Sunday, 24 June, 2012

Page 02

Euro’s big four agree growthboost, split on bonds

ISLAMABAD

ONLINE

THE deteriorating energycrises of the country may hita stumbling block in the wayof obtaining desired objec-

tives through Generalised System ofPreferences (GSP) Plus, which is validfrom January 2014.

An official of the Ministry of Com-merce told Online that the country’sexport is expected to enhance by morethan $ 1 billion per annum to the Euro-pean Union under the concessionarytariff lines will receive duty free treat-ment from 2014 onwards.

“If the government would not ableto get ret form power outages till 2014then the EU facility will not help thecountry at large to get its desire objec-tives of enhancing export,” the officialsaid, adding that under the upcomingGSP plus scheme Pakistan will exportmore than 6,000 tariff lines duty freeto the European Union market andcurrently also exporting the same tarifflines but with duties.

According to the official, less thanone per cent exports to European mar-ket was a central condition to availingthe current GSP plus facility to the de-veloping countries whereas for the nextGSP Plus the European Parliament(EP) has voted to approve draft legisla-tion under which Pakistan will be join-

ing the countries that will be entitled toreceive duty free treatment from 2014.

The scheme will replace the currentGSP scheme from January 2014, underwhich some of the existing criteria forGSP Plus beneficiaries have also beenchanged. This will make Pakistan anda few other countries eligible to apply

for GSP Plus, provided they fulfill theother criteria such as the commitmentto effectively implement 7 interna-tional conventions relating to goodgovernance, human rights and sustain-able development etc. In case Pakistanis able to meet all the criteria for GSPPlus, its exports to the EU under theconcessionary tariff lines will receiveduty free treatment from 2014 on-wards.

Currently, Pakistan’s exports sharein European Markets is 1.48 per centwhich restricts the country to avail thecurrent GSP plus facility. But for thenext GSP plus scheme EU had alreadyenhanced its limit for developing coun-tries.

Pakistan was excluded from thecurrent GSP plus scheme since 2006because of country exports was morethan one per cent to EU and reluctancein implementation of the UN conven-tions.

European Union has 27 membercountries in which only 11 countrieshave been availing the facility of cur-rent GSP plus facility so far.

RAWALPINDI

ONLINE

The traders and business community on Satur-day observed a complete shutter down strike inPunjab including Rawalpindi against continu-ous loadshedding. The markets of the city andCantt area remained close during protest,while in some areas traders and general pub-lic showed aggressive reaction against load-shedding, the demonstratorsburnt the tyres and blocked theroads and chanted slogansagainst government, later policecontrolled the situation and re-opened the roads. The leaders ofbusiness community said that alltraders expressed unity for mak-ing the protest successful andthey thank their community forcooperation. A complete shutterdown strike was observed in allthe main markets of the city in-cluding Murree Road, Commer-cial market, Raja Bazaar,Saddar Bazaar, Pirwadai area,Tench Bhatta. The medicalstores were also closed due to

which public and patients who were in hospitals faced severedifficulty in purchasing medicines, while on other hand

people of the locality also suffered from transporters’strike. The vice president All Pakistan Traders Union

Shahid Paracha, Acting president Traders UnionRawalpindi, Chairman Drugs and Chemists As-sociation Arshad Awan, Vice PresidentRawalpindi Chamber of Commerce and In-dustries Muhammad Iqbal visited various

markets during protest and the traders as-sured their future cooperation they an-nounced that they would besiege the

presidency if government does notfulfill their demands. Theyclaimed that some of govern-ment’s representatives misled

traders community as posted ban-ners against traders unions butthe community rejected them andjoined in the strike. The govern-

ment elected Raja Parvaiz Ashraf asprime minister who is corrupt and was in-

volved in rental power case, our country hasenough resources but government is not inter-ested to reduce power crises, they claimed.

The criticized the government and suggestedgovernment to utilize the services of scientists andresources to overcome the current scenario.

