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Thursday, September 11, 2008

Economics in August, 2008

In today's edition:
  1. France calls for EU response to global slowdown
  2. World trade talks failure: The endgame?
  3. Gloomy economic outlook as inflation hits new record
  4. Transatlantic IT row heats up as US requests WTO ruling
  5. Germany unveils law to block foreign takeovers
Over-all comment: Obviously the situation is very dark with recession everywhere and the desperate efforts to protect local economics from the flood of Asian money/investors. My comments are below, of course. The only fun thing in this post is how the WTO negotiations screwed up. That's a good one :)

France calls for EU response to global slowdown

19 August 2008

France's Prime Minister François Fillon called yesterday (18 August) for a "coordinated response" by EU governments to the major global economic slowdown, saying his country would propose measures later in September.

"We have a common economic area, a common currency," said Fillon, speaking after a meeting of French ministers in charge of economic issues, adding that this meant coordination is "indispensable".

Last week, the EU's statistical agency Eurostat published figures revealing a 0.2% contraction of the eurozone economy in the second quarter of 2008 – a first since 1995.

The question now is whether this scenario will continue in the next quarter, throwing the continent into recession.

French Economy Minister Christine Lagarde pointed out that in France, "one should not expect a good third quarter as the factors that weighed down in the second quarter remained present in June and in part of the month of July". But she was more optimistic regarding the prospects in the last quarter.

The EU's largest economy, Germany, which up till now had succeeded in maintaining a buoyant economy, also felt the pain in the second quarter, shrinking by 0.5%.

EU officials have thus far refrained from terming the situation as a recession, although a Commission spokeswoman acknowledged that "the signs are not very good for the future," according to the AFP.

Fillon announced that French Economy Minister Christine Lagarde would present plans for an EU response to French President Nicolas Sarkozy and that these would then be put to EU finance ministers in Nice on 12-13 September.

But the prime minister ruled out economic stimulus plans, saying that the injection of public funds – as carried out in Spain last Thursday (14 August), with the government approving €20 billion in new financing for home-buyers and small businesses – would "serve no purpose".

Experts predict that in the current economic context, France's public deficit cannot be steadied on 2.5% as wished and it could actually widen to close to 3% of GDP. source

My comment:Yep, fun time for France. But not only. The whole world is in recession, I don't see why they're avoiding the word. That's the reality. I do agree, however, that there should be a joined response to that problem, because when you have something of that magnitude, you can hardly expect every single country to find a way out and to have the strength to follow it. Let's see what will come out of France. They are the Presidency right now, after all. They have responsibility not only to French people, but to the whole Europe, also. Just notice how the problems with Russia attract all the public attention and nobody is talking about the recession. And should I say that what Spain did is stupid?

World trade talks failure: The endgame?

30 July 2008

For the third year running, global trade negotiations came to a disappointing end yesterday (29 July) as countries refused to compromise on opening up their national markets for agricultural goods. The talks in Geneva were considered a "last chance" for a deal before the US Presidential elections in November and are unlikely to be reopened before January next year at the very earliest.

Despite achieving some momentum last week, antagonisms and stubbornness prevailed in the marathon negotiations that started on 21 July in Geneva.

Hopes had initially been high, with pledges from the US to cut their farm subsidies to a level slightly more acceptable to developing nations and advances in a key dispute on bananas between the EU and developing countries (EurActiv 28/07/08).

But, on the ninth day of discussions (29 July), WTO chief Pascal Lamy announced that ministers had failed, once more, in their attempts to agree on a blueprint for freeing up trade in agricultural and industrial products.

According to him, the 30 trade ministers present in Geneva had actually succeeded in converging on 18 "out of a to-do list of 20 topics", "but the gaps could not narrow on the 19th – the special safeguard mechanism for developing countries".

Such a scheme would have allowed developing countries to protect their farmers by raising tariffs temporarily if faced with large import surges or price drops.

According to Lamy, the difference boiled down to some (the US, supported by Uruguay) wanting a high "trigger" for safeguard tariff increases, to avoid protectionist use of the system, while others insisted a lower one that would make the security net easier to use (India, supported by China).

"After more than 36 hours trying to find bridges between these two positions, today it became clear that the differences were irreconcilable," said Lamy, adding that other difficult issues, including cotton, protection of geographical indications or biodiversity "were not even negotiated".

Some say the atmosphere became particularly difficult after the arrival of Kamal Nath, the Indian trade minister, who pointed out that 700 million people in his country still live on less than 2$ per day and that he couldn't risk their incomes.

But fingers are also pointing towards the US, which insisted upon India and China opening their rice and cotton markets, and China, which attempted to force through last-minute concessions from its partners.

"What members have let slip through their fingers is a package worth more than $130 billion in tariff saving annually by the end of the implementation period," Lamy lamented.

EU Trade Commissioner Peter Mandelson said the collapse over such a small issue as safeguard measure was "absolutely heartbreaking". "I am very disappointed that we were unable to finish the round…

Now, it appears the Doha Round will be put in the freezer until January 2009 at the very earliest or even until after European Parliament elections and the nomination of a new European Commission in November 2009.

But Lamy insists the failure does not mean the end of the Doha Round, saying what is on the table represents twice or three times more than has been achieved in any previous multilateral trade negotiation.

Despite protests from farmers and certain industries about the deal that was on the table, most major business federations believed the negotiations to be crucial in boosting the global economy, especially in the framework of the current oil and food crises.

