Cyprus economy 'on the brink', Bank of Cyprus warns

www.bethelfinance.com

 The Cypriot economy is "on the brink" and desperately requires a liquidity lifeline from Europe, Cyprus' largest bank has warned.

The Bank of Cyprus said: " The next move may prove its salvation or destruction" - itself said to require urgent funding to prevent collapse.
 The European Central Bank has given the island nation until Monday to raise the funds it needs to secure a bailout.
MPs have delayed a vote on a new plan to raise those funds until Friday.
Earlier this week they flatly rejected a plan to tax bank deposits.
They need to find 5,8 bn Euros to quality  for a 10 bn- euro bailout loan from the European Union and International Monetary Fund.
 President Nicos Anastasiades has discussed with political leaders about the options, and the package was then discussed by the cabinet. But MPs said they needed more time to study the nine bills that make up the draft legislation.
 If no "Plan B" can be found by Monday , the ECB may cut off funding to the island's banks, it said in a statement, triggering their collapse and possibly the country's exit from the euro.
 After holding a phone conference on Thursday night to discuss the situation, eurozone finance ministers said they stood " ready to discuss with the Cypriot authorities a draft new proposal"', which they expected " the Cyprus authorities to present as rapidly as possible".
 It is now a race against time to approve the proposals by Monday, says the BBS's Mark Lowen in Nicosia, and anxiety is growing as the country - and the eurozone - enter a critical few days.

" Doomed"

 Bank of Cyprus and Laiki ( two biggest banks in Cypru ), are believed to be reliant on the ECB's Emergency Liquidity Assistance, provided via the Central Bank of Cyprus.
All Cypriot banks have beeen shut until next Tuesday to prevent mass withdrawals, but long lines have been forming at cash machines.
They are still dispensing cash but with such demand are frequently running out, and on Thursday Laiki radically  lowered the daily withdrawal limit to 260 euros.
 " There are rumours that Laiki Bank will never open again. I want to take out as much as I can", retired government official Phaedon Vassiliades told AFP news agency as he withdrew cash at a machine in the capital, Nicosia.
 " I have nearly 60,000 euros as savings in this bank and some credit societies. I don't know if I will ever get it back now. This is what I had and now it seems it is all gone".
Neophytos Constantinides said : " We are doomed. Our sunny days are over".
State broadcaster CyBC said employees of Laiki - The country's second largest bank - were told on Thursday afternoon the bank would be closing down, but on state radio a Laiki  spokeswoman denied those reports.
 On Thursday there were reports that the government was considering the restructuring of Laiki Bank in to "good" and "bad" banks. Bank employees clashed with police as they protested over possible lay-offs.
Earlier crowds gathered outside parliament in anticipation of a vote on a new proposal - a key component of which is the establishment of a state " investment solidarity fund" which would issue bonds on state assets to raise the 5,8 bn euros required.
 Other elements of Plan B could include restructuring other Cypriot banks, use of pension funds, and accepting an offer of help from Cyprus' wealthy Orthodox  Church.
 A revised levy on deposits also remains a possibility.
It might also contain some kind of Russian help. Cypriot Finance Minister Michael Sarris is in Moscow discussing possible assistance.
big Russian investors are believed to hold about a third of all Cypriot deposits - and reacted with fury when the initial plan to tax deposits by up to 9,9%.
But the chairman of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told the European parliament that Moscow had indicated it was not willing to extend " another loan or an investment in the banks", Reuters reported.
Reports suggest Moscow could consider buying interests in recently discovered offshore gas reserves.
 But analysts point out that any revenue from such discoveries remains years off, and unnamed Turkish officials have been quoted as saying Ankara - which lays claim to some of the gas - would challenge any such arrangement.
 The banking sector dominates Cyprus' economy and if a viable rescue is not organised soon the island state risks having to abandon the euro.
 Cypriot banks were among the bondholders who had to take a big "haircut" in the second massive bailout for Greece.
 Since 2008 the eurozone has been badly bruised by the massive bailouts provided for Greece, the Republic of Ireland and Portugal. There is a widespread reluctance to commit more EU taxpayers' money to ailing banks in southern Europe.

