|From: Sam Citron||2/23/2009 9:26:58 AM|
|Irish Mogul's Empire Totters As Slump Tames Celtic Tiger [WSJ]|
By AARON O. PATRICK
DUBLIN -- Sir Anthony O'Reilly long has been a symbol of Irish resurgence, a national rugby hero and raconteur who conquered the U.S. corporate world before returning home to oversee a sprawling business empire. That empire now shows signs of unraveling.
Sir Anthony, once America's highest-paid chief executive while leading H.J. Heinz & Co., has seen the value of his holding in his Dublin-based global newspaper group, Independent News & Media PLC, plunge to $52 million from more than $1.1 billion just 18 months ago.
Concerns about a €200 million ($253 million) debt payment that Independent News faces in May have sent its shares down 90% over the past year to 18 European cents -- less than the price of most of its newspapers. Facing declining advertising and readership in addition to its debt load, say analysts, the company could be forced into a fire sale of assets that could cost the firm its trophy publication: the London-based Independent.
In another corner of the O'Reilly world, Waterford Wedgwood PLC, the historic maker of fine china and crystal controlled by Sir Anthony and his brother-in-law, is in the equivalent of bankruptcy reorganization, and workers are occupying a shuttered factory. U.S. private-equity investor KPS Capital Partners LP is negotiating a possible purchase of the company that could be announced within days, according to a person familiar with the situation.
Sir Anthony is an example of how, for some business titans, the credit crunch and recession have become a brutal multifront assault. His big bets on newspapers, luxury goods and the remaking of Ireland itself made him the richest man in the country. Now each of those areas has boomeranged on him.
Mr. O'Reilly, 72 years old, sounds pessimistic about his prospects and Ireland's, saying in a recent interview that the Irish economy will be "lucky" to contract just 4% this year and that there is little the country can do about it. "It is impossible that if Ireland does not do well, that any of us can do well," he said.
The drama also finds Sir Anthony fending off a business nemesis, Irish industrialist Denis O'Brien. Sir Anthony owns 27.9% of Independent News & Media. Mr. O'Brien has acquired a 26.2% stake and is pressing for changes, in a move that could disrupt the possibility of Mr. O'Reilly's being succeeded by his son, Gavin.
At Waterford Wedgwood, a sale to a foreign buyer such as KPS Capital would be another blow to Sir Anthony, who was deeply proud that he helped turn the 250-year-old Irish company into a global brand. KPS has acknowledged discussing a possible purchase of Waterford Wedgwood but wouldn't comment further.
Sir Anthony's problems are unfolding against a backdrop of Ireland's severe downturn following a decade of boom. In the 1990s, the country's low corporate taxes, business-friendly governments and English-speaking work force attracted huge amounts of foreign investment, driving up incomes and property prices. The global recession reversed the flow, puncturing the property boom and hammering major banks. The Irish economy is now one of the sickest in Europe.
The problems are a rude comedown for Sir Anthony, whose stint as Heinz CEO from 1979 to 1998 turned a sleepy Pittsburgh company into a food dynamo. He is unhappy with criticisms that he took on too much debt in his Irish business. It's not his companies that have changed, he says, but the world. "If the debt of a company has not gone up in three years, was it an over-indebted company three years ago or is it an over-indebted company now?" he asks.
Criticism of his businesses is a far cry from the plaudits Sir Anthony grew accustomed to over the past 40 years. He rose to prominence as a rugby player for Ireland and a combined British-Irish team. He set scoring records that in some cases still stand, became an international celebrity and dated beautiful women. One common story: that his athletic frame led to a request that he audition for the lead in the 1959 movie "Ben Hur." A biography written with his cooperation says "he rather encouraged this distortion of the truth" but was never in serious contention for the role.
While continuing to play rugby, he became, at 26, chief executive of the Irish Dairy Board, fueling a butter export boom by launching a new brand called "Kerrygold." He says he was urged to go into politics by an Irish prime minister and believes he had a chance of becoming prime minister. "I would have been in contention," Sir Anthony says.
Instead, he became the head of Heinz's British unit at age 32, and within 10 years was CEO of the parent company. In 1991, he earned $75 million in combined salary, bonus and stock options, more than any other CEO in the U.S. that year.
While rising through Heinz, he bought a controlling stake in Dublin's Irish Independent, a leading morning paper. It was the start of many investments in Ireland's leading companies, and part of a mission by Sir Anthony to introduce modern management, finance and marketing techniques to Ireland.
Sir Anthony -- he was knighted in 2001 -- turned Independent News & Media into Ireland's first international media company. In the decade leading up to 2007, its revenue rose 75% to €1.4 billion and operating profit more than doubled to €349 million, as the company bought newspapers and advertising businesses in India, Indonesia, South Africa and the U.K. In doing so, Independent News & Media took on €1.4 billion in debt, including about €500 million on its partly owned Australian unit.
The company also attracted the attention of Mr. O'Brien, who had made his fortune in telecommunications. As the two competed for Irish phone company Eircom PLC in 2001, Sir Anthony's newspapers, along with others, reported that Mr. O'Brien was being investigated by a judicial commission for giving money to a government official who awarded him a cellphone license. Mr. O'Brien denied doing anything wrong. The commission hasn't released its findings.
