Reuters News - Currency wars come to Moscow as G20 spars over yen

Bank of Japan Governor Masaaki Shirakawa leaves a news conference in Tokyo February 14, 2013.

Credit: Reuters/Yuya Shino

By Gernot Heller and Lesley Wroughton

MOSCOW | Fri Feb 15, 2013 2:38am EST

(Reuters) - It may not be hand-to-hand combat, but "currency wars" came to Moscow on Friday asfinance officials from the Group of 20 nations sparred over Japan's expansive policies that have driven down the value of the yen.

The G20 forum, which put together a huge financial backstop to halt a market meltdown in 2009, is back in the spotlight after a week in which the Group of Seven rich nations tried, and spectacularly failed, to speak oncurrencies with one voice.

The G7 has long been the powerhouse of financial diplomacy. But tension between Washington and Tokyo has risen over new Prime Minister Shinzo Abe's bid to end two decades of deflation.

The G7 issued a joint statement on Tuesday reaffirming "our longstanding commitment to market determined exchange rates". Yet the show of unity was quickly undermined by off-the-record briefings critical of Japan.

Hosts Russia say the G20 - which includes leading emerging markets and accounts for 90 percent of the world economy - will back the thrust of the G7 text when they issue their communique on Saturday.

Russia's finance "sherpa", Deputy Finance Minister Sergei Storchak, said the drafting discussion was proving "difficult", but the final text would not single out Japan for criticism.

"There is no competitive devaluation, there are no currency wars," Storchak told reporters. "What's happening is market reaction to exclusively internal decision making."

When the G20 last met in November, its statement contained a call to "refrain from competitive devaluation of currencies" that was omitted by the G7 this week in what Tokyo took to mean its policies had won a free pass.

"As the G20 meeting in Moscow gets underway, the battle lines are drawn - it isn't ‘G6 against Japan' as much as it is ‘G7 against G13'," French bank Societe Generale wrote in a note.

The United States, G20 delegation sources said, was blocking attempts to agree on a commitment to cut borrowing to replace a collective pledge to halve budget deficits agreed at the G20 Toronto summit in 2010. The so-called Toronto goal expires this year.

The euro zone's largest economy, Germany, and the European Central Bank, want a new borrowing pledge - in line with their own tough medicine for the currency bloc's ailing periphery.

BACK TO THE '80S

The maneuvering on currencies is reminiscent of the 1980s, when the Plaza and Louvre accords sought to manage first the excessive strengthening, and then weakening, of the U.S. dollar.

But, with the collapse of communism in eastern Europe and China's adoption of its own brand of capitalism, the world has changed. Emerging markets, as exporters and reserve holders, now demand a greater say in global financial management.

One senior G20 source said late on Thursday that there would be no separate statement on currencies. A passage would be inserted into the main communique, but it would not repeat the G7 line that "we will not target exchange rates".

This, the source said, would not be acceptable to China - which is now the world's second-largest economy and holds much of its $3.3 trillion in foreign reserves in U.S. Treasury bonds.

DEFLATION, REFLATION

Japan's embrace of "Abenomics" entails a huge round of fiscal and monetary expansion aimed at raising the inflation rate to 2 percent.

The yen has fallen by around 20 percent since November, triggering a rally in Japanese stocks that, the government hopes, will kick-start growth by encouraging savers to spend and companies to invest.

With the United States, Britain and euro zone all running ultra-loose monetary policies, some emerging market exporters have sounded the alarm over 'currency wars' that they say will devalue their foreign reserves and hit their competitiveness.

But not all: Mexico's central bank governor Agustin Carstens said that while he backed the G7's commitment to market driven exchange rates, it was important to refrain from rash rhetoric.

"If we enter into a real currency war what will end up happening is adding a lot of volatility to markets, pushing up risk premiums and no one would end up winning," Carstens said.

Russian officials note that Japan has not intervened on currency markets to weaken the yen, suggesting that Tokyo would not be singled out as a miscreant.

Before flying to Moscow, Bank of Japan Governor Masaaki Shirakawa defended the monetary expansion, saying it was aimed at reviving the economy - which shrank in the fourth quarter - and not at weakening the yen.

"The BOJ is conducting monetary policy to achieve stability in Japan's economy. It will continue to do so," he said.

