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It’s the European economy, stupid: US recovery hangs on solving debt crisis December 3, 2011

A year ago most US politicians’ interest in Greek spreads was confined to the relative merits of hummus and taramasalata. These days they are hot debate topics alongside Italian bond yields and a host of European financial arcana. The reason? It’s the economy, stupid.

As the fragile US economy continues to rise slowly out of the abyss, Europe looks like its gravest threat. Apart from the occasional, and spectacularly unsuccessful, nudge from the sidelines the US has had to watch Europe’s mounting debt crisis from afar and the sense of frustration is palpable.

“This is of huge importance to our own economy,” Obama said last week after meeting Herman van Rompuy, European council president; José Manuel Barroso, European commission president, and others. “If Europe is contracting or if Europe is having difficulties, then it’s much more difficult for us to create good jobs here at home.”

Washington will again be closely watching this week’s summit in Brussels. Treasury secretary Tim Geithner is so worried that he’s flying to Europe. “US politicians probably haven’t been this interested in Europe since world war two,” jokes Nathan Gonzales, deputy editor of the Rothenberg Political Report, a Washington-based non-partisan political newsletter.

“The economy is the big issue for the 2012 election and Europe is going to be a big part of that,” he said. But Obama has to play a careful game at home as well as abroad. Attempts to push the pace of change have been been sharply rebuffed in Europe, while at home anything smacking of aid for US rivals across the Atlantic will be used against Obama as he tries to encourage the US’s own fragile recovery.

Last week would-be Republican presidential candidate Ron Paul railed against the Federal Reserve’s role in the co-ordinated move by central banks to prevent credit markets freezing. “The Fed is behaving much as it did during the 2008 financial crisis, only this time instead of bailing out politically well connected, too-big-to-fail firms it is bailing out profligate government spending [in Europe],” Paul says.

In fact, analysts point out that part of the reason the Fed acted is that US banks and money market funds have lent heavily to European banks, and would be left painfully exposed in the event of by a eurozone default.

Nevertheless, Paul’s attacks could damage Obama if Europe becomes an election issue, says Gonzales, but the real danger to his re-election prospects is the economy and if Europe’s woes “feed into the sentiment that we are heading in the wrong direction”.

The EU’s’s share of US exports has dropped from more than a quarter in 1999 to less than 18% today but it is still worth $400bn and in our ever more connected world a downturn in Europe would hit the rest of the world too, rebounding on the US.

US firms also have huge sums of money directly invested in Europe. No one really seems sure how the euro‘s collapse would hit the US financial sector. Fed chairman Ben Bernanke plays down that risk, but investors are spooked. Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics, said Washington was gravely concerned that the European Central Bank had so far failed to follow the lead of the Fed, which has acted decisively to prop up the US economy, buying $900bn worth of US treasury bonds in two rounds of “quantitative easing”.

The frustration fails to take account of fundamental differences between the US and Europe, he says. The Fed has far broader powers and a clear mandate compared with the ECB. It is also clear, Kirkegaard says, that the ECB has its own agenda.

“In my opinion it’s been deliberate. The ECB does not want to commit until the Europeans agree to tighter fiscal union. Market mayhem is an effective way of reaching political goals. If they’d done what the markets had wanted a month ago, Silvio Berlusconi would still be in power. Is that good for Italy or Europe?”

Radical action by the ECB cannot come fast enough for Jack Ablin, chief investment officer at Harris Private Bank. “The Europeans need to let the ECB buy them some time. Political solutions will not come quickly enough,” he says. “If the ECB can act, that for me is the trump card, then we can start focusing on other things.”

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US and EU to explore trade talks November 29, 2011

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Barack Obama: ”We’ve got a stake in their (Europe’s) success and will continue work in a constructive way to try to resolve this issue”

US and EU leaders have said at the conclusion of a White House summit that they could launch bilateral trade talks to boost jobs and growth.

