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The Economist: Europe news feed
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Italy’s prime minister becomes an unlikely crusader against corruption LAUGH or cry? On March 1st Silvio Berlusconi’s cabinet approved an anti-corruption bill just two days after the resumption of the prime minister’s trial for allegedly bribing a court witness. David Mills, the British lawyer who was the witness, had already been convicted of accepting a $600,000 bribe. Mr Mills took the money for withholding evidence at two trials in the 1990s in which his client was a defendant. But on February 25th his offence was extinguished by Italy’s highest appeal court. The judges decided it had been committed three months earlier than previously reckoned and was thus covered by a statute of limitations. The time limit had been shortened by Mr Berlusconi’s previous government, one of several measures pushed through that make it exceptionally hard to secure a conclusive conviction for any white-collar crime in Italy. ...
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Most Europeans are doing better than they think, and can take more fiscal austerity IMAGINE two cousins. One comes from continental Europe, France, perhaps. A hypochondriac, his life is filled with vague complaints—stress, fatigue and mysterious aches—for which he takes fistfuls of pills. He is sure that strenuous exercise is a menace to his fragile health. The other cousin is American (or British, take your pick), a risk-taker devoted to extreme sports. Shunning doctors, he feels as strong as an ox, although he has been drinking and overeating for years. Eventually, in 2008, he succumbs to a massive heart attack while out jogging. As far as his French cousin is concerned, a deep truth has thus been confirmed: that exercise is bad for you. Substitute free-market competition for exercise, and you have the European debate over the financial crisis. Sober discussion about how to manage the instability of markets is giving way to a simpler fable. Too many voters now believe that the credit crunch has proved that globalisation is bad for you. And too many politicians are happy to endorse such views. In a televised meeting with voters in January the French president, Nicolas Sarkozy, denounced Renault for planning to build a new car in Turkey, saying “I do not accept that cars sold in France should be manufactured abroad.” ...
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More arrests and court cases revive bad Balkan memories FROM one end of former Yugoslavia to the other, people are worrying about justice. On March 1st Radovan Karadzic, the former Bosnian Serb leader, opened his defence at his war-crimes trial in The Hague. British police arrested Ejup Ganic, a wartime Bosniak (Bosnian Muslim) leader, at Heathrow airport at the request of Serbia. And in Spain a Montenegrin alleged to have murdered and raped in Sarajevo during the war was arrested at the request of the Bosnians. Since the Karadzic arrest in 2008, only two Serbs have been left on the wanted list of The Hague war-crimes tribunal. The most important is Ratko Mladic, who led Bosnian Serb forces during the war and is believed to be hiding somewhere in Serbia. Serbia’s president, Boris Tadic, has been trying to persuade the Serbian parliament to pass a resolution to condemn and commemorate the murder of up to 8,000 Bosniaks by Bosnian Serb troops in Srebrenica in 1995. ...
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Last week's story on the Netherlands said that calls for a cordon sanitaire on Geert Wilders's Freedom Party would not go down well with the 10% of the voters who are foreign-born. It meant to say that isolating the party would not go down well with its many voters (very few of whom are foreign-born). Sorry. ...
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The ramifications of a likely no vote may not be pleasant ICELAND’S president is usually an apolitical and little-known figurehead. But Olafur Ragnar Grimsson has become a national hero for his refusal to sign a law passed narrowly in late December by the Althingi, Iceland’s parliament, to repay Britain and the Netherlands. The British and Dutch governments had felt obliged to bail out their depositors in Icesave, a bust internet operation owned by Landsbanki, a failed Icelandic bank, and they now expect Iceland to reimburse them. But thanks to the president’s obduracy, the law is going to a referendum on March 6th, and it seems certain to be rejected by a huge majority. The voters and the president will doubtless rejoice, but the aftermath of a negative vote may not be good for either the country or its government. Johanna Sigurdardottir, the prime minister, leads a coalition that was shaky before the vote and could yet collapse altogether. Even more worrying is the knock-on effect for Iceland’s $4.6 billion IMF programme. The fund says that this should not depend on the Icesave dispute. But the Nordic countries that are offering bilateral loans in support of the IMF’s rescue package are refusing to go ahead. Without their backing, the IMF deal is frozen. The financial pressure is mounting. To satisfy its creditors, Iceland must find some $2 billion in 2011 and $500m in 2012. Moody’s has given warning that the dwindling chances of a deal over Icesave may lead it to join other rating agencies in downgrading Iceland’s debt to junk. ...
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United in the cause of undermining Russian pipeline monopolies DOES “Central Europe” exist? It depends on the political climate. Amid worries that France and Germany are stitching up the European Union’s decision-making, the Czech Republic, Hungary, Poland and Slovakia are reviving their ties and pushing shared ideas on energy security and relations with the east. The alliance began in Visegrad, a Hungarian town, in 1991, when even the EU’s waiting-room seemed distant. Once dreams of joining Western clubs became reality, co-operation all but dissolved. New members shunned anything that made them seem different from the rest. Squabbles, most recently over the treatment of ethnic Hungarians in Slovakia, dominated Visegrad meetings. Some even suggested winding the club up. ...