In 2006, Mr. O'Brien bought a stake in Independent News & Media and quickly built it up to the current level not far below Sir Anthony's own stake. At the company's annual meetings over the next three years, Mr. O'Brien's sharp criticisms of Sir Anthony's management and corporate governance -- posed by proxies, not by Mr. O'Brien himself -- became a regular feature.
Last March, Independent News & Media responded by publicly accusing Mr. O'Brien of trying to destabilize the company and damaging the interests of other shareholders. The company released a five-year-old letter from Mr. O'Brien accusing Independent News of "trying to destroy my reputation." Mr. O'Brien wrote he was "waiting for the appropriate time to rectify the damage."
Mr. O'Brien declined to comment on the letter or any feud with Sir Anthony, who for his part said there were no hostilities between the company and any of its shareholders.
When the economic crisis kicked into high gear last fall, Sir Anthony found himself in an increasingly defensive position, as investors grew concerned about Independent News's ability to meet its debt obligations.
Sir Anthony began to search for allies. He tried to interest News Corp., owner of The Wall Street Journal, in taking a 3% or 4% stake, according to a person familiar with the matter. News Corp. Chairman and Chief Executive Rupert Murdoch nixed the idea.
A spokesman for Sir Anthony denied there was any approach to News Corp. A spokeswoman for News Corp. declined to comment.
One person who did make an investment was Mexican billionaire Carlos Slim, who now owns 1% of Independent News. Sir Anthony says Mr. Slim is a friend but "there is no suggestion we solicited him." A spokeswoman for Mr. Slim declined to comment.
Sir Anthony tried to raise cash through the sale of one of Independent News's most successful investments, a 39.1% stake in Australian and New Zealand media group APN News & Media Ltd. Lachlan Murdoch, the eldest son of Rupert Murdoch, expressed interest but didn't proceed, say people familiar with the situation. Other buyers couldn't get financing, according to Independent News.
In January, Sir Anthony dropped the idea of selling the stake and said he would raise cash through a bond issue while focusing on "eliminating any loss-making businesses." Among the options: selling the Independent newspaper in London, which would be a concession to Mr. O'Brien, who has complained about the paper's estimated £10 million ($14 million) annual losses.
Independent News is hoping to make peace with Mr. O'Brien, according to board-meeting minutes. In November Mr. O'Brien held his first meeting with the company as a shareholder. With Sir Anthony away on business, Mr. O'Brien, 51, got a tour of a printing plant in south Dublin, accompanied by executives including Sir Anthony's son Gavin, 42, the chief operating officer of Independent News.
Independent News faces significant problems even absent any feud with Mr. O'Brien. The Independent in London lost 14% of its circulation over the past year, and advertising is in the tank.
"If you are in the advertising business, there is no place to hide," Sir Anthony says. "You are in the crossroads of everything that is happening in the country -- of property, of motor cars, of recruitment, of dislocation, of restaurants, of travel."
Sir Anthony has also been hit by changing tastes in luxury goods. In 1990, he and his brother-in-law, Peter Goulandris, and several other investors bought a 29.9% interest in Waterford Wedgwood, one of Ireland's most famous brands.
Sir Anthony figured his marketing expertise and U.S. knowledge could revive the struggling ceramics and crystal maker, and sales indeed improved. In 1996, he described Waterford Wedgwood and his other Irish investments as "perhaps the greatest success story in Irish business in the last decade" in a letter to Irish Prime Minister John Bruton.
But after years of success, sales started to slip during the 2001 U.S. recession. Some consumers found the company's fine bone china old-fashioned and its crystal clunky, say former executives. No matter what Sir Anthony did -- change senior management, close factories, sell products on Amazon.com -- revenue and profits continued to slide. Customers were reluctant to buy expensive china stamped "Made in Indonesia," as some of it was. By the end of 2007, the company's cash levels were so low it couldn't afford to ramp up production over the crucial holiday period.
Sir Anthony and Mr. Goulandris put up an addition €133 million, according to regulatory filings. But the cash didn't come through quickly enough, and the company's big ceramics factory in Stoke-on-Trent, in central England, was unable to make enough cups and plates for Christmas, according to the company's 2008 annual report.
According to Thomas R. Wedgwood, who is a descendant of founder Josiah Wedgwood and worked for the company in Asia, Sir Anthony and his managers didn't market the brand enough in Japan and China, where European tableware is prestigious. "All of the [investment] was going to the U.S." Mr. Wedgwood says. "There was a huge disconnect with the customers."
From a €68 million profit in 2000, Waterford Wedgwood swung to a €231 million loss in the year ended last April 5. Between its business problems and the credit crunch, it didn't have enough money to make a €400 million payment in December.
The default, together with other violations of the company's debt agreements, allowed creditors to demand their money back immediately. Sir Anthony looked for a buyer. He couldn't find one.
On Jan. 5, Deloitte LLP was appointed to place Waterford Wedgwood in administration, a form of bankruptcy proceedings. Sir Anthony declined to comment on Waterford Wedgwood's problems; Mr. Goulandris couldn't be reached. The men have lost an estimated €400 million.
At the company's closed Waterford factory in southern Ireland, about 200 employees have occupied part of the plant since the company to a large extent stopped operating, and say they will stay until the company is sold. They have taken turns tending the factory's furnace, fearing it will crack if its temperature gets too low, according to a spokesman for the Unite union. In addition to KPS Capital Partners, another U.S. private-equity firm, Clarion Capital Partners LLC, has been interested in buying the company, according to spokesmen for the funds.