Wall Streetclaws back aftersharp decline,banks leadg Stocks ended higher

on Friday, led by gainsin bank shares, as theS&P 500 indexbounced back from itssecond-worst declineof the year

NEW YORK

AGENCIES

The gains were not enough to pushstocks into positive territory for theweek, however. Bank shares, among theworst hit on Thursday, rose afterMoody's Investors Service announcedcredit downgrades for 15 of the world'slargest banks. The downgrades had beenexpected, but some were less severe thanfeared, which helped boost those shareson Friday. Dow component JPMorganChase & Co (JPM.N) shares rose 1.4 per-cent to $35.99 following a 2.6 percentdrop Thursday. The KBW Bank index.BKX gained 1.4 percent. "It was such ahard selloff yesterday, a relentless selloffwith a lot of downside volume at theclose. Coming out of that, you usually getat least some kind of a rebound," saidTim Ghriskey, chief investment officer ofSolaris Asset Management in BedfordHills, New York. "As for Moody's down-grade, it was pretty much expected. Thefocus continues to be Europe at thispoint." Boosting market sentiment, lead-ers of Germany, France, Italy and Spainagreed on a 130 billion euros ($156 bil-lion) package to revive growth in the re-gion. The Dow Jones industrial average.DJI was up 67.21 points, or 0.53 per-cent, at 12,640.78. The Standard &Poor's 500 Index .SPX was up 9.51points, or 0.72 percent, at 1,335.02. TheNasdaq Composite Index .IXIC was up33.33 points, or 1.17 percent, at 2,892.42.The benchmark S&P index had slipped2.2 percent on Thursday, its biggest dropsince June 1, on signs of a global slow-down in manufacturing growth.For the week, the Dow lost 0.9 percentand the S&P 500 fell 0.6 percent. But theNasdaq was up 0.7 percent.Facebook shares (FB.O), which Russellnamed in its preliminary list of additionsto the Russell 3000 index .RUI, have ral-lied more than 21 percent in the past twoweeks. The shares were up 3.8 percent to$33.05 on Friday but were still off fromthe $38 initial public offering price.Darden Restaurants Inc (DRI.N) fell 0.7percent to $50.04 after the operator ofOlive Garden and Red Lobster restau-rant chains reported sales that missedestimates and forecast weaker-than-ex-pected profits.Ryder Systems Inc (R.N) slumped 13 per-cent to $35.44 after the transportationand logistics company cut its quarterlyearnings forecast, citing lower demand atits commercial rental business.

Our neighbourshave ‘that’sinking feeling g Indian govt to

announce certainmeasures to improvesinking economy

NEW DELHI

ONLINE

Expressing concern over signs of weak-ness in the country economy, Indian fi-nance minister Pranab Mukherjee onSaturday said the government is set toannounce certain measures on Mondayto improve market conditions in con-sultations with the Reserve Bank ofIndia. He said the department of eco-nomic affairs had consulted with RBIgovernor D Subbarao about the meas-ures to be taken in this regard. "We willbe able to take certain measures to beannounced on Monday which will im-prove the market condition," PranabMukherjee said. "GDP is at 6.5. Thereis inflationary pressure, there is depre-ciation of rupee. There are no doubtsigns of weakness in Indian economy,"the minister said, adding, "I am con-cerned but not depressed".

Oil, US stocks bounceback from losses

NEW YORK

AGENCIES

Oil bounced from 18-month lows on Friday as investors shifted their focus toefforts to resolve Europe's debt crisis,while U.S. stocks rebounded from thesecond-worst decline of the year.The euro firmed against the yen afterthe European Central Bank said itwould accept lower-quality assets ascollateral in a move to aid the region'sshaky banks.

Pakistan’s list of things affected byenergy crisis # 15729: GSP facilityWe might not be able to boost exports through GSP facility due to the much dreaded energypredicament which would also put our access to the EU market in a bit of a hole. With anexport share of 1.48pc to EU markets, Pakistan stands 0.48pc more than the limit for GSPfacility eligibility. So yes, both energy shortage and mathematical shortcomings did us in…

Every absurd govt action has anequal and opposite overreaction

NEWTON’S THIRD LAW OF COMMOTION

LAHORE

APP

The Lahore Stock Exchange here Saturdayheld the first session of Campus OutreachProgramme for students of MBA andM.Phil from Global Institute Lahore,where LSE's officials interacted with thestudents.

LSE Investor Relation Department'sMs. Hifsa Siddiqi explained to participantsthe broad features of Pakistan's economicand financial system, features and charac-

teristics of different financial markets, reg-ulatory framework, market indicators, in-vestment products, financial services andopportunities available to investors in Pak-istan and roles and responsibilities beingperformed by various financial institu-tions. They were also given an insight intovarious investment avenues available inthe market and their role in the economicsystem of the country.

