World Economic News
France Pounds Another Nail into Maastricht Coffin
French Prime Minister Jean-Pierre Raffarin said France likely broke the European Union's limit on budget deficits in 2002, but it won't drastically cut spending. "I won't carry out a policy of austerity," an unapologetic Raffarin declared at a ceremony for the bicentennial of the Paris Chamber of Commerce and Industry. Tightening spending, he warned, "would depress the situation further."
France's ruling party, the Union for a Presidential Majority (UMP), called on Feb. 25 for a temporary suspension of limits imposed by the Maastricht Treaty. "One could imagine that there could be a certain understanding concerning the near-term overshooting of the Stability and Growth Pact," said Jacques Barrot, president of the UMP contingent in the National Assembly.
Germany and Portugal have also surpassed EU budget deficit limits.
EU regulations require euro-zone nations to keep budget deficits to no more than 3% of Gross Domestic Product.
Deutsche Bank Calls for 'Bad Bank' To Take Over Loans
Deutsche Bank, the German central bank, has proposed the establishment of a publicly financed "bad bank" that would buy up the problematic Mittelstand (small to medium-size firms) loans of private German banks. The daily Frankfurter Allgemeine Zeitung on Feb. 23 revealed more details on the Feb. 16 emergency summit in the Chancery, which included Chancellor Gerhard Schroeder, Economics Minister Clement, Finance Minister Hans Eichel and the top managers of Deutsche Bank, Dresdner Bank, HypoVereinsbank, DZ-Bank, West-Landbank, Allianz, Munich Re, and Kreditanstalt fuer Wiederaufbau (KfW).
According to unnamed participants, Deutsche Bank CEO Josef Ackermann proposed that German banks should set up a new entity, a "bad bank," into which the banks would transfer all their problematic loans, about 7 billion euros or more. In this way, the banks could prevent large write-offs which would further erode their core capital. The scheme would require the government to guarantee the problem loans. First participants of the plan to clean up their credit portfolio should include Dresdner Bank, Commerzbank, and HypoVereinsbank. The head of DZ-Bank, which is in a very precarious state as well, welcomed the proposal. Deutsche Bank itself, said Ackermann, would not participate in this operation asclaims Ackermannit can solve all its problems on its own.
FAZ described the proposal as "unprecedented" in postwar German banking history. Top bankers in Frankfurt, the German financial center, denounced the plan, because it would be an admission that German banks are in a disastrous situation. Meanwhile, Dresdner Bank has already set up an "Institutional Restructuring Unit" (IRU), into which it has transferred 17 billion euros of either problem or "non-strategic" loans. Dresdner Bank plans to put up to 30 billion euros of loans and assets into this new unit.
According to the German financial daily Handelsblatt, the initiator of the emergency meeting was Roland Berger, head of the Roland Berger consulting group. Berger, in an interview with Handelsblatt, attacked the present structure of the German banking sectorin particular, that two-thirds of the credit volume still belongs to public or semi-public banksas the key obstacle to boosting banks' profits. He said that now is the time to break up Germany's "obsolete" three-pillar banking structure, consisting of S&Ls, cooperative banks, and private banks. According to recent figures from the Bundesbank, the market share of all Germany's major private banks amounts to just 24%. Once the smaller private banks are added, the figure rises to 34%. The remaining 66% of market share belongs to the state-owned Landesbanken (25%), the mortgage credit banks (14%), the S&Ls (13%), the cooperative banks (10%), and certain government-owned banks (4%) like the KfW.
Accounting Fraud Sinks World's Third-Largest Food Retailer
In the very first minute of trading on Monday morning, Feb. 24, the price of Ahold stock, the world's third-largest food retailer, crashed by 55%. Later in the day, Ahold stocks plunged by 66% compared to the Friday close on Feb. 21, and reached a new 12-year low. The bonds of Ahold were tumbling as well.
All this happened after the retail giant, based in Amsterdam, revealed that auditors Deloitte & Touche had discovered an accounting irregularity of at least $500 million in 2001 and 2002 at its key unit, U.S. Foodservice, which supplies food to restaurants, schools, and prisons (see also "Wall Street Police Blotter," above). CEO Cees van der Hoeven and CFO Michael Meurs have resigned. Ahold owns the Dutch supermarket chain Albert Heijn, the biggest in the Netherlands. But 60% of Ahold's profits are being generated in the U.S., where Ahold runs 1,600 stores, in its two retail chains Stop & Shop and Giant.
Already last year, Ahold had to put out profit and sales warnings twice due to much weaker-than-expected demand. The company just reported its first quarterly loss in almost 30 years. The total net debt of Ahold amounts to 12 billion euros. Ahold's long-term credit rating was cut to junk by Standard & Poor's Feb. 24. The conglomerate's largest share-holders are the Benelux financial firm Fortis and the Dutch insurance groups ING and Aegon.
British Gov't Proposes Financial Emergency Measures for 'Extreme Situation'
In its just-released consultation paper on financial-security planing, the British Treasury has proposed that the government should fully take over operations at London stock markets and other key financial centers, should London be hit by a major terror attack. Under the headline, "Brown may run London exchanges in emergency," the Financial Times of Feb. 26 states:
"Gordon Brown, Britain's Chancellor of the Exchequer, is seeking sweeping powers to take control of London's Stock Exchange and other key financial exchanges, settlement and payment systems in the event of a large terrorist attack. This unprecedented right to shut down or take over core parts of the City of London financial district could avoid economic meltdown in 'extreme situations,' a Treasury consultation paper said yesterday.
