Archive for May, 2010

Expenses scandal troubles fledgling UK coalition (AP)

Sunday, May 30th, 2010 | Finance News

LONDON – After only 18 days at the helm, Britain's young coalition government has lost a top finance minister to an expenses scandal just as it struggles to slash a record budget deficit and restore public trust in politics.

The abrupt resignation of David Laws, the deputy Treasury chief, reduced confidence in Prime Minister David Cameron's ability to tackle the nation's economic woes and improve governmental transparency — goals Cameron has highlighted as his twin priorities.

It also introduced more uncertainty into preparations for the emergency budget expected in June that will detail sweeping plans to cut Britain's deficit, which is running at close to 12 percent of gross domestic productThat's just behind Greece's level of 13.5 percent of GDP, a debt load that has triggered a sovereign debt crisis across Europe.

"Coalition in turmoil," the Observer newspaper said on its front page Sunday, describing Law's departure as a "sudden and dramatic end to the brief honeymoon" enjoyed by coalition partners Cameron of the Conservative Party and Nick Clegg of the Liberal Democrats.

"It won't break the coalition, but it probably makes life more difficult," said Victoria Honeyman, a lecturer in British politics at the University of Leeds.

"It's a real shame because he probably would have smoothed the path somewhat," she said. "He's a conservative liberal speaking the language of both parties."

Laws was forced to quit Saturday after the Daily Telegraph newspaper revealed he had broken parliamentary rules in claiming tens of thousands of pounds (dollars) in taxpayer money to pay rent to his boyfriend. Laws said he wanted to take responsibility for wrongdoing as well as deal with the public exposure of his sexuality.

The Liberal Democrat's job was to slash public spending, and together with Treasury chief George Osborne he announced a 6 billion pound ($8.9 billion) package of cuts. A successful former investment banker and a highly regarded economist, the 44-year-old Laws was widely praised for his start at the Treasury.

He was replaced Saturday by Scottish Secretary Danny Alexander, 38, who has no experience in public finance.

Laws' departure was particularly troubling for Cameron's fledgling coalition because he was seen as a key player in cobbling together the power-sharing deal between the Conservatives and the Liberal Democrats after the May 6 national election produced no clear winner.

Although Cameron and Clegg made a point of setting aside their differences to make Britain's first coalition government in seven decades work, many members in both parties remain suspicious of their new partners. Laws was regarded as a bridge between the factions.

His resignation was also a reminder that last year's expenses scandal is still haunting British politics.

Cameron had promised a new, more transparent government that does not tolerate politicians' misconduct after hundreds of lawmakers from all parties used taxpayers' money to fund everything from swanky second homes to moat cleaning.

The report exposing Laws' expenses claims came just hours after Cameron recorded a podcast pledging that "no one will ever be so free and easy with public money again."

Five lawmakers charged with false accounting face jail terms, and scores of others were either forced to resign or decided not to run for office again. Of the 650 seats in Parliament, some 226 lawmakers are new since the May 6 election.

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‘Shrek’ better than ‘Sex’ with $43M at box office (AP)

Sunday, May 30th, 2010 | Finance News

LOS ANGELES – Movie audiences are showing more appetite for Shrek than for sex over Memorial Day weekend.

The animated sequel "Shrek Forever After" remained the No. 1 movie for a second weekend with $43.3 million from Friday to Sunday. The film raised its domestic total to $133.1 million.

That easily topped "Sex and the City 2," which was No. 2 with a $32.1 million debut that came in far below the $56.8 million opening weekend of its predecessor two years ago. Along with a $14.2 million haul in its first day Thursday, "Sex and the City 2" has totaled $46.3 million.

Debuting at No. 3 with $30.2 million was the action tale "Prince of Persia: The Sands of Time."

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France warns on credit rating (Reuters)

Sunday, May 30th, 2010 | Finance News

LONDON (Reuters) –
France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.

