Geithner tells Europe to focus on growth

Europe must focus on growth as well as cutting spending to reduce national deficits, US Treasury Secretary Timothy Geithner has said.

In an interview with the BBC, Mr Geithner said that world leaders must concentrate on the “paramount” challenges of growth and confidence.

He added the world could not rely as much on the US as it has in the past.

Mr Geithner was speaking in Washington ahead of G8 and G20 meetings this weekend in Toronto.

The Group of Eight and Group of 20 rich and developing nations are assembling on Friday for three days of talks on emerging from the worst financial crisis since the Great Depression.

But the Reuters news agency reported that world leaders at the meeting would admit that sickly public finances could hurt long-term growth.

Many European governments, including the UK, have implemented severe austerity measures in recent weeks in order to cut debt levels.
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On the edge of the abyss

Europe’s leaders must act fast to stop Greece’s market contagion spreading

IF A sense of panic has started to grip Europe over the potential for Greece to default on its debts, and the contagion to spread rapidly to the continent’s other struggling economies, it has not yet struck Herman Van Rompuy, the president of the European Council. He insisted on Wednesday April 28th that there was “no question” of Greece’s debts being restructured. He also said leaders of the euro-zone countries would meet next month to consider how to activate their proposed joint lending programme with the IMF to support Greece. Jean-Claude Trichet, president of the European Central Bank, delivered an almost identical message, saying that a Greek default was “out of the question”.

The calm demeanour of Mr Trichet and Mr Van Rompuy is not shared by the markets. On Wednesday Greece said that it would ban the short-selling of shares for two months to prevent speculators doing further damage to the country’s banks. The previous day, shares in Greek banks had plunged by nearly 10% and the Athens stockmarket as a whole fell by 6% on fears that the country would soon suffer another downgrade of its debts. Those fears proved entirely justified. After the markets closed Standard & Poor’s heaped indignity on Greece by cutting the rating of its sovereign bonds to “junk” status. It also cut Greece’s banks to “junk” because of their hefty exposure to government debt.
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Eurozone makes $40B Greek promise

(FT) — Eurozone members have made a commitment to providing up to €30bn in loans to Greece over the next year to help stave off a debt crisis that has roiled financial markets and posed the most serious challenge to the euro in its history.

Those funds were agreed during an extraordinary teleconference of eurozone finance ministers on Sunday and would be supplemented by contributions from the International Monetary Fund that could yield an additional €15bn (£13.2bn, $20.2bn) according to European officials.

The rates charged to Athens would be around 5 per cent for a three-year fixed loan — above the IMF’s standard lending rate but below those currently demanded by jittery investors. Two-year Greek bonds were last week trading at 7.45 per cent.

At a press conference in Brussels on Sunday, European officials presented the three-year package as the detailed commitment that financial markets have been demanding after a series of vague communiqués failed to ease the crisis.

“This is the step of clarification the markets are waiting for,” said Jean-Claude Juncker, the Luxembourg prime minister and eurogroup president. “It shows there is money behind this.”
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Yuan to stay cool

The best thing American politicians can do to encourage a stronger Chinese currency is keep calm

ONE of the few good things about the Great Recession of 2008-09 was a merciful absence of complaints from America’s Congress about China’s currency. The yuan’s gradual appreciation stopped in July 2008, and China has since kept its currency tightly pegged to the dollar. But even as America suffered its worst downturn in the post-war period, its legislators steered clear of ranting against China.

That restraint was driven partly by fear. At the depths of the crisis even the most myopic Congressmen worried about a descent into 1930s-style protectionism. And it was driven partly by the facts. As investors’ flight to safety strengthened the dollar in late 2008, the yuan rose along with it. With America’s imports slumping it was hard to blame Chinese workers for American joblessness. And thanks to its huge domestic stimulus China added to global demand last year, as its current-account surplus shrank sharply.

Now things have, unfortunately, gone into reverse. As policymakers in both countries shift from cushioning recession to managing recovery, the rigidity of the yuan is, once again, becoming a source of tension—one that a still-fragile global recovery can ill afford.
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Euro rises against the dollar on Greek austerity plan

The euro has risen against the dollar as Greece unveiled a new series of austerity measures to cuts its debt.

The euro rose 0.6% to $1.3698, but was slightly lower against the pound at 90.70 pence.

On Tuesday, the currency fell to its lowest level against the dollar for 10 months amid continuing concerns over Greece’s debt crisis.