"The new powers would allow the government to suspend tradingin effect freezing settlement of any transactionson any of the main exchanges. Normal legal rights to sue a counterparty for non-payment, or take legal action against an exchange for failing to operate, could be removed. In more severe cases still, ministers would have the power to 'direct financial infrastructure ... at the heart of the system,' overriding the normal contractual and trading rules. An example cited in the paper is that clearing banks could be forced to suspend direct debit payments to protect retail customers should employers be unable to pay salaries because the bank's systems have collapsed."
The FT stresses that the new powers would be used only in "extreme circumstances," and not to intervene in a purely financial crisis. Ruth Kelly, a Treasury Minister, said: "We would only do this if the risk to the financial system as a whole and the wider economy outweighed the cost."
German DAX Crashes to Lowest Level Since August 1985
Escalating disasters in the banking and insurance sectors, and panic selling of former premium stocks such as ThyssenKrupp and Bayer, pushed the German DAX-30 Feb. 25, below the 2,500 point mark for the first time since summer 1996. Thus, the DAX has now erased more than two-thirds of its March 2000 peak value of 7,600 points.
Following the S&P downgrading Feb. 21, ThyssenKrupp stocks fell by 15% in just two trading days. Stock prices of the Bayer chemical group suffered their biggest crash in decades, down 14%, after a new lawsuit was filed in the U.S. against Bayer's drug Baycol, which was withdrawn in 2001 after it was determined that it caused serious side effects. The Financial Times Feb. 26 quoted the German lawyer Michael Witti, representing the German claimants against Bayer, saying: "Bayer is the first to experience the U.S.-German tensions. The industry can now see what the Chancellor has brought to them."
Meanwhile, the Duesseldorf state prosecution has started an investigation against Deutsche Bank chief executive officer Ackermann, former Mannesmann CEO Esser, and other top managers for bribery in the takeover of Mannesmann by Vodafone three years ago. The former Deutsche Telekom top management is now being accused of deliberately misleading investors, with the assistance of Finance Minister Eichel, during the big emission of Deutsche Telekom stock two years ago.
Allianz and Munich Re, the two giant insurance companies, according to reports accelerated the stock-market plunge in recent days as the low DAX value triggered a new round of forced stock sales. In Switzerland, Swiss Re, the world's second-largest reinsurer, announced that due to crashing stock markets, they will have to cut dividend payments for the first time since the San Francisco earthquake and fire of 1906.
Credit Suisse will cut another 1,250 jobs on top of the 8,000 job cuts announced in recent two years, after reporting a full-year loss of 3.3 billion Swiss francs, the biggest ever recorded by any European bank. British bank Abbey National announced its first full-year loss since it was founded in 1849.
UK Corporate Investments in Cardiac Arrest
British corporate investments suffered their biggest setback since records began being kept in 1986. According to government figures presented on Feb. 25, British investments in 2002 fell by 10% compared to the year before. Manufacturing output in 2002 posted its sharpest decline since 1991. In the fourth quarter 2002, corporate investments dropped to 25.6 billion pounds, the lowest in five years. Manufacturing investment fell 18% in the fourth quarter 2002 compared to 12 months ago. Even in the service sector, investments plunged by 7.6%.
Wall Street Banks Force Genocidal Debt Scheme on Mexico
For the first time ever, Mexico has issued a global bond which includes a "collective action clause (CAC)," designed to facilitate a debt restructuring, should Mexico be unable to pay. The inclusion of the CAC in Mexico's $1-billion global bond offering, placed on the market by JP Morgan and Goldman Sachs Feb. 26, reflects not only the fragility of the country's debt bubble, but the world financial oligarchy's insane attempt to maintain the fiction that bankrupt financial assets are still, somehow, "performing."
Mexico is the first emerging-market country to include this clausewhich, contrary to current practice, would allow it to renegotiate its debt without agreement from all 100% of the bondholders; in this case, only 75% would have to agree. This is a scheme which is kissing cousins with the one put forward by the IMF's Deputy Managing Director Anne Krueger last year, which would allow for emerging-market debt restructuring, accompanied by a harsh austerity regime, all under the dictatorship of a supranational authority. Although a spokesman for one group of investors phoned Mexican officials early on Feb. 26 to express their nervousness about including the CAC, arguing that it would jeopardize their position in the event of a moratorium, the U.S. Treasury is fully behind the CAC inclusion. The IMF also congratulated Mexico for the move.
When briefed on this development, U.S. Democratic Presidential pre-candidate Lyndon LaRouche warned that these policies will lead to a new dark age. Mexico's financial assets are bankrupt, as are those of every other country, and the attempt to assert otherwise through this type of scheme, will bring on genocide.
Economists Say Indonesia Better Off Without IMF
A group of 35 leading economists in Indonesia, headed by former Economics Minister Rizal Ramli, said the economy would fare better without the IMF, the Jakarta Post reported Feb. 27. Ramli said that once the IMF gets its hands off Indonesia, the economy would expand more strongly, and even return to pre-crisis growth levels of around 7% by 2005. "The sooner Indonesia parts with the IMF, the better for the economy, as [going] without the IMF means that we have the flexibility to do a lot of things," Rizal said, adding that most of the IMF programs had simply pushed the economy deeper into crisis. The IMF program with Indonesia has to be extended, or it ends at the end of the year.
Rizal said that, as a resource-rich country, Indonesia could generate as much as $58 billion from internal sources to stimulate the economy, especially given the current oil windfall.
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