French credit review threatens euro zone rescues
The U.S. ratings agency said late on Monday it may slap a negative outlook on France’s Aaa rating in the next three months if slower growth and the costs for helping bail out banks and other euro zone members stretch its budget too much.”The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating,” Moody’s said in its annual report on France.The warning, which sent the risk premium on French government bonds shooting up to a euro lifetime high, came as European Union leaders are preparing measures to protect the region’s financial system from a potential Greek debt default.That strategy includes new steps to reduce Greece’s debt, strengthening the capital of banks with exposure to troubled euro zone sovereigns and leveraging the euro zone’s rescue fund to prevent market contagion to bigger economies.The October 23 summit is likely to agree to leverage the bailout fund by allowing it to guarantee a portion of newly issued euro zone debt, euro zone officials said.With about 300 billion euros of its 440 billion-euro capacity still available, by guaranteeing the first 20-30 percent of any losses, the European Financial Stability Facility could stretch three to five times further.”This idea is the main contender,” one official said.Economy Minister Francois Baroin insisted that France’s AAA status was not at risk but acknowledged that the 1.75 percent growth forecast on which the government has based its 2012 budget was over-optimistic and would have to be revised down.”The triple-A is not in danger because we will be even ahead of schedule on passing deficit reduction measures,” Baroin said on France 2 television.”We will do everything to avoid being downgraded.”Asked if next year’s growth outlook would have to be reduced in light of weak economic prospects, he added: “It is probably too high compared to the development of the economic situation.France and Germany, the two strongest economies among the 17 euro zone members, form the backbone of the EFSF rescue fund and are drafting a crisis-fighting strategy for Sunday’s summit.Without France’s triple-A rating, the whole edifice of rescue measures for troubled peripheral euro zone states would begin to crumble, putting more weight on Germany, where there is a strong public backlash against bailouts.German leaders on Monday doused market hopes of a miracle cure at Sunday’s Brussels summit, saying no one should expect a “definitive solution.Analysts said the ratings agency’s move was unusual, since it had not put France on ratings watch, but it was a signal to the government that it needed to adopt a more realistic growth assumption and adjust its budget measures accordingly.Monday’s review was only a preliminary step, but a negative outlook would be a sign that Moody’s could downgrade its rating on France in the next couple of years. It placed the United States’s Aaa rating on negative outlook in August.The two other major ratings agencies, Standard & Poor’s and Fitch, reaffirmed Paris’ triple-A rating in August when French banks came under fierce market pressure over their exposure to the weakest euro zone sovereigns.FRENCH SPREAD HITS RECORDThe spread on French 10-year bonds over benchmark German bonds jumped to a 16-year high of 101 basis points, more than 1 percentage point and safe-haven German Bund futures rose on ebbing hopes of a quick solution to the debt crisis.European shares fell, partly due to news that China’s growth slowed slightly more than expected in the third quarter. chief Josef Ackermann, who is also chairman of the IIF, resisting pressure on both fronts.Ackermann has objected to efforts to force banks to raise more capital and IIF lead negotiator Charles Dallara told Reuters on Monday that bigger writedowns on Greek bonds could only happen if policymakers addressed broader sovereign debt issues in Europe.
French credit review threatens euro zone rescues
The U.S. ratings agency said late on Monday it may slap a negative outlook on France’s Aaa rating in the next three months if slower growth and the costs for helping bail out banks and other euro zone members stretch its budget too much.”The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating,” Moody’s said in its annual report on France.The warning, which sent the risk premium on French government bonds shooting up to a euro lifetime high, came as European Union leaders are preparing measures to protect the region’s financial system from a potential Greek debt default.That strategy includes new steps to reduce Greece’s debt, strengthening the capital of banks with exposure to troubled euro zone sovereigns and leveraging the euro zone’s rescue fund to prevent market contagion to bigger economies.The October 23 summit is likely to agree to leverage the bailout fund by allowing it to guarantee a portion of newly issued euro zone debt, euro zone officials said.With about 300 billion euros of its 440 billion-euro capacity still available, by guaranteeing the first 20-30 percent of any losses, the European Financial Stability Facility could stretch three to five times further.”This idea is the main contender,” one official said.Economy Minister Francois Baroin insisted that France’s AAA status was not at risk but acknowledged that the 1.75 percent growth forecast on which the government has based its 2012 budget was over-optimistic and would have to be revised down.”The triple-A is not in danger because we will be even ahead of schedule on passing deficit reduction measures,” Baroin said on France 2 television.”We will do everything to avoid being downgraded.”Asked if next year’s growth outlook would have to be reduced in light of weak economic prospects, he added: “It is probably too high compared to the development of the economic situation.France and Germany, the two strongest economies among the 17 euro zone members, form the backbone of the EFSF rescue fund and are drafting a crisis-fighting strategy for Sunday’s summit.Without France’s triple-A rating, the whole edifice of rescue measures for troubled peripheral euro zone states would begin to crumble, putting more weight on Germany, where there is a strong public backlash against bailouts.German leaders on Monday doused market hopes of a miracle cure at Sunday’s Brussels summit, saying no one should expect a “definitive solution.Analysts said the ratings agency’s move was unusual, since it had not put France on ratings watch, but it was a signal to the government that it needed to adopt a more realistic growth assumption and adjust its budget measures accordingly.Monday’s review was only a preliminary step, but a negative outlook would be a sign that Moody’s could downgrade its rating on France in the next couple of years. It placed the United States’s Aaa rating on negative outlook in August.The two other major ratings agencies, Standard & Poor’s and Fitch, reaffirmed Paris’ triple-A rating in August when French banks came under fierce market pressure over their exposure to the weakest euro zone sovereigns.FRENCH SPREAD HITS RECORDThe spread on French 10-year bonds over benchmark German bonds jumped to a 16-year high of 101 basis points, more than 1 percentage point and safe-haven German Bund futures rose on ebbing hopes of a quick solution to the debt crisis.European shares fell, partly due to news that China’s growth slowed slightly more than expected in the third quarter. chief Josef Ackermann, who is also chairman of the IIF, resisting pressure on both fronts.Ackermann has objected to efforts to force banks to raise more capital and IIF lead negotiator Charles Dallara told Reuters on Monday that bigger writedowns on Greek bonds could only happen if policymakers addressed broader sovereign debt issues in Europe.
