In China, the land of the Great Firewall, local Internet companies are supposed to enjoy a home-field advantage. The Communist Party leadership is notoriously wary about the ability of ordinary Chinese to speak their minds, look at naughty pictures, or engage in other online behavior that makes censors jittery—and foreign-owned companies make officials especially nervous. Google, for instance, won't play by China's censorship rules. Local search giant Baidu, on the other hand, will.
The Chinese government's interest in promoting local companies is one reason its current battle with Alibaba—China's most powerful Internet business—has given investors such a shock. Accusing Alibaba Group of allowing the sale of frauds and knockoffs on its online marketplace, China's State Administration for Industry and Commerce this week said billionaire Jack Ma's company "faces its biggest credibility crisis since its establishment." In a particularly damaging accusation, given Chinese President Xi Jinping's high-profile campaign against corruption, the SAIC also accused Alibaba employees of taking bribes.
The company has fired back by filing a complaint against the regulator. Via Alizila (the group's communications arm), Vice Chairman Joe Tsai yesterday assailed what he called "inaccurate & unfair attacks against us."
The Chinese government's interest in promoting local companies is one reason its current battle with Alibaba—China's most powerful Internet business—has given investors such a shock. Accusing Alibaba Group of allowing the sale of frauds and knockoffs on its online marketplace, China's State Administration for Industry and Commerce this week said billionaire Jack Ma's company "faces its biggest credibility crisis since its establishment." In a particularly damaging accusation, given Chinese President Xi Jinping's high-profile campaign against corruption, the SAIC also accused Alibaba employees of taking bribes.
The company has fired back by filing a complaint against the regulator. Via Alizila (the group's communications arm), Vice Chairman Joe Tsai yesterday assailed what he called "inaccurate & unfair attacks against us."
Saturday, January 31, 2015
Russia Rate Cut Among Most Abrupt U-Turns Since Black Wednesday
(Bloomberg) -- Russia’s unexpected cut in its benchmark interest rate on Friday, just six weeks after raising borrowing costs, ranks among the quickest U-turns by a central bank in recent decades and is the latest in a string of surprises by policy makers around the globe, from Canada to Switzerland.
Here’s a guide to some of the most abrupt policy reversals by major central banks since 1990:
• Bank of England: On Sept. 16, 1992, with the pound under pressure from George Soros and others, the central bank raised its key rate to 12 percent from 10 percent, then announced a second increase to 15 percent. That still wasn’t enough to protect the currency, and by the evening of that same day, which became known as “Black Wednesday,” the government withdrew from Europe’s system of linked exchange rates and canceled the second rate increase. The next day, rates fell back to 10 percent.
In 1999, the BOE unexpectedly raised interest rates in September as global growth picked up, following seven cuts within a year, including one about three months earlier.
• European Central Bank: Policy makers underestimated the severity of the financial and sovereign-debt crises. In July 2008, they raised the benchmark rate by a quarter-point to 4.25 percent to counter rising inflation, only to cut by a half-point three months later in a move coordinated with other central banks.
In 2011, the ECB raised rates twice, in April and July, again to counter the risk of higher inflation, then cut in November in Mario Draghi’s first meeting as president as the sovereign-debt crisis weighed on the economy.
• Bank of Canada: While the central bank’s Jan. 21 quarter-point cut was unexpected and the first change since 2010, policy makers had a rapid about-face in September 1998 when they lowered rates by a quarter-point to support economic growth, just a month after a 1-point increase.
• Swiss National Bank: Policy makers roiled markets by announcing on Jan. 15 an end to the franc’s exchange-rate ceiling against the euro. The action occurred a mere three days after central bank Vice President Jean-Pierre Danthine called the franc cap a “pillar” of monetary policy.
• Federal Reserve: In April 2011, then-Chairman Ben S. Bernanke said the need to contain inflation meant further easing was unlikely on top of already-record monetary stimulus. Less than four months later, with growth flagging, officials pledged to hold their key interest rate near zero until mid-2013, then in September took an action dubbed “Operation Twist” to lower long-term rates by lengthening the maturity of securities in the Fed’s portfolio.
• Central Bank of Russia: Friday’s cut in the benchmark interest rate by two percentage points to 15 percent, following December’s 6.5-point increase, pales in comparison with the swings ahead of the country’s debt default in August 1998.
During that year, the main rate increased by 20 points to 50 percent on May 19, where it stayed for about a week before a surge to 150 percent that lasted for about another week. The rate then fell to 60 percent on June 5, rose to 80 percent on June 29 and then went back down to 60 percent on July 24, where it held until the following June.