Canada To Join Plurilateral Trade Talks

www.bethelfinance.com/rm

 The Canadian Government has announced that it will participate in negotiations toward a new agreement on international trade in services.
 The talks will be launched with the initial involvement of 21 World Trade Organization members, which together represent more than two birds of world trade in services.Both during and after conclusion of the negotiations, the agreement will be open to all other World Trade Organization members who wish to join.
They will cover all services sectors, including information and communication technology services, logistics and transport, financial services and services for businesses.
 According the Government figures, services represent almost 70% of the Canadian economy, and are responsible for the employment of nearly 13,5m workers. In 2011, Canada exported a total of almost CAD 83bn ( USD 81bn ) worth of services.
 The Government believes that a potential agreement could provide increased access to and legal stability in markets that are open but not subject to trade agreements. It has launched a public consultation on the talks, seeking views from businesses, citizen-based organizations and individual Canadians, as well as from the provincial and territorial governments. These consultations will run until April 30.
 Making the announcement, International Trade Minister Ed Fast said: " A high-quality international agreement that will liberalize trade in services will lead to new and exciting opportunities foe Canada's small and medium-sized enterprises and boost trade in Canada's financial, engineering, energy, mining and environmental services sectors. As part of the most ambitious trade expansions plan Canadian history, our government will continue to expand Canada's global trade and investment footprint."
 Chair of the Canadian Services Coalition, Michael Landry, welcomed the news :
 " Services are vital and growing component of the Canadian economy. Today they represent almost two-thirds of our Gross Domestic Product, yet movement on this front has long been stalled by the Doha Round. The Canadian Services Coalition is pleased that the Canadian government is prepared to be at the table for this important negotiations, and we look forward to the rapid conclusion of an ambitious and comprehensive agreement on services."

OECD Urges Overhaul Of French Spending

www.bethelfinance.com

As France's public finances suffer from a weak economy, the Organization for Economic Cooperation and Development urged President Francois Hollande's government Tuesday to focus on longer-term spending cuts in areas like healthcare and pensions.

"France faces serious long-term challenges," the OECD said in a study of the country published Tuesday. "The improvement of the economic outlook will depend closely on the reduction in inefficient public spending and the implementation of crucial reforms aimed at reducing structural unemployment and restoring firms' competitiveness."

The OECD expects French gross domestic product ( GDP ) to expand only 0.1% this year before an acceleration to 1.3% growth in 2014. With slow growth, the budget deficit will fall less than Paris initially hoped to 3.5% of GDP in 2013 and 3% in 2014 from 4.5% in 2012.

 Francois Hollande has already said he'll fail to meet the 3% target in 2013 - as he pledged to when he took power in May last year - because the government argues the extra austerity that would be needed to get there would plunge the country into deeper economic difficulty.

The OECD cautiously backed Mr. Hollande's approach, saying sticking to targets that ignore the depressed economic situation could exacerbate the downturn. But the Paris-based organization put pressure on Mr. Hollande to step up measures to cut spending in the longer term in areas including pensions and healthcare.

Out of the OECD's 34 members, France has the second-highest public spending ratio and state employees account for 23% of employment. Public debt as a percentage of gross domestic product will rise to 96.1% in 2014 from 94.5% this year and 91.3% in 2012, the OECD forecast.

"There is substantial scope for cutting public spending," the OECD said.

France should rapidly adjust the parameters of its pensions system to limit spending in the short and medium term, the OECD said. It also recommended a potentially controversial move to make pensioners pay higher social security contributions and taxes on capital gains.

Mr. Hollande has pledged to begin negotiating with unions this year to change the pension system as forecasts show it will post a deficit of EUR20 billion in 2020 if nothing is done.

"The projected trajectory of the pension system deficit requires that hard decisions be taken soon to limit spending in the short and medium term," the OECD said.

The OECD identified other savings France could make in healthcare by reimbursing only the price of generic drugs and treating more patients out of hospitals.

France's complex system of local government was also criticized in the report. Some of France's 36,700 municipalities should be merged and larger regional authorities abolished, the OECD said.

