The Star Online: Business
The Star Online: Business |
- EU budget summit ends without deal, retry in 2013
- S&P downgrades maverick Hungary on weak growth
- Wal-Mart India unit suspends CFO, others pending probe
| EU budget summit ends without deal, retry in 2013 Posted: 23 Nov 2012 07:15 PM PST BRUSSELS: European Union leaders failed to reach agreement on Friday on a new seven-year budget for their troubled bloc, calling off talks in less than two days after most countries balked at far deeper spending cuts demanded by Britain and its allies. European Council President Herman Van Rompuy said they decided to end a special summit on the 2014-2020 EU budget, worth about 1 trillion euros, and would try again early next year rather than continue negotiating into the weekend. "The bilateral talks yesterday and the constructive discussion within the European Council show a sufficient degree of potential convergence to make an agreement possible in the beginning of next year. We should be able to bridge existing divergences," Van Rompuy told a news conference. "My feeling is that we can go further (in cuts) but it has to be balanced and well prepared, not in the mood of improvisation, because we are touching on jobs, we are touching upon sensitive issues," he said. The leaders mandated Van Rompuy and European Commission President Jose Manuel Barroso to try to close the gaps between member states in the coming weeks. Officials said the most likely date for resuming the talks was February. Chancellor Angela Merkel of Germany, the biggest contributor to EU coffers, said she had not expected a deal at the first attempt and played down the consequences of failure, saying there was a real potential for agreement at the start of 2013. "I have always said that it wouldn't be dramatic if today were only the first step," she told reporters. The last time the EU held its marathon budget negotiations in 2005, it took six months and an acrimonious failed summit at which Britain wielded its veto before a deal was finally found. There was no such drama on Friday. But EU officials warned that failure would divert time and resources away from efforts to shore up the faltering euro zone, and reinforce an impression among the bloc's 500 million citizens and among investors that EU leaders suffer from collective indecision. Financial markets were unmoved by the breakdown, focusing more on growing prospects of a deal next Monday to release urgently needed aid to ailing euro zone member Greece. If the budget impasse drags on, it could delay programming of hundreds of billions of euros in investments in transport and energy in poorer ex-communist eastern members of the 27-nation bloc, meant to help them catch up with the richer west. "PARALLEL UNIVERSE" British Prime Minister David Cameron said a compromise plan tabled by Van Rompuy that scaled back cuts in farm subsidies and regional aid to placate France and Poland was "just not good enough", given the austerity that governments were implementing at home. He said other northern EU countries that contribute more to the budget than they get back felt the same way. Cameron said a deal was still possible on the EU budget but the European institutions were "living in a parallel universe" and must adjust to the real world of budget cuts. Lithuanian President Dalia Grybauskaite said Germany, Britain, Sweden and the Netherlands, all net contributors, demanded further cuts of at least 30 billion euros on top of the 80 billion already trimmed from the European Commission's original spending blueprint. Playing to Eurosceptical images of Brussels "fat cats", Cameron targeted the roughly 60 billion euros earmarked for EU salaries and benefits in 2014-20 for deep cuts, insisting that European officials endure similar reductions in numbers and pay as national officials in some countries. He handed Van Rompuy a paper setting out ways to trim the bloc's administration bill by 10 percent, including raising the retirement age for most officials from 63 to 68, and capping pensions at 60 percent of final salary instead of 70 percent. Van Rompuy ignored them in his draft compromise plan but appeared to open the door at his news conference to taking on board some of the ideas, saying they required careful preparation because they touched on personnel issues. BITTER DEBATE Negotiations on the EU's long-term budgets are always rancorous affairs, but the depth of Europe's present debt crisis has made the inevitable arguments over farm subsidies and rebates all the more bitter. With national budgets being cut across much of the bloc, the EU is contemplating the first real terms decline in spending. "We can't increase spending in the EU when we are cutting at home," Cameron said. More than two-thirds of the EU's roughly 130 billion euro annual spending is paid out in subsidies to farmers and investment in motorways, bridges and other public works in poorer southern and eastern European