BBC News - Obama and Boehner meet as fiscal cliff talks pick up

US President Barack Obama and House of Representatives Speaker John Boehner have met at the White House as talks on avoiding the "fiscal cliff" gather pace

The pace of negotiations between John Boehner and Barack Obama has picked up in recent days

Mr Boehner has signalled he would agree to raising tax rates for those earning more than $1m (£620,000) per year.

The 45-minute meeting follows face-to-face discussions on Thursday and a phone call between the two on Friday.

A deal must be reached by 1 January, or a combination of steep tax rises and sharp spending cuts will take effect.

Mr Boehner has reportedly also said he would accept as much as $1tn in new tax revenue over 10 years and would raise the debt ceiling to ensure the government is funded for a year.

In exchange, it is reported that he would like the White House to agree to $1tn of spending cuts.

"Our position has not changed. Any debt limit increase would require cuts and reforms of a greater amount," Boehner spokesman Brendan Buck told the Associated Press.

Neither side has released details from Monday's meeting.

'Necessary balance'

White House Press Secretary Jay Carney acknowledged on Monday that there had been a "change in tone, and in some cases, a change in position from different Republicans" on the issue of tax increases.

But he added: "Thus far the president's proposal is the only proposal that we have seen that achieves the balance that's so necessary."

The president's proposal to avoid the fiscal cliff had called for $1.6tn in new tax revenue over 10 years. Mr Obama has previously insisted that he will not sign a deal that does not raise tax rates on earnings over $250,000.

More recently, the White House has suggested it would agree to a deal that generates less new tax revenue. Many Republicans are philosophically opposed to raising taxes.

As the parameters of a possible deal begin to take shape, correspondents say there may now be renewed focus on whether Democrats agree to changes to popular entitlement programmes.

Harry Reid, the top Democrat in the Senate, has indicated that it is likely lawmakers will need to return to Washington between Christmas and New Year to vote on a deal to avert the fiscal cliff.

"We will see if anything changes, but it appears that we're going to be coming back the day after Christmas to complete work on the fiscal cliff," Mr Reid said on Monday.

Details of a deal

Correspondents say about $450bn from Mr Boehner's offer of $1tn in new tax revenue would be generated by increasing the tax rate to 39.6% from 35% for income over $1m.

The remainder would come from closing loopholes and limiting tax deductions, and by slowing inflation adjustments to tax brackets.

The $1tn in spending cuts that Mr Boehner is said to have asked for are expected to come primarily from healthcare programmes for the elderly, they say.

But some Democrats have indicated they are not prepared to consider such changes to major government provisions.

Economists have warned that the "fiscal cliff" would suck about $600bn out of the economy, possibly sending the US, which is experiencing a tepid economic recovery, back into recession.

The measures were partly put in place within a 2011 deal to curb the yawning US budget deficit.

Along with the tax rises and spending cuts due to take effect on 1 January, extended benefits for the long-term unemployed and a temporary cut to payroll taxes are also scheduled to expire at the end of the year.

Business leaders and Ben Bernanke, chairman of the US Federal Reserve, have warned that uncertainty over the fiscal cliff is already having a negative effect on the economy.

International observers, including Christine Lagarde, head of the International Monetary Fund, have warned that effects of going over the fiscal cliff would ripple out to the rest of the world.

What is the fiscal cliff?

• Under a deal reached last year between President Obama and the Republican-controlled Congress, existing stimulus measures - mostly tax cuts - will expire on 1 January 2013
• Cuts to defence, education and other government spending will then automatically come into force - the "fiscal cliff" - unless Congress acts
• The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession

BBC News - Gas fracking: Ministers approve shale gas extraction

By Roger HarrabinEnvironment analyst

The government has given the go-ahead for a firm to resume the controversial technique known as fracking to exploit gas in Lancashire.

Cuadrilla CEO Francis Egan: "The country is running out of gas, our choice would be to develop our own shale gas resources"

The company, Cuadrilla, was stopped from fracking after two tremors near Blackpool.

Conditions have been imposed to minimise the risk of seismic activity.