Video game maker revels in similarities to Cain’s tax plan
Now, the similarity of the plan to one used in a version of hit video game SimCity is drawing cheers from Redwood City, Calif., videogame maker Electronic Arts.SimCity4, released in 2003 by Electronic Arts, allows players to create and control virtual societies complete with playgrounds, stadiums and subways, and then destroy them by ordering up an earthquake or other natural disaster.As first reported by HuffingtonPost, the default tax plan for the game hits virtual citizens with three flat taxes of 9 percent, like Cain’s proposal.”As game designers we tried to keep taxes as a simple function of running your virtual city so the player can focus on having fun,” Kip Katserelis, a producer of the game for Electronic Arts’ Maxis unit, told Reuters.Lowering taxes in the game increases a player’s approval rating, while raising them brings in revenue needed “to fend off typical SimCity municipal issues like crime, pollution and giant lizard attacks,” he said.Cain has proposed scrapping the federal tax system and instituting a 9 percent national sales tax, 9 percent income tax and 9 percent tax on business profits.The video game plan sets a 9 percent housing tax, 9 percent commercial tax and 9 percent tax on factories.Mocked at last week’s Republican debate by rival Jon Huntsman as the price of a pizza and compared by Rep. Michele Bachmann to an upside-down version of the numerology representing Satan, the origin and ramifications of 9-9-9 plan have been the matter of debate.Cain has said the idea for his proposal came from Rich Lowrie, an employee of a branch of Wells Fargo Advisors near Cleveland. Lowrie is the only economic adviser that Cain has identified.A message to Lowrie’s Wells Fargo e-mail address generated a response from a co-worker, directing queries to the Cain campaign.”Rich serves as a volunteer on Mr. Cain’s campaign, and does so on his own behalf using his own time and his own resources,” the co-worker wrote.Cain’s campaign did not respond to messages seeking comment.Electronic Arts, which has sold more than 100 million units of the Sims franchise, is taking a tongue-in-cheek approach to the game’s association with Cain’s meteoric rise.”The team here is glad that he chose to build a platform off of our tax system, but there are so many other serious issues in SimCity that I would love to see a politician construct a game around,” said Katsarelis.”Is anyone looking at an alien invasion plan?
