European Central Bank President Mario Draghi
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Spain’s Parliament approved the new conservative government’s first austerity measures Wednesday, which aim to rein in the country’s swollen deficit with euro8.9 billion ($11.5 billion) in spending cuts.
The measures, which also include income and property tax hikes, were approved by 197 deputies in the 350-seat lower house, where the ruling Popular Party has an absolute majority of 185 seats after a landslide election win in November.
Finance Minister Cristobal Montoro said the measures were severe but necessary, owing to what he called the mismanagement of the economy by the former Socialist government.
“The economy is stopped, we’re on the verge of a recession and the accounts are unbalanced as a consequence, among other things, of the deplorable decisions taken by the former government, which only made the situation worse,” Montoro told lawmakers.
Spain is battling to avert being dragged further into a debt crisis that has already forced Greece, Ireland and Portugal to seek financial bailouts.
In 2010, Spain began to emerge from a near two-year recession triggered by the collapse of a property and construction bubble that had fueled growth for nearly a decade. The country now has a 21.5 percent unemployment rate _ the highest in the eurozone _ and Economy Minister Luis de Guindos said recently the economy would slide back into recession early this year with the last quarter of 2011 and the first of 2012 both registering negative growth.
Montoro accused the former Socialist government of deliberately hiding figures that showed that Spain’s deficit for 2011 would be 8 percent of national income, and not 6 percent as the Socialists had claimed easy to get unsecured personal loans. He said the deviation represented an estimated euro20 billion ($25.4 billion) “black hole.”
However, Prime Minister Mariano Rajoy has acknowledged that the deficit of regional governments, most of which are run by his own conservative party, was responsible for 75 percent of the deviation.
Other measures in the austerity package include a freeze on civil servants’ salaries and on practically all government hiring. Pensions, however, are to be increased by 1 percent, the only area of spending to rise. Taxes on income and property will also be raised but only for two years.
Treasury Minister Cristobal Montoro said the tax increases will be progressive, with the wealthiest paying more and that the impact on lower-income earners will be minimal.
The government projects that the tax increases will bring in euro6.2 billion ($7.9 billion) on top of the euro8.9 billion saved on the spending cuts.
The package was part of an extension of the 2011 budget because the last government did not pass one for 2012. More austerity measures are expected when the government presents its 2012 budget by the end of March.
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Russia unexpectedly reduced its benchmark rate, suggesting policy makers see a global economic slump posing greater risks than inflation to the world
Enthusiasm for riskier assets such as stocks faded Monday as skeptical investors assessed a new European fiscal pact aimed at fixing the continent’s debt crisis and preventing a breakup of the euro currency bloc.
Benchmark oil dropped below $99 per barrel while the dollar rose against the euro and the yen.
European stock markets skidded in the first day of trading after the European Union adopted a new fiscal pact meant to prevent the kind of financial fiasco that is now sweeping across countries that use the euro.
Britain’s FTSE 100 fell 0.5 percent to 5,500.94. Germany’s DAX dropped 0.8 percent to 5,940.05 and France’s CAC-40 lost 0.7 percent to 3,149. Wall Street also headed for a lower opening, with Dow Jones industrial futures dipping 0.4 percent to 12,090 and S&P 500 futures down 0.5 percent at 1,247.50.
Asian stocks registered approval of the deal earlier in the day: Japan’s Nikkei 225 index jumped 1.4 percent to close at 8,653.82. South Korea’s Kospi added 1.3 percent to 1,899.76 and benchmarks in Singapore, Taiwan, Australia and Indonesia also rose.
Hong Kong’s Hang Seng swung from early gains to end trading in the red, albeit marginally, at 18,575.66. China’s Shanghai Composite Index fell 1 percent to 2,291.54 as a three-day economic conference of Chinese leaders got under way.
No major shifts in policy for 2012 are expected during a conference of Chinese leaders that began Monday. China has made headway in slowing inflation _ raising some hopes for a looser monetary policy _ while weak demand for exports from the West has sparked concerns that the economy may slow too quickly.
