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Sunday, 24 June, 2012
Euro’s big four agree growth boost, split on bonds Page 02
Wall Street claws back after sharp decline, banks lead g
Stocks ended higher on Friday, led by gains in bank shares, as the S&P 500 index bounced back from its second-worst decline of the year NEW YORK AGENCIES
The gains were not enough to push stocks into positive territory for the week, however. Bank shares, among the worst hit on Thursday, rose after Moody's Investors Service announced credit downgrades for 15 of the world's largest banks. The downgrades had been expected, but some were less severe than feared, which helped boost those shares on Friday. Dow component JPMorgan Chase & Co (JPM.N) shares rose 1.4 percent to $35.99 following a 2.6 percent drop Thursday. The KBW Bank index .BKX gained 1.4 percent. "It was such a hard selloff yesterday, a relentless selloff with a lot of downside volume at the close. Coming out of that, you usually get at least some kind of a rebound," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. "As for Moody's downgrade, it was pretty much expected. The focus continues to be Europe at this point." Boosting market sentiment, leaders of Germany, France, Italy and Spain agreed on a 130 billion euros ($156 billion) package to revive growth in the region. The Dow Jones industrial average .DJI was up 67.21 points, or 0.53 percent, at 12,640.78. The Standard & Poor's 500 Index .SPX was up 9.51 points, or 0.72 percent, at 1,335.02. The Nasdaq Composite Index .IXIC was up 33.33 points, or 1.17 percent, at 2,892.42. The benchmark S&P index had slipped 2.2 percent on Thursday, its biggest drop since June 1, on signs of a global slowdown in manufacturing growth. For the week, the Dow lost 0.9 percent and the S&P 500 fell 0.6 percent. But the Nasdaq was up 0.7 percent. Facebook shares (FB.O), which Russell named in its preliminary list of additions to the Russell 3000 index .RUI, have rallied more than 21 percent in the past two weeks. The shares were up 3.8 percent to $33.05 on Friday but were still off from the $38 initial public offering price. Darden Restaurants Inc (DRI.N) fell 0.7 percent to $50.04 after the operator of Olive Garden and Red Lobster restaurant chains reported sales that missed estimates and forecast weaker-than-expected profits. Ryder Systems Inc (R.N) slumped 13 percent to $35.44 after the transportation and logistics company cut its quarterly earnings forecast, citing lower demand at its commercial rental business.
Pakistan’s list of things affected by energy crisis # 15729: GSP facility We might not be able to boost exports through GSP facility due to the much dreaded energy predicament which would also put our access to the EU market in a bit of a hole. With an export share of 1.48pc to EU markets, Pakistan stands 0.48pc more than the limit for GSP facility eligibility. So yes, both energy shortage and mathematical shortcomings did us in… ISLAMABAD
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HE deteriorating energy crises of the country may hit a stumbling block in the way of obtaining desired objectives through Generalised System of Preferences (GSP) Plus, which is valid from January 2014. An official of the Ministry of Commerce told Online that the country’s export is expected to enhance by more than $ 1 billion per annum to the European Union under the concessionary tariff lines will receive duty free treatment from 2014 onwards. “If the government would not able to get ret form power outages till 2014 then the EU facility will not help the country at large to get its desire objectives of enhancing export,” the official said, adding that under the upcoming GSP plus scheme Pakistan will export more than 6,000 tariff lines duty free to the European Union market and currently also exporting the same tariff lines but with duties.