• Banco Central do Brasil: Brazil’s central bank cut its benchmark interest rate by a half percentage-point on Aug. 31, 2011, after raising borrowing costs at its five previous meetings, including just six weeks earlier. The bank’s board cited risks in the global economy, even amid the fastest inflation in six years.
Here’s a guide to some of the most abrupt policy reversals by major central banks since 1990:
• Bank of England: On Sept. 16, 1992, with the pound under pressure from George Soros and others, the central bank raised its key rate to 12 percent from 10 percent, then announced a second increase to 15 percent. That still wasn’t enough to protect the currency, and by the evening of that same day, which became known as “Black Wednesday,” the government withdrew from Europe’s system of linked exchange rates and canceled the second rate increase. The next day, rates fell back to 10 percent.
In 1999, the BOE unexpectedly raised interest rates in September as global growth picked up, following seven cuts within a year, including one about three months earlier.
• European Central Bank: Policy makers underestimated the severity of the financial and sovereign-debt crises. In July 2008, they raised the benchmark rate by a quarter-point to 4.25 percent to counter rising inflation, only to cut by a half-point three months later in a move coordinated with other central banks.
In 2011, the ECB raised rates twice, in April and July, again to counter the risk of higher inflation, then cut in November in Mario Draghi’s first meeting as president as the sovereign-debt crisis weighed on the economy.
• Bank of Canada: While the central bank’s Jan. 21 quarter-point cut was unexpected and the first change since 2010, policy makers had a rapid about-face in September 1998 when they lowered rates by a quarter-point to support economic growth, just a month after a 1-point increase.
• Swiss National Bank: Policy makers roiled markets by announcing on Jan. 15 an end to the franc’s exchange-rate ceiling against the euro. The action occurred a mere three days after central bank Vice President Jean-Pierre Danthine called the franc cap a “pillar” of monetary policy.
• Federal Reserve: In April 2011, then-Chairman Ben S. Bernanke said the need to contain inflation meant further easing was unlikely on top of already-record monetary stimulus. Less than four months later, with growth flagging, officials pledged to hold their key interest rate near zero until mid-2013, then in September took an action dubbed “Operation Twist” to lower long-term rates by lengthening the maturity of securities in the Fed’s portfolio.
• Central Bank of Russia: Friday’s cut in the benchmark interest rate by two percentage points to 15 percent, following December’s 6.5-point increase, pales in comparison with the swings ahead of the country’s debt default in August 1998.
During that year, the main rate increased by 20 points to 50 percent on May 19, where it stayed for about a week before a surge to 150 percent that lasted for about another week. The rate then fell to 60 percent on June 5, rose to 80 percent on June 29 and then went back down to 60 percent on July 24, where it held until the following June.
• Banco Central do Brasil: Brazil’s central bank cut its benchmark interest rate by a half percentage-point on Aug. 31, 2011, after raising borrowing costs at its five previous meetings, including just six weeks earlier. The bank’s board cited risks in the global economy, even amid the fastest inflation in six years.
Qatar Airways takes $1.7 billion stake in British Airways: owner IAG
(Reuters) - Qatar Airways has bought a stake worth about 1.15 billion pounds ($1.7 billion) in the owner of British Airways and Iberia, aiming to forge closer links to a group with two major European hubs and strong transatlantic networks.
The Gulf airline, which disclosed a 9.99 percent holding on Friday, already partners International Consolidated Airlines Group (IAG) (ICAG.L) in the oneworld alliance and has limited code-sharing deals and a freight partnership with BA.
Buying the stake could deepen the relationship, giving Qatar greater access to destinations served by IAG's London and Madrid hubs, particularly transatlantic, with North America well served by British Airways and South and Central America by Iberia.
On IAG's part, the tie-up will create opportunities in southeast Asia, India and the Middle East, where Qatar has an extensive network, while also giving it a wealthy long-term backer whose support could be useful in funding future growth.
Neither party said whether IAG had been aware Qatar was building the stake and did not say who the shares had been bought from, or when. But IAG Chief Executive Willie Walsh said he was "delighted" to have the airline as a supportive shareholder.
Qatar's national airline, which has more than 130 aircraft and 340 on order, said it may consider increasing its stake over time, although it was not currently intending to increase it from 9.99 percent.
Non-European shareholders of IAG are subject to a cap because of a requirement for EU airlines to be majority controlled by EU shareholders.
Owned by the country's sovereign wealth fund, Qatar Airways has become a major global carrier alongside regional rivals Emirates and Etihad Airways.
All three have used huge capacity at Middle East hubs to challenge European airlines in the long-haul market. Qatar's visibility in Europe has been strengthened by a sponsorship deal with Spanish soccer club Barcelona.
