in energy prices will be a boon to suppliers of energy but add cost pressure to consumers.
($1 = 6.2302 Chinese yuan)
(Reporting by Koh Gui Qing; Editing by Jacqueline Wong)