A new austerity drive has been sweeping across Europe, as governments struggle to trim huge budget deficits and the 16-nation eurozone races to reassure sceptical markets.
Some of the biggest protests have been seen in France but industrial action is making headlines elsewhere too.
EU finance ministers have agreed rules that will automatically punish member-states which break budgetary rules.
With the EU expecting all member-states to have achieved a maximum budget deficit of 3% of GDP by the financial year 2014-15, what belt-tightening measures are the countries taking?
UK
The Conservative-Liberal Democrat coalition government has announced the biggest cuts in state spending since World War II.
Savings believed to amount to about £83bn (95bn euros, $131bn) are due to be made over four years.
The Chancellor, George Osborne, told parliament that 490,000 public sector jobs would be cut over four years because the country had "run out of money". Experts predict a similar number of job losses in the private sector.
Most Whitehall departments face budget cuts of 19% on average while the defence budget will be cut by 8%. The retirement age is to rise from 65 to 66 by 2020.
Some incapacity benefits will be time-limited and other money will be clawed back through changes to tax credits and housing benefit. A new bank levy will also be brought in.
While there was no widespread industrial unrest ahead of the cuts' announcement, the general secretary of trade union Unison, Dave Prentis, accused the government of "taking a chainsaw" to public services for ideological reasons. The opposition Labour Party accused the government of a "slash and burn" policy.
FRANCE
France has announced plans to cut spending by 45bn euros (£39bn; $62bn) over the next three years in order to meet the budget deficit target.
Some of this money is expected to be saved through closing tax loopholes and withdrawing temporary economic stimulus measures.
President Nicolas Sarkozy has insisted he will press ahead with plans to raise the retirement age from 60 to 62 and the full state pension age from 65 to 67. The highest earners will also be required to pay an extra 1% income tax.
Trade unions have been organising nationwide strikes since September, with days of action in which more than a million people have regularly taken part.
French riot police have been used to re-open fuel depots blocked by protesters, though the demonstrations have been largely peaceful.
REPUBLIC OF IRELAND
The cost of bailing out the Republic of Ireland's stricken banks has risen to 45bn euros (£39bn; $62bn), opening a huge hole in the Irish government's finances.
The increased cost will see the government run a budget deficit equivalent to 32% of GDP this year.
It aims to reduce this in stages, to reach 2.9% by 2014, with savings of 7.5bn euros over that period. But a figure of 10bn euros may be more realistic, according to the parliamentary opposition.
Government spending has been slashed by 4bn euros, with all public servants' pay cut by at least 5% and social welfare reduced.
Child benefit was cut by 16 euros a month, bringing the lower rate to 150 euros a month and the higher rate to 187 euros a month.
A carbon tax has been brought in, set at 15 euros per tonne of CO2.
Bad news came in September when figures showed the economy had shrunk in the second quarter from the previous three months.
NETHERLANDS
The centre-right coalition formed after months of negotiation on 8 October said it wanted to cut the budget by 18bn euros ($24bn; £15bn) by 2015.
But the new government will have to rely on the radical Freedom Party to enact legislation and there are doubts about its long-term viability.
SPAIN
The Spanish government has approved an austerity budget for 2011 which includes a tax rise for the rich and 8% spending cuts.
Madrid has promised European counterparts to cut its deficit to 6% of its gross domestic product (GDP) next year, from 11.1% last year.
Government workers face a pay cut of 5%, starting in June, and salaries will then be frozen for 2011.
A tax rise of 1% will be applied to personal income above 120,000 euros.
Smaller savings include an end to a 2,500-euro cash payout for new mothers, known as "baby cheques".
Unemployment has more than doubled - to about 20% - since 2007.
GREECE
The Greek government has pledged to end its economic woes to make drastic spending cuts and boost tax revenue in return for a 110bn-euro (£95bn) bail-out from the EU and International Monetary Fund.
It has started drawing on the bail-out money because a sharp downgrade of its sovereign debt rating made its borrowing costs soar.
The aim is to slash the budget deficit from 13.6% of GDP.
The country has started cracking down on tax evasion, and on corruption within the tax and customs service. It will also curb its widespread early retirement schemes. The average retirement age is set to rise from 61.4 to 63.5.
