Iceland government's move to reject EU talks sparks protest

Icelanders staged the largest demonstration on the island since a 2008 financial meltdown on Sunday to protest against what they saw as the underhand way the government pulled out of talks on joining the European Union. 

PHOTO: EPA

16 Mar7:03 AM

[REYKJAVIK] Icelanders staged the largest demonstration on the island since a 2008 financial meltdown on Sunday to protest against what they saw as the underhand way the government pulled out of talks on joining the European Union.

The North Atlantic nation of 325,000 people was driven to the verge of bankruptcy in 2008 after the collapse of its banks.

The crisis boosted support for membership of the EU in a country that had traditionally been isolated from mainland Europe and has often clashed with the bloc over quotas for fishing - a main driver of the economy.

About 7,000 people, or some 7 percent of the population of the capital Reykjavik, turned out to protest the government's decision which the opposition said had been made without sufficient consultation. "The government does not dare to face either parliament or the public on this issue, but tries to trick the EU into accepting a change of Iceland's status," said Arni Pall Arnason, leader of largest opposition party, the Social Democratic Alliance.

Iceland had started talks on joining the EU in 2009 but popular support has retreated since the current, more Eurosceptic, government came to power two years ago and as the economy gradually recovers.

The government announced on Thursday that Iceland was no longer an EU candidate country and said it had informed the current EU president Latvia.

The opposition responded with a letter to EU institutions saying that as it was Iceland's parliament which gave the mandate in 2009 to the government to apply for membership, it was only parliament that could now withdraw it. "I am protesting against these oddities that happened where people think they can put an end to this process with a backroom decision," said Gunnar Gunnarsson, a 41-year-old specialist in geothermal energy, who protested in Reykjavik.

In a sharp exchange, the government said the opposition had exceeded its authority by writing the letter. "If this is not a coup d'etat, that a minority in parliament is sending a letter to the EU and misinterpreting or making light of the democratic authority that the majority has, then that is very strange to me," Foreign Minister Gunnar Bragi Sveinsson told Stod 2 television channel.

Polls show in general more people in Iceland are against than pro the EU. However, many still want to see a 'final contract' before deciding whether to reject membership. "Yet another promise the government in this country breaks,"said Thorhildur Sunna Aevarsdottir, a human rights lawyer in her twenties. "They should keep their promises and that is at least better than stopping in the middle of the negotiations and making fools of us internationally, as they just did."

Iceland's economy has recovered to exceed pre-crisis levels and it is about to return to market norms with plans to lift capital controls.

REUTERS

      

China central bank chief says to maintain prudent policy as economy slows

China has no need to change its prudent monetary policy stance, central bank governor Zhou Xiaochuan said on Thursday, after a raft of data suggested the world's second-largest economy lost further momentum early in the new year. 

PHOTO: AFP

12 Mar4:13 PM

[BEIJING] China has no need to change its prudent monetary policy stance, central bank governor Zhou Xiaochuan said on Thursday, after a raft of data suggested the world's second-largest economy lost further momentum early in the new year.

"The new normal condition is not special. There are problems, (but) this does not necessarily require a new monetary policy formula," Mr Zhou told a news conference during China's annual parliamentary session in Beijing.

Money supply growth is appropriate, while policy adjustments have kept liquidity levels at appropriate levels, Mr Zhou said.

Data released so far for early 2015 show the economy may already be at risk of missing the government's newly-minted growth target of around 7 per cent for this year, which itself would mark a quarter-century low. Leaders have described the target as the "new normal", acknowledging pressures on growth while reiterating their commitment to reforms.

Growth in investment, retail sales and factory output all missed forecasts in January and February and fell to multi-year lows, leaving investors with little doubt that the economy is in need of further support measures.

Exports picked up in the first two months but imports slid some 20 per cent, pointing to persistent weakness in the economy, while deflationary pressures in the factory sector have intensified.

New loans in January and February combined were well below the same period in 2014, though they easily beat expectations for February alone.