Fracking involves creating little explosions underground, then injecting water and chemicals to release gas trapped in cavities in shale rocks.

The Energy Secretary Ed Davey said shale gas was a promising new potential energy resource for the UK. It might contribute significantly to energy security and substitute for imports which are increasing as North Sea gas is decreasing.

But he warned against over-excitement: "We are still in the very early stages of shale gas exploration in the UK and it is likely to develop slowly.

"It is essential that its development should not come at the expense of local communities or the environment. Fracking must be safe and the public must be confident that it is safe."

He said the government had uncovered management weaknesses in Cuadrilla following the minor earthquakes. These had been put right, he said.

He said impacts on water and local air pollution were already covered by the UK's existing "stringent" rules on oil and gas.

'Better solution'

Mr Davey said the advent of shale gas would not weaken the UK's legally binding targets to cut greenhouse gas emissions. He announced a study from the Department for Energy and Climate Change (DECC) chief scientist David McKay on the impact of shale gas on climate change.

But he asked: "Is it not better that we produce gas in this country than gas shipped half way across the world?" He said his view was that, overall, greenhouse gases from shale gas in the UK might only be slightly greater than importing gas exploited in the conventional way.

In the US, exploitation of shale gas boom has sent energy prices tumbling, and the Prime Minister has expressed hopes that the UK can enjoy a similar boom.

But government advisers warn today that shale gas may be unlikely to bring down energy prices much in Britain.

In fact, the Committee on Climate Change warns that relying heavily on gas for future electricity supplies would leave households vulnerable to higher bills in the long run as the price of gas on the international market is volatile.

The UK won't benefit from substantially lower prices unless the rest of Europe decides to back shale gas too, as Europe has a gas grid that allows gas to be traded to the highest bidder.

The CCC has examined the potential impact on bills of different energy systems and predicts that subsidies to renewables and nuclear would put about £100 on household bills by 2020, but that by 2050 a gas-based electricity system might cost people as much as £600 extra.

Today's fracking decision has created political excitement as the Prime Minister the Chancellor and some business leaders have spoken enthusiastically about shale gas.

Environmentalists are more cautious following incidents in the US in which fracking has been associated with pollution of water through the chemicals involved in the process, as well as leakage of methane - a powerful greenhouse gas as well as a local air pollutant.

They say fracking will generate much more opposition in the UK than it has in the US as it involves turning green fields into industrial sites.

They also worry that an abundance of domestic gas will tempt politicians to abandon targets for cutting greenhouse gases, which are rising inexorably globally to the alarm of scientists.

A poll suggested that people would prefer to have wind turbines on the horizon than gas rigs.

Steve Radley, Director of Policy at EEF, the manufacturers' organisation, said the UK should do whatever possible to keep energy costs down: "This is a major threat that needs to be addressed now as we cannot continue to load industry with costs which are in excess of our competitors.," he said.

Caroline Flint MP, Labour's Shadow Energy Secretary, said: "Labour has always said that fracking should only go ahead if it is shown to be safe and environmentally sound. If the Government believes that this is the case then we will look carefully at their proposals.

"But the idea that this form of gas extraction can have the same impact here in the UK as it has had on gas prices in the United States is considered wishful thinking by most experts."

Reuters News - Banking deal sets EU leaders up for upbeat end to 2012

By John O'Donnell and Robin Emmott

BRUSSELS | Thu Dec 13, 2012 5:48am EST

(Reuters) - The European Union reached a landmark deal on Thursday to make the European Central Bank the bloc's top banking supervisor, giving EU leaders greater confidence that they are gaining the upper hand over the euro zone's debt crisis.

EU finance ministers forged a deal on the single supervisor in the early hours of Thursday after marathon talks. Leaders will give their stamp of approval at a summit starting later in the day, their last of 2012, and also discuss closer fiscal ties for their troubled currency area.

After a hectic year of crisis management, during which Greece had a close brush with the euro zone exit, getting an agreement on the first stage of a banking union is a victory for the EU and represents a bold step towards pooling sovereignty.

