Posts Tagged ‘economic recovery’

Italy’s resurgent eurosceptics plot to subvert monetary union from within

January 18, 2018

By Ambrose Evans-Pritchard

17 JANUARY 2018 • 9:52PM

Italy’s ascendant populists on Left and Right have shelved their immediate plans to leave the euro. They are plotting instead to subvert monetary union from the inside with parallel currencies and deficit spending in open violation of the Maastricht Treaty.

This is equally dangerous for Germany and for the political construction of Europe, and is far more likely to happen.

The rebel forces jockeying for power in the elections on March 4 currently lead the polls by a wide margin. Between them they command two thirds of the electorate. All view the euro system as a racket run largely in the interests of Germany. They intend to fight back by gaming the EU themselves with matching cynicism and Machiavellian “astuzia”.

The eurosceptic revolt should come as no surprise. Economic recovery in Italy is a relative term. Output is still 6pc below the pre-Lehman peak. The tangible reality for most…

Read the rest (Paywall):


Berlusconi Poised to Play Pivotal Role in Italian Vote

December 29, 2017

Election is scheduled for March after president dissolves the current parliament

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FILE PHOTO: Italy’s former Prime Minister Silvio Berlusconi gestures during the television talk show “Porta a Porta” (Door to Door) in Rome, Italy June 21, 2017. REUTERS/Remo Casilli/File Photo Reuters


MILAN—Silvio Berlusconi sat for a prime time interview last month on the biggest television station in his empire, fielding softball questions as gauzy images of his life floated across large screens in the background.

“What is love for you?” the host asked the 81-year-old billionaire, who grew misty eyed as he spoke of his family. It was about 45 minutes before the media mogul finally spoke about the upcoming Italian election.


By Isla Binnie

ROME (Reuters) – Italy’s election in March pits the center-right group against the anti-establishment 5-Star Movement because the ruling left-wing party lags in polls under the country’s third prime minister since the last election, center-right leader Silvio Berlusconi said on Friday.

Polls suggest no one will win an outright victory but an alliance around Berlusconi’s Forza Italia (Go Italy!) looks set to take the highest number of seats.

On Thursday, the government of Prime Minister Paolo Gentiloni set March 4 as the date for a vote expected to produce a hung parliament, instability and possible market turbulence in the euro zone’s third-largest economy.

Parties across the spectrum are pledging to voters that they will change or abolish European Union budget rules, cut taxes and spend more to boost the economy which is slowly picking up steam.

Immigration is also set to be a central issue, with right-wing parties warning of an “invasion”. The center-right also wants a parallel currency, while 5-Star says it will call a referendum on euro membership if EU partners refuse to budge on the Fiscal Compact.

Gentiloni’s Democratic Party (PD) has been in power since 2013. 5-Star is set to be the best-performing individual party, and the PD looks set to come third.

“The challenge is between moderates like us … and rebellious, poverty-perpetuating vigilante movements like the followers of (Beppe) Grillo,” Berlusconi said in an interview with Corriere della Sera, referring to the stand-up comedian who founded 5-Star.

Berlusconi’s main coalition partner is the far-right Northern League, which is allied with France’s Marine Le Pen in the European Parliament and is only slightly behind Forza Italia in the polls.

Forza Italia is polling at about 16 percent compared with 13 percent for the League.

Five years after Europe’s debt crisis brought down his fourth government, the 81 year-old media mogul burst unexpectedly back on to the political scene last year, although he cannot become prime minister due to a tax fraud conviction.

He locked horns this week with 5-Star leader Luigi Di Maio, 31, whose party’s support is stable at around 28 percent, over their respective proposals for income support programs for Italy’s growing ranks of poor people.

Di Maio accused Berlusconi of copying 5-Star’s “citizens’ wage” proposal which would top up the income of 9 million poor Italians, with a “dignity wage” aimed at the 15 million poorest.

Berlusconi hit back in an interview on La 7 television: “If we copied it from anyone, it was from a great liberal economist like Milton Friedman, certainly not the 5-Star.”

With all signs pointing to a hung parliament, Berlusconi has not yet given full backing to any one leader to take the center-right bloc into the election, and has even said the current government should stay on as caretaker if there is no winner.

League leader Matteo Salvini said in an interview with Libero newspaper on Friday that he was waiting for “clarity”.

“It’s not his put-downs that bother me, it’s when he talks about another Gentiloni (government) that my hair stands on end,” Salvini said.

