Gov.Malloy headed to Davos...

INTERNATIONAL AFFAIR$$ PAGE - G-8 world finance news here.  How about G-20 news?  So who's the G-7?
Patriot missile (file image)



CONTENTS:  A NYTIMES columnist's critique of Obama policy...



Igloos generic from Google.
Davos man weighs future of capitalism
YAHOO
By Emma Thomasson and Ben Hirschler | Reuters
23 January 2012

DAVOS, Switzerland (Reuters) - The Occupy movement, which went global after protests against Wall Street last year, is camping in igloos to bring its argument with the super-rich "1 percent" to Davos.

It is a reminder to the leaders of finance and industry at the World Economic Forum of the resentment that is leading to questions about the future direction of capitalism.

"At meetings the rest of society is excluded from, this powerful '1 percent' negotiates and decides about the fate of the other 99 percent of this world," says David Roth, "Camp Igloo" organizer and head of the Swiss centre-left's youth wing.

"The economic and financial concentration of power in a small, privileged minority leads to a dictatorship over the rest of us. The motto 'one person, one vote' is no longer valid, but 'one dollar, one vote'. We want to change that."

Roth's group has set up camp in sub-zero temperatures and snow to "occupy" the WEF in a car park just outside the security cordon around the meeting that has become a byword for globalization.  He is seeking dialogue with the WEF but few of the 2,000 visitors are likely to sees the camp by the train station, many preferring to travel by private jet or helicopter from Zurich. A one-way trip costs 5,100 Swiss francs ($5,500) according to a WEF handout.

Police arrested two men suspected of scrawling "SMASH WEF" on the walls of the Swiss National Bank in Zurich last week. They also stopped an unauthorized anti-WEF demonstration in the capital Berne on Saturday.  In its Global Risk Report earlier this month, the WEF showed it is well aware of the Zeitgeist, warning that a backlash against rising inequality risks derailing the advance of globalization and threatens growth worldwide.

Rising youth unemployment, a retirement crisis among pensioners dependent on debt-burdened states and a wealth gap have sown the "seeds of dystopia," according to the report, based on a survey of 469 experts and industry leaders.

"The middle class is thinning out," says Lee Howell, the WEF managing director behind the report. "It's no longer simply cyclical, with everybody down and everybody getting to go back up. This time some people may not get up."

Klaus Schwab, a former business school professor who launched the annual get-together in 1971, is calling for more humility from executives who he says "have still not learned the lessons from past mistakes".

"Dystopia, the opposite of utopia, could precipitate a downward spiral of the global economy, pulled by social disruption, protectionism, nationalism and populism," he says.

A survey of 1,200 experts the WEF published on Monday showed fear of a major geopolitical disruption over the next year has risen significantly to 54 percent from 36 percent last quarter.  Ahead of this year's Davos meeting, based on the theme "The Great Transformation: Shaping New Models", everybody is adding their two cents to the debate on the state of the world.

British Prime Minister David Cameron, who speaks at Davos on Thursday, says years of uncontrolled "turbo capitalism" have broken the link between risk and reward, giving some executives generous pay deals despite lackluster performance.

In a "Call to Action" ahead of Davos, 11 leaders of international organizations including International Monetary Fund head Christine Lagarde said economic growth, jobs and protectionism are the top three worries at the start of 2012.

DAVOS MAN

Davos 2012 sees some changing of the guard. It is welcoming leaders from the Arab Spring like Tunisian Prime Minister Hammadi Jebali, interim Libyan Prime Minister Abdel Rahim El Keib as well as Egyptian presidential candidates.  Imran Khan, the former cricketer Pakistani politician, will be bringing his campaign against corruption to the meeting.

The WEF will also be putting up in local schools about 70 young people it calls its "global shapers" who are supposed to develop leadership potential so they can "serve society".

There are notable absences of Davos regulars like former IMF head Dominique Strauss-Kahn, Swiss central bank chief Philipp Hildebrand, Greece's former prime minister George Papandreou and bank UBS chief Oswald Gruebel, all felled in recent months.  Rupert Murdoch, who had to pull out last year as his News Corp media empire became embroiled in a scandal over phone hacking, is not expected for a second year running.

But it is striking how many names remain the same despite the upheaval since the financial crisis of 2008.

German Vision Prevails as Leaders Agree on Fiscal Pact
By STEVEN ERLANGER and STEPHEN CASTLE, NYTIMES
December 9, 2011

BRUSSELS — Europe’s worst financial crisis in generations is forging a new European Union, pushing Britain to the sidelines and creating a more integrated, fiscally disciplined core of nations under the auspices of a resurgent Germany.

Exactly 20 years to the day after European leaders signed the treaty that led to the creation of the European Union and the euro currency, Chancellor Angela Merkel of Germany persuaded every current member of the union except Britain to endorse a new agreement calling for tighter regional oversight of government spending.

“It’s interesting to note that 20 years later we have realized — we have succeeded — in creating a more stable foundation for that economic and monetary union,” Mrs. Merkel said, adding, “and in so doing we’ve advanced political union and have attended to weaknesses that were included in the system.”

The agreement was a clear victory for Mrs. Merkel, and it prompted a sharp rally in stock markets in Europe and the United States. But it is viewed as unlikely to calm fears that Europe is unwilling to muster the financial firepower to defend the sovereign debts of big member states, including Italy and Spain, that have little or no economic growth and have big debt bills coming due soon.

At the meeting, member governments agreed to raise up to $270 billion that could be used by the International Monetary Fund to aid indebted European governments, and they moved up the date that a European rescue fund would come into operation. But the sums involved fell well short of what many investors and some Obama administration officials have argued are needed to ensure the survival of the euro. Administration officials on Friday welcomed the long-term overhaul of the euro zone’s rules, but argued that stronger measures were needed in the short run.

Germany has argued that the solution to the euro crisis is not a series of short-term bailouts but a long-term overhaul of the rules that govern European integration. Germany is using market turmoil as a cudgel to force more spendthrift European countries to adjust to their straitened circumstances by reducing spending and ushering in a period of austerity. But critics say such steps risk a deep recession.

The European Union emerged in its current form in the late 1980s and early 1990s as a French-German idea to bind the region in the aftermath of the Soviet collapse. It is now being reinvented by a united Germany that has grown disillusioned by what it considers as debt-happy neighbors and is no longer reticent about wielding its economic and political clout.

The big loser in Brussels was Britain, which had endorsed the 1991 Maastricht Treaty on European integration but opted out of the new euro common currency to preserve its economic and monetary independence.

Prime Minister David Cameron, a Conservative and self-acknowledged “euroskeptic,” was isolated in his refusal to allow the German prescription of “more Europe” — to give teeth to fiscal pledges underpinning the euro.

Mr. Cameron was perceived as having made a poor gamble in opposing the push by Mrs. Merkel and President Nicolas Sarkozy of France, embittering relations and possibly damaging his standing at home. Though some other countries, including Denmark and Hungary, initially shared Britain’s skepticism of the German-led agreement, only Britain ultimately rejected it.

The new disciplinary rules may help ensure that there will not be another euro crisis, but they may not be sufficient to fix the current crisis — to assuage market unease that Europe and the European Central Bank are not doing enough now to stand behind vulnerable nations.

While some progress was made here in increasing the size of the bailout funds to help the most heavily indebted states, it is still considered inadequate. That is largely because Germany refuses to sanction the use of the European Central Bank as a lender of last resort for the countries in the euro zone.

The leaders sent an important signal to the bond markets by scrapping a pledge to make private investors absorb losses in any future bailout for a euro nation. But they made only limited progress in increasing the financial backstop to vulnerable and core nations like Italy and Spain, which are paying unsustainable interest rates on their bonds.

What worries many is the size of the euro zone debts that must be refinanced early next year. Euro zone governments have to repay more than 1.1 trillion euros, nearly $1.5 trillion, of long- and short-term debt in 2012, with about 519 billion euros, or $695 billion, of Italian, French and German debt maturing in the first half alone, according to Bloomberg News.

But the new Italian prime minister, the economist Mario Monti, was more upbeat. He pointed to an increase in the firewall and in economic responsibility and said that the idea of collective bonds was not dead, despite continuing German and French opposition.

“Euro bonds, for which a tomb without flowers was being prepared, are not named” but will be raised again in March, he said. “There is more money, there is more discipline, it could be that this isn’t enough, but it doesn’t seem to be a failed summit.”

Mrs. Merkel said the crisis had provided important new lessons for how to restructure Europe. “We will use the crisis as a chance for a new beginning.”

In Brussels, much of the attention was on Mr. Cameron’s failure to get what he wanted or to stop other leaders from getting what they wanted.

Britain threatened to veto Germany’s proposal for a full treaty applying to all 27 members of the European Union. That pushed Germany and France to create an intergovernmental agreement that accelerates the move toward European consolidation, but will leave Britain out.

British hopes to lead an alliance of the 10 union members that do not use the euro were dashed. Mr. Cameron failed to bring along allies among the Nordic or ex-Communist nations whose membership in the bloc Britain had championed and who are usually regarded as more Atlanticist and favorable to free markets.

European officials argued that Mr. Cameron had in effect fallen into a French trap, making demands that most of his colleagues felt were unrelated to the euro zone crisis at issue. France has long desired an inner European core based on the countries that use the euro and excluding the free-market British.

“It’s a turning point,” said one senior European official. “Britain kept thinking that enlargement of the E.U. would make it come its way but it has turned out to weaken us.”

The official spoke with some sadness. “By being so isolated and raising these issues, but failing to deliver, Cameron is in a worse position than if he hadn’t flagged them in the first place. It will strengthen the hand of British euroskeptics who will be emboldened to demand a renegotiation of British membership terms and a referendum.”

Mr. Cameron requested concessions meant to secure the position of Britain’s financial services sector from the impact of European legislation and to ensure that the City of London would not lose out in rules that give an advantage to euro zone financial centers. But others, led by Mr. Sarkozy, said they would not be held hostage to the services that many blame for the crisis.

Mr. Sarkozy also said he was tired of British criticism of the handling of the crisis. “I am sick of hearing every day David criticizing us,” Mr. Sarkozy said, according to one official briefed on the discussions. On Friday, as the summit meeting was breaking up, Mr. Sarkozy snubbed Mr. Cameron, brushing past his outstretched hand.

British officials played down the significance of the meeting, saying that the outcome ensured that the government would have not have to seek a politically contentious ratification of a treaty at home. But one official acknowledged that the government would now have to assess the outcome and draw up a strategy.

Reporting was contributed by Jack Ewing from Frankfurt, Mark Landler and Annie Lowrey from Washington, Rachel Donadio from Rome, and James Kanter from Brussels.

This article has been revised to reflect the following correction:

Correction: December 10, 2011

An earlier version of this article incorrectly stated that an accord between European Union countries would allow the European Court of Justice to strike down a member’s laws if they violate fiscal discipline. No such term of an agreement was reached.

Portugal wants U.S. help in euro crisis: source
YAHOO
By Guido Nejamkis, Reuters
29 October 2011

ASUNCION (Reuters) - Portugal asked Mexico on Saturday to tell fellow G20 members next week that the United States should offer "financial help" to resolve the euro zone sovereign debt crisis, describing it as a "systemic and global" problem, a Portuguese government source said.

Portuguese Prime Minister Pedro Passos Coelho asked Mexican President Felipe Calderon to convey the message during the G20 meeting in Cannes next week, the source told reporters after the two leaders met at the Ibero-American summit in Paraguay.

"The crisis isn't in the euro zone. It is a systemic and global crisis and we hope that other big G20 countries intervene," the source told reporters in the capital Asuncion, speaking on condition of anonymity.

The source added that Washington should help resolve the crisis "by boosting trade and also with financial help."

No one from Calderon's delegation in Asuncion could immediately be reached for comment.  Financial markets rallied strongly this week after European leaders hammered out a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund, and impose hefty losses on holders of Greek debt. However, economic analysts quickly warned that details of the rescue could still take weeks or even months to work out.

Portugal is suffering a deepening recession as it implements painful austerity measures under a 78-billion-euro ($110.3-billion) EU/IMF bailout.

Forgive Us Our Debts
Europe runs out of money.
Christopher Caldwell, Weekly Standard
November 7, 2011, Vol. 17, No. 08

London

As they do every few weeks, the leaders of the European Union met in Brussels on Wednesday, October 26, to solve their finance problems once and for all. As the sun rose on Thursday they emerged with a document that resembled an Obama budget—crystal-clear about its aims and aspirations, opaque about how it intends to achieve them. There is a reason for that. It is that these aims and aspirations are growing less and less realistic.

Back in 2010, when the crisis seemed confined to the Greek government’s inability to repay its lenders, the Europeans thought they could fix things by having its various neighbor countries chip in 45 billion euros ($65 billion) to throw at the problem. Eighteen months later, the crisis is as complicated as a Rube Goldberg machine and more dangerous. The particular corner of it they dealt with last week has three intertwined aspects, and to solve one of them is to exacerbate the other two:

(1) Greece is so totally bust that it required not only a fresh bailout totaling $185 billion but also a 50 percent “haircut” imposed on its creditors. In other words, if you lent the Greeks money by buying their government’s bonds, you lost half of it. (But don’t feel too bad—a lot of Greeks got to retire at 60 with pensions you paid for.) That “solves” the Greek solvency problem for a time, but it is a dangerous remedy.

(2) It is dangerous because it means that loss of confidence in Europe’s institutions moves from the periphery (Greece and Portugal, say) towards the core (France and Italy, say). If Greece can stiff its creditors and stay in the euro, might that not be a tempting option for other countries? Consider Italy, the third-largest economy in the eurozone, with a debt-to-GDP ratio over 100 percent. “Contagion” is the word for the presence of nervous thoughts like these in bondholders’ heads, and the only way to protect against its spread is to build a “wall of money” around the least reliable-looking debtors. Unfortunately, Europe is out of money. The only “wall of money” it can erect is a virtual wall of borrowed money.

(3) And that adds to a danger that is already present in the Greek bailouts. European banks hold a lot more sovereign debt (government bonds) than U.S. banks do. If some of that is going to get paid back at 50 centimes on the euro, then these banks are neither as wealthy nor as stable as they appear to be. That means banks are going to have to revise their business models. What European authorities insisted on this week was that they raise their capital ratios to 9 percent. There are two ways banks can do this. They can either hold more money or lend less. Europe’s leaders pretend they’re going to hold more. But since Europeans have already tapped every domestic source of capital, there is no place to get more. That means banks are going to lend less. Which in turn means the risk of recession has just risen significantly.

A lot about this deal makes it likely that Europe’s leaders will be back at the negotiating table before their seats have cooled.

For one, the debt of Greeks and others seems to be, as the Germans grumble, a “barrel without a bottom.” A European economist told me in the summer of 2010 that a Greek default was inevitable, and that the European bailout was designed to keep the country afloat until it could get back into “primary balance”—i.e., paying its bills except for its interest payments—in 2013. But this new bailout, haircuts and all, does not envision Greece reaching primary balance for a decade, and then only with the help of the most grinding austerity program enacted in our lifetime. At that point, in the 2020s, the country will be back to a situation where its debts are “only” 120 percent of GDP. Is that politically sustainable in a riot-prone democracy like Greece’s? One suspects not.

Another problem is that the deal is not having the desired effect in Italy, the primary candidate for contagion. Bond yields in most European countries fell in the immediate aftermath of the agreement, but not in Italy. Italy has the third-largest bond market in the world—almost $3 trillion—and over the summer the European Central Bank bought tens of billions’ worth of Italian bonds to keep Italy’s borrowing costs down.

Working up an austerity plan for the Italians was a top priority at last week’s summit. Silvio Berlusconi’s coalition partners have resisted it, and in one sense they are right to see the demand as unfair—at about 4 percent, Italy’s budget deficits are low by comparison to the rest of the European Union (and far lower than the United States). And there is one boast that Italians can make that few other countries can—its finances are roughly in the same shape they were a decade ago. Under Berlusconi, Finance Minister Giulio Tremonti was a highly capable economic steward. His reputation in Italy has something in common with that of Paul Volcker in the United States. What spooked bond markets over the summer was Berlusconi’s quarreling with Tremonti, not the “bunga-bunga” (to use his term) that he indulged in with young women.

At last week’s meetings, Europe invited a new player into its finance crisis: China. Europeans have talked about “levering up” their $625 billion European Financial Stability Facility (EFSF), established last year to prevent a Greek contagion. It has been topped up and tapped into since and now has only about half its original lending power. In order to obtain the funds necessary to shore up Italy’s bond market, the Europeans reckon they need to more than double the size of the EFSF. Levering up means using the money they have in the EFSF as security to raise even more on the capital markets. In the present depressed state of the world economy, “the capital markets” means China. With an astonishing lack of sangfroid, Klaus Regeling, the head of the EFSF, landed in Beijing on Thursday afternoon to press his case. He must have headed straight for the airport the moment the agreement was signed.

Years ago, China might have fallen for the trick that Europe intends to pull, basically trying to get money for Greece and Italy by waving around the triple-A credit rating of Germany and other countries that have stocked the EFSF. But today it is likely that China will insist on guarantees that it be paid before European taxpayers in any default scenario. In an interview with the Financial Times the day after the agreement, Li Daokui, a member of the central bank monetary policy committee, gave evidence of a real canniness. “The last thing China wants,” he said, “is to throw away the country’s wealth and be seen as just a source of dumb money.” Li indicated that the Chinese might ask European leaders to refrain from criticizing Chinese economic policy as part of the deal.

Perhaps Europe has reached the point where its only route out of bankruptcy is this kind of vassalage. To escape a debt crisis, an economy needs to be capable of growing. It is far from clear that Europe can do that. It has two problems. One is technological. Much of Europe lacks the technological wherewithal to claim an ever-increasing share of the world economy. Spain, for instance, during its long, construction-based boom, developed a good deal of national expertise in .  .  . what? Pouring concrete?

A second problem is demographic. Italians have one of the lowest birthrates known in any society since the dawn of time; what it will look like in 40 years is anybody’s guess, but one fairly conservative demographic projection shows its population decreasing by 10 percent, to 54 million, at midcentury. Debt, alas, is contracted on a per-country, not a per capita basis, and this kind of population loss (especially when accompanied by rapid aging) can render debt impossible to pay down.

Europe’s leaders are welcome to congratulate each other on finally resolving their debt crisis. They will likely have many more opportunities to come up with such “final resolutions” in the months and years ahead.




US treasury secretary Tim Geithner talks with French finance minister Francois Baroin

Americans wade in on Euro crisis
The US is sounding its own alarm about the Euro crisis
Mark Mardell, I-BBS
14 September 2011 Last updated at 22:57 ET

You might think President Obama has enough on his plate without worrying about the European crisis. But you'd be wrong.  The White House may not really care too much about the fate of the euro itself, but it does care about European banks and the sense of impending economic doom.  Any blowback - a Lehman Brothers in reverse - could send the fragile to non-existent US recovery spinning right off course.  So President Obama and his treasury secretary have rolled their sleeves up, and got stuck in to the most inflammatory debate in Europe.

Should the crisis mean more Europe, or less?

"It is difficult to co-ordinate and agree on a common path when you have so many countries with different policies and economic situations," Mr Obama told a number of Spanish-speaking journalists.

That is a truism in Europe to anybody who has dealt with, observed or covered the multi-headed EU beast.  The relationship between the governments of 27 countries, the European Commission and the European Parliament is less fractious than the relationship between Congress and the president.  But even America's tortuously slow decision-making process looks like lightning by comparison. There are very good reasons for this. But the president suggested a way has to be found around it.

"In the end the big countries in Europe, the leaders in Europe must meet and take a decision on how to co-ordinate monetary integration with more effective co-ordinated fiscal policy," Mr Obama said.

The Obama administration has felt for a while that European leaders have used sticking plasters instead of drastic surgery, that they come up with bland statements to half-soothe the markets and head off a crisis for a few weeks at a time, only for it to be back the following month.  Now they've gone public because private frustration has turned to genuine alarm.  The message that there has to be bold, dramatic action will be delivered in person by none other than US Treasury Secretary Timothy Geithner.

He is making an unprecedented trip to join European finance ministers in Poland.  Mr Geithner's analysis will be unprecedented as well in its bluntness. He says Europe has been behind the curve, and has to show that its leaders have finally got the message.

"They're going to have to demonstrate to the world they have enough political will. This is not a question of financial or economic capacity," Mr Geithner said.

"Even if you take a very conservative, pessimistic estimate of the ultimate cost of resolving this crisis for Europe, it is completely within the capacity of the stronger members of the euro area to absorb those costs."

What is interesting here is that US leaders are missing the ideological nuance, and making - what to them - are pragmatic arguments.  They don't really care about the plight of European leaders at the mercy of an economic crisis that demands one thing: great integration - but could prompt a political crisis demanding the exact opposite: a looser Europe.  However, because Americans are unconcerned about the ideological nuances of the debate, perhaps they see things a lot more clearly.

Wall Street has much the same view as the White House. It is the crisis that worries them, not the fate of the euro itself, or the exact mechanisms taken to solve it.  David Zervos from Jefferies Global Securities says many Americans regard the Euro with distaste.

"The structure of economic and monetary union has been left half-built," Mr Zervos told me.

"We are in the middle of one of the worst recessions that any of us have ever lived through, and the euro structure was not built for that sort of turmoil.

"Fiscal union, the ability to pull resources fiscally across countries, was not built into the structure and right now we are seeing that problem tear the system apart and it's a pretty messy situation."

He points out that the US went though a debate about federalism 200 years ago, while Europe has had a federal currency for just over 10 years, but seems unenthusiastic to have the same debate.  Behind the intimidating talk of "fiscal integration", what do the Americans mean?

They would like Euro bonds, certainly, but may have accepted that is not going to happen. So they would like stronger action by the European Central Bank, with the will of the Fed to act quickly and strongly.  They want European politicians to put their people's money where the elites' mouths have been for a long while.  At first blush, it is faintly amusing that this harsh, practical advice is coming from the USA.

Here, political pragmatism often goes by the board as every idea gets tested against philosophic first principles.  America's leaders seem to ignore the problem at the heart of this debate: to survive, the euro may need a spirit of European solidarity that simply doesn't seem to exist.  But then if the idea of the Euro had been destruction-tested, American-style, against political first principles, Europe's leaders might not be in need of a lecture from the president.

Remember FDIC's Sheila Bair?
The Bonnie and Clyde (r) of the banking set, at left, from 2009.

Check out this cool graphic from the NYTIMES
Advice on Debt? Europe Suggests U.S. Can Keep It
NYTIMES
By STEPHEN CASTLE and LOUISE STORY
September 16, 2011

WROCLAW, Poland — The United States has long been considered a financial adviser to the rest of the world. But these days, American officials come carrying baggage.

Financial officials from the United States, once called “the committee to save the world” after the Asian crisis in the 1990s, now find themselves uttering apologies for the harm caused to the world by the 2008 financial crisis and coating their advice to European nations with the knowing nod of the battle-hardened.

The change in tone was on display here on Friday when Treasury Secretary Timothy F. Geithner made an unusual appearance at a meeting of euro zone finance ministries. Mr. Geithner had been invited to offer some advice on fixing Europe’s sovereign debt and banking problems.

European leaders, who have been slow to react to the root causes of the problem, emerged from the meeting dismissive of Mr. Geithner’s ideas and, in some cases, even of the idea that the United States was in a position to give out such pointers.

“I found it peculiar that, even though the Americans have significantly worse fundamental data than the euro zone, that they tell us what we should do,” Maria Fekter, the finance minister of Austria, said after the meeting Friday morning. “I had expected that, when he tells us how he sees the world, that he would listen to what we have to say.”

Such criticism was echoed by other attendees of the meeting, including the finance minister of Belgium, Didier Reynders, who said Mr. Geithner should listen rather than talk. Jean-Claude Juncker, president of the finance minister group, said European officials did not care to have detailed discussions about expanding their bailout fund “with a nonmember of the euro area.”

American officials are aware that they need to tread carefully when advising others, especially now, and they have avoided offering specific plans or proposals.

Instead, they point to recent programs in the United States simply as case studies. On Friday, Mr. Geithner, among other recommendations, encouraged the European leaders to add more firepower to their bailout funds, and described how the United States used leverage in 2008 to help bolster the markets.

The Treasury department said in a statement Friday that “Secretary Geithner encouraged his European counterparts to act decisively and to speak with one voice.” And a Treasury official said the department did not feel Mr. Geithner was rebuffed, because he did not have a specific agenda.

In the past, countries with financial problems have not always received the United States’ advice with open arms, at least until they needed financial support. Europe, analysts say, may never need outside support if its political leaders can find a way to use the wealth of nations like Germany to shore up more debt-troubled countries like Italy.

Still, it is hard to argue that the United States is not in a far weaker place to be doling out advice than it was in past crises, especially after the gridlock in August over raising the debt limit.

“We’re in a very different world environment right now,” said Ian Bremmer, president of Eurasia Group, a political consulting firm. “The United States has diminished credibility — it can’t simply tell Europe what to do. And it lacks the political will or means to throw a lot of cash at European troubles, even though they could become American problems very quickly.”

It was unusual for Mr. Geithner to attend an internal meeting of the 17 financial ministers from European Union countries that use the euro. The meeting was held on the first of two days of talks in Poland, and so far European finance ministers are no closer to overcoming the hurdles holding up the plan they developed for Greece back in July.

Mr. Geithner did not offer up a fully developed plan or urge one particular action. According to an American official who was not authorized to comment publicly, the Treasury secretary urged Europe to send a strong message to the market by putting up a large enough sum of money to support its debt-ridden nations and banks. He suggested that could be done through the use of borrowed money, as the United States did in some programs in 2008. One program, known as TALF, was meant to revive lending in the consumer and small-business markets.

“If you show the market that you have what it takes to stand behind your banks and stand behind your sovereigns, it will cost less in the end,” said Lael Brainard,  under secretary for international affairs at the Treasury.

Some Europeans have expressed ideas similar to Mr. Geithner’s for a broader rescue plan. Still, the United States faces a different sort of audience when giving ideas to Europe than it does when facing officials in developing economies.

“In the 1990s, there were lots of countries that would say, that’s working in the United States, how can we copy that?” said Gary Gensler, who worked at the Treasury in the 1990s and now leads the Commodity Futures Trading Commission. “We’re still very much the leader in financial regulations and in the financial markets, but the 2008 crisis showed we failed. Our financial regulatory system failed and Wall Street failed.”

Some policy makers say the United States might even be wise to turn to China as a partner in persuasion.

“Maybe this should be a joint effort,” said Sheila C. Bair, a senior advisor at the Pew Charitable Trusts, who was the chairwoman of the Federal Deposit Insurance Corporation until this summer.

She said it would be helpful for China and the United States to give European leaders the same message. But, she said, referring to the United States’ financial crisis in 2008, “we certainly don’t have clean hands in all this.”

Countries with financial problems do not want outside advice until they need outside money, said Jeffrey Shafer, who was the under secretary for international issues at the Treasury in the 1990s. “There are different stages in this process, and Europe right now is kind of in a halfway house,” he said. “The reality is that you get more influence when you are providing support.”

It would be difficult for the Obama administration to persuade Congress to give loans to Europe, analysts say, but there are other options. The Federal Reserve can open its discount window to European banks or, as it has already done, it can use foreign exchange lines. The Treasury could also lend out money from a facility that helps with exchange-rate problems. Or the United States could promote additional aid from the International Monetary Fund.

Even if the United States offered more aid, it is unclear if Europe would want it. Edwin M. Truman, a senior fellow at the Peterson Institute who has worked with Mr. Geithner, said the United States had questions to answer, too. “It’s not just a question of being the scolding school teacher,” he said. “Geithner will also have to give a convincing story that we’re dealing with our problems.”

S.&P. Downgrades U.S. Long-Term Debt
NYTIMES
By BINYAMIN APPELBAUM and ERIC DASH
August 5, 2011

WASHINGTON — Standard & Poor’s removed the United States government from its list of risk-free borrowers on Friday night, citing concern about the rising burden of the federal debt.

The nation’s rating was reduced to AA-plus for its long-term debt, one notch below the top rating of triple-A...full story here.
IMF Cuts U.S. Growth Forecast, Warns of Crisis
NYTIMES
By REUTERS
June 17, 2011

SAO PAULO (Reuters) - The International Monetary Fund cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits.

The IMF, in its regular assessment of global economic prospects, said that bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.  The global lender forecast that U.S. gross domestic product would grow an anaemic 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent and 2.9 percent growth, respectively.

The outlook elsewhere was mixed. The IMF said it was slightly more optimistic about the euro area's growth prospects this year, but a lack of political leadership in dealing with that crisis and the budget showdown in the United States could create major financial volatility in coming months.

"You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire," said Jose Vinals, director of the IMF's monetary and capital markets department.

"We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis," he said in an interview in Sao Paulo, where the forecast was published.

In the United States, the political problems include a fight over raising the debt ceiling. Fears that the world's biggest economy could default, even briefly, have rattled markets, with Fitch Ratings saying even a "technical" default would jeopardize the country's AAA rating.

Meanwhile, Greece has edged closer to default as euro zone officials disagree on a possible second aid package for the indebted country. With strikes and protests around the country, political turmoil has added to uncertainty, stoking fears that the government will not be able to tighten its belt enough to reduce crippling deficits.

"If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States," Vinals said.

EMERGING MARKETS OVERHEATING?

Fears of contagion in the euro zone have driven global markets lower in recent sessions, with other vulnerable countries such as Ireland and Portugal feeling pressured.  The IMF raised its growth view for the euro area in 2011 to 2 percent from 1.6 percent. For 2012, the IMF saw growth at 1.7 percent, nearly stable from its previous 1.8 percent.

It raised its forecast for Germany, the powerhouse of the euro zone, to 3.2 percent from 2.5 percent, with growth moderating to 2 percent in 2012.  Forecasts for large emerging markets remained stable or slipped. While China's GDP view stayed at 9.6 percent this year, the IMF lowered its forecast for Brazil to 4.1 percent from 4.5 percent in April.

Those countries, along with Russia, India and South Africa, make up the fast-growing BRICS, a group of emerging economies whose brisk expansion has outstripped that of developed markets recently.  Robust growth has caused emerging economies to tighten monetary policy, with higher interest rates and reserve requirements, even as many developed nations keep policy ultra-loose to try to boost anaemic growth.

The IMF warned that many emerging markets still need more tightening. In China, for example, the high inflation rate means negative real interest rates.  Some emerging markets have been reluctant to tighten too far, fearful of derailing growth or attracting speculative flows that could pressure currencies ever higher.

Adios, Pakistan
Pakistan’s internal politics are not our business. Its sheltering of major Islamist terrorists is.
National Review
May 17, 2011 4:00 A.M.

“I don’t care if someone is giving us money; we are not a purchasable commodity. We cannot be bought. We can live in hunger, but we won’t compromise our national interests.”

– Bashir Bilour, a Pakistani senior minister, in angry response following an al-Qaeda reprisal for the American killing of Osama bin Laden

That quotation sums up in a nutshell our current impasse with Pakistan and why it is time to redefine our relationship. If one were to follow the counterfactual logic of Mr. Bilour, it was not in the national interests of Pakistan to arrest the mass murderer of 3,000 Americans living in sanctuary in the suburbs of its capital city. It was not in Pakistan’s interests because a vast segment of the Pakistani population favors the agenda of radical Islam, either condones or is indifferent to its jihadism, and feels that only American cash prevents the government from overtly supporting a preferable Islamist agenda. So Bilour is quite right: Pakistan should not be a “purchasable commodity,” and instead should feel free both to reject American aid and not to compromise its “national interests” by opposing radical Islam.

For years, we have heard ad nauseam both Pakistan’s excuses for why it acts so duplicitously and our own diplomatic community’s reasons why we, in response, cannot cut off aid.

The two narratives often run something like this:

The Pakistani Plea

(a) We suffer more from radical Islamic terrorism than do you, and in fact have experienced an upswing in violence because of our decade-long, post–9/11 alliance with you.

(b) The United States does not respect our sovereignty and violates both our land borders and our air space at will.

(c) There is no hope for Afghanistan without us; cut us off and we will cut you off from all logistics coming in and out of Afghanistan.

(d) Your aid — $3 to $4 billion a year — is not all that much.

(e) We are the only Islamic nuclear nation, and we deserve a respect commensurate with our strategic importance, especially given your use and abuse of us during the Russian invasion of Afghanistan.

(f) You already favor India, and you must show some modicum of diplomatic, political, and strategic balance.

American diplomatic, academic, and military experts tend to agree, and they usually offer us somewhat similar apologies.

The American Argument

(a) Yes, elements of the Pakistani government support terrorists — both al-Qaeda and the Taliban — who kill Americans and disrupt Afghanistan, but other, “good” elements of the military and government oppose these “rogue” actors and help us. So we are in a partnership with good Pakistanis against rogue Pakistanis.

(b) In truth, Pakistan is more duplicitous and untrustworthy in its alliances with Islamists than it is with the United States.

(c) A poor Pakistan has vast regions of wild borderlands and frontier that it simply cannot control; how can it be faulted for failing at what it cannot possibly do?

(d) Pakistan has the bomb; our aid, humiliating to us as it sometimes is portrayed, actually serves as valuable bribe money, ensuring that Pakistan does not “lend” a nuke or two to another illegitimate Islamic dictatorship or “lose” three or four bombs to assorted terrorists.

(e) The American public does not grasp, and cannot be fully told, of the myriad ways, informal and stealthy, that Pakistan helps us in the region.

All of these narratives have some merit but are ultimately unconvincing reasons to subsidize Pakistan.

First, we regret that Pakistan is a victim of domestic terrorism; but it antedated and will postdate our alliance, and is the wages of Pakistan’s own endemic corruption, religious intolerance, and government illegitimacy.

We can hardly respect a theoretical sovereignty that the Pakistani government itself admits it does not exercise. Are we to assume that Pakistan cannot enter its own borderlands, and so America cannot either, when those areas harbor killers of our citizens?

Americans do not like duplicitous allies, but they especially do not like subsidizing the duplicity. Almost every major Islamic terrorist with American blood on his hands whom our forces have captured or killed, from Khalid Sheik Mohammed to Osama bin Laden, was finally tracked down in Pakistan — often in upscale urban areas. As far as Afghanistan goes, Pakistan might do its worst, and we will try to do our best, and that is just the way it is, in this eternally bad/worse-case scenario.

There are all sorts of important nuclear powers that we do not subsidize. Russian Communism in Afghanistan was a greater threat to Pakistan than it was to the United States. Should we have given no aid then, or given aid and then stayed on? Either policy would have incurred Pakistani animosity. Again, as for nukes, it is not in Pakistan’s own interest to give nukes to anyone, unless it wishes current terrorism against it to include a nuclear component or prefers to lose its Islamic nuclear exclusivity. The United States would assume that any use of a nuclear device against America by an Islamic terrorist would ultimately be traced to Pakistan — and, of course, we would take the necessary countermeasures and retaliation. We would hope that deterrent message was by now well known.

India is democratic and pro-American; Pakistan is not. India is also huge, successful, and an ally in the war against jihadism. The question is not balance, but why we do not tilt farther toward India, a free-market economy that shares many of our own goals and aspirations. India is a natural and strategic ally; Pakistan is increasingly a natural and strategic belligerent.

As for our own rationales, consider the following rebuttals:

The good and bad elements of the Pakistani military and government are now so intertwined that even they cannot sort them out. What counts is not factions within Pakistan, but how they are expressed and play out. Among the worst setbacks in American foreign policy in the last twenty years were Pakistan’s acquisition of the bomb, and Pakistan’s hand in ensuring that bin Laden was largely safe for a decade. We care about those facts, not about Pakistan’s internal politics.

If Pakistan renounces American aid, it will nevertheless still incur terrorist attacks. Again, terrorism is endemic to Pakistan for reasons that transcend America.

Pakistan’s wild lands are useful to Pakistan, both providing deniability (e.g., “We can’t go there either”), and as an ongoing excuse for American aid. Terrorists get their own play yard, and their eternal presence justifies eternal billions in aid to Pakistani elites.

When we used to give aid to Pakistan it nevertheless still started work on the bomb; has resumption of that aid done much of anything to curtail its nuclear posturing?

The inability to explain the Pakistan alliance in any convincing fashion to the American public is not a reason to maintain the aid, but one to end it outright.

In conclusion, over the last two decades we have had all sorts of relationships with a nuclear and non-nuclear Pakistan: estrangement; an anti-Soviet, anti-Indian alliance; restored diplomatic relations; massive foreign aid; etc. We often change our approach; Pakistan stays the same.

What is the problem? The majority in Pakistan, so far as we can tell, is religiously intolerant, anti-American, and tribal. A plebiscite, fairly conducted, would result in a far more illiberal government than the Westernized megaphones that the often rigged and corrupt elections produce. Because elite Pakistani military and political leaders do not have real legitimacy, they must alternately disguise and lament, and then indulge and appease, the illiberal natures of their constituents.

What is the solution? Praise Pakistan. Avoid provocative statements. But by all means gradually and without fanfare prune back aid — say, at the rate of about $100 million a month. And then accept that in reaction Pakistan will more shamelessly hide terrorists, threaten nuclear proliferation, and destabilize the Karzai government, as it is freed to express its natural proclivities and “national interests” as a de facto enemy of the United States. Develop much closer relations with India. All of this will not make the situation in the region any better, but it will bring clarity, send a message that America is tired of treacherous allies — and save money. And in this ungodly mess, that at least counts for something.


Japan central bank feeds markets money after quake
By TOMOKO A. HOSAKA, Associated Press
14 March 2011

TOKYO – Japan's central bank pumped a record $184 billion into money markets and took other measures to protect a teetering economy Monday, as the Tokyo stock market nose-dived following a devastating earthquake and tsunami.

The benchmark Nikkei 225 stock average slid 6.2 percent in its first day of trading since the 8.9-magnitude quake centered on northeastern Japan struck Friday, triggering enormous waves that swamped towns and killed thousands.

Escalating concerns about the financial and economic fallout of the disaster triggered a plunge that hit all sectors of the stock market. The broader Topix index lost 7.5 percent.

The Bank of Japan moved quickly to try to keep financial markets calm. By flooding the banking system with cash, it hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds.

Later in the day, the central bank's nine-member policy board gathered for a shortened meeting and voted unanimously to ease monetary policy. It will expand the size of an existing program to buy assets — such as government and corporate bonds — by 5 trillion yen to 40 trillion yen ($486.4 billion). It also decided to keep its key interest rate at virtually zero.

Credit Suisse economist Hiromichi Shirakawa estimated the damage at up to 15 trillion yen ($183 billion) and other analysts warned the economy will shrink for two straight quarters.

That represents a painful blow for Japan which lost its place as the world's No. 2 economy to China last year. The Japanese economy has been ailing for two decades, barely managing to eke out weak growth between slowdowns. It is saddled with a massive public debt that, at 200 percent of gross domestic product, is the biggest among industrialized nations.

"People might see an already weakened Japan, overshadowed by a growing China, getting dealt the finishing blow from this quake," said Koetsu Aizawa, economics professor at Saitama University, north of Tokyo.

Among the hardest hit on the stock exchange, shares of The Tokyo Electric Power Co. plunged more than 23 percent as it faced power shortages and a second hydrogen explosion at a nuclear reactor Monday, sending a massive column of smoke into the air and wounding six workers.

Toyota Motor Corp., the world's biggest automaker, tumbled 7.9 percent after saying it would suspend manufacturing at its domestic plants through Wednesday — a production loss of 40,000 cars. Other manufacturers forced to halt production, such as Sony Corp. and Honda Motor Co., also slumped.

The four most severely affected prefectures (states) in the northeast — Iwate, Miyagi, Fukushima and Ibaraki — account for about 6 percent of Japan's economy.

Power supply has failed in the worst affected areas and power rationing may be imposed in other regions. Ports are closed, steel plants have stopped producing, and several major oil refineries have shut down. Getting manufacturing up and working again may be a bigger challenge than in the catastrophic 1995 Kobe earthquake because a larger area is affected.

In the northeastern city of Sendai, the railway station stood deserted. State television footage showed ceilings and walkways collapsed onto the platforms, walls warped and leaning onto the tracks. There was no indication when the station and lines running through could be repaired and operating again.

The northeast is also a major center for car production, with a myriad of parts suppliers and a network of roads and ports for efficient shipments.

"There is no way to get our products out, even if we make them, with the roads and distribution system damaged," said Honda Motor Co. spokeswoman Natsuno Asanuma.

The aftermath is being felt nationwide.

Four nuclear plants were damaged in the temblors, causing widespread power shortages. Trains in Tokyo, the nation's capital, usually run like clockwork. But are running on a reduced schedule or stopped entirely, preventing millions of commuters from reaching workplaces.