China is likely to cut interest rates or reserve requirements again if consumer inflation drifts below 1 per cent, a member of the central bank's monetary policy committee told Reuters on Wednesday, as he ruled out more support for the sagging property market.

The central bank has cut interest rates twice since November, and in early February reduced the amount of cash that banks must hold as reserves (RRR), freeing up fresh liquidity to flow into the economy to offset rising outflows of capital.

While the government has insisted it will not roll out a massive stimulus programme like the one it unveiled during the global financial crisis, fearing an even bigger build up of debt, economists say the central bank has embarked on its most aggressive easing campaign since 2008/09 as it seeks to avert a sharper economic slowdown.

Weighed down by a property downturn, widespread factory overcapacity and rising debt - the world's second-largest economy grew 7.4 per cent in 2014, the slowest pace in 24 years, even after a raft of stimulus measures.

REUTERS

China's economy experiencing "period of pain": vice minister

China's economy is going through a "period of pain" as authorities try to shift it towards slower, more sustainable growth, with the rapid expansion of its shadow banking sector a major problem, the vice finance minister said on Saturday. 

PHOTO: BLOOMBERG

15 Nov1:40 PM

[BRISBANE] China's economy is going through a "period of pain" as authorities try to shift it towards slower, more sustainable growth, with the rapid expansion of its shadow banking sector a major problem, the vice finance minister said on Saturday. "We do have problems that have been accumulating over time," Vice Finance Minister Zhu Guangyao told reporters at the G20 Leaders Summit in Australia.

Zhu reiterated President Xi Jinping's catchphrase of a "new normal" for the Chinese economy, saying it would be "running at relatively high speed instead of super high speed." "We are changing gear and our economic structure is undergoing a period of pain and a period where we are absorbing the large-scale stimulus packages we rolled out earlier," he said.

The IMF expects global growth of 3.3 per cent this year, with China growing 7.4 per cent and the United States 2.2 per cent. That would still be China's slowest growth in 24 years.

Zhu said shadow banking, a term that broadly refers to a variety of lending that does not appear on bank balance sheets, and overcapacity in the parts of the economy were some of the major problems facing China. "The main problem of shadow banking is the offshoot business of the banks, and it's mainly about the trust funds that they run," Zhu said.

The Financial Stability Board said in a recent report that China's shadow banking sector grew rapidly in 2013 and was now the third largest in the world.

Zhu said the size of the shadow banking sector compared with the total financial volume of the world's second-largest economy "is not that great, but the biggest risk here is that growth is very rapid." Beijing has been trying to rein in the riskier elements of shadow banking without shutting down the flow of money to smaller businesses that need funding.

Figures on Friday showed bank lending tumbled in October and money supply growth cooled, raising fears of a sharper economic slowdown and prompting calls for more stimulus measures, including cutting interest rates.

Zhu said the global economy recovery was too slow and unbalanced, and also called on the United States to ratify a much-delayed IMF quota and governance reform package. "We also really hope to see that our partners in Europe, in Japan... will restore a relatively high growth rate," he said.

REUTERS

      

Merkel urges closer tech ties with rising IT giant China

16 Mar7:18 AM

[HANOVER] German Chancellor Angela Merkel on Sunday urged closer high-tech cooperation with China as she opened a major IT business fair where the Asian giant is the official partner country.

"German business values China not just as our most important trade partner outside of Europe but also as a partner in developing sophisticated technologies," she said.

"Especially in the digital economy, German and Chinese companies have core strengths... and that's why cooperation is a natural choice." Merkel was speaking at the opening the CeBIT fair in the western city of Hanover, where more than 600 Chinese companies will exhibit their tech marvels this week, showcasing the country's rise as an IT power.

China's information and communication technology has bucked the country's wider slowdown in economic growth and is booming in what is now the world's biggest smartphone market with the highest number of Internet users.

For Germany, Europe's top economy, the event aims to further cement business ties with fellow export power China as both seek to adapt to the sweeping digitisation of the world economy.