Owing to their geographic position, however, the carriers have struggled to make a mark on routes to North America.
GREATER ACCESS
Jonathan Wober, an analyst at CAPA-Centre for Aviation, said Qatar would gain greater access to destinations west of Qatar, particularly across the Atlantic. "For IAG, if the relationship works, then it could give them an advantage over Air-France-KLM (AIRF.PA) and Lufthansa LHAF.DE."
Mark Irvine-Fortescue, an analyst at brokerage Jefferies, said: "This strategy ... should in time improve IAG's structural and competitive positioning."
Shares in IAG, which have risen 44 percent in the last three months, jumped to 590 pence in early trade, their highest since the group was formed four years ago, before giving up those gains to trade down 1.2 percent at 1408 GMT (9:08 a.m ET).
"Qatar has been building up this stake gradually, so it would not be the sort of move to give the stock much further impetus on the back of the massive run-up IAG has had as the oil price has fallen through the floor," said Dafydd Davies, a partner at Charles Hanover Investments.
Before buying the stake, Qatar Airways' growth strategy had centered on building up its fleet and joining oneworld in 2013, becoming the first Gulf carrier to enter a global alliance, which allows airlines to team up via code-sharing agreements to boost the number of flights they offer.
Etihad Airways has bought minority stakes in airlines including Air Berlin, Aer Lingus and Virgin Australia and is buying 49 percent of Alitalia.
Qatar Airways' parent sovereign wealth fund has invested in a range of European assets, including winning a deal to buy the Canary Wharf business district on Friday. It also has a 20 percent holding in Heathrow Airport, BA's London hub.
Heathrow is full to capacity and IAG is trying to buy Ireland's Aer Lingus (AERL.I) for $1.5 billion, a deal that will increase its take-off and landing slots at the airport.
The Gulf airline, which disclosed a 9.99 percent holding on Friday, already partners International Consolidated Airlines Group (IAG) (ICAG.L) in the oneworld alliance and has limited code-sharing deals and a freight partnership with BA.
Buying the stake could deepen the relationship, giving Qatar greater access to destinations served by IAG's London and Madrid hubs, particularly transatlantic, with North America well served by British Airways and South and Central America by Iberia.
On IAG's part, the tie-up will create opportunities in southeast Asia, India and the Middle East, where Qatar has an extensive network, while also giving it a wealthy long-term backer whose support could be useful in funding future growth.
Neither party said whether IAG had been aware Qatar was building the stake and did not say who the shares had been bought from, or when. But IAG Chief Executive Willie Walsh said he was "delighted" to have the airline as a supportive shareholder.
Qatar's national airline, which has more than 130 aircraft and 340 on order, said it may consider increasing its stake over time, although it was not currently intending to increase it from 9.99 percent.
Non-European shareholders of IAG are subject to a cap because of a requirement for EU airlines to be majority controlled by EU shareholders.
Owned by the country's sovereign wealth fund, Qatar Airways has become a major global carrier alongside regional rivals Emirates and Etihad Airways.
All three have used huge capacity at Middle East hubs to challenge European airlines in the long-haul market. Qatar's visibility in Europe has been strengthened by a sponsorship deal with Spanish soccer club Barcelona.
Owing to their geographic position, however, the carriers have struggled to make a mark on routes to North America.
GREATER ACCESS
Jonathan Wober, an analyst at CAPA-Centre for Aviation, said Qatar would gain greater access to destinations west of Qatar, particularly across the Atlantic. "For IAG, if the relationship works, then it could give them an advantage over Air-France-KLM (AIRF.PA) and Lufthansa LHAF.DE."
Mark Irvine-Fortescue, an analyst at brokerage Jefferies, said: "This strategy ... should in time improve IAG's structural and competitive positioning."
Shares in IAG, which have risen 44 percent in the last three months, jumped to 590 pence in early trade, their highest since the group was formed four years ago, before giving up those gains to trade down 1.2 percent at 1408 GMT (9:08 a.m ET).
"Qatar has been building up this stake gradually, so it would not be the sort of move to give the stock much further impetus on the back of the massive run-up IAG has had as the oil price has fallen through the floor," said Dafydd Davies, a partner at Charles Hanover Investments.
Before buying the stake, Qatar Airways' growth strategy had centered on building up its fleet and joining oneworld in 2013, becoming the first Gulf carrier to enter a global alliance, which allows airlines to team up via code-sharing agreements to boost the number of flights they offer.
Etihad Airways has bought minority stakes in airlines including Air Berlin, Aer Lingus and Virgin Australia and is buying 49 percent of Alitalia.
