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EU President Herman Van Rompuy said that if the worst of the debt crisis appeared over, leaders were still meeting against a backdrop of “social distress”.
It is not a choice between austerity and growth, Van Rompuy said--the EU has to make the grade on all fronts.
“In the short-term, we cannot turn a blind eye to the social emergency in some of our countries,” he said, highlighting the danger of soaring youth unemployment, which now runs at more than 50 percent in Greece and Spain.
One EU official said the vote outcome in “Italy has made a lot of people think”.
The problem, he added, was that governments still need to balance public finances after years of overspending, but austerity and belt-tightening cannot be the only response.
“You need to implement these plans carefully and with flexibility, otherwise there is no growth,” the official said. “If there is no growth for 10 years, then you can’t pay back your debt ... There is not much room for maneuver.”
A draft of the summit conclusions obtained by AFP says that given the currently “unacceptably high levels of unemployment”--expected to hit an unprecedented high of around 12 percent this year--it is critical to support growth “as a matter of priority”.
The key to stabilizing public finances must be “growth-friendly fiscal consolidation”, it adds.
Another EU official said this language offers the possibility that targets can be eased or adjusted, with leaders trying to nail down “what growth-friendly fiscal consolidation really means” in practice.
The issue is crucial for France after President Francois Hollande recognized he could not cut its public deficit to the EU limit of 3.0 percent of gross domestic product this year, coming in instead at 3.7 percent as a weak economy exacts its toll.
Failing to meet the target leaves France needing another year of grace from Brussels, an extension it seems likely to get.
But German Finance Minister Wolfgang Schaeuble made the case again Wednesday for sticking to austerity first.
“Growth and (budgetary) consolidation are not mutually exclusive but rather they reinforce each other,” Schaeuble said. “The confidence that solid state finances brings is the precondition for sustainable growth.”
Highlighting the point and the sharp difference with France, the German government approved a 2014 budget based on the lowest headline deficit for some 40 years.
During their two-day talks, the 27 EU leaders were expected to discuss financially beleaguered Cyprus, taking the opportunity to meet its newly-elected president, but are not expected to make any decisions on a planned debt bailout.
That issue was expected to be covered by a separate eurozone finance ministers meeting late Friday after the summit closes.
Italy’s credit rating downgrade was just the latest reason not to invest in the euro, which looks certain to head lower against the dollar, Arab News wrote.
Friday’s one-notch rating cut to BBB-plus by Fitch reflected the uncertainty that followed Italy’s inconclusive election last month and was yet another reminder that the eurozone crisis is far from over.
The fact that Fitch left Italy’s rating on negative outlook raises the risk that its next move will be a further downgrade. That is hardly going to set the pulses racing of potential investors in the euro, which fell immediately after the cut and held at around $1.30 on Monday.
The single currency had already fallen against the dollar after Friday’s US non-farm payroll data showed 236,000 jobs were created in February and that the unemployment rate hit a four-year low of 7.7 percent. This forecast-beating performance contrasts starkly with the picture in the austerity-mired eurozone, where the jobless rate rose to 11.9 percent in January from December’s 11.8 percent,
While the data from the EU’s statistics office showed unemployment levels stayed high in the so-called periphery economies (Spain 26.2 percent, Portugal 17.6 percent), the malaise goes wider. France’s jobless rate rose to 10.6 percent in the last three months of 2012, its highest since the second quarter of 1999.
If that were not enough, a natural source of demand for euros may be slowing. Signs of a falling pace in the expansion of Asian central banks’ foreign exchange reserves should mean they have less need to buy euros to ensure holdings are benchmark diversified.
Hong Kong’s official foreign currency reserve assets stood at $304.8 billion at end-February, the Hong Kong Monetary Authority said on Thursday, up a mere 0.03 percent from $304.7 billion at the end of January.
Its reserves rose 1.2 percent and 3.96 percent in January and December respectively.
Taiwan’s foreign exchange reserves fell 0.6 percent at end-February to $404.08 billion from $406.557 billion at end-January.