Billions of dollars are expected to be needed to rebuild homes, roads and other infrastructure requiring public spending that will benefit construction companies but add to the national debt.

The economy will eventually get a boost from reconstruction but "this does not mean that Japan is better off," said Julian Jessop, chief international economist at Capital Economics in London. It's a quirk of accounting that destruction of assets is not counted as a reduction in the economy but replacement of those assets boosts economic activity, he said.

Credit Suisse's Shirakawa said in a report the direct economic losses such as property destruction could total 6 trillion yen ($73 billion) to 7 trillion yen. Indirect losses such as lost production will probably be higher.

Other estimates are more pessimistic.

"At the end of the day, this will probably cost a few hundred billion dollars," said Song Seng Wun, economist with CIMB-GK Research in Singapore. "It's going to be a big strain on public finances."

But amid the gloom, Aizawa, the economics professor, says there's reason to be optimistic.

A giant disaster can get Japan to pull together and even provide opportunities for construction and jobs as the recovery gets under way, he said.

"There can be a blessing even in misfortune," he said. "Recovery is about regaining a livelihood for people. No one is going to blame Japan or lower its debt ratings for working on a recovery. This is about lives."


Another bit of background...that we should all be paying attention to!  And where is the dollar going, anyway?



"BRICS" to talk economic coordination, not yuan: China
YAHOO
By Ben Blanchard
2 April 2011

BEIJING (Reuters) – Leaders from five of the world's top emerging economies will discuss a coordinated stance on economic issues such as commodity price fluctuations, but the yuan's exchange rate is off the agenda, a senior Chinese diplomat said on Saturday.

The mid-April "BRICS" summit will gather leaders from China, Russia, India, Brazil and South Africa in the southern Chinese beach resort of Sanya.

The summit is unlikely to achieve much concrete, though it will give the world's big rising economies a venue to coordinate views on global financial reforms, commodity prices and other shared concerns.

"The BRICS countries have similar concerns or stances on important questions like the global economy, international finance and development," Assistant Chinese Foreign Minister Wu Hailong told a news conference.

"We hope all sides can strengthen coordination and mutual cooperation on reform of the international currency system, commodity price fluctuations, climate change and sustainable development," he added.

China hoped the summit would in particular be able to coalesce views on commodity price fluctuations ahead of the G20 summit in Cannes, France, later this year, Wu said.

"This is a topic at the G20 summit in Cannes and ... the leaders of the five countries will exchange views on this," he added. "We hope that the five countries' leaders can have a joint stance on this issue and reach a broad consensus."

But Wu said the Chinese currency's exchange rate would not be talked about at the Sanya summit. Some countries say China keeps the yuan artificially undervalued to help boost Chinese exports.

"The renminbi's exchange rate is not on the agenda for discussion," he said, repeating China's standard line that its currency was not the cause of global imbalances.

China's hard work at perfecting the yuan's exchange rate mechanism was "clear for all to see," he added. Renmibi is the yuan's formal name.

Brazilian government officials have said they want to discuss the issue of the yuan, whose cheap value they say has helped fuel a flood of Chinese imports and deteriorated Brazil's trade balance.

The BRICS group has emerged as a loose united front to press the rich Western economies, especially the United States, which has traditionally dominated global diplomacy.

Yet there are many disparities among the BRICS member countries, and the past two summits of the evolving group have not achieved much. This time, too, strains over China's currency policies and trade surpluses could make real agreement even harder to reach.

The leaders may also discuss Libya and the broader situation in the Middle East.

"It would be natural if the leaders discussed this issue, but at the moment we have not heard that any country has said they wish to make a dedicated statement on it," Wu said.

China, with Russia, India, Brazil and other developing countries have condemned the U.S.-led air strikes on Libyan forces. South Africa, on the other hand, voted in favor of the United Nations Security Council resolution authorizing the air strikes.


Crisis over or just beginning?

The "exorbitant privilege" of the US
I-BBC
Stephanie Flanders | 11:27 UK time, Thursday, 27 January 2011

Davos: What's going to happen first - sensible US fiscal policy, or a global revolt against the dollar? In all my discussions about the global economy so far here in Davos, that's the question we keep coming back to.

In my earlier post I spoke about the "new economic reality". The first thing you notice about this new landscape is that the successful developing countries are doing much better than the old, developed ones. The second thing you notice is the extraordinary fiscal position of the US.

America's exceptional approach to the public finances comes out starkly in today's new budget forecasts from the Congressional Budget Office. These show the federal deficit rising to nearly $1.5 trillion in 2011, the highest on record. At 9.8% of GDP, it will be only very slightly higher than it was in the depths of the financial crisis, in 2009.

In every other major advanced economy, public borrowing is going to fall in 2011. America is the only country in which both the headline deficit and the structural deficit are going up.

That increase is entirely due to the package of tax cuts agreed last month. There is a coherent case for fiscal stimulus in the US in 2011. But, as the IMF commented on Monday, when it comes to stimulating the economy, the tax cut deal agreed with Congress does not provide much bang for the buck. And it involved a lot of bucks. The CBO says the package will add $858bn to federal borrowing over time.

In theory, US politicians are committed to getting the deficit under control. But as I noted the other day, they have a funny way of showing it. In his State of the Union address this week, President Obama repeated his commitment to eliminating the deficit, outside interest payments. But the concrete spending cuts he suggested to help reach that target will reduce borrowing by a measly $40bn a year.

No-one here at Davos was expecting to hear anything very different - from the President or Congress. The rule is that America gets a free pass to run larger deficits, for longer, than anybody else. Who knows, with the likes of China growing so fast, Asian and other emerging market demand for treasury bonds might even grow faster than Washington's ability to print them.

But you have to wonder - and everyone I speak to in Davos is wondering - how long America's "exorbitant privilege" is going to last.

The only other country to have had this status - and lost it - is the UK. It took several decades, and two punishingly expensive wars, for the world to tire of holding sterling. But when they did, it changed British economic policy making forever. Indeed, we are still seeing the consequences today. Rightly or wrongly, the British government believes it cannot risk borrowing a lot more from international markets. The Americans know they have a lot more leeway.

They will have it for some time yet. But the lesson of sterling's rise and fall is that if you run current account deficits long enough, and depreciate your currency far enough, the world will eventually stop giving you the benefit of the doubt. The biggest difference between Britain in 1945 and America now is that back then, there was a ready replacement for sterling, in the form of the dollar.

The renmimbi can't replace the dollar any time soon - neither China's government nor its financial system are ready for what that would entail. Heaven knows, the euro is in no fit state to replace it either.

But looking at the way the global economy is shifting in China's favour, many I've spoken to here think the emergence of the renmimbi as a serious alternative to the greenback is only matter of time. If the past few years are any guide, this supposedly long-term change might well happen faster than we think.

To return to where I began - the question is whether the US can stop borrowing dollars before the world stops wanting to buy them.
Davos consensus: we're out of the woods, but...
YAHOO
By DAN PERRY, Associated Press
26 January 2011

DAVOS, Switzerland – It has been the question of the day at every high-powered international gathering for two years: Are we out of the woods? The answer at this year's World Economic Forum appears to be an optimistic "Yes, but..."

The world may have stepped back from the particular brink of 2008, but it faces huge risks ranging from spiraling food and commodity prices to the danger of trade and currency wars, against a background of growing inequalities that threaten stability.

So at the start of the annual conference at Davos on Wednesday, celebrity economist Nouriel Roubini raised a glass that was half-full — or was it half empty? — and declared it a metaphor for the global economy.

Judging by the opening panel that Roubini shared with an international array of business leaders and economic thinkers, it is also a world that is struggling to come to terms with the historic transfer of wealth and influence away from the long-dominant West: Will countries collaborate? Can it work to everyone's benefit or will living standards in the developed world collapse? Will the world run out of resources? The panel struggled with these themes.

"There is a global economic recovery," said Roubini, who gained renown for predicting the crisis of 2008 and a few months ago was still warning against the possibility of a "double dip recession." He noted that "balance sheets are strong, confidence is rising," credit spreads have fallen and liquidity — the availability of credit — has increased.

But he warned that in the U.S. and Europe, growth remained low and unemployment high, and the U.S. faced a continued real estate crisis and inspired little faith in its ability to tackle its deficit and debt. In Europe, markets have forced an austerity that endangers growth. And in an allusion to China, Roubini said there was "not enough exchange rate adjustment" and warned this could lead to "currency wars and eventually trade wars and protectionism."

Advertising magnate Martin Sorrell said he was "surprised, very surprised" by how well business did in 2010, admitting he would not have predicted that the revenues of his firm — global communications empire WPP — would return to pre-crisis levels by the second quarter of last year.

But he warned that corporations were so spooked by the crisis, and perhaps also by the current risks, that "there is an unwillingness in the West to invest in capacity and in increasing fixed costs" — such as new employees. So even though revenues in many cases are back to where they were, people have not been rehired — which explains unemployment but also the high profit margins that are buoying stock prices and balance sheets.

One bright spot for the businessmen: whereas James Turley, chairman and CEO of Ernst & Young, said business felt "demonized over the last couple of years," he said he was now identifying a change of tone from Washington that he attributed to a realization that "business needs to succeed in order for them to create jobs for people."

But the panelists all agreed that the global recovery was uneven: tepid in Western Europe, slow in the U.S. and fast in many of the emerging economies.

Reflecting the global transition, panelists noted that the transfer of wealth was not just from west to east — but also to the south, with impressive gains in Latin America and Africa. Expanding on the previous shorthand acronym "BRIC" — how Goldman Sachs described the emerging global relevance of Brazil, Russia, India and China — the catch-phrase on Wednesday seemed to be the "Next 11" — a clutch of other emerging nations ranging from Indonesia to Vietnam.

It is in these emerging economies that one sees most of the interesting initial public offerings on stock markets, Turley said. And he noted that trade between emerging markets themselves — bypassing once-dominant trading partners in the West — was increasingly common.

But the recovery is fueling demand that is causing fast gains in commodity prices — oil and metals, for example — and runaway food prices that are blamed for increasing social instability in some places and account in part for the recent revolution in Tunisia. For many countries, panelists noted, this raises the question is whether to raise interest rates to dampen consumption and bring down prices: that also drives up the currency — suppressing exports — and it can harm growth.

Turley also noted that the world would soon face great demographic imbalances, creating some unexpected alliances: In 2020, he said, the average age in the U.S. and China will be 37-38; in Western Europe and Japan it will be 47-48; and in India and the Middle East it will be 27-28. "This will cause enormous impact and an array of policy issues," he said.

The panel identified inequality — in both developed and emerging economies — as a major problem that could feed social unrest, creating uncertainties that might stifle the recovery.

Sorrell noted that wealthy people are more likely to invest their spare cash in financial assets "that causes asset bubbles" whereas when the wealth is more evenly spread the chances of growth-stimulating — and therefore wealth-spreading — consumption increases. "You attack it with increasing marginal income rates" which is rarely a popular policy, Sorrell said.

Azim Premji, chairman of Wipro, a global information technology firm, said inequalities were increasingly visible in his country of India and elsewhere in the developing world, where rapid advances were not spread equally.

Zhu Min, a former deputy governor of the People's Bank of China, said the billions of people in the developing world wanted to have the same things the developed world has: "An American life, a big car, pension... But it won't work because we don't have the resources."

Would these aspiring billions really agree to make do with less?  In a way, but not exactly, Zhu Min told The Associated Press: "We don't want to adopt the Western model. It won't work. It will be necessary to come up with a new model."

15 Nobel Laureates Ask G20 to Raise Liu Case
NYTIMES
By REUTERS
October 25, 2010
Filed at 11:11 a.m. ET

WASHINGTON (Reuters) - Fifteen Nobel Peace Prize laureates urged the G20 to ask China to free imprisoned rights activist Liu Xiaobo, whose receipt of the peace prize this month infuriated Beijing.

"The Chinese government's release of Dr. Liu would be an extraordinary recognition of the remarkable transformation China has undergone in recent decades," the group said in a letter which was made public on Monday by Freedom Now, a U.S.-based non-profit organization that works to free prisoners of conscience.

The letter, signed by Nobel laureates including South African Archbishop emeritus Desmond Tutu, former U.S. President Jimmy Carter and the Dalai Lama, also asked the Group of 20 rich and developing nations to urge China to free Liu's wife Liu Xia from what it called de facto house arrest.

Liu, who is serving an 11-year prison term on subversion charges, was awarded the Nobel peace prize earlier this month. Beijing says Liu is a criminal and that giving him the prize was an "obscenity".

The letter urged the G20 leaders to press Chinese President Hu Jintao about Liu's case at a G20 summit in Seoul on November 10-11.

"The summit provides time and opportunity to address Dr. Liu's imprisonment. We strongly urge you to impress upon Chinese President Hu Jintao that the release of Dr. Liu would not only be welcome, but is necessary," the letter said.

The 15 signatories of the letter also include Czech politician and former dissident Vaclav Havel, Iranian human rights lawyer Shirin Ebadi and former South African President F.W. de Klerk.

Not on the list were several notable prize winners including South Africa's Nelson Mandela, who has largely retired from public life, and U.S. President Barack Obama, who earlier this month issued his own statement asking China to release Liu.

(Reporting by Andrew Quinn; editing by Mohammad Zargham)



Off the coast of Marseille;  the fuel depot map of France (l).  Political speech in the land of the guillotine (c);  Opposition Socialists (r) having doubts?

France's parliament approves pension reform
YAHOO
27 October 2010

PARIS – France's parliament has given final approval to a bill to raise the retirement age from 60 to 62, a reform that has sparked weeks of strikes and street protests.

The National Assembly approved the final text of the bill in a 336-233 vote Wednesday, marking its final hurdle in parliament. Conservative President Nicolas Sarkozy is not expected to sign it for several weeks.

The vote comes as two straight weeks of pension strikes are losing momentum. Still, unions hope to revive the movement Thursday with nationwide street demonstrations and strikes expected to cause new hassles for air travelers.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

France's parliament is expected to grant final approval Wednesday to a bill raising the retirement age to 62, a reform that has infuriated the country's powerful unions and touched off weeks of protests and strikes.

The vote in the National Assembly comes as protests over President Nicolas Sarkozy's pension reforms are losing momentum. Unions are hoping to revive the movement with nationwide strikes and demonstrations Thursday.

Although some striking refinery workers have gone back to work, French drivers are still facing substantial fuel shortages: As of Tuesday evening, about one gas station in five was still closed down, with the worst problems around Paris and in western France.

Striking dock workers have exacerbated the fuel shortages. Oil tankers are lined up in the Mediterranean as far as the eye can see off the port of Marseille, waiting to unload, and the northern port of Le Havre faces a similar situation.

Unions see retirement at 60 as a cornerstone of France's generous social benefit system, but the conservative government says the entire pension system is in jeopardy without the reform because French people are living longer.

Millions have marched against the plan, and strikes and protests have caused travel chaos, school closures and fuel shortages for weeks.

After Wednesday's vote, the reform then will face challenges by the opposition Socialists before the country's Constitutional Council. Sarkozy is not expected to sign it until mid-November at the earliest.
French Police Break Refinery Blockade
NYTIMES
By STEVEN ERLANGER and ALAN COWELL
October 22, 2010

PARIS —Security forces scuffled with strikers on Friday morning to break a blockade of a major refinery near Paris and the government moved to accelerate a Senate vote on pension reforms that have sparked weeks of strikes and demonstrations.

The Grandpuits refinery was one of 12 where strikers had halted operations since early last week, leaving drivers short of gasoline. Refineries, fuel depots and ports have been blocked and intermittent clashes have broken out between demonstrators and the police. In Lyon, an epicenter of violent protest, riot police stood by on Friday in case of further disturbances, witnesses said.

“What happened today is totally unacceptable,” Charles Foulard, a labor union official, told reporters at the Grandpuits refinery about 35 miles east of Paris. Labor unions said three strikers had been slightly injured as the police moved in. The police operation was designed to secure access to fuel stocks to ease critical shortages, the authorities said.

About a fifth of the 13,000 French service stations are still out of fuel, down from 40 percent affected earlier this week, Environment Minister Jean-Louis Borloo said on Friday.

After a meeting later with oil industry executives, Prime Minister François Fillon said that shortages would probably continue for several days.

With a national school vacation beginning Friday afternoon, the national railroad authority said it was restoring high speed services that had been cut by half earlier in the week.

The police action at the Grandpuits refinery, which supplies much of the Paris area, followed moves late Thursday by President Nicolas Sarkozy to employ an article in the Constitution that will allow the government to prevent individual votes on the remaining 230 or so amendments to the pension reform bill.

There have been about 1,000 amendments, most of them an effort by the Socialists and other opposition parties to slow down the passage of the bill while the strikes continue. Under the streamlined procedure, an early vote on the bill could come on Friday and final approval is expected by the middle of next week.

The bill calls for gradual increases in the age for a minimum pension to 62 from 60 and for a full pension to 67 from 65. It provides some exceptions for workers in dangerous occupations, for those who began work at an early age and for mothers who take breaks to raise their children.

The rule will force the Senate to cast a single vote on the bill in a text drafted by the government, accepting only the amendments the government chooses. Debate can continue on the remaining amendments, but senators will not be able to vote on each one.

The unions also called for new days of national protest next Thursday and on Nov. 6.

The Socialists’ leader, Martine Aubry, criticized the government’s move in Parliament as an abuse of power imposing “an unjust reform” without sufficient debate by elected representatives.

“With Mr. Sarkozy, it’s the permanent ‘coup de force,’ “ she said, echoing an anti-De Gaulle pamphlet in 1964 by François Mitterrand called “Le coup d’état permanent.”

But Labor Minister Éric Woerth said that with the debate in its third week, “It’s time for the Senate to act.” Asked about Ms. Aubry’s charge, he said: “You say it’s a coup de force,” but added: “It’s only the application of the Constitution.”

Earlier on Thursday, Mr. Sarkozy warned that “troublemakers” using violence in the protests against his proposed pension changes would be pursued and punished “with no weakness” on the part of the authorities. He spoke at a meeting with rural officials southwest of Paris as a 10th straight day of strikes at refineries and blockades of fuel depots and ports left motorists struggling to find fuel.

Referring to several days of clashes between the police and protesters in Lyon, which continued on Thursday, Mr. Sarkozy said the “troublemakers will not have the last word in a democracy, a republic.”

“It is not acceptable,” he said. “They will be stopped, tracked down and punished, in Lyon and anywhere else, with no weakness. Because in our democracy, there are many ways to express yourself. But violence is the most cowardly, the most gratuitous, and that is not acceptable.”

Mr. Sarkozy has tried to switch the topic from pensions to law and order. But he is also counting on a coming school vacation week to take some of the steam out of the protests, which have been joined by thousands of high school students.
French President Orders Lifting of Fuel Depot Blockade
NYTIMES
By STEVEN ERLANGER and ALAN COWELL
October 20, 2010

PARIS — Trying to reassert authority over the widespread protests against his plans to reform the pension system, President Nicolas Sarkozy said on Wednesday that he had ordered the authorities to break up blockades of fuel depots that have left a third of the country’s gas stations dry .

In a statement, he also insisted that weeks of strikes and demonstrations would not deter him from pursuing “to its term” his plan to raise the minimum retirement age from 60 to 62.

Mr. Sarkozy’s comments hardened the government’s resolve not to be forced into abandoning its reform of the indebted pension system despite the continuing job actions..

As fewer French turned out for public demonstrations on Tuesday, the sixth day of nationwide protests, pressure on the government increased because of bottlenecks created by striking workers at key energy chokepoints. The final parliamentary vote on the plan may not come until early next week.

For Mr. Sarkozy, already with low favorability ratings in the opinion polls, the pension reform has become a key test of his presidency. If he gives way, his credibility will be gone and it will be extremely difficult for him to carry out the government budget cuts he has promised in the next two years to bring France’s large deficit under tighter control, to try to ensure that France keeps its AAA ratings in the markets.

All over the euro zone, governments trying to cut spending and borrowing, bringing a new austerity to a comfortable European way of life, are suffering in the polls. Mr. Sarkozy and his government are no different, but his problems are magnified by a generalized anxiety about France’s generous retirement system. His effort to raise the minimum age for a partial pension from 60 to 62 and for a full pension from 65 to 67 is a visible and symbolic example of a loss of a highly prized social gain achieved under the opposition Socialists.

But Mr. Sarkozy argues that with demographic changes, France can no longer afford the social model of the past. Even the current pension reform will only take France through 2018 before the system falls again into deficit. Interior Minister Brice Hortefeux said that three depots in western France had been forced open overnight “without incident.” At one depot, though, protesters regrouped and closed access roads to it, news reports said. Mr. Hortefeux has also threatened to send in paramilitary police to stop rioters who torched cars, trashed stores and injured police and others on the fringes of nationwide protests.

Later, on Wednesday, as Mr. Sarkozy spoke, protests broke out anew with demonstrators blocking road tunnels in Marseille and airports in Toulouse and Clermont-Ferrand.

In his statement on Wednesday, Mr. Sarkozy said: “For millions of our co-citizens, transport represents a vital question. It is a matter of a fundamental freedom. In these last few days, many French people have seen their daily lives disturbed by the issue of supplies to some service stations.”

“I gave instructions yesterday that all fuel depots should be reopened in order to reestablish a normal situation as soon as possible.”

With refinery workers on strike and depots blockaded, the fuel crisis has become one of the most pressing aspects of the broader protest, which increasingly, has drawn in young people alongside labor union representatives.

New agencies reported that rioting youths wearing hoods and scarves on their faces were darting through the streets of Nanterre, a Paris suburb, on Wednesday near a high school that has seen clashes in recent days. Riot police are deployed around the area, still littered with broken glass and burned tires from past clashes.

Some of the early protests on Wednesday seemed to focus on southern France, with activists attempting to blockade a strategic fuel depot supplying military and civilian airports in Nice, Marseille and Lyon. In Lyon itself, where protesters fought with police and looted stores, hooded youths again set fire to cars on Wednesday, news reports said.. Mr. Hortefeux said on Wednesday that over the past week, “1,423 troublemakers” had been detained at demonstrations by high school students.

In Marseille — a hotbed of protest — strikers used trucks to block tunnels in the early hours of the morning, French news reports said, and closed down bus and tram services. In Paris, transit officials said the subway would operate normally but other commuter services would be cut by as much as one half. High-speed trains would run at two thirds of normal schedules, the national railroad authority said. Protesters threatened to block access roads to main Roissy-Charles de Gaulle airport, while several flights were canceled at Orly, the capital’s second major airport.

While some French officials argued that fewer protesters had turned out on Tuesday, the sixth day of national strikes and demonstrations, the damage to the economy is only beginning to be tallied, and there appears to be enough political fallout to potentially cost all the players.

Every day this week, including Wednesday, some truckers staged “escargot,” or snail protests, driving in teams very slowly on the highways; others blocked fuel depots or vowed to stop distributing cash to A.T.M.’s.

“But at the same time, the movement is radicalizing,” he said, after reports of masked youths clashing with the police, throwing bottles and setting scattered fires in French cities.

Jérôme Sainte-Marie, head of political research for the French polling institute C.S.A., said, “We are in a situation where government and the unions are losing control, and if something serious happens, it will both weaken the unions and be a catastrophe for the government.”

Even the Socialists are worried, he said, “because they could be largely discredited if there are excesses” and violence.

Mr. Sarkozy’s major mistake, Mr. Sainte-Marie said, was to accelerate the pension reform when it appeared that the French had accepted his demographic arguments last spring, and then to cut off serious discussion with the unions and the opposition. “Social dialogue was interrupted,” he said, and the uncertainty is made worse by an expected cabinet reshuffle, because ministers taking responsibility for handling the crisis may soon lose their jobs.

A large number of students have joined the protests as a kind of generational rite of passage, he said. “Young people have built a general abhorrence at all levels toward Sarkozy,” he noted, “but there is also the idea in France that you must participate at least once in your life in a social movement.”

But they also harbor some of the deepest fears of unemployment, which will only be worsened when older workers delay retirement.

The Interior Ministry said that 1.1 million people demonstrated throughout France on Tuesday, down from 1.23 million on Oct. 12. In Paris, the police said that 67,000 people demonstrated, down from 89,000. The main union, the C.G.T., said that 3.5 million people demonstrated throughout France on both days.
15 October 2010 Last updated at 14:54 ET I-BBC
Fuel supply to Paris airports cut amid pension strikes

The fuel pipeline to Paris's main airports has been shut off amid strikes over government pension reforms.  The company that operates the pipeline told French media that the capital's main airport, Charles de Gaulle, could run out of fuel as early as next week.  There are fears of fuel shortages as all of France's 12 oil refineries have been hit by strikes, and many oil depots remain blockaded.

Unions are opposed to government plans to raise the retirement age.  Trapil, the firm that operates the pipeline to Paris's airports, said supplies had been cut off on Friday.  A company spokesman told AFP news agency: "Orly airport has stocks for 17 days, and Roissy [Charles de Gaulle] for at least the weekend."

The pipeline is supplied by the Total refinery at Grandpuits, in Seine-et-Marne, which is in the process of stopping production because of the strikes.  A spokesman for Aeroports de Paris, the authority that operates both airports, told Reuters news agency it was "not at all worried about stocks" - but did not say how long these would last.

Panic buying

In recent days government officials have tried to play down fears of petrol shortages, insisting that France has enough to see out the industrial action.  However, panic buying has broken out in some areas, putting supplies under greater strain.

Fuel distributors said several hundred filling stations had to close because supplies had run out.  Earlier on Friday, riot police reopened oil depots that had been blockaded in Fos-sur-Mer in the south, Cournon in central France, and Lespinasse and Bassens in the south-west, AFP reports.  But strikers threw up fresh pickets in at least five fuel depots - at Caen and Ouistreham in the north, Le Mans and Vern-sur-Seiche in the north-west, and La Rochelle on the Atlantic coast.

On Thursday, France's petrol distributors urged the government to release emergency fuel stocks, warning that only 10 days' fuel was left.  Demand at petrol pumps has surged by 50% in the past two days.

In the port of Marseille, more than 70 ships carrying crude for refining are stranded as dockers continue their rolling strike.  The protests erupted after centre-right President Nicolas Sarkozy announced plans to raise the minimum retirement age from 60 to 62, and from 65 to 67 for a full state pension.  More than a million people took to the streets in the latest national protest on Tuesday.  France's main unions have since stepped up their action, calling for the fifth in a series of strikes and street protests on 19 October.

"This movement is deeply anchored in the country," CGT union leader Bernard Thibault told LCI television.

"The government is betting on this movement deteriorating, even breaking down. I think we have the means to disappoint them."

France's main lorry drivers' union, CFDT, has called on its members to join Tuesday's strike.  The BBC's Christian Fraser in Paris says another concern for the government will be the growing involvement of the student lobby.  Students, who joined Tuesday's demonstrations in large numbers, held further protests on Friday.  Riot police used tear gas and made 16 arrests as they fought running battles with secondary school students in the central city of Lyon.

More than 300 secondary schools across France - about one in 15 - remain affected by strikes and blockades.

13 September 2010 Last updated at 19:01 ET
French in front line fight to keep pension rights
By Christian Fraser BBC News, Paris

The French have never shied from the barricades in defence of workers rights.

And according to the French unions around 2.5 million people came onto the streets last week, in protest at government plans to increase the minimum retirement age, from 60 to 62.  It is the cornerstone of the government's pension reforms, change that Jean-Francois Cope, President of the ruling UMP party in the Assembly, believes is unavoidable.

"Progressively we are going to change the debate," he said. "We are now talking about 'labour for seniors'.

"If you postpone the minimum retirement age, the dialogue between employer and employee must change. From now on the employer talking to a 50-year-old employee will not be discussing retirement, instead he will talking about the next step in the 50 year old's professional career. "

Before these reforms, approved by the National Assembly on Friday a French worker could retire and receive full pension from the age of 60, as long as he or she had worked 40 years.  It is known as a repartition system.  Broadly speaking the government distributes to the retired, the money collected each year from those in work.

But a system like that is highly susceptible to unemployment and to changing demographics.  And to students like Emilien, about to enter the workplace, the reforms are hugely unsettling.

"I am worried. My generation will work far longer than those retiring today," he says. "I might not even get a job until I am 27. I will probably have to work 10 years longer than my parents. And who can guarantee there will be a pension at the end of it."

Almost inevitable

Generally speaking though, public opinion has moved in favour of the changes; they might not like them, but the French recognise they are almost inevitable.  The unions know they are unlikely to build enough support to force the President to back down. But they have won enough concession to save face and Thierry Dedieu of the CFDT union believes they have forced a debate on the kind of working life people want.

"Can we continue to extend indefinitely the length of the working life?" he asks. "We don't talk about the model of society we want, what is reasonable, what is sustainable."

M Dedieu continues: "Is it acceptable that some will contribute to the system for 45 years while others will have contributed only 35 or 40 years? People see the unfairness in the system. We know there is need for reform. But we think this is a debate for a presidential election. It can't be something we debate in the space of three months."

At least the unions have forced debate on 700 amendments. And concessions have already been made to those in difficult and strenuous jobs.  Jean-Francois Cope does not deny a debate is needed. "But it should also encompass," he says, "a debate on productivity and, ultimately, the level of contributions people are happy to make. "

State dependency

Which brings us back to the way retirement is funded. In this country there is no tradition of privately funded pensions. The people have always depended on the state. "There is a contract of trust, which the government is expected to uphold," says French Economist Xavier Timbeau.

"There has always been more trust in the state than in financial markets, and that is even more the case after the recent crisis. To Frenchmen the state is supposed to be the fair distributor of wealth. When they tamper with that, people get upset, which perhaps explains the scale of the recent demonstrations."

No doubt there is a sneaking admiration in the rest of Europe for the way in which the French have so far defended their quality of life. But change is coming.  Mr Cope says the retirement age may need to rise to 63 by 2018. The socialists are pledging to return it to 60 if elected in 2012.  It is a debate that could well define the next Presidential campaign. It is one that will certainly define in what kind of world the French want to live and work.


Special report: Globally, the flash crash is no flash in the pan
YAHOO
By Jonathan Spicer
Fri Oct 15, 7:17 am ET

PARIS (Reuters) – The 20-minute "flash crash" will reverberate for quite some time to come.  For years, America's stock markets were the envy of the world, the model for modern trading -- fast, stable, efficient and for the most part transparent.  But after the Dow Jones industrial average (.DJI) plunged nearly 700 points on May 6 before sharply rebounding, that perception changed, possibly for good.

"On May 6, I recall this beautiful flash crash that was experienced by many of you," French Finance Minister Christine Lagarde sardonically told those gathered at a World Federation of Exchanges conference in Paris this week. "Well, we certainly don't want that to happen, and neither do we want somebody to press the wrong key and as a result encourage a nice algorithm to precipitate it."

The close examination of market structure in the wake of that stomach-churning freefall surprised even the most grizzled investors. They learned that a lone trader using computerized trading codes can submit tens of thousands of orders in a single second. As a result, many of the technological advances that are the hallmarks of modern stock markets are now viewed with at least a little suspicion.

"In the last 20 years came computers, electronic exchanges, dark pools, flash orders, multiple exchanges, alternative trading venues, sponsored access, OTC derivatives, high-frequency traders, MiFID in Europe, NMS in the U.S.," Thomas Peterffy, founder of Interactive Brokers Group (IBKR.O) and a revered trading industry veteran, told the conference.

"And what we've got today is a complete mess."

The flash crash has altered the heated debate over how to reconstruct the European Union's interconnected marketplace. And in Asia and Latin America, the aftermath is threatening to hamstring needed upgrades to trading systems, several industry executives and regulators told Reuters.  In a nutshell, the crash put the world's most sophisticated trading firms, hedge funds and brokers on the defensive, and it strengthened the hands of some traditional investors and even politicians who had agitated for better safeguards in the complicated marketplace.

The fallout has just begun.  Regulators, playing a bigger role, will at the very least shine a brighter spotlight on today's high-speed marketplace. At the most, they could try to put the brakes on trading advances that are now commonplace.

DENTED CONFIDENCE

The Dow was down 1,000 points when it touched bottom on May 6. Based on the Wilshire 5000 total market index (.W5000), the broadest measure of U.S. equities, that represented a brief paper loss of about $1 trillion from the day's open.  The incident muzzled exchange operators who previously rarely missed an opportunity to remind the world that public markets were relatively unscathed as the 2007-2009 financial crisis unfolded in private over-the-counter markets.

"I think we were sort of feeling very confident about that, and the flash crash has to some extent dented that confidence," Jane Diplock, executive committee chairman at the International Organization of Securities Commissions (IOSCO), said in an interview. "While the flash crash, fortunately, did not bring about systemic collapse, what it did was it showed us how important it is to understand what's happening in markets."

Earlier this month, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission issued a report that said a single, computer-executed sale worth $4.1 billion by a money manager helped trigger the flash crash.  The 104-page report concluded that the liquidity crisis that day was exacerbated by high-frequency traders quickly offsetting their positions between futures and stocks, and by the overall crush of sell-at-any-price orders.

Exchanges globally have seized on the role that "market fragmentation" played in dispersing and sapping that liquidity -- that is, the availability of bids and offers. Stocks trade on 50 some venues in the United States, where the market is more fragmented than in Europe.

"There is a balance between market integrity and complexity, and the U.S. market, lately, seems very complex to us," Rainer Riess, managing director of Deutsche Boerse's (DB1Gn.DE) cash equities section, said in an interview.

At the Paris conference, exchange executives repeatedly urged a crackdown on the alternative trading venues that have proliferated, driving down trading fees and eroding their market share over the last decade.

"This incident on May 6 is a symptom of market fragmentation and a call to better coordinate," said Dominique Cerutti, deputy CEO of NYSE Euronext (NYX.N). "It's a real life, sad example that bad things can happen if you don't take care."

The SEC opened the door to alternative trading venues in 1999, and made them an integral part of the national order routing system with so-called Regulation NMS in 2005 -- two big decisions to spur competition that shaped today's marketplace. The EU took similar steps with its 2007 markets in financial instruments directive, or MiFID, while these low-cost high-tech venues have also cropped up in Canada, Japan and elsewhere.

The European Commission's sweeping review of MiFID, which began before the U.S. crash, has zeroed in on "transparency" in markets.  It could as early as this year propose tighter rules for both the alternative venues that publicly display prices, and for the so-called dark pools that keep prices anonymous -- venues that are typically owned by the world's biggest banks including Credit Suisse Group AG (CSGN.VX) and JPMorgan Chase & Co (JPM.N).

BATTLE LINES

Whatever the flash crash's ultimate impact, it has the potential to revamp the way tens of trillions of dollars circulate through the world's stock markets. It could also spell significant changes to the business models of banks, brokers, exchanges, funds, and the increasingly dominant proprietary trading firms that all interact daily.  The biggest battles in coming years will likely center on so-called high-frequency trading, or HFT, in which firms use computer codes called algorithms to submit rapid-fire bids and offers, making short-term markets and earning tiny profits on price imbalances.

Having effectively replaced the trading floor specialists of years past -- and often based in offices nowhere near Wall Street or the City of London -- these operations remained quite profitable through the volatile market drop two years ago this month. HFT is now involved in an estimated 60 percent of U.S. stock trading, and 40 percent of that in Europe.  The battle lines are now being drawn.  In a July draft report, British EU lawmaker Kay Swinburne called for a full examination of HFT's costs and benefits, as well as "stress tests" to determine how exchanges would handle a European version of the flash crash. Top European Commission member Michel Barnier went a step further on Tuesday, declaring that HFT needs new governing rules given the inherent risks it poses.

"I think a number of us are coming to the view that this high-frequency trading has negative social value, and that it's not information discovery," Nobel Prize winning economist Joseph Stiglitz, a member of the joint CFTC-SEC advisory panel studying the flash crash's implications, said on September 30.

"They're playing games. They're trying to extract information from informed traders, people who are doing the research," Stiglitz added at a reception hosted by Thomson Reuters in New York.

SEC Chairman Mary Schapiro has said HFT strategies need a closer examination, and the agency is considering saddling such traders with market-making obligations and privileges so that they provide liquidity when it is most needed. Such a move would put U.S. markets at sharp odds with Europe, which has done away with market makers.  All this tough talk has spooked high-frequency traders and the exchanges that rely on their liquidity and volumes. They note that HFT was not blamed outright in the SEC-CFTC flash crash report, and argue that its short-term strategies have made trading cheaper and easier for all investors.

Richard Balarkas, CEO of Instinet Europe, the Nomura Holdings Inc-owned (8604.T) agency brokerage and alternative venue operator, said winding back the clock is a mistake.

"I don't think investors on the whole want to go back to a market where they all pay a tax, usually in the form of a wider spread, to a firm making monopoly profits that will in any case wave a white flag as soon as a stock has a liquidity shock," he said in an interview.

"It's crystal clear why the flash crash happened: a lack of buyers, and unthinking selling. It was pure, simple supply and demand within a regulatory regime that the SEC had created."

AFTERSHOCKS

The soul searching in the United States and Europe has spawned some anxiety elsewhere. Exchanges in Asia and Latin America invested heavily in recent years to install electronic matching engines and order routing systems to attract the very kind of trading now under the microscope.  Executives said that while there are lessons to be learned from the flash crash, there is a danger in overreacting.

"It's unfortunate for places like India, that the confidence among the global regulators was shaken in exchanges in the developed countries," James Shapiro, head of market development at Bombay Stock Exchange (.BO), said on the sidelines of the Paris conference. "India is basically now where it needs more deregulation to some degree. This has introduced an element of caution."

Atsushi Saito, CEO of the Tokyo Stock Exchange (.TOPX), which launched a $140-million super-fast "Arrowhead" stock trading system in January, told the conference: "We are carefully watching the report from the United States on this May 6 event... But we are very uncomfortable about the deionization of high-frequency trading."

When so-called MiFID II takes effect in 2012, it could set the tone for any possible cross-border marketplace in East Asia, where, as in Australia and Brazil, exchanges face the prospect of new competition and a race to ever-faster electronic trading in the near future.  It is here that the most severe aftershocks of the U.S. flash crash could hit, said Joseph Gawronski, president at New York-based institutional broker Rosenblatt Securities.

"Certainly the incumbents don't want to see fragmentation," he said. "But at the same time they do want to see high-frequency trading come to increase their velocity. And that's a very fine line."



IMF says China policy to help yuan revalue
YAHOO
Sat Oct. 2 5:25am

YALTA, Ukraine (Reuters) – Policy moves by the Chinese government to free the yuan from a dollar peg will help the Chinese currency rise, Dominique Strauss-Kahn, the head of the International Monetary Fund, said on Saturday.

"I am confident that the new policy of the Chinese authorities will lead to the revaluation of the yuan," Strauss-Kahn said during a conference in the Black Sea resort town.

Finance Ministers from the Group of Seven major industrialized nations will meet informally on the sidelines of an IMF meeting in Washington on October 8, which will focus on potential currency depreciations by some countries who may seek to increase exports.

China's policy of keeping the yuan artificially weak has drawn criticism that Beijing is maintaining an artificial advantage in international trade at cost of jobs in consumer countries.

Strauss Kahn warned against efforts by other countries to hide their own economic problems behind China's currency policy.

"This kind of policy is in their own interests. The revaluation of the renminbi should not be used (by other governments) as a curtain to hide problems in their own country. It is always easy to have scapegoats"

Geithner to Signal Tougher Stance on China Currency
NYTIMES
By SEWELL CHAN
16 September 2010

WASHINGTON — The Obama administration is moving to take a harder stance on the Chinese government’s trade and currency policies, with anger toward China rising in both political parties ahead of midterm elections.

“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited,” Mr. Geithner plans to say, according to excerpts of his statement released on Wednesday night by the Treasury Department.

The United States brought two cases to the World Trade Organization on Wednesday, accusing China of improperly blocking imports of a specialty steel product and denying credit card companies access to its markets. The move came just hours before House lawmakers demanded action on the currency issue.

The renminbi has risen about 1 percent against the dollar since Beijing promised new exchange rate flexibility in June.

In his testimony, Mr. Geithner is not expected to rule out declaring China a currency manipulator, a finding that could lead to retaliatory trade measures. The administration has so far refused to take such a step, relying instead on persuasion, though with little success.

The currency issue is increasingly likely to be a focus when leaders of the Group of 20 nations meet in November in Seoul, South Korea. A bill with support from 143 House members from both parties would allow the United States to impose tariffs and other penalties on countries that undervalue their currencies.

But many economists believe that China is unlikely to yield to American pressure, and they have called on the Obama administration to do a better job of enlisting support from the European Union and Japan.

The Chinese Foreign Ministry said Thursday that the pressure from the United States would not help resolve the currency issue and could even backfire.