Under the plan to slash the budget by 30bn euros (£26bn; $37bn) over three years Greece aims to: scrap bonus payments for public sector workers; freeze public sector salaries and pensions for at least three years; increase sales tax (VAT) from 19% to 23%; raise taxes on fuel, alcohol and tobacco by 10%.
The harsh measures have triggered public sector strikes and violence on the streets of Athens.
ROMANIA
The government proposed wage cuts of 25% and pension cuts of 15% in July in order to reduce the country's budget deficit.
Romania's economy shrunk more than 7% in 2009 and it needed an IMF bail-out in order to meet its wage bill.
It says it needs to implement new austerity measures to qualify for the next instalment of the 20bn-euro ($25bn; £17bn) IMF loan.
Angry protests have greeted the cuts and Interior Minister Vasile Blaga resigned after thousands of police officers went on strike over the 25% pay cut.
ITALY
The Italian government has approved austerity measures worth 24bn euros for the years 2011-2012. The cuts amount to about 1.6% of Italian GDP
Italy aims to cut public sector pay and freeze new recruitment. Public sector pensions and local government spending are also being targeted, and there are plans to crack down on tax evasion.
Funding to city and regional authorities is expected to be cut by more than 13bn euros.
For the next three years there will be a freeze on public sector pay rises and cuts in public sector hiring, replacing only one employee for every five who leave.
Progressive pay cuts of up to 10% are planned for high earners in the public sector, including ministers and parliamentarians.
Retirement will be delayed by up to six months for those who reach retirement age in 2011.
Provincial governments serving fewer than 220,000 inhabitants will be scrapped, as will several publicly funded think-tanks.
GERMANY
The German government has proposed plans to cut the budget deficit by a record 80bn euros ($96bn; £66bn), or 3% of GDP, by 2014.
The total deficit in 2009 was 3.1%, but is projected to grow to more than 5% this year.
"Germany has an outstanding chance to set a good example," said German Chancellor Angela Merkel.
The plans include a cut in subsidies to parents, 10,000 government job cuts over four years, and higher taxes on nuclear power. The rebuilding of the baroque Stadtschloss palace in the heart of Berlin will also be postponed.
PORTUGAL
The Socialist government of Jose Socrates has announced a range of austerity measures aimed at cutting the deficit to 7.3% this year and 4.6% in 2011.
Top earners in the public sector, including politicians, will see a 5% pay cut.
VAT will rise by 1% and there will be income tax hikes for those earning more than 150,000 euros. By 2013 they will face a 45% tax rate.
By 2013 military spending will have been cut by 40% and the government is delaying the launch of two high-speed rail links - the Lisbon-Porto and Porto-Vigo routes.
Thursday, October 21, 2010
Wednesday, August 04, 2010
Economic Expert Says the Key to Creating Growth for Multinationals Post-Crisis Is to Focus on Core Business and Expand Their Global Footprint
In a recent Reuters interview that was featured in UK's The Guardian, the founder and president of the Krull Corporation, Dr. Alexander Mirtchev, discussed the impact of the global economic slowdown and the financial crisis on the growth potential of major multinationals, in particular in the emerging markets.
"Despite the fact that multinationals generate the majority of their total revenues from developed economies, emerging markets could provide the all-too-necessary upside that may be the difference between success and failure during the crisis, its fallout and, most importantly, in the positioning for recovery," he said.
"Granted that the pressure on all emerging markets is similar – dealing with the global slowdown in demand and the credit crunch, overexposure to major currencies and commodities price fluctuations, in a number of casesoverleveraging and budget deficits among other things -- they are by nomeans a 'single class of assets,' and are going to act and react differently, and reach distinctly separate outcomes. From China to Chile, emerging market economies are equipped with specific advantages that would affect multinationals' decision-making process -- large reserves, greater access to natural resources, or access to new avenues and options to deal with the crisis as part of the EU," he indicated. "In addition, in these interventionist times, some are more agile, easier to 'manage' from the top, and can adjust more quickly to the crisis, provided their governments have the necessary political will and wherewithal," stated Mirtchev.
According to Dr.Mirtchev, multinationals such as GE should not succumb to growing financial pressures, but should rather "stay the course, and approach local turbulences as part of any systemic business problem that will be around for a while." The upside is that "even though these markets are not decoupled from the world economy and will slow down further, significant segments of these markets are placed to do better in comparison with the rest of the world."