(Additional reporting by Lesley Wroughton, Lidia Kelly, Maya Dyakina and Katya Golubkova in Moscow, Leika Kihara and Kaori Kaneko in Tokyo, and Krista Hughes and Michael O'Boyle in Mexico City; Writing by Douglas Busvine; Eduting by Xavier Briand)

BBC News - Shale oil 'to boost world economy by up to $2.7tn'

Shale oil production could boost the world economy by up to $2.7tn (£1.7tn) by 2035, according to a report.

Fracking has been blamed for the pollution of water supplies and causing earth tremors

The extra supply could reach up to 12% of global oil production, or 14 million barrels a day, and push global oil prices down by up to 40%, PricewaterhouseCoopers said.

Shale oil and gas have emerged as a viable way to boost energy supplies.

However, there are concerns over the process by which the gas is extracted, known as fracking.

In fracking, a mixture of water, sand and some chemicals is pumped into a well under high pressure to force the gas from the rock. It has been linked to minor earthquakes, and there are concerns about its impact on the environment.

In its report, PwC said that the level of global growth could increase by around as much as 3.7% by the extra supply of shale oil, which is the equivalent of adding an economy roughly the size of the UK to the total world economy by 2035.

But the benefits of oil price reductions due to shale oil will vary significantly by country.

Current major oil exporters, such as Russia and the Middle East, could be "significant net losers in the long term unless they can develop their own shale oil resources on a large scale", it said.

Last month, China stepped up its efforts to explore shale gas reserves by awarding exploration rights on 19 shale gas areas to 16 firms.

Demand for energy in China has surged in recent years as its economy has expanded. The country is now the world's biggest energy consumer.

In December, the UK government gave the go-ahead for a firm to resume fracking to exploit gas in Lancashire, which was stopped after two tremors near Blackpool.

Reuters News - No debt restructuring for "persecuted" Cyprus

European Central Bank (ECB) President Mario Draghi talks to European Economic and Monetary Affairs Commissioner Olli Rehn (R) during an euro zone finance ministers meeting at the European Union Council in Brussels February 11, 2013.

Credit: Reuters/Francois Lenoir

By Leigh Thomas and Lefteris Papadimas

BRUSSELS/ATHENS | Tue Feb 12, 2013 5:17pm GMT

(Reuters) - The European Union has no plans to restructure Cyprus's debt and will try to keep down the cost of its financial rescue, whose terms the island's outgoing president decried as persecution.

Crippled by its exposure to Greece, Cyprus needs 17 billion euros (14 billion pounds) from the euro zone to recapitalise its banks and to finance the government over the next three years.

That is almost as much as the whole Cypriot economy produces in a year, raising doubts whether the euro zone member state would ever be able to pay back the money.

Without external help, Cyprus would slide into default, risking the euro zone's credibility and threatening progress made last year in convincing investors that the bloc will not be overwhelmed by its debt problems.

EU Economic and Monetary Affairs Commissioner Olli Rehn said on Tuesday that under the terms of the emerging bailout, Cypriot government debt would not be restructured to impose losses on private creditors.

That should reassure private bondholders that they are not being singled out for losses by European policymakers, bolstering their confidence in buying euro zone bonds.

"The European Commission is not working on any PSI option for Cyprus," Rehn told reporters, referring to the Private Sector Involvement (PSI) that forced losses on holders of Greek debt in 2012. "Greece is a specific candidate and unique case."

Following a meeting of euro zone finance ministers in Brussels on Monday, Eurogroup President Jeroen Dijsselbloem, who chairs them, said Cyprus was not assured a generous deal either.

"We are trying to lower the amount which would be brought together by the member states," Dijsselbloem, who is also the Dutch finance minister, told Dutch broadcaster RTL 7 on Tuesday.

Cyprus asked for assistance in June 2012 and has spent the past eight months in negotiations with the European Commission, the European Central Bank and the International Monetary Fund.

Politicians in Germany, the biggest donor to the euro zone's bailout fund, are hesitant about granting Cyprus a rescue because of its status as a tax haven for rich Russians.

EU policymakers' tough stance on Cyprus, which holds a presidential election on Sunday, prompted its outgoing president to complain that the country was being mistreated.