Sir Anthony remains widely respected in Ireland for his determination, including 29 years as chairman or chief executive of Independent News. "He stayed the course a lot longer than people thought he would," says Gerry Hennigan, an analyst at Goodbody Stockbrokers in Dublin.
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||3/1/2009 8:50:00 AM|
|Juarez, Mexico: Becoming a Failed State|
With Force, Mexican Drug Cartels Get Their Way [NYT]
By MARC LACEY
CIUDAD JUÁREZ, Mexico — Mayor José Reyes Ferriz is supposed to be the one to hire and fire the police chief in this gritty border city that is at the center of Mexico’s drug war. It turns out, though, that real life in Ciudad Juárez does not follow the municipal code.
It was drug traffickers who decided that Chief Roberto Orduña Cruz, a retired army major who had been on the job since May, should go. To make clear their insistence, they vowed to kill a police officer every 48 hours until he resigned.
They first killed Mr. Orduña’s deputy, Operations Director Sacramento Pérez Serrano, together with three of his men. Then another police officer and a prison guard turned up dead. As the body count grew, Mr. Orduña eventually did as the traffickers had demanded, resigning his post on Feb. 20 and fleeing the city.
Replacing Mr. Orduña will also fall outside the mayor’s purview, although this time the criminals will not have a say. With Ciudad Juárez and the surrounding state of Chihuahua under siege by heavily armed drug lords, the federal government last week ordered the deployment of 5,000 soldiers to take over the Juárez Police Department. With the embattled mayor’s full support, the country’s defense secretary will pick the next chief.
Chihuahua, which already has about 2,500 soldiers and federal police on patrol, had almost half the 6,000 drug-related killings in all of Mexico in 2008 and is on pace for an even bloodier 2009. Juárez’s strategic location at the busy El Paso border crossing and its large population of local drug users have prompted a fierce battle among rival cartels for control of the city.
“Day after day, there are so many horrible things taking place there,” said Howard Campbell, an anthropologist at the University of Texas at El Paso who studies Mexico’s drug war. “The cartels are trying to control everything.”
<>Nothing is surprising in Chihuahua anymore. Gunmen recently shot at one of three cars in Gov. José Reyes Baeza’s motorcade, killing a bodyguard and wounding two agents. The drug cartels routinely collect taxes from business owners, shooting those who refuse to pay up. As for the Juárez mayor, who has made cleaning up the notoriously corrupt police department his focal point, the cartel recently threatened to decapitate him and his family unless he backed off.
The handwritten threat that it issued went further than that. Like many people in Juárez, Mayor Reyes has homes on both sides of the border, splitting his time between El Paso and Juárez. The note threatening him made it clear that the assassins going after him would have no qualms about crossing into the United States to finish off the mayor and his family.
“We took the threat seriously,” said Chris Mears, a spokesman for the El Paso Police Department. “I’m not going to tell you what actions were taken, but we’ve taken actions.”
In an interview in his wood-paneled office overlooking the United States, Mr. Reyes, 46, whose father was mayor in the early 1980s, said he was not going to allow criminals to run the city, despite the inroads they are making. He said he initially opposed his police chief’s decision to resign because he did not want the outlaws to feel empowered. He acceded only as a life-saving gesture, he said.
“I’m not going to give in,” he vowed in an interview, welcoming the arrival of soldiers so that the traffickers will feel the heat even more.
Right now, the Juárez police are no match for the outlaws. Last year, the senior uniformed officer was killed, one of 45 local police officers killed since January 2007, and a former police chief pleaded guilty to charges of smuggling a ton of marijuana from Juárez to El Paso. Mr. Orduña, who lived at the police station to avoid being killed, had replaced another chief who fled to El Paso after receiving threats last year. If the army had not come in, the mayor would no doubt have had a difficult time finding somebody to head the department.
Introducing a nationwide police recruitment campaign, the mayor has raised salaries and benefits enough that he is attracting new recruits to replace the many officers being fired for their links to organized crime.
“I know the dangers and I accept them,” said José Martín Jáuregui López, one of the 289 cadets now being trained at Juárez’s police academy. “There are a lot of people afraid for me: my mom, my relatives. But this is what I want to do.”
As a sign to the traffickers that he was not running from them, Mr. Reyes appeared Friday to be like any other mayor, giving a speech at the opening of a shopping center, signing a memorandum of understanding with a developer, reassuring residents that he would keep loiterers from gathering in front of their homes.
But the bodyguards holding assault rifles who clung close to him made it clear that Juárez remained a city under siege.
“There’s no square inch of the city that has been untouched by the violence,” said Lucinda Vargas, an economist who works by day to remake the city as executive director of Juárez Strategic Plan, but retreats to El Paso at night. “There’s a lot of evidence that Juárez, in a micro sense, is becoming a failed state. But I still think we haven’t failed yet and that we could still rescue ourselves.”
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||3/2/2009 8:35:57 AM|
|Growing Economic Crisis Threatens the Idea of One Europe [NYT]|
By STEVEN ERLANGER and STEPHEN CASTLE
PARIS — The leaders of the European Union gathered Sunday in Brussels in an emergency summit meeting that seemed to highlight the very worries it was designed to calm: that the world economic crisis has unleashed forces threatening to split Europe into rival camps.
An urgent call from Hungary for a large bailout for newer, Eastern members was bluntly rejected by Europe’s strongest economy, Germany, and received little support from other countries. Chancellor Angela Merkel of Germany, facing federal elections in September, said countries must be dealt with on a case-by-case basis.