“I would point out that appreciation of the renminbi will not solve the U.S. deficit and unemployment problems,” a Foreign Ministry spokeswoman, Jiang Yu, said at news conference in Beijing.

The office of the United States trade representative, Ron Kirk, said the timing of the new W.T.O. cases was unrelated to the other economic tensions with China.

In one case, the United States accused China of violating world trade rules when it imposed antidumping duties and countervailing duties on grain-oriented, flat-rolled electrical steel, which is used to make transformers and reactors used to generate electricity. The two largest makers of such steel are Allegheny Technologies, based in Pittsburgh, and AK Steel, based in West Chester, Ohio.

China imposed duties as high as 65 percent in April after concluding that the American manufacturers had sold the steel at less than fair value and had received improper subsidies from the United States. The Americans say the charges are false.

In the other case, the trade representative’s office accused China of illegally blocking American electronic payment companies from access to its markets, through its support of a state-financed company, China Union Pay, which has had a monopoly since 2001 over renminbi-denominated debit and credit card payments in China.

Mr. Kirk said his office was “fighting for the American jobs threatened by China’s actions, and insisting on the level playing field promised in our W.T.O. agreements.”

Leaders of the Senate Finance Committee, which oversees trade, applauded the filings. Its chairman, Senator Max Baucus, Democrat of Montana, called them “critical steps forward in our effort to enforce our market access rights in China.” The panel’s senior Republican, Senator Charles E. Grassley of Iowa, said, “It’s about time the administration decided to act.”

Mr. Grassley added: “The administration should go one step further and bring a case against China’s unfair currency manipulation at the W.T.O.”

On Wednesday, the House Ways and Means Committee began two days of hearings on China’s currency, its third set of hearings this year on the topic.

Its chairman, Representative Sander M. Levin, Democrat of Michigan, said “a multilateral approach would be the most likely to yield the broadest results.” Mr. Levin also called Japan’s move to weaken the yen, that country’s first intervention in the currency markets since 2004, “a deeply disturbing development.”

Mr. Levin said that the International Monetary Fund had little power to enforce its rules against currency manipulation, adding that the G-20 should take up the issue. But he warned that “there does not appear to be anything remotely approaching an international agreement to end predatory exchange rate policies.”

Mr. Levin urged the administration to bring a case before the W.T.O. arguing that China’s currency policy amounted to an illegal export subsidy. He said he thought the United States could impose countervailing duties against China without violating its own obligations under world trade rules.

More than 140 House members have signed onto a bill sponsored by Representatives Tim Ryan, Democrat of Ohio, and Tim Murphy, Republican of Pennsylvania, that would compel the administration to impose such duties.

The United States-China Business Council has said it believes such a move would antagonize China without yielding meaningful results, and the senior Republican on the committee, Representative Dave Camp of Michigan, expressed similar skepticism at the hearing.

Manufacturers, labor unions and politicians from the Midwest have been among the most vigorous in calling for sanctions, but there were indications on Wednesday that policy experts were increasingly in favor of tough action.

China permitted the value of the renminbi to rise about 20 to 25 percent against the dollar from 2005 to 2008, before the government reimposed a currency peg to support its export-centered economy after the global financial crisis.

C. Fred Bergsten, director of the Peterson Institute for International Economics, a leading research organization here, told House lawmakers on Wednesday that a similar increase over the next two to three years would create about 500,000 jobs. He said it would reduce China’s current account surplus by $350 billion to $500 billion, and the American current account deficit by $50 billion to $120 billion.

The United States should seek to mobilize the European Union and countries like Brazil, Russia and India to press China to realign the renminbi, and should seek W.T.O. authorization to impose restrictions on Chinese imports if it does not do so, Mr. Bergsten said.

In graphics: Eurozone in crisis
http://news.bbc.co.uk/2/hi/business/10150007.stm

Acropolis stormed as European stocks dive
YAHOO
by John Hadoulis
Tue May 4, 4:38 pm ET

ATHENS (AFP) – Demonstrators stormed the Acropolis in Athens on Tuesday ahead of a general strike against austerity cuts, as the euro plunged and stock markets tumbled on fears that the Greek debt crisis could spread.

About 200 protesters broke into the ancient citadel overlooking the Greek capital, chanting slogans against the cuts that Greece is being forced to adopt in order to receive a giant bailout aimed at averting a default on its debts.

Around a thousand demonstrators also massed in front of parliament bearing banners reading "We will not give a penny for the crisis."

Thousands of workers are to join in a nationwide strike on Wednesday, while the Greek parliament is expected to vote on the deeply unpopular measures on Thursday and European leaders hold a summit to approve the bailout on Friday.

"We have only one aim, to save Greece, and we are not going to budge," Greek Labour Minister Andreas Loverdos said as the protests mounted...

Eager to keep the Greece debt crisis from spreading to other countries, the European Union and International Monetary agreed the rescue package -- an unprecedented bailout for a eurozone member -- on Sunday.
The aid still needs an official go-ahead from EU leaders later this week.  Amid market fears that Spain could be the next to face a fiscal crisis, Spanish Prime Minister Luis Rodriguez Zapatero insisted in Brussels that "any speculation on the eurozone is totally unfounded and irresponsible."

Germany, which will foot the biggest share of the bailout and was highly reluctant to extend taxpayer cash to Greece, warned the Greek government on Tuesday that loans could be halted if it did not adhere to the austerity plan.

Austrian Finance Minister Josef Proell also warned Athens that Europe was losing patience with the demonstrations in Greece, urging the government to make protestors understand that there was no alternative to austerity cuts.

"Regarding the protests in Greece, I, along with the rest of Europe, am near the end of my tether," Proell said, insisting that loans "will be dished out step by step, when (austerity) measures have been carried out."

A look at global economic developments
YAHOO (which has this as a regular feature on its home page - http://dial.sbc.yahoo.com/ - every day)
By The Associated Press The Associated Press Fri Feb 12, 3:17 pm ET

A look at economic developments and activity in major stock markets around the world Friday:

___

FRANKFURT — With Greece overdrawn and no one eager to foot the bill, Europe's messy debt crisis has exposed a fundamental weakness among the 16 countries that share the euro: different and often diametrically opposed approaches to spending don't make for a happy union.

By telling Greece they stand shoulder-to-shoulder as it struggles to rein in a runaway deficit and impose severe austerity measures, but offering little more than moral support, the European Union's biggest hitters — Germany and France — only slowed the market contagion afflicting Greece, and did not cure it.

That may brake momentum for countries like Latvia adopting the beleaguered euro. More broadly, it could force Europe, already in a winter of growing discontent, to reconsider how much of a union it really wishes to be.

European shares ended lower. Britain's FTSE 100 benchmark index fell 0.4 percent, Germany's DAX fell 0.1 percent, France's CAC-40 slid 0.5 percent and Greek and Portuguese stocks also fell.

___

BEIJING — China moved to curtail bank lending Friday for the second time in a month in the latest effort to cool down its supercharged economy.

Chinese leaders worry that a stimulus-driven torrent of lending is fueling a dangerous bubble in stock and real estate prices. They also are concerned that the flood of money surging through the economy is adding to inflation.

Banks were ordered Friday to increase reserves by half a percentage point — to 16.5 percent for large lenders and to 14.5 percent for smaller institutions.

The announcement came after most Asian markets closed. Japan's Nikkei 225 advanced 1.3 percent, the Shanghai Composite index jumped 1.1 percent and Australia's benchmark added 0.2 percent. Markets in Singapore, Thailand, Malaysia and Indonesia also rose. Hong Kong's Hang Seng reversed early gains to close down 0.1 percent, while South Korea's Kospi dropped 0.3 percent.

___

BRUSSELS — The 16 countries that use the euro barely grew in the fourth quarter, as a modest recovery stalled amid turmoil in financially troubled members such as Greece and a disappointingly flat performance from Germany, the biggest economy in the eurozone.

The figures lagged well behind fourth-quarter growth in the United States and raised concerns that Europe could slip back into recession as government stimulus efforts expire and the continent struggles with a government debt crisis in some countries.

Eurozone gross domestic product grew by only 0.1 percent in the last three months of 2009 from the previous three-month period, EU statistics agency Eurostat said.

Export powerhouse Germany turned in zero growth as consumption levels remained weak.

The eurozone growth figure fell short of expectations for a 0.4 percent increase and stoked worries the eurozone may dip back into recession.

___

ATHENS, Greece — Greek Prime Minister George Papandreou criticized the European Union as "timid" and too slow to express unified support for his country during its financial crisis, a day after Greece won backing — but no detailed bailout plan — at an EU summit.

Papandreou said that while the country had received a statement of support, delays and conflicting statements over the past few months had made things worse.

Greece's debt crisis has plunged the euro, the currency used by 16 EU nations, into the worst turmoil it has seen since it was launched 11 years ago.

___

MADRID — Spanish unions called for demonstrations against a plan to raise the retirement age, the first hint of labor unrest since the government unveiled austerity measures to trim a ballooning deficit and restore credibility on markets rattled by the Greek debt crisis.

Nationwide rallies have been convened over a two-week period, starting February 23 in about 10 cities.

Late last month the government said it would cut spending by nearly $50 billion ($70 billion) over four years to rein in a swelling deficit. The government's goal is to trim the deficit to the EU limit of 3 percent of GDP in 2013.

___

BERLIN — Germany's economic recovery unexpectedly lost momentum in the fourth quarter as output failed to grow from the previous three months

___

PARIS — France's gross domestic product grew 0.6 percent in the October through December period. The eurozone grew just 0.1 percent.

A government plan to encourage drivers to trade in their old cars for new ones helped boost the country's economy, the finance minister said.

___

MUMBAI — India's factory output surged 16.8 percent in December, beating expectations, as stimulus measures and rising demand ensured a 12th straight month of industrial expansion.

___

RIGA, Latvia — Credit ratings agency Standard & Poor's raised its outlook for Latvia from negative to stable, saying the prospects for recovery were improving in the European Union's weakest economy.



Dubai bailout, Exxon's M&A deal lift shares
YAHOO
By Angela Moon
Dec. 14, 2009

NEW YORK (Reuters) – U.S. stocks gained on Monday on relief that Abu Dhabi's $10 billion aid would help neighboring Dubai avoid default, and a takeover deal by oil and gas giant Exxon Mobil Corp fed optimism about the growth of mergers and acquisitions.

A deal by Citigroup Inc to back U.S. government funds also helped stocks move higher.

Exxon Mobil (XOM.N) said it would buy natural gas supplier XTO Energy Inc (XTO.N) in an all-stock transaction valued at about $31 billion, excluding debt.

Abu Dhabi said on Monday it will provide Dubai $10 billion in bailout money, $4.1 billion of which is for payment on a maturing bond.

"We've tied up a few lose ends here ... Looks like Dubai got tied up pretty well, looks like M&A is back with Exxon, and it sends a message of valuation that companies are still cheap and that we have not gone too far too fast," said Burt White, chief investment officer at LPL Financial in Boston. "It's a signal to investors we still have room to extend this rally,"

The Dow Jones industrial average (.DJI) was up 27.81 points, or 0.27 percent, at 10,499.31. The Standard & Poor's 500 Index (.SPX) was up 6.36 points, or 0.57 percent, at 1,112.77. The Nasdaq Composite Index (.IXIC) was up 14.23 points, or 0.65 percent, at 2,204.54.

Citigroup (C.N) laid out a plan to repay the money it owes the U.S. government, including raising money by issuing $17 billion of stock immediately, as the bank looks to end the executive pay restrictions that came with the funds.

Citi shares fell 4.6 percent to $3.77.

"Citi's stock is trading down because of dilution, but (the deal) is good in terms of getting the government out from underneath them and having the banks prove they don't need government in the system," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

Shares of XTO jumped 15.6 percent to $47.97 and Exxon Mobil fell 3.9 percent to $69.94. The First Trust ISE-Revere Natural Gas Index Fund (FCG.P), a natural-gas companies exchange-traded fund, rose 5 percent. XTO has underperformed that ETF by roughly 14 percent this year.

Sun Microsystems Inc (JAVA.O) shares jumped 10.1 percent to $9.20 after European Union regulators signaled they could clear Oracle Corp's (ORCL.O) $7 billion takeover of Sun after Oracle promised measures to ease competition concerns. Oracle shares gained 2 percent to $23.25.

Britain's Cadbury Plc (CBRY.L) said it has received interest from other bidders after raising its growth targets and reporting upbeat trading as it dismissed a $16.5 billion bid from Kraft Foods Inc (KFT.N).

The White House said U.S. President Barack Obama will make a statement on the economy after a meeting with the heads of the top U.S. banks scheduled for Monday morning.

Dubai Debt Troubles Push Down Stocks in U.S. and Asia
NYTIMES
By JAVIER C. HERNANDEZ and BETTINA WASSENER
November 28, 2009

Wall Street ended the day lower on Friday, reacting to reports that Dubai World, the emirate’s investment vehicle, was seeking to suspend repayments on all or part of its $59 billion in debt for six months.  The exchanges all closed lower on a shortened trading session with light volume.

At the close, the Dow Jones industrial average was down 1.48 percent, or 154.48 points. The broader Standard & Poor’s 500-stock index fell 1.72 percent or 19.14 points, and the technology-dominated Nasdaq slipped 1.7 percent or 37.61 points. The equities markets, however, closed off their lows of the day — the Dow was down more than 225 points moments after the open.

Markets in Asia were also sharply lower on Friday; European exchanges, however, finished slightly higher, after declines of more than 3.2 percent on Thursday. The FTSE 100 in London was up 51.60 points, or 0.99 percent, while the DAX in Frankfurt rose 71.44 points or 1.27 percent. In Paris, the CAC-40 increased 42.22 points or 1.15 percent.  The Hang Seng index in Hong Kong declined 4.8 percent and South Korea’s key market gauge, the Kospi, dropped 4.7 percent. The Nikkei 225 index in Japan and the Taiex in Taiwan both sagged 3.2 percent.

Yet some analysts said Friday that the declines were overdone, exaggerated by light trading over a holiday. A truer picture of the markets may not come until next week, analysts said, as buyers return and as more details on the Dubai situation, and the exposure of banks, come out.

“This has sent shockwaves through the markets, even though the problems in Dubai have been known about for two years,” Emil Wolter, a Hong Kong-based strategist the Royal Bank of Scotland, said. “But it is not the trigger for a brand-new crisis. Yes, the magnitude of the situation is dramatic for Dubai. But Dubai is not America — and a property crisis in Dubai will not cause the same global crisis as a property crisis in the States.”

Traders were also reacting to what might be, analysts said, given that the actual exposure of banks to the Dubai debt is still unknown.

“Dubai is really a symptom, a legacy, from the previous boom, rather than symptomatic of a start of a whole new set of issues that are going to create a systemic crisis in emerging markets,” Kevin Grice, senior international economist at Capital Economics in London, said. “Markets assume the worst-case scenario.”

The uncertainty in Dubai did not suggest a coming collapse of the global real estate market, Mr. Grice said.  A research note Friday from Credit Suisse estimated that European banks may be the hardest hit if Dubai World cannot meet its obligations, with total exposure estimated at 13 billion euros ($19.6 billion). European banks, however, played down their exposure.

Some market experts noted that while banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its debt, worries about the sovereign debt of oil-rich Middle Eastern countries were unfounded.  Paul Schulte, head of multi-strategy research at Nomura in Hong Kong, commented in a note on Friday: “Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s. Happily, the U.A.E. has oil. Thailand did not.”

Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn.  When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has little oil, was backed by its Arab emirate neighbors, especially oil-rich Abu Dhabi — or so investors had assumed.

“Dubai was fairly much the worst example of overextension. It had the worst debt per capita in the world by far,” Christopher Davidson, an expert in Gulf politics at Durham University in Britain, said Thursday. “I would like to put it down as a really enormous white elephant that doesn’t have much in common with the regular economy of a regular state.”

Saud Masud, head of research at UBS in Dubai, said Thursday that negotiators would feel pressure to reach some kind of deal to present to the markets before trading in the region resumes next week after the Eid holiday. The Dubai government’s total debt is estimated at about $80 billion, of which, Mr. Masud estimated, about two-thirds is held by local investors.

Mr. Schulte of Nomura commented in his note that, in his view, “it is not a matter of when but at what price Abu Dhabi will bail out Dubai.”

Mr. Wolter of RBS said he too believed Abu Dhabi would have no choice but to ultimately come to Dubai’s rescue. Until that becomes clear, though, he said, markets would remain extremely nervous.

Obama selling out on basic issues when the details get finalized?
China-U.S. discord on currencies clouds Obama visit
YAHOO
By Patricia Zengerle and Yoo Choonsik 
Sun Nov 15, 6:16 am ET

SINGAPORE (Reuters) – The United States and China sparred over exchange rates at a meeting of Asia Pacific leaders on Sunday, pointing to tricky talks ahead for President Barack Obama when he flies to China to address economic tensions.

The discord surfaced at a summit of the Asia Pacific Economic Cooperation (APEC) forum in Singapore when a reference to "market-oriented exchange rates" was cut from a communique issued at the end of two days of talks. An APEC delegation official said Washington and Beijing could not agree on the wording.

That underscored strains likely to feature when Obama travels to Shanghai later on Sunday following moves by Washington to slap duties on various Chinese-made products and a growing drumbeat of pressure on Beijing to let its yuan currency strengthen.  It also suggested investors should be cautious about betting on a yuan appreciation after a central bank statement last week appeared to give the green light for strengthening.

"China has pledged to keep monetary policy moderately loose, and their concern is still the economic recovery," said currency strategist Enrico Tanu Widjaja at OCBC Bank in Singapore. "They will probably let the yuan strengthen when they start tightening policy."

Chinese officials have grown testy about the pressure over the yuan. Chinese banking regulator Liu Mingkang told a forum in Beijing on Sunday that ultra-low interest rates in the United States were fuelling speculation in overseas asset markets and threatened the global economic recovery.  Obama pledged on Saturday to deepen dialogue with China rather than seek to contain the rising power, which is set to overtake Japan next year as the world's second-largest economy.

But issues ranging from the yuan and trade tensions to human rights could complicate what many regard as the most important relationship of the 21st century.

"With regards to trade, this is a difficult time for the U.S.-China relationship," said Derek Scissors, trade economist at the conservative Heritage Foundation in Washington.

"The signs are actually getting worse instead of better."

SPECULATION ON YUAN MOVE

Chinese President Hu Jintao ignored the yuan issue in several speeches at APEC and focused instead on what he called "unreasonable" trade restrictions on developing countries.

An earlier draft pledged APEC's 21 members to maintain "market-oriented exchange rates that reflect underlying economic fundamentals." That statement had been agreed at a meeting of APEC finance ministers on Thursday, including China, although it made no reference to the yuan.

A U.S. official sought to play down talk of discord over the removal of the reference to currencies, and said the actual discussions took place among aides, not leaders.  He also signaled Obama was prepared to discuss the yuan when he gets to China. In an interview with Reuters last week, Obama said he planned to raise the issue on his trip.  Washington says an undervalued yuan is contributing to imbalances between the United States and the world's third-biggest economy. China is pushing for U.S. recognition as a market economy and concessions on trade cases that would make it harder for Washington to take action against Chinese products.

The yuan has effectively been pegged against the dollar since mid-2008 to cushion its economy from the downturn.  China is coming under growing international pressure to let it rise because its manufacturers have gained market share at the expense of rivals in countries whose currencies have risen against the falling dollar.  China's central bank said last week it would consider major currencies in guiding the yuan, suggesting a departure from an unofficial peg.

However, Chinese Vice Commerce Minister Chen Jian on Sunday played down talk of a shift in policy as well as expectations of a rise in the yuan's exchange rate.  Beijing may have forced APEC to tone down its language on currencies to avoid encouraging bets on yuan appreciation that would suck speculative capital into China and fuel asset bubbles and inflation.

By Friday dollar/yuan volatilities were implying the strongest expectations the Chinese currency would appreciate since June, and the market for offshore non-deliverable forwards pointed to a 3.6 percent rise in 12 months.

GLOBAL IMBALANCE

Obama told APEC leaders the world economy was on a path to recovery but warned that a failure to rebalance the global economic system would lead to further crises.  He said the world could not return to the same cycles of boom and bust that sparked the global recession.

"We cannot follow the same policies that led to such imbalanced growth. If we do, we will continue to drift from crisis to crisis, a failed path that has already had devastating consequences for our citizens, our businesses, and our governments," Obama said.

Obama's strategy calls for America to save more, spend less, reform its financial system and cut its deficits and borrowing. Washington also wants key exporters such as China to boost domestic demand.

The APEC statement endorsed stimulus measures to keep the world from sliding back into recession and urged a successful conclusion to the Doha Round of trade talks in 2010.  APEC is the last major gathering of global decision-makers before a U.N. climate summit in Copenhagen in three weeks meant to ramp up efforts to fight climate change. 


Those negotiations have largely stalled, but a U.S. official said Obama had backed a two-step plan by the Danish prime minister to aim for an operational agreement and to leave legally binding details until later.

The APEC statement dropped all references to emissions reductions that had been in earlier drafts.


Karzai declared Afghan president
YAHOO
By Golnar Motevalli

KABUL (Reuters) – Afghan President Hamid Karzai was returned to power after election officials canceled a needless run-off vote on Monday, but was warned he would need to work harder to retain the West's support after a flawed electoral process.

The result means that Washington and its allies -- engaged in a costly war to stabilize the country -- will have to work with a partner whose legitimacy is bound to be questioned. Karzai himself faces the prospect of having to work with a newly strengthened opposition.  The government-appointed Independent Election Commission (IEC) called off the November 7 presidential run-off a day after Karzai's only rival, former foreign minister Abdullah Abdullah, withdrew citing doubts it would be a fair vote, sparking efforts to have the run-off canceled.

The IEC, which had said on Sunday the vote would proceed, said it changed its mind to spare the Afghan people the expense and security risk of staging a run-off with only one candidate.  IEC chief Azizullah Ludin told a news conference the commission was also concerned a one-candidate race would raise concerns about the legitimacy of the presidency. The first round of voting in August was marred by widespread fraud in favor of Karzai.

"The Independent Election Commission declares the esteemed Hamid Karzai as the president ... because he was the winner of the first round and the only candidate in the second round," Ludin said, ending weeks of political uncertainty.

In Washington, the White House added its stamp of approval to Karzai's leadership, but with a warning. President Barack Obama was calling Karzai on Monday, spokesman Robert Gibbs said.  Gibbs added the United States was happy that the laws of Afghanistan prevailed but added there would be "tough conversations" with Karzai on issues of governance and corruption. Gibbs said a decision by Obama on whether to send more U.S. troops to Afghanistan was still weeks away.

Abdullah withdrew on Sunday, sparking a frantic round of diplomatic efforts to have the run-off canceled. He said he was saddened by the challenges Afghanistan still faces.

"This is not what our people deserved," Abdullah told Reuters. "I'll pursue my agenda for reform and change."

But Karzai still has plenty of support, especially in the Pashtun-dominated south and east. In Herat, an important commercial hub near the Iran border, hundreds of people took to the streets, dancing and singing in celebration.  A weakened Afghan government under Karzai would be a blow for Obama as he considers whether to send up to 40,000 more troops to fight a resurgent Taliban. There are currently around 67,000 U.S. troops and 42,000 allied troops in Afghanistan.

Several Obama administration officials have said one issue being weighed in Obama's deliberations is whether the United States has a credible partner to work with in Kabul.  Western officials and analysts said it was too late to remove fears about Karzai's legitimacy and that the man who has ruled since U.S.-backed Afghan forces toppled the Taliban in 2001 would have to work harder to keep the West's confidence.

"The credibility of the Karzai government is not going to be simply decided by this election, it will now be decided by the actions the president takes over the coming days and weeks," said a Kabul-based Western official who asked not to be named.

"The first test will be the formation of his cabinet. If he is serious about reform we need to see that," he told Reuters.

POLITICAL EXPEDIENCY

But others described the outcome as political expediency. The result came at the end of a tumultuous day that included a surprise visit by U.N. Secretary-General Ban Ki-moon.

"Not only are the citizens of NATO countries with forces fighting here supposed to buy into this hastily cobbled together sham, apparently the Afghan people are as well," said Norine MacDonald, president of think tank the International Council on Security and Development.

Ban congratulated Karzai. But he said in a statement that the "new president must move swiftly to form a government that is able to command the support of both the Afghan people and the international community.

Many in the West see Karzai as a weak leader at the head of a government riddled with corruption. Critics will want to see him come up with a cabinet acceptable to Afghans and to the country's international partners.  British Prime Minister Gordon Brown said he had spoken to Karzai after he was confirmed president and that he needed to do more to fight corruption and strengthen local governance to reduce the influence of drug barons.

"Afghanistan now needs new and urgent measures for tackling corruption, strengthening local government and reaching out to all parts of Afghan society, and to give the Afghan people a real stake in their future," Brown said in a statement to parliament.

Britain has around 9,000 troops in Afghanistan and has said it is prepared to send another 500 providing Kabul agrees to provide additional Afghan troops to be trained and fight alongside British forces.

NO CHOICE

Despite Karzai's win, analysts said Abdullah had emerged in a much strengthened position and as the undoubted leader of a previously fractious and divided opposition. Karzai would have no choice but to work with him, they said.

"Karzai has lost his legitimacy; he is a very weak president and he cannot govern without reaching out to Dr Abdullah," said Kabul-based political analyst Haroun Mir.

Karzai's camp ruled out a power-sharing deal but now may have to name some of Abdullah's team to key posts.  Abdullah said he was open to future talks but also said no deals had been struck in return for his withdrawal, seen by diplomats as one way to spare the country more uncertainty that discredits the government and can only aid the insurgency.

Fidel Castro lauds Nobel prize for Obama
YAHOO
October 10, 2009

HAVANA (Reuters) – Former Cuban leader Fidel Castro lauded the awarding of the Nobel Peace Prize to U.S. President Barack Obama, saying on Saturday it was "a positive measure" that was more a criticism of past U.S. policies than a recognition of Obama's accomplishments.

Castro said the prize made up for the blow Obama suffered last week when the International Olympic Committee awarded the 2016 Summer Games to Rio de Janeiro after Obama had flown to Copenhagen to pitch for Chicago, his adoptive hometown.

The Nobel Committee announced on Friday that Obama had won the peace price for his "extraordinary efforts to strengthen international diplomacy and cooperation between peoples."

The decision prompted surprise in many quarters and anger from Obama's conservative foes in the United States.

But Castro, who has generally written positively about Obama, was pleased at the decision by the committee.

"I don't always share the positions of that institution but I'm obligated to recognize that in this instance it was, in my judgment, a positive measure," Castro wrote in a column published in state-run media.

"Many will say that he still hasn't earned the right to receive such distinction. We prefer to see in the decision, more than a prize for the president of the United States, a criticism of the genocidal policies that not a few presidents of that country have followed."

Such policies, Castro said, had "brought the world to the crossroads where it finds itself; an exhortation for peace and the search for solutions to assure the survival of the species."

The Nobel prize made up for "the reverse Obama suffered in Copenhagen ... which provoked angry attacks by his adversaries of the extreme right," Castro wrote.

His comments were part of a long piece entitled "The Bell Tolls for the Dollar" in which he said the U.S. dollar was losing its position as the preeminent world currency.

Also, he criticized the United States, as he often does, for not doing more to cut emission of greenhouse gases said to be causing global warming.

Castro, 83, ran Cuba for 49 years after taking power in a 1959 revolution but stepped down last year and was replaced as president by his younger brother Raul Castro.

The elder Castro has been seen only in occasional photos and videos since having surgery for an undisclosed intestinal ailment in July 2006. But he still has a behind-the-scenes role in government and keeps a high profile through his writings.

G-7 seeks to calm global markets, sustain rebound
YAHOO
By JANE WARDELL and MARTIN CRUTSINGER, AP Business Writers
Feb. 6, 2010

IQALUIT, Nunavut – Top finance officials of the world's seven major industrial countries pledged Saturday to work to calm global markets and sustain a fledgling economic rebound.

Ending a two-day meeting in the Canadian Arctic, the officials said they would continue to provide government stimulus to support a smooth transition to sustainable growth.

Speaking for the group, Canadian Finance Minister Jim Flaherty said leaders of the Group of Seven major industrial countries also discussed strategies they will use to withdraw stimulus next year once a stronger rebound is in place.

The meeting occurred as financial markets were roiled this week over fears that a European debt crisis could derail a global recovery from the deepest recession in decades.

Flaherty had chosen the remote town of Iqaluit, population 7,000, where temperatures can dip to 40 degrees below zero in February, to try to promote more informal discussions, which he dubbed fireside chats.

The United States was represented by Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke. The G-7 consists of the United States, Japan, Germany, Britain, France, Italy and Canada.

The talks wrapped up on Saturday with discussions on the global economy, banking reform and proposals for more debt relief to Haiti, recovering from a devastating earthquake.

Developments in Europe in the past week provided a reminder that G-7 policymakers still face major hurdles in repairing a broken global economy.

The Portuguese parliament's defeat of a government austerity plan triggered renewed concerns that it and other countries such as Greece and Spain were having trouble tightening budget controls to manage their budget deficits. That could threaten the economic recovery in Europe.

Stocks fell in Asia and Europe, while the Dow Jones industrial average clawed back to a small gain Friday after suffering the largest single-day drop in seven months the previous day on worries about the global economy.

Heading into the meetings, some G-7 nations had expressed unhappiness about President Barack Obama's surprise announcement last month that the United States would seek tougher rules to prevent risky actions by big banks from toppling the entire financial system.

There was more consensus on the need to keep government spending going this year as a transition until consumers and businesses boost their own purchases.

Obama presented a budget plan this past week that would boost job-creation efforts and raise the U.S. budget deficit to a record $1.56 trillion this year. British Prime Minister Gordon Brown is also stressing government stimulus. Critics point out that the country's budget deficit as a share of its gross domestic product could reach 12 percent this year.

In Japan, where the economy has struggled for two decades, the government unveiled more stimulus spending last week.
Great Britain no longer in play?  Nope,G6 became G7 when Canada was added - Russia made 8.
G7 considering its future, may form smaller group
YAHOO
By Andrew Torchia
October 3, 2009

ISTANBUL (Reuters) – The Group of Seven rich nations hopes to decide its future as an institution Saturday, with the United States pushing for the creation of a smaller core group that would include China, a G7 official said.  The official, speaking on condition of anonymity, said Washington wanted to see the G7 supplanted in global economic policymaking by a Group of Four that would bring the United States, Europe and Japan together with China.

The official was speaking ahead of a meeting of G7 finance ministers and central bankers in Istanbul later Saturday.

A U.S. Treasury spokeswoman declined to comment. British finance minister Alistair Darling said, "These proposals have been around for a long time ... You shouldn't read too much into these proposals."

He added, "It is not our position that the G7 is going to be wound up."

Other officials also suggested the G7 would continue to exist, but with a diminished role.

"We will talk about how the G7 will work on, how its role will be in future ... for example the frequency of G7 meetings," said German deputy finance minister Joerg Asmussen.

"In the German view, the G7 should be something like a preparatory body" for meetings of the larger Group of 20 nations, which includes big developing economies such as China and India, he added.

POLICYMAKING

For more than a decade, the G7 dominated international policymaking. But the financial crisis has undermined its power, as economies such as China have become key to managing the global recovery.  Any formal move to supplant the G7, which comprises Britain, Canada, France, Germany, Italy, Japan and the United States, would likely be diplomatically complex and controversial.  Its top finance officials have traditionally met several times a year, seeking to guide foreign exchange rates and other markets through communiques released after their meetings.

But the group's role has appeared in doubt since early this year, when the G20 became the main forum for debating the financial crisis. The G20 has agreed in principle to tighten financial regulation and try to reduce trade imbalances that destabilize the global economy.

"The G7 is not quite dead, but it is losing its relevance," the IMF's managing director, Dominique Strauss-Kahn, was quoted as saying by Emerging Markets magazine Saturday. "It's on its way to extinction."

Tensions over foreign exchange rates are underlining the difficulty that the G7 is having in staying at the center of global policymaking.  Persuading China to appreciate its tightly controlled yuan currency is widely seen as crucial to correcting trade imbalances, but China is not a member of the G7.  Japan has sounded keen to preserve the G7 as an important body. Friday, Bank of Japan Governor Masaaki Shirakawa said the G7 remained a more convenient forum to discuss foreign exchange rates than the G20, because G7 members all had major financial markets.

But some other countries appear unconvinced. Canadian Finance Minister Jim Flaherty said that because discussion of global imbalances would inevitably include the yuan and the impact of the weak U.S. dollar on other economies, global currency discussions needed to extend beyond the G7.


International Monitary Fund convenes in Istanbul in second week in October 2009...how is this related to the

Lagarde Urges Europe to Beef Up Bailout Funds
By DAVID JOLLY, NYTIMES
January 23, 2012

PARIS — As European finance ministers gathered Monday for their latest session on the euro crisis, the head of the International Monetary Fund urged them to significantly bolster the bailout funds available for euro zone countries to avoid destabilizing the global financial system.

“We need a larger firewall,” Christine Lagarde, managing director of the I.M.F., said at a conference in Berlin.

Governments should add “substantial real resources to what is currently available,” she said, by adding the remaining resources of the ad hoc bailout fund rolled out in 2010 — the €440 billion, or $567 billion, European Financial Stability Facility — into a permanent fund: the €500 billion European Stability Mechanism that officials hope to unveil by the middle of this year.

Ms. Lagarde spoke hours before euro zone finance ministers and representatives from the European Central Bank were to meet in Brussels, with the roll-out of the permanent fund on their agenda.

Ms. Lagarde suggested simply “identifying a clear and credible timetable” for making the new fund operational “would help greatly.”

Officials also were to receive an update on Greece’s negotiations with its creditors to restructure its crushing debt.  After days of talks between Greek officials and private lenders, the French finance minister, François Baroin, said at a news conference in Paris on Monday that it appeared a deal was taking shape.  His Greek counterpart, Evangelos Venizelos, told reporters as he arrived in Brussels that Greece was ready to complete a private-sector debt swap “on time.”

While the sense of crisis has ebbed and markets have calmed since the central bank last month unveiled longer-term refinancing operations to inject nearly €490 billion of liquidity into the banking system, analysts say the central bank has only bought time for leaders to put the 17-nation currency bloc on a firmer footing.  Ms. Lagarde said it was “essential” that the European Central Bank continue “to provide the necessary liquidity support to stabilize bank funding and sovereign debt markets.”

Without more such actions from governments and the central bank to convince financial markets, Ms. Lagarde said, “countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs. This would have disastrous implications for systemic stability.”

Greece’s talks with private-sector creditors have made significant progress, but have held up on the interest rate it will pay on restructured debt.  Private sector bondholders are seeking yields of near 4 percent, but Greece, as well as Germany and the International Monetary Fund, argue that a yield closer to 3 percent is necessary to give the restructuring a serious hope of success. With the talks at an impasse, it is now up to finance ministers to come up with a solution.

The German chancellor, Angela Merkel, told reporters Monday that it was “high time to work on the new Greece program,” Bloomberg News reported from Berlin. “I expect that the negotiations with the private creditors and the new Greece program can be completed simultaneously and soon enough that no new bridge loan whatsoever will be needed,” Mrs. Merkel said.

The monthly meeting of finance ministers comes at a time of widespread gloom about the broad European economy. Austerity budgets in the euro zone are reducing demand and weighing on growth.  Even Germany, where factories are bustling, is feeling the effects. The Federal Statistical Office said last month that the German economy probably contracted by about 0.25 percent in the fourth quarter of 2011 from the prior three months.

The urgency of the problem was underscored Monday by economic data from Spain, which is struggling with an unemployment rate over 20 percent. The country’s econonomy will probably shrink by about 1.5 percent this year, after contracting by about by 0.3 percent in the last quarter of 2011, the Bank of Spain estimated.

In Berlin, Ms. Lagarde questioned the wisdom of continuing down the path of extreme austerity at a time of economic weakness, noting that “several countries have no choice but to tighten public finances, sharply and quickly. But this is not true everywhere.”

In an apparent nod to Germany, which many economists say could help its neighbors by bolstering domestic demand, she noted: “There is a large core where fiscal adjustment can be more gradual. Automatic stabilizers, which let tax revenues fall and spending rise as the economy weakens, should certainly be allowed to operate. And those with fiscal space should support the common effort by reconsidering the pace of adjustment planned for this year.”

Ms. Lagarde also called for more fiscal integration among euro members, saying, “it is not tenable for 17 completely independent fiscal policies to sit alongside one monetary policy.” She called for new measures to increase the sharing of risk, including possibly jointly issued euro area debt instruments, or, as Germany has proposed, a debt redemption fund.

Ms. Lagarde said the I.M.F. had a role to play. “I am convinced that we must step up the fund’s lending capacity,” to help defend “innocent bystanders” elsewhere in the world who are hurt by the euro contagion, she said. “A global world needs global firewalls.”

She reiterated her belief that the fund would need up to $1 trillion “in the coming years,” and it would need to raise $500 billion to bolster its lending resources.

European stocks rise on upbeat IMF report
YAHOO
By CARLO PIOVANO, AP Business Writer
September 30, 2009

LONDON – European stocks rose and Wall Street was expected to open higher Wednesday as an upbeat report by the International Monetary Fund and a fall in Germany's unemployment rate offset worries over weak U.S. consumer confidence. Asian markets were mixed.  Germany's DAX was up 0.2 percent at 5,727.10, Britain's FTSE 100 gained 0.2 percent at 5,170.07 and France's CAC-40 rose 0.5 percent to 3,832.24.

Gains in Japan were limited by a rise in the yen, which hurts its exporters, while Wall Street was expected to edge up on the open. Dow industrials futures were up 36 points at 9,709.00 and Standard & Poor's 500 futures were up 4.50 points at 1,059.30.  The IMF reduced its estimate of likely losses from the financial crisis in the three years to 2010 — by $600 billion to $3.4 trillion — as the world economy grows faster than previously expected.

"Systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy," the IMF said in its half-yearly Global Financial Stability Report.

"There is growing confidence that the global economy has turned the corner, underpinning the improvements in financial markets," it added.

The IMF cautioned, however, that there was still a strong need for extra capital.  In Europe, sentiment was further helped by German data showing the unemployment rate dropped to 8 percent in September from 8.3 percent in August, thanks largely to a traditional autumn upturn in the labor market. Still, the figure was better than many analysts expected.

"Although September's fall in German unemployment was flattened by yet more statistical changes, the labour market still appears to be holding up better than elsewhere," Jennifer McKeown, economist at Capital Economics, wrote in a note.

However, she warned there is likely to be another rise in joblessness in coming months, keeping consumer spending relatively weak.  The data reassured investors, who were shaken Tuesday by weak figures on U.S. household optimism. The Conference Board said its consumer confidence index fell to 53.1 in September. Economists had been expecting a reading of 57.  The private research group said consumers are still worried about losing their jobs. Many experts warn a turnaround in the economy won't hold unless consumer spending picks up and employers add jobs.

World stocks have mostly rallied since March on optimism about growth prospects as the global recession fades. But some analysts warn markets may have rallied too far and too fast.

"In a nutshell, despite the recent improvement in confidence, the current indices are still consistent with huge uncertainty looming over the pace of the recovery of private consumption looking forward," said Sebastien Barbe, analyst at Calyon.

In Asia, Japan's Nikkei 225 stock average closed up 33.03 points, or 0.3 percent, at 10,133.23 while Hong Kong's Hang Seng shed 57.92, or 0.3 percent, to 20,955.25. South Korea's Kospi lost 1 percent to 1,673.14.
China's Shanghai index rose 0.9 percent to 2,779.43. China's financial markets close Thursday for the weeklong National Day holiday and reopen October 9.  Elsewhere, Australia's market fell 0.2 percent, Singapore was down 0.4 percent and Taiwan's index gained 1.1 percent.

On Wall Street on Tuesday, the Dow fell 0.5 percent, the S&P 500 slipped 0.2 percent, and the Nasdaq composite index fell 0.3 percent.

Oil prices rose above $67 a barrel despite an increase in U.S. crude inventories for a third week, indicating weak consumer demand. Benchmark crude for November deliver was up $1.22 at $67.93. The contract fell 13 cents to settle at $66.71 on Tuesday.

The dollar fell to 89.49 yen from 90.12 yen and the euro rose to $1.4665 from $1.4581.

I-BBC
Page last updated at 16:36 GMT, Monday, 28 September 2009 17:36 UK
Kartika Sari Dewi Shukarno (C) with her parents in Karai, north of Kuala Lumpur, 22 August
Kartika Sari Dewa Shukarno, seen with her parents, is a former model

Malaysia upholds woman's caning
An Islamic court in Malaysia has upheld a sentence of six strokes of the cane handed to a Muslim woman who was caught drinking beer in public.