(Editing by Matthew Mpoke Bigg)

Italy’s President Calls National Elections as Country Grapples With Economic Pain

December 28, 2017

Fragmentation of political landscape means no single party is expected to win a majority

Image result for Italian President Sergio Mattarella, Photos

Italian President Sergio Mattarella


ROME—Italian President Sergio Mattarella signed a decree Thursday to dissolve parliament and send the country to fresh elections next year, setting the stage for a vote in a country still coming to terms with years of economic pain and buffeted by anger with traditional parties.

The impending contest will showcase parties’ proposals on how to respond to high unemployment, the large-scale immigration Italy has seen in recent years and popular resentment of the country’s political class—problems so deep that they have eroded traditional party loyalties and left half the electorate supporting populist parties.

The fragmentation of Italy’s political landscape in recent years means that no single party or alliance is expected to win a parliamentary majority, raising the likelihood of a hung parliament and the possibility of the eurozone’s third-largest economy stuck in political limbo for months.

The government of Prime Minister Paolo Gentiloni will now set the date for the vote, which must be held between 45 and 70 days following the dissolution of the legislature. Lawmakers and analysts expect Italians to go to the polls on March 4.

Image result for Prime Minister Paolo Gentiloni, photos

Italy’s Prime Minister Paolo Gentiloni

The vote in Italy will be the latest in string of major elections in Europe over the last year, in which populist parties—while failing to sweep to power—remain powerful opposition forces. Europe’s economic rebound and the waning of some anti-euro sentiment has soothed resentment toward legacy parties, giving the union fresh confidence.

In Italy, however, a fragmented electorate and anger at mainstream parties will remain prominent themes, fueled in part by an economic recovery far weaker than elsewhere in Europe.

The vote is likely to be a three-way contest, with the electorate roughly split among three groups: the center-right coalition headlined by former Prime Minister Silvio Berlusconi, the ruling center-left Democratic Party and the 5 Star Movement, one of Europe’s largest anti-establishment groups.

According to a poll by Istituto Ixè carried out in mid-December, a center right coalition could win 37% of the votes. The 5 Star Movement would win about 29% of the votes, while the Democratic Party would trail behind with about 23% of the votes.

If no group wins a majority, that leaves three possible outcomes. Mr. Mattarella could ask the biggest winner of votes to try to form a minority government, but such a coalition would likely be weak and would struggle to pass the economic reforms that Italy needs to make its economic more nimble and faster-growing.

He could also ask the largest parties to form a broad, cross-party coalition headed by a neutral figure and tasked with tackling specific reforms. If both options fail, Mr. Mattarella could invoke fresh elections.

Until a new government is sworn in, Mr. Gentiloni remains in charge for the ordinary administration of the country.

Italy must hold a national vote by late May to elect a new legislature, whose five-year mandate expires in the spring. Thursday’s dissolution of parliament follows nearly a year of speculation as to whether snap elections would be called sooner, with some parties—notably the 5 Star Movement—pressing for an early vote.

Write to Deborah Ball at and Giovanni Legorano at

New York Fed President Dudley to Announce Early Retirement

November 5, 2017

Announcement could come as early as Monday, search for successor to start immediately

William Dudley, president and chief executive officer of the Federal Reserve Bank of New York,at a panel discussion on banking ethics at the Bank of England in City of London, U.K., on March 21, 2017.
William Dudley, president and chief executive officer of the Federal Reserve Bank of New York,at a panel discussion on banking ethics at the Bank of England in City of London, U.K., on March 21, 2017. PHOTO: SIMON DAWSON/BLOOMBERG NEWS

Federal Reserve Bank of New York President William Dudley is set to announce he will retire next year, around six months earlier than scheduled, and the announcement could come as soon as Monday, according to two people familiar with the matter.

The search for Mr. Dudley’s successor will start immediately with the aim of finding a new president in mid-2018, after which time Mr. Dudley will retire, according to people familiar with the matter.

The decision has been long-planned and is unrelated to President Donald Trump’s announcement Thursday that he would nominate central bank governor Jerome Powell to succeed Chairwoman Janet Yellen when her term as chief expires in February, according to a person familiar with the matter.

The coming announcement about Mr. Dudley was first reported by CNBC. The New York Fed declined to comment.

Mr. Dudley, who serves as vice chairman of the interest-rate-setting Federal Open Market Committee, is one of the central bank’s top policy makers, and he has been a close ally of Ms. Yellen in recent years.

He also played a critical role in how the Federal Reserve responded to the financial crisis and its aftermath. Mr. Dudley played key roles in formulating policies to help the economy recover and has been very active in shaping the Fed’s response to make financial firms more resilient to future troubles. He has also been an unusually vocal critical of Wall Street culture.

