Friday, February 27, 2015

BBC News - Switzerland deal to help Italy combat tax evasion

Italy and Switzerland have signed a deal to share information in a bid to tackle tax evasion.
Davos in SwitzerlandSwitzerland is the hiding place of choice for Italian cash
The deal offers a partial tax amnesty to Italians that have hidden cash in Switzerland.
They will have until 30 September to declare their Swiss bank accounts through a "voluntary disclosure procedure."
In return, they will be given more lenient fines and most criminal charges will be dropped.
Around 70% of the cash that Italians have hidden abroad is in Switzerland, reportedly costing Italy €90 billion ($100bn) a year.
Italy is keen to bolster its government revenues as stagnant growth has put pressure on the country's finances.
In September, the government increased its 2015 deficit target from 2.2% to 2.9% of GDP, just below the 3% threshold set by the EU.
The deal comes as bank secrecy and tax evasion takes centre stage in Europe. HSBC has been accused of helping people evade UK taxusing hidden HSBC accounts in Geneva.
Greater financial disclosure measures are likely to be introduced in Europe. Switzerland has agreed to sign a multilateral agreement to share tax information with other governments by 2018.

Thursday, February 26, 2015

Bloomberg News - Europe’s Falling Behind as China Soars in Digital Innovation

Shopping As Euro Economy Struggles

Pedestrians carrying umbrellas pass a flower stall in Amsterdam.
Photographer: Jock Fistick/Bloomberg

Poor Europe can’t catch a break. The region’s not only trying to keep its currency together, but also struggling to keep up with the fast-moving digital economy.
The Digital Evolution Index, created by the Fletcher School at Tufts University, paints a grim picture of the state of technological innovation in the self-anointed old continent. The top 10 nations with the most negative scores over time hail from Europe, barring Australia.
For Nordic countries such as Norway and Finland, which have a hallowed history of innovation, the index serves as a warning that they’re losing momentum. Just look at what happened to Nokia, once the world’s largest maker of mobile phones. For the likes of Portugal and Spain, it means they are falling even further behind.

Leave it to Asian nations to yet again lead the charge of priming their economies for electronic commerce. Not only does Singapore occupy the top spot as the most digitally innovative country, the three biggest gainers — dubbed the “breakouts” — also come from the South China Sea region.

To measure performance past and present, Tufts took into account four drivers of Internet growth: consumer demand, supply and existing infrastructure, institutional environment and innovation.

Wednesday, February 25, 2015

BBC News - Greece submits proposed reforms in bid for loan extension

Art made out of Greek euro coins, Frankfurt, 23 February 2015The European Commission said the proposals were delivered on time
Greece has submitted a list of reform proposals to its bailout creditors, the European Commission says.
The list was received "on time", a spokesman tweeted.
The measures include combating tax evasion and tackling fuel and tobacco smuggling.
Greek Prime Minister Alexis Tsipras is trying to balance satisfying the demands of creditors with meeting his pre-election pledges, say correspondents.
Greece needs approval from international creditors to secure a four-month loan extension.
"In the Commission's view, this list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review," a source close to the European Commission told Reuters news agency.
Drafts of the list will have been seen by European officials in Brussels as they were being drawn up over the weekend, but aspects of the plan that require new social spending may well be sticking points with creditors, says the BBC's Mark Lowen in Athens.
Ending home repossessions and providing free medical care and electricity for those who cannot pay may become bones of contention - while the eurozone may insist pension cuts and VAT rises should continue, our correspondent adds.