Qatar Airways' parent sovereign wealth fund has invested in a range of European assets, including winning a deal to buy the Canary Wharf business district on Friday. It also has a 20 percent holding in Heathrow Airport, BA's London hub.
Heathrow is full to capacity and IAG is trying to buy Ireland's Aer Lingus (AERL.I) for $1.5 billion, a deal that will increase its take-off and landing slots at the airport.
Deciphering the Fed: ‘Solid’ Beats ‘Moderate,’ and ‘Strong’ is Even Better
The Federal Reserve chooses its words carefully, though it doesn’t always say exactly what officials mean.
The central bank said in its policy statement Wednesday the economy “has been expanding at a solid pace,” and characterized recent job gains as “strong.” Both were tweaks from the December statement, which had said the economy was “expanding at a moderate pace” accompanied by “solid” job gains.
The Fed doesn’t distribute an official handbook for translating such subtle changes, but close observers of the central bank have developed an unofficial guide. Among them, it’s generally understood that “moderate” is a little better than “modest.” And “solid” growth represents an upgrade from “moderate.”
When the Fed met on Dec. 16-17, the Commerce Department was estimating gross domestic product grew at a 3.9% annual rate in the third quarter. By the end of the year, the government had upgraded its estimate to a 5% pace, making it the U.S. economy’s strongest quarter in 11 years.
So what about the job gains that had been “solid” in December but were “strong” by January? That’s also an upgrade, though the data are a little less clear-cut.
The final jobs report before the Fed’s December meeting described robust hiring in November, and payroll growth actually slowed in December. But thanks to revisions, the three-month moving average for payroll gains moved higher, to 289,000 in December from 278,000 in November. Unemployment fell to 5.6% last month, the lowest level since June 2008.
All subtle distinctions, perhaps, but Kremlinology-like semantic wrangling is nothing new for Fed-watchers.
The central bank said in its policy statement Wednesday the economy “has been expanding at a solid pace,” and characterized recent job gains as “strong.” Both were tweaks from the December statement, which had said the economy was “expanding at a moderate pace” accompanied by “solid” job gains.
The Fed doesn’t distribute an official handbook for translating such subtle changes, but close observers of the central bank have developed an unofficial guide. Among them, it’s generally understood that “moderate” is a little better than “modest.” And “solid” growth represents an upgrade from “moderate.”
When the Fed met on Dec. 16-17, the Commerce Department was estimating gross domestic product grew at a 3.9% annual rate in the third quarter. By the end of the year, the government had upgraded its estimate to a 5% pace, making it the U.S. economy’s strongest quarter in 11 years.
So what about the job gains that had been “solid” in December but were “strong” by January? That’s also an upgrade, though the data are a little less clear-cut.
The final jobs report before the Fed’s December meeting described robust hiring in November, and payroll growth actually slowed in December. But thanks to revisions, the three-month moving average for payroll gains moved higher, to 289,000 in December from 278,000 in November. Unemployment fell to 5.6% last month, the lowest level since June 2008.
All subtle distinctions, perhaps, but Kremlinology-like semantic wrangling is nothing new for Fed-watchers.
Oil surges 8 percent as U.S. rig count plunges, shorts scramble
(Reuters) - Oil prices roared back from six-year lows on Friday, rocketing more than 8 percent as a record weekly decline in U.S. oil drilling fueled a frenzy of short-covering.
In a rally that may spur speculation that a seven-month price collapse has ended, global benchmark Brent crude shot up to more than $53 per barrel, its highest in more than three weeks in its biggest one-day gain since 2009.
The late-session surge was primed by Baker Hughes data showing the number of rigs drilling for oil in the United States fell by 94 - or 7 percent - this week. Earlier gains were fueled by reports of Islamic State militants striking at Kurdish forces southwest of the oil-rich city of Kirkuk.
Brent LCOc1 settled up $3.86 at $52.99 a barrel, after running to as high as $53.08.
U.S. CLc1 oil futures finished up $3.71 at $48.24, soaring by nearly $3 in a final frenzied hour and ending a two-week stretch of relatively steady prices, the longest break since a seven-month rout kicked off last summer. On Thursday prices had touched a six-year low under $44 a barrel.
Poised for a bounce many thought was overdue, short traders raced to cover their positions on fears that the rout, sparked by massive U.S. shale crude supplies, was nearing its end.
"The rig count drop was a lot more than people expected and it really got the market going," said Phil Flynn, analyst at Price Futures Group in Chicago.