“Saying that the situation is the same for all Central and Eastern European states, I don’t see that,” Mrs. Merkel told reporters. She spoke after Prime Minister Ferenc Gyurcsany of Hungary warned, “We should not allow that a new Iron Curtain should be set up and divide Europe.”
With uncertain leadership and few powerful collective institutions, the European Union is struggling with the strains this crisis has inevitably produced among 27 countries with uneven levels of development.
The traditional concept of “solidarity” is being undermined by protectionist pressures in some member countries and the rigors of maintaining a common currency, the euro, for a region that has diverse economic needs. Particularly acute economic problems in some newer members that once were part of the Soviet bloc have only made matters worse.
Europe’s difficulties are in sharp contrast to the American response. President Obama has just announced a budget that will send the United States more deeply into debt but that also makes an effort to redistribute income and overhaul health care, improve education and combat environmental problems.
Whether Europe can reach across constituencies to create consensus, however, has been an open, and suddenly pressing, question.
“The European Union will now have to prove whether it is just a fair-weather union or has a real joint political destiny,” said Stefan Kornelius, the foreign editor of the German newspaper Süddeutsche Zeitung. “We always said you can’t really have a currency union without a political union, and we don’t have one. There is no joint fiscal policy, no joint tax policy, no joint policy on which industries to subsidize or not. And none of the leaders is strong enough to pull the others out of the mud.”
Thomas Klau, Paris director of the European Council on Foreign Relations, an independent research and advocacy group, said, “This crisis affects the political union that backs the euro and of course the E.U. as a whole, and solidarity is at the heart of the debate.”
The crisis also has implications for Washington, which wants a European Union that can promote common interests in places like Afghanistan and the Middle East with financial and military help.
“All of that is in doubt if the cornerstone of the E.U. — its internal market, economic union and solidarity — is in question,” said Ronald D. Asmus, a former State Department official who runs the Brussels office of the German Marshall Fund.
The problems are basically twofold: within the inner core of nations that use the euro as their common currency, which together have an economy roughly the size of the United States’; and within the larger European Union.
The 16 nations that use the euro — introduced in 1999, and one of the proudest European accomplishments — must submit to the monetary leadership of the European Central Bank. That keeps some members hardest hit by the economic downturn, like Ireland, Spain, Italy and Greece, from unilaterally taking radical steps to stimulate their economies.
Germany once vowed never to bail out weaker members in return for giving up its strong national currency, the deutsche mark. But German leaders are now faced with the unpalatable prospect of having to put German money at risk to bail out less responsible partners that do not adhere to European fiscal rules.
Within the larger European Union, fissures are growing between older members and newer ones, especially those that lived under the yoke of Soviet socialism. Some countries of Central Europe, like the Czech Republic and Poland, are doing relatively well. Others, including Hungary, Romania and the Baltic states, are in a state of near-meltdown.
But only two newer members — tiny Slovenia and Slovakia — are protected by being among the countries that use the euro, and there was little support on Sunday for changing the rules to allow more to join quickly.
Many new members have seen their currencies plummet against the euro. That has made their debt repayments to European banks, their primary lenders, a much greater burden even as the global recession has meant a plunge in orders from consumers in the West. Some countries are asking for aid, both from their European partners and from the International Monetary Fund, to prop up their currencies and the banks.
While Western European countries are reluctant, with their own problems both at home and among the countries using the euro, there is a deep interconnectedness in any case.
Much of the debt at risk in Eastern Europe is on the books of euro zone banks — especially ones in Austria and Italy. The same is true of problems farther afield, in Ukraine, which is not yet a member.
Having watched the Soviet Union collapse, the countries of Central and Eastern Europe embraced the liberal, capitalist model as the price of integration with Europe. That model is now badly tarnished, and the newer members feel adrift.
Before the larger European summit meeting on Sunday, the Poles called an unprecedented meeting of nine of the new member nations in the East to discuss common grievances.
Prime Minister Mirek Topolanek of the Czech Republic, which holds the rotating presidency of the European Union, tried to ease tensions, insisting that no member would be left “in the lurch.”
“We do not want any dividing lines; we do not want a Europe divided along a north-south or east-west line, pursuing a beggar-thy-neighbor policy,” Mr. Topolanek said.
But his Hungarian colleague, Mr. Gyurcsany, called for a special European Union fund of up to $241 billion to protect the weakest members. His government circulated a paper on Sunday suggesting that Central Europe’s refinancing needs this year could total $380 billion.
“Failure to act,” the paper said, “could cause a second round of systemic meltdowns that would mainly hit the euro zone economies.”
Mrs. Merkel opposed an undifferentiated package, although she suggested on Thursday that targeted help might be offered to specific countries, like Ireland.
Governments of the countries of the European Union have already spent a total of $380 billion in bank recapitalizations and put up $3.17 trillion to guarantee banks’ loans and try to get credit moving again.
On Friday, the European Bank of Reconstruction and Development, the European Investment Bank and the World Bank said they would jointly provide $31.1 billion to support Eastern European nations, but much more will be needed.
Mr. Klau, of the European Council on Foreign Relations, sees a worrying loss of faith in a certain brand of capitalism. “It’s politically dangerous there since they’ve just emerged from an ultraregulated and stifling system, were confronted with shock therapy that created great hardship, and are just beginning to recover and stabilize,” he said. “Now they’re thrown back into an economic and political cauldron.”