Not good news for banks’ sovereign client sales desks or for the euro. Crisis-wracked Greece is making “significant progress” in its economic reform program but some issues nonetheless remain outstanding, the European Central Bank said on Thursday.
Speaking for the ‘troika’ of international auditors that also includes the European Commission and International Monetary Fund, the ECB said the inspectors would take a “short break” and return to Athens in early April.
“As additional technical work will be necessary to settle these issues, the mission will take a short break to allow this work to be completed,” the ECB said in its statement. The troika has been conducting a regular audit of Greece’s austerity reforms since the beginning of March.
Egyptian Measures to Deal With Fuel Crisis
Egypt is planning a raft of measures to deal with a fuel crisis in the country.
A number of measures aimed at resolving the recent diesel shortage crisis are in the pipeline, said Hossam Qassem, the official in charge of the fuel dossier for Egypt’s presidency, to state-owned news agency MENA.
These measures include the formation of high committees for fuel in Egypt’s governorates to determine local fuel needs and ensure the distribution of the required quantities.
In addition, the presidency plans to establish committees in the warehouses, members of which would include officials of the supply ministry and members of civil society, to monitor distribution operations and intensify daily efforts to halt smuggling, according to Qassem, who made the statements during a visit to the governorate of Fayoum, south of Cairo.
Smuggling of subsidized fuel is rampant in Egypt, as heavy government subsidies have fostered the rise of a lucrative black market. Diesel subsidies alone account for some LE35.7 billion (roughly $5.5 billion) of the 2012/13 state budget, a figure which is expected to rise further following recent depreciations of the local currency.
The statements came a week after Cairo witnessed a wave of strikes by microbus drivers, in response to acute shortages in diesel fuel, which led to the dismissal of the head the Egyptian General Petroleum Corporation, as announced by the Minister of Petroleum Osama Kamel on Monday.
India Relaxes Rules for Foreign Investors
India’s central bank opened the door to foreign institutional investors (FIIs) using investments in corporate and government bonds as collateral in the futures and options segment of stock exchanges.
The move announced by the bank is expected to improve liquidity in the derivatives market, one foreign bank dealer was quoted as saying by Reuters.
The Reserve Bank of India also said it was permitting FIIs to use their investments in corporate bonds as collateral in the cash segment of the stock market.
The RBI also mandated banks to report all over-the-counter currency derivative deals with clients on the central bank promoted reporting platform known as the Clearing Corp. of India Ltd. (CCIL) from April 2, it said in a separate circular.
This will improve transparency and provide a better guage to the central bank on the extent of derivative exposure that corporates have, a senior official at CCIL said.
Meanwhile, the Indian rupee fell, dragged by a late fall in the euro, giving up gains accrued after data showed core inflation eased and the central bank governor was seen by investors as endorsing the government’s 2013/14 budget.
The euro fell to a three-month low against a broadly buoyant dollar as economic and political concerns in the eurozone contrasted a string of positive data from the United States. Earlier, Reserve Bank of India chief’s comments on the budget and a drop in core inflation raised hopes that the central bank will cut interest rates next week.
Asian Stocks Advance
Asian stocks rose, with the regional benchmark index poised to advance for a fourth week, after US jobless claims unexpectedly dropped and as Japan’s upper house confirmed Haruhiko Kuroda as central bank governor.
Honda Motor Co., the Japanese carmaker that gets 44 percent of sales from North America, gained 2.3 percent. Sony Corp., Japan’s biggest exporter of consumer electronics, jumped 9.7 percent after Daiwa Securities Group Inc. recommended buying the shares.
China Southern Airlines Co. advanced 4.9 percent, pacing gains among Chinese carriers after Shanghai Securities News reported plans to build more airports to meet increasing demand in the world’s second-largest economy, Bloomberg reported.