Mr. Dudley started at the bank in 2007, running the part of the institution that implemented monetary policy and dealt directly with financial markets. He got the top job when then-president Timothy Geithner left to become then-President Barack Obama’s first Treasury secretary.

Mr. Dudley has been a strong supporter of the Fed’s low-rate policies. But he has also been for some time a key voice arguing in favor of raising rates over the last year, even as inflation has proved unexpectedly weaker than expected, in turn calling into question the push to boost borrowing costs. It is possible that his replacement wouldn’t see the same level of urgency to act.

Mr. Dudley has favored increases “in part because he gives more weight to the risk of financial overheating than to the need to get the inflation numbers right down to the last decimal place,” said Louis Crandall, chief economist with Wrightson ICAP. “If his replacement has a more academic background, the replacement might be less willing to raise rates if the inflation numbers are still lagging in the second half of last year,” he said.

Recent New York Fed leaders have all had strong connections to financial markets, and many expect any replacement would carry on that tradition. Possible contenders include Simon Potter, who now runs the New York Fed’s markets desk, as well as D.E. Shaw’s Brian Sack, who held that job before Mr. Potter.

Some close to the bank say there is also a chance it could be a current central banker. Dallas Fed leader Robert Kaplan, a former Goldman Sachs top executive, has deep market experience, as does the ambitious leader of the Minneapolis Fed, Neel Kashkari, who led the government’s financial bailout efforts during the financial crisis.

The New York Fed is the most powerful of the central bank’s 12 regional banks because of its role supervising some of the nation’s biggest banks and implementing monetary policy. Mr. Dudley, a former Goldman Sachs chief economist who took over the New York Fed in 2009, is serving a term that ends in January 2019.

Mr. Dudley is scheduled to give a speech at the Economic Club of New York on Monday.

The news about Mr. Dudley’s plan comes amid considerable churn in the top leadership ranks of the Fed.

Just last month, Fed Vice Chairman Stanley Fischer, another top Fed official and Yellen ally, stepped down last month and Randal Quarles, Mr. Trump’s first nominee to the Fed board of governors, took office. Three other seats on the seven-member board are also open, giving the president an opportunity to remake its policy-making team.

A fourth seat on the board would open if Ms. Yellen decides to leave after ceding the helm as chairwoman. She could stay on as a governor, if she chooses, in a term that extends to 2024.

Mr. Dudley’s exit gains in importance because Mr. Powell is not an economist by training. Mr. Powell may depend a bit more on central bank leadership to craft monetary policy.

“This is further change in an institution that was already experiencing considerable change,” said Tim Duy, an economic professor at the University of Oregon. There has been a big question of “do we have enough intellectual firepower” at the Fed given all the recent leadership change, he said. Mr. Dudley’s exit will remove a key thinker, in turn adding more uncertainty to future Fed policy, he said.

Several regional Fed banks that have seen their presidents exit in recent years have often found it to be a long process to replace their presidents. The Richmond Fed hasn’t yet named a successor to former president Jeffrey Lacker, who resigned in April.

The regional banks’ board of directors, who don’t represent financial institutions regulated by the Fed, select new presidents, subject to the approval of the Board of Governors in Washington.

Write to Nick Timiraos at and Michael S. Derby at

Brazil President Weakened by Graft Charge, Losing Fiscal Battle

August 12, 2017

Aug. 11, 2017, at 3:29 p.m.


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Brazil’s President Michel Temer reacts during a ceremony in Sao Paulo, Brazil August 8, 2017. REUTERS/Leonardo Benassatto REUTERS

By Anthony Boadle

BRASILIA (Reuters) – Brazilian President Michel Temer has burned through political capital fighting corruption charges and is struggling to push forward his economic agenda meant to rein in a gaping budget deficit.

Even allies in Congress now doubt he can achieve anything but watered-down measures, likely delaying any fix to Brazil’s fiscal crisis until the economy recovers from deep recession.

With continued deficits, Brazil risks further downgrades in its credit rating. It lost its investment grade two years ago, adding to the cost of financing mounting public debt.

In a sign of Temer’s failure to restore fiscal health, the government is expected to revise upward its 2017 and 2018 deficit targets on Monday due to falling tax revenues in an economy that is barely growing.

More pessimistic analysts worry the insolvency already faced by some Brazilian states that cannot pay employees or provide basic services will reach the federal government.

Temer had a window to pass a pension overhaul earlier this year, but it closed in May when allegations emerged that he condoned bribes in a taped conversation with the then CEO of the world’s largest meatpacker JBS S.A..”We are dancing samba at the edge of the precipice,” said Sao Paulo-based wealth manager Fabio Knijnik. “I don’t see the political class at all concerned with resolving this.”

