Why Ireland should just not pay its debts

Mar7,2011 11:44
By Kathleen Brooks, Director of Research UK,Forex.com

Is default really such a dirty word?

If banks lend people more money than they should, they face the risk of the borrower defaulting on their debts.

So why shouldn’t countries simply not pay?

Default might not be a bad thing, if you are an Irish taxpayer. As the EU authorities debate a long-term solution to Europe's sovereign debt crisis, it might want to consider the benefits of the "D" word and not just rule it out completely for fear it could turn investors off all eurozone assets.

Ireland wasn't fiscally profligate, its banks were. Lax regulatory regimes and a toxic chumminess amongst bank executives and property developers were at the root of Ireland's problems.

Along comes a housing bust, a state guarantee for all bank debt and the next thing you know the sovereign rating is getting cut and the country is cap-in-hand to the IMF and EU bailout fund.

Not their fault

The devastating result is that the Irish public has to pay increasing levels of tax for years to honour its former government's guarantee and take money out of their own pockets to pay the bondholders who chose to invest money in some of world's riskiest banks.

When you lay the argument out like this it seems thoroughly unfair.

Sharing the burden for the banks' mistakes between the Irish taxpayer and the people who lent the banks money in the first place makes sense for two reasons.

Firstly, it would reduce the debt in Ireland's economy and help foster growth over the coming years and, secondly, a default mechanism should help to prevent risk-free lending from distorting financial markets in future.

Not just Ireland that could benefit

This second point could also benefit Greece. Even though the Greek bailout was caused by government spending spiralling out of control, bond holders (who lent the money to them) turned a blind eye.

While the previous government failed to detail the true extent of the budget deficit, an investor could have done some simple research and found that Greece never adhered to the eurozone's fiscal rule that countries should spend no more than 3% more than their GDP in the 15 years leading up to its bailout.

So investors who bought Greek debt did so knowing that the country was flaunting EU fiscal rules. Yet Greece could still borrow money like it grew on trees.

While authorities in Athens need to urgently impose fiscal discipline and change a mind set of government hand-outs and tax evasion that is pervasive in Greek society, bond holders also need to be taught a lesson.

Irresponsible lenders should pay too

Essentially that lesson is that lending to a country is not risk free. As European Union authorities are debating the "grand bargain" and a long-term solution to the sovereign debt crisis this month, they would be wise to seriously consider haircuts (paying less back) and defaults as an option.

The markets might not be as against the idea as some may think. If you know that you could be subject to losses on your debt investment then you can price the risks accordingly.

While it is true that the cost of borrowing will be higher than it was during the boom, it may end up being lower than it is currently, especially for Greece, Ireland et al.

The more formal the process to allow a default the less scary it will be. And these changes could go some way to improving the health of the financial markets too, as they might make investors do more research and price risk according to hard facts, not based on implicit guarantees from the EU that no investor will be subject to a loss.

Investors are in limbo right now. They aren't willing to buy peripheral bonds, not because of the threat of default, but because of the uncertainty about how the sovereign crisis will reach a conclusion.

Reducing the debt burdens of these nations will go some way to doing this. Default might not be such a bad idea after all. More from Forex.com

China targets 3.5% cut in energy, carbon intensity in 2011

Tue,Mar08, 2011

BEIJING, March 8 (Xinhua) -- China aims to reduce energy consumption per unit of GDP by 3.5 percent in 2011 from the level a year ago, an official with the country's top planner said on Tuesday.

Carbon dioxide emission is also set to be slashed by 3.5 percent, said Li Pumin, spokesman of the National Development and Reform Commission (NDRC), which is in charge of energy-saving work.

Emissions of major pollutants including sulfur dioxide and (COD) chemical oxygen demand will fall 1.5 percent, Li told an online interview.

Chinese government vowed to make its economy greener in the forthcoming five years after brisk economic growth at the cost of heavy pollution and resource use proved to be unsustainable.

According to the draft 12th Five-year Plan (2011-2015) for China's economic and social development, the nation aims to reduce energy consumption per unit of GDP by 16 percent in the five years to 2015. Carbon dioxide emission will drop by 17 percent.

Brazil's economic growth hits record high in 25 years

RIO DE JANEIRO, March 3 (Xinhua) -- Brazil's economy increased 7.5 percent in 2010, a record high since 1986, authorities announced Thursday.

Gross domestic product (GDP) of the Latin America's biggest economy reached 3.67 trillion reais (2.21 trillion U.S. dollars) in 2010, according to the figures released by the Brazilian Institute of Geography and Statistics (IBGE).

It is the highest GDP expansion registered in Brazil since 1986, the IBGE said, attributing the high growth rate to the increase of domestic demands in the country.

Industry, which expanded 10.1 percent in 2010, was the most benefited sector from the economic recovery.