The court appeals panel in Pahang state ruled the sentence on 32-year-old Kartika Sari Dewi Shukarno was just. No date was set for the caning, but if it goes ahead, Shukarno will be the first Malaysian woman to be caned.

The case has caused controversy in Malaysia, where Muslims are subject to Islamic law in personal matters. While drinking alcohol is forbidden for Muslims, prosecutions are rare. Analysts say the government fears that the punishment could damage Malaysia's reputation abroad.

Kartika Sari Dewa Shukarno, a mother of two, was arrested for drinking beer in a beachfront hotel in December 2007.

She previously asked that her punishment be carried out in public, triggering a debate over the use of Islamic laws in the moderate Muslim country.

Merkel heads toward decisive win
YAHOO
Sunday, September 27, 2009

BERLIN -- German Chancellor Angela Merkel looked headed for a decisive victory Sunday that could lead to a center-right coalition government for the next four years, replacing the alliance with Socialists that limited Germany's policy options.

Mrs. Merkel's chllenger, Frank-Walter Steinmeier of the Social Democrats, conceded defeat in Germany's election, telling supporters, "There is no talking around it: This is a bitter defeat."

The latest projections, according to the Associated Press, show that Mr. Steinmeier's party -- which has been in the German government for the past 11 years -- is headed for its worst parliamentary election result since World War II. It captured well under 25 percent of the vote in Sunday's national election.

Mrs. Merkel's conservatives did well in the vote and should be able to form a new center-right government.

In Mrs. Merkel's first election as party leader in 2005, the Christian Democratic Union (CDU) won just over 35 percent of the vote. It wanted to partner with the right-of-center and pro-business Free Democratic Party (FDP), as it had done many times in the past, but their combined votes were not enough to garner the necessary majority in the Bundestag, the parliament's lower house.

That forced the CDU into a "grand coalition" with the SPD, which had governed since 1998. The Social Democrat (SPD) leader, Mr. Steinmeier, became foreign minister and was Mrs. Merkel's main opponent on the campaign trail in the last several months.

Going into Sunday's election, both the Christian Democrats and Social Democrats faced sliding polling numbers, with the SPD risking a result lower than the post-war low of 28.8 percent it received in 1953. Still, Mr. Steinmeier expressed optimism as he voted in Berlin on Sunday morning.

"I've felt a great amount of support and a lot of interest in our cause, and that's why I'm very, very confident about today," he told reporters.

The latest polls, which turned out wrong four years ago, predicted about 36 percent for the CDU and about 13 percent for the FDP -- just enough to enable them to form a government. That would allow Mrs. Merkel to implement economic reforms and cut taxes, which were among her 2005 campaign promises but could not happen once the SPD was in government.

"We are going to fight to the end, because every vote counts," Mrs. Merkel told a rally in Berlin on Saturday.

Robert Koehler, chairman of SGL Group, a leading manufacturer of carbon-based products, said that unless the FDP is the CDU's coalition partner, Germany "may descend into socialism." He disagreed with the common perception that Sunday's vote will be inconsequential, saying it is "the most crucial election" since World War II.

Guido Westerwelle, the leader of the Free Democrats, said on Saturday that these were the "final hours in opposition" for his party. Until 1998, the FDP was part of several Christian Democrat-led governments. He said the end to the "grand coalition" would also mean the end of "higher taxes and more bureaucracy."

However, another "grand coalition" is not out of the question, some analysts said.  Stefan Elfenbein, a journalist and former correspondent for the Berliner Zeitung newspaper in New York, said the right-left coalition "forced the politicians to finally work together, rather than against each other."

"It ended the long years of power struggles between the two leading parties. People were sick of seeing politicians bickering," he said. "Also, Merkel as a woman was the perfect chancellor to bring all these politicians together, to make them work for the country -- not for their own good."

Whatever coalition is formed after the election, Germany's foreign policy is unlikely to change. Even though initial signs are emerging that Germany has started to climb out of the current recession, the new government will have to deal with a soaring deficit and rising unemployment.

But on foreign policy, one key issue that Germany's next government will have to contend with is future deployments of German troops in Afghanistan.

Germany's present deployment is controversal at home, and its rules of engagement in Afghanistan are limited, reflecting anti-war sentiment pervasive in Germany that reflects its Nazi past.


Ending the Palestinian ‘Right of Return’
The Israeli Supreme Court closes an oft-abused marriage loophole.
National Review
By Daniel Pipes
January 17, 2012 12:00 A.M

Between 1967 and 1993, just a few hundred Palestinians from the West Bank or Gaza won the right to live in Israel by marrying Israeli Arabs (who constitute nearly one-fifth of Israel’s population) and acquiring Israeli citizenship. Then the Oslo Accords offered a little-noted family-reunification provision that turned this trickle into a river: 137,000 residents of the Palestinian Authority (PA) moved between 1994 and 2002, some of them engaged in either sham or polygamous marriages.

Israel has two major reasons to fear this uncontrolled immigration. First, it presents a security danger. Yuval Diskin, head of the Shin Bet security service, noted in 2005 that of 225 Israeli Arabs involved in terror against Israel, 25 of them, or 11 percent, had legally entered Israel through the family-unification provision. They went on to kill 19 Israelis and wound 83; most notoriously, Shadi Tubasi suicide-bombed Haifa’s Matza Restaurant in 2002 on behalf of Hamas, killing 15.

Second, it serves as a stealth form of Palestinian “right of return,” thereby undermining the Jewish nature of Israel. Those 137,000 new citizens constitute about 2 percent of Israel’s population, not a small number. Yuval Steinitz, now the finance minister, in 2003 discerned in the PA encouragement for family reunification “a deliberate strategy” to increase the number of Palestinians in Israel and undermine its Jewish character. Ahmed Qurei, a top Palestinian negotiator, later confirmed this fear: “If Israel continues to reject our propositions regarding the borders [of a Palestinian state], we might demand Israeli citizenship.”

In response to these two dangers, Israel’s parliament in July 2003 passed the “Citizenship and Entry into Israel Law.” The law bans Palestinian family members from automatically gaining Israeli residency or citizenship, with temporary and limited exemptions requiring the interior minister to certify that they “identify with Israel” or are otherwise helpful. In the face of severe criticism, then–Prime Minister Ariel Sharon affirmed in 2005 that “The State of Israel has every right to maintain and protect its Jewish character, even if that means that this would impact on its citizenship policy.”

Only 33 of 3,000 applications for exemptions, according to Sawsan Zaher, an attorney who challenged the law, have been approved. Israel is hardly alone in adopting stringent requirements for family reunification: Denmark, for example, has had such rules in place for a decade, excluding (among others) an Israeli husband from the country, with the Netherlands and Austria following suit.

Last week, Israel’s Supreme Court, by a 6–5 vote, upheld this landmark law, making it permanent. While recognizing the rights of a person to marry, the court denied that this implies a right of residency. As the president-designate of the court, Asher Dan Grunis, wrote in the majority opinion, “Human rights are not a prescription for national suicide.”

This pattern of Palestinian emigration toward Jews goes back almost to 1882, when European Jews began their aliyah (Hebrew for “ascent,” meaning immigration to the land of Israel). In 1939, for example, Winston Churchill noted how Jewish immigration to Palestine had stimulated a like Arab immigration: “So far from being persecuted, the Arabs have crowded into the country and multiplied till their population has increased.”

In brief, you didn’t have to be Jewish to benefit from the Zionists’ high standard of living and law-abiding society. One student of this subject, Joan Peters, estimates that a dual Jewish and Arab immigration “of at least equal proportions” took place between 1893 and 1948. Nothing surprising here: Other modern Europeans who settled in under-populated areas (think Australia or Africa) also created societies that attracted indigenous peoples.

This pattern of Palestinian migration has continued since Israel’s birth. Anti-Zionist they may be, but economic migrants, political dissidents, homosexuals, informants, and just ordinary folk vote with their feet, preferring the Middle East’s outstandingly modern and liberal state to the Palestinian Authority’s or Hamas’s hellholes. And note how few Israeli Arabs move to the West Bank or Gaza to live with a spouse, though no legal obstacles prevent them from doing so.

The Supreme Court’s decision has momentous long-term implications. As Eli Hazan writes in Israel Hayom, “The court ruled de jure but also de facto that the state of Israel is a Jewish state, and thus settled a years-long debate.” The closing of the back-door “right of return” secures Israel’s Zionist identity and future.

— Daniel Pipes (www.DanielPipes.org) is President of the Middle East Forum and Taube Distinguished Visiting Fellow at the Hoover Institution of Stanford University. © 2012 by Daniel Pipes. All rights reserved
Op-Ed Columnist
Obama on Obama
NYTIMES
By THOMAS L. FRIEDMAN
June 3, 2009

During a telephone interview Tuesday with President Obama about his speech to Arabs and Muslims in Cairo on Thursday, I got to tell the president my favorite Middle East joke. It gave him a good laugh. It goes like this:

There is this very pious Jew named Goldberg who always dreamed of winning the lottery. Every Sabbath, he’d go to synagogue and pray: “God, I have been such a pious Jew all my life. What would be so bad if I won the lottery?” But the lottery would come and Goldberg wouldn’t win. Week after week, Goldberg would pray to win the lottery, but the lottery would come and Goldberg wouldn’t win. Finally, one Sabbath, Goldberg wails to the heavens and says: “God, I have been so pious for so long, what do I have to do to win the lottery?”

And the heavens parted and the voice of God came down: “Goldberg, give me a chance! Buy a ticket!”

I told the president that joke because in reading the Arab and Israeli press this week, everyone seemed to be telling him what he needed to do and say in Cairo, but nobody was indicating how they were going to step up and do something different. Everyone wants peace, but nobody wants to buy a ticket.

“We have a joke around the White House,” the president said. “We’re just going to keep on telling the truth until it stops working — and nowhere is truth-telling more important than the Middle East.”

A key part of his message, he said, will be: “Stop saying one thing behind closed doors and saying something else publicly.” He then explained: “There are a lot of Arab countries more concerned about Iran developing a nuclear weapon than the ‘threat’ from Israel, but won’t admit it.” There are a lot of Israelis, “who recognize that their current path is unsustainable, and they need to make some tough choices on settlements to achieve a two-state solution — that is in their long-term interest — but not enough folks are willing to recognize that publicly.”

There are a lot of Palestinians who “recognize that the constant incitement and negative rhetoric with respect to Israel” has not delivered a single “benefit to their people and had they taken a more constructive approach and sought the moral high ground” they would be much better off today — but they won’t say it aloud.

“There are a lot of Arab states that have not been particularly helpful to the Palestinian cause beyond a bunch of demagoguery,” and when it comes to “ponying up” money to actually help the Palestinian people, they are “not forthcoming.”

When it comes to dealing with the Middle East, the president noted, “there is a Kabuki dance going on constantly. That is what I would like to see broken down. I am going to be holding up a mirror and saying: ‘Here is the situation, and the U.S. is prepared to work with all of you to deal with these problems. But we can’t impose a solution. You are all going to have to make some tough decisions.’ Leaders have to lead, and, hopefully, they will get supported by their people.”

It was clear from the 20-minute conversation that the president has no illusions that one speech will make lambs lie down with lions. Rather, he sees it as part of his broader diplomatic approach that says: If you go right into peoples’ living rooms, don’t be afraid to hold up a mirror to everything they are doing, but also engage them in a way that says ‘I know and respect who you are.’ You end up — if nothing else — creating a little more space for U.S. diplomacy. And you never know when that can help.

“As somebody who ordered an additional 17,000 troops into Afghanistan,” said Mr. Obama, “you would be hard pressed to suggest that what we are doing is not backed up by hard power. I discount a lot of that criticism. What I do believe is that if we are engaged in speaking directly to the Arab street, and they are persuaded that we are operating in a straightforward manner, then, at the margins, both they and their leadership are more inclined and able to work with us.”

Similarly, the president said that if he is asking German or French leaders to help more in Afghanistan or Pakistan, “it doesn’t hurt if I have credibility with the German and French people. They will still be constrained with budgets and internal politics, but it makes it easier.”

Part of America’s “battle against terrorist extremists involves changing the hearts and minds of the people they recruit from,” he added. “And if there are a bunch of 22- and 25-year-old men and women in Cairo or in Lahore who listen to a speech by me or other Americans and say: ‘I don’t agree with everything they are saying, but they seem to know who I am or they seem to want to promote economic development or tolerance or inclusiveness,’ then they are maybe a little less likely to be tempted by a terrorist recruiter.”

I think that’s right. An Egyptian friend remarked to me: Do not underestimate what seeds can get planted when American leaders don’t just propagate their values, but visibly live them. Mr. Obama will be speaking at Cairo University. When young Arabs and Muslims see an American president who looks like them, has a name like theirs, has Muslims in his family and comes into their world and speaks the truth, it will be empowering and disturbing at the same time. People will be asking: “Why is this guy who looks like everyone on the street here the head of the free world and we can’t even touch freedom?” You never know where that goes.


Whose Side Are We On? You Have to Ask?
With Twitter's help, the youth of Iran take on the ayatollahs.
WSJ
By PEGGY NOONAN
JUNE 20, 2009

America so often gets Iran wrong. We didn't know when the shah was going to fall, didn't foresee the massive wave that would topple him, didn't know the 1979 revolution would move violently against American citizens, didn't know how to handle the hostage-taking. Last week we didn't know a mass rebellion was coming, and this week we don't know who will emerge the full or partial victor. So modesty and humility seem appropriate stances from which to observe and comment. 

That having been said, it's pretty wonderful to see what we're seeing. It is moving, stirring—they are risking their lives over there in a spontaneous, self-generated movement for greater liberty and justice. Good for them. In a selfish and solipsistic way—more on that in a moment—the uprising, as it moves us, reminds us of who we are: lovers of political freedom who are always and irresistibly on the side of the student standing in front of the tank or the demonstrator chanting "Where is my vote?" in the face of the billy club. Good for us. (If you don't understand who the American people are for, put down this newspaper or get up from your computer, walk into the street and grab the first non-insane-looking person you meet. Say, "Did you see the demonstrations in Iran? It's the ayatollahs versus the reformers. Who do you want to win?" You won't just get "the reformers," you'll get the perplexed-puppy look, a tilt of the head and a wondering stare: You have to ask?)

If the rebels on the street win, however winning is defined, they, being more modern and moderate than the ruling government, will likely have a moderating influence on their government. If the rebels on the street lose, however that is defined, this fact remains: Something has been unleashed, and it won't be going away. A thugocracy has been revealed as lacking the support and respect of a considerable portion of its people, and that portion is not solely the most sophisticated and educated but, far more significantly, the young. Half the people in Iran are under 27. When the young rise against the old, the future rises against the past. In that contest, the future always wins. The question is timing: soon or some years from now? (A heartening Twitter feed Thursday, from Andrew Sullivan's site: "Fact is, we've seen variety of protesters grow: young+old, students+professionals, women in chador+westernized students.")

Stifling and corrupt religious autocracy has seen its international standing diminished, and Mahmoud Ahmadinejad, who is among other things a Holocaust denier, has in effect been rebuked by half his country, and through free speech, that most painful way to lose your reputation, which has broken out on the streets. He can no longer claim to speak for his people. The rising tide of the young and educated seems uninterested in reflexively hating the West and deriving their meaning from that hatred.

To refuse to see all this as progress, or potential progress, is perverse to the point of wicked. To insist the American president, in the first days of the rebellion, insert the American government into the drama was shortsighted and mischievous. The ayatollahs were only too eager to demonize the demonstrators as mindless lackeys of the Great Satan Cowboy Uncle Sam, or whatever they call us this week. John McCain and others went quite crazy insisting President Obama declare whose side America was on, as if the world doesn't know whose side America is on. "In the cause of freedom, America cannot be neutral," said Rep. Mike Pence. Who says it's neutral?

This was Aggressive Political Solipsism at work: Always exploit events to show you love freedom more than the other guy, always make someone else's delicate drama your excuse for a thumping curtain speech.

Mr. Obama was restrained, balanced and helpful in the crucial first days, keeping the government out of it but having his State Department ask a primary conduit of information, Twitter, to delay planned maintenance and keep reports from the streets coming. Then he made a mistake, telling the New York Times in terms of our national security there is little difference between Mr. Ahmadinejad and his foe, Mir Hossein Mousavi, which may or may not in the long run be true but was undercutting of the opposition.

What now? Americans, and the West, should be who they are, friends of freedom. Iranians on the street made sure they got their Twitter reports and videos here. They trust us to spread the word through our technology. A lot of the signs they held were in English. They trust us to be for change and to advance their cause, and they're right to trust us.

Should there at this point, more than a week into the story, be a formal declaration of support from the U.S. government? Certainly it's time for an indignant statement on the abuses, including killings and beatings, perpetrated by the government and against the opposition. It's never wrong to be on the side of civilization. Beyond that, what would be efficacious? It must be asked if a formal statement of support for the rebels would help them. And they'd have a better sense of it than we.

If the American president, for reasons of prudence, does not make a public statement of the government's stand, he could certainly refer, as if it is an obvious fact because it is an obvious fact, to whom the American people are for. And that is the protesters on the street. If he were particularly striking in his comments about how Americans cannot help but love their brothers and sisters who stand for greater freedom and democracy in the world, all the better. The American people, after all, are not their government. Our sentiments are not controlled by the government, and this may be a timely moment to point that out, and remind the young of Iran, who are the future of Iran, that Americans are a future-siding people.

A small point on the technological aspects of the Iranian situation. Some ask if the impact of the new technology is exaggerated. No. Twittering and YouTubing made the story take hold and take off. But did the technology create the rebellion? No, it encouraged what was there. If they Twittered and liveblogged the French Revolution, it still would have been the French Revolution: "this aft 3pm @ the bastille." It all still would have happened, perhaps with marginally greater support. Revolutions are revolutions and rebellions are rebellions; they don't work unless the people are for it. In Iran, Twitter reported and encouraged. But the conviction must be there to be encouraged.

The interesting question is what technology would have done after the Revolution, during the Terror. What would word of the demonic violence, the tumbrels and nonstop guillotines unleashed circa 1790-95 have done to French support for the Revolution, and world support? Would Thomas Jefferson have been able to continue his blithe indifference if reports of France grimly murdering France had been Twittered out each day?

The great question is what modern technology can do not in the short term so much as the long. It is not the friend of entrenched tyranny. Connected to which, it would be nice if the technologies of the future were not given babyish names. Twitter, Google, Facebook, etc., have come to be crucial and historically consequential tools, and yet to refer to them is to talk baby talk. In the future could inventors please keep the weight and dignity of history in mind?

Printed in The Wall Street Journal, page A13
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Neutrality Isn’t an Option: You always have a dog in the fight, whether you know it or not.
National Review
By Mark Steyn
June 20, 2009, 6:00 a.m.
The polite explanation for Barack Obama’s diffidence on Iran is that he doesn’t want to give the mullahs the excuse to say the Great Satan is meddling in Tehran’s affairs. So the president’s official position is that he’s modestly encouraged by the regime’s supposed interest in investigating some of the allegations of fraud. Also, he’s heartened to hear that OJ is looking for the real killers. “You've seen in Iran,” explained President Obama, “some initial reaction from the Supreme Leader that indicates he understands the Iranian people have deep concerns about the election . . . ”

“Supreme Leader”? I thought that was official house style for Barack Obama at Newsweek and MSNBC. But no. It’s also the title held by Ayatollah Khamenei for the last couple of decades. If it sounds odd from the lips of an American president, that’s because none has ever been as deferential in observing the Islamic republic’s dictatorial protocol. Like President Obama’s deep, ostentatious bow to the king of Saudi Arabia, it signals a fresh start in our relations with the Muslim world, “mutually respectful” and unilaterally fawning.

And how did it go down? At Friday prayers in Tehran, Ayotollah Khamenei attacked “dirty Zionists” and “bad British radio” (presumably a reference to the BBC’s Farsi news service rather than the non-stop Herman’s Hermits marathon on Supergold Oldies FM). “The most evil of them all is the British government,” added the supreme leader, warming to his theme. The crowd, including President Ahmadinelandslide and his cabinet, chanted, “Death to the U.K.”

Her Majesty’s Government brought this on themselves by allowing their shoot-from-the-lip prime minister to issue saber-rattling threats like: “The regime must address the serious questions which have been asked about the conduct of the Iranian elections.”

Fortunately, President Obama was far more judicious. And in return, instead of denouncing him as “evil” and deploring the quality of his radio programming, Ayatollah Khamenei said Obama’s “agents” had been behind the protests: “They started to cause riots in the street, they caused destruction, they burnt houses.” But that wasn’t all the Great Satin did. “What is the worst thing to me in all this,” sighed the supreme leader, “are comments made in the name of human rights and freedom and liberty by American officials . . . What? Are you serious? Do you know what human rights are?”

And then he got into specifics: “During the time of the Democrats, the time of Clinton, 80 people were burned alive in Waco. Now you are talking about human rights?”

It’s unclear whether the “Death to the U.K.” chanters switched at this point to “Democrats lied, people fried.” But you get the gist. The President of the United States can make nice to His Hunkalicious Munificence the Supremely Supreme Leader of Leaders (Peace Be Upon Him) all he wants, but it isn’t going to be reciprocated.

There’s a very basic lesson here: For great powers, studied neutrality isn’t an option. Even if you’re genuinely neutral. In the early nineties, the attitude of much of the west to the disintegrating Yugoslavia was summed up in the brute dismissal of James Baker that America didn’t have a dog in this fight. Fair enough. But over in the Balkans junkyard the various mangy old pooches saw it rather differently. And so did the Muslim world, which regarded British and European “neutrality” as a form of complicity in mass murder. As Osama bin Laden put it:

The British are responsible for destroying the Caliphate system. They are the ones who created the Palestinian problem. They are the ones who created the Kashmiri problem. They are the ones who put the arms embargo on the Muslims of Bosnia so that two million Muslims were killed.

How come a catalogue of imperial interventions wound up with that bit of scrupulous non-imperial non-intervention? Because great-power “even-handedness” will invariably be received as a form of one-handedness by the time its effects are felt on the other side of the world. Western “even-handedness” on Bosnia was the biggest single factor in the radicalization of European Muslims. They swarmed to the Balkans to support their coreligionists and ran into a bunch of Wahhabi imams moving into the neighborhood with lots of Saudi money and anxious to fill their Rolodex with useful contacts in the west. Among the alumni of that conflict was the hitherto impeccably assimilated English public (ie, private) schoolboy and London School of Economics student who went on to behead the Wall Street Journal’s Daniel Pearl. You always have a dog in the fight, whether you know it or not.

For the Obama administration, this presents a particular challenge — because the president’s preferred rhetorical tic is to stake out the two sides and present himself as a dispassionate, disinterested soul of moderation: “There are those who would argue . . . ” on the one hand, whereas “there are those who insist . . . ” on the other, whereas he is beyond such petty dogmatic positions. That was pretty much his shtick on abortion at Notre Dame. Of course, such studied moderation is usually a crock: Obama is an abortion absolutist, supporting partial-birth infanticide, and even laws that prevent any baby so inconsiderate as to survive the abortion from receiving medical treatment.

So in his recent speech in Cairo he applied the same technique. Among his many unique qualities, the 44th president is the first to give the impression that the job is beneath him — that he is too big and too gifted to be confined to the humdrum interests of one nation state. As my former National Review colleague David Frum put it, the Obama address offered “the amazing spectacle of an American president taking an equidistant position between the country he leads and its detractors and enemies.”

What would you make of that “equidistance” if you were back in the palace watching it on CNN International? Maybe you’d know that, on domestic policy, Obama uses the veneer of disinterested arbiter as a feint. Or maybe you’d just figure that no serious world leader can ever be neutral on vital issues. So you’d start combing the speech for what lies underneath the usual Obama straw men — and women: “I reject the view of some in the West that a woman who chooses to cover her hair is somehow less equal.” Very brave of you, I’m sure. But what about the Muslim women who choose not to cover themselves and wind up as the victims of honor killings in Germany and Scandinavia and Toronto and Dallas? Ah, but that would have required real courage, not audience flattery masquerading as such.

And so, when the analysts had finished combing the speech, they would have concluded that the meta-message of his “equidistance” was a prostration before “stability” — an acceptance of the region’s worst pathologies as a permanent feature of life.

The mullahs stole this election on a grander scale than ever before primarily for reasons of internal security and regional strategy. But Obama’s speech told them that, in the “post-American world,” they could do so with impunity. Blaming his “agents” for the protests is merely a bonus: Offered the world’s biggest carrot, Khamenei took it and used it as a stick.

He won’t be the first to read Obama this way.


Op-Ed Columnist
City of Whispers
NYTIMES
By ROGER COHEN
June 20, 2009

TEHRAN — This has become the city of whispers. Many of the people I spoke to when I arrived last week are in prison. Stabbings and shootings punctuate the night. Fear rushes down alleys and dead ends. Still the whispering continues.

“Tomorrow, Vanak Square.” Or “Four o’clock, Imam Khomeini Square.” Or “Everyone wear black.”

An election result was announced a week ago that, in the words of the most senior opposition ayatollah, Hossein Ali Montazeri, “no wise person in their right mind can believe.”

Force rammed home the false, but still it did not stick. Switches were flicked to block texting and cell phones. Still the whispering continued.

From a four-year-old boy: “Ahmadi-byebye” — referring to President Mahmoud Ahmadinejad. From a young woman with a photograph of Mir Hussein Moussavi, the opposition leader whose occasional appearances send jolts of electricity: “Five o’clock, Vali Asr Square.”

The whispering is heard in the throng’s silence. It is the word-of-mouth switching mechanism of Iran’s uprising. I’ve never seen such discipline achieved with so little, millions summoned and coordinated with hardly a sound. “Silence will win against the bullets,” says one banner.

The odds must still be against that. But Ahmadinejad, in his customary bipolar (but tending manic) fashion, is making nice. “We like everyone,” he now says. I suppose he must mean those who are not in prison, hospital or a cemetery.

However, Ayatollah Ali Khamenei, the country’s supreme leader, adopted a harsh tone in a Friday sermon, warning of chaos and bloodshed if protests continue, blaming “evil media” run by “Zionists” for unacceptable disturbances, dismissing rigging as impossible, and charging the United States with meddling. In effect, Khamenei drew a line in the sand.

Two Irans now confront each other across it. One of the achievements of the 1979 revolution has been that it brought education to many more Iranians. I spoke the other day to a doctor. She was wearing a surgical mask as she marched. She works at a state oil company clinic. She was 20 in 1979 and she marched then, too.

“People are far more educated and cultivated now,” she told me. “They know the stakes. This is deep. Moussavi will go to the end for our freedom.”

Iran has sought independence and some form of democracy for over a century. It now has the former but this election has clarified, for an overwhelmingly young population, the Islamic Republic’s utter denial of the latter.

The feeling in the crowd seems to be: today or never, all together and heave!

A man holds his mobile phone up to me: footage of a man with his head blown off last Monday. A man, 28, whispers: “The government will use more violence, but some of us have to make the sacrifice.”

Another whisper: “Where are you from?” When I say the United States, he says: “Please give our regards to freedom.”

Which brings me to President Barack Obama, who said in his inaugural speech: “Those who cling to power through corruption and deceit and the silencing of dissent, know that you are on the wrong side of history; but that we will extend a hand if you are willing to unclench your fist.”

Seldom was a fist more clenched than in the ramming-through of this election result. Deceit and the attempted silencing of dissent are now Iran’s everyday currency. In this city of whispers one of the whispers now is: Where is Obama?

The president has been right to tread carefully, given poisonous American-Iranian history, but has erred on the side of caution. He sounds like a man rehearsing prepared lines rather than the leader of the free world. A stronger condemnation of the violence and repression is needed, despite Khamenei’s warnings. Obama should also rectify his erroneous equating, from the U.S. national security perspective, of Ahmadinejad and Moussavi.

Ahmadinejad is Iran’s Mr. Nuclear. He has rapidly advanced the program and, through preaching in every village mosque, successfully likened it to the nationalization of the oil industry as an assertion of Iranian nationalism.

By contrast, Moussavi has not abjured the program, but has attacked Ahmadinejad’s “adventurist” and “delusional” foreign policy. These are essential distinctions.

Obama should think hard about whether this ballot-box putsch is not precisely about giving Ahmadinejad and his military-industrial coterie four more years to usher Iran at least to virtual nuclear-power status. He should also think hard about the differences in character: Ahmadinejad is volatile and headstrong, the interlocutor from hell, while Moussavi is steady and measured.

Shrugging away these distinctions like a dispassionate professor at a time when people are dying in the streets of Iran is no way to honor this phrase in his Inaugural Address: “Know that America is a friend of each nation and every man, woman and child who seeks a future of peace and dignity, and that we are ready to lead once more.”

When I was here earlier this year, I argued that Iran was an unfree and repressive society but also a nation offering significant margins of liberty, at least by regional standards, with which Obama’s America must engage. After Iraq, I was deeply concerned that facile stereotyping of a society of “mad Mullahs” bent on nuclear Armageddon could once again set America in lockstep to war.

I underestimated how brutal the regime could be. But my critics underestimated how strong and broad the Iran of civic courage and democratic impulse is, and they misread how important this election was, dismissing it as the meaningless exercise of a clerical dictatorship.

I still believe there is no alternative to engagement. But it is not the time for Obama to talk about talks. He should be talking about his outrage at the violence.

This is the city of whispers. Its people crave to know that their hushed voices are being heard. Obama, lover of words, is the message man. “Message received” is what he must convey.


Testing the wind?

Israel's army chief: All options on table vs. Iran
CTPOST
The Associated Press
Updated: 09/21/2009 10:20:14 AM EDT

JERUSALEM—Israel's military chief says all options remain "on the table" for dealing with Iran's nuclear program.

Monday's comments by Lt. Gen. Gabi Ashkenazi's comments come a day after Russian President Dmitry Medvedev said Israeli officials had assured him they were not planning a military strike on Iran.

Israel accuses Iran of trying to acquire an atomic bomb. Tehran denies the charge.

Speaking to Israel's Army Radio, Ashkenazi said the best way to deal with the Iranian nuclear threat was through sanctions against the regime. But he said Israel was preparing for every option to make sure the Islamic regime does not go nuclear.

He says Israel has the right to defend itself and all options are under consideration.
Kremlin says Israel promised not to strike Iran
YAHOO
By Conor Humphries
Sept. 20, 2009

MOSCOW (Reuters) – Israel promised Russia it would not launch an attack on Iran, Russian President Dmitry Medvedev said in an interview aired on Sunday in which he described such an assault as "the worst thing that can be imagined."

Israel has hinted it could forcibly deny Iran the means to make an atomic bomb if it refuses to suspend uranium enrichment and has criticized Russia for agreeing to supply to Tehran S-300 anti-aircraft weapons that could complicate an attack.

In an interview with CNN recorded on Tuesday, Medvedev denied Moscow was backing Iran but said it had the right to supply defensive weapons and said sanctions against Tehran should only be used as a last resort.

An attack would lead to "a humanitarian disaster, a vast number of refugees, Iran's wish to take revenge and not only upon Israel, to be honest, but upon other countries as well," Medvedev said, according to a Kremlin transcript.

"But my Israeli colleagues told me that they were not planning to act in this way and I trust them."

During a meeting in the Russian resort of Sochi in August, Israeli President Shimon Peres said Israel would not attack Iran, Medvedev said. After the meeting, Peres told journalists Medvedev had promised to reconsider a contract to sell S-300s to Iran.

"When he visited me in Sochi, Israeli President Peres said something important for us all: 'Israel does not plan to launch any strikes on Iran, we are a peaceful country and we will not do this'," Medvedev said.

Asked about the possible delivery of S-300s, Medvedev said Russia had the right to sell defensive weapons to Iran.

SANCTIONS

"Our task is not to strengthen Iran and weaken Israel or vice versa but our task is to ensure a normal, calm situation in the Middle East," Medvedev said.

On Western calls for sanctions on Iran, he said such moves were often ineffective and action should only be taken as a last resort.

"Before speaking of applying additional sanctions, we should make full use of the existing possibilities," he said. "We should be absolutely confident that we have no other option."

Analysts have been watching for Russian concessions on Iran after the White House on Thursday canceled plans to site elements of a missile shield in Poland and the Czech Republic, [ID:nLH510988] but CNN interviewed Medvedev before the announcement.

Medvedev said he was hopeful Moscow's relations with Washington would improve under President Barack Obama and described the chances of an agreement on a new treaty to reduce strategic nuclear weapons by year-end as "quite high."

But he was critical of mixed messages coming from the White House.

Shortly after Obama hailed a "reset" of ties during a visit to Moscow in July, U.S. Vice President Joe Biden said Russia's shrinking population base and "withering economy" would push it to make deals on nuclear arms reductions.

"This is simply an incorrect move," Medvedev said. "Because while having only started to develop relations... with the Russian Federation, at the same time to strain them in such a way is to make a mistake."

Patriot missile (file image)
NATO proposes new era of cooperation with Russia
YAHOO
By David Brunnstrom David Brunnstrom
Sept. 18, 2009

BRUSSELS (Reuters) – NATO proposed a new era of cooperation with the United States and Russia on Friday, calling for joint work on missile defense systems after Washington scrapped a planned anti-missile system.

Russian Prime Minister Vladimir Putin described as "correct and brave" President Barack Obama's decision to drop the missile shield planned for Europe by predecessor George W. Bush. Russia's NATO envoy welcomed the NATO co-operation proposals.

Some military experts saw the moves as a sign of weakness by Obama, that Moscow hardliners would want to exploit further. Putin called in a speech on Friday for Obama to follow up with concessions on trade and technology transfer.  Others described abandonment of the system as a bold gesture that could improve frosty relations between the West and Russia.

"I do believe that it is possible for NATO and Russia to make a new beginning and to enjoy a far more productive relationship in the future," NATO Secretary-General Anders Fogh Rasmussen said in a speech in Brussels.

"We should explore the potential for linking the U.S., NATO and Russian missile defense systems at an appropriate time."

He gave few details of how the proposals would work but they were welcomed by Dmitry Rogozin, Russia's ambassador to the North Atlantic Treaty Organisation. Moscow had fiercely opposed the U.S. plans.

"POSITIVE AND CONTRUCTIVE"

"It was very positive, very constructive and we have to analyze together all the sec-gen's proposals for the new beginning of NATO-Russia cooperation," Rogozin told a news conference.

He indicated Russia would not go ahead with plans to deploy medium-range missiles in Kaliningrad, a Russian enclave which borders NATO members Poland and Lithuania, if the United States abandoned its plans to place ground-based interceptors in Poland and use a radar site in the Czech Republic.

"I hope you can understand (the) logic ... if we have no radars or no missiles in the Czech Republic and Poland, we don't need to find some response," he said.

NATO's ties with Russia have improved since the Cold War ended but deteriorated again following the defense alliance's eastward expansion to take in former Communist-ruled countries in eastern Europe and Moscow's war in Georgia last year.

Washington had proposed the shield because of concerns Iran was trying to develop nuclear warheads -- something Iran denies -- and could mount them on long-range missiles.  But Russia saw it as a threat to its own missile defenses and overall security.  Under a new plan, Washington would initially deploy ships with missile interceptors and in a second phase would field land-based defense systems. Rasmussen said no NATO ally would be weakened by the decision.

Putin, speaking to investors in the Black Sea resort of Sochi, said Obama's decision to scrap the missile plans was positive.

"I expect that after this correct and brave decision, others will follow, including the complete removal of all restrictions on the transfer of high technology to Russia and (U.S.) activity to widen the membership of the World Trade Organisation to (include) Russia, Kazakhstan and Belarus," Putin said.

Critics accused the White House of dangerous weakness.

Senator John McCain, the Republican presidential candidate who lost to Obama in 2008, called the move "seriously misguided" and former U.S. ambassador to the United Nations John Bolton, a leading Bush-era hawk, was scathing.

(Writing by Timothy Heritage) Copyright © 2009 Yahoo! Inc. All rights reserved.
Page last updated at 16:45 GMT, Thursday, 17 September 2009 17:45 UK
Barack Obama and Vladimir Putin
Mr Obama may be hoping to win concessions from Russia on Iran

Will missile defence shift benefit US?
By Kevin Connolly, BBC News, Washington

It would be hard to invent a news story that tied together more strategic and political issues than the Obama administration's decision to change its stance on the deployment of a missile defence shield in Eastern Europe.

It touches on Washington's assessment of Iran's military capabilities.

There is an underlying assumption that Tehran's capacity for mounting warheads on long-range missiles does not pose an immediate strategic headache.

It also sends a signal to the peoples of Central Europe about how President Barack Obama proposes to manage the post Cold-War order in their neck of the woods in the next few years.

And it raises questions about the administration's much talked-about desire to "hit the re-set" button on its relationship with Russia.

Russian flexibility

American plans to put missiles in Poland and woo new allies from Estonia to Georgia and Ukraine left the Russians feeling humiliated, encircled - and angry.

Might the re-timetabling of that perceived threat make the Russians a little more flexible on possible UN sanctions aimed at Iranian nuclear ambitions down the road?

Will there be some sort of back-door deal [with Russia] on a tougher approach to Iran's nuclear ambitions at the UN?

Or does it risk creating the impression among American voters that Mr Obama finds it difficult to stand up to Russian bluster.

When then-President Bush proposed to base advanced radar systems in the Czech Republic and interceptor missiles in Poland, the move proclaimed that countries which had until recently been occupied satellites of the Soviet Union were being taken lock, stock and barrel into the Western camp.

That promise was extended not just to the old satellite states like Poland but to the Baltic Republics, which had been part of the Soviet Union itself.

However the Obama administration works to portray its new strategic thinking in the coming months, there will be a feeling in parts of Eastern Europe that his government is going to strike a different balance between the need to embrace all those new allies and the need to avoid alienating Russia. The way the announcement of the shift in emphasis on the future of American missile defence was handled was a skilful muddying of the waters.  Statements came first from the president himself and then from his Secretary of Defense Robert Gates, within a few moments of each other. The tone of both was simple.

This was not about leaving new allies in the lurch, or about kow-towing to the Russians, or even about rowing back from the concept of developing the capability of protecting America and its allies by shooting down enemy missiles.

This was about improvements in sensor and missile technology rendering obsolete the old plans to place fixed position radar in the Czech Republic and fixed batteries of missiles in Poland.

The new capabilities, we were assured, would be more flexible and more technologically advanced.

'Misinterpreting reality'

There was even a whiff of idealism in there - the hope that Russia might one day be persuaded into co-operating on creating some kind of defence. And there was a reminder that America was continuing to talk to its allies about their readiness to host new-generation interceptors in the future.

Mr Gates, of course, is a useful ally for President Obama at these sticky moments.

He is a holdover from the Bush administration and, as such, once presided over the now-abandoned Czech/Polish plan himself. Who better to deploy to make the case that this change of plan is based strictly on military and scientific considerations rather than diplomatic expedience?

As the Defence Secretary put it: "Those who say we are scrapping the Missile Defence Shield are either misinformed or are misinterpreting reality."

Mr Gates even said that talks were under way that might eventually result in Poland and the Czech Republic hosting new generation missiles - conveniently, though, that would be much further down the road, perhaps somewhere around 2015. The first signs that not everyone was convinced by the administration's presentational skills were not long in coming.

Republican Senator John McCain called the decision "seriously misguided" and said that that it had "the potential to undermine perceived American leadership in Eastern Europe".

It will be some time before it is possible to work out precisely how to evaluate Washington's new posture on missile defence. Judgement will be based in part on the detail of any new plans that are published. Where and when will better sensors and interceptor batteries be deployed and what exactly will their capabilities be? Will they indeed really end up in Eastern Europe ?

How will Russia respond to America's announcement? Moscow has already said it sees no need to make concessions, but will there be some sort of back-door deal on a tougher approach to Iran's nuclear ambitions at the UN?

There are plenty of threads brought together in this American announcement. Unpicking them will take time.

White House Resists Calls for a Tougher Stance on Iran
NYTIMES
By MARK LANDLER
June 20, 2009

WASHINGTON — With Iran on a razor’s edge after a week of swelling protests, the Obama administration has fended off pressure from both parties to respond more forcefully to the disputed election there. But if Iranian authorities carry out their latest threat of a more sweeping crackdown, the White House would reconsider its carefully calibrated tone, officials said Friday.

Administration officials said events this weekend in Tehran — when demonstrators plan to rally in defiance of the authorities — would be a telling indicator of whether President Obama would join European leaders and lawmakers on Capitol Hill in more harshly condemning the tactics of the Iranian government.