Tuesday, February 24, 2015

Reuters News - Obama warns U.S. security funding lapse would hurt economy

(Reuters) - U.S. President Barack Obama warned on Monday that a partial shutdown of the Department of Homeland Security would suspend pay for more than 100,000 border patrol, port inspection and airport security agents.
"It will have a direct impact on your economy, and it will have a direct impact on America's national security because their hard work helps to keep us safe," Obama said in a speech to a meeting of state governors at the White House.
Homeland Security spending authority will expire at midnight on Friday unless Congress approves new funding. While essential security personnel would still report to work, there would be no money to pay them during the funding lapse.
A new $39.7 billion budget for the department is stalled in Congress over Republican-authored provisions to block any spending on Obama's recent executive orders that lift the threat of deportation from millions of undocumented immigrants.
Republicans who control the U.S. Senate will try for a fourth time to advance the measure later on Monday, but it was expected to fall short again of the needed 60 votes as Democrats reject it. Even if it were to pass, Obama has threatened to veto the measure unless immigration restrictions are stripped.
Homeland Security Secretary Jeh Johnson said a cut-off in funding would cause most DHS headquarters employees to be furloughed, hampering the department's ability to coordinate domestic anti-terrorism activities.
"If our headquarters staff is cut back to a skeleton, that inhibits our ability to stay on top of a lot of the existing situations and challenges to homeland security right now," he told a news conference, adding this was "not in the public's best interest."
Aides to Senate and House Republicans declined to outline lawmakers' next steps. Some moderate Republicans support removing the immigration provisions or passing a one- or two-month extension of last year's funding levels, which would buy time for a court challenge to Obama's immigration orders.
Senate Homeland Security and Government Affairs Committee Chairman Ron Johnson on Monday called for an end to the impasse but did not suggest a path forward.
"Responsible members of both parties must work together to find some way to fund DHS without further delay," he said in a statement.
A senior Senate Democratic aide said the party would likely reluctantly accept a short-term funding extension.

(Reporting by David Lawder and Roberta Rampton; editing by Susan HeaveyEmily Stephenson,John Whitesides and David Gregorio)

Monday, February 23, 2015

BBC News - Greece bailout: Deadline looms for crucial reforms

Greece is preparing to present a list of reforms to lenders in order to secure a bailout extension.
Street vendors in Athens, 23 February
Greeks have seen their living standards drop sharply during the debt crisis
The list to be submitted on Monday must be approved by international creditors to secure a four-month loan extension.
Analysts say a collapse of the deal would revive fears of a Greek exit from the euro.
Minister of state Nikos Pappas said the list would include measures to tackle tax evasion and streamline the civil service.
Germany's Bild daily newspaper, citing an unnamed source, reports that Greece aims to recover 7.3bn euros (£5.4bn; $8.3bn) with measures to combat tax evasion.
Graphic showing how much Greece owes to whom
A spokesman for the German finance ministry, Martin Jaeger, was quoted as saying by Reuters news agency that Berlin expected the Greek plan to be "coherent and plausible".
Greece agreed at a meeting with its European Union and International Monetary Fund (IMF) lenders on Friday to submit the list of reforms before Tuesday.
Analysis: Mark Lowen, BBC News, Athens
Greek Finance Minister Yanis Varoufakis (right) and German Finance Minister Wolfgang Schaeuble address a news conference following talks at the finance ministry in Berlin, 5 February Greek Finance Minister Yanis Varoufakis (right) will have to convince his German counterpart, Wolfgang Schaeuble, pictured here earlier this month in Berlin
It may seem like the naughty pupil submitting homework to the headmaster but Greece's government has spun it differently: as proof that Greeks are now "co-authors of their destiny".
Athens will send to Brussels a list of reforms it is willing to make in return for the loan extension. Its creditors will give their verdict tomorrow. If there is disagreement, the deal could collapse. If it needs fine-tuning, Greece has until April to do so.
The Greek government says it will suggest reforms to tackle tax evasion but in reality it will be forced to adhere to many of the austerity demands of the original bailout. As part of the deal, Greece has agreed not to take any unilateral actions to threaten financial stability.
It will still try to push for civil servants to be rehired and social spending increased but ultimately the creditors will have the final say. For many here hoping that the hated oversight of Greece will end, that is a galling prospect.
'Long road ahead'
Bild, Germany's biggest-selling newspaper, was publicly attacked on Friday by Greek Finance Minister Yanis Varoufakis who remarked about an earlier story: "One must believe @BILD's tall stories [about Greece] at one's peril."
In a new article (in German) the tabloid breaks down what it says is a tax hit list devised by the Greek government.
It will reportedly seek to raise 2.5bn euros from the fortunes of rich Greeks, 2.5bn from back taxes owed by individuals and businesses, and 2.3bn from a crackdown on tobacco and petrol smuggling.
Mr Jaeger said the Greek reform plan, once received, would be examined by Greece's three creditors - the European Central Bank, the European Commission and the IMF.
Once the three lenders had delivered their opinion, it would be discussed by eurozone finance ministers in a conference call on Tuesday, he said, according to Reuters.
On Friday, German Finance Minister Wolfgang Schaeuble stressed that there would be no payment of new funds to Greece until the conditions of the deal had been met.
Mr Varoufakis has said the bailout agreement will be "dead" if the list of reforms his government is drafting is not approved.
Greek PM Tsipras attends a cabinet meeting at the parliament building in Athens in February.The new Greek government, led by Prime Minister Alexis Tspiras, was elected by promising to reverse austerity
The four-month extension deal is widely regarded as a major climb-down for Prime Minister Alexis Tspiras, who won power vowing to reverse budget cuts.
On Saturday, Mr Tspiras said in a televised address that his government had "won a battle, not the war".
He called the deal an "important negotiating success" but warned that there was a "long and difficult road ahead".
Greek couple look at adverts for rental properties
Greek economy in numbers
  • Unemployment is at 25%, with youth unemployment almost 50% (corresponding eurozone averages: 11.4% and 23%)
  • Economy has shrunk by 25% since the start of the eurozone crisis
  • Country's debt is 175% of GDP
  • Borrowed €240bn (£188bn) from the EU, the ECB and the IMF