The IBGE said among the countries which had already announced their 2010 GDP results, Brazil had the third highest expansion after China and India.

Brazil's economic growth surpassed countries such as South Korea, Japan, Germany and the United States and also exceeded the five-percent world average GDP growth.

Editor: Deng Shasha

Water, CO2 the priorities for China's 5-yr plan

Thursday,Mar03, 2011
* Water quality to feature heavily in new economic plan
* Energy efficiency also high on the agenda
* Priority to CO2 cuts could be bad news for China rivers
By David Stanway

BEIJING, March3 (Reuters) - Tackling environmental problems from carbon emissions to water pollution will be a key focus of a new five-year plan that China will launch during its annual parliament session starting on Saturday.

The plan for 2011-2015 will include new directives aimed at reversing the damage done by 30 years of untrammelled growth, and it will also aim to give a fillip to clean and renewable energy.

The challenges were put in stark focus in an essay by environment minister Zhou Shengxian on Monday.

"The depletion, deterioration and exhaustion of resources and the deterioration of the environment have become serious bottlenecks constraining economic and social development," he wrote.

China, the world's biggest source of climate change-inducing greenhouse gases, will put the reduction of carbon dioxide emissions at the top of its agenda.

But those same commitments could also spell bad news for China's vulnerable river systems with hydropower capacity set to surge by 140 gigawatts by 2015. That's nearly three times Australia's total power generation capacity.

Beijing has already pledged to reduce carbon intensity -- the amount of CO2 produced per unit of economic growth -- by 40-45 percent by 2020 from 2005 levels.

It also aims to raise the share of renewables to 15 percent of the country's total energy mix.

"The targets will not be as ambitious as we hoped, because the 2020 targets aren't that ambitious," said Ailun Yang, China campaign manager with Greenpeace.

"I would put much more emphasis on the detailed measures, which are much more important than the targets themselves."

Detailed targets will emerge in the coming months as individual industries issue their own five-year plans.

The government wants to clean up heavy industries such as steel and aluminium, encourage non-fossil fuels, cut nitrogen oxide emissions and improve water and air quality.

BUSINESS AS USUAL?

Enforcing new restrictions and targets, especially for CO2 emissions, will test the central government's clout.

Premier Wen Jiabao said last month China would cut energy and carbon intensity by 16-17 percent over the 2011-2015 period, less of a challenge than the 17.3 percent figure suggested last year.

Experts say energy intensity -- the amount used per unit of GDP -- needs to fall by 20 percent to achieve an 18 percent cut in CO2 intensity, but Wen did not make the distinction.

Yang Fuqiang, director of global climate solutions at the Worldwide Fund for Nature, said cutting CO2 intensity by less than 17 percent was little more than "business as usual".

"There is a game being played by the central and local governments, and if the central government adopts 16 percent they will lose their authority because it shows that 'government orders don't go beyond Zhongnanhai'," he said, referring to the Chinese Communist Party headquarters in Beijing.

Yang said a 16 percent cut could allow China to hit the 40 percent carbon intensity goal by 2020, while an 18 percent cut would take it towards the higher 45 percent target.

A commitment to use market mechanisms in the fight against climate change is also expected, with a number of provinces keen to launch pilot emissions trading programmes. Detailed plans will emerge later this year.

Analysts have said China might consider an absolute energy consumption cap over the 2011-2015 period, and draft policies to restrict coal production to 3.6-3.8 billion tonnes by 2015 have also been leaked to the local press. Provinces such as Guangdong might impose their own energy caps to stimulate city-to-city emission trading, but government researchers have dismissed the idea of a national limit.

"There are no such plans," said Zheng Shuai, researcher at the Energy Research Institute of the National Development and Reform Commission, but added some academics have proposed Beijing implement a limit on fossil fuel use without imposing an overall cap on energy use.

"This is more realistic because it will allow and encourage the use of renewable energy," Zheng said.

DAM NATION

China is desperate to improve its depleted, contaminated rivers, which have been blighted by a spate of burst tailings dams, untreated chemical discharges and plant explosions in the past five years.

In 2009, nearly 20 percent of the length of China's major rivers and lakes were judged unfit even for irrigating crops, according to government figures.

Environment minister Zhou said Beijing will aim to cut 2007 levels of heavy metal discharges in key regions and industries by 15 percent in the next five years.

"We understand thousands of key heavy metal polluters will be put under tightened monitoring and this is important," said Ma Jun of the Institute of Public and Environmental Affairs, a non-government organisation that monitors water pollution.

"But there is a lack of transparency and we believe public scrutiny could generate the motivation to cut their emissions."

China will also push for more water conservation, imposing stricter water consumption standards heavy industry.

"We expect to see more action on that but I still believe that the first step is pollution," said Ma.

