Links: 2013-03-29
News links for 29 Mar 2013
Seeds of Cyprus disaster planted months ago by EU | Economy | News | Financial Post
“When European finance chiefs explained their harsh terms for rescuing Cyprus this week, many blamed the tiny Mediterranean nation’s wayward banking practices for bringing ruin on itself.
But the path that led to Cyprus’ current crisis — big banks bereft of money, a government in disarray and citizens filled with angry despair — leads back, at least in part, to a fateful decision taken 17 months ago by the same guardians of financial discipline that now demand that Cyprus shape up.”
Cyprus: lessons from a small disaster | Editorial | Comment is free | The Guardian
“the euro club has made rather an unappealing habit of bullying the weak nations and protecting the strong over this crisis. It is impossible to believe that any big country, no matter how distressed, would be subject to a grab on the insured bank deposits of its people, such as was proposed in Cyprus last week. Which leads to the fourth and final depressing conclusion: the euro area clings on to brutal austerity as its crisis-fighting tool of choice – despite all the evidence that it simply doesn’t work. “We saved the banks but are running the risk of losing a generation,” said the president of the European parliament this month. The same could be said of the entire euro: the project trundles on, but a lot of people have been cast overboard.”
Surging Student-Loan Debt Is Crushing the System
“The Inspector General’s office says the collection problem led to a “material weakness” in the department’s financial controls last fiscal year—an issue Education Secretary Arne Duncan has vowed to address. Nonetheless, spokesman Chris Greene says the numbers came out right in the end.
“Taxpayers and borrowers can rely on the integrity and accuracy of our financial reporting,” Greene said.
Critics say the collection issues are a sign of a much larger problem.
“I take personal responsibility for the situation beginning, but personal responsibility does not mean you spend the rest of your life financially compromised,” said Jason Paskowitz, a financial analyst from Tenafly, NJ.”
South Korea cuts economic forecast – FT.com
“South Korea has cut its economic growth target for this year and announced a plan to draw up a supplementary budget to kick-start the stalled economy as the export-driven country battles the weaker yen and fragile global economic recovery.
The finance ministry on Thursday lowered its 2013 growth target to 2.3 per cent from its previous estimate of 3 per cent, citing slowing exports and sluggish domestic consumption. The ministry also said it would actively utilise monetary and fiscal measures to revitalise the economy.”
RBS and Lloyds to raise extra £9bn – FT.com
“Britain’s two part-nationalised banks account for as much as £20bn of a £25bn capital shortfall across the sector identified by the UK’s new financial stability regulator, people close to the process said.
The Financial Policy Committee announced yesterday that UK banks were overstating their capital by £52bn, after it scrutinised their balance sheets with tougher measures of risk and factored in looming fines and expected losses.
The estimate was reduced to £25bn, less than some had feared, after factoring in banks’ existing capital buffers. The gap, however, must be bridged by the end of 2013, faster than expected.”
As the Pace of China’s Junk Bond Sales Grows, So Do Worries – NYTimes.com
““Bond markets are booming because companies have had difficulty getting the level of debt they want out of banks onshore or offshore, and in tapping equity markets,” said Nick Gronow, a senior managing director at FTI Consulting in Hong Kong and an expert in Chinese bankruptcies. “So bonds have really taken up the slack.”
But the pace of growth is troubling to some analysts.
As investors have plowed into junk bonds across the globe, yields have plummeted. In the United States, rates on junk bonds have dipped below 6 percent, compared with historical payouts of roughly 10 percent or more.
The trend is similar in China.”
Canada looks to restrict Huawei | South China Morning Post
“While the review is not singling out any company, Canada’s trade minister, Ed Fast, said this month that Huawei, which supplies both Telus and Bell Canada, the country’s largest telephone company, has already been barred from providing equipment for government networks.
Ray Boisvert, former assistant director of intelligence at the Canadian Security Intelligence Service, the country’s spy agency, said: “It’s a manageable risk if you can implement some verification systems and accept that suppliers like Huawei are working to try to be as transparent as possible.””