Friday, February 20, 2015

Reuters News - Germany holds up Greek bid for euro zone loan extension

(Reuters) - Germany rejected a Greek proposal for a six-month extension to its euro zone loan agreement on Thursday, saying it was "not a substantial solution" because it did not commit Athens to stick to the conditions of its international bailout.
Berlin's stance, describing the carefully worded Greek letter as a "Trojan horse" for shirking commitments, set the scene for tough talks at a crucial meeting of euro zone finance ministers on Friday. Greece's leftist-led government is scrabbling to avoid running out of money within weeks and will face pressure to make further concessions in Brussels.
As the biggest creditor and EU paymaster, Germany has the clout to block a deal and castGreece adrift without a lifeline, potentially pushing it towards the euro zone exit. But some officials in other capitals saw the German response as tactical and forecast agreement by the weekend after more wrangling.
Nonetheless, despite warm words from those who saw the Greek move as a step forward, Athens remained isolated after a meeting of euro zone officials to prepare Friday's talks, sources close to the negotiations said. All agreed with Germany that Greece must commit more clearly to abiding by its current credit terms.
A Greek official said Prime Minister Alexis Tsipras had a 50-minute telephone call with German Chancellor Angela Merkel on Thursday, believed to be their first substantive exchange since the Athens government was elected on Jan. 25.
"The conversation was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the euro zone," the official said. A German spokesperson confirmed the call but would not comment on the content.
Tsipras also spoke to French President Francois Hollande, who, according to a Greek official, promised to raise the issue with Merkel when she visits him in Paris on Friday.
Earlier, Finance Minister Yanis Varoufakis formally submitted the request after days of backstairs negotiations with the European Commission and the chairman of the Eurogroup of finance ministers of the currency bloc.
While officials in Brussels, Paris and Rome welcomed the effort by a government elected on an anti-austerity platform to find a workable formula, German officials said it was full of loopholes with no commitment to respect the bailout terms.
Finance Minister Wolfgang Schaeuble's spokesman said the Greek proposal did not meet the criteria agreed by the Eurogroup and "goes in the direction of a bridge financing without fulfilling the demands of the programme".
Economy Minister Sigmar Gabriel said what mattered was what economic reforms Greecewas prepared to make, adding: "The letter can only be the start of negotiations."
The objections from Berlin drew a tart response from Athens, which questioned whetherGermany spoke for the other euro zone finance ministers, whose aides were already in Brussels looking at the options during a meeting on Thursday afternoon.
"Tomorrow's Eurogroup has only two options: either to accept or reject the Greek request," a Greek official said. "It will then be clear who wants to find a solution and who doesn't."
A German paper prepared for Thursday's meeting of euro zone officials and seen by Reuters said the request was no basis for even starting to draft an accord on Friday. [ID:nL5N0VT547]
"The Greek letter is not clear at all, but opens immense room for interpretation," it read. "It ... represents a Trojan horse ... in substance putting an end to the current programme."
With Greece's EU/IMF bailout programme due to expire in little more than a week, Tsipras urgently needs to secure a financial lifeline to keep the country afloat beyond late March.