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More high-level captures point to a systematic weakening of ETA ANOTHER big fish from the violent Basque separatist group, ETA, was caught this week. On February 28th Ibon Gogeaskoetxea, ETA’s military boss, was arrested at a country cottage in Normandy, in north-west France. Two of ETA’s experienced assassins, Jose Ayestaran and Beinat Aginagalde, were taken with him. The arrests offer further proof of ETA’s decline. Mr Gogeaskoetxea, who once tried to kill King Juan Carlos, is the fifth military chief to be captured in just two years. He was in charge for only ten months. Mr Ayestaran and Mr Aginagalde were apparently preparing a kidnapping and bombing campaign in Spain. Several remote-controlled bombs were found. This is the third time in recent weeks that the police have foiled attempts to send ETA terrorists into Spain. ...
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The government’s new austerity measures may prove to be enough—so long as they are fully implemented GEORGE PAPACONSTANTINOU, the overworked Greek finance minister, likens the effort to steer Greece away from economic disaster to “changing the course of the Titanic.” Until this week it looked as if the country was headed for an iceberg labelled default. Two austerity packages had failed to convince Greece’s European partners—or the financial markets—that measures to cut the budget deficit this year from 12.7% of GDP to 8.7% would work. Critics in Brussels said that Greece’s Socialist government was relying too heavily on pledges to cut tax evasion and soak the rich, rather than slash spending, especially on public-sector pay and pensions. The markets pushed spreads on Greek bonds over their German equivalents to record highs. Greece’s ten-year bonds were offering mouth-watering yields of some 6%, twice the German level. ...
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The far right promises to do disturbingly well on June 9th Correction to this article GOVERNMENT crises in the Netherlands tend to be played out with little international publicity. But when the Dutch coalition cabinet fell on February 20th it was done messily and in public—and the ripples were felt as far away as Afghanistan, drawing the world’s attention. ...
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Latvia’s economic free fall has halted, and it may now do better than Greece DOOM-MONGERS are licking their wounds. For two years bankers have said that a Latvian devaluation was inevitable. The struggle to save the lat’s peg to the euro was bound to end in tears. And a panic in Latvia could topple the wobbly economies of Estonia and Lithuania, which have similar exchange-rate regimes, with repercussions extending across eastern Europe and to Scandinavian banks that lent recklessly in the Baltics. Yet despite a fall in GDP last year of 17.5%, Latvia seems to have achieved something many thought impossible: an internal devaluation. This meant regaining competitiveness not by currency depreciation but by deep cuts in wages and public spending. In a recent discussion of Greece, Jorg Asmussen, a German minister, praised Latvia for its self-discipline. ...
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The Economist: Finance and economics news feed
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Does India’s government pay any heed to its economic advisers? ECONOMISTS like nothing better than giving advice to governments. But why do they, of all people, imagine that anyone listens? In their models economists assume that governments, like other actors in the economy, have objectives of their own, which they seek to advance as best they can. They are not disinterested servants of the public good. So governments will ignore a recommendation from their advisers unless it suits them, in which case they would have done it anyway. In his book “Prelude to Political Economy”, published in 2000, Kaushik Basu of Cornell University wrestled with this paradox. “If, seeing high unemployment in an economy, a person… advises entrepreneurs to employ more labourers, or consumers to demand more goods, this typically causes economists to share a laugh.” And yet economists routinely advise governments to act in the economy’s interests rather than their own. ...
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The insurance industry’s biggest-ever acquisition has prompted the largest-ever rights issue: AIG and Prudential are both playing for huge stakes INSURANCE is a pretty stodgy business. This week’s agreement by Prudential of Britain to buy AIG’s Asian life-insurance operations, AIA, is anything but. If the $35.5 billion deal goes through—and given the convulsions in both companies’ share prices, that is not certain—it will radically alter both Prudential and AIG and will provide a closely watched test of what can and cannot be done by financial firms as they try to build Asian franchises. On paper, the transaction would transform Prudential into the region’s dominant insurance company. It will have a leading, if not the leading, presence in 15 big markets with a vast sales force offering critical health and investment products to a population that is becoming wealthy enough to appreciate them. Assuming the transaction goes through successfully, the proportion of sales Prudential generates from Asia should eventually expand from 30% to 80%. Prudential is paying a fraction of what AIA would have gone for prior to AIG’s implosion. It is a remarkable opportunity at a rather pedestrian price. ...