The deeply unpopular president won enough backing in Congress on Aug. 2 to block a corruption charge that could have led to his suspension pending trial by the Supreme Court. To survive, he approved about $1.5 billion in pork barrel spending to keep lawmakers happy.

His closest ally in Congress, the center-right Democrats Party of Speaker Rodrigo Maia, does not believe Temer has the 308 votes, or three-fifths of the lower chamber, needed to pass pension reform, the key measure in his fiscal rescue plan.

Speaking in Rio on Friday, Maia said Temer’s political troubles and lower-than-expected tax revenues had created the crisis. He said Brazil had no alternative but to seek whatever pension fix it could, given Congress would not raise taxes.

Congressman Efraim Filho, the Democrats whip, told Reuters Temer must dilute the pension bill to get it past Congress. He said the measure had to be stripped down to its most important provision, a minimum age for retirement of 65 years for men and 63 for women in a country where people only work on average until age 54.


Temer’s government coalition is in disarray. Parties who stood by the president are now demanding they be rewarded with cabinet positions, such as the big-budget Cities Ministry. It is now controlled by the Brazilian Social Democracy Party (PSDB), which split over whether to abandon the scandal-plagued president.

Until they get their way, the allies at the core of his coalition have said they will not put his proposed pension bill to the vote. Maia said the “climate” was not right to move to a floor vote and the bill could languish and miss a legislative window likely to close in December as an election year approaches in 2018.

The government has already made concessions on the pension bill provisions that will reduce planned fiscal savings by up to 25 percent in 10 years and nearly 30 percent in 30 years, according to Finance Minister Henrique Meirelles.

The pension overhaul is vital for Brazil to comply with a 20-year spending cap that was Temer’s first move to restore fiscal discipline, albeit without a full impact on accounts until 2019.

“That ceiling was like saying you are going on a diet two years from now,” said Daniel Freifeld of Callaway Capital, a Washington D.C.-based investment firm.

(Reporting by Anthony Boadle; Editing by Andrew Hay)

Signals on Stimulus Roil Global Markets — An end to easy money, especially in Europe

June 29, 2017

An end to stimulus programs would come as economies recover, especially in Europe

Mario Draghi, president of the European Central Bank.

Mario Draghi, president of the European Central Bank. PHOTO: ANTONIO COTRIM/EUROPEAN PRESSPHOTO AGENCY

Easy money unleashed by global central banks is receding, a development that could test a range of assets—from stocks to real estate—that have become tightly linked to monetary support since the global financial crisis.

Top European Central Bank officials left investors with mixed impressions over the past two days about when the ECB would reel in its €2.3 trillion ($2.6 trillion) bond-buying program, and the chiefs of the Bank of England and the Bank of Canada both suggested they’d be reducing stimulus.

The euro plunged against the dollar on Wednesday, then recovered. The pound and the Canadian dollar leapt. Yields on U.K. government bonds shot up. Yields on Treasurys and other bonds also moved higher.

When and how much Western central banks pull back from their unprecedented run of ultralow interest rates and large-scale asset purchase programs, known as quantitative easing, are the foremost questions for global investors.

The prospect of an end to stimulus has lurked in the background for months but has zoomed to the fore now that signs of an economic recovery are beginning to appear in regions, especially Europe, that have struggled to shake off the aftereffects of the global financial crisis.

An end to the ECB’s bond buying “is probably the most important supply-demand change that we can foresee in bond markets,” said Tim Haywood, investment director for fixed income at Swiss money manager GAM.

Global bond markets have been strongly interconnected, and U.S. government bonds closely tracked moves in Europe on Wednesday. The yield on the 10-year Treasury note rose to 2.223%. Higher yields on European government bonds make U.S. government bonds less attractive to overseas investors, who have been buying up Treasurys in search of better returns than what they can get at home.

Investors had been selling government bonds and buying the euro since Tuesday, when ECB President Mario Draghi’s comments, delivered at an ECB conference in Sintra, Portugal, on a “strengthening and broadening” economic recovery were interpreted as a sign the central bank was preparing to trim its massive bond buying.

But those moves briefly reversed on Wednesday. In an interview on CNBC, Vítor Constâncio, the ECB’s vice president, suggested investors might have overreacted to Mr. Draghi’s comments. An ECB spokesman declined to comment. The euro, which had neared $1.14 earlier in the day, dropped below $1.13.

Then Mr. Draghi, speaking again at the ECB conference, repeated his positive outlook for the eurozone economy. By the early evening in London, the euro was at $1.1375, up 0.3% on the day.