Athens asked for an extension to its "Master Financial Assistance Facility Agreement" with the euro zone, rather than the full bailout programme as euro zone governments led byGermany have insisted. Tsipras, who won power promising to ditch the bailout, is trying to secure funding without accepting all the demands for austerity and painful economic reform which are conditions of the EU/IMF programme.
U.S. Treasury Secretary Jack Lew spoke by telephone on Thursday with his Greek, Dutch and French counterparts, urging all sides to make concessions in the talks.
Berlin can count on the support of north European fiscal hawks such as Finland and the Netherlands but also countries such as Spain and Portugal which have imposed austerity measures in return for aid and do not want Greece to get a softer deal.
But Greece also has sympathisers. Italian Economy Minister Pier Carlo Padoan warned of the risk involved in any Greek exit.
"We have to send a signal that the euro is irreversible," he told the magazine l'Espresso. "If a country were to leave, it wouldn't just mean one less country in the union but the transformation of the euro into a mechanism that can be undone."
Italian Prime Minister Matteo Renzi, a socialist who like Tsipras is aged 40 and still new to government, spoke to his Greek counterpart on Thursday, an Italian official said. Renzi also spoke to European Commission President Jean-Claude Juncker, a euro zone veteran, who has been trying to mediate.
In France, co-creator of the euro with Germany, Socialist Prime Minister Manuel Valls called the Greek move "a very encouraging sign that a solution is possible, and very quickly".
Credit ratings agency Standard & Poor's said a Greek exit would be less financially risky for the remaining euro zone members than it would have been during the last scare in 2012. Since then, policymakers have introduced the European Stability Mechanism, which could help governments under market pressure if Greece were to leave, it noted.
In the letter seen by Reuters, Greece pledged to meet its financial obligations to all creditors, recognise the existing EU/IMF programme as the legally binding framework and refrain from unilateral action that would undermine the fiscal targets.
It accepted that the extension would be monitored by the European Commission, European Central Bank and International Monetary Fund, a climbdown by Tsipras who had vowed to end cooperation with "troika" inspectors accused of inflicting deep economic and social damage on Greece.
However, the document stopped short of accepting that Greece should achieve a primary budget surplus, excluding debt service, equal to three percent of the country's annual economic output this year, as promised under the bailout deal.
Tsipras wants to cut that to 1.5 percent to allow more spending to ease the plight of the poor. The document spoke only of attaining "appropriate primary budget surpluses".
Crucial details remain to be clarified on the fiscal targets, labour market reforms, privatisations and other measures due to be implemented under the existing programme.
The six-month interim period would be used to negotiate a long-term deal for recovery and growth incorporating further debt relief measures promised by the Eurogroup in 2012.
Greek stocks initially rose on Thursday's developments, with the benchmark Athens stock index up 2 percent but it slipped back after the German statement, closing up just 1 percent on the day. Banks gained 9 percent but then shed much of that.

(Additional reporting by George Georgiopoulos and Lefteris Papadimas in Athens, Jan Strupczewski and Alastair Macdonald in Brussels, Madeline Chambers and Noah Barkin in Berlin and Jason Lange in Washington; Writing by David StampDeepa Babington and Alastair Macdonald; Editing by Paul Taylor, Peter MillershipGiles ElgoodToni Reinhold)