countries. The current seven-year budget worth 1.034 trillion euros in EU financial commitments for the period 2007-2013 was agreed in 2005, at the height of a credit-fuelled boom in public spending. The Commission initially demanded a roughly 5 percent increase in spending for 2014-2020, equal to 1.091 trillion euros. But this has already been reduced to 1.01 trillion euros under Van Rompuy's compromise, and many net budget contributors insist the total must dip below the trillion euro mark. Previous deals have been built around Franco-German pacts to defend generous EU farm subsidies against attack from Britain and other northern states. France receives more from the Common Agricultural Policy than any other country, while Germany is also a major beneficiary. But the need for overall budget restraint now appears to be a higher priority for Germany than safeguarding farm spending, prompting France to ally itself with Poland and former-communist eastern European states to jointly oppose cuts to the two biggest areas of EU spending. French President Francois Hollande pressed for proposed cuts in farm subsidies to be restored. One area where Britain stood alone was in its bid to protect its cherished rebate from any cuts. The annual refund worth 3.5 billion euros last year was first won by Margaret Thatcher in 1984, due to Britain's low lower share of EU farm subsidies. Paris, Berlin and others want to reform the complex system of rebates that also sees linked payments made to Germany, the Netherlands and Sweden. Hollande also said Paris would keep pushing for a change in the way rebates are calculated so that all countries contributed to their payment. But EU officials accept that Cameron cannot win the support of Britain's euro-skeptic parliament for any deal that scraps the rebate. - Reuters |
| S&P downgrades maverick Hungary on weak growth Posted: 23 Nov 2012 07:13 PM PST BUDAPEST: Standard & Poor's on Friday cut Hungary's long-term credit rating, already in junk territory, by one notch to BB, saying its government's unpredictable policies could hurt medium-term growth. The move came almost a year after S&P slashed Hungary to below investment grade on similar grounds and could hit the forint currency and Hungarian bonds when markets reopen on Monday, analysts said. Further downgrades by other agencies are also likely as Hungary's prospects of clinching a financing deal with the International Monetary Fund and the European Union have all but vanished after a year of stop-go talks. Its growth outlook has also been dimmed by a wave of tax hikes and fiscal cuts. "The downgrade reflects our opinion that the government's unorthodox policies, including exceptional measures applied to the financial sector, could erode the country's medium-term growth potential," S&P said in a statement. "This could eventually undermine the government's efforts to sustainably reduce general government debt." Hungary's Economy Ministry reacted to the move with fury, saying S&P should "downgrade itself", arguing that its decision did not properly reflect the economy's fundamentals. The three leading rating agencies have classified Hungary as "junk" for almost a year and Fitch has already said it plans to review Hungary's rating in the coming weeks. "We can face a rating downgrade wave. The chance has increased that the forint will weaken to 290-295 ... while the government will continue to float the IMF deal," said David Nemeth, an analyst at ING Bank in Budapest. Prime Minister Viktor Orban's government has repeatedly clashed with Brussels over his go-it-alone approach to cutting the deficit, which has tried to avoid outright austerity that might hurt public support. Last month, his government again opted for tax hikes - on banks, foreign energy firms and public utilities - in a move that ran counter to IMF and EU advice. In the past few weeks, Budapest has also chosen to plug a hole in its budget by extending a windfall tax on banks beyond 2013 and by announcing more new taxes - again, precisely the kind of measures its prospective lenders have opposed. Orban faces elections in 2014, but analysts say the prospect of an IMF deal, which could restore his tattered policy credibility, is slight. The economy is mired in recession and Orban seem only ready to agree to a deal on his own terms. S&P said it expected the government's fiscal targets to be met in the short term but said keeping the budget deficit under control could become increasingly difficult if growth remained subdued. Hungary's economy is expected to contract by more than 1 percent this year, and some analysts are predicting a recession next year. S&P said the extension of taxes on the financial sector - which has been paying Europe's highest bank tax since 2010 - may further reduce banks' willingness to lend. With its rating at BB and a stable outlook, S&P now has Hungary in the same category as Turkey, even though the fundamentals of