Under the deal, all 17 countries that use the euro agreed to allow a central European authority to oversee their future budgets and impose tighter controls on spending. They also agreed to automatic penalties if countries spend too much.
Europe’s new “fiscal compact” also calls for the launch of a permanent bailout fund for euro nations in 2012 _ a year ahead of schedule _ and an additional 200 billion euros ($267 billion) to the International Monetary Fund for a separate emergency fund for countries in crisis.
But some analysts wondered where debt-stricken Europe, which many economists say is hurtling toward recession, will find the money to make good on the pledges.
“It’s so easy for ministers to say they will contribute to this, but we’ll find out in a week or 10 days time who is,” said Andrew Sullivan, principal sales trader at Piper Jaffray in Hong Kong.
Another caveat is that the deal doesn’t help cut debt today, which in Italy, Greece and Spain has driven government borrowing costs close to levels considered unsustainable.
That loose end brought into focus the future monetary policy of the European Central Bank, and whether it would be willing to buy enough national bonds from troubled countries to keep interest rates down.
Analysts at Credit Agricole CIB said “the lack of ECB action in terms of stepping up to the plate as lender of the last resort” still weighed on investment sentiment.
There were also doubts about the willingness of each individual country to ratify the agreement.
In Tokyo, Toyota Motor Corp., Japan’s biggest car maker, fell 0.7 percent after sharply downgrading its earnings forecast for the fiscal year due to a strong yen and massive flooding in Thailand that disrupted production.
Camera and medical equipment maker Olympus Corp. surged 7.8 percent amid renewed investor faith in the embattled company. Olympus recently admitted falsifying accounting records to cover up huge investment losses from the 1990s and has vowed to investigate about 70 people, including current board members, for their possible involvement.
In Australia, energy shares led the gains. Woodside Petroleum rose 1.5 percent and mining giant BHP Billiton rose 1.9 percent.
Australian miner Whitehaven Coal Ltd. fell 1.4 percent after it agreed to a 5.1 billion Australian dollar ($5.2 billion) business combination with Aston Resources Ltd. that will create one the country’s biggest coal producers. Aston rose 1.4 percent.
High-tech shares posted strong gains. Japanese chipmaker Elpida Memory rose 4.5 percent. South Korea’s LG Electronics, which ranks No. 2 globally in flat screen televisions, also gained 4.5 percent.
Benchmark oil for January delivery was down 85 cents to $98.57 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.07 to finish at $99.41 per barrel on the Nymex on Friday.
In currencies, the euro fell to $1.3300 from $1.3370 late Friday in New York. The dollar rose to 77.66 yen from 77.54 yen.
Federal health experts said Thursday that drug labeling for Yaz and other widely-used birth control pills should be updated to emphasize recent data suggesting a higher risk of blood clots with the drugs than older contraceptive pills.
The Food and Drug Administration’s panel of experts voted 21-5 Thursday that labeling on the popular drugs made by Bayer is inadequate and needs more information about the potential risk of blood clots in the legs and lungs.
Yaz, its predecessor Yasmin and related prescriptions use a manmade hormone called drospirenone, which mimics the naturally occurring female hormone progesterone. Approved in 2006, Yaz grew into the best-selling birth control pill in the U.S. by 2008, backed by hundreds of millions of dollars in TV and magazine advertising that emphasized its ability to clear up acne and other hormonal side effects. But prescriptions have fallen more than 80 percent in the last two years amid safety concerns.
Panelists spent more than nine hours discussing often conflicting data on the blood clot risk of drospirenone-containing drugs compared with older medications. While the group disagreed on the quality of the evidence, the overwhelming majority said it should be clearly stated in the label, including the potentially fatal nature of blood clots.
“Clearly the wording is inadequate and incomplete,” said Dr. Richard Bockman of New York’s Hospital for Special Surgery. “Adverse events have to be made graphic so physicians and patients are aware of the consequences.”
In an earlier vote, panelists voted 15-11 that the pills remain a beneficial option for preventing pregnancy. The majority ruling amounts to a vote of confidence for keeping the drugs on the market, though well over a third of panelists voted against the drug’s overall benefit, citing numerous alternatives available.