Secondly, "these markets can not only provide a certain offsetting counterweight to the impact of the downturn on multinationals' bottom line,but, significantly, are the markets via which multinationals should growtheir global footprint looking beyond the recession," he indicated.
That is to say that multinationals should utilize the relatively positive-looking segments of markets, such as China, India, Brazil, and even Russia, despite its own economic travails, etc., to partially offset the effect of the slowdown elsewhere, and, most importantly, to provide themselves with a springboard for further regional and global growth. An eventual recovery is inevitable and appropriate positioning today is critical to tomorrow's success.
The Reuters article with Dr.Mirtchev was published in the United Kingdom's Guardian newspaper and can be viewed in its entirety at: "Emerging markets lend some support to GE outlook."
Several interviews with Dr. Mirtchev on the global economy can be viewed at www.youtube.com/focuswashington.
Dr. Mirtchev is also a member of the board of directors of the Kazakhstan sovereign wealth fund "Samruk-Kazyna."
December 8, 2008
"Despite the fact that multinationals generate the majority of their total revenues from developed economies, emerging markets could provide the all-too-necessary upside that may be the difference between success and failure during the crisis, its fallout and, most importantly, in the positioning for recovery," he said.
"Granted that the pressure on all emerging markets is similar – dealing with the global slowdown in demand and the credit crunch, overexposure to major currencies and commodities price fluctuations, in a number of casesoverleveraging and budget deficits among other things -- they are by nomeans a 'single class of assets,' and are going to act and react differently, and reach distinctly separate outcomes. From China to Chile, emerging market economies are equipped with specific advantages that would affect multinationals' decision-making process -- large reserves, greater access to natural resources, or access to new avenues and options to deal with the crisis as part of the EU," he indicated. "In addition, in these interventionist times, some are more agile, easier to 'manage' from the top, and can adjust more quickly to the crisis, provided their governments have the necessary political will and wherewithal," stated Mirtchev.
According to Dr.Mirtchev, multinationals such as GE should not succumb to growing financial pressures, but should rather "stay the course, and approach local turbulences as part of any systemic business problem that will be around for a while." The upside is that "even though these markets are not decoupled from the world economy and will slow down further, significant segments of these markets are placed to do better in comparison with the rest of the world."
Secondly, "these markets can not only provide a certain offsetting counterweight to the impact of the downturn on multinationals' bottom line,but, significantly, are the markets via which multinationals should growtheir global footprint looking beyond the recession," he indicated.
That is to say that multinationals should utilize the relatively positive-looking segments of markets, such as China, India, Brazil, and even Russia, despite its own economic travails, etc., to partially offset the effect of the slowdown elsewhere, and, most importantly, to provide themselves with a springboard for further regional and global growth. An eventual recovery is inevitable and appropriate positioning today is critical to tomorrow's success.
The Reuters article with Dr.Mirtchev was published in the United Kingdom's Guardian newspaper and can be viewed in its entirety at: "Emerging markets lend some support to GE outlook."
Several interviews with Dr. Mirtchev on the global economy can be viewed at www.youtube.com/focuswashington.
Dr. Mirtchev is also a member of the board of directors of the Kazakhstan sovereign wealth fund "Samruk-Kazyna."
December 8, 2008
Thursday, May 27, 2010
FRONTIERS-Sovereign wealth rewrites old-world rules
By Natsuko Waki
LONDON, May 27 (Reuters) - Sovereign wealth funds -- national vehicles created to grow state wealth for the future -- have long experience investing in exotic and lesser-known lands. To these funds, many of which originate in what the West calls the "frontier" region, it's a local market.
This year alone, countries including China, Singapore, South Korea, Kazakhstan, Azerbaijan and Abu Dhabi have invested easily more than $1 billion in frontier markets, in such projects as mines in Mongolia and companies in Africa, the Caribbean and Latin America.
The often secretive heavyweights of the financial world, sovereign funds control around $3-4 trillion in assets and include some established players on tricky terrain. Because their investments are so influential, their presence can be manipulated to wrong-foot other investors.
So the sovereign wealth funds' tendency to be opaque adds to the challenge for investors in frontier markets. But beyond this, they are also having a broader influence, bringing a "frontier factor" to the rest of the world.
"Most SWFs are themselves a creation that should be looked at in the context of frontier markets," said Alexander Mirtchev, independent director of a sovereign wealth fund from the "frontier" region and a member of the board of trustees on the Kissinger Institute on China and the United States.