"The importance of the deal cannot be assessed too highly," German Chancellor Angela Merkel, Europe's most powerful leader, told parliament in Berlin before heading to Brussels. "We succeeded in securing Germany's key demands.

But there will be no time to relax. The next stages of banking union - creating a resolution fund for winding up troubled banks and coordinating deposit guarantees to protect savers - will be fought over even harder. And then there will be political and financial hurdles to negotiate through the year.

With Silvio Berlusconi vowing to contest an Italian election early next year, a full bailout of Spain still on the cards and a German general election in September casting a long shadow, 2013 promises to be the EU's fourth turbulent year in a row, and that's without mentioningGreece, Ireland or Portugal.

The immediate priority is to finalize the legal framework for banking union and get the backing of the European Parliament. Then the ECB must hire staff and decide how to carry out its mandate. It may not start supervision until April at earliest, and will only be fully operational in March 2014.

Officials said the ECB would regulate some 150 to 200 banks directly, mostly major cross-border systemic lenders and state aided institutions, with the power to delve into all 6,000 banks in case of problems.

Completing such a complex process would be one of the EU's biggest achievements since the region's debt crisis erupted in early 2010, and might go some way to severing the so-called doom loop between indebted banks and shaky governments.

But it would only be the first step in building a banking union, that also entails creating a resolution authority and fund to wind up failed banks and coordinating deposit guarantee schemes across the euro zone to avoid bank runs.

The exercise is likely to take several years and officials see it is just part of a masterplan to bolster the architecture of the euro zone and prevent any repeat of a crisis that nearly tore the single currency project apart.

It promises to be a long and tortuous journey requiring political commitment from euro zone and non-euro members alike, something that countries such as Britain, with a restive Eurosceptic population, will find particularly stressful.

"I feel that this political will is still present, otherwise I would not be here anymore because I would have failed during the euro zone crisis," Herman Van Rompuy, the president of the European Council who chairs EU summits, said this week ahead of the award of the Nobel peace prize to the EU.

"The facts show that in this global world, in order to preserve our interests and promote our values, we need more European integration."

MINEFIELD AHEAD

Each step towards closer union means a greater surrender of sovereignty by independent nations and spurs a political backlash, especially in times of economic hardship, social tension and high unemployment.

Van Rompuy and the presidents of the European Commission, the Eurogroup and the European Central Bank have put forward a bold blueprint for closer fiscal, economic and political integration in the euro zone alongside the banking union.

But Merkel has lowered expectations for progress on that agenda at the summit, telling lawmakers that EU leaders should focus on steps that can be achieved within six months, notably to improve economic competitiveness.

She is determined not to frighten German taxpayers with talk of sharing more liability for banks or debts, and wants to avoid any such decisions until after the election in Germany, with campaigning already beginning to warm up.

Binding the euro zone more tightly together to underpin the currency union is driving some non-euro states such as Britain and Sweden to question their relationship with Europe, while others such as Poland are keen to stay close to the core.

The banking union - which neither Britain nor Sweden will join, even if they reluctantly let the ECB take responsibility for oversight - is just the first obstacle in a minefield ahead.

Asked about banking union on Wednesday, Sweden's finance minister said approval of it would mark a "sad day for Europe".

"There is a move now towards euro-banks, euro-taxes, euro-transfers, euro-commission," Anders Borg told reporters.

"We think those are steps in the wrong direction. It might be very popular among the Eurocrats, but I think there are very few Europeans actually wanting these developments."

While the debt crisis continues to weigh heavily on Europe's economy, leaders will have to navigate the pitfalls of electoral politics in Italy, Germany, Cyprus and elsewhere.

Italy is a particular concern if the next government rows back on any of the economic reforms put in place by technocrat Prime Minister Mario Monti, whose time in office has helped stabilise financial markets and stave off the crisis.

And after banking union, leaders must tackle the intricacies of closer fiscal integration, including proposals for setting up a separate budget known as a 'fiscal capacity' among the euro zone states -- a fund to help tackle one-off economic shocks.