She also spoke on various operationalmatters of the exchange including list-ings, trading, corporate governance, sen-

sitivity of stock market and investor pro-tection. She briefed and explained theparticipants that the financial decisionmaking starts from the teenage, there-fore, the modification of spending habitsof youngsters in order to promote thehabits of savings and responsible finan-cial behavior is the need of the hour.

She also focused on the classificationand functions of the stock market, marketindices, historical background and stake-holders of the capital market.

Campus Outreach Programme

(COP) under the broader Financial Lit-eracy Initiative has been launched by theLSE in collaboration with South AsianFederation of Exchange (SAFE). Thebasic goal of the FLI-COP is to enhanceyoungsters' understanding of financialproducts and concepts, their ability andconfidence to appreciate financial risksand opportunities to make informedchoices, to know where to go for help,and to prepare today's youth for betterunderstanding of the economic/finan-cial affairs affecting them.

LSE takes time off bull-bear brawlsOrganises financial session for Global Institute

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02Sunday, 24 June, 2012

Business

BRuSSELS

AGENCIES

AFTER four-way talks in Rome's Ren-aissance Villa Madama, Italian PrimeMinister Mario Monti said the Euro-pean Union should adopt pro-growth

measures worth about 1 percent of the region'sgross domestic product at a crucial summit nextweek. But the three others made no perceptibleprogress in pushing Merkel, who leads Europe'smost powerful economy and the main contributorto its rescue funds, towards mutualising Europe'sdebts or using existing bailout resources moreflexibly. "Growth can only have solid roots if thereis fiscal discipline, but fiscal discipline can bemaintained only if there is growth and job cre-ation," Monti told a joint news conference aftertalks that lasted just an hour and 40 minutes.

The measures, already in the works in Brus-sels, include increasing the European InvestmentBank's capital, redirecting unspent EU regionalaid funds and launching project bonds to co-fi-nance major public investment programs. No newsteps were announced on Friday.

The four leaders did agree to move ahead oncreating a tax on financial transactions eventhough not all EU members will be on board.About a dozen EU states support setting up the so-called "Tobin tax", more than the nine required togo ahead as a group within the EU, a French pres-idential source said. Merkel made no mention,however, of any move towards mutualising pas-teuro zone debt or new borrowing.

French President Francois Hollande voicedimpatience with Berlin's reluctance, saying itshould not take 10 years to create jointly under-written euro bonds. He said greater solidarity wasneeded among member states before they aban-don more sovereignty to EU institutions.

"I consider euro bonds to be an option ... butnot in 10 years," Hollande said in a direct chal-lenge to Merkel. "There can be no transfer of sov-ereignty if there is not an improvement insolidarity." The German position essentiallyamounts to the reverse. Merkel argues that mem-bers of the 17-nation currency union must transfercontrol over national budget and economic poli-cies to Brussels before Germany would considercommon debt issuance.

"Liability and control belong together," shesaid, citing as an example that EU treaties ruledout letting euro zone rescue funds lend directly toSpanish banks because only the Spanish statecould enforce conditions on the banks.

The contrasting comments left much work fordiplomats to produce a convincing blueprint forcloser fiscal and banking union at a full EU sum-mit next Thursday and Friday, which Monti calleda defining moment in the crisis.

That plan is expected to include the first stepstowards a banking union, starting by putting theEuropean Central Bank in charge of supervisinglarge cross-border euro zone banks.

Without progress on bank sector integrationor other financial stability measures, France is not

ready to commit to ratifying an EU budget disci-pline pact agreed earlier this year, French diplo-matic sources said.SPANISH BAILOUT?: Dangerously high Span-ish borrowing costs eased a little on market hopesfor policy initiatives at the Brussels summit.

The European Central Bank took a supportivestep on Friday, relaxing its collateral rules to let fi-nancial institutions pledge a wider range of assetsin exchange for cash. The move helps counter theimpact of credit rating downgrades.

If it falls short, Madrid may be pushed closerto eventually needing a sovereign bailout. Withouta convincing result, "there would be progressivelygreater speculative attacks on individual countries,with harassment of the weaker countries", Montisaid in an interview with several European news-papers ahead of the mini-summit. "A large part ofEurope would find itself having to continue to putup with very high interest rates that would thenimpact on the states and also indirectly on firms.This is the direct opposite of what is needed foreconomic growth," he said. The technocratic Ital-ian premier, who needs a success to shore up hisweakening domestic authority, sounded slightlymore optimistic after the talks, saying next week'ssummit should "put at ease the financial markets'expectations", switching to English to add: "Theeuro is here to stay and we all mean it."