Congressional Republicans and conservative foreign-policy experts stepped up their pressure on the White House to take a firmer stand in support of the demonstrators, even as Mr. Obama worked to keep Democrats from breaking openly with him on Iran.

For now, administration officials said they had not been swayed by criticism that Mr. Obama’s refusal to speak out more had broken faith with democracy advocates in Tehran, or by the fact that European leaders and even members of his own party in Congress had responded more assertively than he had.

In an interview with CBS News on Friday, Mr. Obama spoke cautiously about warnings by Iran’s supreme leader, Ayatollah Ali Khamenei, of bloodshed if the protests go on. “I’m very concerned, based on some of the tenor and tone of the statements that have been made, that the government of Iran recognize that the world is watching,” Mr. Obama said.

Mr. Obama, officials said, was determined to react to events as they unfold, rather than make statements that might play well politically but hinder his longer-term foreign-policy goals. The administration still hopes to pursue diplomatic engagement with Iran on its nuclear program.

Still, one senior official acknowledged that a bloody crackdown would scramble the administration’s calculations. The shadow of Tiananmen Square — in which Chinese tanks and troops crushed a flowering democracy movement in Beijing — has hung over the White House this week.

Mr. Obama continued to face pressure at home not to miss an opportunity to align the United States with a potentially historic shift in Iran. On Friday, both houses of Congress threw full support behind the rights of protesters to challenge the election results. In the House, lawmakers voted 405 to 1 to adopt a nonbinding resolution condemning the violence against demonstrators. The Senate passed a similar resolution later in the day.

“This resolution is not about American interests,” said Representative Howard L. Berman, a California Democrat who is the chairman of the House Foreign Affairs Committee. “It’s about American values, which I believe are universal values: the values of the rule of law; of participatory democracy; about individual liberty and about justice.”

The resolution, though firm, was softened after negotiations between Mr. Berman and the chairman of the House Republican Conference, Representative Mike Pence of Indiana, who was pushing for a tougher rebuke of the Iranian government. Democrats were aware of White House concerns about statements that could open the United States to charges of interference, and administration officials said the resolution largely echoed Mr. Obama’s public comments. “My guiding principle on this resolution was, Do no harm,” Mr. Berman said in a telephone interview.

While he said the United States was not taking sides, other lawmakers were. Representative Bob Inglis, Republican of South Carolina, said the election had clearly been fraudulent. “Rigged elections don’t produce outcomes that people can believe in,” he said. “We the people of the United States should stand boldly with the people in Tehran and elsewhere in Iran who are saying, ‘We yearn to breathe free,’ who want to govern themselves; this is their moment.”

The European Union also took a markedly tougher line than Mr. Obama, issuing a statement condemning the violence that resulted in loss of life. The union’s 27 national leaders also “condemned the crackdown against journalists, media outlets, communications and protesters,” which they said were “in contrast to the relatively open and encouraging period in the run-up to the election.”

Speaking afterward, Prime Minister Gordon Brown of Britain said: “It is for Iran now to show the world that the elections are fair. It is also the wish of the world that the repression and the brutality that we have seen in the last few days is not something that is going to be repeated.”

The Obama administration has resisted such language, worrying that full-throated American backing for the protesters would harm their cause by making them more susceptible to being labeled by Iranian officials as tools of Washington. Administration officials note that their muted response has not prevented the turnout at protests from growing by the day.

Mr. Obama has won support from across party lines. Henry A. Kissinger, the former secretary of state, said on Fox News: “I think the president has handled this well. Anything that the United States says that puts us totally behind one of the contenders, behind Moussavi, would be a handicap for that person,” he said. Mir Hussein Moussavi is the main challenger to the declared victor, President Mahmoud Ahmadinejad.

Some experts on Iran say a stronger United States response could provoke a violent backlash.

“If we overtly take sides, the regime could well react with a massive and bloody crackdown on the demonstrators using the pretext that they are acting against an American-led coup,” said Karim Sadjadpour, an Iranian expert at the Carnegie Endowment for International Peace.

The United States, he said, should quietly lobby other countries, from Turkey and India to France and Japan, to press Tehran about human rights abuses and the fairness of the election. It is not clear if the United States has done that, but a senior official said the White House understood if “our allies choose to lean in a different direction.”

Mr. Obama’s cautious approach, officials said, was also driven by a belief that Iran is unlikely to loosen its commitment to its nuclear program, regardless of who ends up in the president’s office. The ultimate authority over that, they note, resides with Ayatollah Khamenei.

Yet some Iran experts argue that the administration may soon have to re-evaluate its view of the supreme leader, who they say has been tarnished by his erratic response to the tumult in Tehran.

“If Ahmadinejad survives, it will be on the back of a Tiananmen-style crackdown,” said Abbas Milani, the director of Iranian studies at Stanford University. “If Moussavi prevails, it will be on a wave of reformist sentiment.”

Israeli prime minister to resign in September 
DAY
By MARK LAVIE, Associated Press Writer 
Posted on Jul 30, 2:27 PM EDT

JERUSALEM (AP) -- Israeli Prime Minister Ehud Olmert announced Wednesday he will resign in September, throwing his country into political turmoil and raising doubts about progress for U.S.-backed Mideast peace efforts.

Olmert's brief address, given at his official Jerusalem residence, included harsh criticism of corruption investigations against him. He said he was choosing the public good over his personal justice. He has consistently denied wrongdoing but pledged to resign if indicted.

Appearing angry and reading from a prepared text, Olmert said, "I was forced to defend myself against relentless attacks from self-appointed 'fighters for justice' who sought to depose me from my position, when the ends sanctified all the means."

Olmert, whose term was to end in 2010, said he would not run in his party's primary election, set for Sept. 17, and would step down afterward "in order to allow the chairman to be elected and form a different government quickly and efficiently." He did not answer questions from reporters.

Olmert's popularity dropped below 20 percent at one point after his bloody but inconclusive war in Lebanon in 2006, and a string of corruption allegations and police interrogations have battered him in recent months. Political analysts here have predicted his resignation for weeks.

In Washington, the State Department said Olmert's eventual departure from his post would not affect U.S. efforts to broker some kind of peace agreement with the Palestinians by the end of the year.

"The Israelis will work out their own politics," spokesman Sean McCormack told reporters. "We are going to look forward to working with all responsible Israeli leaders in the government, whether it is this government or some future government. I'm just not going to comment on their politics."

Olmert, 62, served as Jerusalem mayor for 10 years until 2003, when he was appointed trade minister in former Prime Minister Ariel Sharon's government. He held that position until he became prime minister in 2006 after Sharon suffered a devastating stroke.

His decision not to run in the Kadima Party primary sets in motion a process to choose a new prime minister. Main candidates in his party are Foreign Minister Tzipi Livni and Transport Minister Shaul Mofaz, a former defense minister and military chief of staff.

Polls show Livni with an advantage in the primary. If she were to replace Olmert, she would become Israel's second female prime minister, after Golda Meir.

If Olmert's successor as party leader can form a coalition, Israel could have a new government in October. If not, an election campaign could take several months. Olmert would remain in office until a new premier is chosen, heading a caretaker government after he submits his resignation to President Shimon Peres.

Olmert pledged to work for peace "as long as I am in my position," and said that talks with Palestinians and Syria are "closer than ever" to achieving understandings.

But the internal turmoil could make it difficult for Olmert to close deals with either the Palestinians or Syria, agreements that have eluded successive Israeli leaders for decades.

Palestinian Foreign Minister Riad Malki said Olmert's decision would change little. "It's true that Olmert was enthusiastic about the peace process, and he spoke about this process with great attention, but this process has not achieved any progress or breakthrough," Malki added. He said the Palestinians would deal with any Israeli government.

Olmert spoke as his delegation to indirect talks with Syria returned from their fourth round in Turkey. The two sides set another round with Turkish mediation for August.

Dan Margalit, an Israeli political analyst and longtime friend of Olmert who recently fell from his favor, called the decision to step down "a sad end to a miserable career."


Closer to our shores...
U.S. Removes Uranium From Iraq 
DAY
By Brian Murphy    
Published on 7/6/2008         
 
The last major remnant of Saddam Hussein's nuclear program - a huge stockpile of concentrated natural uranium - reached a Canadian port Saturday to complete a secret U.S. operation that included a two-week airlift from Baghdad and a ship voyage crossing two oceans.

The removal of 550 metric tons of “yellowcake” - the seed material for higher-grade nuclear enrichment - was a significant step toward closing the books on Saddam's nuclear legacy. It also brought relief to U.S. and Iraqi authorities who had worried the cache would reach insurgents or smugglers crossing to Iran to aid its nuclear ambitions.

What's now left is the final and complicated push to clean up the remaining radioactive debris at the former Tuwaitha nuclear complex about 12 miles south of Baghdad - using teams that include Iraqi experts recently trained in the Chernobyl fallout zone in Ukraine.

”Everyone is very happy to have this safely out of Iraq,” said a senior U.S. official who outlined the nearly three-month operation to The Associated Press. The official spoke on condition of anonymity because of the sensitivity of the subject.

While yellowcake alone is not considered potent enough for a so-called “dirty bomb” - a conventional explosive that disperses radioactive material - it could stir widespread panic if incorporated in a blast. Yellowcake also can be enriched for use in reactors and, at highficial described as worth “tens of millions of dollars.” A Cameco spokesman, Lyle Krahn, declined to discuss the price, but said the yellowcake will be processed at facilities in Ontario for use in energy-producing reactors.

”We are pleased ... that we have taken (the yellowcake) from a volatile region into a stable area to produce clean electricity,” he said.

The deal culminated more than a year of intense diplomatic and military initiatives - kept hushed in fear of ambushes or attacks once the convoys were under way: first carrying 3,500 barrels by road to Baghdad, then on 37 military flights to the Indian Ocean atoll of Diego Garcia and finally aboard a U.S.-flagged ship for a 8,500-mile trip to Montreal.

And, in a symbolic way, the mission linked the current attempts to stabilize Iraq with some of the high-profile claims about Saddam's weapons capabilities in the buildup to the 2003 invasion.

Accusations that Saddam had tried to purchase more yellowcake from the African nation of Niger - and an article by a former U.S. ambassador refuting the claims - led to a wide-ranging probe into Washington leaks that reached high into the Bush administration.  Tuwaitha and an adjacent research facility were well known for decades as the centerpiece of Saddam's nuclear efforts.

Israeli warplanes bombed a reactor project at the site in 1981. Later, U.N. inspectors documented and safeguarded the yellowcake, which had been stored in aging drums and containers since before the 1991 Gulf War. There was no evidence of any yellowcake dating from after 1991, the official said.

U.S. and Iraqi forces have guarded the 23,000-acre site - surrounded by huge sand berms - following a wave of looting after Saddam's fall that included villagers toting away yellowcake storage barrels for use as drinking water cisterns.  Yellowcake is obtained by using various solutions to leach out uranium from raw ore and can have a corn meal damage to internal organs, experts say.

”The big problem comes with any inhalation of any of the yellowcake dust,” said Doug Brugge, a professor of public health issues at the Tufts University School of Medicine.

Moving the yellowcake faced numerous hurdles.  Diplomats and military leaders first weighed the idea of shipping the yellowcake overland to Kuwait's port on the Persian Gulf. Such a route, however, would pass through Iraq's Shiite heartland and within easy range of extremist factions, including some that Washington claims are aided by Iran. The ship also would need to clear the narrow Strait of Hormuz at the mouth of the Gulf, where U.S. and Iranian ships often come in close contact.

Kuwaiti authorities, too, were reluctant to open their borders to the shipment despite top-level lobbying from Washington.

An alternative plan took shape: shipping out the yellowcake on cargo planes.

But the yellowcake still needed a final destination. Iraqi government officials sought buyers on the commercial market, where uranium prices spiked at about $120 per pound last year. It's currently selling for about half that. The Cameco deal was reached earlier this year, the official said.

At that point, U.S.-led crews began removing the yellowcake from the Saddam-era containers - some leaking or weakened by corrosion - and reloading the material into about 3,500 secure barrels.  In April, truck convoys started moving the yellowcake from Tuwaitha to Baghdad's international airport, the official said. Then, for two weeks in May, it was ferried in 37 flights to Diego Garcia, a speck of British territory in the Indian Ocean where the U.S. military maintains a base.

On June 3, an American ship left the island for Montreal, said the official, who declined to give further details about the operation.  The yellowcake wasn't the only dangerous item removed from Tuwaitha.  Earlier this year, the miliments of high radioactivity that could potentially be used in a weapon, according to the official. Their Ottawa-based manufacturer, MDS Nordion, took them back for free, the official said.  The yellowcake was the last major stockpile from Saddam's nuclear efforts, but years of final cleanup is ahead for Tuwaitha and other smaller sites.

The U.N.'s International Atomic Energy Agency plans to offer technical expertise.

Last month, a team of Iraqi nuclear experts completed training in the Ukrainian ghost town of Pripyat, which once housed the Chernobyl workers before the deadly meltdown in 1986, said an IAEA official who spoke on condition of anonymity because the decontamination plan has not yet been publicly announced.

But the job ahead is enormous, complicated by digging out radioactive “hot zones” entombed in concrete during Saddam's rule, said the IAEA official. Last year, an IAEA safety expert, Dennis Reisenweaver, predicted the cleanup could take “many years.”

The yellowcake issue also is one of the many troubling footnotes of the war for Washington.

A CIA officer, Valerie Plame, claimed her identity was leaked to journalists to retaliate against her husband, former Ambassador Joe Wilson, who wrote that he had found no evidence to support assertions that Iraq tried to buy additional yellowcake from Niger.

A federal investigation led to the conviction of I. Lewis “Scooter” Libby, Vice President Dick Cheney's chief of staff, on charges of perjury and obstruction of justice. 

Karzai Says He'd Meet With Taliban Leader Omar, Offer from president includes government post for militants, comes just after bomber kills 30 
DAY
By Jason Straziuso, Associated Press Writer    
Published on 9/30/2007 

Kabul, Afghanistan — President Hamid Karzai on Saturday offered to meet with the Taliban leader and give militants a government position only hours after a suicide bomber in army disguise attacked a military bus, killing 30 people — nearly all of them Afghan soldiers.

Strengthening a call for negotiations he has made with increasing frequency in recent weeks, Karzai said he was willing to meet with the reclusive leader Mullah Omar and Gulbuddin Hekmatyar, a former prime minister and factional warlord leader.

“If I find their address, there is no need for them to come to me, I'll personally go there and get in touch with them,” Karzai said. “Esteemed Mullah, sir, and esteemed Hekmatyar, sir, why are you destroying the country?”

Karzai said he has contacts with Taliban militants through tribal elders but that there are no direct and open government communication channels with the fighters. Omar's whereabouts are not known, although Karzai has claimed he is in Quetta, Pakistan, a militant hotbed across the border from Afghanistan's Kandahar province.

“If a group of Taliban or a number of Taliban come to me and say, 'President, we want a department in this or in that ministry or we want a position as deputy minister ... and we don't want to fight anymore,' ... If there will be a demand and a request like that to me, I will accept it because I want conflicts and fighting to end in Afghanistan,” Karzai said.

“I wish there would be a demand as easy as this. I wish that they would want a position in the government. I will give them a position,” he said.

The U.S. Embassy in Kabul has said it does not support negotiations with Taliban fighters, labeling them as terrorists, although the U.N. and NATO have said an increasing number of Taliban are interested in laying down their arms. NATO's ambassador to Afghanistan, Daan Everts, said this month that the alliance would look into the possibility of talks.

President Bush met with Karzai on the sidelines of the U.N. General Assembly in New York on Wednesday where the two discussed the battle against al-Qaida and the Taliban, but it has not been made public whether the two talked about negotiations with militants.

A State Department duty officer said he could not immediately comment on Karzai's offer to meet with Omar, noting that most policymakers were still in New York.

Saturday's explosion — the second deadliest since the fall of the Taliban in 2001 — ripped off the roof of the bus and tore out its sides in Kabul, leaving a charred hull of burnt metal. It was reminiscent of the deadliest attack since the U.S.-led invasion, when a bomber boarded a police academy bus at Kabul's busiest transportation hub in June, killing 35 people.

Police and soldiers climbed trees to retrieve body parts. Nearby businesses also were damaged.

“For 10 or 15 seconds, it was like an atom bomb — fire, smoke and dust everywhere,” said Mohammad Azim, a police officer who witnessed the explosion.

Karzai said 30 people were killed — 28 soldiers and two civilians. The Health Ministry said another 30 were wounded. Two women were among the dead, and 11 people whose bodies were ripped apart so badly had yet to be identified.

“It was a terrible tragedy, no doubt an act of extreme cowardice,” Karzai said. “Whoever did this was against people, against humanity, definitely against Islam. A man who calls himself Muslim will not blow up innocent people in the middle of Ramadan,” the Muslim holy month.

A purported Taliban spokesman, Zabiullah Mujahid, claimed the militant group was responsible for the blast in a text message to The Associated Press. Mujahid said the bomber was a Kabul resident named Azizullah.

The bus had stopped in front of a movie theater to pick up soldiers when a bomber wearing a military uniform tried to board early Saturday, army spokesman Gen. Mohammad Zahir Azimi said.

“Typically there are people checking the IDs of soldiers who want to board the bus,” Azimi said. “While they were checking the IDs the bomber tried to get on the bus and blew himself up there.”

Karzai earlier this month renewed a call for talks with the Taliban, and a spokesman for the militant group initially said the fighters might be open to negotiations. But spokesman Qari Yousef Ahmadi later said foreign troops must first leave the country — a demand Karzai said Saturday he would not meet.

“It should be very clear that until all our roads are paved, until we have good electricity and good water, and also until we have a better Afghan national army and national police, I don't want any foreigners to leave Afghanistan,” he said.

He said he still wanted negotiations with Taliban militants of Afghan origin “for peace and security.” He ruled out talks with al-Qaida and other foreign fighters.

NATO's International Security Assistance Force, meanwhile, said one of its soldiers was killed in eastern Afghanistan during combat operations on Saturday. ISAF did not release the soldier's nationality, but most in the east are American.

Four employees with the International Committee of the Red Cross, kidnapped earlier this week while negotiating the release of a German hostage, were also freed Saturday, the ICRC said.

The four men — two Afghans, a Macedonian and a man from Myanmar — said they were treated well. A Taliban commander said he ordered the four held hostage because he thought they were spies but let them go once it was provedthey were Red Cross workers, according to a video obtained by AP Television News.

The four had traveled to Wardak province in hopes of helping free a German man held since July. The workers said that the German was still alive and that they had seen him.

The number of kidnappings in Afghanistan has spiked in recent months after the Taliban secured the release of five insurgent prisoners in exchange for a captive Italian journalist in March — a heavily criticized swap that many feared would encourage abductions.

The Taliban kidnapped 23 South Koreans in July, a hostage crisis that scored the militants face-to-face talks with South Korean government delegates. Two of the Koreans were killed; 21 were eventually released.


K O R E A

About North Korea:  http://www.courant.com/news/nationworld/custom/sns-nkoreaprofile,0,4452508.story?coll=hc-nationworld-heds-breaking

G-20;  Read here about pre-meeting temblor

GREEK DEBT CRISIS MAJOR FOCUS
Uphill battle: G20 leaders, experts say, will be hard pressed to achieve any substantial progress at the Pittsburgh summit. Shown: Pittsburgh's Duquesne Incline.  Protest.  More protest at June 2010 Toronto G20

 US Treasury Secretary Timothy Geithner (left) with IMF managing
The meeting set the agenda for a summit later this month in Toronto;  PM Cameron arrives for G8 and G20.  As S. Korean G-20 rages, Russia and Germany leaders talk.  U.S. target of anger.


Emerging markets bristle at capital control limits
YAHOO
By Lesley Wroughton and Isabel Versiani
16 April 2011

WASHINGTON (Reuters) – Developing countries on Saturday pushed back hard against attempts to restrict how they manage money pouring into their fast-growing economies and said rich nations should reconsider their own policies instead.  Resistance to limiting capital controls, a sensitive topic for economies inundated with inflows of inflationary "hot money" from countries with low interest rates such as the United States, was widespread among emerging market finance leaders at a weekend International Monetary Fund meeting here.

"We oppose any guidelines, frameworks or 'codes of conduct' that attempt to constrain, directly or indirectly, policy responses of countries facing surges in volatile capital inflows," said Brazilian Finance Minister Guido Mantega.

The IMF this month endorsed use of capital controls, a tool once considered anathema to its free-market philosophy, but advanced countries want to establish a framework to monitor the policies governments use, an approach emerging markets oppose.

"Ironically, some of the countries that are responsible for the deepest crisis since the Great Depression and have yet to solve their own problems are eager to prescribe codes of conduct to the rest of the world," Mantega said, "including to countries that are overburdened by the spillover effects of the policies adopted by them."

Brazil and others point at the U.S. Federal Reserve's zero interest rate policy, which they say leads investors to pour money into their economies in search of higher returns. These flows are stoking inflation and pushing currencies higher in emerging markets.  The G24 group of developing nations, which includes Brazil and India, urged the IMF on Thursday to take an "open-minded and even-handed approach" to managing capital inflows.

The fund should focus on understanding the effects of "policies that spill across borders," Central Bank of Chile Governor Jose De Gregorio said on Saturday.

The G20 group of leading developed and emerging economies delayed a final decision on when countries can use capital controls on Friday and agreed to keep working on a framework.  But French Finance Minister Christine Lagarde, whose country is G20 president this year, said "it seems vital to have a common set of rules" on how to manage capital flows.

Mexican Finance Minister Ernesto Cordero said capital controls "should only be used as a last resort."

"Thankfully, there are only a few countries considering these measures," he said.

PUTTING FISCAL HOUSES IN ORDER

Some finance officials said ultra-loose monetary policies and rising budget deficits in the United States and other advanced countries posed a threat to the world's recovery from the worst recession since World War II.

"The fiscal situation in the advanced economies gives us great concern, and it is in this area that we see the major risks to the global economy," Russian Finance Minister Alexei Kudrin told the IMF's advisory panel.

The IMF this week noted that the U.S. budget gap was on course to hit 10.8 percent of economic output this year, tying Ireland for the largest deficit to total output ratio among advanced economies. It urged Washington to tighten its belt.  At Saturday's meeting, U.S. Treasury Secretary Timothy Geithner said the United States was "committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery."

Leaders also fretted about fiscally strapped euro zone countries and their ability to refinance their massive debts.

"Fiscal authorities, especially in advanced economies, should speed up public finance consolidation," said Dutch Finance Minister Jan Kees de Jager. "A strong message from the (IMF panel) on this matter would be welcome."

U.S. and other developed country leaders have long argued that emerging countries can combat inflows and price pressures by allowing their currencies to strengthen against the dollar.  China, the world's biggest exporter, has rebuffed acute U.S. pressure to let the yuan rise more rapidly, though Premier Wen Jiabao this week said the country should resort to more exchange rate flexibility to combat rapidly rising prices.

Consumer price increases accelerated in both China and India in the year to March.

Geithner called the IMF's proposed framework on capital controls a "good start" and called for "stepped-up surveillance" on monitoring exchange rates.
G20 backs early-warning plan against future crises
YAHOO
By Daniel Flynn and Wanfeng Zhou
Fri Apr 15, 2011 10:40 pm ET

WASHINGTON (Reuters) – Leading world economies agreed on Friday to put the policies of seven major nations under a microscope as part of a plan to prevent a repeat of the global financial crisis.

The pact was agreed by the Group of 20 nations after months of wrangling highlighted by China's fears that its policy of limiting its currency's rise was being targeted.

Under the deal, the International Monetary Fund will look at national levels of debt, budget deficits and trade balances to determine if a nation's policies are putting the global economy at risk and should be changed.

One potential shortcoming is that countries will not be bound to follow any recommendations that emerge.

French Finance Minister Christine Lagarde said the agreement marked "huge progress" on the path to more balanced world growth and said seven major economies would automatically be subject to review. Others could face scrutiny as well if their policies are found to be stoking global risks.

"The net is a little bit tighter for those countries that are considered of systemic importance," Lagarde said.

France is president of the G20 this year.

Countries representing more than 5 percent of the combined output of the G20 will be examined by the IMF under the deal.

The list would include the debt-burdened United States and export-rich China -- the two main economies at the heart of the debate over global imbalances. France, Britain, Germany, Japan and India would round out the list, officials said.

"Our aim is to promote external sustainability and ensure that G20 members pursue the full range of policies required to reduce excessive imbalances," G20 finance officials said in a communique issued at the close of a full-day meeting.

Many economists say global imbalances -- notably the gaping and persistent U.S. trade gap and correspondingly large surplus in China -- laid ground for the 2007-2009 crisis, which ended with the worst global recession since World War II.

The G20 has become the main forum to prevent similar boom-bust cycles. Agreeing on how best to do that has grown difficult now that the darkest days of crisis have passed.

Eswar Prasad, a senior fellow at the Brookings Institution and former IMF official, said the real test of the latest plan from the G20 rich and emerging economies will come once all the numbers are filled in and countries have to answer for policies that are deemed a danger to the world.

"Once the numbers are put on the table, that's when you'll start to see the pushback," he said.

The G20 appeared to offer room for countries to sidestep criticism. "National circumstances will ... be taken into account," it said without elaboration...
As worry list grows, G20 gets wonky
YAHOO
By Emily Kaiser
10 April 2011

WASHINGTON (Reuters) – While the world watches revolutions in the Arab world and a nuclear crisis in Japan, the Group of 20 is engrossed in an esoteric debate over something called indicative guidelines.  The club of rich and emerging economies banded together at the height of the financial crisis and earned praise for swiftly putting in place policies that helped prevent a repeat of the Great Depression.  But as a new list of potential economic dangers grows, the G20 seems to have few immediate answers.

Instead, finance leaders meeting in Washington this week are likely to tout progress on establishing guidelines to measure imbalances between major exporters and importers.  Andrew Kenningham, senior international economist at Capital Economics in London, said the G20 had "gone done a cul de sac" that distracted it from the global economic stability issues it was meant to address.

"It will be increasingly difficult to disguise the fact that there is no agreement on macroeconomic coordination at a global level," he said. "The G20 is struggling to find a useful role for itself, no matter how frequently it meets."

The G20 lost its crisis-forged cohesion last year as different countries recovered at different rates, generating different policy priorities.  That has made it difficult for leaders to follow through on a promise they made back in 2009 to work together to smooth out imbalances. The idea was that consumer-driven economies such as the United States would save and invest more, while export powerhouses like China would develop domestic demand.

When it came time to set specifics, however, the G20 unity broke down. When they could not agree on any numerical targets, they set their sights on "indicative guidelines" instead, and even those have become a source of friction.  Kenningham said the G20 will have to show some progress this week that puts it on track to deliver something that leaders can sign at a November summit.

That means finance ministers will probably find some way to set aside their differences and establish broad guidelines, but leave agreement on the details for a later discussion.

SLIPPING ON OIL

With oil at its highest level since 2008's record-setting run, finance leaders will no doubt acknowledge economic risks in a statement released at the conclusion of the G20 meeting on Friday.

The International Monetary Fund, which holds its twice-yearly meeting on the weekend, is scheduled to release its economic outlook on Monday. The Fund warned last week of long-term oil scarcity that could lead to persistently higher prices.

At $126 per barrel, oil prices are high enough to threaten world economic growth, and some economists predict they will continue to creep higher. If oil prices average $150 per barrel over the next three months, it would erase three-quarters of a percentage point from global growth, Barclays Capital estimated.  A slew of data this week will offer some clues on how hard the oil price spike has hit economies.

Wednesday brings U.S. retail sales for March, which may provide the first hint that steep gasoline prices are cutting into consumer spending. Economists polled by Reuters are looking for a gain of 0.5 percent, which would be half the growth rate recorded in February, and much of the gain may come from rising prices rather than demand.

China releases a report on its first-quarter gross domestic product on Friday, and it is expected to show growth eased a tad to a still-lofty 9.5 percent. China has clamped down on credit conditions to try to cool inflation, which will likely constrain growth.

"Policymakers may have to choose between higher inflation and lower growth," said Luca Ricci, a Barclays analyst in New York.



French announce G20 compromise deal on imbalances
YAHOO
19 February 2011

PARIS (Reuters) – G20 countries struck a compromise deal on indicators that can be used to address global economic imbalances at "frank and sometimes tense" negotiations in Paris on Saturday, French Economy Minister Christine Lagarde said.

"It has not been simple there were obviously divergent interests but we were able to reach a comprise on a text," Lagarde, who chaired the talks, said, citing among the indicators debt and deficit, savings and investment, and trade and current accounts.

China had opposed attempts to use real effective exchange rates and currency reserves to measure imbalances and ministers made no mention to either as indicators in their own right.

Ministers from G20 countries, which together account for 85 percent of the world's economic output, met in Paris to discuss those indicators as they try to plot the next stage for economic policy strategies to avoid a repeat of the 2008 global financial crisis.
G20 sees two steps to tackling global imbalances: EU
YAHOO
By Jan Strupczewski
13 February 2011

BRUSSELS (Reuters) – Finance ministers from the world's 20 biggest developed and developing economies (G20) are likely to agree next week on a two-stage approach to tackling global economic imbalances, a European Union document showed.  Such imbalances, reflected in the current account balance, private and public savings, debt and capital flows, can trigger or augment crises, destabilizing the world economy. G20 leaders agreed in November to find a way to tackle them.

The first step would be to identify the imbalances using an agreed set of economic indicators and benchmark values.  The second step would be to analyze the causes of the imbalances and possibly make policy recommendations on how to deal with them.

The two-step approach has been agreed on by G20 deputy finance ministers who met in Paris for a preparatory meeting on January 14-15, the EU terms-of-reference document for EU G20 delegations to the Paris meeting on Feb 18-19 showed.

"The EU strongly supports the agreement reached by the deputies," said the document, obtained by Reuters.

"The two-step approach will add structure and focus to the work of the G20."

There is no agreement yet in the G20 on the full set of indicators to be used for the assessment of imbalances -- this is what G20 finance ministers are due to agree on in Paris.  The document said that the European Union would push for the following set:

- current account balance
- public deficit and debt
- private debt
- savings ratio
- net foreign asset position
- reserve adequacy
- real effective exchange rate

"The current account balance, rather than the trade balance should be a leading indicator as it provides a more complete and accurate picture of external sustainability," said the EU terms-of-reference document in an apparent reference to China, which a G20 source said preferred the trade balance measure.

A G20 source said that while the Paris meeting is likely to agree on which indicators to include in the assessments, their values, which would trigger a more in-depth analysis, would be decided in April at a G20 meeting in Washington.

INTERNATIONAL MONETARY SYSTEM

The G20 finance ministers will also discuss in Paris a reform of the international monetary system, including capital flows, international reserve assets and financial safety nets.  Investment flows can help poorer countries develop and grow, but they have been blamed for overheating economies and driving up inflation. They can also become a destabilizing force when investors suddenly withdraw money.  Over the past year fast-growing emerging markets such as Brazil have been the biggest recipients of these capital flows, and some nations have taken steps, such as raising taxes, to try to manage the influx.

"The EU believes in the benefits of the free movement of capital ... and sees with some concern the increasing use of temporary controls," the EU terms-of-reference document said.

"The EU sees temporary controls of capital inflows as a second best policy instrument to address volatile capital flows compared with macroeconomic macro-prudential and structural measures," the document said.

It added that the International Monetary Fund should identify what drove capital flows and what the appropriate domestic responses were as well as monitor global capital flows.

SDR ROLE

France, which took over the presidency of the G20 in November, is sounding out governments on ways to reform a monetary system dominated for decades by the U.S. dollar, with the aim of creating greater global stability.

French officials have said they hope to encourage greater use of the Chinese yuan as a reserve currency during their G20 presidency, including talks on a possible timetable for its inclusion in the basket of currencies which underpin the International Monetary Fund's Special Drawing Rights.  Other ideas include encouraging a greater role for the SDR itself as a reserve currency in an effort to move away from dollar hegemony.  The EU document indicated the 27-nation bloc was ready to consider the eventual inclusion of China's renminbi currency in the basket of currencies underpinning the SDR.

The EU was also ready to discuss SDR-denominated bonds, it said, inviting the IMF to explore ways to develop a private market for SDRs.

"The EU is also open to discuss the possible costs and benefits of SDR exchange rate pegs and SDR-denominated debt as a possible way to reduce balance sheet risks," it said.


Europe’s Piecemeal Failure
NYTIMES
By ALISTAIR DARLING
December 5, 2010

London

WHEN I look at events in Europe today, with Ireland getting bailed out and talk of crises brewing elsewhere on the continent, I am reminded of the weeks leading up to the banking crisis in 2008. As the credit crunch began and banks found it increasingly difficult to get access to funding, policy makers faced a choice: deal with the problem in a piecemeal way, or address the root causes immediately.  For too long many policy makers opted to fudge their approach; they dealt with the problem bank by bank and refused to recognize the system’s fundamental flaws.

As a result, we saw Lehman Brothers go bankrupt, Bear Stearns bought up in a fire sale and a major British bank come within hours of collapse.

During that summer I realized that unless we put a firewall in place to prevent the crisis from spreading, we would face a catastrophe in the banking sector and the wider economy. That’s why I took the controversial step of injecting billions of pounds into the banking system to stabilize it. By tackling the fundamental problem, the lack of capital in banks, we stopped a meltdown. It was drastic action, but I have no doubt that it worked.

The same approach is now urgently needed for European economies. It is not enough for the euro zone nations to bail out each economy as it falls into a crisis — they must address the root causes of the continent’s problems.  This hasn’t been the approach so far. In May, Europe eventually faced up to the fact that it had to help Greece, which was finding it increasingly difficult to borrow to cover its debts. But the rescue was far too long in coming, and the United States Treasury deserves a great deal of credit for forcing the issue to a head.

Thanks to the bailout, the immediate crisis was resolved; we bought some time. But that time was not used to put in place a more fundamental approach that would deal with overly indebted European economies.

And so, a little over a week ago, we saw a new crisis: Ireland had to accept that its banks’ debts were so large that it needed help. The European Union and the International Monetary Fund stepped in with a bailout package, and again the immediate crisis was averted.  But did the Irish bailout draw a line under the euro zone crisis? Far from it. Bond yields rose for Portugal, Spain and even Italy, a strong indication that problems remain.

More than anything, the problems in the euro zone have exposed the monetary union’s basic fault line. The euro zone shares a common currency, but the political and economic union that underpins it has a limited ability to resolve disagreements among member states and to take decisive steps to resolve difficulties.  The result is a political crisis alongside the economic one: commentators speak as if the only options are complete political union or the breakup of the euro zone. But the first will not happen, while the second would create many more painful and destabilizing problems. Instead, just as with the banking crisis, Europe must construct a firewall to stop the crisis from spreading.

This will involve two sets of steps. First, action is needed now to provide stability. To that end, the European Central Bank needs to make a firm commitment to buying government bonds from at-risk countries. That’s what it did during the Greek crisis, where its resolve played a key role in returning investor confidence to the bond market. Since then, however, it has sent out increasingly mixed signals about whether it would do so in the future (although last week it did step up its bond purchases, to some effect).

The European Central Bank should be clear that it will continue to intervene to stabilize markets, and it needs to consider going further. During my time as chancellor of the Exchequer I authorized the Bank of England to engage in quantitative easing by increasing the money supply, a step that has been taken twice by the Federal Reserve as well.  Despite the success of our actions, however, the European Central Bank has refused to consider doing the same. It should think again. Quite simply, Europe cannot afford to bump along the economic bottom for the next few years with sluggish growth.

The euro zone states also need to deal with banks carrying unsustainable debt. Last summer Europe carried out so-called stress tests on its banks to see which ones were at risk of collapse. But these tests were insufficient (as I noted at the time). The tests did not pay enough attention to the banks’ interrelationships, not just in Europe but globally. Banks in trouble need to be restructured and broken up, if necessary.

Finally, alongside such preventive measures, Europe needs to step up its contingency planning in case banks wind up failing. The Irish banks are not unique, after all. This means being clear about what sits on a bank’s balance sheet, and what is to be done if a bank becomes insolvent. The lack of such transparency in the case of the Lehman Brothers collapse led to the seizing up of the global finance sector — no one knew who owed what to whom.

The second set of steps is more long term and involves Europe’s accepting two fundamental principles. The first is that austerity alone will not work. It is not enough simply to demand that countries at risk of default immediately shrink their deficits and cut government spending. That approach is self-defeating: inflicting deflationary, painful austerity policies runs the risk of stifling the growth the countries need to pay down their debt and recover.

Today too many European advocates of austerity at all costs stand virtually unchallenged. Their solution is similar to that of dealing with troubled banks one by one: it is a fudge, addressing just one part of a much larger problem.  What is needed instead is a balanced approach in which deficits are brought down quickly, but not in such a way as to destroy the economic or social fabric of those countries. The pace of deficit reduction needs to match the capacity of the private sector to pick up the slack.

The second principle is that countries with heavy debt burdens need more than just a bailout. Markets need to see that these countries have some hope of being able to manage their debt burdens in the future, especially after seeing their governments nationalize the balance sheets of collapsing banks.  Consumers in these countries, seeing their economies in crisis, will not want to spend money or borrow more. Companies will be wary of making investments. So growth, and the means of meeting countries’ debt burdens, must come from exports.

That means in the medium term, larger euro zone countries will need to increase their own spending to balance the contraction in demand they are imposing on their crisis-stricken neighbors. Unfortunately, today the opposite is occurring: major European economies are undertaking their own austerity measures, shrinking demand for imports at home. This approach offers the peripheral countries no way out, and unwieldy transfer payments of one form or another, like bailouts or other aid packages, risk becoming unavoidable.

I have spoken with too many European politicians who, when I ask them where growth will come from in the future, say they can’t be sure. But without a clear path forward, we will see minimal growth for Europe’s stronger economies; for those in danger already it could be disastrous.

We cannot go on like this. The crisis in the euro zone is the single largest threat to the fragile global recovery we are now seeing. And this is not just a problem for Europe. It matters to us in Britain, as well as to the United States and Asia.  At last year’s Group of 20 meetings in London, the participating countries agreed to stabilize the international banking system and to stimulate the world economy. Further progress was made in Pittsburgh six months later. There was real political will to do what was necessary.

That momentum has now been lost, and it will not be regained without greater involvement from the major economies. Decisive action, confronting the underlying causes of this crisis, is now imperative.

Alistair Darling, a member of the British Parliament, was the chancellor of the Exchequer from 2007 to 2010.


G20 closes ranks but skims over toughest tasks
By Alex Richardson and David Ljunggren
12 Nov. 2010

SEOUL (Reuters) – G20 leaders closed ranks on Friday and agreed to a watered-down commitment to watch out for dangerous imbalances, yet offered investors little proof that the world was any safer from economic catastrophe.

After an acrimonious start, the developed and emerging nations agreed at a summit in Seoul to set vague "indicative guidelines" for measuring imbalances between their multi-speed economies but, calling a timeout to let tempers cool, left the details to be discussed in the first half of next year.

European leaders broke away for their own mini gathering in the middle of the summit to discuss a deepening credit crisis in Ireland, a stark reminder that the consequences of the worst financial crisis since the Great Depression still posed a serious threat to global stability.

In a communique signed off at the end of the gathering, the group's fifth since the financial crisis exploded in 2008, there was a little something for everyone.

Leaders vowed to move toward market-determined exchange rates, a reference to China's tightly managed yuan that the United States has long complained is undervalued.

They pledged to shun competitive devaluations, a line addressing other countries' concern that the U.S. Federal Reserve's easy-money policy was aimed at weakening the dollar.

In a nod to emerging markets struggling to contain huge capital inflows, the G20 gave the okay to impose "carefully designed" control measures.

They also agreed that there was a critical, but narrow, window of opportunity to conclude the long-elusive Doha round of trade liberalization talks launched in 2001.

But there was no mention of Ireland, and the bland promises to deal with imbalances did not appear substantive enough to bring about any real shift. The International Monetary Fund warned that gaps between cash-rich exporters and debt-laden importers was widening to pre-crisis levels.

"The work that we do here is not always going to seem dramatic," U.S. President Barack Obama told a news conference after the summit.

"It's not always going to be immediately world-changing. But step by step what we're doing is building stronger international mechanisms and institutions that will help stabilize the economy, ensure economic growth and reduce some tensions."

Global financial markets were not moved by the outcome of the G20 summit as it offered few concrete measures to change economic policy. Investors were instead focused on the fiscal crisis in Ireland.

BURYING THE HATCHET

After weeks of verbal jousting, the United States and China sought to bury the hatchet over rows about China's "undervalued" currency and the global risks created by the U.S. printing money to reflate its struggling economy.