Germany is already by far the biggest European economic player in China. Two-way trade last year reached 150 billion euros (S$219 billion). Both countries have declared 2015 the year of their "innovation partnership".

Chinese Premier Li Keqiang in a video message praised Germany as "an industrial powerhouse and land of thinkers" and said he looked forward to more German-Chinese cooperation in "web-based, digital and intelligent technologies".

He said both countries' digital strategies complement each other and that he hoped "to further strengthen our comprehensive strategic partnership and embark together on a path of win-win cooperation and joint prosperity in the world".

The almost three-decade old CeBIT once dazzled consumers with gadgets but has been overshadowed by big tech events in Las Vegas and Barcelona, leading it to focus on business users. Last year, IT professionals made up more than 90 per cent of the more than 200,000 visitors.

China's huge showing "makes it the biggest and strongest partner country presentation we've ever seen at CeBIT," said top exhibition executive Oliver Frese.

Its tech giants including Huawei, Xiaomi and Lenovo filled more than 3,000 square metres of exhibition space.

"China was known as a supplier of components and later as a supplier of hardware, smartphones, tablets and also PCs," said CeBIT spokesman Hartwig von Sass.

"Now China has numerous companies that have become world leaders... We see this as a shift on the world map: digitisation is going east." The head of German IT industry group BITKOM, Dieter Kempf, expressed awe at the scale of the Chinese market.

"This consumer market in China is something we can barely comprehend, more than 1.2 billion people with significant pent-up demand for IT solutions, which is far beyond European dimensions," he told AFP.

The keynote speaker at the opening ceremony was China's richest man, Jack Ma, head of online merchant Alibaba - China's answer to eBay and Amazon - who shared his vision of the future in a talk brimming with enthusiasm.

Ma said that while previous industrial revolutions had relieved people of the need to use their physical strength, the digital "revolution... liberates the strength of the human brain".

"In the future... the machines must talk, the machines must think, and the machine is not going to be supported by oil, by electricity, the machine is going to be supported by data." Strolling across the stage, he told his audience: "It's not the technology that can change the world, it's the dreams behind the technology that change the world." He then demonstrated a new e-payment system that uses facial recognition as a digital signature, saying he had used it to send a historic Hanover postage stamp as a gift to the mayor of the host city.

The choice of China as CeBIT partner country throws a spotlight on its huge Internet surveillance system dubbed the "Great Firewall of China".

AFP

China has 'ample' room for stimulus: Premier Li

15 Mar2:53 PM

[BEIJING] The Chinese government has more weapons in its arsenal to boost the world's second-largest economy, Premier Li Keqiang said Sunday as he sought to ease concerns about flagging growth.

Li earlier this month decreased China's annual growth target to "approximately seven per cent", the lowest since a similar goal in 2004, after the economy expanded 7.4 per cent last year, the slowest pace in nearly a quarter of a century.

Fears are on the rise that Chinese expansion, a key driver of the global economy, may slow further after official data released last week showed the country's production, consumption and investment growth all fell to multi-year lows.

Authorities have so far avoided big-ticket incentives to bolster growth like the unprecedented four-trillion-yuan stimulus package Beijing deployed at the height of the global financial crisis.

But Li signalled that more measures could be taken, telling reporters at his annual press conference: "We still have a host of policy instruments at our disposal." Beijing was prepared to "step up our targeted macro-economic regulation" to boost market confidence if growth slowed to approach the "lower limit of our proper range" and threatened employment and incomes.

"The good news is that in the past couple of years, we did not resort to massive stimulus measures for economic growth," he said after the close of the country's Communist-controlled National People's Congress legislature, adding that gave authorities "fairly ample room" to act.

Top Chinese leaders have said the economy is in a delicate transition phase away from decades of double-digit annual growth to a new, slower model that authorities say is more sustainable, a stage that they have branded as "new normal".

But underlining official concerns, the central People's Bank of China cut benchmark deposit and lending interest rates in late February for the second time in three months, citing "historically low inflation".