The new members are finding that their European partners are putting their own national interests ahead of “collective and necessary solidarity,” Mr. Klau said.
Charles Grant, director of the Center for European Reform, a research group in London, is more sanguine, however. “My expectation is that the euro zone countries, out of pure self-interest, will bail each other out,” he said. “For Central and Eastern Europe it is too early to say there won’t be solidarity. But non-E.U. countries in the east — particularly Ukraine — seem to be the No. 1 worry.”
|RecommendKeepReplyMark as Last ReadRead Replies (1)|
|To: Sam Citron who wrote (225)||3/2/2009 11:50:19 AM|
|From: Sam Citron|
|EU Rejects a Rescue of Faltering East Europe [WSJ]|
By CHARLES FORELLE
BRUSSELS -- European Union leaders, led by German Chancellor Angela Merkel, rejected a call by Hungary for a sweeping bailout of Eastern Europe, as the bloc struggled to find consensus on an approach to the spiraling financial crisis at a summit Sunday.
The global recession has greatly strained the bonds holding together the 27 nations that now make up the European Union, formed in the wake of World War II, and poses the most significant challenge in decades to its ideals of solidarity and common interest.
Ms. Merkel said she couldn't see the need for a broad grant of aid to Eastern Europe. "The situation is very different" in Europe's economies. "We cannot compare Slovakia nor Slovenia with Hungary," she told reporters.
Hungarian Prime Minister Ferenc Gyurcsany, who proposed a bailout package of up to €190 billion ($240.84 billion), warned that without aid a "new Iron Curtain" would descend on Europe and again separate East from West. Hungary has been battered by declining demand for its exports and a plummeting currency -- straining Hungarians who borrowed in euros to buy houses that have now sunk in value.
[German Chancellor Angela Merkel holds a press conference on March 1, 2009 at the end of an Economic summit of European leaders at the EU Council headquarters in Brussels.] Getty Images
German Chancellor Angela Merkel holds a press conference at the end of an Economic summit of European leaders in Brussels.
The summit was originally called by Czech Prime Minister Mirek Topolanek to discuss concerns about rising protectionism in stimulus plans being proposed by individual nations. With the recent collapse of the government in Latvia, Eastern Europe's growing problems became the main focus. But leaders left Brussels with few concrete decisions and no indication that the richer EU states of Western Europe would be white knights for the East.
Consensus was hard to find even in Eastern Europe: leaders of relatively stronger countries -- fearful of appearing weak and being tarnished by international markets to which they need access for borrowing -- split with their neighbors over the wisdom of bailouts.
"Our position is that we must differentiate between countries that are in difficulties and those that are not," Polish Finance Minister Jacek Rostowski said. Poland, which benefited from years of healthy economic growth, is in better shape that some of its more-indebted neighbors. But it has seen a substantial fall in the value of its currency as investors scramble out of the region.
Hungary also proposed speeding up adoption of the euro -- now generally used by the Western European countries -- in the East.
Strict EU rules meant to maintain the euro's strength require that countries have strong fiscal positions before adopting the common currency. That has left out Eastern European nations grappling with budget deficits, inflation -- or both.
The fall of Iceland -- whose banks failed in part because Iceland's currency collapsed -- has reinvigorated calls by a number of countries to make it easier to join the safety and stability of the euro.
But both the bailout and calls for Eastern European countries to join the euro sooner were coolly received by Western European nations. Ms. Merkel and French President Nicolas Sarkozy both separately suggested that Eastern countries should look elsewhere -- to the International Monetary Fund, for instance -- for help.
Behind the tensions: The recession has struck the 27 EU nations with widely varying force. Large and steady economies such as Germany's are facing an inevitable slowdown, but smaller peripheral states such as Latvia, Bulgaria and even Ireland have been brutally whipsawed from an era of heady growth to shockingly fast decline.
The impact on Eastern Europe, which boomed in recent years, has been especially intense. Latvia, which financed its own expansion by borrowing from abroad, is literally running out of money as the credit crunch shuts those spigots off. Last week, Standard & Poor's cut Latvia's credit rating to junk.
And, as some in Eastern Europe warned, deep pain could well emerge elsewhere. All eyes are on Ireland, which is slashing public-sector pay as it scrambles to close a budget deficit that could reach nearly 10% of gross-domestic product. A protest last month in Dublin drew more than 100,000 people.
Other large countries, such as France and the U.K., face substantial domestic troubles and have little desire to persuade their populations to add the East's problems to their own.
The EU's disinclination to fund a regional bailout suggests that the IMF and other multilateral institutions will take on an even larger role in coming months -- a role that IMF officials have said they recognize. The IMF is looking to double its war chest for lending to $500 billion, and the EU is weighing whether or not to make a loan for that purpose. Last week, the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank said they would provide €24.5 billion in financing for banks in Eastern Europe.
The IMF has been active on Europe's periphery: Iceland, Hungary, Latvia and Ukraine have turned to the agency for aid.
Most critical was the cold shoulder from Germany, which, as Europe's largest economy and the one with most access to borrowing, would play the largest role in financing any aid. Germany, the EU's strongest economy, is unwilling to unwind its own fiscal discipline to pay for the spending excesses of others. Admitting countries with weaker finances could hurt the strength of the euro or push up inflation across the euro zone.