Spanish Prime Minister Mariano Rajoy, on thebrink of requesting up to 100 billion euros in eurozone rescue funds to recapitalize struggling banks,said the four had agreed "to use any necessarymechanism to obtain financial stability in the eurozone". An audit released on Thursday found Span-ish banks would need up to 62 billion euros in extracapital to weather adverse circumstances. After ameeting of euro zone finance ministers late onThursday, IMF chief Christine Lagarde demandedrapid progress on a number of other fronts, raisingthe heat on Merkel. Lagarde said a banking union

was a top priority, alongside fiscal union and theprinciple of mutualising debt. Germany refuses tocountenance common bond issuance and will notsoften until economic union is complete. It is alsoopposed to the early introduction of a bloc-widebank deposit guarantee scheme.HIGH STAKES FOR MONTI: While Spain'sneeds are most pressing - its medium term bor-rowing costs hit a euro era high at auction onThursday - the political stakes may be higher forItaly's Monti. With his popularity sinking, the par-ties that back Monti in parliament are increasinglyreluctant to support his reform proposals at home,but demand he get results in the European arenato ease the pressure on Italy's recession-boundeconomy. "Monti knows he has to get his ducks ina row on the European side so he can tell the par-ties that he's sorted that part out, and now it's theirturn to help sort out Italy," said James Walston,politics professor at Rome's American University.

Though hugely popular when he came to of-fice in November, Monti's approval rating hashalved as tax hikes and pension cuts exacerbatedan already severe recession, and his labor reformestranged both unions and the business establish-ment. But for the markets, Monti remains the manmost likely to tackle Italy's debt mountain and un-competitiveness. If he comes under serious threat,Italy could quickly supplant Spain as the eurozone's main flashpoint. Monti's hand was weak-ened by comments on Wednesday by his prede-cessor, Silvio Berlusconi, who said the prospect ofItaly quitting the euro was "not blasphemy" andthat he failed to understand why it would hurtItaly's economy. Berlusconi's People of Freedomparty is one of the two main groups that guaranteeMonti a majority in parliament.

Monti proposed on the sidelines of this week'sG20 summit using the euro zone's rescue funds tobuy the bonds of Spain and Italy to bring downtheir borrowing costs.

Euro’s big four agreegrowth boost, split on bondsg German Chancellor Angela Merkel resisted pressure for common euro zone bonds ora more flexible use of Europe's rescue funds but agreed with leaders of France, Italy andSpain on a 130 billion euros ($156 billion) package to revive growth

DOMINIquE MOISI

From Hong Kong to São Paulo, and allpoints between, one word dominates allothers among big investors: Greece. Willthe Greeks remain in the eurozone?What will happen to the EuropeanUnion and the global economy if they donot?

Until recently, Europe was a sort ofmirror that confirmed for the majoremerging economies the spectacular na-ture of their own success. They couldcontrast their high growth rates with Eu-rope’s high levels of debt. They could op-pose their “positive energy” with thepessimism dominating European minds.They were only too willing to advise Eu-rope to work harder and spend less, aslegitimate pride mingled with an under-standable desire to settle historicalscores and attenuate their legacies ofcolonial submission and humiliation.

But, today, emerging countries aregrowing very concerned with what theyrightly perceive as the serious risks totheir own economies implied by exces-

sive weakness in Europe, which remainsthe world’s trade leader. Moreover, Eu-rope’s malaise threatens many of thesecountries’ political stability as well,given the close connection – especiallyin China – between the legitimacy of ex-isting arrangements and the continua-tion of rapid economic growth.

If the crisis in Europe were to causeannual GDP growth to fall below 7% inChina, 5% in India, and 3% in Brazil,these countries’ most vulnerable citizenswould be hardest hit. They were neverpart of the “culture of hope,” basedlargely on material success, that playeda key role in these countries’ success. Ifsocial inequalities were to reach newheights, their frustration and resent-ment could manifest itself fully.

In that case, Europe could suddenlybecome a very different mirror foremerging countries, revealing, if not ac-centuating, their own structural weak-nesses. And that is why, just as Europemust save the Greek economy or Spain’sbanks at all costs, emerging countriesmust do whatever they can to contribute

to the rescue of the European economy.As Europe has learned, the longer onewaits, the higher the cost – and thelower the chance of success.

