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Monday, October 13, 2008

Business in September, 2008

In today's edition:
  1. Ailing heavyweights bring EU close to recession
  2. Study highlights shift eastwards for EU big business
  3. EU considers industries exposed to 'carbon leakage'
Comments are below.

Ailing heavyweights bring EU close to recession

11 September 2008

The European economy looks set for a further downturn as Germany, Spain and the UK are expected to fall into recession, according to Commission estimates presented yesterday (10 September). The news is likely to put a downer on EU finance ministers' talks in Nice, where the ailing economy and turmoil in financial markets are on the agenda.

The Commission has lowered this year's growth estimate for the EU as a whole to 1.4% (1.3% for the 15-member eurozone) compared to the 2% and 1.7% forecast in April. Germany is the main country of concern, with its economy, the biggest in Europe, projected to decline for the second consecutive quarter (-0.5% in the second quarter and -0.2% in the third). It is expected to recover only slightly in the coming months.

The same is true for the UK and Spain, whereas France and Italy are projected to do slightly better. But even they are not performing strongly enough to banish "looming fears of recession" highlighted by Luxembourg Finance Minister Jean-Claude Juncker, who chairs the regular meetings of his eurozone counterparts.

"The economic slowdown will be quite pronounced and longer than initially foreseen," Juncker told MEPs yesterday.

Speaking at the Parliament's Economics Committee, Jean-Claude Trichet, the president of the European Central Bank, sounded more optimistic, saying "the current episode of weak economic growth is expected to be followed by a gradual recovery".

He seemed more concerned by rising wage pressures in countries such as Germany, where the largest trade union is calling for a 7 to 8% pay rise, urging employers and governments to resist such demands to avoid fuelling further inflationary pressure.

The inflation rate in the eurozone decelerated slightly to 3.8% in August after hitting a record high in July, according to the Commission. The evolution of oil and food prices in the coming months would be a crucial factor in eurozone economies' ability to cope with the economic downturn, Trichet said. source

My comment:Nothing new, really, but since this was from September, it's nice to know how optimistic people were back then. Well, they are still optimistic, just nobody really believes them. And I think Trichet is considered EVIL by many real estate owners since he never, EVER will cut the interest rate on the credits. Maybe he could explain what exactly he's trying to accomplish by this and if it's working, because considering the crisis, I fail to believe it it.

Study highlights shift eastwards for EU big business

10 September 2008

Europe's major companies are increasingly opening up their organisational hierarchy to high-skilled workers in the new EU member states, reflecting their growing reliance on subsidiaries in Eastern Europe to carry out their business operations, according to a new report by economic think tank Bruegel.

The EU enlargement and increased global competition have drastically changed the way companies are doing business, according to the study, entitled 'The New Corporation in Europe,' which highlights a growing tendency within large Western European companies to carry out operations via their Eastern European subsidiaries in a bid to cut costs.

The study focused on 2,200 German and Austrian investment projects in Eastern Europe between 1990 to 2001, based on the argument that the two countries are among the most integrated into the world economy and represent "frontier test cases for the new industrial organisation in Europe" due to their proximity to Eastern Europe.

In Austria, the report reveals that intra-firm trade between mother companies and their Eastern European subsidiaries has become "a dominant phenomenon", with 68.5% of Austria's imports from Eastern Europe made up of goods from the subsidiaries. Although smaller in scope, intra-firm trade between Germany and Eastern EU members represents "a sizeable" 21.6% of total imports from Eastern Europe. Within the EU 27, intra-firm imports currently range from a quarter to two thirds of total imports between old and new member states, Bruegel wrote, adding that this "clearly suggests that offshoring has become a significant phenomenon for European firms".

The study appears to confirm a trend feared by many Western Europeans when the EU took in Eastern countries en masse in 2004 that jobs would progressively be shifted east to where labour is cheaper, triggering thousands of job losses in the West.

But the report insists that "contrary to popular belief, both offshoring to the near-abroad and immigration of skilled workers can foster European competitiveness and help keep jobs in Europe". Indeed, it notes, in this way, jobs are at least being kept in the EU rather than being relocated to places like China.

But companies will also have to be willing to change their chains of command if they wish to retain high-skilled workers within their ranks, notes the study, pointing out that this is already taking place in many countries. Notably, almost two thirds of Austrian firms and over three quarters of German ones have partially or wholly decentralised their structure. "Flatter corporate hierarchies will tend to help European firms woo and keep high-skilled workers against the backdrop of the global battle for talent. And where talent is located, research and development activities are more likely to be situated, again with positive spillovers," says the author.

The paper also urges member states to step up efforts to integrate EU neighbours under its 'Neighbourhood Policy', claiming encouraging workers' mobility can act as "a catalyst for faster and deeper integration of Europe as an economic region".