Wednesday, February 18, 2015

BBC News - Japan comes out of recession but growth still disappoints

Japan came out of recession in the fourth quarter of last year, but the world's third largest economy grew at a slower than expected pace.
Shoppers walk down a busy street in the Ginza shopping district in central Tokyo
The Japanese economy grew in the last quarter, compared to the previous two
The economy expanded by an annualised 2.2% in the three months to December in a preliminary reading, compared to forecasts for a 3.7% increase.
Japan's growth in the fourth quarter comes after the economy contracted for the two previous quarters.
Japan has been recovering from a sales tax hike, which dampened spending.
The economy grew 0.6% in the period from the previous quarter, but that also fell below forecasts of 0.9% growth.
Weak growth
The data showed a fragile recovery in the country where consumer sentiment remains soft even after Prime Minister Shinzo Abe delayed a second increase to the sales tax that was scheduled for October this year.
Private consumption, which accounts for about 60% of the economy, increased 0.3% in the fourth quarter, less than the 0.7% rise expected by economists.
Glenn Levine, senior economist at Moody's Analytics said exports "added solidly" to economic growth, accounting for about half of the expansion, while the rest of the economy remained relatively subdued.
Exports rose 2.7% in the fourth quarter compared to the third quarter, while imports were up 1.3%.
Analysis: Rupert Wingfield-Hayes, BBC Tokyo
Is Japan's economy back to growth?
As Aristotle is reputed to have said: "One swallow does not a summer make, nor one fine day", so one quarter of positive GDP growth does not make a trend.
Nearly two years after "Abenomics" what has really changed?
Vast amounts of money have been shovelled in to the Japanese economy. That has had two big impacts.
It has pushed up real estate and stock prices, and it has pushed down the value of the yen. The first has made rich Japanese richer; the second has made big Japanese exporters richer. But there it has stopped.
There has been virtually no trickle-down to the rest of Japan. Stagnant wages and rising prices through most of last year mean most Japanese actually feel poorer.
One sign of hope is that unemployment has fallen to just 3.5%.
A tightening labour market could finally force Japan's corporations to start parting with some of their vast cash piles in the shape of real wage increases - but don't hold your breath.
Business investment lags
The most disappointing component of the gross domestic product (GDP) figures was the "paltry" increase in business investment.
"Japan's corporate sector is enjoying record profit levels and sits atop a mountain of cash, with export-facing firms, in particular, benefiting from better export sales linked to the cheaper yen," Mr Levine of Moody's said. "Yet, so far firms have been reluctant to deploy any of this cash and invest in additional capacity."
This "issue of confidence" shows that firms do not believe that the domestic economy is improving, which is a reflection of whether Prime Minister Abe's economic policies termed "Abenomics" are succeeding, he said.
Japan's weaker than expected growth comes despite a series of stimulus measures by the government.
In December, the government approved a $29bn (£18.8bn) stimulus package to help businesses and consumers just two weeks after a victory by the prime minister in a snap election.
Markets, however, reacted positively to the growth figures with the benchmark Nikkei 225 hitting a nearly eight-year high of 18,047.07 in early trade, marking its highest level since July 2007.

Tuesday, February 17, 2015

Bloomberg News - Putin Lets Consumers Feel Pain as Russian Slump Deepens: Economy

Russian Consumer
A customer holds bread rolls as he stands with a shopping cart in the baked goods area inside a Perekrestok supermarket in Moscow. Consumers are retrenching after the ruble lost almost half of its value against the dollar in the past 12 months. Photographer: Andrey Rudakov/Bloomberg
(Bloomberg) -- Russian households are bearing the brunt of the blowback from the crisis in Ukraine and a tailspin in oil prices, setting the stage for the biggest drop in consumption in more than two decades that will deepen the country’s recession.
Crushed by a 44 percent slump in the ruble in the past year as prices soar, retail sales are set for what Otkritie Capital predicts will be their biggest decline since the breakup of the Soviet Union in 1991, when savings were wiped out and households endured food shortages and hyperinflation. That’s unnerved consumers like Svetlana Korotkova, who’s stockpiling cereals and canned goods to build up what she calls her “safety cushion,” a lesson she learned from perestroika-era deprivation in the 1980s.
“Government resources are very limited now, so I don’t expect strong help,” said Korotkova, a 42-year-old accountant who spoke as she browsed through a shopping mall in Tula, about 200 kilometers (125 miles) south of Moscow.
Six years after presiding over a one-third increase in pensions at the height of the last crisis, President Vladimir Putin, whose approval rating is near a record high, is now pegging changes in retirement payments to last year’s inflation as he steers the bulk of a 2.3 trillion-ruble ($37 billion) program to support lenders and industry, almost half of it to recapitalize banks. As prime minister in 2009-2010, Putin deployed what Goldman Sachs Group Inc. estimated to be the largest stimulus package among Group of 20 nations, totaling 9.8 percent of economic output.