"Cyprus feels persecuted," Demetris Christofias, who is not seeking re-election, told reporters in Athens. "We were forced to resort to a support mechanism, and instead of support, this is persecution.

Once elections have been held and a new Cypriot president is in place, talks on a rescue are expected to come to a head.

Rehn said euro zone finance ministers would decide in March.

RUSSIAN LOAN

Cyprus has blamed the decision to restructure Greece's debt for destroying its own economy, which was once buoyed by real estate and a strong services sector.

Cypriot banks have a large exposure to neighbouring Greece and had to write off around 80 percent of the value of their Greek bond holdings.

To help to meet its financing costs, Cyprus has already taken a 2.5-billion-euro loan from Russiawhich has built close ties to the island of 1 million people.

Dijsselbloem said on Tuesday that Moscow may be involved in the final bailout deal given the loan it had provided.

"We know that there are many account holders with a foreign background, (in Cyprus) and part of those are undoubtedly Russian. That plays a role (in a solution)," he said.

Policymakers have been less clear about the possibility of depositors in Cypriot banks losing money. Rehn said the Commission aimed to ensure a fair sharing of the cost burden.

On Monday, Cyprus's finance minister made it clear he did not wish to impose losses on bank depositors, saying talk of a so-called bail-in was "grossly exaggerated.

(Additional reporting by Gilbert Kreijger in Amsterdam; writing by Robin Emmott; editing by Stephen Nisbet)

Reuters News - Obama expected to call for U.S.-EU trade talks in speech

President Barack Obama speaks from the briefing room of the White House in Washington February 5, 2013.

Credit: Reuters/Kevin Lamarque

By Doug Palmer

WASHINGTON | Mon Feb 11, 2013 5:58pm EST

(Reuters) - President Barack Obama is expected to call for comprehensive trade and investment talks with the 27 nations of the European Union in his annual State of the Union speech on Tuesday, following more than a year of exploratory discussions.

"There's a buzz in Europe and the expectation is that the president will signal his political support for the beginning of the talks," said Andras Simonyi, managing director of the Center for Transatlantic Relations at Johns Hopkins University's School of Advanced International Studies.

A successful agreement that phases out remaining tariffs, harmonizes product standards and reduces regulatory barriers to trade would "have huge implications, way beyond just economics.

I like to call it the 'new NATO'," Simonyi said, referring to the North Atlantic Treaty Organization, a military alliance that has bound the United States and Europe since 1949.

The United States and the European Union already have the largest trade and investment relationship in the world.

However, faced with rising competition from China and slow economic growth at home, Obama together with European Commission President Jose Manuel Barroso and European Council President Herman Von Rompuy, created a working group in November 2011 to look at ways the transatlantic partners could build on that relationship to create more jobs.

The group released a preliminary report in mid-2012 calling for the negotiation of a comprehensive trade and investment agreement. Its final report, which was due out at the end of December, still has not been released.

Leaders of the 27 EU member states issued a joint statement on Friday endorsing the proposed pact.

That has raised expectations that Obama would call for the launch of talks in his speech and the working group would release its report shortly after that. Neither the White House nor the U.S. Trade Representative's office would comment on those possibilities.

A European official, speaking on condition that he not be identified, said they were "hopeful" that Obama would make a push for the talks.

Gary Hufbauer, a senior fellow a the Institute for International Economics, said he expected U.S. allies to be listening closely for references to the proposed U.S.-EU talks and other trade initiatives, like the ongoing Trans-Pacific Partnership talks between the United States and 10 countries in the Asia-Pacific region.

"If he doesn't mention these things at all, that's a very big downer," Hufbauer said.

Europeans not only want Obama to endorse the talks, but also to spend some time selling Congress on the idea that a U.S.-EU agreement is central to his vision of stimulating economic growth and creating new jobs, Hufbauer said.

U.S. manufacturers would like Obama to make "a very strong statement on trade in the State of the Union, including talking about launching the transatlantic partnership discussions with the European Union," said Linda Dempsey, vice president for international economic affairs at the National Association of Manufacturers.

Annual U.S. export numbers released last week for 2012 were "fairly anemic," Dempsey said. "What we'd like to see is a much more robust expansive trade policy," that includes the White House working with Congress to get legislative trade authority to negotiate a number of new agreements.