According to Baker Hughes, the decline in oil drilling rigs was the most since it began keeping records in 1987. With drillers having idled about 24 percent of their oil drilling rigs since the summer, some traders may be betting that an anticipated slowdown in U.S. oil production is nearer than expected.
NOT OVER YET?
Some are not convinced that the sell-off in oil is over. The rout began in June when Brent peaked at over $115 a barrel and accelerated in November after OPEC refused to cut its production.
"There was a lot of short-covering before the month end from people wanting to take profit from the $40-odd lows, so it's not surprising that we rallied," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. But it will take a while for production to respond to lower drilling.
"This doesn't change the fundamental outlook in oil. We are still about 2 million barrels oversupplied."
Production from OPEC, or the Organization of the Petroleum Exporting Countries, rose in January to 30.37 million barrels per day (bpd), a Reuters poll showed, a sign that key members of the group were resolute about defending their market share.
A Reuters poll shows oil prices may post only a mild recovery in the second half of the year, with prices still averaging less in 2015 than during the global financial crisis. OILPOLL
Joseph Posillico, senior vice president of energy futures at Jefferies in New York, also warned of a short-term, short-covering rally that could be quickly reversed.
"This is just the market being the market and we could give these all back in the next few sessions."
In a rally that may spur speculation that a seven-month price collapse has ended, global benchmark Brent crude shot up to more than $53 per barrel, its highest in more than three weeks in its biggest one-day gain since 2009.
The late-session surge was primed by Baker Hughes data showing the number of rigs drilling for oil in the United States fell by 94 - or 7 percent - this week. Earlier gains were fueled by reports of Islamic State militants striking at Kurdish forces southwest of the oil-rich city of Kirkuk.
Brent LCOc1 settled up $3.86 at $52.99 a barrel, after running to as high as $53.08.
U.S. CLc1 oil futures finished up $3.71 at $48.24, soaring by nearly $3 in a final frenzied hour and ending a two-week stretch of relatively steady prices, the longest break since a seven-month rout kicked off last summer. On Thursday prices had touched a six-year low under $44 a barrel.
Poised for a bounce many thought was overdue, short traders raced to cover their positions on fears that the rout, sparked by massive U.S. shale crude supplies, was nearing its end.
"The rig count drop was a lot more than people expected and it really got the market going," said Phil Flynn, analyst at Price Futures Group in Chicago.
According to Baker Hughes, the decline in oil drilling rigs was the most since it began keeping records in 1987. With drillers having idled about 24 percent of their oil drilling rigs since the summer, some traders may be betting that an anticipated slowdown in U.S. oil production is nearer than expected.
NOT OVER YET?
Some are not convinced that the sell-off in oil is over. The rout began in June when Brent peaked at over $115 a barrel and accelerated in November after OPEC refused to cut its production.
"There was a lot of short-covering before the month end from people wanting to take profit from the $40-odd lows, so it's not surprising that we rallied," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. But it will take a while for production to respond to lower drilling.
"This doesn't change the fundamental outlook in oil. We are still about 2 million barrels oversupplied."
Production from OPEC, or the Organization of the Petroleum Exporting Countries, rose in January to 30.37 million barrels per day (bpd), a Reuters poll showed, a sign that key members of the group were resolute about defending their market share.
A Reuters poll shows oil prices may post only a mild recovery in the second half of the year, with prices still averaging less in 2015 than during the global financial crisis. OILPOLL
Joseph Posillico, senior vice president of energy futures at Jefferies in New York, also warned of a short-term, short-covering rally that could be quickly reversed.
"This is just the market being the market and we could give these all back in the next few sessions."
Germany, ECB play hard ball with Greece
(Reuters) - German Chancellor Angela Merkel ruled out a debt writedown for Greece on Saturday, and a European Central Bank policymaker threatened to cut off funding to Greek banks if Athens does not agree to renew its bailout package.
The euro zone's paymaster and the ECB are both taking a tough line with Greece's new leftist government, whose leader swept to victory last Sunday promising that five years of austerity, "humiliation and suffering" were over.
Alexis Tsipras has also promised to renegotiate agreements with the European Commission, ECB and International Monetary Fund "troika" and write off much of Greece's 320 billion euro ($360 billion) debt, which at more than 175 percent of gross domestic product is the world's second-highest after Japan.
Merkel flatly rejected such a possibility.
"There was already a voluntary waiver by private creditors; Greece has already been exempt from billions by the banks. I don't see a further debt haircut," she told German daily Die Welt in an interview published in its Saturday edition.
"Europe will continue to show solidarity for Greece, as for other countries hit particularly hard by the crisis, if these countries undertake their own reforms and savings efforts," Merkel added in a thinly veiled threat to Athens.