“Central banks are stumbling here and losing a bit of credibility with mixed communications, whether that’s in Europe or the U.K.,” said Jon Jonsson, a senior portfolio manager at Neuberger Berman.

Bank of Canada Gov. Stephen Poloz joined the fray Wednesday, noting in a television interview in Portugal that excess slack in the Canadian economy is being absorbed “steadily” at the current pace of growth, a comment investors took as evidence the Canadian central bank could raise short-term interest rates as early as next month.

Together, the policy makers’ comments highlight a readiness to start moving away from the extraordinary measures—including interest rates pushed to zero and below and large-scale asset-buying programs—employed since the crisis to revive their battered economies.

At the same time, many central bankers face a policy dilemma. Falling unemployment normally justifies higher interest rates to prevent their economies and asset prices from overheating, but still-muted inflation calls for continued stimulus measures to ensure it doesn’t drift lower.

Officials at the Fed, the ECB and BOE are actively debating whether they might be withdrawing support too soon, or too late.

A range of factors are suggesting a shift away from easy money may be in the offing. As financial crises recede and economic growth proceeds steadily, central bankers see slack in their economies disappearing. That raises the potential for inflation to pick up after running below their targets for several recent years.

The World Bank earlier this month forecast global growth to hit 2.9% next year, which would be its fastest pace in nearly seven years, up from 2.7% this year.

Mr. Draghi’s remarks follow a run of strong eurozone economic data this year. Growth has firmed, unemployment has fallen, and business and consumer confidence is at highs not seen since before the financial crisis. Lending to households in the eurozone grew at a faster pace in May while lending to firms held steady, the ECB reported Wednesday.

Mr. Poloz said Canada’s growth would proceed at a “more normal pace but still above potential. That’s the important thing. That means that we’re absorbing excess capacity that was built up in the wake of the crisis and then built up again in the wake of the oil shock two years ago.”

This is the Fed’s calculation, too. With the U.S. jobless rate down to 4.3%, the Fed is expected to raise short-term rates one more time this year and start shrinking its bond portfolio.

Some government officials in Europe are growing concerned about the side effects of years of easy money. In Germany, Europe’s largest economy, senior officials have complained for years that low interest rates harm savers and pensioners. The nation’s central bank has warned that house prices may be overvalued by as much as 30%.

Jens Weidmann, who sits on the ECB’s governing council as head of Germany’s Bundesbank, has pressed the ECB to consider changing course. Central banks shouldn’t allow themselves to be taken hostage by governments or the markets, Mr. Weidmann said in an interview published Tuesday on the Bundesbank’s website.

Not all central banks are ready to shift toward tighter policy. Bank of Japan officials have emphasized that, with inflation still far below its 2% target, they will stick with its current mix of stimulus efforts, including negative interest rates and asset purchases. BOJ Gov. Haruhiko Kuroda touched on the issues raised by a shift in policy at The Wall Street Journal CEO Council in Tokyo in May, but he insists the bank hasn’t reached the stage of talking about an exit strategy.

Write to Tom Fairless at, Paul Vieira at and Christopher Whittall at

Appeared in the June 29, 2017, print edition.

Europe Investors Bid Adieu to Political Jitters and Begin Buying

April 30, 2017

Money flows to the continent as focus turns to economic recovery

Image result for euro, currency, photos


April 30, 2017 7:00 a.m. ET

Investors aren’t waiting for the conclusion of the French election to put money back into Europe.

They are already flocking back, betting that the region has finally unshackled itself from fears of political turmoil.

Local stock markets just had their best week this year following the first round of the French presidential vote, and investors have poured money into the region’s equity funds at the fastest pace since 2015. The euro climbed 1.6% against the dollar in its best week since July.

All this comes as investors start to look beyond political risks and focus on the continent’s strong economic recovery.

“People are beginning to let go of European political risks as a theme,” said George Maris, portfolio manager at Janus Capital. The underlying economy and earnings picture are becoming more evident now in Europe, Mr. Maris said.

Europe’s buoyant equity markets are already reflecting much of that optimism, despite coming political events that had once concerned investors–chiefly the final round of voting in France’s presidential elections and votes in Italy and Germany.

Germany’s benchmark DAX index reached a record in the week following the French vote, while the Euro Stoxx 50 index of blue-chip eurozone stocks climbed 3.5%, with advances in Europe led by the banking sector. In dollar terms, the Euro Stoxx 50 index is up almost 12% this year, nearly double the S&P 500’s gains.

European equity funds recorded their strongest inflows since December 2015, with inflows of $2.4 billion in the week to April 26, according to EPFR Global data.