At present, 16 of the 27 EU members use the euro. In Eastern Europe, only Slovakia and Slovenia do. To join, countries must keep budget deficits, government debt and inflation below specified ceilings. The recession has complicated some of those aims, particularly as some governments take on more debt. Another requirement calls for countries to hold their currencies within a preset range to the euro for two years.
That has wreaked havoc on euro-adoption plans in Hungary and Poland, where currencies have tumbled. Of the 11 EU members that don't use the euro, only Denmark could be reasonably close to adopting it. The misadventures of Iceland have provided an ample demonstration of the safety the euro offers in a storm. The North Atlantic island is not an EU member, though it shares many EU rules as part of the European Economic Area.
Iceland's three big banks -- virtually the country's entire banking system -- had expanded abroad by borrowing heavily in euros and sterling. When the credit crunch cut off their funding and the Icelandic krona fell precipitously, Iceland found itself without enough foreign currency to bail out the banks, a situation possibly avoidable if Iceland had used the euro. All three banks collapsed, and some on the island are pushing for quick accession to the EU.
Mr. Topolanek of the Czech Republic, whose country is among the strongest in Eastern Europe, said "the EU is going to leave no one in the lurch." Mr. Topolanek also said leaders had agreed to have further discussions about the EU rules for euro adoption, but that there was "broad agreement" that "it would be an error to change the rules of the game now."
The EU resolved one contentious issue on the eve of the summit: It approved France's much-criticized plan to give €6 billion in low-interest loans to domestic car makers. The French plan had drawn howls of protectionism -- particularly from the Czech Republic, where PSA Peugeot Citroen SA makes small cars -- since it made the aid contingent on the car makers keeping French factories open.
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||3/4/2009 11:46:23 AM|
|Reports of New Stimulus in China Lift Shares [NYT]|
By DAVID JOLLY
Stocks rose around the world on Wednesday, as investors reacted to speculation that China may expand its stimulus measures.
Shares increased on reports that Premier Wen Jiabao of China was considering new spending measures on top of the $585 billion plan already proposed. An announcement could come as early as Thursday in China.
In early trading, the Dow Jones industrial average was 75 points or 1.1 percent higher, while the Standard & Poor’s 500-stock index rose 1.3 percent, climbing above 700. The Nasdaq rose 1.6 percent.
Producers of basic materials like steel, chemicals and plastic, which could benefit from government-financed construction projects, rose in early trading in New York. Energy shares also climbed as crude oil prices rose $2.41 to $44.06 a barrel.
The morning’s gains pared two days of losses that dragged two major stock indexes to their lowest levels since 1997. On Monday, the Dow fell below 7,000, and a day later, the S.&P. 500 fell 0.6 percent to dip below 700, taking its 2009 loss to 23 percent.
In afternoon trading, the DJ Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 2.9 percent, while the FTSE 100 index in London increased 2.7 percent. The CAC 40 in Paris was up 2.4 percent and the DAX in Frankfurt 3.3 percent.
Most Asian markets were higher, breaking a three-day losing streak. The Tokyo benchmark Nikkei 225 stock average rose 0.9 percent, while the Hang Seng index in Hong Kong rose 2.5 percent, and the Shanghai Stock Exchange composite index gained 6.1 percent.
The S&P/ASX 200 in Sydney fell 1.6 percent, after a report showed the Australian economy contracted 0.5 percent in the fourth quarter. It was the first such decline in eight years, and came as a surprise to most economists, who had been expecting the country to eke out positive growth in the period.
Investors seemed to shrug off a report by ADP Employer Services that private sector job losses increased in February. Index futures fell slightly after the report, but eventually came back. ADP said private employers cut 697,000 jobs in February compared with a revised 614,000 jobs lost in January. The January job cuts were originally reported at 522,000.
Investors were bracing for another bleak monthly unemployment report to be released on Friday. The national unemployment rate has climbed to 7.6 percent since the recession began in December 2007, and economists expect it to reach 7.9 percent for February.
Market participants were also focused on the interest rate policy meetings Thursday of the European Central Bank and the Bank of England.
The dollar gained against most major currencies. The euro fell to $1.2532 from $1.2562 late Tuesday in New York, while the British pound rose to $1.4105 from $1.4051.
Prices of most government bonds slipped. The yield on the 10-year Treasury, which moves in the opposite direction of the price, ticked up one-tenth of a percent to 2.98 percent.
|RecommendKeepReplyMark as Last ReadRead Replies (1)|
|To: Sam Citron who wrote (227)||3/4/2009 11:52:12 AM|
|From: Sam Citron|
|Economy to Dominate Annual Chinese Gathering [NYT]|
By MICHAEL WINES
BEIJING — China’s national Legislature begins its tightly scripted annual meeting on Thursday with an agenda dominated by the ruling Communist Party’s two overriding concerns: riding out the global economic crisis and keeping citizens’ unhappiness with their lot from boiling over into public unrest.
In the nine-day session of the National People’s Congress, about the only suspense involves whether the government will propose to add still more stimulus spending to the $584 billion that China’s leaders already have pledged to help the slumping economy. On Wednesday, Asian and European stocks rose in part on hopes that it would.
Prime Minister Wen Jiabao is to speak early on Thursday to the 3,000-odd delegates, and is expected by many analysts to set a target for 8 percent growth of China’s gross domestic product in 2009, the same as in previous years. The government has long said that that rate is needed to hold down unemployment and the potential for social unrest. The economy logged a 9 percent rate last year, even after a sharp slowdown in the last quarter.