Without the support of international lenders, Greece would soon find itself back in an acute financial crisis.
Unable to tap the markets because of sky-high borrowing costs, Athens has enough cash to meet its funding needs for the next couple of months. But it faces around 10 billion euros of debt repayments over the summer.
"I'M WAITING," MERKEL TELLS ATHENS
Greece's new government opened talks on its bailout with European partners on Friday by refusing to extend the program or to cooperate with the international inspectors overseeing it.
Separately, the French finance ministry said on Saturday that Greek Finance Minister Yanis Varoufakis will meet with his French counterpart Michel Sapin in Paris on Sunday and issue a statement afterwards.
Europe's bailout program for Greece, part of a 240 billion euro rescue package also involving the International Monetary Fund, expires on Feb. 28. A failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from central bank liquidity support.
The ECB does not accept Greek sovereign bonds as collateral in its refinancing operations as they are below investment grade. However, it allows central bank financing to Greek banks as the country is in a bailout program.
Erkki Liikanen, a member of the ECB's policymaking Governing Council, said that funding, too, could dry up if Greece does not remain in a program.
"Greece's program extension will expire in the end of February so some kind of solution must be found, otherwise we can't continue lending," Liikanen, also the governor of Finland's central bank, told public broadcaster YLE.
Merkel said the ECB's Jan. 22 decision to pump billions of euros into the euro zone with a bond-buying program did not mean countries would end efforts to shape up their economies with structural reforms.
She put the onus on the new Greek government to present a credible economic policy.
"The goal of our policy was and is that Greece remains a permanent part of the euro-community," Merkel said.
"To that end, Greece and the European partners make their contribution. Apart from that, I am now waiting to see what concepts the Greek government will present."
The euro zone's paymaster and the ECB are both taking a tough line with Greece's new leftist government, whose leader swept to victory last Sunday promising that five years of austerity, "humiliation and suffering" were over.
Alexis Tsipras has also promised to renegotiate agreements with the European Commission, ECB and International Monetary Fund "troika" and write off much of Greece's 320 billion euro ($360 billion) debt, which at more than 175 percent of gross domestic product is the world's second-highest after Japan.
Merkel flatly rejected such a possibility.
"There was already a voluntary waiver by private creditors; Greece has already been exempt from billions by the banks. I don't see a further debt haircut," she told German daily Die Welt in an interview published in its Saturday edition.
"Europe will continue to show solidarity for Greece, as for other countries hit particularly hard by the crisis, if these countries undertake their own reforms and savings efforts," Merkel added in a thinly veiled threat to Athens.
Without the support of international lenders, Greece would soon find itself back in an acute financial crisis.
Unable to tap the markets because of sky-high borrowing costs, Athens has enough cash to meet its funding needs for the next couple of months. But it faces around 10 billion euros of debt repayments over the summer.
"I'M WAITING," MERKEL TELLS ATHENS
Greece's new government opened talks on its bailout with European partners on Friday by refusing to extend the program or to cooperate with the international inspectors overseeing it.
Separately, the French finance ministry said on Saturday that Greek Finance Minister Yanis Varoufakis will meet with his French counterpart Michel Sapin in Paris on Sunday and issue a statement afterwards.
Europe's bailout program for Greece, part of a 240 billion euro rescue package also involving the International Monetary Fund, expires on Feb. 28. A failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from central bank liquidity support.
The ECB does not accept Greek sovereign bonds as collateral in its refinancing operations as they are below investment grade. However, it allows central bank financing to Greek banks as the country is in a bailout program.
Erkki Liikanen, a member of the ECB's policymaking Governing Council, said that funding, too, could dry up if Greece does not remain in a program.
"Greece's program extension will expire in the end of February so some kind of solution must be found, otherwise we can't continue lending," Liikanen, also the governor of Finland's central bank, told public broadcaster YLE.
Merkel said the ECB's Jan. 22 decision to pump billions of euros into the euro zone with a bond-buying program did not mean countries would end efforts to shape up their economies with structural reforms.
She put the onus on the new Greek government to present a credible economic policy.
"The goal of our policy was and is that Greece remains a permanent part of the euro-community," Merkel said.
"To that end, Greece and the European partners make their contribution. Apart from that, I am now waiting to see what concepts the Greek government will present."
Wednesday, January 28, 2015
Seize the day: The fall in the price of oil and gas provides a once-in-a-generation opportunity to fix bad energy policies
(Economist)MOST of the time, economic policy making is about tinkering at the edges. Politicians argue furiously about modest changes to taxes or spending. Once in a while, however, momentous shifts are possible. From Deng Xiaoping’s market opening in 1978 to Poland’s adoption of “shock therapy” in 1990, bold politicians have seized propitious circumstances to push through reforms that transformed their countries. Such a once-in-a-generation opportunity exists today.
