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Universitas Gunadarma Fakultas Ekonomi

Tuesday, March 9, 2010

Europe's New Economic Strategy: A Miracle Cure?

The past couple of years haven't been kind to the European Union: it's been battered by the recession, buffeted by the Greek debt crisis and bypassed by a host of dynamic, emerging nations. The E.U. is desperate for a magic potion to revitalize its creaking economy, but it may have to settle for something less dramatic. On Wednesday, the European Commission will unveil a 10-year plan outlining the first tentative steps toward forming a common economic policy. The "Europe 2020" strategy is being touted as a way to boost competitiveness and growth over the next decade. Skeptics, however, warn that it is no better than a placebo for the curmudgeon European patient.

The E.U.'s recovery from recession has been fragile and slow — the bloc is only forecast to grow by an anemic 0.7% this year. José Manuel Barroso, the European Commission President, warns that Europe risks a "lost decade" of stagnation and decline if it does not act boldly now to modernize its model of socially inclusive capitalism. The Europe 2020 plan focuses on honing the E.U.'s technological edge, especially in green industries, and on improving higher education. And it sets key targets for E.U. member states, including raising the overall employment rate from 69% to 75%, boosting investment in research and development from 1.9% of E.U. gross domestic product to 3%, and lifting the percentage of 30-34-year-olds with a university education from 31% to 40%.

But there are already doubts about whether a 10-year bureaucratic plan can really turn the E.U. economy around. "These strategies are full of beautiful but nebulous words," says Jacques Pelkmans, a senior research fellow at the Center for European Policy Studies (CEPS), a Brussels-based think tank. "We shouldn't expect Chinese growth rates, and we should not raise hopes we cannot meet."

Indeed, the Europe 2020 strategy had a similarly ambitious predecessor that failed to deliver: the ill-fated Lisbon agenda, which was adopted with fanfare by E.U. leaders a decade ago with the aim of transforming Europe into "the world's most competitive and dynamic knowledge-based economy" by 2010. But the bloc fell far short of its goal of overtaking the U.S. and Japan, and even failed to meet its self-imposed economic targets. For example, that plan also called for E.U. research and development spending to increase to 3% of GDP, but only Sweden and Finland currently meet that threshold.

There were a number of problems with the Lisbon agenda, such as the fact it had too many targets and there were political splits on issues like opening up labor markets. But another issue was that E.U. leaders were simply unwilling to overhaul their economies — and there was no enforcement mechanism in place to put them into line. Ann Mettler, head of the Lisbon Council, a Brussels-based think tank, says European leaders have been too cautious about reform, backing off, for example, when it comes to tackling energy oligopolies and inefficient, formerly state-run telecom operators. "We are in a state of crisis," she says. "We can't just have a battery of lofty goals and feel-good measures. We need political will to address Europe's real shortcomings."

This time around, there are growing calls for compliance mechanisms to be built into the strategy. They have become louder as the euro crisis has unfolded in recent weeks, with many officials saying that tougher fiscal oversight might have prevented the collapse of Greece's public finances. "We cannot have a pick-and-mix strategy, allowing everyone to do the easy parts and leave the real challenges to one side," Barroso told the European Parliament last week. "We need strong and true coordination in the economic field."

Barroso sees this is a crisis-driven leap into further European economic integration. Euro-zone finance ministers are already putting Greece's budgetary policies under more scrutiny than any member state has ever had to endure — and there are now suggestions that similar measures could be taken with economic policies at the E.U. level. In January, Spanish Prime Minister José Luis Zapatero even called for countries to face "corrective measures" if they under-perform economically, although that idea was quickly shot down by Germany, Britain and the Netherlands. Herman Van Rompuy, the new E.U. President, put forth a more nuanced proposal last month, saying E.U. leaders need to collectively take on a role of economic governance when they meet at summits. "The financial and economic crisis obliges us to take steps on this road," he said.

The Europe 2020 strategy is likely to be put through a number of changes before it is formally endorsed later this month. But whatever it ends up saying, it is expected to be roundly heralded by E.U. leaders as their miracle cure. Whether they are ready to swallow the medicine they have prescribed themselves remains to be seen.

Sharp movements in markets to be sector-specific

MUMBAI: Equity markets, in the truncated trading week ahead, will reflect the studied reaction of investors to the possible impact of the Union
Markets
Budget announcements on the economy and companies. While the rally on Friday was in the broader market, as some Budget proposals were better than what investors expected, market participants expect the focus to turn to global events this week and sharp movements on either sides to be more sector or stock-specific. Stock markets will be closed on Monday for Holi.

“The uncertainty relating to the event seems to be over and the consensus is that the country is well on track for a strong economic growth trajectory. The stock market cannot be far behind though local executional challenges and international uncertainties will continue to play their part," said Anand Rathi, chairman, Anand Rathi Financial Services.

While the wider consensus is that the Budget announcements would not hinder growth, there are fears that some of the measures such as excise duty hikes would fuel inflation further, which is far from comfortable levels. Further jumps in inflation would force the Reserve Bank of India to take more steps to absorb money supply from banks, that may result in hardening of lending rates. Bank shares, which were the top gainers on Friday after the Budget proposed to provide Rs16,500 crore for recapitalisation of state-run banks, could see some selling this week. The BSE's Bankex rose 2.3% to 9,828.68 on Friday, partly led by short-covering.

Ambit Capital, in a technical note, said, “The Bank Index has faced resistance at the upper end of the downward channel. The momentum indicators are also continuing in Sell mode, signalling any rise from current levels should be used as a selling opportunity.We expect the index to witness correction in next couple of weeks and could target 8,850 on the downside.”

Sumber : The Economic Times

ABN cuts credit limit on cards to a tenth

NEW DELHI: ABN Amro India has chopped the credit limit of some credit card customers to a tenth and raised the minimum amount payable to 7% of

total dues from 5%, possibly to persuade them to surrender their cards as it draws closer to selling its retail operations to UK’s Hong Kong and Shanghai Banking Corp, or HSBC.

ABN Amro, owned by UK’s troubled Royal Bank of Scotland, or RBS, has also decided to freeze fresh retail lending, including credit card and personal loans, to arrest a pile-up of bad loans, two people familiar with the matter told ET.
One of them, a senior bank executive, said even at the peak of the financial crisis, ABN Amro did not resort to such drastic cuts.

ABN Amro continues to do business in India under its original moniker even after RBS took over its Asian operations in 2007. HSBC is said to have signed a deal to buy RBS’ retail businesses in India, China and Malaysia and is awaiting regulatory approvals in the three countries.

"The bank has brought down my credit limit to Rs 2,500 from Rs 48,000," said one cardholder, adding that he was told the bank was carrying out the exercise for all its customers. Another person was informed recently that the minimum amount payable has been spiked to 7%. Both said they have never defaulted on payments.

An ABN Amro spokeswoman called the move a standard industry practice. "As a responsible lender, we review card limits and take appropriate action on an ongoing basis to protect our customers and manage risk," she replied by email.

Although she had no comment on the number of credit card users, a person familiar with ABN Amro’s operations said it has more than 4 lakh active credit card users. The bank’s strategy, he said, could be to discourage users and get them to give up their cards or reduce their credit exposure.

ABN Amro has been up against a large number of employee exits to competitors after the deal with HSBC came to light. It has also laid of some of its employees in the credit card and personal loan departments.

Currently, the bank has around 2,854 employees, down from 3,300 in early 2008. About 2,500 are in the retail and commercial banking department. It has another 8,500 in its two outsourcing arms.

Sumber : The Economic Times