But a number of experts believe that a 2009 growth rate of 6.5 percent or 7 percent, meager by recent Chinese standards, is increasingly likely. Some financial analysts predicted this week that the government will propose spending vast new amounts to head off a sharper decline, although the consensus view is that new spending, if any, will be more modest.
“The government could enlarge the plan a bit,” Shen Minggao, the chief economist for Caijing, a Chinese business magazine, said in an interview. But he said that fiscal conservatives would be wary of increasing a 2009 budget deficit that already appeared to be headed for a record.
The projected deficit is widely expected to reach 950 billion yuan, or nearly $140 billion, about 3 percent of China’s GDP. The previous record deficit, about 2.6 percent of a far smaller economy, was recorded in 2002.
One certainty is that whatever is proposed will be adopted. The delegates, the handpicked cream of the Communist Party establishment, have little taste for revolt. On Thursday, they will gather in the wedding-cake Great Hall of the People, on Tiananmen Square, for Mr. Wen’s two-and-a-half hour overview of China’s domestic and foreign-policy goals. Much of the rest of the session will be spent giving those goals ritual approval.
The lockstep is likely to be especially tight this year, because the government wants to present a united and confident front to a public battered by rising unemployment and falling incomes. The government estimated a month ago that 20 million of the nation’s 130 million migrant workers — the cheap-labor force that powered much of China’s construction and export booms — had lost their jobs.
A signal goal of China’s stimulus program is to ensure that the idle jobless do not become an engine of social unrest. Protests by laid-off or cheated workers are a not-infrequent occurrence, and the government has suggested that demonstrations will increase this year.
Already, the Beijing authorities have rounded up hundreds of would-be petitioners who traveled from other cities to the capital, many hoping to present grievances personally to the National People’s Congress delegates.
But if the National People’s Congress suffers a rubber-stamp image, its deliberations remain likely to illuminate the government’s still-murky plans toward economic and social stability — and, perhaps, a bit of its political calculation as well.
Experts will be watching Wen’s proposals closely to see not only how the proposed 4 trillion yuan stimulus will be spent, but how much is actually genuinely new spending. China’s central government is allotting only about 1.2 trillion yuan , or $175 billion, of the total; the rest is supposed to come from banks, investors and local governments, whose finances are especially opaque.
Most of the money is set to go to infrastructure projects, like roads and dams, that pump money quickly into the economy. But many outside experts and some party figures are calling for more money to be spent directly on people’s basic needs, from medical care to education to poverty, and the need for more social spending is likely to be vigorously debated at the meeting.
The delegates will consider one bill that would pour 850 billion yuan, or about $124 billion, into health care reform, setting up a national health insurance program and overhauling the medical care system. But even that amount would only boost annual health care spending to about 120 yuan, or $20, per person, a sum some analysts say is too little to provide meaningful relief.
“There’s an overinvestment in infrastructure,” Mao Yushi, the respected 80-year-old head of a Beijing research organization, said in an interview this week. “Money should be directed to help small businesses, for employment and social security, for medical insurance.”
In the past, such decisions have been the exclusive purview of party leaders. As this People’s Congress convenes, there are small signs that that is slowly changing.
On Sunday, Wen went on the Internet for nearly two hours to answer questions from Web-surfing citizens, issuing his own call for the government to be more transparent in its dealings. This week, the National Development and Reform Commission — the government body that is directing much of the stimulus spending — announced that it will post details of its spending plans on the Internet.
The delegates themselves also plan to engage in Internet chats with citizens, a Congress spokesman said this week.
Chinese stocks rose the most in four months on Wednesday as investors bet that further economic stimulus measures would be announced and that a wide range of Chinese companies would benefit. The Shanghai stock market gained 6.1 percent on Wednesday.
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||3/5/2009 7:36:31 AM|
|China's 'Missing' Stimulus [WSJ]|
By ANDREW PEAPLE
While the U.S. government is being accused of socialism, China's Communist Party isn't being as socialist as some expected.
Absent from Chinese Premier Wen Jiabao's keynote speech to China's National People's Congress on Thursday was the announcement of any major new fiscal stimulus plan. Confident that one was coming, investors bid up share prices around the world in anticipation.
In retrospect, those hopes were always overdone.
Beijing's existing $585 billion stimulus plan, unveiled last November, is barely out of its wrapping: while China's capacity to absorb it fully is already in doubt.
Less than a third of the $15 billion slated for disbursement in 2008's fourth quarter was actually spent by the end of December, a government official said Wednesday. Worries that corruption in the localities will cause stimulus funds to be wasted are also leading Beijing to keep a grip on the fiscal tap.
And spending isn't all that China's offered up in defense of its economy. Banks, encouraged to lend by Beijing, have begun to do so in earnest, while specific measures to support ten different industries are in the pipeline.
The government is now waiting to see if all this is enough for Chinese economy to grow by its perennial 8% target in 2009. Meanwhile, it doesn't want to give the impression of panic by adding another major initiative before the impact of the first is clear.
One worry: Isolated green shoots of recovery could be leading to unwarranted complacency in Beijing's hierarchy. China's purchasing managers' index has risen for three months in a row, for example, but it's still in contractionary territory. Bank lending is up, but anecdotal evidence suggests some of that is flowing into stocks, or simply being hoarded.