"Exchange rates must reflect economic realities ... Emerging economies need to allow for currencies that are market driven," Obama said. "This is something that I raised with President Hu (Jintao) of China and we will closely watch the appreciation of China's currency."

The G20's accord sought to recapture the unity that was forged in crisis two years ago, but deep divides meant the leaders could not venture much beyond what was already agreed by their finance ministers last month.

Negotiators had labored until the early hours of the morning to thrash out an agreement their leaders could all endorse, despite sharp disagreements that were on public display in the days before the meeting.

"This hasn't been a love-fest," an official who participated in the negotiations said.

In particular, the leaders were unable to reach a consensus on how to identify when global imbalances pose a threat to economic stability, merely committing themselves to a discussion of a range of indicators in the first half of 2011.

Tim Condon, head of research at ING Financial Markets in Singapore said it was "hard to disagree" with the vows of the leaders but they had fallen short of the progress hoped for going into the summit.

"They decided just to put down a lot of laudable objectives as the conclusion of the meeting and hope that they can do better, that more can be accomplished in future meetings," he said.

The G20 has fragmented since a synchronized global recession gave way to a multi-speed recovery. Slow-growing advanced economies have kept interest rates at record lows to try to kickstart growth, while big emerging markets have come roaring back so fast that many are worried about overheating.

"G20 credibility does depend on showing results ... we cannot get out of this with beggar-thy-neighbor policies," Canadian Prime Minister Stephen Harper said. "We need instead to continue to coordinate our actions going forward. The recovery is fragile."

"I don't think the fact that we aren't there yet, we haven't resolved all these problems, means we will fall back."
G-20 refuses to back US push on China's currency
YAHOO
By VIJAY JOSHI, Associated Press
12 November 2010

SEOUL, South Korea – Leaders of 20 major economies on Friday refused to back a U.S. push to make China boost its currency's value, keeping alive a dispute that raises fears of a global trade war amid criticism that cheap Chinese exports are costing American jobs.  A joint statement issued by the leaders including President Barack Obama and China's Hu Jintao tried to recreate the unity that was evident when the Group of 20 rich and developing nations held its first summit two years ago during the global financial meltdown.

But deep divisions, especially over the U.S.-China currency dispute, left G-20 officials negotiating all night to draft a watered-down statement for the leaders to endorse.

"Instead of hitting home runs sometimes we're gonna hit singles. But they're really important singles," Obama told a news conference after the summit.

Other leaders also tried to portray the summit as a success, pointing to their pledges to fight protectionism and develop guidelines next year that will measure the imbalances between trade surplus and trade deficit countries.  The G-20's failure to adopt the U.S. stand has underlined Washington's reduced influence on the international stage, especially on economic matters. In another setback, Obama also failed to conclude a free trade agreement this week with South Korea.

The biggest disappointment for the United States was the pledge by the leaders to refrain from "competitive devaluation" of currencies. Such a statement is of little consequence since countries usually only devalue their currencies — making it less worth against the dollar — in extreme situations like a severe financial crisis.  The statement decided against using a slightly different wording favored by the U.S. — "competitive undervaluation," which would have shown the G-20 taking a stronger stance on China's currency policy.

The crux of the dispute is Washington's allegations that Beijing is artificially keeping its currency, the yuan, weak to gain a trade advantage.  U.S. business lobbies say that a cheaper yuan costs American jobs because production moves to China to take advantage of low labor costs and undervalued currency.

A stronger yuan would shrink the U.S. trade deficit with China, which is on track this year to match its 2008 record of $268 billion, and encourage Chinese companies to sell more to their own consumers rather than rely so much on the U.S. and others to buy low-priced Chinese goods.

But the U.S. position has been undermined by its own central bank's decision to print $600 billion to boost a sluggish economy, which is weakening the dollar.  Also, developing countries like Thailand and Indonesia fear that much of the "hot" money will flood their markets, where returns are higher. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.

Obama said China's currency policy is an "irritant" not just for the United States but for many of its other trading partners. The G-20 countries — ranging from industrialized nations such as U.S. and Germany to developing ones like China, Brazil and India — account for 85 percent of the world's economic activity.

"China spends enormous amounts of money intervening in the market to keep it undervalued so what we have said is it is important for China in a gradual fashion to transition to a market based system," Obama said.

The dispute is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s. The biggest fear is that trade barriers will send the global economy back into recession.  The possibility of a currency war "absolutely" remains, said Brazilian Finance Minister Guido Mantega.  Friday's statement is also unlikely to resolve the most vexing problem facing the G-20 members: how to fix a global economy that's long been marked by huge U.S. trade deficits with exporters like China, Germany and Japan.

Americans consume far more in foreign goods and services from these countries than they sell abroad. 

The G-20 leaders said they will try to reduce the gaps between nations running large trade surpluses and those running deficits. 

The "persistently large imbalances" in current accounts — a broad measure of a nation's trade and investment with the rest of the world — would be measured by what they called "indicative guidelines" to be determined later.

The leaders called for the guidelines to be developed by the G-20, along with help from the International Monetary Fund and other global organizations, and for finance ministers and central bank governors to meet in the first half of next year to discuss progress.

Analysts were not convinced.

"Leaders are putting the best face on matters by suggesting that it is the process that matters rather than results," said Stephen Lewis, chief economist for London-based Monument Securities.

"The only concrete agreement seems to be that they should go on measuring the size of the problem rather than doing something about it."
Obama fires back after China slates Fed's QE2
YAHOO
By Patricia Zengerle and Krittivas Mukherjee
Mon Nov 8, 2010 5:00 am ET

NEW DELHI (Reuters) – President Barack Obama defended the Federal Reserve's policy of printing dollars on Monday during a trip to India, after Chinese officials stepped up criticism ahead of this week's Group of 20 meeting.

The G20 summit has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent "currency wars" from spreading to become a rush to protectionism that could imperil the global recovery.

It has been overshadowed by disagreements over the U.S. Federal Reserve's quantitative easing (QE) policy under which it will print money to buy $600 billion of government bonds, a move that could depress the dollar and cause a potentially destabilizing flow of money into emerging economies.

"I will say that the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole," Obama said.

"And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth," he said.

The U.S. has frequently criticized China, saying it deliberately undervalues its currency to boost exports.

Despite U.S. officials repeating the mantra that they believe in a "strong dollar," China says Washington is engaged in the same thing that it stands accused of.

"As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets," Chinese Vice Finance Minister Zhu Guangyao said at a briefing in Beijing on Monday.

The U.S. quantitative easing policy was unveiled last week to jeers from emerging market powerhouses from Latin America to Asia. Russia renewed its assault on the program on Monday.

"Russia's president will insist .... that such actions are taken with preliminary consultations with other members of global economy," said Arkady Dvorkovich, a Russian official who is preparing the country's position in Seoul.

The U.S. measures have triggered concerns over inflation and gold, a traditional hedge against rising prices, briefly powered to a record high above $1,398 an ounce.

U.S. UNDER PRESSURE IN BIPOLAR WORLD

India is Obama's first stop in a 10-day trip to Asia that will include Indonesia and Japan.

He will arrive in Seoul for the November 11-12 summit weakened by a crushing congressional election defeat for his Democratic Party and under fire from all sides. Germany described U.S. economic policy as "clueless" last week.

The U.S. has already backed down on one proposal for the G20, a measure that would cap current account balances at 4 percent of gross domestic product, something economists said was clearly aimed at China.

At the weekend, U.S. Treasury Secretary Timothy Geithner backed away from the numerical target that had been rejected by China, Germany, Japan and others in a sign that global financial power had slipped from U.S. hands.  The risk of a negative outcome in Seoul appears to be increasing, or at the very least, an agreement that papers over the huge gaps and allows countries to pursue their own economic policies whether it be intervening in currency markets like South Korea and Japan or printing dollars.

"Judging by the critical response of emerging market governments to QE, the likelihood of a ceasefire in the currency war is slim," RBC Capital markets said in a report published on Monday.
G20 finds common ground opposing U.S.
YAHOO
By Emily Kaiser
7 November 2010

WASHINGTON (Reuters) – The Group of 20 is beginning to look more like the G19 plus 1 as emerging and rich countries alike accuse the United States of breaking a vow of unity.

This week's G20 summit will require every bit of President Barack Obama's diplomacy skills after the Federal Reserve embarked on a new $600 billion bond-buying spree, sparking criticism from four continents that the U.S. central bank was ignoring the global repercussions.  Officials from Germany, Brazil, China and South Africa were among those expressing concern that the Fed's money printing could weaken the dollar, drive up commodity prices and send uncontrollable waves of investor cash into emerging markets.

If the G20 fails to defuse these global tensions, it may heighten investor concerns that policymakers are drifting further apart, leaving the world economy vulnerable to another bout of upheaval.  Domestic politics and policies make Obama's job tougher.

He arrives in Seoul for the November 11-12 summit weakened by a crushing congressional election defeat for his Democratic Party. His primary task will be to convince his peers the Fed's actions do not run counter to a U.S.-led push for global cooperation to even out economic imbalances.

(For a graphic on G20 economies, see http://link.reuters.com/tah43q)

South African Finance Minister Pravin Gordhan said the Fed's move "undermines the spirit of multilateral cooperation that G20 leaders have fought so hard to maintain during the current crisis."

German Finance Minister Wolfgang Schaeuble was less diplomatic. He called U.S. policy "clueless."

It was less than five months ago that G20 leaders gathered in Toronto, talking in warm and fuzzy terms about "collective well-being" and "shared objectives."

"G20 members have a responsibility to the community of nations to assure the overall health of the global economy," the leaders said in their closing statement in June.

"If we act in a coordinated manner, all regions are better off, now and in the future."

G20 PLUS QE2 = CATCH 22

Since that Toronto meeting, the dollar has dropped 11 percent against a basket of currencies, driving up currencies in Japan, Brazil, the euro zone and elsewhere. The biggest exception is China, where the tightly managed yuan has gained a relatively modest 2 percent versus the dollar since late June.  Obama's response to G20 criticism is expected to be that the world needs a healthy U.S. economy, and the U.S. economy needs healthier exports.

Fed Chairman Ben Bernanke himself said a strong U.S. economy was critical for the global recovery, and his central bank was well aware of the dollar's "special role" in the global economy and monetary system.

Indeed, G20 members all seem to agree that the world needs a better balance between cash-rich exporters such as China and Germany and heavily indebted consumer countries like the United States. The difference lies in how best to accomplish that.  For emerging markets fearful that the Fed's flood of cash will swamp their economies, the United States does not seem to be keeping up its end of the "shared objectives" bargain.

That makes it harder for Washington to push for policy changes elsewhere, particular in Beijing, which insists the yuan is not the primary culprit behind big global trade gaps. Treasury Secretary Timothy Geithner's proposal to set numerical targets limiting current account imbalances was roundly rejected at a G20 finance ministers meeting last month.

The Obama administration was the driving force behind a proposal adopted by the G20 in Pittsburgh last year to promote more balanced global growth.

That framework may be the best bet for G20 consensus at this week's Seoul summit.  Unlike Geithner's numerical targets, the framework for balanced growth calls for mutual assessments to ensure domestic policies don't disrupt global growth.

G20 countries submitted their medium-term economic plans for International Monetary Fund review last month. Leaders may agree to keep this process going beyond Seoul, keeping the IMF as arbiter.

The Fund told the G20 nations in June that if they adopt mutually supportive policies, they could raise global output by $4 trillion and create 52 million jobs in the medium term.

Unless leaders can put on a convincing show of cooperation in Seoul this week, those loftier economic goals may remain well out of reach.
Global anger swells at Fed actions
YAHOO
By Glenn Somerville and Zhou Xin
Fri Nov 5, 3:42 pm ET

WASHINGTON/BEIJING (Reuters) – Global anger at a fresh round of liquidity injections into the U.S. economy swelled on Friday as Germany called the move "clueless" and emerging nations protested that it will wreak havoc on them.  Harsh criticism poured in as President Barack Obama headed for Asia on a trip he had hoped to use as a springboard for pressuring China to revalue its yuan but may end up in a fractious Group of 20 leaders summit next week.

The United States has been pressing China, largely unsuccessfully, to let its yuan currency rise more quickly to reflect the strength of what is now the world's second-largest economy and help correct global trade imbalances.

The Federal Reserve's decision this week to buy $600 billion in long-term bonds with new money to try to revive the flagging U.S. economy have increased fears of more money pouring across borders in search of better returns.  China landed its own blows by saying a U.S. proposal for numerical targets for surpluses and deficits -- akin to a range for yuan appreciation -- smacked of outmoded central planning that won't win any friends for the United States.

Chinese Vice-Foreign Minister Cui Tiankai, who is China's chief G20 negotiator, told a news briefing that he was also worried at the prospect of a flood of money pouring into global markets in search of higher yields.

"They owe us some explanation," Cui said. "I've seen much concern about the impact of this policy on financial stability in other countries."

FED LIQUDIDITY CREATING PROBLEMS IN OTHER COUNTRIES

A "common theme" is emerging that "excess liquidity in the U.S. is creating problems in other countries," Brazil's Central Bank Governor Henrique Meirelles told reporters in Chicago.  Resentment abroad stems from worry that Fed pump-priming will hasten the U.S. dollar's slide and cause their currencies to shoot up in value, setting the stage for asset bubbles and making a future burst of inflation more likely.

"With all due respect, U.S. policy is clueless," German Finance Minister Wolfgang Schaeuble told a conference.

"(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market, and now to say let's pump more into the market is not going to solve their problems."

Fed Chairman Ben Bernanke, speaking to students in Florida, seized the opportunity to defend the move by saying "a strong U.S. economy, a recovering economy, is critical, not just for Americans but it's also critical for the global economy."

New U.S. unemployment figures on Friday, showing a surprisingly strong 151,000 jobs were created in October, caused some analysts to question whether the Federal Reserve's pledge to buy up to $600 billion of Treasury securities was even necessary.  But with a jobless rate stuck at 9.6 percent, few doubted the Fed will proceed with buying.

German Chancellor Angela Merkel will address U.S. policy in Group of 20 discussions on exchange rates, a government source said, adding that she shared Schaeuble's criticism.  Policymakers from the world's new economic powerhouses in Latin America and Asia have said they would consider fresh steps to curb capital inflows after the Fed's move.

South African Finance Minister Pravin Gordhan said Fed policy "undermines the spirit of multilateral cooperation" that the G20 had sought to achieve. The money will find its way into financial markets of emerging nations with potentially devastating impact on their exports, he charged.

Zhou Xiaochuan, China's central bank governor, said while Beijing could understand that the Fed was implementing more monetary easing in order to stimulate U.S. recovery, it may not be a good policy for the global economy.

Before he left on an Asian trip that will take him to the G20 gathering next week, President Barack Obama said a dramatically realigned political landscape in the United States called for cooperation at home because U.S. global economic leadership was at stake.

"We can't spend the next two years mired in gridlock," Obama said in a reference to the outcome of mid-term elections that put Republicans in control of the U.S. House of representatives. "Other countries, like China, aren't standing still. So we can't stand still either."

NO BALANCE

Efforts to reduce imbalances that are destabilizing the global economy will top the agenda of the November 11-12 summit of the Group of 20 forum of leading economies in Seoul.

China and Germany oppose a plan floated by U.S. Treasury Secretary Timothy Geithner last month to cap current account surpluses and deficits at 4 percent of gross domestic product.

"Of course, we hope to see more balanced current accounts," Chinese Vice-Foreign Minister Cui Tiankai told a news briefing. "But we believe it would not be a good approach to single out this issue and focus all attention on it. The artificial setting of a numerical target cannot but remind us of the days of planned economies."

Cui, China's chief G20 negotiator, also rejected any attempt to set target ranges for the yuan to appreciate.

"That would indeed be asking us to manipulate the ... exchange rate, and it is something that we will of course not do," Cui said.

The Asia-Pacific Economic Cooperation (APEC) forum in Kyoto, which Geithner will attend, will also provide an opportunity for emerging economies to voice their views of the Fed's action.


US delays controversial China currency report: Treasury
YAHOO
15 October 2010

WASHINGTON (AFP) – The United States on Friday delayed publishing a controversial report on China's currency until after a key G20 meeting in mid-November, averting a showdown between the two superpowers.

The report, which could have labeled China a currency manipulator and opened the path for US sanctions on Chinese goods, was due to be released by Friday.  The delay avoids the prospect of a bitter trade dispute between two powers, who have faced-off over accusations that Beijing keeps the yuan undervalued to gain an unfair trade advantage.  Currency tensions boiled over at last week's annual meetings of the International Monetary Fund (IMF), with China rejecting calls for a quick yuan revaluation.

But ahead of the Group of 20 meetings, the Treasury Department sounded a conciliatory tone, recognizing "China's actions since early September to accelerate the pace of currency appreciation, while noting it is important to sustain this course."

A higher valued yuan would make Chinese exports more expensive and exports from other nations more competitively priced.  Treasury Secretary Timothy Geithner had come under pressure from US lawmakers to move toward sanctions on Chinese goods, after Beijing's reluctance to change its stance, but since September, he said, things have changed.

"Since September 2, 2010, the pace of appreciation has accelerated to a rate of more than one percent per month. If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency," the statement said.

According to Treasury figures, the yuan has appreciated around three percent since Beijing vowed to let the value of the currency rise in June.  But the Treasury Department's satisfaction was not shared by US lawmakers, just weeks before local elections.

"It is unconscionable to me that Treasury has again chosen to delay," said Democratic Congressman Mike Michaud, who chairs the House trade working group.

"Their decision to do so simply underscores the administration's unwillingness to get tough on China's unfair currency policies."

Presidents from Bill Clinton to George W. Bush have repeatedly delayed the publication of the report in order to press China to shift its currency policies.  But Republicans were also critical, with some-time Obama ally Senator Olympia Snowe deriding the move.

"It is no coincidence that the withering of our nation's once unparalleled manufacturing base has taken place during a period of significant import increases from large and often poorly-regulated, low-cost foreign producers," she said.

But despite the Treasury's move, the issue is again expected to dominate a series of meetings of G20 leaders, economy ministers and central bankers next month.  Europe, Japan and the United States have all pressed China to overhaul its weak yuan policy, while shifting to a less export-driven economy that would stimulate domestic demand.

"These meetings provide an opportunity to make additional progress on the important challenge of securing stronger and more balanced growth," the Treasury Department said.



G20 summit agrees on deficit cuts by 2013
Page last updated at 23:11 GMT, Sunday, 27 June 2010 00:11 UK

Leaders at the G20 summit in Canada have agreed to cut national budget deficits without stunting economic growth.

Summit host Prime Minister Stephen Harper said the group's richest members should halve their deficits within three years.

Correspondents note that every major G20 country had already committed to that target before the summit.

Proposals for a global levy on banks have been dropped, Mr Harper said.

Instead, that will be left to individual countries.

Mr Harper also said government debt, as a proportion of the economy, "should be at least stabilised or on a downward trend by 2016".

President Obama: "Our fiscal health tomorrow will rest in no small measure on our ability to build jobs and growth today"

He added: "All leaders recognise that fiscal consolidation is not an end in itself. There will be a continued role for ongoing stimulus in the short term as we develop the framework for strong sustainable and balanced growth."

Renminbi row

Speaking to reporters after the summit, US President Barack Obama said tighter regulations, including bigger capital requirements for banks, would be addressed at the next G20 summit in Seoul, South Korea, in November.

Continue reading the main story Protest ahead of Toronto summit, 25 June G8 powers to boost aid to mothers US and UK want Afghan 'progress' G8/G20 summits security map

"We must do everything in our power to avoid a repeat of the recent financial crisis."

Addressing a reporter's question, Mr Obama said he expected China's currency to rise in accordance with its recent commitment to let the renminbi float more freely against the dollar.

"A strong and durable recovery also requires countries not having an undue advantage. So we also discussed the need for currencies that are market-driven," he said.

"As I told President Hu yesterday, the United States welcomes China's decision to allow its currency to appreciate in response to market forces."

But China resisted including a line in the summit's final statement on its currency commitment, saying it was a sovereign matter.

David Cameron, attending his first summit since becoming UK prime minister last month, said the stalled Doha round of global trade talks may need to be broadened in order to make progress.

"I totally support the completion of Doha, but we are not making progress and we need to do things in a different way so that these eight years of negotiation can be brought to a conclusion," said Mr Cameron.

Growth worries

The group of 20 leading and emerging nations had been split over the pace of budget cuts.

US President Barack Obama warned against fast and deep budget cuts, fearing damage to global growth.

But European members, including the UK, France, and Germany, have already led moves to slash record public deficits, despite opposition from the United States which is expected to run a $1.3tn deficit in 2010.

Emerging economies such as Argentina and Brazil had worried that budget cuts in rich countries would hurt their export-dependent economies.
Advertisement

Protesters set at least two police patrol cars alight in Toronto

"If the cuts take place in advanced countries it is worse," said Brazilian Finance Minister Guido Mantega.

"Because instead of stimulating growth they pay more attention to fiscal adjustments, and if they are exporters they will be reforming at our cost."

Outside the summit venue in downtown Toronto, police and protesters clashed for a second day on Sunday.

The Canadian Broadcasting Corporation reported that police fired rubber bullets at one point to disperse a crowd of about 150 protesters.

On the margins of a major march through Toronto on Saturday, some black-clad and hooded protesters smashed shop windows and set alight at least two police cars.

Police arrested more than 500 people over the weekend.

Police arrest more than 400 at Toronto summit
YAHOO
By ROB GILLIES, Associated Press Writer
27 June 2010

TORONTO – Police say more than 400 arrests have been made after black-clad demonstrators broke off from a crowd of peaceful protesters at the global economic summit in Toronto, torching four police cruisers and smashing windows.

Toronto Police Sgt. Tim Burrows said Sunday a total of 412 people were arrested in Saturday's destruction.

The roving band wearing black balaclavas shattered shop windows for blocks, including at police headquarters, then shed some of their black clothes, revealing other garments, and continued to rampage through downtown Toronto.

Police used shields, clubs, tear gas and pepper spray to push back the rogue protesters who tried to head south toward the security fence surrounding the Group of 20 summit site
G20 leaders facing worries about rising deficits
YAHOO
By TOM RAUM, Associated Press Writer
24 June 2010

TORONTO – World leaders trickled into Canada's largest city on Thursday for global economic talks, but their resolve seemed less focused than at earlier meetings held in the fearful atmosphere of the worst downturn since the 1930s. New leaders in Australia, Japan and Britain could alter the dynamics.

With recoveries in their countries proceeding at starkly different paces, leaders of the 20 largest industrial and developing nations found themselves at odds over how to strike the right balance between continued government stimulus spending and confronting ballooning budget deficits. Divisions also persisted on proposals for a global bank tax and over how much multinational banks should be required to keep on reserve as a cushion against loan losses.

"The most pressing issue is sustainable economic growth," said Canada's finance minister, Jim Flaherty. But he told a news conference before a speech to the Toronto Board of Trade that this means different things in different parts of the world.

"There are clearly some countries, particularly some European countries, that need to fiscally consolidate on an urgent basis," he said.

He noted that Canada's economy is fundamentally strong and that its banks weathered the financial crisis without failures or government bailouts. "We are the envy of the world," he said in voicing opposition to a global bank tax.

Security was tight as foreign leaders arrived during the day and their motorcades tied traffic into knots near the airport and on roads into town. Barricades turned Toronto's downtown core into a virtual fortress.

Police said they took a man into custody Thursday after searching a car and finding containers of gasoline and implements that could be used as weapons, including a cross bow, a chain saw a baseball bat and sledge hammers. A large makeshift container was strapped to the roof. The car was stopped near a hotel where the French delegation is staying for the summit. Workers at the hotel had walked off the job Thursday as part of a labor dispute.

Const. Hugh Smith said the man was being questioned on why he had so many of the items and why he was in the area. He said charges are pending. The vehicle was seized. Const. Tony Vella said there's no reason to believe the incident was summit-related.

Although heavier protests were expected later in the week, demonstrations on Thursday were tame and nonconfrontational. Police with bicycles moved in tandem with several hundred First Nations protesters — descendants of Canada's aboriginal residents. They marched through downtown streets, waving upside-down Canadian flags, pounding on drums and shouting, "No G-20 on stolen native land."

Canadian police patrolled the Lake Ontario waterfront from various boats and jet skis.

One of the first to arrive in Canada was Chinese President Hu Jintao, who met separately on Thursday in Ottawa with Canadian Prime Minister Stephen Harper, the summit host.

Harper and Hu signed an agreement that would allow for more Chinese to visit Canada. Hu also agreed to clear the way for Canadian beef to be exported to China. "In the views ranging from developing our own economies, to sustaining the recovery momentum in the global economy ... there is a need and also a possibility for Canada and China to further scale up their co-operation," said Hu.

Britain, Japan and, unexpectedly, Australia were sending new leaders to the G-20 summit. As leaders began arriving, Australia's ruling Labor Party abruptly ousted Prime Minister Kevin Rudd.

Julia Gillard replaced him, becoming Australia's first female leader. Wayne Swan, her new deputy and the country's finance minister, was to represent Australia at the Canadian meetings.

It will be the first appearance at international forums for British Prime Minister David Cameron and Japanese Prime Minister Naoto Kan. And both were bearing messages that U.S. President Barack Obama might rather not hear.

Cameron comes after his government unveiled an emergency budget that contained higher taxes and the toughest cuts in public spending in decades. And Kan said this week that deficit reduction would be his top agenda item at the Canadian meetings and that Japan would soon start debating a possible sales tax increase to rein in the nation's bulging deficits.

Both are trying to avoid Greece-style government debt crises.

By contrast, the U.S. has generally said that governments worldwide should not pull back stimulus programs too quickly and risk choking growth. Obama in a letter to other leaders cautioned against slamming on the brakes too hard, but encouraged trade "surplus" countries — he didn't mention them but he clearly meant China Germany and Japan — to do more to promote domestic spending.

Obama was to arrive Friday morning. Cameron arrived Thursday evening after a stop in Halifax, Nova Scotia.

Speaking to reporters aboard his plane, Cameron said: "This weekend isn't about a row over fiscal policy. We all agree about the need for fiscal consolidation. For me, this G-20 is about putting the world economy on an irreversible path to recovery."

Cameron said his country was paying a "heavy price" for its involvement in Afghanistan and sent condolences to the families of four soldiers killed in a vehicle accident there on Wednesday.

The summit offers Cameron his first chance to meet as prime minister with Obama since the BP oil spill, which has frayed relations between the two close allies.

Despite U.S. appeals to refrain from removing stimulus measures too quickly, country after country is rushing to slash spending and raise taxes, including austerity moves in Germany and France.

German Chancellor Angela Merkel on Thursday defended her government's moves, saying in an interview with German public broadcaster ARD that "Germany has done much more to revive the global economy than most other nations." Germany is Europe's strongest.

The first of this week's two economic sessions is a meeting of the Group of Eight, the world's older leading industrial democracies — the U.S., Canada, Britain, Germany, France, Italy, Japan — plus Russia on Friday and parts of Saturday at a lakeside resort about 140 miles north of Toronto. The larger group of 20 nations, including such major developing powers as China, Brazil and India, will meet at the Metro Toronto Convention Centre on Saturday and Sunday.

The leaders maintained remarkable unity at three previous summits, but that unity is now fragmented.

However, a move by China to let its currency appreciate against the dollar appeared to lessen trade frictions. Hu's government began Monday to allow the Chinese yuan to rise after having fixed the yuan-dollar exchange rate for the past two years.

A more flexible yuan was seen as a critical development by the Obama administration to fulfill one of the G-20 pledges to address dangerous imbalances, such as China's massive trade surpluses and the United States' huge trade and budget deficits. A stronger yuan, which is also called the renminbi, should provide relief for American, European and Japanese manufacturers which have struggled to compete with low-price exports from China.

Critics in Congress are still threatening China with sanctions unless the yuan moves significantly.

The G-20 final statement expected to be issued on Sunday notes that "while growth is returning in many countries, the recovery is uneven and fragile, and unemployment remains at unacceptable levels," according to an early draft that the environmental group Greenpeace said it obtained.

"We recognize the important progress made since our last meeting in Pittsburgh, but we also agree that much work remains," said the draft, posted on Greenpeace's website.
Europe austerity moves boost risk of rift with US
YAHOO
By DAVID STRINGER and ALAN CLENDENNING, Associated Press Writers
22 June 2010

LONDON – A trans-Atlantic rift over the right medicine for Europe's financial crisis is brewing as world leaders prepare for the G-20 meeting in Canada — with Britain on Tuesday announcing its steepest cuts in decades and Germany defending its tough austerity measures after a warning by President Obama that too much budget slashing could threaten the global recovery.  Britain's emergency budget is the latest in a string of savage public spending cuts and reflects Europe's newfound resolve — since markets pushed Greece to the brink of bankruptcy and even threatened the bloc's economic union — to tackle debt before worrying about growth.

But Europe's single-minded focus is worrying the U.S., prompting Obama to write a letter to world leaders on Friday warning against excessive spending cuts.

German Chancellor Angela Merkel fought back this week, defending her government's $80 billion (euro65 billion) savings plan even as British Treasury chief George Osborne forged ahead with his own grim austerity budget.  Many European analysts agree the more urgent priority is taming deficits.

Obama "has a point, but there are some countries that don't have a luxury of a choice, they have got to get a grip and start cutting quickly because the alternative of becoming the next Greece is not palatable to them," said Jonathan Loynes, chief European economist at Capital Economics in London.

Britain's emergency budget aims to sharply reduce record public debt and fall hard on most people. Shoppers will pay higher sales taxes, wealthy people will be hit for higher capital gains taxes and banks will be charged a new levy on profits, a move that has already been approved by France and Germany. Even Queen Elizabeth II accepted a freeze in her support from taxpayers.  In Germany, a spokesman for Chancellor Angela Merkel said she talked on Monday with U.S. President Barack Obama on the phone about a letter he wrote to the G-20 leaders in which he cautioned against hurting a fragile global economic recovery by trimming spending prematurely.

The letter was seen as a criticism of Germany's plan to reduce the country's deficit, but the spokesman said Obama did not pressure Germany to continue stimulus spending by piling up more debt. He spoke on condition of anonymity in keeping with government policy.  Europe's leaders are struck in a quandary: They must bring down mammoth debt through spending cuts to ward off economic panic, but the measures are bound to stunt growth. And no one will likely know for years whether they chose the right medicine and the right dosage.

"My suspicion is that it will be a major drag on the economy for a few years, and it may be we decide in the future whether they went too aggressively, but the political and market climate right now is such that they had no choice," said Loynes from Capital Economics.

The realization that Europe is bound to implement spending cuts that will hurt growth for years to come has weighed on the euro, pushing it to four-year lows below $1.19 earlier this month. On Tuesday it traded at $1.2274, down somewhat from Monday.

Economic stagnation in Europe would hurt the U.S. by crimping its exports just as America is trying to limp its way out of its own slump. But Obama's concerns are trumped by Europe's desire to stabilize the European Union and the euro.

"The EU accords priority to budget-cutting, because that is what its leaders believe is needed to preserve the euro and the political construction of a united Europe," said Stephen Lewis of London's Monument Securities.

The new bank fee authorized that Britain, France and Germany committed to on Tuesday will charge banks based how much they earn to shield taxpayers from the cost of resolving financial crises. But their call for a global tax is unlikely to find much response at the G-20 summit.  In a joint statement, the three nations said they aimed to ensure that financial institutions are making a "fair contribution" to reflect the risks they pose to the financial system and "to encourage banks to adjust their balance sheets to reduce this risk." Germany is already drafting legislation for such a tax, and France promised to do so in its next budget.

Merkel and French President Nicolas Sarkozy are expected to lobby hard at the G-20 meeting in Toronto for a separate global financial transactions tax, but Loynes said there is little chance of approval and that their effort is aimed at shoring up their political support at home.

"They are fully aware that their stance has little chance of influencing the course of global economic policy," he said. "This is in line with the Continental European tendency to assert the primacy of political over economic concerns in policymaking. This, indeed, underlies the division between the U.S. administration and EU authorities over fiscal policy."

But Obama expressed support this week for a Spanish proposal passed in parliament Tuesday to shake up the labor market by making it easier for companies to lay off workers. Spain had already pushed through an austerity plan to convince markets it will not need a bailout to manage its debt, as happened with Greece.  Some are not convinced the Spanish reforms will prompt companies to hire en masse, which is what Europe's fourth largest economy needs desperately after recently crawling out of two years of recession. Unemployment now stands 20 percent in the nation of 45 million.

Bank of Spain governor Miguel Fernandez Ordonez welcomed the labor reforms as a good first step but said they do not go far enough.

Sandalio Gomez, professor of management at IESE Business School in Madrid, said the government is trying to conceal that it is making it easier and cheaper to lay off workers — something it had repeatedly said it would not do.

"They've missed a perfect opportunity — and there are few like this — to transmit confidence to the labor market, a push forward that would allow jobs to be created," he said.
Germany urges U.S. to focus on debt cuts
Broadside comes as White House seeks more stimulus
Washington Times
By Stephen Dinan
21 June 2010

The congressional battle over adding more government stimulus spending versus deficit reduction spilled overseas Monday as the German government publicly rebuked the Obama administration over its red ink and said countries now must focus on controlling debt.

It's the same sort of pushback President Obama has been getting from critics at home as he calls for a second round of stimulus spending, which he argues is needed to spur private job creation at a time when unemployment hovers near 10 percent nationwide.

But he's increasingly being opposed by Republicans and some Democrats at home, and German officials' comments signal a looming fight over deficits as the world's leaders gather in Toronto next week for a summit of the leaders of the world's biggest economies, with the Group of Eight summit of industrial powers kicking off Friday in Canada.

A larger gathering of the world's 20 leading economies, known as the Group of 20, follows immediately afterward.

"It's urgently necessary for monetary stability that public budgets return to balance," German Economy Minister Rainer Bruederle said at a press conference Monday, according to Bloomberg News. "This is something we should also tell our American friends."

His comments were echoed at a separate press briefing Monday by German Chancellor Angela Merkel and Finance Minister Wolfgang Schauble, who said national debt levels must be brought under control to reassure nervous global financial markets. Germany has long been one of the most conservative of the major powers on issues of deficit spending and inflation.

The Germans were responding in part to a letter Mr. Obama sent to G-20 leaders laying out his stance that a global recovery is too fragile for governments to start belt-tightening and cutting back on more spending.

"Our highest priority in Toronto must be to safeguard and strengthen the recovery," Mr. Obama said in the letter, sent Wednesday and released Friday. He told fellow leaders he is "committed to the restoration of fiscal sustainability in the United States," but said each country must be free to decide how and when to impose stability plans.

The White House said Mr. Obama reached out to Mrs. Merkel by phone Monday, and spokesman Bill Burton said the two leaders talked about "the importance of continuing to take resolute steps to foster a durable recovery and to strengthen financial regulation."

Leaders across Europe have announced austerity plans in the weeks since Greece's financial condition became critical and talk of a string of sovereign defaults swept international finance markets.

But with the U.S. unemployment rate still so high, Mr. Obama has been reluctant to call an end to new stimulus spending, and earlier this month called on Congress to pass yet another round. He said the time for balancing budgets can come later.

He has also pushed many of the biggest decisions about midterm and long-term reforms over to a commission he established by executive order. He has asked the commission to report back before year's end.

America's debt stood at $13.038 trillion as of Friday, the most recent reporting date for the Treasury Department.

Last week, in his own letter to G-20 leaders, Canadian Prime Minister Stephen Harper, the summit host, said he wants countries to agree to cut their deficits in half by 2013 and to stabilize their debt-to-GDP ratios by 2016.

"To sustain recovery, leaders from advanced countries, to the extent possible, need to reaffirm their intent to follow through on delivering existing stimulus plans. At the same time, advanced countries must send a clear message that as their stimulus plans expire, they will focus on getting their fiscal houses in order," Mr. Harper said.

Mr. Obama said the budget he proposed earlier this year would halve the deficit by 2013 — from more than $1.4 trillion last year to about $727 billion.

Republicans — who are frequently critical of taking cues from foreign governments — pointedly noted the German criticism.

On the Senate floor, Minority Leader Mitch McConnell, Kentucky Republican, used Germany's plea as a prod to urge Democrats to find offsetting spending cuts for the taxes and spending package pending in the upper chamber.

All Senate Republicans, joined by some Democrats last week, blocked efforts to pass first a $140 billion bill and then a $105 billion bill, arguing that the entire measure should be paid for with offsetting cuts in other programs.

Republicans suggested redirecting money from last year's $862 billion stimulus program pushed by the Obama administration to pay for some of the new spending. Meanwhile, several House Democratic leaders have signaled they are open to using stimulus funds to pay for other job priorities, such as preventing teacher layoffs.

But the White House and Senate Democratic leaders remain opposed.

"We've got a plan you heard the vice president talk about that, we believe, is helping what was a very fragile economy become more stable," White House press secretary Robert Gibbs said last week. "We need to continue to implement the plan that we have, and not take money away from very important projects like education right now."

© Copyright 2010 The Washington Times, LLC. Click here for reprint permission.
Germany, France, UK commit to bank tax
YAHOO
By MELISSA EDDY, Associated Press Writer
22 June 2010

BERLIN – Britain, France and Germany on Tuesday committed to levying a fee on banks to shield taxpayers from the cost of resolving financial crises and said they would ask other countries to join them.

The proposal comes ahead of next week's summit of Group of 20 leading nations, to be held in Toronto.

In a joint statement, the three countries say financial institutions should make "a fair and substantial contribution" to reimbursing governments for bailing out banks in the wake of the global economic crisis.

The countries said they were each proposing their own legislation, but that all would have the same goal.

"All three levies will aim to ensure that banks make a fair contribution to reflect the risks they pose to the financial system and wider economy, and to encourage banks to adjust their balance sheets to reduce this risk," read a proposal released by Berlin's Finance Ministry.

Germany declared its intention for such a tax in March and is drafting legislation to go to parliament before the summer recess, while British Treasury chief George Osborne announced its version on Tuesday. France said it will present the details of its bank tax in the coming budget.

In a speech before the House of Commons in London, Osborne said the British tax would be introduced in January 2011 and would apply to all British banks, building societies and British operations of overseas banks.

"Once fully in place, we expect the levy to generate over euro2 billion ($3 billion) of annual revenues," Osborne said.

The issue has proved divisive within the G-20, with the U.S. backing the European initiative, while others such as Canada and Australia — whose banks survived the global crisis intact — oppose it.

Osborne said in proposing the British bank tax that his nation had decided to go ahead with the move because London believed it was "not reasonable or fair" to wait until there is agreement on the issue from every country in the G-20.

The forum has been trying to come up with a new financial architecture to manage the global economy in the wake of the 2008 crisis. Besides the bank tax, proposals include setting new standards on how much capital banks need to protect against a future financial crisis and establishing "financial safety nets" to help bolster countries such as host South Korea, which have been vulnerable to the whims of traders who can send billions of dollars across borders at the press of a button.

Currency Revaluation to Be Gradual, China Says
NYTIMES
By KEITH BRADSHER
June 20, 2010

HONG KONG — The Chinese central bank announced Sunday afternoon that any changes in the value of its currency, the renminbi, would be gradual, in a clear attempt to reassure the Chinese people that a move Saturday evening toward a more flexible currency would not result in a sharp or disruptive change.

The central bank’s statement coincided with signs of a backlash in China, where many view a weak currency and the accompanying strong exports as a sign of national sovereignty. The Chinese decision to tolerate a more flexible currency drew caustic postings on Chinese Internet sites, like one on Sohu.com: “I didn’t imagine I would see the day when China would submit to America and agree to appreciation of the renminbi.”

Postings like this criticizing the government’s announcement seemed to disappear almost as quickly as they appeared, an indication that government censors were active. But China’s determination to limit the rate at which the renminbi rises against other currencies, particularly the dollar, is likely to upset members of the U.S. Congress, who have been pressing for quick changes.

When world leaders gather this weekend in Toronto for meetings, enthusiasm about China’s shift to a more flexible currency may be dampened by Beijing’s public caution that any changes in the value will be slow and modest.

Senator Charles E. Schumer, a Democrat from New York, said Saturday that if China did not take specific steps to push up the renminbi “in the next few days,” he would push forward with legislation that could impose restrictions on Chinese exports.

The central bank, the People’s Bank of China, said Sunday that it was determined to “improve foreign exchange management and keep the renminbi exchange rate at a reasonable and balanced level of basic stability, and safeguard macroeconomic and financial market stability.”

A stronger renminbi would make Chinese goods more expensive in foreign markets, providing relief for U.S., European and Japanese companies and workers who have struggled to compete with low-priced exports from China.

But the Chinese government has long been wary of letting the currency move too quickly, for fear that this would lead to mass layoffs and social instability at export factories in coastal areas.