Euro zone trade unions are preparing for possible confrontations in the coming week if governments impose austerity measures or labor reforms unilaterally.

But ministers made clear they were ready to take unpopular steps to prevent the Greek debt crisis spreading to their economies, although doubts are growing about whether the Spanish government in particular has enough support to get its way.

Budget Minister Francois Baroin indicated on Sunday that France should not take for granted its AAA rating, which allows Paris to borrow relatively cheaply on international markets and finance its big budget deficit.

"The objective of keeping the AAA rating is an objective that is a stretch, and it is an objective that, in fact, partly informs the economic policies we want to have," Baroin said.

"We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long term," he told Canal+ TV in an interview.

Baroin later clarified that the target was "a demanding (objective) which we're committed to."

France has forecast its deficit will hit 8 percent of gross domestic product this year, but aims to bring it down to within the European Union's 3 percent limit by 2013.

Talks are under way on pension reform and Paris has frozen central government spending, barring pensions and interest payments, between 2011 and 2013. It is also considering a constitutional amendment to set binding budget deficit limits.


Berlin's budget problems are less severe but Finance Minister Wolfgang Schaeuble signaled at the weekend that Germans may have to stomach tax rises as well as spending cuts.

Chancellor Angela Merkel's government is considering raising value-added tax (VAT) to the full rate of 19 percent on certain items that currently benefit from a lower rate of 7 percent, coalition sources told Reuters on Friday.

"If you abolish tax breaks, some will say that's a tax increase. At the end of the day, it's about having a sensible and balanced policy," Schaeuble told the Bild am Sonntag paper.

"And let's bear in mind that cuts on social spending hit those in the country with less money.

Germany's budget deficit is expected to exceed five percent of GDP in 2010, modest by current EU standards but well above the bloc's limit.

While France expressed its determination to hold on to its top-notch rating, Fitch on Friday became the second agency to strip Spain of its triple-A, sending markets reeling.

Spain's Socialist government is battling to prove to nervous markets that the euro zone's fourth largest economy will not go down the same path as Greece. But with political opposition growing at home, its ability to push through reforms is limited.

Weekend opinion polls put Prime Minister Jose Luis Rodriguez Zapatero's government far behind the opposition, and indicated that many voters believe he will have to call early elections as support for a 2011 austerity budget will be hard to muster.

"The government faces not only an economic crisis but a political crisis too, because the way it's governing is not good enough," said Angel Laborda, an economist at Spanish savings banks consultancy FUNCAS. "I believe that early elections will be called, sooner or later.

A deadline for the government, trade unions and business to agree on labor reforms, aiming to cut unemployment and make the Spanish economy more competitive, looms in the coming week.

Already a May 31 deadline has been pushed back a week. If the talks fail, the government says it will propose its own changes by June 11, risking a confrontation with the unions.


The unions, traditionally close to the Socialists, have said they will respond to any imposed reform with a general strike.

Unions across the continent are preparing their defenses. The European Trade Union Confederation will consider its response to austerity measures in Brussels on June 1 and 2.

But Italy's largest trade union already aims to force Rome to modify its austerity budget with a national strike, probably on June 25.

Europe's debt crisis began in Greece, after Athens revealed last year that its budget deficit was far higher than first reported. Investors reacted by dumping Greek government bonds, fearing Athens would default on its debt repayments.

But Finance Minister George Papaconstantinou promised that Greece would not restructure its debt.

"Debt restructuring would be disastrous for the country's credibility. It would lead to its marginalization from capital markets, to even more belt-tightening and a very deep recession," he told Sunday's Eleftherotypia newspaper.

Greece has agreed to drastic belt-tightening under a 110 billion euro ($134 billion) bailout organized by the EU and IMF.

(Reporting by Helen Massy-Beresford and Jean-Baptiste Vey in Paris, Paul Day in Madrid, Dave Graham In Berlin, Francesca Piscioneri and Gavin Jones in Rome, and George Georgiopoulos in Athens)

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