The MSCI Asia Pacific Index (MXAP) climbed 0.8 percent to 136.35 as of 1:17 p.m. Tokyo time, with more than two shares rising for each that fell. The gauge is heading for a 0.6 percent advance this week as a faster-than-expected increase in US retail sales and a decline in weekly jobless claims added to signs the world’s biggest economy is recovering.
“There’s a level of confidence to say that the economic momentum, albeit tepid, is still positive,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne.
“That supports an asset allocation move out of bonds and into equities. China remains a risk, with increasing concerns about bubbles developing in the property market.”
Marine Research Making Rapid Progress
Translated by Katayoon Dashti
Given the ceaseless efforts of Iranian experts and specialists, marine research activities have registered a rapid growth since the start of the current Iranian year (March 20, 2012).
Vahid Chegini, the head of Iranian National Institute for Oceanography (INIO), also said Iranian researchers can build a research submarine in three years at a cost of 300 billion rials, IRNA reported.
“The submarine can go to the depth of 1,000 meters,” he added.
The official noted that Iran can also manufacture a submarine that can go to the depth of 7,000 meters within the next 10 years provided the required credit is allocated.
He pointed out that the largest Persian Gulf ocean research patrol was launched in November 2012 and will operate for one year. Chegini explained that this patrol ha completed five phases.
The first phase was conducted between Bandar Abbas and Bushehr, the second between Bushehr and Khuzestan, the third at Hormuz Strait, the fourth between Guadar Bay and Jask, and the fifth between Jask and Bandar Abbas.
“The sixth phase of research patrol will be conducted in April after the Norouz holidays,” he added.
This patrol, which is conducted with the help of the marine forces of Iran’s military, seeks to increase research capabilities of Iran regarding oceans and seas.
He elaborated that data is gathered on six marine fields, including marine chemistry, marine physics, marine geology, marine environment, meteorology and biology.
The researchers also plan to conduct studies on oceanography, and climatology.
“Currently, there is tight competition among various nations for conducting research at South Pole,” he said, expressing Iran’s interest in setting up a research base there.
Chegini noted that INIO has prepared a software for managing oceanography data and a databank of Iran’s marine specialists, research vessels, ships and marine organizations.
Iran is moving ahead in marine and oceanography industries, based on global standards.
Today, Iran has the potential of designing and manufacturing all marine research facilities and devices inside the country. With more investment in this sector, Iran can turn into a leading nation in terms of conducting research related to oceans.
Some of the country’s research activities on oceanography include construction of research ship, design and construction of research submarine, conducting largest oceanography research patrol in Persian Gulf, Sea of Oman and Hormuz Strait, including contents about oceans in textbooks and preparing the atlas of Sea of Oman.
Tehran, Ashgabat to Bolster Trade Ties
Iran and Turkmenistan plan to bolster trade relations by signing a barter agreement.
Announcing the above, Iran’s Envoy to Ashgabat Seyyed Mohammed Mousa Hashemi Golpayegani also said Tehran and Ashgabat will sign a barter trade agreement during Iranian President Mahmoud Ahmadinejad’s forthcoming visit to Turkmenistan.
He added that the agreement will allow Iran to export various products to its northeastern neighbor in return for importing gas from Turkmenistan, Fars News Agency reported.
Iran attaches great importance to its strategic ties with Turkmenistan, due to the country’s strategic position in Central Asia.
Iran and Turkmenistan signed a 25-year gas contract in 1997 under which a 200-kilometer pipeline was constructed for gas imports from the neighboring country.
On 27th November, a high-ranking oil delegation headed by Iranian Oil Minister Rostam Qassemi visited Turkmenistan to discuss energy exchange, rising gas import from Turkmenistan and other issues, including export of Iranian oil industry equipment to the neighboring country.
Iran and Turkmenistan sit atop the second and fourth largest gas reserves in the world respectively.
Bank of Korea Rates
The Bank of Korea left the benchmark interest rate unchanged, as a new government considers more fiscal support for Asia’s fourth-largest economy. The seven-day repurchase rate remains at 2.75 percent.