The U.S. Treasury Department had no direct response to the Chinese statement on Sunday, with a spokeswoman for the agency saying that Treasury Secretary Timothy F. Geithner’s comments on Saturday evening remained the American position. Mr. Geithner had said then that “this is an important step, but the test will be how far and how fast they let the currency appreciate.”

While China still muzzles its press through censorship, public opinion as expressed on the Internet has become an increasingly influential force in China. Some Chinese economists and most Western economists say that a stronger renminbi would help China fight inflation, by making imports cheaper, but many Chinese Internet users see international economic issues mainly in terms of rivalry with the United States.

When President Barack Obama imposed steep tariffs on tire imports from China last September, the Commerce Ministry initially issued a tepid response. But faced with furious criticism on the Internet, the ministry changed its position a day later and announced in an angry statement that it would retaliate by taking steps to restrict U.S. exports of chicken meat and auto parts to China.

The statement Sunday was issued only in Chinese and was clearly intended for domestic consumption. In contrast, on Saturday evening the central bank took the rare step of announcing almost simultaneously in Chinese and English that it was returning to its practice from 2005 to 2008 of setting the value of the renminbi relative to a basket of currencies, and not just linking it to the dollar.

The renminbi rose 21 percent against the dollar during those three years, including a one-time jump of 2 percent when the policy was announced in July 2005. But after that one-time increase, the renminbi barely rose for months.

China informally repegged the renminbi at 6.83 to the dollar in July 2008, as the world economy and financial system began to deteriorate rapidly. The Chinese government has kept the value of the renminbi unchanged against the dollar since then by buying hundreds of billions of dollars and euros each year in currency markets, selling renminbi to do so.

To finance those purchases, the Chinese government has been borrowing the equivalent of nearly one-tenth of the country’s economic output each year. Most of this borrowing has come from China’s state-controlled banking system, one of several reasons that lending to small and midsize businesses in China has been squeezed.

Investment bank economists in Hong Kong predicted over the weekend that China would allow the renminbi to crawl higher against the dollar by no more than 3 percent by year-end. One main reason for such a slow rate of increase is that the renminbi, through its link to the dollar, has already surged 15 percent against the euro in the past two months during the economic difficulties in Europe.

The central bank also said Sunday that it would not let the value of the renminbi “overshoot,” an economic term for a currency’s rising or falling so fast that it passes whatever level might be justified by long-term economic fundamentals. The central bank gave no indication of what it thought a sustainable level would be.

The International Monetary Fund concluded in a comprehensive annual report on China last summer that the renminbi was significantly undervalued, a term that the multilateral agency reserves for currencies that are more than 20 percent below where market forces would normally set them, according to people who have seen the report.

But China’s trade surplus has narrowed in recent months, even turning into a small deficit in March. This has prompted Western economists to suggest that the undervaluation may have narrowed somewhat as demand in China has begun drawing in more imports, particularly commodities from developing countries and luxury goods and factory equipment from Europe.

The Chinese government has used its discretion under I.M.F. rules to block the release of that report because it would provide ammunition for China’s critics, even though Beijing did allow the release of previous annual reports by the I.M.F. that did not include a detailed evaluation of its currency policies. China’s insistence on suppressing the report is the first instance of an I.M.F. member country doing so after having agreed to the release of previous annual reports.

A few countries, like Sudan, however, have never agreed to the release of any of the I.M.F. annual reports on their economic policies.

In contrast with the central bank’s previous switch to a basket of currencies in 2005, the People’s Bank of China had been indicating for weeks this spring that it would break the renminbi’s peg to the dollar.

Zoe Zhang, the sales manager at Dongguan Wellcom Electronics, which makes portable CD players in Dongguan, China, said Sunday that her company was ready for the renminbi to move gradually.

“Last time the government appreciated the renminbi, we were all caught by surprise,” she said. “But this time, we have been expecting the renminbi to appreciate since April.”

The Obama administration has sought to minimize public confrontation with China and could be put in a difficult position if the renminbi barely moves against the dollar, even after China breaks the renminbi’s peg to the dollar.

Mr. Geithner postponed in April the release of a twice-a-year report to Congress on whether China was manipulating the value of its currency.

The Treasury has made no further decision on what to do about that report, a U.S. official said Saturday evening. The official insisted on anonymity because of the sensitivity of currency issues.

The first sign of China’s plans for the renminbi was likely to come about 9 a.m. local time on Monday, which will be 3 a.m. in Paris and 9 p.m. Sunday in New York. That is when the Chinese government was to issue the initial benchmark for renminbi trading Monday in the Shanghai currency market.

The government officially allows the currency to vary by as much as 0.5 percent each day around the initial benchmark, but it has restricted the actual daily variation for the past two years to around 0.01 percent.
China to allow more exchange rate flexibility
YAHOO
By CARA ANNA, Associated Press Writer
19 June 2010

BEIJING – President Barack Obama welcomed China's announcement Saturday that it will allow a more flexible exchange rate for its currency, saying it would help protect the economic recovery.

The announcement by China's central bank suggested a possible break from the yuan's two-year peg to the U.S. dollar — a source of friction between the two countries — but ruled out any large-scale appreciation.

The People's Bank of China mentioned no specific policy changes, though markets will be watched closely Monday for the announcement's effects. Chinese officials have said all along that reforms of the yuan, also known as the renminbi, or "people's money," will be gradual.

"It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility," the central bank said in a statement posted on its website.

The announcement, timed just before President Hu Jintao's trip to the G-20 summit in Toronto, Canada, follows warnings from Beijing earlier this week against making its currency policies a main focus of the meeting.

Beijing kept the yuan frozen against the dollar to help Chinese manufacturers compete amid weak global demand. It faces pressure from the United States and other trading partners who contend the yuan is undervalued.

"China's decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy," Obama said in a statement.

U.S. Treasury Secretary Timothy Geithner called the move an "important step."

"But the test will be how far and how fast they let the currency appreciate," he said.

IMF Managing Director Dominique Strauss-Kahn also praised the decision, saying a stronger yuan would "help increase Chinese household income and provide the incentives necessary to reorient investment toward industries that serve the Chinese consumer."

But the announcement is unlikely to satisfy critics in the U.S. Congress, who argue that an undervalued Chinese currency gives China's exporters an unfair advantage, costing millions of American jobs.

"This vague and limited statement of intentions is China's typical response to pressure," Sen. Charles Schumer, a New York Democrat, said in a statement. "Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules."

Signs that a global economic recovery has taken hold have prompted speculation that China would begin letting the yuan resume a gradual appreciation against the U.S. dollar that began in 2005 but was halted abruptly in 2008 as the global financial crisis took effect.

Since then, the yuan's value has remained at roughly 6.83 to $1, although it is formally pegged to a basket of currencies that includes the U.S. dollar.

"It definitely sounds significant. They're saying they're going to press forward," Stephen Green, an economist at Standard Chartered Bank in Shanghai, said of Saturday's statement.

"We didn't ever think they were going to do a big one-off, so it looks like that's not going to happen," he said. "We're going to see more movement around a basically stable exchange rate until the global economy is basically healthier. The proof will be in the pudding on Monday."

Chinese officials have warned that any adjustment to the exchange rate is not other countries' concern.

The director of the international department of the People's Bank of China, Zhang Tao, told a news conference Friday that Chinese leaders will not discuss the yuan at the G-20 summit.

Saturday's statement pointed to economic growth both inside and outside China as a reason for the increase in exchange rate flexibility.

"The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability," the central bank said.

However, it indicated no major policy changes, adding: "The exchange rate floating bands will remain the same as previously announced in the interbank foreign exchange market."
Obama Urges G20 Nations to Maintain Stimulus
NYTIMES
By SEWELL CHAN
June 18, 2010

WASHINGTON — President Obama signaled on Friday that China should allow the value of its currency to appreciate and that countries in Europe should not withdraw their extraordinary spending programs too quickly.

In a public letter to other leaders of the Group of 20 nations in advance of a summit in Toronto next week, Mr. Obama wrote, “Our highest priority in Toronto must be to safeguard and strengthen the recovery.”

The letter did not mention countries or regions by name, but the implications of its language were clear. Mr. Obama wrote that “market-determined exchange rates are essential to global economic vitality” — a signal to the Chinese, who have been accused of holding down the value of their currency, the renminbi, to stimulate their export-oriented economy.

Mr. Obama also wrote, “We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession.”

That statement represented a signal to Germany and other European countries, which have moved in recent weeks to pare spending, mindful of the wrenching consequences of excessive public debts in Greece, Portugal and Spain.

The United States is trying to pare its own massive deficits: Mr. Obama reiterated a pledge to cut the deficit, now about 10 percent of gross domestic product, in half by the 2013 fiscal year, and to 3 percent of G.D.P. by the 2015 fiscal year, a level he said would “stabilize the debt-to-G.D.P. ratio at an acceptable level” by then.

But American officials are concerned that fiscal retrenchment by too many countries at once could imperil the global recovery.

Mr. Obama warned of the risks of a double-dip recession, which most economists consider unlikely but not impossible.

“In fact, should confidence in the strength of our recoveries diminish, we should be prepared to respond again as quickly and as forcefully as needed to avoid a slowdown in economic activity,” he wrote.

The G-20 leaders’ summit in Toronto marks a critical turning point for the group, which was convened in the final months of President George W. Bush’s administration to respond to the worldwide economic meltdown.

At subsequent meetings in London and Pittsburgh last year, the G-20 agreed to increase government spending, reform their financial systems, work toward more balanced global growth, and avoid protectionist trade measures.

Balanced growth refers in the first instance to the large external surplus enjoyed by China, whose economy has grown enormously but remains strongly reliant on foreign consumers. Even as Chinese incomes have risen, workers there have continued to save instead of spend, in large part because the social safety net has frayed.

While trying not to appear as pressuring the Chinese, the Americans have urged China to develop domestic consumption, in part by allowing the renminbi to appreciate, which would give Chinese consumers more spending power.

Anger in Congress has been mounting over China’s currency, trade and industrial policies. At the same time, many economists doubt that China will move to let its currency appreciate right away, because the recent decline in the value of the euro has effectively caused the renminbi to gain in value.
G20 nations stress economic recovery challenges
Page last updated at 11:16 GMT, Saturday, 5 June 2010 12:16 UK

G20 finance ministers have said the recovery from the global economic crisis has been faster than expected, but significant challenges remain.  Meeting in South Korea, the ministers and central bankers from the world's leading economies said excessive budget deficits should be tackled immediately.  They did not come to any agreement on a global bank tax.

The meeting sets the agenda for a summit of G20 leaders in Toronto on 26-27 June.

"The recent volatility in financial markets reminds us that significant challenges remain and underscores the importance of international co-operation," the final statement from finance ministers said.

Recent events "highlight the importance of sustainable public finances", it added.

The statement also said the financial sector should make a "fair and substantial contribution" to future rescue deals - but did not refer to any bank tax.

A global bank tax is supported by the US and Europe, but opposed by some developing nations, as well as Canada and Australia.

The final statement did signal tougher guidelines for banks on how much capital they should hold in reserve.  The ministers also called for more transparency, regulation and supervision for hedge funds, credit rating agencies, compensation practices and over-the-counter derivatives.


"The financial sector should make a fair and substantial contribution toward paying for any burdens associated with government interventions," the statement said..."It was apparent that most G-20 members do not support the concept of a universal levy," said Canadian Finance Minister Jim Flaherty, whose government was opposed on the grounds its banks had not needed government intervention during the recent crises.

G-20 finance chiefs agree on need to curb deficits
YAHOO
By KELLY OLSEN, AP Business Writer
5 June 2010

BUSAN, South Korea – Finance ministers and central bankers from the world's leading economies agreed Saturday on the need to cooperate in fending off financial market turmoil and keeping the world economic recovery on track.  In a statement that will serve as an outline for talks later this month by national leaders, including President Barack Obama, the Group of 20 endorsed rescue policies for Europe and the need to rebalance growth by supporting more domestic demand and greater trade by developing countries.

The agreement included no major new initiatives, but it bridged differences over details of far-reaching financial reforms with calls to step up regulatory changes and cut back on massive budget deficits.

"The recent volatility in financial markets reminds us that significant challenges remain and underscores the importance of international cooperation," the statement said.

Countries must "put in place credible, growth-friendly measures, to deliver fiscal sustainability," it said, noting that the policies would have to fit each country's unique situation.  Europe's sovereign debt crisis has sparked worries that the global economy could succumb to a second downturn following the meltdown sparked by the collapse of U.S. investment bank Lehman Brothers in 2008.  The group welcomed measures taken by the European Union, the European Central Bank and the IMF, including a $1 trillion bailout, to help countries cope with the fallout from unsustainably high debt levels.

"All of us have a strong interest in seeing those programs succeed in restoring confidence," U.S. Treasury Secretary Timothy Geithner told reporters after the meetings ended.

He emphasized the U.S. commitment to rebalancing growth.

"The United States is moving aggressively to fix things we got wrong and to strengthen our economic fundamentals. And we will give our full support to the G-20 agenda of growth and reform," he said.

Officials said that Hungary's warning Thursday that it could face a Greek-style financial meltdown added urgency to the talks.  The euro fell below $1.20 for the first time in more than four years in reaction to the news. But European officials insisted that worries about Hungary and the euro were overblown.

"Hungary has made serious progress in consolidating its public finances over the last couple of years," Olli Rehn, Europe's commissioner for economic and monetary affairs, told reporters. Any talk of a risk of default "is widely exaggerated," he said.

Despite qualms over the long-term prospects for European currency unity, ECB President Jean-Claude Trichet defended the euro, calling it a "solid currency, a credible currency, a currency that has kept its value in terms of price stability."

The G-20, founded in 1999, shifted its focus to crisis management after the Lehman Brothers collapse. In addition to its annual finance meetings, it has been holding summits since late 2008.  A chief concern is how to rein in ballooning fiscal deficits without hobbling growth.  The G-20 is working hard on technical details for reforming financial regulations and participants said there was a basic consensus for the first time on the need for banks and other financial institutions to bear the burden for government bailouts and other interventions.

"The financial sector should make a fair and substantial contribution toward paying for any burdens associated with government interventions," the statement said.

Yoon Jeung-hyun, South Korea's minister of strategy and finance and host of the meetings, acknowledged that debate over some issues — especially a possible universal tax on banks to help pay for bailouts — was heated.

"It was apparent that most G-20 members do not support the concept of a universal levy," said Canadian Finance Minister Jim Flaherty, whose government was opposed on the grounds its banks had not needed government intervention during the recent crises.

Instead, participants said they agreed that a range of policy alternatives should be considered.  Some members worry that an increase in the capital reserves banks must hold to cushion themselves against potential loan losses — another item on the agenda — could hinder lending, possibly hobbling access for financing vital for the recovery.  Geithner said the group was ready to move ahead on stronger capital reserve requirements for banks and limits on indebtedness to help banks and other financial institutions weather future crises.

"We will expedite development of new rules while setting a transition period," he said. "Reducing uncertainty about the ultimate shape of these new rules will help minimize financial headwinds for recovery."

He said that China's currency was discussed, but only in the context of the need for "a more flexible exchange rate policy" to help rebalance its economy toward greater reliance on domestic demand.

The U.S. has urged China to move faster in loosening controls that keep its currency, the yuan, tethered to the U.S. dollar and thus undervalued, giving its exporters an advantage in overseas markets.
G-20 shelves bank tax to focus on growth, reform: Geithner
By Greg Robb, MarketWatch
June 2, 2010, 8:23 p.m. EDT

WASHINGTON (MarketWatch) -- The Group of 20 major economies will put aside discussion of a global tax on banks and focus instead on growth and broader financial reform at a meeting of their top financial officials this weekend in South Korea, Treasury Secretary Timothy Geithner said Wednesday.

"I don't' think we're on the verge of a global consensus on a bank levy yet," Geithner told reporters at a briefing prior to his departure.

"I do think there is still broad support, in the U.K. and Europe, in putting in place a financial fee similar to what we've proposed in the U.S., but there is not universal support for that across the G-20, at least at this stage, and I don't think that is going to change in Korea," Geithner said.

Finance officials and central bankers from the G-20 will meet in Busan, South Korea, on June 4-5 to lay the groundwork for the bloc's summit of leaders in Canada later in the month.

Jenilee Guebert, director of research at the G8 Research Group at the University of Toronto, said the bank tax was getting more attention in the media than it deserved.

Although it has the support of the Obama administration and many European nations, other countries whose banks were not the cause of the financial crisis -- such as Canada and Japan -- have objected strongly to the bank-tax idea.

Guebert predicted that there wouldn't be a compromise on the bank tax at the leaders' summit in Toronto. She said the proposal would be put off until the G-20 leaders meet again in South Korea in November.

Canadian and South Korean officials, who are hosting the weekend meeting, have said that the talks would focus on cooperative efforts among the G-20 to wind down stimulus efforts and get deficits under control.

Stephen Smith, director of the Institute for International Economic Policy at George Washington University, said the focus on deficit reduction was appropriate, given the possibility that the Greek fiscal crisis was the opening drama of a second financial crisis -- though he called the chances of this scenario "unlikely."

"Ultimately, expectations do matter and these have to be managed. And prevention of further crises is the ultimate focus of the G-20 process," Smith wrote in an email.

Many experts have raised concern that so-called bond market vigilantes will lose patience with the major world economies that have taken on massive debt to dig out of the financial crisis.

Geithner said that the G-20 is committed to deficit reduction over the medium term but that related budget cuts would have to be "growth-friendly."

There is no evidence that countries are prematurely withdrawing fiscal stimulus, he said.
U.S. wants faster reform

The U.S. would seek to accelerate the global consensus over key financial regulation issues during the two days of talks, Geithner said.
Technicals suggest euro to drop below $1.20

The push into fresh 2010 lows below 1.2143 in EUR/USD represents an effective 17% drop for the beleaguered euro since setting its 2010 high at 1.4580 in January, but there's scope for further downside to the 1.2000 level and the 1.1721 target.

The three most important issues are greater transparency and disclosure to the financial system and financial institutions, a consistent global framework on derivatives markets, and setting up new bank capital standards, he said.

Guebert said she didn't expect "a whole lot of content" from the weekend meeting. The ministers focus on the details of what is going to be in the leader's communiqué at the end of June.

Divisions within the group over bank capital standards had narrowed in recent days, Geithner said.

G-20 officials have made it a practice not to point fingers at each other, stressing the cooperative nature of their deliberations.

This stance was clear from Geithner's press conference. Asked what Japan could do to strengthen its economy, Geithner replied that Japanese officials knew "better than anyone" what needed to be done.

Geithner fended off questions about Europe in similar fashion, saying that Europeans have the ability and political will to meet their sovereign-debt and banking challenges.

Geithner said the success of the G-20 would be measured by the actions that the individual countries take.

Wendy Dobson, co-director of the Institute for International Business in the University of Toronto's Rotman School of Management, cited the G-20's concerted action in the fall of 2008 to stem the financial crisis. Now, she said, the countries face a new challenge of a possible revolt of global bond markets, demanding much higher interest rates to lend to governments.

As a result, the key question, Dobson said, is whether the G-20 are "going to take enough actions to head off a bond-market revolt?"
G-20 Officials Convene for Talks on Global Economy
NYTIMES
By THE ASSOCIATED PRESS
April 23, 2010
Filed at 11:57 a.m. ET

WASHINGTON (AP) -- Finance officials worked Friday to resolve differences over how to overhaul financial regulation, even as they wrestled with a more pressing debt crisis in Greece that threatens to unravel gains in steadying a fragile global economy.

The International Monetary Fund issued a statement stressing that the 186-nation lending agency was prepared to process Greece's request for emergency loans quickly, and IMF Managing Director Dominique Strauss-Kahn scheduled one-on-one discussions for the weekend with Greek Finance Minister George Papaconstantinou.

Greece's call for help came as finance ministers and the heads of central banks from the Group of 20 major economies held closed-door discussions at IMF headquarters with the goal of resolving differences over various bank reform agendas being pushed by the United States and other major nations. The group was scheduled to issue a joint statement late Friday.

''Financial reform remains for us the essential theme for the G-20,'' German Deputy Finance Minister Joerg Asmussen told reporters before the talks began.

The G-20 is composed of the world's richest industrial countries and fast-growing developing nations such as China, Brazil, India, South Korea and Russia. It has taken over as the prime policy-setting body for the global economy.

The United States was being represented by Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke. The talks Friday were in advance of weekend meetings of key policy boards of the 186-nation IMF and its sister lending institution, the World Bank.

All the discussions were being overshadowed by Greece's debt problems, which have roiled global financial markets for weeks.

Greek Prime Minister George Papandreou on Friday called for the activation of a joint eurozone-IMF financial rescue for his debt-ridden country.

In response, Strauss-Kahn issued a statement saying his organization was ready ''to move expeditiously'' on Greece's request. IMF officials said emergency talks between an IMF team that arrived in Athens at the beginning of the week and the Greek government were continuing.

''It's clear that the Greek situation is a very serious one,'' Strauss-Kahn told reporters Thursday. ''There is no single way, no silver bullet to solve it in an easy manner.''

French Finance Minister Christine Lagarde, speaking to a Washington think-tank late Thursday, said she was confident Greece would be able to successfully implement an austerity program full of ''very hard and harsh measures'' being demanded by the other governments as a condition for support.

The Obama administration is hoping the G-20 will endorse a set of financial reforms that will complement the sweeping overhaul that President Barack Obama is seeking to get approved in Congress. That measure was scheduled for an initial showdown vote in the Senate on Monday.

The administration believes the United States, the world's largest economy, must show resolve in fixing the flaws exposed by the financial crisis or the momentum for global reform could falter. However, the G-20 nations were finding it tough to reach a consensus in a number of key areas, including a call by the IMF to boost taxes on financial institutions to pay for future bailouts.

Canadian Finance Minister Jim Flaherty said Thursday, ''I'm not going to impose a tax on our banks that performed well during the crisis.''

In addition to overhauling rules governing banks' capital and liquidity standards and the regulation of exotic financial instruments such as derivatives, the finance officials were also scheduled to discuss efforts to assemble the IMF support package for Greece.

The G-20 talks were being held at a time when the global economy is showing signs of improvement. The IMF released a new outlook for the meetings that forecast growth this year of 4.2 percent, significantly better than the 0.6 percent drop in activity last year, the biggest plunge in the post-World War II period.

Strauss-Kahn, however, cautioned that the recovery was still ''fragile,'' with wide discrepancies between different regions. China, now the world's third-largest economy, and other emerging Asian economic powers are surging ahead, followed by more moderate growth projected for this year in the United States and sluggish growth expected in much of Europe.

The Group of 24, composed of finance officials from developing nations in Africa, Latin America and Asia, issued its own communique Thursday, calling on the rich nations to avoid erecting protectionist trade barriers to deal with the economic slump.

The G-20 leaders will meet again in June in Toronto. The discussions among the finance officials were designed to make progress on the financial reform plan that will be presented to the leaders.

The finance officials were also debating ways to meet another goal set by leaders of pursuing more balanced global growth. Countries such as the United States are expected to show how they plan to narrow their trade and budget deficits while surplus countries such as China were expected to present plans for boosting domestic growth and relying less on exports.

World markets get G-20 boost while dollar slides
YAHOO
By PAN PYLAS, AP Business Writer
November 9, 2009

LONDON – World stock markets rose Monday and the dollar fell sharply against the euro after the Group of 20 leading rich and developing countries agreed to maintain their stimulus measures as long as economies remained weak.

At a meeting in Scotland, the countries' finance ministers pledged to "continue to provide support for the economy until the recovery is assured." On Friday, U.S. jobs figures showed unemployment hit a 26-year high of 10.2 percent.

"Asset markets have taken comfort from the continued coordinated pro-growth plans of the G-20, with equity markets remaining supported," said Hans Redeker, an analyst at BNP Paribas.

In Europe, the FTSE 100 index of leading British shares was up 68.78 points, or 1.3 percent, at 5,211.50 while Germany's DAX rose 88.29 points, or 1.6 percent, at 5,576.54. The CAC-40 in France was 53.87 points, or 1.5 percent, higher at 3,761.25.

U.S. stocks were also expected to open higher. Dow futures were up 84 points, or 0.8 percent, at 10,062 while the broader Standard & Poor's 500 futures rose 10.10 points, or 1 percent, to 1,076.30.

Though stocks have managed to garner some gains after the G-20 meeting, the dollar has continued to fall as the finance ministers steered clear of any attempt to talk up the U.S. currency.

Comments from the International Monetary Fund that the dollar was still "on the strong side" in terms of its trade-weighted basis helped fan the dollar selling Monday, particularly against the euro. While the dollar may be weak against the euro, it is considered to be overvalued against the Chinese yuan.

"China's dollar peg is exaggerating the degree to which the yen and the euro are bearing the brunt of the dollar's downward adjustment and this is likely to be a political topic for the coming year," said Jane Foley, research director at Forex.com.

By early afternoon London time, the euro was 0.7 percent higher at $1.4989, having breached the $1.50 mark earlier for the first time this month, while the dollar was 0.1 percent lower at 89.89 yen.

This week, attention turns towards the U.S. consumer with many leading retailers, such as Wal-Mart Stores Inc., Abercrombie & Fitch Co., Macy's Inc. and JC Penney Inc. reporting third quarter earnings. Without the help of the consumer, which accounts for around for 70 percent of the U.S. economy, any global economic recovery will be modest.

David Buik, markets analyst at BGC Partners, said the rise in U.S. unemployment is worrying for the retail sector — the results this week may be "satisfactory," he said, "but what of the outlook?"

On Friday, U.S. stocks managed to close higher despite the grim unemployment news as the figures reinforced expectations that the Federal Reserve will keep its benchmark rate at the record low of near zero percent for a while yet.

Earlier in Asia, Hong Kong's Hang Seng index rose 1.7 percent to 22,207.55, and Japan's Nikkei stock average edged up 0.2 percent to 9,823.90.

Benchmarks in mainland China, South Korea, Taiwan, Singapore, Australia and New Zealand also advanced.

Oil prices shot higher as Hurricane Ida threatened oil installations in the Gulf of Mexico. Benchmark crude for December delivery was up 85 cents at $78.67; the contract fell $2.19 on Friday.
Queens 'terror' raid hits G-20 anarchist

By KATI CORNELL
Last Updated: 5:03 AM, October 3, 2009
Posted: 4:14 AM, October 3, 2009

FBI anti-terrorism agents raided the Queens home of a self-described anarchist charged with tweeting protesters with instructions on how to evade police at the G-20 summit.

A dozen gas masks, liquid mercury, backpacks containing hammers and anarchist literature were among the dozens of items seized Thursday at the Jackson Heights home where Elliot Madison, 41, lives with his wife Elena, 39.  Madison is free on bail after Pittsburgh cops arrested him on Sept. 24 and charged him with hindering prosecution, criminal use of a communication facility and possessing criminal instruments.

Police tracked Madison and another man to a motel room at the Carefree Inn in Pittsburgh, where they discovered a makeshift communications center, according to a criminal complaint.  The two men were seated in front of personal computers and telecommunications equipment, wearing headphones and microphones and surrounded by maps, contact numbers and police and EMS scanners.

Cops claim they were using Twitter to direct the movements of protesters and update them on the location and actions of law enforcement.  The details of Madison's recent arrest and Thursday's search emerged yesterday as defense lawyer Martin Stolar asked a federal judge to stop authorities from reviewing confidential information contained in his client's computers.

But Assistant US Attorney Andrew Goldsmith argued that some of the items raised alarm, including a pound of liquid mercury in the house, alongside "books about poisons" and a microscope.

The feds also found metal triangles that are used to puncture tires and two boxes of ammunition. Goldsmith said agents left a collection of machetes, samurai swords and daggers at the house, because they didn't fall within the scope of the search warrants.  Stolar said Madison and his wife have a long history of working for the People's Law Collective, a group he described as providing legal representation for protesters.  In court papers, Stolar argued that the search is illegal and asked Brooklyn federal Judge Dora Irizarry to order the return of the property.

The judge issued a temporary order of protection stopping the feds from going through the material.  Neighbors said the house was swarming with agents during the 16-hour search, while helicopters flew overhead.
Merkel to G20: regulation before rebalancing
By Giuseppe Fonte and Steve Holland Giuseppe Fonte And Steve Holland
Septemebr 24, 2009

PITTSBURGH (Reuters) – German Chancellor Angela Merkel warned on Thursday that a U.S. drive to rebalance the global economy risked distracting the Group of 20 from a more urgent need for market regulation at their Pittsburgh summit.

Merkel's remarks in Berlin underscored differences between some of the world's largest economies as she, U.S. President Barack Obama and other G20 leaders headed for talks on Thursday and Friday on how to respond to the global financial crisis.

The sheer volume of problems the two-day summit is set to address -- from the lopsided global growth model to tougher rules for banks and bankers' pay, plus climate change -- prompted low expectations for any near-term action.

The United States, the world's largest economy and the epicenter of the global crisis, wants G20 countries to commit to reducing reliance on U.S. consumers by boosting consumption in exporting countries, such as China, while encouraging debt-laden nations such as the United States to save more.

"I have made clear we should not look for other topics and forget about financial market regulation," Merkel said. "Imbalances are an issue. We must have imbalances and all the possible causes on the agenda. Exchange rates belong to that."

Merkel, on track to win a second term in an election on Sunday, said the world's leading countries were making progress on financial reform and should not shy away from measures that might prove unpopular with the banking industry, where the economic crisis began.

Echoing Merkel, Japanese Prime Minister Yukio Hatoyama said his country wants to play a part in crafting global rules to rein in "excessive money-making games."

MANY BRIDGES TO CROSS

G20 diplomats were trying to narrow differences over the U.S. proposal to rebalance the world economy and issues such as the pace of global trade talks, use of fossil fuels and the balance of power of financial institutions.

Export giant China has given only qualified support for the idea of improving global imbalances.

Rich countries were pressing big developing nations on Thursday to increase domestic demand but it was still an open issue, an Italian diplomat said.

A draft communique was half-completed. Officials agreed it would say there are signs the global recession is ending but it will also stress the need to continue with economic stimulus measures, the Italian diplomat said.

The International Monetary Fund has been urging G20 leaders to keep stimulus plans in place while millions of people who lost their jobs during the crisis remain out of work.

South Korea said it was too early to discuss an exit strategy. "It's too premature. That's our absolute position," South Korean Finance Minister Yoon Jeong-hyun told Reuters.

In another sign of increasing stability, major central banks announced they planned to scale back massive injections of U.S. dollars into their banking systems that were part of efforts to shore up crisis-hit economies.

Separately, European sources said the United States was opposed to setting an early 2010 target date for a long-sought breakthrough in the Doha round of world trade talks.

European diplomats say the Obama administration is too focused on getting contentious plans for U.S. healthcare reform through Congress to risk further battles with lawmakers over a trade deal that could upset agricultural and business lobbies.

Downtown Pittsburgh was shut down as part of tight security measures, with National Guard troops and police officers at checkpoints, as leaders began streaming into the scenic city at the confluence of three rivers in western Pennsylvania.

Several hundred protesters gathered at a large park ahead of a march on the convention center where the G20 is meeting.

"Holding something like this without public input isn't right," said Katy Slininger, 20, a media student.

One man held a large U.S. flag that had corporate logos for companies like McDonalds, IBM, Shell, Pepsi and General Electric in place of the stars.

Mark Sanderfer, 55, sat at a picnic table writing posters with slogans such as "G20 greed x 20 = planets of slums."

"The message here is when are you going to treat citizens of the world right?" said Sanderfer, a project manager at a concrete construction company in Denver, Colorado.

BANK PAY UNDER SCRUTINY

France and Germany want curbs on bonuses they say fostered huge risk-taking and helped cause the turmoil on financial markets that shoved the world economy into recession.

Diplomats said talks were moving toward establishing an overall link between the profits a bank makes and the health of its balance sheet to the amount of money it can put into a pool for bonuses.

Now that the recession in many countries appears to be ending, the challenge is to sustain the sense of urgency felt in April when the G20 agreed to work together to rescue the world economy and pledged hundreds of billions of dollars to finance crisis-fighting by the IMF.

The U.S. Federal Reserve said on Wednesday that growth had returned to the world's biggest economy. U.S. workers filing new claims for jobless benefits fell last week but a drop in sales of existing homes in August provided a mixed picture.

The euro zone also appears poised to emerge from recession, although most economists expect only a gradual recovery. A key indicator of German business confidence fell short of expectations on Thursday.
Europe, U.S., China must take IMF medicine: Trichet
YAHOO
By Anna Willard
September 21, 2009

PARIS (Reuters) – Persuading Europe, the United States and China to accept International Monetary Fund advice on economic polices may be difficult, European Central Bank President Jean-Claude Trichet said on Monday.

The United States wants a discussion of a broad framework to solve the world's economic imbalances at a summit of G20 leaders in Pittsburgh on Thursday and Friday.  The IMF would be charged with sketching out a plan and then checking whether each country was making progress.  But in the past many countries have ignored advice dished out in regular reviews by the IMF.

G7 sources told Reuters on Monday there was a renewed determination to act to stem the global imbalances because the crisis had underlined the interconnectedness of the financial system and how joint action could be more effective.  Trichet said the G20 had made progress on reforms to make the financial system more stable after the crisis.

"But the most difficult question is still open: Europe, America, China, are they ready to modify their macroeconomic policies in the future -- by following the advice of the IMF and under pressure from their peers, for the common good, and world economic stability?" he said in French newspaper, Le Monde.

The discussion would aim to fix a growth model that has been driven by manufacturing powers such as China exporting goods to satisfy U.S. shoppers, leading to a trade deficit in the United States and a surplus and huge currency reserves in China.  This model no longer works because consumers in the United States and other countries have seen their budgets and credit cut by the financial crisis and rising unemployment.

"We can't go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we're taking out a bunch of credit card debt or home equity loans, but we're not selling anything to them," U.S. President Barack Obama said in an interview with CNN television on Sunday.

BROKEN DOWN

"The longer-term forecasts of the IMF are for relatively weak growth because the motors of growth are broken down," a French official said on Friday.

"We need to find a new method of growth."

Economists say U.S. consumers must save more, China must encourage more shopping sprees at home and Europe must push through structural changes to unleash faster economic growth.

However, officials have said several countries are reluctant to open talks on an issue that would also pave the way for a discussion on imbalances between exchange rates including a renewed push for China to free up its currency regime.  The G20 leaders will also try to work out their differences on reforms to financial regulation aimed at preventing the kind of risk-taking that helped create the crisis.  Europe is pushing for tougher regulation including strict rules to limit bonuses, a harmonization of accounting rules, and adoption of the Basel II capital standards.

"Every financial market product, every institution, and every financial marketplace should be subject to regulation," German Chancellor Angela Merkel said on Monday after a meeting to prepare for the summit.

She said she did not expect to agree a "Tobin tax" on financial transactions at the summit.  The United States is keen to show Europe that it is also taking steps to rein in excesses in financial markets.  But the pace of regulatory reform has been slow, held back by opposition from a powerful banking lobby and President Barack Obama's focus on healthcare reform.

There are also differences within European countries over how far financial reforms should go. France and Germany have been pushing a tough line on regulation while Britain, mindful of the interests of the City, has resisted the toughest limits on bonuses.

"Those who think that because the situation is getting back to normal, we can do without deep reforms, are totally wrong," Trichet said.
G20 has run out of gas: Promise of reform of financial system stalls as recovery arrives
By Greg Robb, MarketWatch
Sept. 18, 2009, 5:27 p.m. EDT

WASHINGTON (MarketWatch) -- The Group of 20 leaders may strut and preen next week at their summit in Pittsburgh about how they saved the world economy and made sure a crisis never happens again, but many analysts have already turned their backs on the group, convinced no serious reform plans are on the table.

"The air is seeping out of the G20 balloon," said Jeffrey Garten, the former dean of the Yale University business school and a top international economic adviser to President Bill Clinton.

The Group of 20 has superseded the Group of Seven as the premier semiannual gathering for the heads of state of the major economies.

"The further away we get from the epicenter of crisis, the less likely the G20 is to coalesce around anything that has any teeth," Garten said. "I think the real danger here is almost nothing done to prevent another financial crisis from coming down the pike."

Simon Johnson, a former chief economist at the International Monetary Fund and now a professor at the Massachusetts Institute of Technology, called the Pittsburgh summit "largely a smokescreen to look busy."

"There is nothing in the works to defang the financial system," Johnson said.

The leaders will gather in Pittsburgh Sept. 24-25. The G20 met first in November and then again in April, laying out a series of principles for addressing the global economic crisis -- most notably that the countries wouldn't raise trade barriers.

Former U.S. Trade Representative Carla Hills said this pledge has been honored in the breach. She noted that a World Trade Organization report has concluded, in fact, that one of the G20 nations raises a trade barrier every third day.  There is a profound sense that an opportunity to make a big difference has been missed. National politics, entrenched interest groups and inertia have conspired to make meaningful reform unlikely.

"It is a poignant moment," Garten said.

Financial reform

Outside of government circles, there is a general consensus that the G20 should mandate that banks hold much more capital than they have in the past to guard against taking on too much debt.

In the same vein, the G20 should be tackling this issue of banks that are "too big to fail." This would require shrinking the companies back to a manageable size, Johnson said.  The financial crisis would have been a good time to scale them back, but the opportunity seems to have passed.  Now governments should impose insurance premiums on the biggest banks to give them the incentive to shrink, Johnson said.

But there is no appetite for forcing banks to raise more capital, either in European capitals or in Washington, analysts said.  The Obama administration's proposed new rules for Wall Street are not very radical -- and maintain the system pretty much the way it was prior to the crisis, said Barry Eichengreen, a professor at the University of California at Berkeley.  Garten said he wanted to see the leaders take a bold step and create some form of global central bank to oversee the operations of global financial institutions.

"Financial institutions straddle the world," Garten said. "Domestic regulation cannot encompass the whole thing."

Some analysts are more charitable toward the G20. They think it is a good idea for the G20 to take a back seat and let technocrats work on bank-capital matters.  Eichengreen said he hoped the Financial Stability Board, a group of regulators within the G20, would come up with higher capital requirements.

But Johnson said he expected only "mild" new FSB rules.

Global efforts to fix common accounting rules are already foundering, noted Edwin Truman, a former top Federal Reserve and Treasury staffer, at a conference on the G20 sponsored by the Council on Foreign Relations.

Imbalance of power

Another issue looming for the leaders is the global imbalance -- especially the big gap between Chinese and U.S. savings, investing and consumption rates.  Global recession has reduced the imbalances, but they have not disappeared, and they could come roaring back, analysts said.  At its core, the worry for some time has been that the global economy would seek to adjust to these imbalances through a sharp fall in the dollar.

"A substantial fall in the value of dollar -- setting off a very painful adjustment in the rest of world -- is still a very real possibility," said Eswar Prasad, a senior fellow at the Brookings Institution.

Despite all the talk, China and other U.S. trading partners wouldn't mind if U.S. consumers went back to their free-spending ways.  China, Germany and Japan are still very dependent on exports.

"It still looks like the coattails of the U.S. are the coattails that the rest of the world is hoping to hang on to," Prasad said.

Johnson and Garten said the issues are not insurmountable but expressed doubt that the G20 could agree on any action.  Garten said China could fund a social safety net so that its consumers would be able to spend more on improving their quality of life. At the moment, Chinese workers hoard their earnings because they must pay for their own retirement and medical care.  At the same time, the U.S. should enact a value-added tax, which would shift the tax burden onto spending, and create other incentives for savings, he said.

Eichengreen said that he was not impatient. These imbalances, he said, should be tackled slowly. Any sharp adjustments might also lead to unforeseen exchange-rate fluctuations that could catch banks wrong-footed, he said.

Bonus time

Analysts agree the G20 summit is likely to be dominated by the issue of global rules on bankers' pay and bonus plans.  European leaders are pushing a proposal to extend bonuses over several years that could be "clawed back" if a bank runs into trouble.

The U.S. and Britain are not thrilled with the bonus rules, but analysts see enough wiggle room on the issue that the G20 could come up with an agreement on the issue.  Johnson called the issue a "red herring" that served to take attention away from more important issues. Banks will simply find clever ways around any limits, he said.

There may be one critical decision at the summit, Johnson said.  The leaders will likely agree to cut the number of annual summits to one per year, instead of two.

Observed Johnson: "Doing two summits a year -- when you don't have anything to report on -- is embarrassing."


G-8

Interesting to read about what the difference is between "G-8" and "G-20."  How about the "G-7" - isn't this the same as the "G-8?"  Russia made 8, according to Wikipedia.