So ruling out the eventual addition of another stimulus plan would be a mistake -- if only because China still has room to do more. Even with the current plan, government debt is projected to remain under 3% of GDP this year -- a level that's surely envied by some of the world's biggest economies.
Still, China does few things hastily. Including, as investors learned Thursday, pouring money onto a plan that's hardly had time to work.
|RecommendKeepReplyMark as Last Read|
|From: Sam Citron||3/7/2009 2:24:49 AM|
|Japan’s Crisis of the Mind [NYT Op-Ed]|
By MASARU TAMAMOTO
RECENT events mark Japan’s return to the world’s stage, or at least so it seems. Tokyo was Secretary of State Hillary Clinton’s inaugural overseas destination. Last week, Prime Minister Taro Aso was the first foreign leader to visit the Obama White House. All this suggests that Washington sees Japan, the world’s second-largest economy, as a powerful nation. If only we saw ourselves the same way.
The truth is, Japan is a mess. Mr. Aso’s approval rate recently hit 11 percent, and his ruling Liberal Democratic Party is in open disarray. His predecessor barely lasted a year. The opposition Democratic Party of Japan just offers more of the same. This is largely because we have become a nation of bureaucrats. What passes for national policy is the sum of various ministerial interests, often conflicting or redundant, with jealously guarded turfs and budgets.
There can be no justification for all those mostly unused airports. Or for roads that lead nowhere. Or for the finance minister who appeared to be drunk at the Group of 7 meeting this month in Rome. Our problem is so deep that it sometimes seems that no political party can tame the bureaucracy and put in place a coherent national agenda.
But what most people don’t recognize is that our crisis is not political, but psychological. After our aggression — and subsequent defeat — in World War II, safety and predictability became society’s goals. Bureaucrats rose to control the details of everyday life. We became a nation with lifetime employment, a corporate system based on stable cross-holdings of shares, and a large middle-class population in which people are equal and alike.
Conservative pundits here like to speak of this equality and sameness as being cornerstones of “Japanese” tradition. Nonsense. Throughout much of its history, Japan has had social stratification and great inequality of wealth and privilege. The “egalitarian” Japan was a creature of the 1970s, with its progressive taxation, redistribution of wealth, subsidies and the dampening of competition through regulation. This all seemed to work just fine until our asset-price bubble popped in the 1990s. Today, the hemmed-in Japanese seem satisfied with the knowledge that everyone around them is equally unhappy.
Since the middle of the 19th century, our economic success has relied on the availability of outside models from which to choose. Our model for social security took inspiration from Bismarck’s Germany, state planning from the Soviet Union, public works from the Tennessee Valley Authority, automobile assembly and manufacturing from Ford. Much of Japanese innovation has involved perfecting what others have created. Sony is famous for its Walkman, but it didn’t invent the tape recorder. Japan’s rise to economic greatness was basically a game of catch-up with the advanced West.
So what happened once we caught up? Over the past two decades, the answer has largely been paralysis. Japan’s ability to imitate outside models was mistaken for progress. But if progress is defined by pursuing a vision of a desirable future, then the Japanese never progressed. What we had was a concept of order and placement, which is essentially stasis.
In the West, on the other hand, the idea of progress rests on establishing individual autonomy and liberty. In Japan, bureaucratic rule offered security and predictability — in exchange for personal freedom. The problem is that our current political leaders can’t keep their side of the bargain. Employment security can no longer be guaranteed. The national pension and health plans seem to be insolvent in the long run. People feel both insecure and unfree.
Signs of despair are everywhere. Japan has one of the highest suicide rates among rich countries. There may be as many as one million “hikikomori,” from teenagers to those in their 40s, who shut themselves in their rooms for years on end. Then there are all those “parasite singles” — or unmarried adults living with their parents. But by far our most serious problem is a declining and aging population. Given present trends, total population will likely decline from around 130 million to under 90 million in 50 years or so. By that same time, 40 percent of Japanese could be over 65.
If we want to survive as a nation, we must shed our deeply rooted resistance to immigration. Contrary to widespread prejudices in favor of keeping Japan “pure,” we desperately need to dilute our blood. Our aging nation will need millions of university-educated middle-class immigrants with high productivity, people who will put down roots and raise families, whose pride and success will be the affirmation of new Japanese values.
Japan desperately needs change, and this will require risk. Risk-taking is not common among the bureaucratically controlled. You won’t find many signs on Japanese beaches saying, “Swim at your own risk. No lifeguard on duty.” If that sign were to appear, many Japanese would likely ask the authorities to tell them if it is safe to swim. This same risk aversion translates into protectionism and insularity. The ministry of agriculture, for example, wants to increase self-sufficiency in food. There is not nearly enough critical thinking and dissent in the Japanese news media.
Still, the idea that the Japanese are afraid of risk has no basis in history, for better or for worse. Remember Pearl Harbor? In fact, Japan’s passiveness today is in large measure a calculated and reasonable reaction to its behavior during the Second World War. But today, this emphasis on safety and security is long past its sell-by date.
We have run out of outside models to imitate. We must start from scratch, embracing an idea of progress that is based on innovation, ambition and dynamism. Doing so will take risk — and extraordinary leadership. But the alternative is to continue stumbling down a path of decline.
Masaru Tamamoto is a senior fellow at the World Policy Institute.
|RecommendKeepReplyMark as Last Read|