AFP

   

Divergent: The euro fizzles while the US dollar sizzles

PUBLISHED ON MAR 13, 2015 2:38 PM

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A picture illustration shows U.S. Dollar and Euro banknotes in Sofia on March 12, 2015. Like a magician pulling off a sudden disappearance act, the strength of the euro is fast vanishing. -- PHOTO: REUTERS

BY MOK FEI FEI

SINGAPORE - Like a magician pulling off a sudden disappearance act, the strength of the euro is fast vanishing.

On Thursday, the euro hit a fresh 12-year low of US$1.0535, having fallen about 13 per cent aganst the dollar since the start of the year.

The two currencies are diverging so fast that the euro may soon reach parity with the dollar - or a one to one exchange rate - something not seen since 2002 when the physical notes and coins of the euro were first introduced.

What's the cause?

The US dollar is soaring against the euro on because of their starkly diverging monetary policies.

The European Central Bank (ECB) is adding stimulus - amounting to 1.1 trillion euros (S$1.62 trillion) - to the 19-member eurozone while the US Federal Reserve is moving ever closer to an interest rate hike.

The ECB began its landmark 60 million euros per month bond buying programme on Monday (March 9) with the aim to fend off deflation and boost the eurozone economy by pumping more money into real economy.

Meanwhile, a strong jobs report out last Friday (March 6) has bolstered market speculation that the Fed will raise rates in June.

How low will the euro go?

UOB is forecasting the euro would test the US$1.03 mark by the middle of the year, reach parity with the dollar by the third quarter and fall to 97 US cents by the end of the year.

Bank of Singapore's senior currency strategist Sim Moh Siong is also not ruling out the possibility of the euro falling below parity.

"There are green shoots of recovery in Europe but that's all from depressed levels of activity and there are still risks on the horizon in Greece where there could be tensions over the implementation of reforms.

"If things flare up anew, it could affect sentiment and lead to capital flight to safety, away from the euro."

How will euro-dollar divergence affect the Sing dollar?

Even though the Singapore dollar is also weakening against the greenback, the healthier state of the economy here would mean a stronger Singdollar versus the euro, says UOB economist Lee Sue Ann.

"It's a good time to go to Europe for shopping. We're expecting the euro to hit $1.41 by the middle of the year and below $1.40 by the end of the year," she said.

The euro traded around $1.4632 in Asian trading on Thursday.

As Europe is a major economic partner of Singapore, the Singdollar, which trades against a basket of currencies including the euro, would also be under downward pressure, noted Mr Sim.

"The euro could weaken more than the Singdollar because of QE in Europe while for Singapore, the economy is doing ok so it is debatable whether there will be further policy easing."

The Monetary Authority of Singapore is slated to hold its policy-setting meeting in April.

China's Premier Li Keqiang says it won't be easy to grow economy by 7 per cent in 2015

PUBLISHED ON MAR 15, 2015 11:31 AM

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Chinese Premier Li Keqiang said the government will loosen policies, if needed, in a targeted manner to prevent the economy from slowing too much, or avoid a sharp decline in employment. -- PHOTO: REUTERS

BEIJING (Reuters) - It won't be easy for China to grow its economy by around 7 per cent this year as targeted by the government, Chinese Premier Li Keqiang said on Sunday, but the authorities will do what they can to ensure growth stays within a reasonable range.

Mr Li said the government will loosen policies, if needed, in a targeted manner to prevent the economy from slowing too much, or avoid a sharp decline in employment.

He also said that China faces financial dangers as its economy cools, but the authorities can prevent systemic risks.

EU, Germany raise 'Grexit' alarm over Greece bailout

EU Commission chief Jean-Claude Juncker has warned of an alarming lack of progress in talks on Greece's bailout, as Germany raised the spectre of a tumultuous Greek exit from the euro. 