It further warns against introducing protectionist trade measures or overly making use of trade defence instruments such as antidumping or antisubsidy measures, saying this would hinder firms from pursuing an often necessary strategy of offshoring lower value operations. "Firm boundaries may become more important than country boundaries for the design of future EU trade policy," it explains. source

My comment: I don't know what "Eastern Europe" represents, but it's a fact that many US companies, particularly computer ones, are offshoring in Bulgaria and are doing it very profitably. Because a salary from 500-700 euroes here is very good, and 1000euro is fine, it gets very cheap for those company and people are very motivated to give their best since you don't get those salaries everywhere. I don't see why those companies shouldn't be European ones-because yes, that's an investment from USA in EU, but the ready product will be sold much much more expesively and in the end, the money will flow in the other direction. I'd rather work for an European company. But when I tried and it was a Belgian one I think, it turned out that the conditions are MUCH worst than those in US branches. That's certainly not good.

On the other side, I really liked the "company boundaries more important than the country ones". Yes, it's precisely that corporate multinationalism we all love hate, but Europe can make it work in a beneficial for all way-if there are European regulation and all the state-laws are obeyed, what's the problem. Nobody wins from xenophoby and protectionism. When we can all win BIG time.

EU considers industries exposed to 'carbon leakage'

22 September 2008

The European Commission is drawing up a methodology to determine which industries could obtain free emission rights when the EU's carbon market is re-launched in 2013. Aluminium, steel, iron and cement producers are likely to benefit from exemptions.

The EU's aluminium, cement, steel and other heavy industries want Brussels to spell out which sectors could benefit from safeguards in the form of free CO2 emissions allowances before December 2009 in case international climate talks fail. Otherwise, warn heavy industries, the EU will be at risk of 'carbon leakage', meaning that factories would be forced to evacuate their operations, jobs and - crucially - emissions to third countries.

But the Commission does not want to preclude the outcome of global climate talks by publishing such a list before the discussions wrap up. In its proposal for a revised EU Emissions Trading Scheme (EU ETS) for beyond 2012, the EU executive acknowledges the problem and pledges to identify sectors and special exemptions by 30 June 2011.

The analysis comes in response to pressing concerns by heavy industry that imposing overly-stringent climate legislation in Europe would merely drive away business, jobs and emissions to other countries.

The Commission's methodology, outlined in a non-paperword obtained by ENDS Europe, indicates "that primary aluminium, hot rolled steel and slabs [...] and clinker would be likely to be strongly affected would therefore be amongst the substances likely to benefit from partial to totally free allocations".

But the EU executive also maintains that these sectors were chosen only for "indicative purposes on the basis of the data available at this point, and should not be taken to prejudge the final results," according to the non-paper.

Brussels now plans to extend its assessment to ceramics, chemicals, pulp and paper, copper and a number of other industries listed in the annex of the non-paper.

The non-paper lists three main factors for determining a possible list of exempt sectors and/or sub-sectors.

First, sectors and sub-sectors "where problems may occur" should be identified, whereby the likely cost impact of the EU ETS (notably in terms of electricity price increases), coupled with the level of that sector's exposure to non-EU trade, are measured.

Next, transportation, geographical location, market concentration and other factors could then be fed into the equation in "a qualitative manner which will help refine the assessment". Lastly, the outcome of international climate talks, including any sectoral deals agreed between industries, would "allow for a further refinement".

Four categories

The non-paper divides potentially affected sectors and sub-sectors into four categories, from those exposed to zero or low risk of carbon leakage (category I) to those exposed to high risk (category IV).

While the Commission insists that all sectors would need to submit to full auctioning by 2020, category IV sectors would receive 100% free allowances in 2013, followed by a phase-in of full auctioning during the subsequent seven-year period.

Those exposed to moderate to high risk of carbon leakage (cateogories II and III) would receive less than 100% free allowances in 2013 and would be subject to phase-in towards full auctioning, but at a "slower pace".

Environmentalists on the other hand have called on the EU to stand firm, saying heavy industry is less exposed to global competition than it claims. "According to the energy-intensive industry lobby, EU industry is heavily exposed to global competition. But exposure to non-EU competition is not even 2% for the EU's lime and cement industry, and around 5% for EU refineries," said Claude Turmes, a Green MEP, ahead of the European Summit in March. "For the steel sector, competition does not reach 20%," said Turmes in a paperword circulated ahead of the summit.source

My comment: Check what environmelists are saying. It's TRUE!!! All I can say is that for me, heavy industries just found the weak spot of the EU and are trying to get the most out of it while they can. Just like farmers. I'm asking, how much more will we be a hostages of the business? Why a farmer is better for a subsidy than a researcher? And ok, even if there is a good reason for it, why the heaviest polluter should be free to pollute? I don't get it!

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