They announced a joint working group to explore how to enhance the “untapped potential” of transatlantic economic co-operation.

The statement followed wide-ranging talks between US President Barack Obama and European Union leaders.

The US and EU account for around half of the world’s economic output.

The 27 countries of the eurozone make up the largest trading partner for the US.

Doing ‘the unthinkable’

Foreign aid and cybersecurity were also on the agenda as President Obama met EU Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso on Monday.

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If I am right, they will still be biting their fingers in the White House and speed-dialling Europe furiously as we head to the holiday season ”

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But the eurozone debt crisis loomed over their talks.

President Obama said after the meeting that this issue was of “huge importance” to the US economy.

“I communicated to them that the United States stands ready to do our part to help them resolve this issue,” he said, adding that it would be tougher to create jobs at home if European markets were contracting.

The two sides said in a joint statement: “We must intensify our efforts to realise the untapped potential of transatlantic economic co-operation to generate new opportunities for jobs and growth.”

It is thought the working group could look at the possibility of cutting tariffs and other regulation that might hamper trade.

The group, to be headed by EU Trade Commissioner Karel de Gucht and US Trade Representative Ron Kirk, would “identify and assess options for strengthening the EU-US economic relationship, especially those that have the highest potential to support jobs and growth”, said the statement.

An interim report is expected next June, with the final recommendations due by the end of 2012.

After the meeting, Mr Van Rompuy told journalists that the EU had been taking hitherto “unthinkable” measures to try to restore growth.

“But we have to do more,” he added.

Although the US has struck free trade deals with countries around the world in recent years, it has not engaged in bilateral trade talks with the EU.

This is said to be partly out of concern it might detract from the Doha round of world trade talks. But those negotiations have dragged on for more than a decade with no clear end in sight.

Monday’s summit was held as the Organisation for Economic Co-operation and Development warned the eurozone economy was shrinking and that the UK could dip back into recession.

But world markets were up in response to reports of a proposed fiscal union that would set binding limits on eurozone government borrowing.

US-EU trade was up 15% in the first nine months of 2011, despite uncertainty in the global economy.

Trade between the US and EU is worth around $3.6bn (£2.3bn) per day and overall investment between the two supports around 7.1m jobs, according to the US Trade Representative’s office.

The statement from Monday’s summit also touched on issues on which the US and EU broadly agree – such as concerns over Iran’s nuclear programme, nurturing clean energy technology and encouraging democracy in the wake of the Arab Spring.

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Eurozone crisis: Barack Obama to question EU officials in Washington November 28, 2011

Barack Obama is to press European Union officials to reach a definitive solution to their sovereign debt crisis, which is emerging as a major 2012 US election worry.

As Germany and France scramble to tighten budget controls across the eurozone, the European council president, Herman Van Rompuy, and the European commission president, José Manuel Barroso, will face tough questions from Obama at the White House on Monday on how much longer the crisis might go on.

No breakthroughs are expected from the meeting, which will not include the European heads of state who need to make crucial decisions about the future of the 17-nation currency union.

But Van Rompuy and Barroso wield influence as heads of key EU institutions at the heart of efforts to fight the crisis, which has thrown the future of the eurozone into doubt at a moment of weakness for the global economy.

Obama has spoken regularly with the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, and the summit offers a chance for him to further ratchet up pressure behind closed doors.

“He understands that it is a European leadership issue,” said Heather Conley of the Centre for Strategic and International Studies in Washington.

Obama and the EU officials will release a statement after their summit ends, with the president almost certain to reaffirm his confidence in Europe‘s leaders that they can handle the crisis if they show the political leadership to do so.

He has previously said that calming markets would require “some tough decisions” in Europe but has not spelled out precisely what those may entail. Some in Washington believe the European Central Bank could be more active in the crisis though that is an unpopular view across the Atlantic.

Avoiding contagion from Europe’s crisis is critical for Obama, whose re-election prospects next November hinge on his ability to shield the US economy from another downturn and bring down the unemployment rate of 9%.