Eurozone markets have rallied since the first round of French presidential elections on April 23, when pro-European centrist Emmanuel Macron won more votes than both Marine Le Pen, who pledged to take France out of the euro, and Jean-Luc Mélenchon, a far-left antiglobalist candidate. Mr. Macron is now seen as a heavy favorite in the second round on May 7, when he will face Ms. Le Pen.

A solid election victory for the Dutch political establishment in March has also soothed fears of a continentwide lurch toward nationalism that had weighed on asset prices through this year.

Instead of politics, investors are focusing on economics and earnings.

Unlike previous years, analysts have continued to raise their projections for annual growth in earnings per share in the eurozone, according to J.P. Morgan.

First-quarter earnings in the Stoxx Europe 600 are expected to increase 5.5% from the first quarter of 2016, according to Thomson Reuters data.

Investors point to good signals from the economy. Business confidence and gauges of activity in the eurozone’s manufacturing and services sectors rose to six-year highs in April, despite uncertainty ahead of the French vote.

“European growth is the best it’s been since the global financial crisis, ” said Robert Waldner, chief strategist at Invesco Fixed income. “The combination of supportive financial conditions and a solid economy should boost equities and credit markets in the region.”

All this has ramifications for the European Central Bank as it contemplates an exit from a EUR2.3 trillion ($2.5 trillion) bond-purchase program. On Friday, eurozone inflation data for April came in higher than expected, reaching 1.9%. The ECB targets inflation close to 2%. The region has been battling low and at times negative inflation for much of the past three years.

The euro jumped after Friday’s inflation figures to settle at $1.0897. “The market is pricing out political risks and is pricing in a less cautious [European Central Bank],” said Vasileios Gkionakis, head of foreign-exchange strategy at UniCredit Research.

Mr. Gkionakis expects that if Mr. Macron becomes French president, the euro would go past $1.10.

The ECB’s signals in the months ahead are expected to be critical for the euro’s performance toward the end of the year.

Risks remain. There is still a chance that Ms. Le Pen could win the French presidency, renewing questions about the future of the eurozone. Euroskeptic parties have a shot at winning Italian elections that will come by next year, at the latest, and Italy continues to struggle with weak banks and bleak economic prospects.

French economic growth slowed at the start of the year, while ECB President Mario Draghi highlighted Thursday that consumer prices remain subdued across the euro area.

For now, the European party continues.

Assuming French elections go as expected, “it at the very least removes the immediate existential concerns about the eurozone and euro currency itself,” said Abi Oladimeji, chief investment officer at Thomas Miller Investment.

Write to Riva Gold at and Georgi Kantchev at

With its China bashing, America risks breaking a profitable partnership

March 22, 2016

Daniel Wagner says America must realise that its economic recovery cannot be achieved by isolating China

By Daniel Wagner
South China Morning Post


China bashing has become as much a part of the modern American political tradition as criticising foreign producers of oil. The American electorate has regrettably become accustomed to the predictable torrent of anti-Chinese rhetoric from politicians of a variety of political persuasions – currently manifested by the incendiary rhetoric of Donald Trump.

He is playing upon the fears and disillusionment largely of blue-collar workers who do not understand that China is not the source of their problems; rather, America’s failure to remain competitive in the global economic landscape is to blame.

They also do not realise that China will soon reassume the mantle of the world’s largest economy – a title which it held until just before the start of the Industrial Revolution. Until that time, China was the leading steel producer, textile manufacturer and trading nation – from the Chinese perspective, it is simply about to resume the status which it previously held.

Some Americans may bristle at the notion that capitalism has helped China dominate the global economy but, the truth is, China was practising capitalism a long time before America even became a nation.

China is not above criticism, and some American politicians do raise some valid points in criticising China, such as that the government controls large parts of the Chinese economy through state-owned enterprises, which distorts the domestic market and gives some Chinese companies unfair competitive advantages. But what they then fail to say is that China must also compete in the global marketplace, and that it pays a price for supporting companies that should otherwise fail as a result of being poorly run, inefficient or bloated.

If the US does not like the way China does business, it is of course free to do business elsewhere, but that would be a really bad idea for America. Exports to China totalled US$120 billion in 2014, making it the third-largest export market for US goods (behind Canada and Mexico).

Between 2005 and 2014, US exports to China increased 198 per cent – greater than growth to any of the other top 10 US export markets. The truth is, there is no country in the world more important to the growth of US exports. China’s rapidly growing middle class is the single most important factor accounting for the success of US President Barack Obama’s National Export Initiative.

