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Economy: EU to announce crisis plan; Obama backs new US measures; positive figures from China, Japan

Updated On: Oct 25, 2011

Discussions on a crisis plan to save the eurozone are continuing, ahead of a critical meeting of European leaders on Wednesday. In the United States, President Obama has announced new measures to help the US economy despite opposition in Congress. Finally, officials in China and Japan have pledged to keep their own economies stable following the release of positive figures.

Europe

Over the weekend, European officials reached what they describe as broad agreement on what needs to be done. But they have delayed final approval until Wednesday, when they expect to ratify a more detailed program.

The political dynamics of the situation remain complex. Although Britain does not use the euro, British officials have been outspoken about the need for their neighbours to act. But France and other countries are unhappy about being lectured by a country not in the eurozone.

European countries also told Italy to reform their labour markets, trim the country's massive pension system, and rein in their debts.

Report: Work continues on European crisis plan [Washington Post, 25 Oct 2011]

According to reports, French President Nicolas Sarkozy and British Prime Minister David Cameron have argued over the right of non-euro nations to attend meetings on a revamped strategy to contain the Greece-fuelled debt crisis.

Mr. Cameron said the decisive talks in two days should include leaders from all 27 European Union states and not be limited to the 17 euro nations.

Mr. Sarkozy replied that if Britain wanted to be involved it should have joined the euro. 
According to reports, Mr. Sarkozy also told Cameron he was angry that the British leader had criticised the euro area's response to the crisis.

In a compromise, all 27 EU leaders will hold a separate meeting before the euro countries convene to discuss their crisis strategy.

Report: Sarkozy, Cameron Said to Spar on Summit Role of Non-Euro Nations [Bloomberg, 24 Oct 2011]

Mr. Cameron has also faced domestic backlash from his own party regarding Britain's membership in the European Union, with critics saying Mr. Cameron has done nothing to stop the EU from siphoning money, sovereignty and authority from Britain.

Yesterday, the British parliament voted on whether to hold a national referendum to decide whether the country should remain in the EU, leave it, or renegotiate its membership. Mr. Cameron's government successfully defeated the motion, but most of the votes in favour of the referendum were from Mr. Cameron's own Conservative party.

Report: Cameron Faces Internal Revolt Over European Policy [New York Times, 24 Oct 2011]

Over in Italy, Prime Minister Silvio Berlusconi has hit back at European pressure to clean up his country's debt. He said the rest of the European Union has no need to worry because his government will take significant measures to tackle the issue. He said Italy does not need a lecture.

"No one is in a position to teach lessons to their partners," Mr. Berlusconi said.

Doubts on Italy's stability come despite budget cuts adopted by the Italian parliament in July and September aimed to bring the country back into balance from 2013 and reduce its debt.

European officials believe Italy has slipped back on its commitments since August, when the European Central Bank moved to support Rome by buying up its debt on the financial markets.

The irritation is all the greater given that Europe is battling to protect Italy and Spain, its third and fourth largest economies, against contagion from the debt crisis.

Mr. Berlusconi called an emergency cabinet meeting to review new austerity measures in light of the EU summit, but the meeting ended with no announcement. Reports say Italian officials could not reach an agreement on pension reforms.

Report: No need to worry over Italy - Berlusconi [Sky News, 25 Oct 2011]

On Wednesday, European officials are expected to announce a plan to address three issues at once: a new financing plan for Greece, a regionwide effort for banks to increase their financial strength to absorb Greek and other potential losses, and a scheme to increase the size of the region's bailout fund.

But many of the proposed measures are controversial. For instance, private investors who have lent money to Greece may be asked to accept huge losses. Many investors fear that even if the eurozone is stabilised, future prospects for growth do not look good.

Analysis: Markets to eurozone: it's the growth, stupid [BBC, 24 Oct 2011]

United States

Over in the United States, President Barack Obama said he will move ahead with plans to help the American economy, despite opposition from Congress.

Mr. Obama is backing an initiative by the Federal Housing Finance Agency to let qualified homeowners refinance mortgages regardless of how much their houses have dropped in value.

He has also announced measures to help veterans find jobs and help students manage education loans.

“We can’t wait for an increasingly dysfunctional Congress to do its job,” Mr. Obama said, "I’ve told my administration to keep looking every single day for actions we can take without Congress.”

He criticised Republican presidential candidates for failing to recommend anything to improve the economy, while simultaneously trying to weaken environmental regulations and supporting tax cuts for the wealthiest Americans.

Report: Obama in Western Trip Promotes Mortgage Plan as He Presses Congress to Act[Bloomberg, 25 Oct 2011]

China

In China, HSBC says Chinese manufacturing activity hit positive territory for the first time in four months, easing worries that China's economy faces a sharp slowdown and that tight credit is seriously hurting small and midsize firms.

The preliminary HSBC China manufacturing purchasing managers index rose to 51.1 in October from a final reading of 49.9 in September, the banking group said yesterday.

The rise pushed the index into positive territory for the first time since June. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates expansion.

"All these data confirm our view that there is no risk of a hard landing in China," said HSBC Chief Economist for China Hongbin Qu.

China's economy has been under close scrutiny since Beijing shifted its focus from driving economic growth to restraining inflation. Some investors and economists have worried that the anti-inflation push could hit growth too hard.

On Monday, China's banking regulator said it will offer incentives to encourage banks to lend to cash-hungry small businesses. A senior official for the China Banking Regulatory Commission told a forum that the regulator will fast-track debt-financing needs of banks that tilt credit toward smaller companies.

Meanwhile, China's Premier Wen Jiabao has said the country must control food and property inflation to ensure social stability.

He made the remarks after visiting fresh food markets in south western China over the weekend.

"The first step to controlling inflation is the proper management of food costs," Mr. Wen said. He stressed the importance of ensuring adequate food supplies and increasing the amount of agricultural reserves. He also noted soaring home prices, a critical issue for many Chinese households.

Report: China Data Ease Fears For Activity, Small Firms [Wall Street Journal, 25 Oct 2011]

Report: China's Wen says country must control inflation [BBC, 24 Oct 2011]

Japan

In other economic news, Japanese exports and the country's trade surplus have now recovered all their losses since the March earthquake and tsunami.

Japan posted a ¥300.4 billion ($3.9 billion) trade surplus in September, with exports up 2.4%, the Ministry of Finance said yesterday. The figures were higher than expected. Shipments of autos to Europe and auto parts to the U.S. and China led the rise.

However, the yen's record strength, the European debt crisis and slower growth overseas still threaten Japan's recovery from the disaster.

Report: Japan Posts Trade Surplus [Wall Street Journal, 24 Oct 2011]

Japan's private sector has called on authorities to take action to weaken Japan's currency.

In response, Japanese Finance Minister Jun Azumi reiterated that he is willing to "take bold action" in currency markets if necessary, such as to counter speculative trading. Speaking at a press conference in Tokyo, Mr. Azumi said his ministry has been ordered to prepare for such a scenario.

Report: Azumi Says Japan Will Take Bold Actions on Yen If Necessary [Bloomberg, 25 Oct 2011]







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