According to the official, less than one per cent exports to European market was a central condition to availing the current GSP plus facility to the developing countries whereas for the next GSP Plus the European Parliament (EP) has voted to approve draft legislation under which Pakistan will be join-
ing the countries that will be entitled to receive duty free treatment from 2014. The scheme will replace the current GSP scheme from January 2014, under which some of the existing criteria for GSP Plus beneficiaries have also been changed. This will make Pakistan and a few other countries eligible to apply
NEWTON’S THIRD LAW OF COMMOTION
Every absurd govt action has an equal and opposite overreaction RAWALPINDI ONLINE
The traders and business community on Saturday observed a complete shutter down strike in Punjab including Rawalpindi against continuous loadshedding. The markets of the city and Cantt area remained close during protest, while in some areas traders and general public showed aggressive reaction against loadshedding, the demonstrators burnt the tyres and blocked the roads and chanted slogans against government, later police controlled the situation and reopened the roads. The leaders of business community said that all traders expressed unity for making the protest successful and they thank their community for cooperation. A complete shutter down strike was observed in all the main markets of the city including Murree Road, Commercial market, Raja Bazaar, Saddar Bazaar, Pirwadai area, Tench Bhatta. The medical stores were also closed due to
which public and patients who were in hospitals faced severe difficulty in purchasing medicines, while on other hand people of the locality also suffered from transporters’ strike. The vice president All Pakistan Traders Union Shahid Paracha, Acting president Traders Union Rawalpindi, Chairman Drugs and Chemists Association Arshad Awan, Vice President Rawalpindi Chamber of Commerce and Industries Muhammad Iqbal visited various markets during protest and the traders assured their future cooperation they announced that they would besiege the presidency if government does not fulfill their demands. They claimed that some of government’s representatives misled traders community as posted banners against traders unions but the community rejected them and joined in the strike. The government elected Raja Parvaiz Ashraf as prime minister who is corrupt and was involved in rental power case, our country has enough resources but government is not interested to reduce power crises, they claimed. The criticized the government and suggested government to utilize the services of scientists and resources to overcome the current scenario.
LSE takes time off bull-bear brawls Organises financial session for Global Institute LAHORE APP
The Lahore Stock Exchange here Saturday held the first session of Campus Outreach Programme for students of MBA and M.Phil from Global Institute Lahore, where LSE's officials interacted with the students. LSE Investor Relation Department's Ms. Hifsa Siddiqi explained to participants the broad features of Pakistan's economic and financial system, features and charac-
for GSP Plus, provided they fulfill the other criteria such as the commitment to effectively implement 7 international conventions relating to good governance, human rights and sustainable development etc. In case Pakistan is able to meet all the criteria for GSP Plus, its exports to the EU under the concessionary tariff lines will receive duty free treatment from 2014 onwards. Currently, Pakistan’s exports share in European Markets is 1.48 per cent which restricts the country to avail the current GSP plus facility. But for the next GSP plus scheme EU had already enhanced its limit for developing countries. Pakistan was excluded from the current GSP plus scheme since 2006 because of country exports was more than one per cent to EU and reluctance in implementation of the UN conventions. European Union has 27 member countries in which only 11 countries have been availing the facility of current GSP plus facility so far.
ONLINE
teristics of different financial markets, regulatory framework, market indicators, investment products, financial services and opportunities available to investors in Pakistan and roles and responsibilities being performed by various financial institutions. They were also given an insight into various investment avenues available in the market and their role in the economic system of the country. She also spoke on various operational matters of the exchange including listings, trading, corporate governance, sen-
sitivity of stock market and investor protection. She briefed and explained the participants that the financial decision making starts from the teenage, therefore, the modification of spending habits of youngsters in order to promote the habits of savings and responsible financial behavior is the need of the hour. She also focused on the classification and functions of the stock market, market indices, historical background and stakeholders of the capital market. Campus Outreach Programme
(COP) under the broader Financial Literacy Initiative has been launched by the LSE in collaboration with South Asian Federation of Exchange (SAFE). The basic goal of the FLI-COP is to enhance youngsters' understanding of financial products and concepts, their ability and confidence to appreciate financial risks and opportunities to make informed choices, to know where to go for help, and to prepare today's youth for better understanding of the economic/financial affairs affecting them.