“I can see no real group of patients that this drug benefited over existing alternatives,” said Mark Woods of New York University School of Medicine. “Without any clear benefit, and given the potentially catastrophic risk, I voted no.”
Two large studies conducted by German drugmaker Bayer have shown no difference in blood clots between patients taking the company’s drugs and patients taking older medications.
But since 2009, five large studies have suggested drospirenone-containing pills carry a slightly higher risk of blood clots than older birth control pills, though events in both groups are very rare. Even a slightly higher risk can be critical because blood clots can trigger heart attacks, strokes and blockages in lungs or blood vessels.
The most recent study by the FDA found women taking Yasmin had a 75 percent higher chance of suffering a blood clot than patients taking a combination of older drugs. The absolute risk of a blood clot is still far less than a fraction of a percent.
FDA scientists noted shortcomings with all the recent studies of Yaz and Yasmin, including missing information about patient weight and smoking status, which can increase the risk of blood clots. While not definitive, panelists said the information should be explained clearly in the labeling for physicians and patients no fax pay day loan.
“I think we can do a much better job than labels I have seen,” said Dr. Valerie Montgomery Rice, of the Morehouse School of Medicine.
Panelists said future studies must take into account patients’ lifestyle, race and family history to accurately capture blood clot risk.
With the slogan, “beyond birth control,” Bayer’s advertisements pitched Yaz to women in their 20s as drug with “lifestyle” benefits over older contraceptives. One advertisements featured young women singing the Twisted Sister anthem, “We’re Not Gonna Take It,” while popping balloons labeled “moodiness,” “bloating” and “acne.”
Within two years of its marketing approval, Yaz had grown into the best-selling birth control pill in the U.S. with peak sales of $781 million in 2009, according to data from IMS Health. But sales plummeted from one million per month to about 200,000 per month after the company added information about studies that found a heightened risk of blood clots. Additionally, Bayer was forced to run corrective advertisements after the FDA said the company’s marketing campaign overstated Yaz’s effectiveness in treating premenstrual mood disorders, and used distracting music and visuals to downplay the drug’s side effects.
Earlier in the day, panelists heard more than a half-dozen patients or their family members who blame Yaz or Yasmin for sometimes deadly blood clots.
Cindy Rippee spoke about her last conversation with her 20-year-old daughter Elizabeth Rippee, who died Christmas Eve 2008 when a blood clot traveled to her lung. Rippee said her daughter had been taking Yasmin for about two months, after taking another birth control pill, Tri-Sprintec, for a year previously.
“My daughter was a very smart young woman. If Elizabeth had been clearly told that Yasmin had more risk, maybe twice as much risk, as other pills she never would have switched to Yasmin and would be here today,” said Rippee, of Escondido, Calif.
Rippee is among 4,000 to 6,000 plaintiffs suing Bayer in personal injury lawsuits pending throughout the U.S. court system.
Yaz and other drospirenone-containing pills accounted for 16 percent of the hormonal contraceptives used in the U.S. last year, behind Warner Chilcott’s Loestren, Johnson & Johnson’s Ortho Tri-Cyclen and several other oral contraceptives.
The FDA has not set a timetable for any changes in Yaz’s labeling. For now, many doctors say they don’t expect to stop prescribing the drugs anytime soon. They point out that the risk of blood clots with any birth control pill is still far lower than that associated with pregnancy and birth, when surging hormone levels and reduced blood flow dramatically increase the chances of clotting.
Studies suggest that 10 in 10,000 women taking the newer birth control pills will experience a blood clot, compared with 20 in 10,000 women who are pregnant or have just given birth.
Courting disaffected conservatives, House Republican leaders offered Friday to overturn a pair of Obama administration environmental policies and avert a deep cut in payments to doctors treating Medicare patients as part of legislation renewing a Social Security payroll tax cut through 2012.
The tax cut, due to expire on Dec. 31, “hasn’t stimulated the economy at all,” said Rep. Louie Gohmert of Texas, one of several Republicans who emerged from a closed-door meeting and spoke unfavorably about the proposed extension at the heart of President Barack Obama’s jobs program.