"The huge volume of wastewater discharge is destroying our very limited clean water resources and if we continue to allow that we cannot talk about recycling and conservation."

But the commitment to cleaning up rivers could be undermined if binding carbon targets lead to a renewed drive for large hydropower dams and reservoirs throughout China.

The five-year energy sector plan is expected to back controversial hydropower plants on China's Nu River, also known as the Salween. Previously untouched rivers in Tibet may be next.

"We need to realise that large hydro by itself has such a large environmental impact that it shouldn't be considered a renewable energy," said Ma.

"In 2004, China overtook the United States as the world's largest hydropower capacity but the plan is to more than triple that by 2020 -- that means in many of our rivers there won't be running water . " (Additional reporting by Fayen Wong in Shanghai; Editing by David Fogarty, sourced Reuters)

India to become second largest steel producing nation in 2012

Saturday, 26 Feb 2011

Indian minister of state for steel Mr Beni Prasad Verma said that with a targeted production capacity of 120 million tonnes by 2012, India is expected to become the second largest steel producing nation very soon.

Mr Verma while addressing the “Indian Steel: Moving to the Next Orbit” at CII Steel Summit 2011 said ‘It is indeed a matter of pride that India is the largest producer of sponge iron in the world. During the last five years, the country has achieved a compounded average growth rate of over 9.2% in consumption of steel. With this consumption base and the targeted growth in GDP coupled with the emphasis of the Government on infrastructure, housing and other steel consuming sectors.”

Expressing confidence that demand of steel would increase manifolds, Verma said that there is a need to ensure that production also keeps pace with the level of consumption.

He said “Substantial capacity is getting added in both Public as well as Private sectors. Most of the major steel projects, particularly those in the brown field sites are progressing as per schedule. New players are also emerging in the field of steel making with significant prospects.”

Mr Verma added that “The mini steel sector has also been playing an important role in the economy in generating employment and meeting localized demand of steel. Substantial capacity has been also added in this sector and this segment is expected to grow further in years to come.” (sourced:ET)

Bluescope Steel chief Paul O'Malley slams carbon tax plan

February 22, 2011 12:00AM
By Geoff Easdown, From: Herald Sun

BLUESCOPE Steel chief Paul O'Malley has panned the Federal Government's plan for a carbon tax, branding it unfair, discriminatory and "not good" for the industry.

He argued the Government would restrain Australian manufacturers if imported products were allowed to land free of any carbon-related impost.

Mr O'Malley aired his views at a press conference after the steelmaker revealed a $55 million first-half loss due to higher costs and lower domestic demand for fabricated product. He conceded Bluescope had been through tough times.

The disappointing first half followed a $28 million loss in the previous corresponding period.

Bluescope Steel shares were hammered yesterday, falling more than 6 per cent when the market opened.

The accounts showed that during the six months to December 31, Bluescope took a $77 million writedown of goodwill on its distribution business and a $68 million write-back on its Coated China assets.

Mr O'Malley said there were signs of stronger industrial activity in the developed world this year.

"However, steel supply, excluding China, remains in an oversupply position," Mr O'Malley said.

"We need to see GDP in the developed world improve and drive increased steel demand, to narrow the supply-demand gap."

Referring to the proposed carbon tax, he said Australian manufacturers would face competitive restraints.

"From a policy perspective, there is a bust between the rhetoric and reality," he said, pointing out that European manufacturers avoided a carbon tax by shifting production.

Mr O'Malley revealed that the company was looking to mine its own raw materials because it was now consuming more than 8 million tonnes of iron ore and 4 million tonnes of coal annually.

An interim dividend of 2c a share, fully franked, will be paid on April 4 to shareholders registered by March 4. Bluescope shares closed almost 3 per cent, or 7c down, at $2.30.
(sourced:Herald Sun)

Japan overtaken by China as No. 2 economy

By David Watkins

Feb14,2011

Japan (NYSE: MCO - news) lost its 42-year ranking as the world's second-biggest economy to China in 2010, with data out Monday showing a contraction in the last quarter due to weak consumer spending and a strong yen.

While Japan was expected to fall behind a surging China in the year, the data underlined the weak state of a Japanese economy burdened by deflation, soft domestic demand and pressured by the industrialised world's biggest debt.

"It is difficult for the deflation-plagued Japanese economy to achieve self-sustained growth," said Naoki Murakami, chief economist at Monex Securities.

While China's leap forward reflects a shift in economic power as the country transforms itself from poverty-hit communist state to global heavyweight, it highlights the need for shrinking Japan to energise its economy, analysts said.

Japan's post-war "economic miracle" put it at number two behind the United States for more than four decades, but stagnation after the Japanese property bubble burst in the 1990s helped put China on course to supplant its neighbour.