Looming Recession

That stands in stark contrast to current government plans to battle a recession economists predict will last for four quarters. With little relief in sight for consumption, which accounts for about half the economy, Russia risks a more drawn-out crisis, according to Natalia Akindinova, director of the Development Center of the Higher School of Economics in Moscow.
“Now the anti-crisis plan is more focused on banks and industrial sectors, but not the sectors that are suffering the most,” Akindinova said. “The ones that suffer the most are trade, construction and services.”
Consumers are retrenching after the ruble lost almost half of its value against the dollar in the past 12 months. The ruble’s one-month implied volatility jumped to almost 90 at the beginning of January before paring the increase to 38 on Monday. That’s still almost double the level of the next most volatile emerging-market currency, the Brazilian real.
The ruble strengthened 1.9 percent to 62.2730 to the dollar as of 2:14 p.m. in Moscow.

Inflation Accelerates

Inflation, which soared to 15 percent from a year earlier in January, is forecast by the Economy Ministry to peak at as much as 17 percent this spring, a level not seen since 2002.
That would push price growth above the central bank’s benchmark interest rate, currently at 15 percent after a surprise cut in January. Bank of Russia Governor Elvira Nabiullina said the move was warranted because the recession-bound economy will take a bite out of inflation in the second half of the year.
With Putin considering a possible run for the Kremlin in three years, “this year is an opportunity to curb income-growth expectations in order to surprise on the upside by 2018,” Alfa Bank economists Natalia Orlova and Dmitry Dolgin said in a report.

Putin’s Support

Support for the Russian leader matched a record 88 percent in October and was at 85 percent last month, compared with 65 percent in January 2014, according to a Jan. 23-26 survey of 1,600 people by the Moscow-based polling company Levada Center. The results have a margin of error of 3.4 percentage points.
For 2015, the Economy Ministry predicts a decline of more than 9 percent in real wages after a 1 percent drop in 2014. That compares with an average annual increase of more than 10 percent in monthly wages in the past 15 years. Disposable incomes will probably shrink more than 6 percent, with retail sales set to slide 8 percent, according to the ministry’s updated forecasts, released last month.
If Putin has fewer policy levers to help consumers, that’s partly an acknowledgment of just how far Russia’s public finances have deteriorated. In the years that followed Russia’s last recession in 2009, the oil price the government needs to balance the budget has more than tripled from $30, according to Finance Minister Anton Siluanov.

Sanctions, Oil

Pressure on Russia’s finances is growing amid U.S. and European sanctions and a global oil glut that drove crude prices almost 50 percent lower last year. The government ran a deficit of 0.5 percent of economic output last year. With crude prices at $50 a barrel, the shortfall may widen to 3.8 percent, according to Economy Minister Alexei Ulyukayev.
After a rebound in the economy in 2010, growth decelerated every year since then. Consumer spending formed the backbone of the brittle recovery in the runup to the crisis in Ukraine and the oil price freefall in 2014.
Household consumption accounted for most or all expansion in gross domestic product between 2010 and 2013, according to a World Bank report published last year. It contributed 3.8 percentage points to GDP gains in 2012 and 2.3 percentage points the following year, when the broader economy gained 3.4 percent and 1.3 percent, respectively, the lender estimates.