That will involve more pooling of sovereignty and greater risk sharing, and may not be possible unless the EU's guiding treaty is opened up for amendments, a long and cumbersome process that no one wants until much further down the road.

Meanwhile, the original sovereign-debt problems in Greece will not be fully resolved, while Irelandand Portugal face a struggle to emerge from their bailout programs and regain market access by the end of 2013.

Greece's successful buying back of its own debt will help reduce its debt burden and will ensure that the next slice of emergency funds is released by the euro zone and International Monetary Fund, but there is a growing acknowledgement that Athens will need debt forgiveness in the years ahead.

In June and July, euro zone leaders came close to letting Greece go from the currency bloc. They resolved to keep it in, doing whatever it would take to get it back on its feet. Having taken that decision, they now have to bear the costs, however large and uncomfortable they may be.

(Additional reporting by John O'Donnell in Brussels and Gilbert Kreijer in The Hague; Writing by Luke Baker; Editing by Paul Taylor)

Reuters News - U.S. Treasury to sell remaining AIG shares for $7.6 billion

The logo of American International Group (AIG) is seen at their offices in New York September 18, 2008.

Credit: Reuters/Eric Thayer

By Rick Rothacker and Rachelle Younglai

Tue Dec 11, 2012 9:00am EST

(Reuters) - The U.S. Treasury's sale of its remaining stake in American International Group Inc (AIG.N) will fetch $7.6 billion, bringing the government a total profit of $22.7 billion from its crisis-era bailout of the insurer.

The share offering will close the chapter on one of the most politically contentious rescues of 2008, which ultimately gave AIG up to $182 billion of government support.

At one point, the government estimated that it would never recover all of the bailout money, but as AIG restructured and returned to viability, it was able to repay the entire rescue fund plus generate a profit for U.S. taxpayers.

AIG said on Tuesday that the Treasury agreed to sell 234.2 million shares to investors for $32.50 apiece. The insurer said that Treasury has additional AIG warrants that it can sell to boost the government's $22.7 billion of total returns so far.

"No taxpayer should be pleased that the government had to rescue this company, but all taxpayers should be pleased with today's announcement, ending the largest of the government's financial industry bail-outs with a profit to the Treasury Department," Jim Millstein, the Treasury's former chief restructuring officer, said Monday in a statement. AIG was rescued just before it would have been forced to file for bankruptcy protection in September 2008 as losses on risky derivatives mounted. It was bailed out as the world's financial system stood at the brink of disaster, shortly after Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America Corp (BAC.N).

AIG was one of the Treasury Department's most hotly contested bailouts. U.S. lawmakers began calling for Treasury Secretary Timothy Geithner's resignation after it was revealed that AIG paid $165 million in retention bonuses to employees of the derivatives unit that has been blamed for the company's financial distress at that time.

It prompted Republican lawmaker Charles Grassley to call for AIG executives to resign or commit suicide, though the Iowa senator eventually backtracked from those comments.

The company also funneled over $90 billion of taxpayer money - more than half the funds the government used to rescue AIG - to various European and Wall Street banks, including Goldman Sachs, Deutsche Bank and Barclays Plc (BARC.L).

The sale price of $32.50 represents a 2.6 percent discount to AIG's Monday close of $33.36. The sale is due to close on Friday. AIG's shares rose 1.6 percent in pre-market trading on Tuesday to $33.90.

BENMOSCHE GETS CREDIT

Robert Benmosche, the former CEO of MetLife (MET.N), took over as CEO of AIG in August 2009, replacing Edward Liddy, who had been installed by the U.S. government. He will ultimately get the lion's share of the credit for turning the company around and preventing a fire sale of its assets.

Benmosche salvaged some of the company's businesses, defended the company's employees against their detractors and figured out a path forward that would let the company both repay the government and stay in business.

In September, he said the company may be in a position to consider a dividend by next summer.

"It was an ugly process," said Greg Valliere, chief political strategist with Potomac Research Group, but he added: "Bottom line is that the government made money."