Our neighbours have ‘that’ sinking feeling g
Indian govt to announce certain measures to improve sinking economy NEW DELHI ONLINE
Expressing concern over signs of weakness in the country economy, Indian finance minister Pranab Mukherjee on Saturday said the government is set to announce certain measures on Monday to improve market conditions in consultations with the Reserve Bank of India. He said the department of economic affairs had consulted with RBI governor D Subbarao about the measures to be taken in this regard. "We will be able to take certain measures to be announced on Monday which will improve the market condition," Pranab Mukherjee said. "GDP is at 6.5. There is inflationary pressure, there is depreciation of rupee. There are no doubt signs of weakness in Indian economy," the minister said, adding, "I am concerned but not depressed".
Oil, US stocks bounce back from losses NEW YORK AGENCIES
Oil bounced from 18-month lows on F riday as investors shifted their focus to efforts to resolve Europe's debt crisis, while U.S. stocks rebounded from the second-worst decline of the year. The euro firmed against the yen after the European Central Bank said it would accept lower-quality assets as collateral in a move to aid the region's shaky banks.
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Sunday, 24 June, 2012
Euro’s big four agree growth boost, split on bonds German Chancellor Angela Merkel resisted pressure for common euro zone bonds or a more flexible use of Europe's rescue funds but agreed with leaders of France, Italy and Spain on a 130 billion euros ($156 billion) package to revive growth g
BRuSSELS AGENCIES
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FTER four-way talks in Rome's Renaissance Villa Madama, Italian Prime Minister Mario Monti said the European Union should adopt pro-growth measures worth about 1 percent of the region's gross domestic product at a crucial summit next week. But the three others made no perceptible progress in pushing Merkel, who leads Europe's most powerful economy and the main contributor to its rescue funds, towards mutualising Europe's debts or using existing bailout resources more flexibly. "Growth can only have solid roots if there is fiscal discipline, but fiscal discipline can be maintained only if there is growth and job creation," Monti told a joint news conference after talks that lasted just an hour and 40 minutes. The measures, already in the works in Brussels, include increasing the European Investment Bank's capital, redirecting unspent EU regional aid funds and launching project bonds to co-finance major public investment programs. No new steps were announced on Friday. The four leaders did agree to move ahead on creating a tax on financial transactions even though not all EU members will be on board. About a dozen EU states support setting up the socalled "Tobin tax", more than the nine required to go ahead as a group within the EU, a French presidential source said. Merkel made no mention, however, of any move towards mutualising pasteuro zone debt or new borrowing. French President Francois Hollande voiced impatience with Berlin's reluctance, saying it should not take 10 years to create jointly underwritten euro bonds. He said greater solidarity was needed among member states before they abandon more sovereignty to EU institutions. "I consider euro bonds to be an option ... but not in 10 years," Hollande said in a direct challenge to Merkel. "There can be no transfer of sovereignty if there is not an improvement in solidarity." The German position essentially amounts to the reverse. Merkel argues that members of the 17-nation currency union must transfer control over national budget and economic policies to Brussels before Germany would consider common debt issuance. "Liability and control belong together," she said, citing as an example that EU treaties ruled out letting euro zone rescue funds lend directly to Spanish banks because only the Spanish state could enforce conditions on the banks. The contrasting comments left much work for diplomats to produce a convincing blueprint for closer fiscal and banking union at a full EU summit next Thursday and Friday, which Monti called a defining moment in the crisis. That plan is expected to include the first steps towards a banking union, starting by putting the European Central Bank in charge of supervising large cross-border euro zone banks. Without progress on bank sector integration or other financial stability measures, France is not
Business 02 Booming Iceland repays IMF early, again WASHINGTON AGENCIES
Iceland, whose economy has recovered rapidly following the 2008 collapse of its banking sector, on Friday repaid $483.7 million in loans to the International Monetary Fund, the lender said. The early repayment, which follows another one of more than $900 million in March, is a symbolic step for the country of just 320,000 people as it works its way out of a financial meltdown that ravaged the economy.
USAID starts enterprise development training SWAT ONLINE
The United States Agency for International Development (USAID) in collaboration with a local NGO, NRSP, has started Enterprise Development Training of Trainers Program for 20 staff members in Swat.