(Additional reporting by Arshad Mohammed and Jeff Mason. Editing by Christopher Wilson)

BBC News - Venezuela devalues currency by 32% against the dollar

Venezuela has cut the value of its currency against the US dollar by 32%, in an effort to boost its economy.

The devaluation of the bolivar is expected to have an impact on an already rising inflation

The widely expected measure ramps up the official exchange rate of the bolivar from 4.3 to 6.3 per US dollar.

It was announced after Vice-President Nicolas Maduro's return from Cuba, where he said President Hugo Chavez gave him instructions on the economy.

The leader has not been seen or heard in public since December, when he went to Havana for cancer treatment.

This is the fifth devaluation of the bolivar since Hugo Chavez' administration started controlling the exchange rate, in 2003.

The previous devaluation was in 2010.

Experts have long considered the bolivar overvalued and the move came as no surprise in the oil-based economy.

As oil exports are calculated in US dollars, a weaker bolivar should mean more cash for the government.

Strict controls to prevent currency going out of the country mean that dollars are normally hard to get in Venezuela, but in recent times this situation had become acute, says the BBC's Sarah Grainger, in Caracas.

Dollars have been trading at four times the official rate on the black market.

'Campaign money'

In a country that largely depends on food imports, the scarcity of dollars also led to shortages of products such as sugar and flour.

The new exchange rate is expected to address this situation.

But the measure is also expected to have an impact on the inflation, which has already been climbing.

The leader of the opposition, Henrique Caprilles, criticised on Twitter the fact that the government announced the devaluation on Carnival Friday in South America.

The opposition says the government has waited until after the elections to take the necessary steps in the economy.

"They've spent the money on the campaign, corruption and presents overseas," wrote Mr Caprilles, who lost the presidential elections to Mr Chavez last year.

Mr Chavez went to Cuba on 8 December to treat an undisclosed cancer and has not been seen or heard from since.

Mr Maduro recently said the president was "battling on" and had entered a new stage of treatment, after successfully finishing the post-operative phase.

BBC News - Euro strength to top finance ministers' meeting

France is set to voice concerns about the strength of the euro at a meeting of eurozone finance ministers later.

French Finance Minister Pierre Moscovici has expressed fears about the strength of the euro

French Finance Minister Pierre Moscovici is worried that the rising single currency is making the country's goods less competitive.

The euro has risen by 6% against a basket of other currencies in the past six months.

But with other countries also wanting to weaken their exchange rates, there are renewed fears of "currency wars".

Japan has also moved to force down the value of the yen.

Last week, Mr Moscovici called for the European Central Bank (ECB) to consider setting a target for the single currency - steering it lower when the value got too high.

But both Germany and the ECB are against such a move, arguing that the central bank's mandate is to ensure price stability and not to manage currency markets.

However, ECB President Mario Draghi was widely thought to be trying to talk down the euro at his interest rate press conference last week.

"The exchange rate is not a policy target but it is important for growth and price stability," Mr Draghi said in response to a question.

"We will closely monitor money market developments."

Daragh Maher, a senior currency strategist at HSBC, told the BBC that France was probably more "twitchy" because numbers were showing its competitiveness to be declining.

Today's Eurogroup meeting - attended by eurozone finance ministers - is the first to be hosted by the Netherlands. Financial aid to Greece and Cyprus is also likely to be discussed.

Reuters News - Back to the future as G20 comes to Russia

1 of 2. A general view of the Ritz-Carlton hotel in central Moscow February 11, 2013.

Credit: Reuters/Sergei Karpukhin

By Douglas Busvine

MOSCOW | Mon Feb 11, 2013 5:12am EST

(Reuters) - Group of 20 policymakers have an ideal chance in Moscow this week to ponder whether monetary policy largesse will blunt their will to carry out the economic reforms needed to put global growth on a sustainable footing.

On their drive from the airport to the city center, down highways clogged with luxury cars, it may dawn on finance ministers and central bankers thatRussia, this year's G20 host, got there first.

Some will check in to the five-star Ritz-Carlton hotel near the Manezh, the former 19th-century cavalry stable by the Kremlin walls where they meet this weekend. But convenience comes at a price: almost $17,000 per night for a luxury suite.