However, Japan remains around 10 times richer on a per-capita basis, noted top government spokesman Yukio Edano. GDP per head in Japan is around $42,000, say economists.

Predictions vary as to when China may overtake the United States as number one economy, but it should happen by 2025, according to estimates by the World Bank, Goldman Sachs (NYSE: GS - news) and others.

Japan's real gross domestic product slipped by an annualised 1.1 percent in the October-December quarter as the expiration of auto subsidies hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports.

In contrast, China grew nearly 10 percent in the same period.

While Japan's first contraction in five quarters was not as severe as forecasts of a 2.4 percent slide, the data is subject to constant revision.

The economy grew 3.9 percent in 2010, its first annual growth in three years. But this was not enough to keep it ahead of surging China.

Nominal GDP of $5.474 trillion in 2010 put Japan behind China's $5.879 trillion, the data showed. China first eclipsed Japan in the second quarter.

Despite Japan crawling out of a severe year-long recession in 2009, its recovery remains fragile with deflation, high public debt, an ageing population and a strong yen all concerns for policymakers.

Pressure is on Prime Minister Naoto Kan, who has seen his approval ratings tumble as his government looks to boost the economy without deepening the debt amid a legislative impasse over a $1.1 trillion budget for next fiscal year.

Last month Standard & Poor's cut Japan's credit rating one notch to "AA-" from "AA", saying the government lacked a "coherent strategy" to ease a debt running near 200 percent of GDP, the highest of any developed nation.

Nearly a third of government spending is being swallowed up by a social security system catering to a rapidly greying society, Standard & Poor's warned, with that ratio set to rise without reforms as Japan continues to age.

Kan's centre-left government has prioritised social security reform and a tax system overhaul, but the opposition has so far refused to begin talks on the issue.

Private consumption, accounting for about 60 percent of Japan's GDP, slid by 0.7 percent quarter-on-quarter in October-December as subsidies for green car purchases expired and as cigarette sales were dented by Japan's biggest ever tobacco tax hike.

Exports slipped in the quarter as the yen surged to 15-year highs against the dollar, making Japanese goods more expensive overseas and eroding repatriated profits.

But many analysts expect the economy to rebound in the January-March quarter as the rising tide of global recovery lifts Japan, amid a recent pick-up in corporate spending and exports.

"The contraction will not last long," said Murakami. "Companies' manufacturing activities are recovering rapidly in January-March this year from their bottom in October 2010."

The government played down Japan's slide to third biggest economy and said it would benefit from having a booming neighbour.

"We welcome, as a neighbouring nation, that China's economy is advancing rapidly," said Kaoru Yosano, minister for fiscal policy. (sourced:AFP)

Tags:Japan, biggest economy, China, economist, Monex Securities, GDP, credit rating one notch to "AA-", export data, Market analyst

Macroeconomic indicators - Overheating fears grow in China

Saturday, 29 Jan 2011

Xinhua reported that some local governments plan on doubling their GDP within five years as China ushers in its 12th Five Year Program (2011-2015) and raising concerns that the Chinese economy could overheat.
As per report, at the starting point of the 12th Five Year Program, local governments have released their GDP targets for the next five years at the annual meeting of the local legislature. Many set double digit growth targets for the coming five years and some even proposed doubling their 2010 GDP by the end of 2015.

A rough calculation shows that to double the GDP in five years an annual growth of 14.87% would be needed. That is even faster than China 10.3% GDP growth in 2010 and 9.2% in 2009.
Southwestern China Chongqing Municipality planned to reach an annual GDP growth rate of 12.5% and double local GDP per capita to USD 8,000 by 2015. Jiangmen city of southern Guangdong province has set its sights even higher. It eyes an average annual GDP growth of 15% much higher than the 8% target for the whole province.
Only a few regions lowered their GDP targets. For example, Shenzhen lowered its growth target to 10 percent from 13.5 percent in the 11th Five Year Program.
The enthusiasm about economic growth figures of local governments has triggered authorities and economists to worry about the economy overheating, and put further pressure on inflation management and economic restructuring.

Mr Zhang Ping, director of the National Development and Reform Commission while addressing the national working conference on energy on January 7 that China's top economic planning body, said most provinces set their 2011-2015 GDP targets too high and failed to take into consideration the constraints of environmental protection, energy and resources.

Mr Yao Jingyuan chief economist of the National Bureau of Statistics said if the economy grows too fast, it would undermine both price stability and economic restructuring. He said that "We should make every endeavor to step on the brake peddle for our economy to maintain a moderate growth rate and avoid overheating of the economy. I personally think a growth rate of 8% to 9% will be great."
The high GDP targets set by local governments also show that the growth patterns adopted by local governments remain unchanged.
(Sourced from Xinhua)