Flashing Red

Now most consumer indicators are flashing red.
Consumer confidence plunged last quarter to the lowest in five years. The Russia Services Business Activity Index last month shrank to the weakest reading since May 2009, sapped by a drop in incoming new contracts, outstanding business and employment.
Russia will report consumption-related statistics this week. The annual drop in real wages accelerated to 6.1 percent last month, the biggest decline since 1999, according to the median estimate of 12 analysts in a Bloomberg survey. Retail sales probably fell 1.9 percent from January 2014, which would be the first negative reading since 2009, a separate poll showed.
“I don’t understand why this is happening to us,” said Svetlana Graiche, a human resources consultant in Moscow whose family had to forgo a vacation abroad and is reconsidering plans to send their son to a German-language school. “I expect there will be less work. God willing my income in rubles at least won’t change.”

Companies Suffer

The distress plaguing consumers is roiling a swathe of industries, from wine importers and music-streaming services to luxury hotels and retailers like O’Key Group SA and Euroset Holding NV. O’Key, a Russian food retailer that focuses on large supermarkets, blamed the economic downturn and the country’s retaliatory ban on some food imports from European countries and elsewhere for a decline in consumer traffic that last quarter led to a 5.1 percent drop in its like-for-like sales.
As Russia was staggering from the lowest oil prices since 2009, Putin responded in early December by ordering budget cuts of at least 5 percent a year in real terms for 2015-2017. This year, most expenditures will be reduced by 10 percent, with the exception of outlays on defense, pensions and agriculture.
“In this current geopolitical situation, if you listen to Russian media, social stability becomes much more important,” said Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki. “All that matters is for people to have their job and it doesn’t matter if their purchasing power is shrinking; it’s only important that they have their job. That’s why no one is worried about helping private consumption.”

Fraying Confidence

Even that confidence in the future is now fraying. A study by the Sociological Institute of the Russian Academy of Sciences found that only a third of respondents described their work situation as “good” and 40 percent said there was some likelihood they’ll be unemployed within the next year. The survey, conducted in November among 4,000 people older than 18 across all regions of Russia, found that 53 percent believe the country was facing a “tense, crisis” situation. No margin of error was given.
The severity of the crisis has reopened discussions about contentious topics such as a possible increase in the retirement age. Siluanov, the finance minister, said in an interview that authorities must conduct a “serious inventory of all social assistance, payments and benefits.” Every third Russian receives some social aid, making the system more generous than its Soviet predecessor, according to Siluanov.
Outlays on health care will be cut by more than 12 percent in 2015, while expenditure on education is reduced by 3.3 percent, according to this year’s budget plan.
“They are prepared to, in a way, sacrifice the consumers this time around and make them take most of the heat,” Liza Ermolenko, an economist at London-based Capital Economics Ltd., said by e-mail. “This part of the economy is going to be the one that takes most of the adjustment that is needed.”
To contact the reporter on this story: Anna Andrianova in Moscow