Treasury and AIG said that the sale was jointly led by Bank of America Merrill Lynch, Citigroup (C.N), Deutsche Bank (DBKGn.DE), Goldman Sachs (GS.N) and JPMorgan Chase & Co (JPM.N).

The sale closes out AIG's bailout, but other companies still owe the government. The latest Treasury estimate has the Troubled Asset Relief Program ultimately costing the U.S. taxpayers $60 billion. Among the companies still paying back the government are General Motors, (GM.N) auto lender Ally Financial Inc and a series of small banks.

(Editing by Alden Bentley)

BBC News - Asia 'to eclipse' US and Europe by 2030 - US report

Asia will wield more global power than the US and Europe combined by 2030, a forecast from the US intelligence community has found.

How have so many of the world's cities grown so large in recent years?

Within two decades China will overtake the US as the world's largest economy, the report adds.

It also warns of slower growth and falling living standards in advanced nations with ageing populations.

Global Trends 2030, issued to coincide with Mr Obama's second term, says it aims to promote strategic thinking.

Published every four years, the report from the National Intelligence Council (NIC) aims to draw together a wide sweep of "megatrends" driving transformation in the world.

The National Intelligence Council says it does not believe China will become a superpower like the US

'Slow relative decline'

The NIC suggests that by 2030, Asia will have more "overall power" than the US and Europe combined - taking into account population size, gross domestic product (GDP), military spending and investment in technology.

"China alone will probably have the largest economy, surpassing that of the United States a few years before 2030," the report says.

"Meanwhile, the economies of Europe, Japan, and Russia are likely to continue their slow relative declines."

But the report says it does not anticipate that China will emerge as a superpower in the mould of the US, forging coalitions to take on international issues.

Speaking at a news briefing, Mathew Burrows, counsellor to the National Intelligence Council said: "Being the largest economic power is important... [but] it isn't necessarily the largest economic power that always is going to be the superpower."

The "megatrends" identified by the report include individual empowerment and transfer of power from the West to the global East and South.

It highlights ageing societies and a growing middle class, as well as diminishing natural resources, as key global themes.

Within the next two decades the US will achieve energy independence, and the size of urban populations around the world will rise sharply, the report says.

But, the report adds, questions about the global economy, governance, evolving methods of conflict, regional spillover, new technologies and the future role of the US could dramatically impact the global picture over the next 20 years.

The study is the fifth in a series. The last edition was published in 2008.

Reuters News - European shares dip, euro steady ahead of ZEW, Fed

1 of 6.

Credit: Reuters

By Marc Jones

LONDON | Tue Dec 11, 2012 4:04am EST

(Reuters) - European shares and Italian bonds edged lower on Tuesday as political turmoil in Italy weighed on confidence, but moves were subdued as investors waited for German confidence data later and the U.S. Federal Reserve's end of year meeting.

Following some disappointing euro zone data this month, the ZEW survey of German business sentiment will be released at 4 a.m. EST, with investors hoping for signs of a pick up in confidence.

Markets were rattled on Monday by Italian Prime Minister Mario Monti's announcement he would step down early, and the pan-European FTSEurofirst 300 share index .FTEU3 dipped 0.1 percent as trading resumed with concern continuing to weigh.

London's FTSE 100 .FTSE, Paris's CAC .FCHI and Frankfurt's DAX.GDAXI started mixed, while Milan's FTSE MIB .FTMIB lost another 0.2 percent following Monday's sharp drop.

"There's no doubt Monti's resignation raised some concerns," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.

The other main focus for investors is the Federal Reserve meeting on Wednesday. It is expected to extend its asset purchase scheme and commit to buy $45 billion of U.S. debt per month.

On the bond market, German Bund futures opened slightly stronger, with focus for the session likely to be back on Italian politics. Bund futures were 10 ticks higher at 145.71 while Italian bonds continued to hurt, with yields up 7 basis points to 4.88 percent.

Late on Monday Monti had played down market fears over his decision to resign, saying there was no danger of a vacuum ahead of an election in the spring.

The comments helped the euro find some support, as it hovered above a two week low at $1.2945, up around 0.1 percent from late U.S. levels.