Unfortunately, a group of countriesthat are united above all by a commondenial of their global responsibilities isunlikely to reach such a conclusion. In-deed, most emerging countries wouldbalk at the idea of coming to Europe’s fi-nancial rescue for several reasons.

First, there is no such thing as a blocof emerging countries. They are notunited by a common vision of their fu-ture, or by a common political ideal,such as democracy in the Western world.Whatever the limits or contradictions ofshared values, it would be naive to dis-miss their importance. Europe and theUnited States will remain allies even ifBarack Obama, like Nicolas Sarkozy inFrance, turns out to be a one-term pres-ident.

Second, emerging countries aremore Europe’s rivals than its partners.They are united only by their shared sus-picion of China. In such a context, a

common long-term strategy is extremelydifficult to conceive.

The Chinese may proclaim that theytend to think over a “longer” term thanAmericans, who think more “broadly,”and Europeans, who think more“deeply,” as a well-known Chinese inter-national relations expert has put it. But,when it comes to the European financialcrisis, China’s behavior seems to be de-termined by purely short-term tacticalconsiderations, even as Chinese invest-ments in Europe tripled in 2011. To buyhalf of the Piraeus harbor at a knock-down price may seem more advanta-geous than investing in the long-termconsolidation of the Greek economy andits finances, but is that really the case?

Third, emerging countries’ short-term opportunism is based on a doubledistrust: towards Europe, of course, butalso, paradoxically, towards themselves.That is, they lack confidence in theirability to do their part to save the sickman of the global economy that Europehas become.

To be sure, this runs counter to the

triumphalism emanating from Asia, inparticular.Kishore Mahbubani, a leadingforeign-policy thinker from Singapore,recently proclaimed in Vienna, at a con-ference organized by my institute, thatthe next millennium would be Asian.And yet one senses among elites fromemerging countries something akin toexistential doubt, which the Europeancrisis has served to reinforce. This inse-curity manifests itself in many ways:from the accumulation of liquid wealthas insurance against foreign and domes-tic uncertainties to the choice of many,if not most, to educate their childrenabroad.

In fact, the sick man – undeniablyEuropean, if not Western – could revealhimself to be more resilient, owing to thestrength of his own natural defenses:democracy and the rule of law. That iswhy the current European crisis maywell prove to be a crucial test for emerg-ing countries that are more dynamicthan Europe economically, but ulti-mately more fragile politically.

Courtesy: Project Syndicate

Booming Icelandrepays IMF early, again

WASHINGTON

AGENCIES

Iceland, whose economy has recovered rapidly follow-ing the 2008 collapse of its banking sector, on Fridayrepaid $483.7 million in loans to the InternationalMonetary Fund, the lender said. The early repayment,which follows another one of more than $900 million inMarch, is a symbolic step for the country of just320,000 people as it works its way out of a financialmeltdown that ravaged the economy.

USAID starts enterprisedevelopment training

SWAT

ONLINE

The United States Agency for International Development(USAID) in collaboration with a local NGO, NRSP, hasstarted Enterprise Development Training of TrainersProgram for 20 staff members in Swat.

Greek telecom OTE to sellBulgaria's Globul: report

SOFIA

AGENCIES

Greek telecoms operator OTE, controlled by Germany'sDeutsche Telekom, is looking to sell its Bulgarian unitGlobul to service its debts, a newspaper report saidSaturday. The possible sale is "part of a strategy for re-financing 3.4 billion euros ($4.3 billion) of debt matur-ing over the next two years," OTE's press office told theCapital financial weekly.

France eyes more thanjust growth deal

ROME

AGENCIES

French President Francois Hollande wants to see a Eu-ropean summit next week agree on more than just agrowth package before he will agree to ratify the bloc'sfiscal pact, a French diplomatic source said. Hollande,who won backing from the leaders of Germany, Italyand Spain in Rome on Friday for his growth proposals,also wants an EU wide agreement on progress towardsbank sector integration and other financial stabilitymeasures, the source said.

Facebook expands adbusiness to Zynga's website

SAN FRANCISCO

AGENCIES

Facebook Inc has begun showing ads on Zynga Inc'swebsite, the first time the company has distributed adsbeyond the borders of its own website and raising thepossibility that Facebook could eventually launch anonline advertising network.

Emerging markets’ Europe problem

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