The US not only needs to tap China’s vast foreign currency reserves (US$3.3 trillion – almost 28 times that of the US, at US$119 billion) in order to finance its trade and fiscal deficits, it also needs access to China’s vast market to sustain its economic recovery and continue to create much needed jobs for American workers.

When was the last time you heard a US politician admit that?

Six of the top 10 states that lead in exports to China (California, Illinois, Ohio, South Carolina, Texas, and Washington) set records in 2014 for exports and creating export-related jobs. Just ask any chamber of commerce in these states what their view of China is and you will find they are highly complimentary of the contribution it is making to the creation of jobs in their states. Since 2000, China has invested tens of billions of dollars in the US, generating tens of thousands of jobs.

In 2015, 18 per cent of Chinese exports went to the US, which remains a very important partner for the growth of the Chinese economy. Chinese leaders realise this, and do not reciprocate in bashing the US for allegedly taking away Chinese jobs by doing business together. Campaign rhetoric aside, both countries know they need each other. As the largest holder of US Treasury Bills, China needs and wants the US to succeed economically. Rather than bashing China, US politicians would be well advised to forge an even stronger relationship with it.

Instead of following predictable and boring scripts, US politicians should turn the page on cold-war-style rhetoric and find ways to join hands with China to mutually benefit from each other’s comparative advantages.

It is also worth noting that China bashing actually makes little sense in terms of getting US presidential candidates elected. The top five US states exporting to China by dollar volume in 2014 (Washington, California, Texas, Illinois and South Carolina) between them account for nearly 50 per cent of the votes needed to win the presidency in the Electoral College (270 votes are required, and 134 votes are accounted for by just these five states).

Bashing China is actually less likely to get a candidate elected, because the workers in these states have the most to lose economically by curtailing America’s economic relationship with China, and they know it.

The fact is, a continued economic recovery in the US cannot be achieved by isolating China. Considering what can be achieved together, and what both countries stand to lose if they are pitted against each other, forming a Sino-American strategic alliance is critical to the future economic viability of both nations.

American politicians, and the American people, would be much better off recognising this, rather than succumbing to demagoguery and incendiary rhetoric aimed at creating divisiveness between China and the US.

Daniel Wagner is CEO of Country Risk Solutions and co-author of the forthcoming book, Gobal Risk, Agility and Decision Making

Market rout continues, Fed’s Yellen sticks to her guns — U.S. stocks down, Gold up

February 11, 2016

Federal Reserve Chair Janet Yellen returned to Capitol Hill on Thursday amid an ongoing meltdown in global equity markets and growing skepticism that the U.S. central bank can carry out its long-planned pivot to “normal” monetary policy.

U.S. Federal Reserve Board Chair Janet Yellen testifies at the House Financial Services Committee in Washington February 10, 2016. REUTERS/Gary Cameron

WASHINGTON: Federal Reserve Chair Janet Yellen returned to Capitol Hill on Thursday amid an ongoing meltdown in global equity markets and growing skepticism that the U.S. central bank can carry out its long-planned pivot to “normal” monetary policy.

Yellen repeated to the Senate Banking Committee the testimony she delivered on Wednesday to a House of Representatives committee, putting a brave face on the U.S. economic recovery while acknowledging that a weakened global economy and steep slide in U.S. equity markets is tightening financial conditions faster than the Fed wants.

Yellen warned on Wednesday that the rout, if proven to be “persistent,” could change the U.S. economic outlook – and by implication the Fed’s policy plans.

For the time being persistence seems just what investors have in mind. U.S. stock indexes all dropped more than one percent when they opened, while major European and Asian exchanges were off more than two percent overnight and into Thursday.

Investors in Fed Funds contracts meanwhile fully priced out the expectation of a Fed rate hike this year, pushing the interest rate expected in December below the effective rate calculated by the central bank.

In her prepared testimony, Yellen leaned heavily on continued job creation in the United States, rising wages, and an expectation that household spending would keep the economy afloat. But she also acknowledged that global and U.S. market conditions could upend that forecast.

Yellen is due to begin her testimony at 10 a.m. and will then take questions from senators.

(Reporting by Jason Lange; Editing by Paul Simao)

Standard & Poor’s downgrades Greece’s credit rating 1 notch further into junk territory

June 10, 2015


NEW YORK (AP) — Standard & Poor’s downgrades Greece’s credit rating 1 notch further into junk territory.


S&P just downgraded Greece.

“We have lowered our long-term sovereign credit rating on Greece to ‘CCC’ from ‘CCC+’ to reflect our opinion that in the absence of an agreement between Greece and its official creditors, the Greek government will likely default on its commercial debt within the next 12 months,” the credit rating agency warned.