Persistent worries over Greece’s 300bn euro ($419bn; £259bn) debt have weighed on the European single currency.

The pound rose against the dollar, trading at $1.512.

Protests

The Greek government approved an austerity package of tax rises and spending cuts worth 4.8bn euros, hoping to convince financial markets that it can pay off its debts and persuade European leaders it is doing enough.
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Davos 2010: Sarkozy calls for revamp of capitalism

French President Nicolas Sarkozy has called for a fundamental rethink of capitalism in the aftermath of the financial crisis.

“We need deep profound change,” he said in his keynote speech at the World Economic Forum in Davos.

His comments came as bankers and regulators clashed over proposals to break up banks that threaten the whole financial system.

Mr Sarkozy said he wished to restore a “moral dimension” to free trade.

“Were we not to change, we would be showing tremendous irresponsibility,” he told the bankers and politicians that gather annually in the Swiss alpine resort.
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Fear of the dragon

China’s share of world markets increased during the recession. It will keep rising

MANY people start the new year by resolving to change their old ways. Not China. On December 27th Zhong Shan, the country’s vice-minister of trade, declared that China will continue to increase its share of world exports. Figures due out on January 11th are expected to show that China’s exports in December were higher than a year ago, after 13 months of year-on-year declines. China’s exports fell by around 17% in 2009 as a whole, but other countries’ slumped by even more. As a result China overtook Germany to become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999 (see chart).

China takes an even bigger slice of America’s market. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19%. So although America’s trade deficit with China narrowed, China now accounts for almost half of America’s total deficit, up from less than one-third in 2008.
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Flagrant harbour

Hong Kong’s stock exchange looks beyond China

RUSAL, the world’s largest aluminium company, desperately needs money to support mountains of debt but, as its recently issued prospectus suggests, there are reasons why funds may be tricky to raise. The prospectus repeatedly warns would-be investors that they could lose everything; it also admits that the firm does not meet the profit test for listing on the Hong Kong stock exchange.

That apparently does not bother the exchange itself, which will host Rusal’s planned multibillion-dollar share offering, the first by a Russian company, later this month. The bourse is making a vigorous play for foreign listings from companies outside China, the source of its recent success but a stamping-ground that may soon be lost to resurgent local exchanges in Shenzhen and Shanghai.

If the Rusal offering is pounced upon by investors, there is hope that another six or seven big Russian companies will quickly follow. In short order Hong Kong could usurp London’s AIM market, which proved to be a popular destination for Russian listings in the past.
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Square-root reversal

America will recover, but too weakly for comfort

The American economy in 2010 will be torn between two opposing forces. The first is that deep recessions usually lead to strong recoveries. The other is that financial crises usually produce weak recoveries. The interplay of these two forces will produce a cycle that resembles not a V, U or W, but a reverse-square-root symbol: an expansion that begins surprisingly briskly, then gives way to a long period of weak growth.

Recessions interrupt the economy’s natural inclination to grow. They create pent-up demand for homes and other goods, and prompt businesses to slash production, payrolls and investment to levels well below what normal sales require. Ordinarily, the deeper the downturn, the more powerful the reversal of those effects. Based on experience, the American economy, which shrank by some 4% over the course of the 2007-09 recession, ought to grow by as much as 8% in its first year of recovery. The unemployment rate, around 10% in late 2009, should drop to about 8%.
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Chinese fund to receive $200 billion

Beijing, China (FT) — China Investment Corp, the Chinese sovereign wealth fund, is expected to receive another injection of capital from the country’s foreign exchange reserves in the coming months, according to government officials and people familiar with the fund.

While a final decision has yet to be made, these people said CIC would likely receive a similar amount to the initial $200bn it was given on its establishment in 2007.

Chinese media have also reported the government is considering a new capital injection of $200bn for the fund.

Any infusion would amount to an acknowledgement from Beijing that CIC has performed well during a time of global turmoil. It would also mark a turnround from a year ago when the fund was under attack for its early lossmaking investments in Morgan Stanley and US private equity firm Blackstone.

Bankers say that despite those hiccups the fund has managed its funds well through the crisis. It stayed mostly in cash last year before switching into highly liquid US dollar assets as the greenback bounced back in November 2008 and again in March this year.

As the global economy began to recover earlier this year, the fund was quick to make investments in commodities-related assets that benefit from a rebound in Chinese growth.
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