"The frontier is part of their DNA, and this 'frontier make-up' to a large extent determines their competitive advantages, as well as in some cases the problems that SWFs sometimes face."
Backed by leverage-free reserves beyond the dreams of most indebted rich-world countries, the funds' "south-south" investment is more than a sideshow: it's reinforcing their role as powerbrokers of global markets.
HISTORY LESSON
To get the picture it's worth considering that in a sense, sovereign funds have been actively investing on the frontiers for at least 400 years.
The East India Company -- an English trading company in the 17-19th centuries backed by the state -- functioned loosely like a modern sovereign wealth fund. It pursued trade in commodities including spice, cotton, tea and opium in the then-frontier markets of China and India, creating regional markets and helping develop local economies.
Other European corporations including the 17th-century Dutch East India Company, VOC, served as tools of colonial power -- an extension of states -- just as do some sovereign funds today.
The difference between the pioneers of the past and the present is that today, much of the wealth and influence come not from the modern rich world, but from resource-rich countries with very different values.
SOUTH-SOUTH TIES
Concrete figures are hard to come by, but experts estimate the allocation of sovereign wealth fund assets to frontier markets is less than 5 percent.
That would translate into $150 billion, which eclipses the total market capitalization of the benchmark MSCI Frontier Markets equity index at $120 billion.
What for the funds is small exposure makes a huge difference to recipients. Their presence brings mutual benefits.
The funds and their targets in poor countries often have shared experience on the economic margins, which fosters a cultural affinity.
Countries on the investment frontiers desperately need long-term capital, which sovereign wealth funds can provide.
Recent economic ructions in the West add to the incentive for stronger ties: the risk in developed-market investments has increased, but the prospect of commensurate rewards has not.
Sovereign funds are keen to diversify into illiquid but higher-yielding assets in frontier economies in the hope of providing returns for future generations. And unlike the quarter-to-quarter reporting required from companies in the West, these funds can wait a long time before showing returns.
"Most SWFs are seeking new and untapped sources of diversification and alpha generation," said Cynthia Sweeny Barnes, global head of sovereigns and supranationals at HSBC Global Asset Management.
"Frontier markets offer interesting risk-reward dynamics, particularly for investors with permanent capital. The low level of information in frontier markets creates often significant pricing inefficiencies, which active investors can exploit."
SHHHH
Modern sovereign funds have been thrust further into the global economic limelight since the credit crisis cut funding for the hedge funds and private equity groups that had been cocks of the walk.
Only a few years ago, Western politicians were making headlines with attacks on sovereign funds for their secretive ways: behind this were fears their motives were political, rather than commercial.
Keen to be accepted, many did make an effort to open up. But since the credit crisis, political calls for greater transparency from the funds have quietened.
"Once regarded as subversive agents of state capitalism, they are now sought-after providers of capital," Sven Behrendt, a visiting scholar at the Carnegie Middle East Center, said in a study for the centre this month.
"Their growth dynamic suggests that their investment and policy behavior will resonate across the global economy."
These funds need a degree of secrecy to function.
Already, their investment decisions are closely followed by the wider investment community, as the global importance of the industry grows. It is forecast by Deutsche Bank to more than double in less than 10 years.
In a fiercely competitive investment environment, others in the market sniff about for deals that anticipate the moves sovereign funds will make. A practise known as front-running, that risks pushing up prices before the funds invest.
"Because we are generally large institutional investors, there is the whole community of investment banks, brokers, analysts and others who want to front-run our investments in the market," David Murray, chairman of the board of guardians at Australia's Future Fund, told a news conference last October.
"In doing so they would use all sorts of techniques to find out from us exactly where we are in the market in terms of timing. It is not in the interest of the funds nor our community to be involved in that game because it would be detrimental to our investment returns."
LONDON, May 27 (Reuters) - Sovereign wealth funds -- national vehicles created to grow state wealth for the future -- have long experience investing in exotic and lesser-known lands. To these funds, many of which originate in what the West calls the "frontier" region, it's a local market.
This year alone, countries including China, Singapore, South Korea, Kazakhstan, Azerbaijan and Abu Dhabi have invested easily more than $1 billion in frontier markets, in such projects as mines in Mongolia and companies in Africa, the Caribbean and Latin America.