The world's largest oil producer has, through much of the Vladimir Putin era, been minting money as its central bank bought up hundreds of billions of export petrodollars, and the government spent its way out of the 2009 slump.

But the side-effects -- political complacency, declining competitiveness and a misallocation of capital towards conspicuous consumption and prestige projects -- increasingly outweigh the benefits to Russia's $2.1 trillioneconomy.

Some economists say Russia's story could foretell the outcome of ultra-loose monetary policy in the United States, Britain, Japan and symbolized by European Central Bank President Mario Draghi's vow last July to do "whatever it takes" to see the euro through its debt crisis.

"Russia has oil; Europe has Draghi," Tim Ash, the London-based head of emerging marketsresearch at Standard Bank, said on a recent trip to Moscow. "Europe is catching up to all the problems that Russia has done nothing about for the past decade."

Others say that may be stretching the point but there are certainly signs that the zeal for major economic and regulatory reforms in Europe has faded somewhat since Draghi took the sting out of the debt crisis.

CURRENCY WARS

The G20 accounts for 90 percent of the world's economy and two-thirds of its population. Russia has taken the helm this year as the group has split between borrowers seeking to grow out of a debt trap and surplus countries keener on austerity.

Gone is the shared sense of purpose that embodied the G20 summit in London of 2009, which created a huge financial backstop to stem the crisis that resulted from the collapse of Wall Street investment bank Lehman Brothers.

"The G20 has really struggled in the past couple of years after its really great 2008 and 2009," Jim O'Neill, the outgoing chairman of Goldman Sachs Asset Management and leading emergingmarkets economist, told Reuters.

"It's already desperately searching for an identity."

Russia, holder of the world's fourth-largest gold and foreign exchange reserves, also finds itself on the barricades in an as yet merely rhetorical "currency war" after its central bank accused Japan's new government of protectionist monetary policy.

But, G20 sources and economists say, officials are likely to tone down their rhetoric over competitive currency devaluations.

"I don't see how anybody can complain. Washington is keeping quiet because that's what it has done for the past 30 years," said O'Neill.

SUPPLY VS DEMAND

For its G20 presidency, Moscow has drawn up an agenda focusing on jobs and investment, improved financial regulation and deficit reduction that is enthusiastically backed by the International Monetary Fund and World Bank.

But in a world suffering a dearth of demand, there is likely to be pushback, again led by the United States, against Russia's push for "binding and realistic" goals to cut borrowing.

A target set at the G20's Toronto summit in 2010 to halve budget deficits expires this year, and one G20 source told Reuters there could be heated debate as the euro zone's dominant economy, Germany, calls for new deficit targets to be set.

Here, at least, Russia can show some leadership by pointing to its own balanced budget, and its adoption last year of a so-called fiscal rule intended to reduce the dependence of its public finances on oil and gas revenues.

"Russia's agenda reflects their own policy preoccupations. To the extent that it is relevant to a broader global forum, that will be a fluke," said Christopher Granville, managing director of Trusted Sources, an emerging markets consultancy.

"But it's not an agenda that's way off in outer space."

Policymakers will hope to set aside friction between Russia and the West over trade and human rights during the build-up to this September's G20 summit in St Petersburg, given the forum's focus on economic issues.

Russia, a country of more than 140 million people, says it is up to the task of leading the G20, not least thanks to its experience as half of the 'G2' that once dominated global diplomacy during the Cold War.

"It's used to thinking kind of big," said Russia's top financial diplomat, summit 'sherpa' Ksenia Yudayeva.

But things may be more tricky next year, part two of a double-header, when Russia chairs the G8. Moscow is the odd one out in what Granville calls "a group of like-minded Western countries withJapan as an honorary member".

Putin, elected for a third term as president last March after four years as prime minister, has made international summits and sporting events an important part of his development agenda for Russia.

He will host the G8 summit in the summer of 2014 in Sochi, the venue of the next Winter Olympics, and hosts the World Cup soccer finals in 2018.

Russia expects to spend $50 billion on preparing for the Sochi Games, a sum that would make it the most expensive Olympics. That is progress at a high price.

(Additional reporting by Lidia Kelly and Lesley Wroughton, editing by Mike Peacock)