“But over the long term, it does add to our deficit,” he added.
A one-year extension would cost an estimated $120 billion. The expense would be offset by cuts elsewhere in the budget, but Republican critics noted the savings would take a decade to materialize fully, while the cut itself would last for only one year.
Despite the misgivings, Speaker John Boehner of Ohio and other Republican leaders are committed to passing the legislation, fearing political fallout if payroll taxes rise on Jan. 1 on 160 million wage-earners.
The situation is similar in the Senate, where 26 of 46 Republicans voted Thursday night against a leadership-backed plan to renew the payroll tax cuts.
Officials said that to sweeten the measure for conservatives, House Republican leaders informed lawmakers they are prepared to add a provision averting a 27 percent cut in payments to doctors who treat Medicare patients, effective Jan. 1. The cost is about $38 billion over two years.
In addition, officials said Boehner and the leadership suggested including a provision that delays and eases a proposed Environmental Protection Agency requirement for new pollution regulations on industrial boilers and incinerators. The House approved legislation along the same lines in October, with the backing of 41 Democrats.
The EPA announced during the day it had agreed to ease the rules, although the change seemed unlikely to satisfy critics.
Another provision that would be added to the payroll tax bill is designed to speed construction of a proposed Keystone XL pipeline that pits environmentalists on one side, and industry and some labor unions on the other. The 1,700-mile structure would carry as much as 700,000 barrels of oil a day from tar sands in Alberta, Canada, to refineries in Texas, passing through Montana, South Dakota, Kansas, Nebraska and Oklahoma.
Despite a three-year review by federal agencies, Obama announced recently he would not decide whether to grant a construction permit until after the election in November 2012.
Democrats and Obama want to pay for the additional year of payroll tax cuts by imposing a 3.25 percent surcharge on individuals and couples with $1 million in income or more, and are hoping to use the issue to depict Republicans as benefactors of the wealthy at the expense of the middle class.
House Republicans are opposed to raising taxes, and the leadership reviewed a list of alternative proposals with the rank and file that officials said had originated with Obama or been embraced by the administration earlier in the year.
Among the options are a pay freeze for federal workers through 2015 and a requirement for them to pay a higher share of their pension costs. Raising the cost of Medicare premiums for the well-to-do is also on the list, as are proposals to charge a fee for mortgages backed by Fannie Mae and Freddie Mac, the sale of spectrum rights now held by the government, and a denial of unemployment benefits or food stamps to million-dollar earners.
“Now is not the time to slam the brakes on the recovery. Right now, it’s time to step on the gas,” Obama said in an appearance at a construction site at which he noted that unemployment last month fell to a 2 1/2-year low of 8.6 percent.
If Congress fails to deliver the legislation to his desk before its scheduled adjournment for the year, “we can all spend Christmas here together,” said the president.
Obama is scheduled to leave on Dec. 17 for a Christmas vacation in Hawaii with his family and friends, spokesman Josh Earnest said. Those plans may be delayed by unfinished business with Congress, as it has been in the past.
On the eve of landmark elections, Egypt’s military ruler warned Sunday of “extremely grave” consequences if the turbulent nation does not pull through its current crisis _ an attempt to rally the public behind his council of generals in the face of pressure from protesters to step down immediately.
Field Marshal Hussein Tantawi urged voters to turn out for the start of parliamentary elections Monday despite the chaos in the streets after nine days of protests and clashes that some have dubbed a “second revolution.” The vote will be the first since Hosni Mubarak was ousted in February in a popular uprising and it was meant to usher in democracy after decades of dictatorship. However, it has already been marred by the new wave of demonstrations.
Tantawi claimed “foreign hands” were behind the latest wave of unrest. His assertions were similar to those made by Mubarak in the final days before he was ousted. Mubarak frequently warned chaos would ensue if his regime fell, presenting his authoritarian rule as the alternative of order and security. Tantawi was Mubarak’s defense minister for 20 years.
“We will not allow troublemakers to meddle in the elections,” he said in comments carried by the nation’s official news agency. “Egypt is at a crossroads _ either we succeed politically, economically and socially or the consequences will be extremely grave and we will not allow that.”