A shift to bilateral free trade agreements makes markets too complex and is also bad news for developing countries, which are more likely to see themselves strong-armed into big concessions.source

My comment: As you know I'm not a fan of WTO, at all, so I'm not particularly upset by this decision. Although an unilateral market could be simpler and more easy to work with, I don't think this should be done on every cost. When countries are ready, they will find a way that is profitable for all.

Gloomy economic outlook as inflation hits new record

1 August 2008

Amidst an overall worsening of economic indicators, inflation in the euro zone has reached a new record high, according to Eurostat estimates published yesterday (31 July).

After a 4% rise in June, inflation is expected to hit 4.1% in July, the highest level since the creation of the euro zone in 1999. Furthermore, none of the euro countries will meet the EU-wide target of maintaining inflation below 2%, Eurostat says (see Links Dossier on Stability and Growth Pact).

Eursotat says the increasing inflation is mainly due to an ongoing rise in food and fuel prices, which negatively affects other economic indicators. As the Commission revealed on Tuesday (29 July), economic activity has continued to decline in the EU and the euro zone, now standing below its long-term average.

This is due to an overall decrease in demand, with export expectation also dropping significantly, according to the Business Climate Indicator (BCI).

Business and consumer confidence has reached its lowest levels since March 2003, dropping by 5.8 points in the EU as a whole and by 5.3 points in the euro area. Large member states such as Italy and the UK are faced with the largest drop (-9.6 and – 7.2 points respectively).

In the UK, one of Europe’s fastest growing economies throughout the1990s, recession fears seem to turn into reality.The British economy witnessed its slowest growth since 2001, with GDP expanding only 0.2% in the last three month, compared to 1.6% for last year. source

My comment: Eh, nothing new here.

Transatlantic IT row heats up as US requests WTO ruling

19 August 2008

An EU-US dispute over tariffs on high-tech goods, such as flatscreen TVs and multifunctional printers, reached new heights yesterday (18 August) as the US asked the WTO for a formal ruling and admitted that bilateral talks had failed to reach an amicable agreement.

Brussels has been pushing for months for the ITA ( Information Technology Agreement aimed at reducing the cost of IT products) to be renegotiated to include new states and review the goods concerned.

The US request, supported by Japan and Taiwan, follows an earlier complaint filed by the three parties in May (EurActiv 30/05/08), asking for peaceful dispute settlement with the EU. The bloc had strongly rejected this complaint, saying it had offered to reopen talks on the 1996 Information Technology Agreement (ITA).

Since the consultation period did not lead to an agreement within the two months deadline, the trade body will now be forced to take a legally-binding decision. The procedure is expected to take between 12 and 18 months.

The US and Japan's main bone of contention is the EU's policy not to consider new products developed from goods already in the ITA to be covered by the agreement. In other words, while traditional printers for example are duty-free in the EU, more recently evolved versions, also capable also of scanning or faxing, are not (6% duty).

The products under scrutiny are LCD monitors and flatscreen TVs, which Brussels insists are different from the computer displays covered by the ITA. Those products are charged with a 14% duty, which also applies to cable converter boxes with Internet access.

US officials say the EU imports $11 billion of these products each year, estimating that global exports of the products under dispute would total more than $70 billion. source

My comment: Lol, that was SO Fun. I mean, seriously :) I can't comment but say that obviously the Union needs money, what better way to get them than from USA. I don't see why USA have to sue us, it's not about right or wrong, it's about home politics. That's precisely why I don't like WTO-I don't care if we're paying more for LCD monitors, a state (member or Union) needs its tools to gather money and control things. And the stuff obviously are not explicitly put in the agreement.

Germany unveils law to block foreign takeovers

21 August 2008

The law, aimed at protecting strategic domestic industries from unwanted foreign takeovers, was approved by the cabinet yesterday (20 August), despite insistence by German business associations that the move goes against EU rules on the free movement of capital.

The move is principally directed against state-controlled sovereign wealth funds originating in locations such as Abu Dhabi, Saudi Arabia, Russia and China, amid fears that they could be used to take over strategic German industries, such as in the energy, telecoms or banking sectors.

The law, which is yet to receive parliamentary backing, would give the German federal government the right to veto any non-EU or European Free Trade Association (i.e. Switzerland, Norway, Lichtenstein and Iceland) investment amounting to 25% or more of a company's stakes if it deems that national security is at risk.

Industry groups are concerned that the new bill will scare off investors, but Economy Minister Michael Glos yesterday insisted that the mechanism would be used only in "extremely rare" cases and that "the majority of foreign investments won't be affected". "Germany is and remains open to foreign investment," he stressed.

The BDI further insists that the law would be in breach of EU legislation on the free movement of capital – which is meant to apply equally to EU and non-European investors. It further argues that its definition of national security is too broad.

But the government says the law merely brings German law into line with existing legislation in France, the UK and the US.

What's more, the European Union is also getting worried about the risks posed by sovereign wealth funds, which are now worth around $2.5 trillion worldwide. Last February, the Commission put forward new proposals under which sovereign wealth funds would be asked to make public their investment objectives and relationship with government authorities, as well as the size and source of their assets, the currencies in which they are held and the rules under which they operate (EurActiv 28/02/08). source

My comment: The last paragraph says exactly what I would say-it's common concern and in the face of the growth of Asian world, it's normal to seek a way to protect them from taking over a country. It's not paranoia, it's reality, the war can be lead on meny fronts and I don't think having those laws is so bad.

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