Mr. Hollande's government should also more take steps to cut costs and rigidities of labor. His government has already introduced EUR20 billion of tax credits for employers and secured an agreement between unions and employers for greater labor flexibility, but the OECD said these are only "encouraging signals."

Among the OECD's recommendations, France should simplify layoff procedures and make redundancies for economic reasons easier.

"The functioning of the labor market needs to be further improved," the OECD said. It forecasts unemployment to reach 11% in 2011 and 11.2% next year.

Cyprus parliament delays vote on bank deposits tax

www.bethelfinance.com/rm

Cyprus' parliament on Sunday postponed a debate and vote on a controversial levy on all bank deposits that the cash-strapped country's creditors had demanded in exchange for €10 billion ($13 billion Cdn) in rescue money.

The vote, which had been expected later Sunday, has been pushed back to Monday afternoon, parliamentary official Antonis Koutalianos said.

The announcement set off an immediate scramble among top European officials, with reports that the European Central Bank was pressuring Cypriot authorities to hold the vote without delay.

The stakes are high for the tiny island nation of one million people, because a rejection of the levy by lawmakers could push Cyprus into bankruptcy and possibly out of the common euro currency. Officials also fear a massive run Tuesday on Cypriot banks — after a national holiday on Monday — no matter which way the voting goes.

The state-run Cyprus News Agency said President Nicos Anastasiades had personally requested the postponement, but no reason was given.

The decision by Cyprus' 16 eurozone partners and the International Monetary Fund to impose a one-time tax of 6.75% on all deposits under €100,000 and 9.9% over that amount has enraged Cypriot politicians, who have condemned it as unfair and disastrous. That brings into sharp doubt its approval in the 56-seat parliament.

It marks the first time that the IMF and the 17 eurozone nations have dipped into people's savings to finance a bailout, a move that analysts worry may roil international markets and jeopardize Europe's fragile economy.

 Lose-lose situation

"There are two choices, voting in favor which allows the country to avoid a disorderly bankruptcy, or rejection, which will have us face a disorderly bankruptcy with all that that entails," said Averof Neophytou, deputy chief of the ruling Democratic Rally party.

It's not only Cypriot depositors who will take a hit but foreign nationals as well, including many Russians who are estimated to have some €20 billion sitting in Cypriot banks.

At their peak, Cypriot banks had assets totaling eight times the country's €17.5 billion economy. Those numbers have prompted accusations from some European countries, primarily Germany, that Cypriot banks serve as money laundries for dirty Russian cash.

"It's a lose-lose situation. There will be a huge deposit withdrawal from Cypriot banks with or without a (levy)," said Cyprus Greens lawmakers Giorgos Perdikis. "We should have the courage to make the right decisions that will restore the public's confidence which was drastically shaken."

To counterbalance their cash loss, depositors will receive Cypriot bank bonds. Neophytou said there are efforts to back up those bonds — which have little value now — with Cyprus' newfound offshore gas reserves, although extraction is still several years away.

"Now the faith in Cyprus as a place where it is convenient to keep one's money will be undermined," Anatoly Aksakov, president of the Association of Regional Banks of Russia, was quoted by the Interfax news agency as saying.

Aksakov also suggested some of the Russian money now deposited in Cypriot banks will move back to Russia.

Meanwhile, Britain's Treasury chief said the government will compensate about 3,500 U.K. troops who will lose money to Cyprus's bailout tax.

British Chancellor of the Exchequer George Osborne said Sunday the government would compensate troops and civil servants. But those among the 59,000 British residents of Cyprus who not working for the U.K. military or the government could still be out of pocket.