Greek telecom OTE to sell Bulgaria's Globul: report SOFIA AGENCIES
ready to commit to ratifying an EU budget discipline pact agreed earlier this year, French diplomatic sources said. SPANISH BAILOUT?: Dangerously high Spanish borrowing costs eased a little on market hopes for policy initiatives at the Brussels summit. The European Central Bank took a supportive step on Friday, relaxing its collateral rules to let financial institutions pledge a wider range of assets in exchange for cash. The move helps counter the impact of credit rating downgrades. If it falls short, Madrid may be pushed closer to eventually needing a sovereign bailout. Without a convincing result, "there would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries", Monti said in an interview with several European newspapers ahead of the mini-summit. "A large part of Europe would find itself having to continue to put up with very high interest rates that would then impact on the states and also indirectly on firms. This is the direct opposite of what is needed for economic growth," he said. The technocratic Italian premier, who needs a success to shore up his weakening domestic authority, sounded slightly more optimistic after the talks, saying next week's summit should "put at ease the financial markets' expectations", switching to English to add: "The euro is here to stay and we all mean it." Spanish Prime Minister Mariano Rajoy, on the brink of requesting up to 100 billion euros in euro zone rescue funds to recapitalize struggling banks, said the four had agreed "to use any necessary mechanism to obtain financial stability in the euro zone". An audit released on Thursday found Spanish banks would need up to 62 billion euros in extra capital to weather adverse circumstances. After a meeting of euro zone finance ministers late on Thursday, IMF chief Christine Lagarde demanded rapid progress on a number of other fronts, raising the heat on Merkel. Lagarde said a banking union
was a top priority, alongside fiscal union and the principle of mutualising debt. Germany refuses to countenance common bond issuance and will not soften until economic union is complete. It is also opposed to the early introduction of a bloc-wide bank deposit guarantee scheme. HIGH STAKES FOR MONTI: While Spain's needs are most pressing - its medium term borrowing costs hit a euro era high at auction on Thursday - the political stakes may be higher for Italy's Monti. With his popularity sinking, the parties that back Monti in parliament are increasingly reluctant to support his reform proposals at home, but demand he get results in the European arena to ease the pressure on Italy's recession-bound economy. "Monti knows he has to get his ducks in a row on the European side so he can tell the parties that he's sorted that part out, and now it's their turn to help sort out Italy," said James Walston, politics professor at Rome's American University. Though hugely popular when he came to office in November, Monti's approval rating has halved as tax hikes and pension cuts exacerbated an already severe recession, and his labor reform estranged both unions and the business establishment. But for the markets, Monti remains the man most likely to tackle Italy's debt mountain and uncompetitiveness. If he comes under serious threat, Italy could quickly supplant Spain as the euro zone's main flashpoint. Monti's hand was weakened by comments on Wednesday by his predecessor, Silvio Berlusconi, who said the prospect of Italy quitting the euro was "not blasphemy" and that he failed to understand why it would hurt Italy's economy. Berlusconi's People of Freedom party is one of the two main groups that guarantee Monti a majority in parliament. Monti proposed on the sidelines of this week's G20 summit using the euro zone's rescue funds to buy the bonds of Spain and Italy to bring down their borrowing costs.
Greek telecoms operator OTE, controlled by Germany's Deutsche Telekom, is looking to sell its Bulgarian unit Globul to service its debts, a newspaper report said Saturday. The possible sale is "part of a strategy for refinancing 3.4 billion euros ($4.3 billion) of debt maturing over the next two years," OTE's press office told the Capital financial weekly.
France eyes more than just growth deal ROME AGENCIES
French President Francois Hollande wants to see a European summit next week agree on more than just a growth package before he will agree to ratify the bloc's fiscal pact, a French diplomatic source said. Hollande, who won backing from the leaders of Germany, Italy and Spain in Rome on Friday for his growth proposals, also wants an EU wide agreement on progress towards bank sector integration and other financial stability measures, the source said.