This comes as little surprise for euro crisis watchers who’ve seen Greece hopelessly pull itself out of crushing debt as its economy suffers from a full-blown depression.

“As its liquidity position continues to deteriorate, Greece appears to be prioritizing other spending items over debt servicing,” S&P explained. “In our view, without a turnaround in the trajectory of nominal GDP and deep public-sector reform, Greece’s debt is unsustainable.”

S&P’s assessment is bleak and its outlook is officially “negative,” which means another rating downgrade could happen within a year.

But there is a bit of hope.

“The ratings could stabilize at the current level if we believe that a new financial support program will be agreed with policy conditions that satisfy both the political priorities in Greece and the creditor countries,” S&P said. “Such a scenario could contribute to promoting political stability, tax compliance, and a gradual economic recovery.”

Here’s the full announcement from S&P:

Greece Long-Term Rating Lowered One Notch To ‘CCC’; Outlook Negative


Greece delaying its payment to the International Monetary Fund (IMF) last
Friday, June 5, appears to demonstrate that the Greek government is
prioritizing pension and other domestic spending over its scheduled debt
service obligations.

We have lowered our long-term sovereign credit rating on Greece to ‘CCC’
from ‘CCC+’ to reflect our opinion that in the absence of an agreement
between Greece and its official creditors, the Greek government will
likely default on its commercial debt within the next 12 months.

The outlook is negative.


On June 10, 2015, Standard & Poor’s Ratings Services lowered its long-term
sovereign credit rating on the Hellenic Republic to ‘CCC’ from ‘CCC+’. The ‘C’
short-term rating is unchanged, and the outlook is negative.

As defined in EU CRA Regulation 1060/2009 (EU CRA Regulation), the ratings on
Greece are subject to certain publication restrictions set out in Art 8a of
the EU CRA Regulation, including publication in accordance with a
pre-established calendar (see “Calendar Of 2015 EMEA Sovereign, Regional, And
Local Government Rating Publication Dates: First-Quarter Update,” April 8,
2015). Under the EU CRA Regulation, deviations from the announced calendar are
allowed only in limited circumstances and must be accompanied by a detailed
explanation of the reasons for the deviation. In Greece’s case, the deviation
was prompted by the decision of the central government to delay making a
scheduled debt service payment to the IMF that was due on June 5, 2015.


As its liquidity position continues to deteriorate, Greece appears to be
prioritizing other spending items over debt servicing. In our view, without a
turnaround in the trajectory of nominal GDP and deep public-sector reform,
Greece’s debt is unsustainable. The downgrade reflects our view that in the
absence of an agreement with its official creditors, Greece will likely
default on its commercial debt within the next 12 months.

The European Central Bank (ECB) is currently providing financing to Greece’s
banks and economy at a level exceeding 60% of GDP. Continuous withdrawals of
deposits from Greek banks increase the possibility that the government could
impose capital controls to staunch further deposit outflows and issue a
parallel currency alongside the euro. The uncertainty around Greece’s
relations with its creditors and its broader political stability is weighing
on the economy; tax payment arrears rose materially in May, while the
government appears to be conserving cash by delaying payments to suppliers. A
weakening underlying fiscal position raises questions about the realism of any
agreement with Greece’s creditors on fiscal targets, as projections for tax
receipts and real and nominal GDP appear speculative. Even if an agreement
with official creditors were to be reached over the next fortnight, we do not
expect that such an agreement would cover Greece’s debt service requirements
beyond September.


The outlook is negative, given the risk of a further worsening of liquidity
for the sovereign, its banks, and the economy. Our understanding is that the
Greek government has decided to consolidate this month’s €1.6 billion in debt
servicing owed to the IMF, an official creditor, into a single payment on June
30. If an agreement were reached between Greece and its official creditors
over the next week, we would still expect this to involve a temporary
three-month liquidity infusion. We do not consider it likely that there would
be any official debt relief or more substantial financing agreed to in the
next few days. In our view, this implies that confidence and investment
activity will remain weak and growth prospects muted.

The negative outlook means that we could lower the rating again within a year
if we perceive that the likelihood of a distressed exchange of Greece’s
commercial debt will increase further. This could be the case if, for example,
we took the view that further official creditor disbursements would remain
elusive, resulting in the Greek government’s inability to honor all its
financial obligations in full and in a timely manner.

The ratings could stabilize at the current level if we believe that a new
financial support program will be agreed with policy conditions that satisfy
both the political priorities in Greece and the creditor countries. Such a
scenario could contribute to promoting political stability, tax compliance,
and a gradual economic recovery.

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