The military took power when Mubarak stepped down. But it has come under intense criticism for most of the past nine months for its failure to restore security, stop the rapid worsening of the economy or introduce the far-reaching reforms called for by the youth groups behind Mubarak’s fall and the ongoing protest movement. Tantawi rejected calls for the ruling military council to immediately step down.
His warning came as thousands of protesters were filling Cairo’s Tahrir Square for another massive demonstration demanding the military give up power in favor of a civilian presidential council and a “national salvation” government to run the country’s affairs until a president is elected.
It was the ninth straight day of a revival of the protest movement that toppled Mubarak. At least 41 protesters have been killed in and more than 2,000 have been wounded, most of them in Cairo.
At the same time, Egyptians were preparing to vote amid the chaos. With protesters in the streets, there are fears of violence at polling stations. And the population is sharply polarized and confused over the nation’s direction.
Islamic parties are expected to dominate the election, but the political crisis casts doubt on the legitimacy of the vote and could render the parliament that emerges irrelevant.
“I am not going to vote tomorrow because everyone who is running is a thief and only cares for the seat they want to sit in,” said Abu Ahmed, a 36-year-old fruit vendor in the Mediterranean port city of Alexandria. “Many times they’ve tried to buy my vote with a bag of food or money. They know that I’m poor and they want to take advantage of me. I don’t read or write, but I know that Tantawi needs to go,” he said.
The Muslim Brotherhood, the largest and best organized political group in Egypt, is expected to dominate the elections along with its Islamist allies. The group has stayed away from the current wave of protests, careful not to do anything that would derail the vote.
However, the military has said the next parliament will have limited powers, and suggested that it will retain the right to appoint and dismiss the Cabinet. The issue promises to put the military and the Brotherhood on a collision course. A dispute between the two could destabilize the country further, adding to economic and security woes.
“The next parliament will have no power,” predicted accountant Said Younis in Tahrir. “What we want is a salvation government or even a revolutionary government.”
Heavy limitations on the next parliament undermine the very relevance of the vote. The next government will not be determined by legislators but by the head of state, which at the moment is the military, though the protesters want it to step aside. If the military clings to its status, there are likely to be stormy negotiations over the formation of a government, and the protesters will try to influence events by bringing numbers to the streets. In any case, lawmakers at best will be on the sidelines trying to make their voice heard.
The other main duty of parliament _ creating an assembly to draft the next constitution _ may also be largely out of its hands. The military has insisted on the power to name a large part of the assembly, and there is enormous pressure on all sides to form an assembly that represents all factions no matter what their proportions in the parliament.
It is not even clear how long this parliament will be in place. The multi-stage election for the two houses stretches on until March. Then, under the latest timetable put forward by the generals, the constitution must be written and approved by late June. No one has addressed the question of whether the parliament being created now could continue in place under a new constitution or whether a new election would be needed.
A high turnout in the elections, staggered over three stages scheduled to conclude in March, will likely benefit the standing of the military since the vote is a crucial part of a road map it proposed for the transfer of power.
In some ways, a high turnout could undermine the cause of the tens of thousands of anti-military protesters. A low turnout would give credence to the protesters’ claims that the vote lack relevance and legitimacy and, some contend, should wait until the military are back in the barracks.
Tantawi said the military will follow through with its somewhat vague road map for handing over power. The ruling council never set a precise date for transferring authority to an elected civilian administration, only pledging that presidential elections _ the last step in the handover process _ will be held before the end of June, 2012.
Tantawi also accused foreign powers he did not name of meddling in Egypt’s affairs.
“None of this would have happened if there were no foreign hands,” he said. “We will not allow a small minority of people who don’t understand to harm Egypt’s stability,” he said, apparently alluding to the protesters in Tahrir, epicenter of the 18-day uprising that toppled Mubarak.
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Al-Shalchi reported from Alexandria, Egypt.
Egypt’s central bank has raised interest rates for the first time in three years. It follows months of political unrest that have led to an economic slowdown, putting the country’s currency under pressure.