Facebook expands ad business to Zynga's website SAN FRANCISCO AGENCIES
Facebook Inc has begun showing ads on Zynga Inc's website, the first time the company has distributed ads beyond the borders of its own website and raising the possibility that Facebook could eventually launch an online advertising network.
Emerging markets’ Europe problem DOMINIquE MOISI From Hong Kong to São Paulo, and all points between, one word dominates all others among big investors: Greece. Will the Greeks remain in the eurozone? What will happen to the European Union and the global economy if they do not? Until recently, Europe was a sort of mirror that confirmed for the major emerging economies the spectacular nature of their own success. They could contrast their high growth rates with Europe’s high levels of debt. They could oppose their “positive energy” with the pessimism dominating European minds. They were only too willing to advise Europe to work harder and spend less, as legitimate pride mingled with an understandable desire to settle historical scores and attenuate their legacies of colonial submission and humiliation. But, today, emerging countries are growing very concerned with what they rightly perceive as the serious risks to their own economies implied by exces-
sive weakness in Europe, which remains the world’s trade leader. Moreover, Europe’s malaise threatens many of these countries’ political stability as well, given the close connection – especially in China – between the legitimacy of existing arrangements and the continuation of rapid economic growth. If the crisis in Europe were to cause annual GDP growth to fall below 7% in China, 5% in India, and 3% in Brazil, these countries’ most vulnerable citizens would be hardest hit. They were never part of the “culture of hope,” based largely on material success, that played a key role in these countries’ success. If social inequalities were to reach new heights, their frustration and resentment could manifest itself fully. In that case, Europe could suddenly become a very different mirror for emerging countries, revealing, if not accentuating, their own structural weaknesses. And that is why, just as Europe must save the Greek economy or Spain’s banks at all costs, emerging countries must do whatever they can to contribute
to the rescue of the European economy. As Europe has learned, the longer one waits, the higher the cost – and the lower the chance of success. Unfortunately, a group of countries that are united above all by a common denial of their global responsibilities is unlikely to reach such a conclusion. Indeed, most emerging countries would balk at the idea of coming to Europe’s financial rescue for several reasons. First, there is no such thing as a bloc of emerging countries. They are not united by a common vision of their future, or by a common political ideal, such as democracy in the Western world. Whatever the limits or contradictions of shared values, it would be naive to dismiss their importance. Europe and the United States will remain allies even if Barack Obama, like Nicolas Sarkozy in France, turns out to be a one-term president. Second, emerging countries are more Europe’s rivals than its partners. They are united only by their shared suspicion of China. In such a context, a
common long-term strategy is extremely difficult to conceive. The Chinese may proclaim that they tend to think over a “longer” term than Americans, who think more “broadly,” and Europeans, who think more “deeply,” as a well-known Chinese international relations expert has put it. But, when it comes to the European financial crisis, China’s behavior seems to be determined by purely short-term tactical considerations, even as Chinese investments in Europe tripled in 2011. To buy half of the Piraeus harbor at a knockdown price may seem more advantageous than investing in the long-term consolidation of the Greek economy and its finances, but is that really the case? Third, emerging countries’ shortterm opportunism is based on a double distrust: towards Europe, of course, but also, paradoxically, towards themselves. That is, they lack confidence in their ability to do their part to save the sick man of the global economy that Europe has become. To be sure, this runs counter to the
triumphalism emanating from Asia, in particular.Kishore Mahbubani, a leading foreign-policy thinker from Singapore, recently proclaimed in Vienna, at a conference organized by my institute, that the next millennium would be Asian. And yet one senses among elites from emerging countries something akin to existential doubt, which the European crisis has served to reinforce. This insecurity manifests itself in many ways: from the accumulation of liquid wealth as insurance against foreign and domestic uncertainties to the choice of many, if not most, to educate their children abroad. In fact, the sick man – undeniably European, if not Western – could reveal himself to be more resilient, owing to the strength of his own natural defenses: democracy and the rule of law. That is why the current European crisis may well prove to be a crucial test for emerging countries that are more dynamic than Europe economically, but ultimately more fragile politically. Courtesy: Project Syndicate