Japan suffers decline in factory output – FT.com
“The challenge facing Japan’s new leadership in escaping from economic stagnation and deflation was underscored on Friday as data showed further declines in consumer prices and an unexpected contraction in factory output.
Haruhiko Kuroda, the new governor of the Bank of Japan, could struggle to reach his goal of generating 2 per cent inflation in two years, analysts said, after the government data indicated core consumer prices fell 0.3 per cent in February compared with a year earlier.”
ekathimerini.com | Cyprus foreign minister says only Luxembourg backed Nicosia in Eurogroup
“Cypriot Foreign Minister Ioannis Kasoulides has admitted that Cyprus had not anticipated the Eurogroup’s demand that Nicosia impose a deposit tax and that Luxembourg was the only country to support the Cypriot position publicly.
“We were alone,” Kasoulides told Skai TV’s New Folders program. “That’s not to say Greece did not stand by us, as it always does, but we recognize its difficult position, as we recognize the difficult position of our Mediterranean partners. They told us behind the scenes they supported us but only Luxembourg spoke up in our favor during the Eurogroup and in general,” he added.”
In Kentucky, Rand Paul Demonstrates the Art of the Sale | TIME.com
“”Rand is more political” than his father, says an ally of both Pauls. “There were years when Ron spoke at CPAC and started in on foreign policy, and you could see the shades go down. Rand has an ability to speak that same audience and say the same thing, but do it in a way that they’ll listen.”
“When there are certain positions he has that aren’t as popular,” explains Trey Grayson, Paul’s former Senate primary opponent and now the Director of Harvard’s Institute of Politics, “he’s adept at marketing it to sound less objectionable.””
Britain’s current account deficit at worst level since 1989 | Business | guardian.co.uk
“Collapse in overseas income pushes gap between imports and exports in 2012 to £57.7bn, a shortfall of 3.7% of GDP”
Slovenia could be next candidate for eurozone bailout | World news | guardian.co.uk
“Former Yugoslav republic is struggling with troubled banking sector that threatens to bring down economy”
India’s current account deficit hits record high | World news | guardian.co.uk
“In a worse-than-expected reading that will keep the rupee currency under pressure, the deficit hit $32.6bn (£21.5bn) in the final three months of 2012, compared with $22.3bn in the September quarter. For April-December, the current-account deficit was $71.7bn, 5.4% of GDP.”
Cypriots show patience and pragmatism as banks reopen | World news | guardian.co.uk
“President praises people’s ‘maturity and collectedness’ on day when many feared a panicked run on banks”
Amazon’s fees hike for third-party traders provokes fury | Technology | The Guardian
“‘Marketplace’ traders in UK and major European markets to be hit by fee hikes of up to 70% after Easter, following similar rises in US”
“ECB figures show that private sector deposits in Cypriot banks fell by 2.9% in February – a generally calm month that saw both consumers and companies increase their holdings at Greek and Spanish banks.
Meanwhile, the central bank of Cyprus said savers from the other 16 members of the single currency withdrew 18% of the cash they held in Cyprus during February. Deposits from other eurozone states fell €860m to €3.9bn, making them the fastest category to leave the stricken country.”
Cyprus crisis: limits on bank withdrawals to last ‘about a month’ | World news | guardian.co.uk
“Just 24 hours ago Cypriots were told curbs to prevent money from leaving the country would only be in place for a week”
ekathimerini.com | Athens rejects Turkish talk of Cypriot partition
“Foreign Minister Dimitris Avramopoulos on Thursday vehemently rejected a proposal by his Turkish counterpart Ahmet Davutoglu that a two-state solution to the Cyprus problem be sought if Cypriot authorities unilaterally proceed with the exploitation of oil and gas reserves off the island’s coast.
“Any insinuation of partition should be out of anyone’s mind,” Avramopoulos said in a letter to Davutoglu which was published on the Greek Foreign Ministry’s website.”