The plunging price of oil, coupled with advances in clean energy and conservation, offers politicians around the world the chance to rationalise energy policy. They can get rid of billions of dollars of distorting subsidies, especially for dirty fuels, whilst shifting taxes towards carbon use. A cheaper, greener and more reliable energy future could be within reach.
The most obvious reason for optimism is the plunge in energy costs. Not only has the price of oil halved in the past six months, but natural gas is the cheapest it has been in a decade, bar a few panicked months after Lehman Brothers collapsed, when the world economy appeared to be imploding. There are growing signs that low prices are here to stay: the rising chatter of megamergers in the oil industry is a sure sign that oilmen are bracing for a shake-out. Less noticed, the price of cleaner forms of energy is also falling, as our special report this week explains. And new technology is allowing better management of the consumption of energy, especially electricity. That should help cut waste and thus lower costs still further. For decades the big question about energy was whether the world could produce enough of it, in any form and at any cost. Now, suddenly, the challenge should be one of managing abundance.
Clean up a dirty business
That abundance provides the potential for reform. Far too many economies are littered with the detritus of daft energy policies, based on fears about supply. Even though fracking has boosted America’s oil output by two-thirds in just four years, the country still bans the export of oil and restricts exports of natural gas, a legacy of the oil shocks of the 1970s—and a boondoggle for American refiners and petrochemical firms. Congress also keeps handing out money to Iowa’s already coddled corn farmers to produce ethanol and has not reviewed generous subsidies for nuclear power despite the Fukushima disaster and ruinous cost over-runs at new Western plants. Instead, it has spent four long years bickering about whether to allow the proposed Keystone XL pipeline to Canada’s tar sands. In Europe the giveaways are a little different—billions have gone to wind and solar projects—but the same madness often prevails: Germany’s rushed exit from nuclear power ended up helping boost American coal and Russian gas.
The most straightforward piece of reform, pretty much everywhere, is simply to remove all the subsidies for producing or consuming fossil fuels. Last year governments around the world threw $550 billion down that rathole—on everything from holding down the price of petrol in poor countries to encouraging companies to search for oil. By one count, such handouts led to extra consumption that was responsible for 36% of global carbon emissions in 1980-2010.
Falling prices provide an opportunity to rethink this nonsense. Cash-strapped developing countries such as India and Indonesia have bravely begun to cut fuel subsidies, freeing up money to spend on hospitals and schools. But the big oil exporters in the developing world, which tend to be the most egregious subsidisers of domestic fuel prices, have not followed their lead. Venezuela is close to default, yet petrol still costs a few cents a litre in Caracas. And rich countries still underwrite the production of oil and gas. Why should American taxpayers pay for Exxon to find hydrocarbons? All these subsidies should be binned.
What a better policy would look like
That should be just the beginning. Politicians, for the most part, have refused to raise taxes on fossil fuels in recent years, on the grounds that making driving or heating homes more expensive would not only annoy voters but also hurt the economy. With petrol and natural gas getting cheaper by the day, that excuse has gone. Higher taxes would encourage conservation, dampen future price swings and provide a more sensible way for governments to raise money.
An obvious starting point is to target petrol. America’s federal government levies a tax of just 18 cents a gallon (five cents a litre)—a figure that it has not dared change since 1993. Even better would be a tax on carbon. Burning fossil fuels harms the health of both the planet and its inhabitants. Taxing carbon would nudge energy firms and consumers towards using cleaner fuels. As fuel prices fall, a carbon tax is becoming less politically daunting.
That points to the biggest blessing cheaper energy brings: the chance to inject some coherence into the world’s energy policies. Governments have a legitimate role in making sure that energy is abundant, clean and secure. But they need to learn the difference between picking goals and deciding how to reach them. Broad incentives are fine; second-guessing scientists and investors is not. A carbon tax, in other words, is a much better way to reduce emissions of greenhouse gases than subsidies for windmills and nuclear plants.
By the same token, in the name of security of supply, governments should be encouraging the growth of seamless global energy markets. Scrapping unfair obstacles to energy investments is just as important as dispensing with subsidies. The more cross-border pipelines and power cables the better. America should approve Keystone XL and lift its export restrictions, while European politicians should make it much easier to exploit the oil and gas in the shale beneath their feet.