PHOTO: REUTERS

14 Mar12:44 PM

[BRUSSELS] EU Commission chief Jean-Claude Juncker has warned of an alarming lack of progress in talks on Greece's bailout, as Germany raised the spectre of a tumultuous Greek exit from the euro.

Mr Juncker was meeting Alexis Tsipras, the leader of the hard-left Syriza party who came to power in January, on Friday just days after Mr Tsipras renewed a demand that powerful Germany repay debts from its Nazi past.

"I am not satisfied by the developments in the recent weeks," Mr Juncker said before talks began with Greece's 40-year-old premier and amid acute concern that Greek coffers could run empty at any moment.

"I don't think we have made sufficient progress, but we will try to push in the direction of a successful conclusion of the issues we have to deal with." Greece won a four-month extension of its EU-IMF bailout in February - despite Tsipras initially saying he wanted to abandon austerity and have a completely new arrangement - but it will not get any of the cash until new reforms are approved by its eurozone partners.

But frustrations with the Greek government are mounting among its 18 fellow eurozone members after Athens renewed its claim to Germany for World War II debts seen as outlandish by its partners.

Greece's harshest critic, German Finance Minister Wolfgang Schaeuble, warned that with all the time wasted, a disorderly "Grexident" that could accidentally push Athens out of the euro could not be excluded.

"To the extent that Greece is solely responsible and decides what is to happen, and we don't know exactly what Greek leaders are doing, we can't exclude it," Mr Schaeuble told Austrian broadcaster ORF.

A German finance ministry spokeswoman later rowed back on Schaeuble's comments, stressing that "we do not want Greece to leave."

Eurogroup head Jeroen Dijsselbloem - the Dutch finance minister whose own relations with new Greek counterpart Yanis Varoufakis have been testy - also criticised the attitude from Athens.

"In Greece, too much blame for Greece's problems is laid outside Greece and Germany is now the preferred victim," Mr Dijsselbloem told Dutch state broadcaster NOS.

"There's a lot of verbal violence. This doesn't serve any purpose." Mr Juncker however insisted after his meeting with Mr Tsipras that failure was not an option, and pleaded for a breakthrough.

"I am totally excluding a failure, I don't want a failure. I would like Europeans to go together," the former Luxembourg premier said.

The two agreed that former Latvian premier Valdis Dombrovskis, the European Commission vice-president for the euro, would lead a "task force" that would deal with Greek officials for further talks.

Greek Defence Minister Panos Kammenos warned in an interview Saturday that a Greek exit would have a "domino effect" on the eurozone.

"If Greece explodes, then Spain and Italy are next. And, eventually, Germany. That is why we must find a solution within the euro," he told the German daily Bild.

Rather than a third bailout, he said Greece needed "debt forgiveness" like that offered to a shattered Germany after the war.

Bringing up the issue of World War II reparations, he also argued that "all other European countries had been compensated" except Greece.

European officials behind-the-scenes warned that the dangers of a "Grexit" remained acute.

"Juncker told Tsipras he was very worried and could not exclude an 'accident'," an official told AFP on condition of anonymity. "He urged Tsipras to multiply his efforts... and avoid statements that could only divide." With Greece likely to seek a third bailout since 2010 later this year, Tsipras stressed the need for a longer-term solution.

"I want to be sincere to you that I have spent 90 per cent of my time to discuss about the short-term deliberations with our partners in order to find a compromise," he said.

"But I think now it's time to think about the future." Athens faces an urgent cash crunch, having to find 6.0 billion euros (US$6.4 billion) in the next two weeks alone to pay its creditors.

That cash emergency deepened after Athens revealed Friday that state revenue was nearly one billion euros short of projections last month.

But as the budget noose tightens, Germany and its partners have held a hard line against the Greek government, which must first detail its reform plans before any release of more European cash.

The EU's economic affairs commissioner Pierre Moscovici cautioned however that Europeans "probably all agreed... that a 'Grexit' would be a disaster for the Greek economy, but also for the whole eurozone".

Any country leaving the eurozone could spell the "beginning of the end" of the European project, he said.

AFP