UPDATE 1-Debt crisis is top risk to German economy - institutes
* See German inflation dropping to 1.8 pct in 2012
(Adds details, background)By Sarah MarshBERLIN, Oct 13 (Reuters) - The greatest risk to Germany’s
economy is a worsening of the European debt crisis which could
lead to tighter credit conditions, leading economic institutes
said on Thursday in their keenly-eyed twice-yearly report.The eight institutes, which are seen as influential policy
advisers to the German government, cut their growth forecast for
Europe’s bulwark economy to 0.8 percent next year. In April,
they had forecast 2.0 percent.”The debt crisis in Europe is threatening to become a
banking crisis which is increasingly weighing on the German
economy too,” the institutes said.”The strongly increased uncertainty will dampen domestic
demand and foreign trade will probably no longer contribute to
the expansion due to the difficult situation of important trade
partners.”Germany’s export-driven economy has recovered swiftly from
the financial crisis, outperforming its peers and providing a
crucial growth engine and anchor of stability for Europe.Recent indicators however show German growth easing due to
the global slowdown and the euro zone’s debt crisis. Industry
output, orders and retail sales slumped in August.Forward-looking indicators are also gloomy, with business
sentiment dipping to its lowest level since mid-2010 in
September, and analyst sentiment dropping to its lowest level in
nearly three years.However, an unexpectedly strong start to the year will
likely compensate for a weaker second half, and the institutes
slightly raised their 2011 growth forecast to 2.9 percent from
2.8 percent.They were also more upbeat on inflation, which presented a
challenge to the European Central Bank this year as it sought to
balance monetary policy for struggling debtor economies and for
booming Germany.The institutes saw German inflation dropping to 1.8 percent
next year from 2.3 percent in 2011. Data last month showed
inflation jumping unexpectedly to a three-year high of 2.6
percent in September.Due to lower inflation expectations and the growing risk of
a European recession, the European Central Bank will likely cut
interest rates to 1.0 percent, the institutes said.The institutes see unemployment continuing to fall despite
the generally worsening outlook. The jobless rate will likely
fall to 6.7 percent in 2012, from 7.0 percent in 2011.Germany’s government plans to publish its own economic
forecasts on Oct. 20, which will serve as the basis for its
November tax estimates and the budget planning.For a factbox on recent revisions to forecasts for German
economic growth, please click on
UPDATE 1-Berlusconi seeks confidence vote to save coalition
* President says worried about “acute tensions and
uncertainty”By Philip PullellaROME, Oct 12 (Reuters) - President Giorgio Napolitano
expressed deep concern about the viability of Italy’s government
on Wednesday as Prime Minister Silvio Berlusconi scrambled to
quell an internal rebellion by calling a confidence vote.Napolitano talked of “acute tensions and uncertainties” in
the centre-right coalition and commentators said there was a
growing possibility of elections next spring, a year ahead of
schedule.In an unusually blunt statement, the president asked if the
Berlusconi government still had the necessary unity to pass
urgent measures for the country and demanded that Berlusconi
offer “a credible response” to the nation.Berlusconi will address parliament on Thursday and ask for a
vote of confidence, Fabrizio Cicchitto, leader of centre-right
parliamentarians in the lower house, said.The vote will likely be held on Friday after a parliamentary
debate. Berlusconi would have to resign if he loses.Napolitano’s statement was a clear reference to repeatedly
delayed measures to boost Italy’s chronically slow economic
growth, and continuing squabbles over an austerity package —
passed under pressure from the European Central Bank — to
balance the budget by 2013.Berlusconi decided to address parliament after the coalition
— racked by internal dissent — suffered a major embarrassment
when it failed to pass a key budget provision on Tuesday.Berlusconi has insisted that failure to approve the balance
sheet for last year’s state spending by one vote was just an
“accident” caused by the absence of several coalition members
from the chamber.But political analysts said some of those who did not vote,
including Economy Minister Giulio Tremonti who is constantly at
loggerheads with Berlusconi, stayed away intentionally to send a
message about the deep malaise within the coalition.Analysts said the government was unlikely to fall
immediately but its ability to take action, at a time when the
economy is under huge pressure from the markets, would be
constantly hampered by internal disputes — the reason for
Napolitano’s concern.Yields on Italian government bonds are dangerously high
considering its massive public debt, because of investors’ lack
of confidence that Berlusconi’s government can take decisive
action.EARLY ELECTIONS”We could have a government crisis at any time and even head
towards early elections,” said Massimo Franco, political
commentator for the respected Corriere della Sera newspaper.After the government failed to pass the measure, the
opposition called for Berlusconi to resign, saying the loss
meant he no longer had a viable working majority.Lower house speaker Gianfranco Fini, who broke with
Berlusconi last year, said the loss of the vote was
“unprecedented” because the government is constitutionally
obliged to approve what is considered a routine measure.Apart from Tremonti, several other senior coalition members
were absent, including Berlusconi’s key ally, Northern League
party leader Umberto Bossi.So far, Berlusconi’s majority in parliament has held up in
repeated confidence votes but there has been mounting press
speculation of a revolt within his PDL party.The 75-year-old prime minister is facing internal challenges
from a number of centre-right ministers who are unhappy with the
way he is running the coalition and the damage his personal and
judicial woes have done to Italy’s reputation.After Tuesday’s loss, the opposition called on Berlusconi to
face the fact that he no longer had a workable majority and step
down.”This government has no programme left, it has no coalition,
it has no objectives except to guarantee itself power,” said
Massimo Donadi, head of parliamentarians in the opposition Italy
of Values party.Berlusconi has come under mounting attacks as the financial
crisis and growing divisions in his centre-right coalition fuel
speculation that his government will collapse before the end of
its term in 2013.Ratings agency Fitch last week cut Italy’s credit rating by
one notch with a negative outlook, following a downgrade by
Moody’s and Standard and Poor’s, underlining market concern over
the stability of its public finances and its chronically weak
growth.A 60-billion-euro austerity package to balance the budget by
2013 was passed last month only after weeks of hesitation and
delay, while the timetable for a decree to pass economic reforms
and approve the sale of state assets has slipped to Oct. 20.