This ambitious to-do list will drive regiments of energy lobbyists potty. But for the first time in years it is within the realm of the politically possible. And it would plainly lead to a more efficient and greener energy future. So our message to politicians is a simple one. Seize the day.
The plunging price of oil, coupled with advances in clean energy and conservation, offers politicians around the world the chance to rationalise energy policy. They can get rid of billions of dollars of distorting subsidies, especially for dirty fuels, whilst shifting taxes towards carbon use. A cheaper, greener and more reliable energy future could be within reach.
The most obvious reason for optimism is the plunge in energy costs. Not only has the price of oil halved in the past six months, but natural gas is the cheapest it has been in a decade, bar a few panicked months after Lehman Brothers collapsed, when the world economy appeared to be imploding. There are growing signs that low prices are here to stay: the rising chatter of megamergers in the oil industry is a sure sign that oilmen are bracing for a shake-out. Less noticed, the price of cleaner forms of energy is also falling, as our special report this week explains. And new technology is allowing better management of the consumption of energy, especially electricity. That should help cut waste and thus lower costs still further. For decades the big question about energy was whether the world could produce enough of it, in any form and at any cost. Now, suddenly, the challenge should be one of managing abundance.
Clean up a dirty business
That abundance provides the potential for reform. Far too many economies are littered with the detritus of daft energy policies, based on fears about supply. Even though fracking has boosted America’s oil output by two-thirds in just four years, the country still bans the export of oil and restricts exports of natural gas, a legacy of the oil shocks of the 1970s—and a boondoggle for American refiners and petrochemical firms. Congress also keeps handing out money to Iowa’s already coddled corn farmers to produce ethanol and has not reviewed generous subsidies for nuclear power despite the Fukushima disaster and ruinous cost over-runs at new Western plants. Instead, it has spent four long years bickering about whether to allow the proposed Keystone XL pipeline to Canada’s tar sands. In Europe the giveaways are a little different—billions have gone to wind and solar projects—but the same madness often prevails: Germany’s rushed exit from nuclear power ended up helping boost American coal and Russian gas.
The most straightforward piece of reform, pretty much everywhere, is simply to remove all the subsidies for producing or consuming fossil fuels. Last year governments around the world threw $550 billion down that rathole—on everything from holding down the price of petrol in poor countries to encouraging companies to search for oil. By one count, such handouts led to extra consumption that was responsible for 36% of global carbon emissions in 1980-2010.
Falling prices provide an opportunity to rethink this nonsense. Cash-strapped developing countries such as India and Indonesia have bravely begun to cut fuel subsidies, freeing up money to spend on hospitals and schools. But the big oil exporters in the developing world, which tend to be the most egregious subsidisers of domestic fuel prices, have not followed their lead. Venezuela is close to default, yet petrol still costs a few cents a litre in Caracas. And rich countries still underwrite the production of oil and gas. Why should American taxpayers pay for Exxon to find hydrocarbons? All these subsidies should be binned.
What a better policy would look like
That should be just the beginning. Politicians, for the most part, have refused to raise taxes on fossil fuels in recent years, on the grounds that making driving or heating homes more expensive would not only annoy voters but also hurt the economy. With petrol and natural gas getting cheaper by the day, that excuse has gone. Higher taxes would encourage conservation, dampen future price swings and provide a more sensible way for governments to raise money.
An obvious starting point is to target petrol. America’s federal government levies a tax of just 18 cents a gallon (five cents a litre)—a figure that it has not dared change since 1993. Even better would be a tax on carbon. Burning fossil fuels harms the health of both the planet and its inhabitants. Taxing carbon would nudge energy firms and consumers towards using cleaner fuels. As fuel prices fall, a carbon tax is becoming less politically daunting.
That points to the biggest blessing cheaper energy brings: the chance to inject some coherence into the world’s energy policies. Governments have a legitimate role in making sure that energy is abundant, clean and secure. But they need to learn the difference between picking goals and deciding how to reach them. Broad incentives are fine; second-guessing scientists and investors is not. A carbon tax, in other words, is a much better way to reduce emissions of greenhouse gases than subsidies for windmills and nuclear plants.
By the same token, in the name of security of supply, governments should be encouraging the growth of seamless global energy markets. Scrapping unfair obstacles to energy investments is just as important as dispensing with subsidies. The more cross-border pipelines and power cables the better. America should approve Keystone XL and lift its export restrictions, while European politicians should make it much easier to exploit the oil and gas in the shale beneath their feet.
This ambitious to-do list will drive regiments of energy lobbyists potty. But for the first time in years it is within the realm of the politically possible. And it would plainly lead to a more efficient and greener energy future. So our message to politicians is a simple one. Seize the day.
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