The bank said in a statement posted late Thursday that its Monetary Policy Committee decided to raise the overnight deposit rate by 1 percentage point to 9.25 percent.
Also, it raised the overnight lending rate 0.5 percentage points to 10.25 percent and the 7-day repo by 0 bad credit payday advance.5 percentage points to 9.75 percent.
The Standard & Poor’s ratings agency on Thursday pushed Egypt’s sovereign credit ratings deeper into junk status, citing the country’s deteriorating fiscal situation.
Egypt’s last interest rate hike came in September 2008.
Italian Premier Mario Monti urged lawmakers Friday to not “pull the plug” on his government before elections in 2013, no matter how politically painful the measures in his plan to save Italy from its debt crisis.
Monti also told the lower Chamber of Deputies ahead of a confidence vote in his new government that he would travel to Brussels next week to the European Commission and would meet with the French and German leaders to map out strategy.
“The job that I have had the honor of receiving is nearly impossible, but we will succeed,” Monti said.
On Thursday, Monti’s government won a confidence vote 281-25 in the Senate after he warned all Italians would need to make sacrifices to get the country out of its massive debt hole.
Monti is under enormous pressure to boost growth and bring down Italy’s high debt, which at 120 percent of GDP is among the highest in the eurozone. The aim is not only to save Italy from succumbing to the debt crisis but to prevent a catastrophic disintegration of the common euro currency.
Monti told lawmakers his strategy had three main pillars: Budgetary rigor, economic growth and social fairness. He pledged to reform the pension system, re-impose a tax on homes annulled by Berlusconi’s government, fight tax evasion, streamline civil court proceedings, get more women and youth into the work force and cut political costs.
On Friday, his remarks were more aimed at answering lingering doubts among those who voted against his government, have conditioned their approval on how long it lasts, or took to the streets Thursday to protest his cabinet of bankers, university professors and CEOs.
“We won’t be around for long,” Monti said. “We won’t last a minute longer than the time this parliament gives us their confidence.”
But he stressed that he never would have gathered together such a high-caliber government if the intent wasn’t to govern until the natural end of the legislative term, in spring 2013. He has said anything less than that would undermine the government’s credibility.
While acknowledging the absolute dependence of his government on parliament, he jokingly asked to avoid using terms like “pull the plug” because it implied the government was some kind of an “artificial lung” when in fact it is leading the country through a profound crisis online payday loan lenders.
“We’re not asking for blind trust, but vigilant trust,” Monti said.
But he also issued a warning of sorts, noting the sense of desperation among ordinary Italians about Italy’s economic mess: “In giving us confidence or taking it away, you must also realize the consequences for yourselves among Italians.”
It was a clear message to Berlusconi’s People of Freedom party, which has said it would only support Monti’s government for as long as needed to pass the measures demanded by the EU.
Party secretary Angelino Alfano told state television Thursday that the party hadn’t given Monti a deadline. “But what is certain is that we are making the link between the government and its program, and once the program is finished we’re heading to the polls.”
Europe has already bailed out three small countries _ Greece, Ireland and Portugal _ but the Italian economy, the third-largest in the 17-nation eurozone, is too big for Europe to rescue. Borrowing costs on 10-year Italian bonds were at 6.75 percent Friday, after spiking briefly over 7 percent Thursday, a level that forced those other countries into bailouts.
In a conference call Thursday, German Chancellor Angela Merkel, French President Nicolas Sarkozy and Monti agreed that their countries have a special responsibility to the eurozone as its three largest economies and founding members of the European Union.
Monti said his meeting with Sarkozy and Merkel would mark the start of “a permanent Italian contribution to the solution of the debt problem.”
Still, it’s not clear how many sacrifices Italians are willing or able to make. Students demonstrated across the country on Thursday under the banner: “Save the schools, not the banks.”
Monti’s ambitious plans overhaul just about every aspect of the Italian economy _ from the organization of local governments to the selection process for teachers. Monti indicated he would seek to lower taxes on labor, while raising those on consumption. And he pledged measures _ such as setting a limit on cash transactions _ to tackle tax evasion, which he estimated is worth 20 percent of GDP.