the two economies are different in many ways. But there is one similarity: Just like Turkey a few years ago, Hungary has been trying to buy time from investors by holding out the promise of an IMF deal. "It seems that S&P was just as bored as the market in waiting a year for an IMF deal and so have downgraded," said Peter Attard Montalto at Nomura. RATE CUT MAY YET COME Hungary has announced three fiscal adjustment packages in the past few weeks to keep the budget deficit under the EU's ceiling of 3 percent of economic output to try to avoid losing millions of euros in EU development funds. Its current account has been in surplus, but the domestic economy is in bad shape, with investment falling. The Economy Ministry said the S&P downgrade should not be taken seriously. "S&P tries to put the Hungarian economy into a category where there is no (other) country that has a budget deficit below 3 percent (of GDP), state debt on a declining course and a current account posting a sustained surplus," it said. The forint traded at 282.50 against the euro at 1800 GMT, 0.4 percent weaker than it was before the downgrade, but it could fall further on Monday, when yields on longer maturity bonds could also rise 20-30 basis points. The forint and bonds have been firming in recent months, supported by hopes of an IMF deal and the lure of high yields on global markets. Hungary's benchmark rate is at 6.25 percent, still offering a lucrative premium to investors. "The forint has traded at the strongest end of its recent ranges in the past days. It's possible that it weakens now close to the weak end, beyond 285 of the euro on Monday," Nemeth said. He said the central bank, which has been cutting interest rates steadily in the past three months to aid the economy, could cut further on Tuesday when it meets to decide on rates, provided the forint's falls are limited. "I think the central bank will cut rates (despite the downgrade) if the forint stays firmer than 290, but they may halt (rate easing) if it weakens beyond 290," he said. |
| Wal-Mart India unit suspends CFO, others pending probe Posted: 23 Nov 2012 07:09 PM PST MUMBAI: The Indian joint venture of Wal-Mart Stores Inc Wal-Mart, the world's largest retailer, said last week it has opened internal inquiries or investigations into bribery allegations in a number of countries including Brazil, China and India, which follows an earlier probe in Mexico. "The suspension is a routine global practice followed in such investigations," an official at the Indian unit said, declining to be named. "We cannot carry out a fair investigation when the people we are investigating are in office. What we must not forget is they are innocent until proven guilty," the person said. Separately, a spokeswoman for the joint venture confirmed the suspensions and said the venture was "committed to conducting a complete and thorough investigation." Wal-Mart's partner in the venture is Bharti Enterprises. Wal-Mart, the world's largest retailer, declined to say whether similar suspensions could be carried out elsewhere as its investigation proceeds. "We are a committed to conducting a complete and thorough investigation," Wal-Mart said in a statement. "It would be inappropriate for us to comment further until we have finished the investigation." If any alleged improper conduct occurred, then the suspensions by Wal-Mart "will serve it well in the eyes of enforcement agencies" such as the Department of Justice and the Securities and Exchange Commission, in deciding how to resolve the broader case, said Mike Koehler, assistant professor of law at Southern Illinois University School of Law, who also runs the FCPA Professor blog, a forum focused on the Foreign Corrupt Practices Act. "Suspensions are common in situations like this. Companies that are under FCPA scrutiny want to demonstrate to enforcement agencies that upon learning of improper conduct, they took effective remedial measures," said Koehler. "Part of doing that is to isolate current employees from their positions, so that any improper conduct does not continue." Indian authorities are also investigating claims that Wal-Mart violated foreign exchange rules when it invested $100 million in a domestic unit owned by its wholesale joint-venture partner. Indian opposition parties and allies within the Congress party-led coalition government in New Delhi are opposed to allowing global giants like Wal-Mart into the retail sector, saying to do so would drive small traders out of business. After several delays, the government in September finally allowed foreign direct investment in the sector to revive stalled reforms and help halt a slide in economic growth. On Thursday, when the Indian parliament opened for its winter session, opposition politicians demanded a debate and vote on the policy decision and have threatened to halt parliamentary proceedings. - Reuters |
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