WIKIPEDIA:  "HISTORY G8...The concept of a forum for the world's major industrialized democracies emerged following the 1973 oil crisis and subsequent global recession. In 1974 the United States created the Library Group, an informal gathering of senior financial officials from the United States, the United Kingdom, West Germany, Japan and France. In 1975, French President Valéry Giscard d'Estaing invited the heads of government from West Germany, Italy, Japan, the United Kingdom and the United States to a summit in Rambouillet. The six leaders agreed to an annual meeting organized under a rotating presidency, forming the Group of Six (G6). The following year, Canada joined the group at the behest of Germany's Chancellor Helmut Schmidt and U.S. President Gerald Ford[4] and the group became the 'Group of Seven' -or G7. The European Union is represented by the President of the European Commission and the leader of the country that holds the Presidency of the Council of the European Union. The President of the European Commission has attended all meetings since it was first invited by the United Kingdom in 1977[5] and the Council President now also regularly attends."

Group of 7 Will Meet to Address Debt Issue
NYTIMES
By LIZ ALDERMAN
August 5, 2011

PARIS — As European leaders on Friday tried to calm fears that the region’s sovereign debt problems were spinning beyond politicians’ control, Italy’s prime minister said finance ministers from the Group of 7 industrial nations would meet “within days” to discuss the volatile financial crisis.

The Italian prime minister, Silvio Berlusconi, whose nation has been viewed as the next potential debt-laden domino to fall, also announced a number of measures Italy would take to restore the confidence of investors and creditors.

The G-7 meeting is meant to show that leaders are taking action to address the crisis, even before votes occur in national parliaments next month to expand Europe’s rescue fund for its most financially troubled members.

While no details of the meeting’s agenda were given, the situation “requires coordinated action,” Mr. Berlusconi said. “We have to recognize that the world has entered a global financial crisis that concerns all countries.”

For all the hum of activity on Friday, though, many economists and analysts remained unconvinced that sufficient steps were being taken to resolve the problems engulfing the European nations that share the euro.

European stocks were down for a second consecutive day on Friday, on the gnawing realization that Europe and the United States may face fundamental economic problems for years to come.

The turmoil prompted a flurry of phone calls between President Nicolas Sarkozy of France from his vacation retreat on the French Riviera, and Chancellor Angela Merkel of Germany, who had chosen an August getaway to Italy. Mrs. Merkel and Mr. Sarkozy also each spoke with President Obama on Friday, the White House said, but offered no details on their discussions.

Mr. Berlusconi, meanwhile, spoke by phone Friday with Mrs. Merkel and, separately, with Herman Van Rompuy, the European Council president, and with José Luis Rodríguez Zapatero of Spain — the other big debt-saddled European country that, like Italy, is seen as teetering.

Mr. Zapatero of Spain, whose economy is in greater peril as investors drive up borrowing costs, also spoke separately to both Mr. Sarkozy and Mrs. Merkel from his vacation in Andalucia.

At a hastily called news conference, Mr. Berlusconi, who has been criticized for being too slow to recognize that Italy’s debt problems threaten the euro union, said his country would take various steps to address the crisis.

He said Italy would aim for a balanced budget a year earlier than a previously stated 2013 deadline, seek a constitutional balanced-budget amendment and make other moves to liberalize the nation’s economy — which is so sclerotic from bureaucratic rules that it has barely grown for a decade.

Parliament may shorten its August recess to pass the measures, Mr. Berlusconi said. He appeared alongside the economy minister, Giulio Tremonti, whom Mr. Berlusconi had recently treated with public disdain that added to the market’s concerns about Italy.

Many analysts remain skeptical that European leaders have grasped the problems confronting them.

“Politicians have done everything to demonstrate they are not ahead of the curve,” said Stefan Schneider, the chief international economist at Deutsche Bank in Frankfurt. “That is hitting market confidence and creating a self-fulfilling feedback loop.”

Just days after Washington struck a harrowing, last-minute deal to lift America’s debt ceiling, a stark reality has come crashing in on both sides of the Atlantic. Neither the United States nor Europe has yet fully recovered from the financial crisis that spread from spring 2007 through early 2009.

Instead, brief bright spots of recovery have been overshadowed by rising unemployment and anemic economies, especially as debt-reduction austerity programs in Europe and spending cuts in the United States weigh on growth.

Signs of economic weakness continue to emerge. New data indicates that industrial output fell in June in Italy and Spain, and both economies grew at a tepid pace in the second quarter. While the German economy remained strong, industrial production there slid in June, by 1.1 percent, as construction activity also slackened.

Meanwhile, leaders in Brussels on Friday were trying undo the damage wrought by José Manuel Barroso, the European Commission president, a day after he frightened investors by conceding that Europe was gripped by political paralysis.

His remarks, which angered German policy makers, were one of the catalysts for the markets’ downward spiral Thursday, along with a half-hearted attempt by the European Central Bank to bolster the bonds of the most deeply troubled debtors.

Many analysts say that the inability of politicians to speak with a unified voice, whether about the debt ceiling in the United States or the debt crisis threatening the foundations of the euro monetary union itself, is at the heart of these problems.

China, whose surging growth depends on the West, voiced new worries Friday about the declining fortunes of its two largest trading partners.

“Europe’s debt problems are still developing, and the U.S. sovereign debt default risk is escalating,” China’s foreign minister, Yang Jiechi, said during a visit to Poland. He urged all countries to “further increase communication and coordination.”

Europe’s leaders seemed to take the hint — for now.

“All of us who are in responsible positions in Europe will have to do much better in order to ensure verbal discipline and rigor,” Ollie Rehn, the European economics commissioner, said at a hastily called news conference in Brussels on Friday.

European officials, he said, were “working night and day to put flesh on the bones” of an agreement in principle they struck in July for a second bailout of Greece and to reinforce its sovereign rescue fund, the European Financial Stability Facility. The fund is supposed to keep the economies of Italy and Spain from succumbing to market attacks the way Greece, Ireland and Portugal did.

“Once investors understand that all this work is under way behind the scenes, they will be reassured,” Mr. Rehn said. “It is not as if the fundamentals of the Italian or Spanish economies have changed overnight.”

That may be. But with Greece, Ireland and Portugal having received an unprecedented bailout from their European partners, investors are now wary of any country with low growth and high debt — like Spain and Italy, with their much larger economies.

European parliaments are scheduled to vote on expanding the capacity and scope of the rescue fund after their vacations. But the worry is that financial markets will not wait that long, and will drive up borrowing costs for Italy and Spain to levels that will make it much harder for them to maintain a sustainable debt load.

“If they had agreed on those measures nine months ago it would have prevented the crisis from spiraling to this extent,” said Simon Tilford, the chief economist at the Center for European Reform in London. “But this is too little too late.”

For all their declarations, Europe’s leaders are still not taking the ultimate step that many analysts say would shore up the euro union: moving toward greater fiscal federalism, a system that would make Europe look more like the United States.

The reasons for resisting are deep-seated: No country wants to give up its sovereignty. Even discussions about issuing euro bonds are met with fierce resistance in Germany, as are ideas for a pan-European financial regulator and Europe-wide deposit insurance to guard against instability in the region’s banks.

Germany warned Friday that it would oppose any plan to introduce euro bonds. Joachim Pfeiffer, a lawmaker and economics spokesman for Mrs. Merkel’s parliamentary bloc, called them “poison.”

Another move that critics say would stem the crisis would be for the central bank to buy Italian and Spanish bonds, which would keep their rates from spiraling to the levels that forced Greece and others to take a bailout. But the central bank sees this as a weapon of last resort and is loath to use it.

Mr. Sarkozy has something else to fear. If the crises in Italy and Spain cannot be tamed, France, as one of the major contributors to the cleanup operation, would be in an increasingly weak position.

Spreads on benchmark French bonds have widened against ultrasafe German bonds. And while growth is not lagging, France’s structural deficit is high. If the size of the rescue fund were to increase enough to protect Spain and Italy, investors might start to look askance at France’s ability to underwrite its share, analysts said.

Germany urges U.S. to focus on debt cuts
Broadside comes as White House seeks more stimulus
Washington Times
By Stephen Dinan
21 June 2010

The congressional battle over adding more government stimulus spending versus deficit reduction spilled overseas Monday as the German government publicly rebuked the Obama administration over its red ink and said countries now must focus on controlling debt.

It's the same sort of pushback President Obama has been getting from critics at home as he calls for a second round of stimulus spending, which he argues is needed to spur private job creation at a time when unemployment hovers near 10 percent nationwide.

But he's increasingly being opposed by Republicans and some Democrats at home, and German officials' comments signal a looming fight over deficits as the world's leaders gather in Toronto next week for a summit of the leaders of the world's biggest economies, with the Group of Eight summit of industrial powers kicking off Friday in Canada.

A larger gathering of the world's 20 leading economies, known as the Group of 20, follows immediately afterward...

Page last updated at 18:52 GMT, Monday, 14 December 2009
Greece is at risk of 'sinking under its debts'
A Greek man sells tissues outside closed store
Greece is trying to reassure markets about its economy

The Greek prime minister has warned that the country is at risk of "sinking under its debts".

George Papandreou said the government would over the next three months announce major spending cuts. "We must change or sink," he said.

Greece's deficit has risen to more than 12% of national output this year.

Last week, international ratings agency Fitch downgraded the country's credit rating - meaning that it thought Greece was now a riskier place to invest.

Mr Papandreou added that Greece had "lost every trace of credibility", and the country had to "move immediately to a new social deal".

Indicating that some spending cuts would be painful, he added that "we must all lose our comfort".

Finance Minister George Papaconstantinou earlier defended Greece's position in the eurozone, despite its deficit being far above the European Union limit of 3%.

European debt and deficit figures

He said Greece was worthy of its place because it "abides by the rules" and was "not the only eurozone country with a deficit of that order".

Mr Papaconstantinou told the BBC: "Greece is not the next Iceland, nor is it the next Dubai... it is tackling the very serious situation that we have.

"It is doing it with specific measures that cut expenditure and increase government revenue and also it is a government which is immediately tackling long-term structural problems," he added.

Since last week's decision by Fitch, Greece has come under increasing pressure to take action over its deficit from the European Central Bank.

However, Collin Ellis, European economist at Daiwa Securities, says that "the idea that the euro area is on the the brink of losing Greece and possibly other members is simply absurd".

He believes there is still time for the Greek government to sort out its finances, and, should it not be able to, "it is inconceivable that other euro area member states and, if necessary, international organisations would not step in".

The country's public debt stands at 300bn euros ($442bn; £269bn).


Gordon Brown warns G8 of new recession dangers
Patrick Wintour, political editor The Guardian, Monday 6 July 2009 

Gordon Brown is to warn the leaders of the G8 industrialised nations this week that international complacency is in danger of bringing economic recovery to a halt and plunging the world into a second recession.

He will insist now is not the time for fiscal contraction, even though public finances need to be brought under control in the medium term.  The warning of a so-called double dip recession will be made when Brown meets G8 leaders on Wednesday for three days of talks on the world economy, climate change and aid.  The talks, in Italy, are being chaired by the Italian prime minister, Silvio Berlusconi.

Brown will claim the world economy is at a pivotal point. He said: "There are many voices saying that the worst of the downturn is over, but there is no room for complacency."

He will spell out a similar message when he meets the French president, Nicolas Sarkozy, in France tomorrow. 
Brown will set out a five-point plan at the G8 for boosting growth that includes increasing bank lending, fresh restraint on oil prices, action against protectionism, increased investment and preventing a generation of young people being lost to the world of work.

Brown's aides describe his warning as his second wake-up call to world leaders, after his first at the G20 in November. Brown fears some of the commitments made then are starting to slip.  The warning signs seen by the prime minister include a lack of lending by banks, a 75% rise in oil prices this year, a continued fall in private sector investment, a 38% rise in unemployment, a fall in world trade and creeping protectionism.

Brown is due to tell world leaders: "The world cannot stand by and let events take their course. The need for co-ordinated international action to implement the decisions we have taken has never been more crucial.

"If we do not take the necessary action now to strengthen the world economy and put in place the conditions for sustainable world growth, we will be confronted with avoidable unemployment for years to come."

Brown is warning that bank corporate loans in Europe this year were $199bn compared with $674bn in 2008 and $1.1tn in 2005. The prime minister fears banks in Europe will return to their old complacent ways and growth of small- and medium-sized companies will be constrained as a result.  He believes the newly formed Financial Stability Board should be given the resources and credibility to implement the common principles on lending and balance sheets agreed by the G20.

On oil prices, he is to call for measures to address volatility, market transparency and better investment in more sustainable energy of the future.  He suggests world trade could fall by a further 10% this year, and by 14% in developing countries.

He also suggests foreign direct investment may have fallen by 15% last year, and preliminary data for the first quarter of 2009 suggests a sharp fall in industrialised and developing economies, with dramatic slumps in flows to China.
Bank Bail - Outs Promote "Deglobalization": WTO Chief
NYTIMES
By REUTERS
Filed at 9:28 p.m. ET
July 5, 2009

LONDON (Reuters) - Government bail-outs of the world's big banks pose a threat to free trade, Pascal Lamy, head of the World Trade Organization (WTO), told the Financial Times newspaper in an interview on Monday.

"There is a danger that the finance industry will be on the side of the forces of deglobalization," he said.

Lamy said the bail-outs had "constrained risk-taking" outside the familiar territories of national markets and this was already affecting Foreign Direct Investment, now forecast to fall 50 per cent this year.

"If there is less FDI there will be less trade," Lamy told the paper, speaking from the annual conference of France's Cercle des Economistes in Aix-en-Provence.

The WTO head warned that free trade faced its severest test, with protectionist pressures poised to rise.

"I am convinced the worst is yet to come," he said. "The real stress test is for the future when the shrinking of economies translates into unemployment and social hardship and that translates into a political reaction that could influence trade policy. The toolbox for protection is a wide one," he told the paper.

He said he planned to attend this week's G8 summit of world leaders in Italy to urge governments to resist protectionist policies and to keep the channels of trade open in finance as well as industry.

He said governments had to commit themselves to completing the Doha round of trade talks, already eight years in the making.

The arrival of new administrations in India and the United States -- which have clashed over the special safeguard mechanism to protect poor farmers -- had given a difficult process new impetus, he said.

"Getting the final agreement may be complex but in both cases they have given the feeling that they are back at the negotiating table," he said.

An agreement could be reached within the next year, Lamy said.
Remember this "oops" moment for the Treasury Sec'y?
China Reassures on Dollar Debate Before G8
NYTIMES
By REUTERS
Filed at 5:43 p.m. ET
July 5, 2009

ROME/AIX-EN-PROVENCE, France (Reuters) - France and Russia on Sunday urged a debate about the world's reserve currencies, but China said the dollar would keep its pre-eminence for "many years to come."

Beijing, which has floated the idea of an alternative to the dollar as global reserve currency one day, wants the matter discussed at this week's G8 summit in Italy, officials say.

But in remarks that appeared intended to reassure Washington, Chinese Vice Foreign Minister He Yafei told reporters in Rome: "The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come.

"You may have heard comments, opinions from academic circles about the idea of establishing a super sovereign currency. This is all, I believe, now a discussion among academics. It is not the position of the Chinese government."

China's central bank head launched the debate last March when he said the SDR, the International Monetary Fund's unit of account, might one day displace the dollar.

The debate is highly sensitive in financial markets, which are wary of risks to U.S. asset values. Bankers reckon China holds perhaps 70 percent of its $1.95 trillion in official currency reserves in the dollar.

Several emerging market countries have said they want to reconsider the dollar's role and see a more diversified international monetary system.

"The dollar system or the system based on the dollar and euro have shown that they are flawed. But I am a realist and I understand that today there is no alternative to the dollar or the European currency," Russian President Dmitry Medvedev said in an interview with Italian media.

"There should be more reserve currencies. So we consider that we need to think about the creation of regional reserve currencies."

STRONG DOLLAR MANTRA

European Central Bank Jean-Claude Trichet said it was important that the United States stayed committed to a strong currency.

"On this issue, I am very, very clear. I have just one message ... It is extremely important that the United States of America ... has been ...saying that a strong dollar is in the interests of the United States of America," Trichet said.

"I consider that extremely important and I welcome this declaration," he added.

France's Economy Minister Christine Lagarde told reporters at a conference: "We should explore a better coordination of foreign-exchange policies, which would raise the question over the medium term of the balance of exchange rates and the role of currencies that have changed both as a result of the crisis and the role played by emerging market countries."

On Friday, Suresh Tendulkar, chairman of the Indian prime minister's economic advisory council, said the dollar's weight

in the basket of currencies that helps set the rate of India's partially convertible rupee currency may be reduced.

Up until now, the U.S. dollar had been considered the main reserve currency in India. However, "India may change," he said.

"I think if you look at the global imbalances that were being talked about today between the surpluses (of) China and Japan and the deficits of the United States, I think that needs to be corrected. That I think is clear,

Tendulkar said at the conference in Aix-en-Provence, France.

Asked whether the U.S. dollar should be weaker, he said: "I think it is necessary ... it should go down."

Asian Development Bank President Haruhiko Kuroda, however, said on Sunday it was important that global imbalances be unwound gradually.
Dollar Lower After Mixed US Data, Russian Comments
By THE ASSOCIATED PRESS
Filed at 11:38 a.m. ET
June 16, 2009

NEW YORK (AP) -- The dollar fell Tuesday after the U.S. government released a mixed batch of economic data, even while an official statement from the ''BRIC'' summit had no explicit mention of the buck.

Earlier, Russian officials had called for the creation of new reserve currencies in addition to the dollar and said the country may invest part of its currency holdings in bonds issued by Brazil, China and India.

''These proposals are based upon growing concern over the creditworthiness of the United States and the stability of the dollar amidst aggressive U.S. monetary and fiscal stimulus,'' said Michael Woolfook, senior currency strategist at Bank of New York Mellon.

However, as Brazil, Russia, India and China -- the so-called BRIC group -- met in Russia, its official statement didn't refer to the dollar, relieving some fears of a formal anti-dollar proclamation stemming from the earlier comments.

The 16-nation euro rose to $1.3916 in New York morning trading from $1.3788 late Monday, while the British pound gained to $1.6460 from $1.6342.

The dollar was lower at 96.60 Japanese yen from 97.65 yen.

Meanwhile, reassuring data from the Commerce Department on wholesale prices and home construction released Tuesday helped tamp down fears of inflation and bucked up hopes of a recovery in the housing market.

The Commerce Department said that wholesale prices inched up only 0.2 percent in May from April. Prices paid by businesses have fallen 5 percent over the past year. The government also said home construction surged 17.2 percent last month.

But the Federal Reserve's report that industrial production dropped 1.1 percent in May was worse than had been estimated by analysts. Matthew Strauss, senior currency strategist at RBC Capital in Toronto, said the decline was also broader than had been expected, and not just limited to the autos sector.

While the BRIC statement had no specific reference to the dollar or the United States, instead appealing more broadly for more diversity in global financial institutions, President Dmitry Medvedev had earlier told a regional summit on Tuesday that the creation of new reserve currencies in addition to the dollar is needed to stabilize global finances.

Medvedev's economic adviser Arkady Dvorkovich also said Russia may convert some of its dollar-based reserves into bonds issued by the other BRIC countries if they reciprocate in kind. He, like Chinese officials have done, also pushed for bigger inclusion of the Russian ruble, Chinese yuan and gold to the International Monetary Fund's basket of currencies.

Officials from Russia, China and Brazil have said in recent weeks that they would invest in bonds issued by the IMF to diversify their dollar-heavy currency reserves.

China is Washington's biggest foreign creditor, holding an estimated $1 trillion in U.S. government debt. The four BRIC countries together make up almost a third of foreigners' total Treasury holdings as of April 2009, according to the Treasury Department.

The Treasury on Monday said that foreigners, including China and Japan, the two biggest buyers of U.S. government debt, cut their Treasury holdings in April -- triggering worries that foreign central banks and sovereign funds will no longer be willing to fund the U.S. government's ballooning deficits.

The dollar's status as the primary reserve currency has helped protect the U.S. government from paying more for its borrowings.

However, Dvorkovich urged for any action on a new global reserve asset to take place slowly, and Medvedev has long pushed for new reserve assets. Russian Finance Minister Alexei Kudrin said over the weekend that the dollar's status as the world's main reserve currency wasn't likely to change soon. Kudrin has been one of several top Russian officials raising concerns about the dollar in recent months.

In other trading, the dollar dropped to 1.0831 Swiss francs from 1.0928 francs late Monday, and dipped to 1.1300 Canadian dollars from 1.1337.

------

Associated Press Writer Vladimir Isachenkov contributed to this report from Yekaterinburg, Russia



It pays to print this twice...and read this column, too!

Markets heading to new danger zone: Zoellick
YAHOO
Reuters
By Ian Chua
14 August 2011

SYDNEY (Reuters) - The loss of market confidence in economic leadership in key countries like the United States and Europe coupled with a fragile economic recovery have pushed markets into a new danger zone, something that policymakers have to take seriously, the head of the World Bank said on Sunday.

Speaking at the Asia Society dinner in Sydney, Robert Zoellick also said the global economy was going through a multi-speed recovery, with developing countries now the source of growth and opportunity.

"What's happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," he said.

"I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don't say those words lightly ... so that policymakers recognize and take it seriously for what it is."

Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the euro zone have tended to be done "a day late," leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.

"That (worry) has accumulated and so we're moving from drama to trauma for a lot of the euro zone countries," he said.

On the United States, Zoellick said it wasn't fears the world's biggest economy faced an imminent problem, but "frankly that markets are used to the United States playing a key role in the economic system and leadership."

He said efforts to cut U.S. government spending have so far been focused on discretionary spending as opposed to the entitlement program such as social security. "Until they make an effort on those programs, there is going to be continued skepticism about dealing with long-term spending."

Zoellick said while market confidence has been hit, the real issue was whether this will spread to business and consumer confidence, something that was still unclear.

"What is different from the world of the past is now emerging markets are sources of growth and opportunity. About half of global growth is represented by the developing world ... so this is a very rapid change in a relatively short span of time in historical terms," he added.

On China, Zoellick said the appreciation of the yuan would be constructive, especially in helping tackle the country's inflationary pressure.

On Australia, he said the country was in a much better position than other developed countries because it undertook structural reforms. On the fiscal side, he noted Australia's debt was only 7 percent of gross domestic product and taking advantage of its position in the Asia Pacific.

China Tells U.S. It Must ‘Cure Its Addiction to Debt’
NYTIMES
By DAVID BARBOZA
August 6, 2011

SHANGHAI — China, the largest foreign holder of United States debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.

The harshly worded commentary, which was released by China’s official Xinhua news agency, was Beijing’s latest attempt to express its displeasure with Washington.

Though Beijing has few options other than to continue to purchase United States Treasury bonds, Chinese officials are clearly concerned that China’s substantial holdings of American debt, worth at least $1.1 trillion, is being devalued.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.

Beijing, which did not release any other official statement on the downgrade, called on Washington to make substantial cuts to its “gigantic military expenditure” and its “bloated social welfare” programs.

The commentary serves as a sharp illustration of how America’s standing in the world is sliding and that China now views itself as ascendant.

While Washington wrangles over its debt and deficit problems and the European Union struggles to deal with its own debt issues, China is sitting on the world’s largest foreign exchange holdings and its economy is growing at close to 9 percent. The country is also once again racking up huge trade surpluses with the rest of the world.

Beijing does have its own worries, such as soaring inflation and housing prices and trying to cool off an over-heating economy. Policy makers are also trying to deal with the accumulation of huge foreign exchange holdings tied to its trade and current account surpluses.

Beijing policy makers are discussing ways to diversify the country’s foreign exchange holdings away from dollars and also how to encourage Chinese companies to invest some of the foreign reserves overseas.

But because China has about $3 trillion in foreign exchange reserves, there are few places big enough to safely invest those holdings outside of United States Treasuries, even though its looks like they may lose value.

Analysts say that if China pulls back from purchasing Treasuries, the dollar would weaken and America’s borrowing costs would rise sharply, but that would also hurt China’s existing holdings.

And so until China can find a way to slow its accumulation of dollars or find alternatives, it is likely to be the largest buyer of Treasuries.

Still, government leaders here increasingly sound like they are losing confidence.

“International supervision over the issue of U.S. dollars should be introduced and a new stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” the Xinhua commentary said.
Dollar's days of dominance may end
Washington Times
Patrice Hill
Tuesday, September 29, 2009

World Bank President Robert B. Zoellick warned Monday that, with foreign economic powers rising quickly on the world stage, time is running out for the privileged role enjoyed by the American currency.

The dollar's status as the world's reserve currency has given the U.S. prestige and privileges that are unique in the world, lifting living standards by enabling Americans to borrow cheaply and consume far more than they produce with little consequence for decades.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," Mr. Zoellick said in a speech to Johns Hopkins University's School for Advanced International Studies in Washington. "Looking forward, there will increasingly be other options to the dollar."

Mr. Zoellick, who was appointed by President George W. Bush, noted that the world economic order established after World War II, with the United States and a handful of European countries largely dominating, is quickly coming to an end.

China is expected to displace Japan within months as the world's second-largest economy. And the U.S. and other developed nations formally recognized the growing influence of China and other major emerging countries last week by designating the Group of 20 economic powers, which includes such countries, for the first time as the world's main economic decision-making body in what analysts view as a landmark development.

"Bretton Woods is being overhauled before our eyes," said Mr. Zoellick, referring to the postwar economic summit in New Hampshire that elevated the U.S. and its dollar to the predominant role it has today and established the World Bank and International Monetary Fund to nurture world development and growth.

In the first significant change in those institutions in decades, China, Russia, India, Brazil and other major emerging countries were guaranteed greater power in the IMF and World Bank at the G-20 summit, with increases in their voting shares of at least 5 percent and 3 percent, respectively. Mr. Zoellick said the fast succession of changes in world economic governance this year were forced by the worst financial crisis and global recession in modern times.

But a new world currency regime will not happen overnight, he said. "This time, it will take longer than three weeks in New Hampshire. It will have more participants." And the United States could act to slow the erosion of the dollar, he said, referring to the dollar's decline recently on fears that the U.S. will print money to pay for its enormous budget deficits.

"U.S. prospects depend on whether it will address large deficits, recover without inflation, and overhaul its financial system," Mr. Zoellick said. "The United States has a history of recovering from setbacks."

The World Bank chief's views mirror the behind-the-scenes-talk last week at the G-20 summit in Pittsburgh, where the influence of nations such as Russia who want a new reserve currency system is on the rise. The G-20 included a veiled reference in its communique to the need for the U.S. to pursue noninflationary policies and lower budget deficits to support the dollar's reserve role.  Russia, China and other emerging nations that have been the most vocal about replacing the dollar also have been in the forefront of shifting some of their sizable central bank reserves into other currencies, principally the euro. But most of these countries still retain the lion's share of their reserves in dollars.

Worldwide, central banks have been slowly shifting some of their dollar reserves into euros and other currencies, but nearly two-thirds of currency reserves remain in dollars. Moreover, two-thirds of international trade is conducted in dollars, largely because oil and other key commodities needed in every country are priced in dollars.

China, which has the world's largest reserves estimated at nearly $2 trillion, keeps most of its reserves in dollar-denominated securities such as short-term Treasury bills, analysts say. China has expressed growing uneasiness with the decline of the dollar, which has fallen 16 percent since March against the euro, resuming a downward trend since 2002 that was interrupted briefly by the financial crisis. But even these qualms have not prompted China to diversify in any major way.

China has been dabbling at arranging more international transactions in its own currency, the yuan, as well as purchasing gold and a kind of reserve currency issued by the IMF known as special drawing rights. So far, however, these represent only token departures from its dollar-dominated reserve strategy, analysts say.

For these and other reasons, most foreign exchange analysts say, the dollar is nowhere close to being supplanted as a reserve currency.

"This is mostly saber-rattling and political posturing," said Jeffrey Nichols, senior economic adviser at Rosland Capital. "Countries like China - while talking tough - have a strong interest in maintaining a stable dollar and an undervalued yuan to support exports to the U.S. and a growing economy with high employment at home." China will have to keep adding dollars to its reserves to achieve those economic goals, he said.

Karl Schamotta, an analyst at Custom House, a Canadian foreign exchange firm, said any serious move by China to diversify its estimated $1.5 trillion of dollar reserves could be devastating for the U.S. currency, but no one expects that.

"For now, the Chinese government is the largest stakeholder in the value of the dollar," he said. "As many things have changed dramatically over the last two years and economic power is rapidly shifting eastward, the United States still holds the balance of power and is not likely to give it up for some time yet."
World Bank's Zoellick says wary of more Fed power
YAHOO
By Alister Bull
Mon Sep 28, 200911:04 am ET

WASHINGTON (Reuters) – The head of the World Bank on Monday sounded a cautionary note about granting greater regulatory power to the U.S. Federal Reserve and said the dollar's future will "depend heavily on U.S. choices."

"It should not be a surprise that American democracy is hesitating about authorizing the Fed to supervise systemic banking as well as operating monetary policy, adding to its power," World Bank President Robert Zoellick said.

In a speech prepared for delivery at Johns Hopkins University's School of Advanced International Studies, Zoellick said the U.S. Congress had a long tradition of viewing banks with suspicion that made it a challenge to beef up the U.S. central bank's power after last year's financial panic.  Aiming to prevent a repeat of the crisis that pushed the world financial system to the brink of collapse, President Barack Obama has proposed sweeping changes to U.S. regulation that would make the Fed the lead systemic risk regulator.

"It will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators," Zoellick said.

Zoellick, speaking ahead of the annual World Bank and International Monetary Fund meetings that open in Istanbul on Sunday, commended central banks for forceful action once the crisis hit.  But he said they face "reasonable questions" for failing to prevent asset bubbles -- notably in the U.S. housing market -- and for serious lapses in financial supervision.

"We have yet to see whether central banks can handle the recovery without letting inflation get out of control," he said.

This will be crucial in determining whether the U.S. dollar could retain its lead role as a global reserve currency, he added.

"Of course, the U.S. dollar is and will remain a major currency. But the greenback's fortunes will depend heavily on U.S. choices. Will the United States resolve its debt problems without a resort to inflation?," Zoellick asked.

He also cautioned U.S. authorities not to take dollar dominance for granted, and noted that the euro common currency, as well as the yuan of an increasingly powerful China, gave investors more choices to diversify their holdings.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency. Looking forward, there will increasingly be other options to the dollar," he said.
Almighty
The Dollar: Shrinkable but (click here for latest 2009 word) Unsinkable
NYTIMES
By PETER S. GOODMAN
Published: May 11, 2008

If the United States were any other country, these would surely be days of panic and austerity in Washington. With debts spiraling higher, a trade deficit exceeding $700 billion a year, and its currency plunging for years, the government would be forced to cut spending and jack up interest rates in a frantic bid to attract investment.

But the United States is not any other country. For more than half a century, Americans have enjoyed a unique privilege in the global economy: The dollar has been the world’s dominant currency, the money used in most transactions and the repository for the national savings of many countries, including China, Japan and Saudi Arabia.

Come what may — a financial crisis here, a military misadventure there — Americans could count on money sloshing up thick on their shores. Virtually limitless demand for American government bonds has supported the dollar’s value, and kept domestic interest rates down. Americans have been emboldened to spend in blissful disregard of their debts, secure that foreigners would always supply finance. And that devil-may-care spending has in turn fueled economic growth around the world.

This dynamic may be so deeply embedded in the workings of the global economy that it could endure for many years to come: The costs of weaning the United States from its credit habit would ripple far and wide.

But what are the chances that a day of reckoning is coming, when the dollar would be so weak that America would have to play by the rules that apply to every other country? Recent signs do suggest some fraying in the American relationship with its many foreign creditors. The balance of trade has gotten so lopsided and the question marks hovering over the American economy so thick that some foreign governments are beginning to hedge their bets on the dollar.

Russia has been diversifying its hoard of foreign exchange, plunking more into other currencies like the rising euro. In the oil-drenched Middle East, signs suggest a slight shifting to other flavors of money. And markets have been parsing every utterance from Beijing for hints that China may moderate its voracious appetite for dollars.

Meanwhile, China, Russia and Middle Eastern nations have been injecting hundreds of billions of dollars into state-controlled investment pools known as sovereign wealth funds, which have mandates to seek out better gains on their capital than they get from American government bonds.

“These central banks know that holding these low-yielding Treasury bills is just an aid program to the United States, and they want to get out of that business,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund. “They are very keen to diversify.”

Over all, dollars have never been purchased in as large quantities. But, that said, the dollar has been slipping as a percentage of total foreign currency reserves, as nations increasingly sock away other currencies as well, to cushion themselves against crisis. Between 2001 and the end of 2007, the dollar’s share of the world’s total foreign exchange reserves shrank from about 73 percent to 64 percent, as the euro expanded from about 18 percent to more than 25 percent, according to the International Monetary Fund.

That change does not reflect a selling of dollars, the monetary fund reports. Rather, it captures how the dollar has fallen in value against many currencies, making the total value of dollars a smaller percentage of all money. “It hasn’t been an active diversification,” said John Lipsky, first deputy managing director at the fund. “Central bankers tend to be the most conservative investors. Whatever they do is going to be done with exceeding caution.”

Now, however, people in international financial circles detect a subtle shifting of the ground in confidence about the dollar. A few years ago, the suggestion that another currency could rival the dollar would have been ridiculed. Today, some economists say the dollar could begin surrendering some of the advantages of dominance to the euro over the next decade or two. Longer term, the dollar could find itself eclipsed by China’s yuan as the primary money in usage in the world.

For Americans, losing that status could be painful, sending interest rates higher and raising the costs of buying homes and cars. A country that has been operating with essentially unlimited credit might have learn to live within a budget.

But many economists say that chatter about the demise of the dollar is overblown. The United States, despite its problems, has been a remarkably solid place to put money, making it singularly able to attract savings, they point out. The dollar is likely to continue to shed value, and the American economy will grow far slower than India’s and China’s, they acknowledge. Yet the dollar, they argue, remains one of the few entities that seem to have fundamental staying power in an age of risk and obsolescence. The size of the United States military alone reinforces confidence that America will endure to honor its debts.

Yes, foreigners have been lending alarming amounts of money to Americans, who have spent extravagantly in excess of their means, economists say. One day, balance will be restored in line with the basic laws of economics — perhaps chaotically, and probably via a substantial fall in the dollar’s value.

But “one day” could well get pushed into the future for a long time to come, for the simple reason that codependence governs the global economy: The current flows of capital lubricate world commerce, giving the American consumer the wherewithal to keep buying; those purchases, in turn, generate business and employment from Asia to Latin America.

When Americans head to the mall, backed by foreign largesse, they drive there burning gasoline made from oil pumped abroad, notably the Middle East. They drive home carrying electronics and clothing churned out in Chinese and Japanese factories. Making these goods absorbs commodities — energy from Australia and Africa; cotton from Texas and California; iron ore from Brazil and India.

Keeping this global assembly line humming has become a primary development strategy for China, as it continues a wrenching transformation from a predominantly agricultural nation into a rapidly industrializing trading power whose factories employ millions of poor farmers streaming toward cities.

China subsidizes many factories, handing out low-interest loans and making land available at below-market prices. Buying up United States Treasury bills helps goose production: China’s central bank buys dollars in part to keep the yuan valued lower, making Chinese goods cheaper on world markets. And by helping keep interest rates lower in the United States, China ensures that American consumers can keep buying.

The Chinese “recognize that they have to lend us the money if they want to maintain those markets,” said Michael P. Dooley, an economist and a partner in Cabezon Capital, a hedge fund specializing in emerging markets.

China’s leaders fear anything that threatens to crimp exports; that would eliminate jobs and send angry peasants back to their villages. So, with more than $1 trillion already invested in dollar-denominated assets, China is loath to do anything that could drive the dollar down precipitously. If it started selling dollars, that could trigger a panic that would send the dollar plummeting.

But some analysts wonder how much longer China can continue to win at this game. Investing money in the United States requires spending that much less on enormous problems at home, like pollution and a shortage of health care. By indirectly making mortgages cheap in the United States, China has helped foster the boom that saturated Miami with glittering condos even as tens of millions of Chinese live in dilapidated concrete block apartments.

On this side of the Pacific, the great real estate bonanza has, of course, ended badly. Some economists point to the real estate bubble as a prime example of the dangers of too much cheap money washing in: Speculators drive prices sky-high, setting markets up for a punishing fall.

“You can have too much of a good thing,” said Brad Setser, a former Treasury official now at the Council on Foreign Relations. In this view, if the dollar maintains its status as the global reserve currency, that would be good news for Americans only in the way that another offer for a credit card is good news for a family about to land in bankruptcy: It may stave off foreclosure for another spell, but it makes the ultimate day of reckoning that much worse.

“We continue to run deficits, and a larger share of our income goes to support this,” Mr. Setser said. “Our attitude seems to be, ‘Lord give us the strength to resist temptation, but not quite yet.’ ”
U.S. Economy Entering Delicate Moment
Hartford Courant
November 20, 2007

See if you can identify the following country: Its currency is falling sharply in global markets; its speculative real-estate bubble has burst; its financial sector is weakened by bad loans and lack of transparency. This economy is teetering on the edge of recession and, thanks to borrowing so heavily abroad, its economic future is at the mercy of international creditors.

I'm talking about Thailand, of course, as it stood 10 years ago — on the edge of the devastating Asian financial crisis. But if that description bears more than a little resemblance to the United States today, then I have made my point: We have reached a junction in international financial markets — and whether this produces a smooth transition or a convulsive crisis will be shaped by decisions made in coming months.

To a jaundiced eye, the telling difference between Thailand and the United States is how their foreign debts are denominated. Thailand, like most countries, must borrow abroad in foreign currencies. If the value of the Thai baht sinks, then it becomes more expensive to repay loans made in euros or yen.

But the United States, as a financial superpower, has the luxury of borrowing abroad in its own currency. The Chinese, who are sitting on $1.4 trillion in foreign reserves, hold much of that in Treasury securities and other dollar investments. This cushion tends to mask our financial weakness — and to lessen the natural correctives that would keep America from borrowing and spending more than it can afford.

"If you're borrowing in foreign currencies, you can literally run out of cash and hit a brick wall," explains Jeffrey Sachs, who heads Columbia University's Earth Institute. "What we can't do is run out of dollars, so we have a degree of freedom."

If America were Thailand, the International Monetary Fund would long ago have imposed austerity conditions that forced us to put our financial house in order. The IMF's intervention a decade ago was punishing: Banks were forced to close; interest rates were pushed up to punitive levels; economic activity was squeezed almost to the point of strangulation. The IMF may have overreacted, but the austerity measures did wring the speculative excesses out of the Asian economies. Today, they are booming like never before.

America illustrates the old saw about how a debt can grow so big that it becomes the bank's problem rather than the borrower's. The U.S. is running a current account deficit of roughly $800 billion a year, or nearly 6 percent of our GDP. But the world keeps accepting our dollars as IOUs, because the alternative would be disastrous for everyone. Kenneth Rogoff, a former chief economist at the IMF who now teaches at Harvard, notes that if the U.S. were unable to fund its debt, world economic output could fall by as much as 25 percent.

But a global financial adjustment is under way, nonetheless. The clearest sign is the fall in the dollar. The greenback has declined 16 percent against a trade-weighted basket of currencies over the past year, and 26 percent since 2000.

The sinking dollar is often described as a problem, but it's actually part of the cure — not as harsh as the IMF's austerity measures for Asian countries a decade ago, but not painless, either. Over time, a cheaper dollar will boost U.S. exports and may even reduce our seemingly insatiable appetite for imports, which won't be quite so cheap as before. Meanwhile, the problems in the housing sector may make U.S. consumers a bit less spendthrift, and we may actually begin saving more as a country.

If the world were populated by Adam Smiths, these natural market mechanisms would produce the gradual adjustments that are needed. But in real life, markets are inhabited by versions of TV financial analyst Jim Cramer — emotional, volatile traders whose passions are triggered by good or bad news. They overreact, and markets overshoot.

So what's ahead in this season when markets are repricing currencies and financial risks? Here's the Adam Smith version: As the dollar falls, China and other Asian nations will begin to adjust their portfolios so that they accumulate fewer dollars. The value of their artificially pegged currencies will finally rise against the dollar. Over time, the U.S. trade deficit will shrink and the dollar eventually will begin to rise again.

Then there's the version by TV financial analyst Jim Cramer: As the dollar falls, the gradual adjustment will turn into a stampede, with investors fleeing dollars for the safety of other currencies. The Fed will have to raise interest rates, consumers will stop spending and America will sink into recession. In that bleak market scenario, the United States might resemble Thailand of 1997 more than we'd like to imagine.

David Ignatius is a syndicated writer in Washington.