“German Finance Minister Wolfgang Schaeuble said Thursday that he understood Cypriot anger over the tough terms of its international bailout but said it would fade eventually.
When times are very tough «then you look for someone to project your anger onto,» he told local radio broadcaster SWR2, when asked about public ire in Cyprus against Germany, the European Union and the International Monetary Fund.
“That will pass. It is of course completely unfounded,» he added.”
ECB’s Knot backs Dijsselbloem comments on bank rescues | Reuters
“European Central Bank Governing Council member Klaas Knot said on Friday there was “little wrong” with Eurogroup chair Jeroen Dijsselbloem’s recipe for dealing with future euro zone banking crises, a newspaper reported.”
ekathimerini.com | S&P: Cyprus rescue shows European banking union is needed
“The rescue of Cyprus, which wiped out bank bondholders and taxed savings, shows Europe needs closer coordination of banking policy, according to Standard & Poor’s Ratings Services.
European leaders need to strengthen supervision and give investors clarity on how they will react to bank insolvencies in the future, S&P said in a statement Thursday. Setting up a fund to wind down failed banks across Europe would also help break the link between indebted states and their banks, S&P said.”
DNB-president Knot verdedigt aanpak Dijsselbloem | Het Financieele Dagblad
The Dutch central bank chief defends the comments by Jeroen Dijsselbloem in contrast to the French ECB bigwig Benoit Coeure, He is quoted here as saying, “There is not much wrong with Dijseelbloem’s statements”. He says his commentary really comes closer to the direction Europe has been moving in for some time. So, you should see this as confirmation that bail-ins are indeed going to be the way forward in Europe from here on out.
ekathimerini.com | More than 150,000 Greek graduates moved abroad in past 5 years
“More than 150,000 Greek graduates are estimated to have moved to more than 70 countries in the past five years in order to find work, a conference organized by the University of Macedonia in Thessaloniki heard on Wednesday.
According to data drawn from a recent study by economic geography professor Lois Lambrianidis, the majority of those graduates are pursuing careers in Britain, Germany, France and the United States.”
Apple’s earnings predicted to shrink 14% in first half of 2013, but grow 15% to close the year
“The Piper Jaffray analyst issued a note to investors on Tuesday in which he reiterated his overweight rating and $767 price target, but said he expects Apple to see earnings dip 14 percent in the first half of 2013.
For the back half of the year, he expects Apple to have several new product launches in the works. He believes those announcements will reaccelerate earnings growth to a positive 15 percent.”
BBC News – S&P 500 index reaches record high
“The S&P 500 index closed on Thursday night at a record high of 1,569, up 6 points or 0.4%. The last time it broke into new territory was on 9 October 2007 when it closed at 1,565.”
Analysis: Austerity threatens EU’s competitive edge in infrastructure | Reuters
“Europe’s carefully maintained autobahns, high-speed TGV trains and vast network of modern airports have long been the envy of the world.
But thanks to austerity budgets that are slashing infrastructure spending just as other parts of the world are ramping it up, that may not be true for much longer.”
France’s Hollande hits companies with 75 percent wealth tax | Reuters
“French President Francois Hollande declared on Thursday that companies would have to pay a 75 percent tax on salaries over a million euros after his plan for a “super-tax” on individuals was knocked down by the constitutional court.”
Median Household Income Down 7.3% Since Start of Recession – NYTimes.com
“February’s median annual household income was 5.6 percent lower than it was in June 2009, the month the recovery technically began; 7.3 percent lower than in December 2007, when the most recent recession officially started; and 8.4 percent lower than in January 2000, the earliest date that this statistical series became available.
Why are incomes stagnating, even falling?”
BBC News – US economy ekes out 0.4% growth in fourth quarter
“The US economy grew at a faster than expected 0.4% in the fourth quarter of 2012, the Department of Commerce has said.
The annualised figure was better than an earlier estimate of 0.1% growth, reflecting increased investments in plant and equipment.”
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