  

Fischer: Interest rate gap can't get too big

www.bethelfinance.com

 Israel's central bank must guard against letting interest rate differentials with the United States and Europe get too big, its head said Wednesday, raising the possibility it might respond to any further policy easing in Washington or Brussels.
  Stanley Fischer said that a rate gap is too large would tend to harm Israel's economy, adding upward pressure an on already strong shekel currency and weakening exports.
 "We are a very open economy-open to exports and even more to flows of capital. And our interest rates are heavily affected by the rest of the world," he declared in a conference in Herzliya.
 "If our rates are high relative to the United States and Europe, money comes here to take advantage of the high rates and that creates an appreciation of the shekel and that has negative effects (on the economy). We can't let the interest rate gap get too large."
 The Bank of Israel has left its benchmark lending rate at 1,75% in the last two months, well above the 0 to 0,25% base rate in the United States and the European Central Bank's 0,75%.
 Both foreign central banks are using ultra-loose policies to stimulate weak economies.
 The US Federal Reserve is focused on a bond-setting panel meets next week, while a minority of economists believe the ECB could cut rates in coming months.
 Minutes of the Bank of Israel's February meeting suggested on Monday that further interest rate cuts look unlikely for the time being given signs the economy is improving and residual concerns about a lively housing market.
 Israel's shekel is at 3.685 per dollar, close to a 16-month peak.
 The country's economy, 40% depended on foreign trade, expanded 3,1% in 2012 but growth is projected to slow to a rate of 2,8% in 2013 excluding the start to natural gas production.
 " This is a very strong economy," Fischer said, pointing to the ability to have withstood many shocks-including three military campaigns the past eight years-while weathering the global economic crisis better than most.
 Fischer, who is stepping down at the end of June, attributed much of the economy's success to a stable and conservative banking system.
 But one glaring problem in the short run is fiscal policy, and Fischer said that even if the government makes the necessary budget cuts, raises taxes and meets at budget deficit target of 3% of GDP in 2013, the budget will be expansionary.
 To meet the deficit target, about NIS 14 billion( $ 3,8 billion) of spending will need to be reduced while tax revenue of an extra NIS 6 billion ($ 1,63 billion) is required, analysts said.
 Prime Minister Benjamin Netanyahu is in the process of forming a new government. Passing a budget will be one of the first items the government will need to address.


 

Cyprus May Accept 12.5% Corporation Tax

www.bethelfinance.com/rm

 The head of Cyprus's new Economic Policy Council has indicated that Cyprus would accept a rise in corporation tax from 10% to 12,5% as part of a bailout deal, as long as it did not rise further for at least a decade.
 Christophore Pissarides put forward the proposal to state media as the country continues to negotiate the terms of a bailout from the EU and the International Monetary Fund. He explained that a rise in corporation tax was not important in itself, but that businesses must be confident that it will remain the same for a long time afterwords.
 Cyprus applied for a bailout in June 2012, making it the fifth European country to do so, and it is seeking around Eur 17 bn to recapitalize its banks. The country has already implemented a number of tax rises, including a 2% rise in VAT to 17%.
 The Economic Policy Council oversees the economy and advises the president on macroeconomic issues. Christophore Pissarides won a Nobel Prize in Economics in 2010. He was appointed as its head by Cyprus's newly-elected president Nicos Anastasiades last month.

OECD chief: Israel - an example for other members

www.bethelfinance.com

 

 

 President Shimon Peres met OECD Secretary General Jose Angel Gurria in Paris on Friday, and they jointly presented an initiative to establish an international organization comprising multinational companies to address the economic needs of developing countries in the Middle East and elsewhere.

 During the meeting, Gurria praised Israel, saying that it had always been an economic and technological leader, and that it was one of the leading OECD member states. "Israel has become an important contributor to the OECD’s work," said Gurria. He said that Israel was an example to other countries in economics, high-tech, and research, and that since becoming a member, Israel had been an asset to the OECD.

 Peres declared that key problems in the Middle East were instability, terrorism, and unemployment, and that the new program would provide a response to hunger and lack of jobs in the region. Under the proposal, the OECD will provide international coordination to support multinationals' projects for economic investment, development, the construction of infrastructures, and innovative technologies in countries in the region.

 "Israel is an example that the key to prosperity and economic independence doesnot lie in natural resources, but in investment in technology and high tech," said Peres. "Israel will be happy to share its accumulated knowledge in technology, renewable energy, and agriculture, and lead within the OECD international initiatives that will provide technological solutions, communications infrastructures, and health solutions for the Middle East and developing countries."