He travelled to the Asia-Pacific region this month to boost economic ties, widely seen as an effort to counterbalance weakness in Europe as the 2012 election approaches and Republicans hammer his jobs record.

Barroso and Van Rompuy will arrive to Washington with ideas about how to boost trade and investment across the Atlantic to try to stoke growth while the sovereign debt strains gripping Greece, Italy, Spain and elsewhere are addressed.

Those include efforts to support emerging sectors such as electric cars, smart grids and nanotechnology – for instance, with less red tape and lower import tariffs – and to encourage more trade in raw materials.

Companies including Microsoft, Pfizer, Deutsche Bank and Coca-Cola said in a letter released before the summit that there were important business opportunities to be tapped across the Atlantic even if the US and European economies were growing slowly.

“The United States and Europe remain at the heart of the world economy, each other’s most important market for goods, services, capital and ideas,” said the Trans-Atlantic Business Council, whose other members include Unilever, Intel, Siemens and Ford.

While economic worries will dominate their meeting, Obama, Barroso and Van Rompuy are also expected to discuss concerns about Iran’s pursuit of nuclear materials and Syria’s deadly crackdown on protesters as well as violence in the Balkans and in eastern Europe.

Catherine Ashton, the EU’s top foreign policy official and former trade chief, and the US secretary of state, Hillary Clinton, are set to take part in the meeting the day after the Arab League approved sweeping sanctions on Syria.

The European leaders are likely to be nudged in Washington to seek stronger sanctions against Iran, given that Europe now has more commercial and energy ties with the country than the US does. Both Washington and Europe have already introduced strong sanctions against Damascus.

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EU Leaders Call for Continent’s Economic Consolidation November 16, 2011

Key European Union officials say the continent needs to oversee the spending of individual countries to ensure the survival of the euro currency and resolve the burgeoning debt crisis.

Both European Commission President Jose Manuel Barroso and EU President Herman Van Rompuy called Wednesday for further integration of Europe’s economic affairs. Barroso told the European Parliament in Strasbourg, France, that the continent is “now facing a truly systemic crisis.” He said that without increased continent-wide meshing of economic interests and oversight, “we will not be able to sustain the common currency.”

Meanwhile, economist Mario Monti was sworn in as Italy’s prime minister. He unveiled a Cabinet of technocrats to try to impose austerity measures in an effort to trim his government’s $2.6 trillion debt and calm international financial markets.

Monti named himself finance minister and did not include any of the country’s fractious politicians in the Cabinet. The former European Union commissioner said the exclusion of politicians in his government will actually help it.

“I reached the conclusion during the consultations that the absence of  political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement,” said Monti.

The new caretaker government in debt-ridden Greece faced a confidence vote Wednesday. Prime Minister Lucas Papademos was expected to survive, but Papademos still faces a daunting task of avoiding a financial collapse and imposing hugely unpopular spending cuts and tax increases.

Tensions surfaced early Wednesday when the country’s electricity workers’ union briefly cut off power to the health ministry building.  Union officials said the shutdown was part of their protest of a tax on property owners – a tax the government is trying to collect through household electricity bills.

Papademos is specifically tasked with getting parliament to approve a new bailout deal with the European Union. Greek officials warn the country faces bankruptcy without the new funding and an $11-billion installment of last year’s bailout.

In Italy, Monti said he absolutely is convinced that the country can make the sacrifices needed to overcome its debt crisis. The prime minister-designate also assured Italians he has the backing of political, business and union leaders. Nonetheless, a headline in a newspaper owned by outgoing Prime Minister Silvio Berlusconi, Il Giornale, declared, “He Can’t Last Long.”

Italy is the eurozone’s third-largest economy. Fears that Italy might default on its debt or be forced to ask for a bailout have shaken financial markets around the globe.

Some information for this report was provided by AP and Reuters.

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