The often secretive heavyweights of the financial world, sovereign funds control around $3-4 trillion in assets and include some established players on tricky terrain. Because their investments are so influential, their presence can be manipulated to wrong-foot other investors.
So the sovereign wealth funds' tendency to be opaque adds to the challenge for investors in frontier markets. But beyond this, they are also having a broader influence, bringing a "frontier factor" to the rest of the world.
"Most SWFs are themselves a creation that should be looked at in the context of frontier markets," said Alexander Mirtchev, independent director of a sovereign wealth fund from the "frontier" region and a member of the board of trustees on the Kissinger Institute on China and the United States.
"The frontier is part of their DNA, and this 'frontier make-up' to a large extent determines their competitive advantages, as well as in some cases the problems that SWFs sometimes face."
Backed by leverage-free reserves beyond the dreams of most indebted rich-world countries, the funds' "south-south" investment is more than a sideshow: it's reinforcing their role as powerbrokers of global markets.
HISTORY LESSON
To get the picture it's worth considering that in a sense, sovereign funds have been actively investing on the frontiers for at least 400 years.
The East India Company -- an English trading company in the 17-19th centuries backed by the state -- functioned loosely like a modern sovereign wealth fund. It pursued trade in commodities including spice, cotton, tea and opium in the then-frontier markets of China and India, creating regional markets and helping develop local economies.
Other European corporations including the 17th-century Dutch East India Company, VOC, served as tools of colonial power -- an extension of states -- just as do some sovereign funds today.
The difference between the pioneers of the past and the present is that today, much of the wealth and influence come not from the modern rich world, but from resource-rich countries with very different values.
SOUTH-SOUTH TIES
Concrete figures are hard to come by, but experts estimate the allocation of sovereign wealth fund assets to frontier markets is less than 5 percent.
That would translate into $150 billion, which eclipses the total market capitalization of the benchmark MSCI Frontier Markets equity index at $120 billion.
What for the funds is small exposure makes a huge difference to recipients. Their presence brings mutual benefits.
The funds and their targets in poor countries often have shared experience on the economic margins, which fosters a cultural affinity.
Countries on the investment frontiers desperately need long-term capital, which sovereign wealth funds can provide.
Recent economic ructions in the West add to the incentive for stronger ties: the risk in developed-market investments has increased, but the prospect of commensurate rewards has not.
Sovereign funds are keen to diversify into illiquid but higher-yielding assets in frontier economies in the hope of providing returns for future generations. And unlike the quarter-to-quarter reporting required from companies in the West, these funds can wait a long time before showing returns.
"Most SWFs are seeking new and untapped sources of diversification and alpha generation," said Cynthia Sweeny Barnes, global head of sovereigns and supranationals at HSBC Global Asset Management.
"Frontier markets offer interesting risk-reward dynamics, particularly for investors with permanent capital. The low level of information in frontier markets creates often significant pricing inefficiencies, which active investors can exploit."
SHHHH
Modern sovereign funds have been thrust further into the global economic limelight since the credit crisis cut funding for the hedge funds and private equity groups that had been cocks of the walk.
Only a few years ago, Western politicians were making headlines with attacks on sovereign funds for their secretive ways: behind this were fears their motives were political, rather than commercial.
Keen to be accepted, many did make an effort to open up. But since the credit crisis, political calls for greater transparency from the funds have quietened.
"Once regarded as subversive agents of state capitalism, they are now sought-after providers of capital," Sven Behrendt, a visiting scholar at the Carnegie Middle East Center, said in a study for the centre this month.
"Their growth dynamic suggests that their investment and policy behavior will resonate across the global economy."
These funds need a degree of secrecy to function.
Already, their investment decisions are closely followed by the wider investment community, as the global importance of the industry grows. It is forecast by Deutsche Bank to more than double in less than 10 years.
In a fiercely competitive investment environment, others in the market sniff about for deals that anticipate the moves sovereign funds will make. A practise known as front-running, that risks pushing up prices before the funds invest.
"Because we are generally large institutional investors, there is the whole community of investment banks, brokers, analysts and others who want to front-run our investments in the market," David Murray, chairman of the board of guardians at Australia's Future Fund, told a news conference last October.
"In doing so they would use all sorts of techniques to find out from us exactly where we are in the market in terms of timing. It is not in the interest of the funds nor our community to be involved in that game because it would be detrimental to our investment returns."
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