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The central bank loses a vice-chairman but starts to regain its standing THE Federal Reserve, accused by critics of monetary and regulatory malpractice, has seen its standing plummet. The House of Representatives has passed one bill to audit its monetary decisions and proposed others to strip it of regulatory duties. Almost a third of the Senate voted against confirming Ben Bernanke to a second term as chairman. It appears, however, that its rehabilitation has begun. As part of negotiations on a financial-reform bill, Chris Dodd, chairman of the Senate Banking Committee, is considering a proposal that would let the Fed retain most of its regulatory duties. Mr Dodd originally wanted to take oversight of banks away from the Fed and other regulators and give it to a new body. He wanted to hand oversight of consumer protection to another new creation, the Consumer Financial Protection Agency. ...
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Countries don’t like bad news about their creditworthiness WHEN the subprime crisis broke in 2007, credit-rating agencies were among the first groups to take the blame. Critics argued that investors had drawn false comfort from the AAA ratings that the agencies handed out on complex packages of mortgage-related debt. Furthermore, the raters were hamstrung by the conflicts of interest inherent in being paid by issuers to assess their bonds. Never again, it was solemnly proclaimed, should the markets rely on the word of the agencies. Now that investor attention has shifted to sovereign risk, the three big agencies (Fitch, Moody’s and Standard & Poor’s) once more find themselves at the centre of the action. Upgrades of sovereign debt exceeded downgrades in every year between 1999 and 2007. That has changed as a result of the financial crisis (see chart). ...
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Countries compete to weaken their currencies ONCE upon a time, nations took pride in their strong currencies, seeing them as symbols of economic and political power. Nowadays it seems as if the foreign-exchange markets are home to a bunch of Charles Atlas’s 97-pound weaklings, all of them eager to have sand kicked in their faces. First the dollar took a battering in 2009 when the return of risk appetite, and the ability to borrow the currency at very low rates, sent money flowing out of America for use in speculative “carry trade” transactions. Then the euro got pummelled because of concerns about the euro zone’s exposure to sovereign-debt problems in southern Europe. Finally sterling hit the canvas this week because of concerns about the British government’s deficit and the policy gridlock that may result from a hung parliament after a general election expected in May. ...
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Should every child receive a bank account at birth? YOU come into the world with nothing, the saying goes. A new campaign proposes to change that by giving every newborn child in the world an online bank account with $100 in it. The aim of the FinancialAccess@Birth (FAB) campaign is to do something about the fact that half the world’s population has no access to mainstream financial services. This is a huge handicap, exposing people who are typically already on the poverty line to risks that wealthier folk can manage through savings or insurance, and leaving them to pay unregistered moneylenders through the nose. The campaign is the brainchild of Bhagwan Chowdhry, a finance professor at the University of California, Los Angeles, and is starting to attract some prominent supporters, including Peter Singer, a well-known philosopher, and Vijay Mahajan, an Indian social entrepreneur. ...
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A difficult time for a fund-raising spree A SENIOR World Bank official describes its efforts to secure an additional $3 billion-5 billion in paid-in capital as a “once-in-a-generation increase to deal with the effects of a once-in-a-generation crisis”. The bank agreed to lend $32.9 billion to poor countries in the year to June 2009, two-and-a-half times the previous year’s outlay of $13 billion. If it carried on at this rate, Robert Zoellick, the bank’s president, warned in October, its lending would face constraints by the middle of this year. But its search for funds is being complicated by two factors. Some of its rich-country backers have overstretched budgets of their own, to put it mildly. And other large multilateral development banks (MDBs) are also seeking cash. ...
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American regulators approve long-awaited restrictions on short-selling THE main cause of the financial crisis may have been reckless optimism, but the pessimists are hardly being hailed as heroes. When stockmarkets tumbled in 2008, short-sellers—those who borrow shares and sell them in the hope of buying them back later at a lower price, thereby profiting from a fall in their value—were cast as villains. Politicians have wanted to clip their wings ever since. On February 24th, after a year-long debate, America’s Securities and Exchange Commission (SEC) responded with fresh curbs on shorting. The restrictions will be triggered when a stock has fallen by 10% or more in one day. At that point, short-selling would be allowed only if the sale price is above the best available “bid” in the market. This provision could affect a fair number of shares—4% of the market on an average day, and much more in turbulent times, the commission calculates. ...
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The default rates in chart 3 of our special report on financial risk (“The gods strike back”, February 13th) were for asset-backed securities, not CDOs made up of those instruments. Sorry. ...
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Banks’ next big problem appears on the horizon HOWARD ATKINS, the chief financial officer of Wells Fargo, a big American bank, recently said that he does not lose sleep worrying about interest-rate risk. But then, he joked, his job is so tough that it leaves him only one hour a night to nap. Regulators, too, are getting restless. Last month a group of American agencies warned that banks need to sharpen up their management of interest-rate risk in readiness for a rise in short-term rates, which were cut to close to zero at the height of the crisis and remain there. They urged banks to plug a sudden rise of up to four percentage points into their stress tests. ...
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