Monday, February 16, 2015

Reuters News - France hints euro zone should ease stance for Greek deal

Protesters hold a giant Greek national flag during an anti-austerity and pro-government demonstration in front of the parliament in Athens February 15, 2015. REUTERS-Alkis Konstantinidis
1 OF 2. Protesters hold a giant Greek national flag during an anti-austerity and pro-government demonstration in front of the parliament in Athens February 15, 2015.
(Reuters) - Debt-laden Greece and EU paymaster Germanystruck hardline postures ahead of a crucial meeting of euro zonefinance ministers on Monday on the future of an unpopular international bailout for Athens, but France called for compromise.
German Finance Minister Wolfgang Schaeuble maintained a typically tough line, telling German radio Greece had lived beyond its means for a long time and there was no appetite in Europe for giving it any more money without guarantees.
French Finance Minister Michel Sapin hinted at a slight easing ofeuro zone opposition to Greek requests for an end to austerity and a new debt deal, saying Europe must respect the political change in Athens.
Radical leftist Greek Prime Minister Alexis Tsipras's government was elected last month on a pledge to scrap the bailout, reverse austerity measures and get rid of supervision by the hated "troika" of the European Commission, the European Central Bank and the IMF.
Greece's euro zone partners to date have shown little desire to cut Athens any slack on the austerity demanded in return for some 240 billion euros ($274 billion) in financial assistance.
If Monday's meeting ends in a breakdown, Greece could be headed for a credit crunch that could force it out of the euro zone. Progress, however, could mean further negotiations, perhaps later in the week.
Government spokesman Gabriel Sakellaridis showed no sign that Athens was backing off from its core demands. "The Greek government is determined to stick to its commitment towards the public ... and not continue a program that has the characteristics of the previous bailout agreement," he said.
Tsipras had a late telephone call with European Commission President Jean-Claude Juncker on Sunday, whose office said the EU chief executive was "making a last effort in an extremely difficult situation".
Speaking on France 2 television, Sapin took a much softer line than has been heard from the euro zone in recent weeks, saying that there was "fortunately" some chance of a deal. He appeared to be positioning France to try to broker a compromise.
Sapin said Germany had a point in insisting that Greece stick to commitments made to its creditors, but Athens was justified in saying the Greek people had mandated the new government to pursue a different policy.
"Greece must respect European rules... be we must respect the Greek people's vote. There is a new policy and we must help Greece put this policy in place," he said.
There was no such flexibility from Schaeuble.
On Deutschlandfunk radio, he said he was skeptical there would be a deal on Monday and that the Greek government was behaving "quite irresponsibly".
Bank deposit outflows in Greece have picked up as negotiations have shown little result. The ECB has authorized emergency funding for banks by the Greek central bank so far, but a failure in the talks could mean the imposition of capital controls.
Euro zone member Cyprus was forced to close its banks for two weeks and introduce capital controls during a 2013 crisis. Such controls would need to be imposed when banks are closed. Greek banks are closed next Monday for a three-day weekend marking the start of Orthodox Lent.
The ECB will review its policy on Wednesday in the light of the Brussels talks, but an ECB source said it was unlikely to pull the plug on Greek banks as long as the terms of a future program were still under discussion.
Greek bond yields inched up on Monday but investors remained cautiously optimistic that Athens would reach a new debt deal with its European partners later in the day.
The chief executive of Morgan Stanley bank, James Gorman, said he believed the likelihood of Greece negotiating a debt restructuring were greater than the country being forced out of the euro. He also doubted that the monetary union was in danger.
"I believe a euro zone break-up is highly unlikely, for reasons that go beyond the economy... but if a country leaves the euro, this will not mean the end of the monetary union," he told Italian daily la Repubblica.
Tsipras has requested a bridge program to be put in place for a few months while a new debt relief deal is agreed to replace the existing bailout, which has already forced drastic cutbacks onto ordinary Greeks.
The current program expires at the end of the month. A Eurogroup meeting last week ended without progress, although technical talks were later agreed and took place over the weekend to identify the gaps between the bailout scheme and the new government's plans.
Some of the problems facing the Eurogroup are semantic. The Greeks, for example, will not countenance anything that smacks of an "extension" to the old bailout or a continued role for the "troika".
Tsipras, who rode to power on a wave of anti-austerity and anti-bailout anger, would have a hard time explaining a climbdown so soon.
But even a cosmetic change could have practical consequences. An "extension" may not prompt many euro zone national ratifications unless it involves additional financial commitments from euro zone governments.
Any new financing program, on the other hand, might require several national parliamentary ratifications and could also bring Germany's Constitutional Court into play.
Among those requiring a parliamentary vote on a new bailout are Germany, Slovakia, Estonia and Finland, all identified by one veteran of EU meetings as part of a hard core of opponents to Greece's plan.
The Eurogroup's main debate will revolve around how to fund Greece until any new debt deal. Athens wants to reduce the primary budget surplus before debt service it is required to run, scrap privatizations, raise the minimum wage and spending on the poor, and reverse some labor reforms.
Greece said on Saturday that it was reviewing a 1.2 billion- euro deal for Germany's Fraport to run 14 regional airports, one of the biggest privatization deals since Greece's debt crisis began in 2009. It has also pulled the plug on the privatization of the ports of Piraeus and Thessaloniki.
($1 = 0.8785 euros)

(Additional reporting by Michael Nienaber, Andrew Callus and Francesca Landini; Writing by Jeremy Gaunt; Editing by Paul Taylor)