(Reporting by Marc Jones; Editing by Peter Graff)

Reuters News - Investors offer about $38.8 billion in Greek buyback: source

1 of 3. An elderly man walks outside the Bank of Greece in Athens November 9, 2012. Picture taken November 9, 2012. To match Special Report GREECE-CRISIS/PENSIONS

Credit: Reuters/Yorgos Karahalis

By George Georgiopoulos

ATHENS | Mon Dec 10, 2012 2:43am EST

(Reuters) - Greece is set to purchase back about half of its debt owned by private investors, broadly succeeding in a bond buyback that is key to the country's international bailout, a Greek government official said on Saturday.

Greek and foreign bondholders offered the targeted 30 billion euros ($38.8 billion) in the deal, which is central to efforts by Greece's euro zoneand International Monetary Fund lenders to cut its debt to manageable levels.

"The buyback went well in broad terms. The amount offered by investors was within the range expected, about 30 billion euros," the official told Reuters on condition of anonymity. He did not provide more details.

No formal announcement is expected before Monday, another official told Reuters.

The buyback accounts for about half of a broader, 40-billion euro EU/IMF debt relief package for Athens agreed in November. The package broadly doubles the average maturity of its rescue loans to almost 30 years and cuts its interest rates by one percentage point to a level far below 1 percent.

Under its terms, Athens will spend up to 10 billion euros of borrowed money to buy back bonds with a nominal value of about 30 billion euros. This is nearly half the 63 billion euros of Greek debt held by private investors eligible for the plan.

Since the bonds are to be bought far below their nominal value, the country's net debt burden would fall by about 20 billion euros.

A successful buyback will ensure that the IMF, which contributes about a third of Greece's bailout loans, will stay on board of the rescue. It would also unlock the payment of 34.4 billion euros of aid later this month.

Athens badly needs that money to refloat its ailing economy by replenishing the capital of its cash-strapped banks and settle arrears with government suppliers.

The EU and the IMF have been withholding rescue payments to Greece for six months because it had fallen short of promises to shore up its finances, privatize and make its economy more competitive.

Athens has received 148.6 billion euros in EU/IMF funds since May 2010. It stands to get almost 90 billion euros more by the end of 2014.

But the rescue comes at a heavy price. Austerity measures taken in exchange for aid have plunged the country into economic depression. Unemployment hit a record 26 percent in September, the highest in the euro zone.

The economy is going through its fifth consecutive year of recession and is expected to have shrunk by 24 percent when recovery begins in 2014.

GREEK BANKS ON BOARD

The buyback was expected to go well after Greek banks, which hold about 17 billion euros of bonds, announced shortly before a Friday deadline they would take part. Two Cypriot lenders also said they would offer their bonds.

Foreign investors have offered between 15 and 16 billion euros worth of bonds, Greek newspapers reported on Saturday, citing initial estimates without saying how they got them.

Athens' hopes of drawing enough investors to the scheme grew after it announced better-than-expected terms on Monday, with price ranges at a premium over market prices.

The price range varied from a minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1 percent of the principal amount, depending on the maturities of the 20 series of outstanding bonds.

Hedge funds, which bought the debt at rock-bottom prices when it was feared the country would exit the euro, are estimated to hold a large part of Greek debt and the offer was seen as good enough to make them a nice profit.

"Athens put forth a reasonable if not generous offer for hedge funds to participate," Sassan Ghahramani, CEO at New York-based Macro Advisers, a hedge fund consultancy, said on Friday.

"I expect there will be strong participation from hedge funds, tendering a substantial portion of their Greek bond holdings," he said.

The government also enticed Greek bankers by offering to protect them from possible shareholder lawsuits stemming from the buyback.

Greek bankers had been reluctant to take part, in the fear they would book losses on top of the ones they incurred earlier this year when Athens enforced a debt cut on its bondholders.

But the lenders were nevertheless expected to participate because they depend on the bailout funds that Athens stands to receive if its bailout continues smoothly.

($1 = 0.7735 euros)

(Writing by Harry Papachristou; editing by James Jukwey)