Showing posts with label Economy. Show all posts
Investors to pay for bank failures – EU
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| Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem talks to journalists during a joint news conference with Portuguese Finance Minister Vitor Gaspar in Lisbon May 27, 2013.(Reuters / Jose Manuel Ribeiro) |
European Union finance chiefs agreed Thursday investors and wealthy depositors will foot the bill for bank bailouts, in a break with the past convention of burdening taxpayers. If pursued, bailout strategy, shareholders, bondholders and depositors with more than 100,000 euro will share the financial strain of saving a bank. Deposits under 100,000 will be protected. Under the new protocol, which would come into effect in 2018, countries would be obliged to absorb 8 percent of a bank’s liabilities, with some leeway thereafter. The next time a big bank fails, governments will make sure “that shareholders and creditors are liable first and foremost,” German Finance Minister Wolfgang Schaeuble told reporters. Rescuing banks will not be less painful for political leaders and institutions, who can now just take bank deposits instead of hiking taxes.
French Finance Minister Pierre Moscovici said France got “what we wanted” from the blueprint, and Danish Economy Minister Margrethe Vestager called the deal a “balanced compromise.” The Irish, whose taxpayers paid nearly $40 billion to bail out Anglo Irish Bank, are happy that the new status quo will be bail-ins, not bail-outs. Banks will have to bail themselves out. Other ministers were happy to have a universal strategy to address dealing with troubled banks.
"If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill," Dutch Finance Minister Jeroen Dijsselbloem said.
Germany has previously indicated it disagrees with a universal plan to deal with bailouts across the continent, and has warned having such a strong central banking authority goes against standing treaties.
“It took a long time and it was arduous and it was intense,” German Finance Minister Wolfgang Schaeuble said, without publicly voicing Germany’s previous qualms over the structure. It is highly unlikely Chancellor Merkel will agree to such a banking union before the election in September.
The European Central Bank will officially take over supervision of eurozone banks next year. Last year it provided 1 trillion euros of cheap three-year loans to struggling banks.Under the new umbrella, banks will be able to receive direct loans from the European Stability Mechanism, a eurozone bailout fund. The European Banking Authority was set up in 2011 to integrate rules across the EU and has secured a new supervisory function. All 17 currency member states support the motion, but some fear an all-too-powerful central bank. By next week, the 27 member states need to choose a governing body, or executor, to carry out the task.
The legislature’s text grants nations a clear right to nationalize failing banks, if the step is seen as essential to preserve financial stability. Switzerland, Norway, and other non-EU countries within Europe will still have jurisprudence over how to deal with bank failures.
Just like Cyprus
The precedent was set after Cyprus requested an EU bailout and aid was dependent on the country’s agreement to levee account holders with more than 100,000 euro, which will likely result in a loss of 30 percent in savings. The Cyprus scenario marked the first time depositors were forced to contribute to the bank’s bailout and now it is set to become the norm. Many analysts had pointed to Cyprus as an isolated case, as their debt was heavily a result of bad Greek bonds, and a hyper-inflated banking sector, almost eight times as large as the country’s GDP. Tax-payer funded bailouts have been the source of public discontent, and the accord is seen as a move to ameliorate political relations in the EU.
UK austerity: ‘Diverting money from poor to rich under guise of economic crisis’
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| Lawyers and demonstrators listen to speakers during a protest against proposed cuts to legal aid outside the Houses of Parliament, in London May 22, 2013. (Reuters) |
The UK’s austerity policy is ideologically driven and is aimed at diverting finance from the poor to the rich under the pretext of the economic crisis, writer John Wight told RT.
Britain's Chancellor of the Exchequer George Osborne is announcing billions more in the government spending cuts while austerity measures are already biting for many people across the UK.
Osborne claimed that British economy is “out of intensive care.” RT asked Wight if he thinks that is really the case.
John Wight: Only in a fine world of the Tory party would that be the case. The country’s seen 1.1 percent growth in the last three years – the worst level of growth in this country’s economy over the last 100 years. That can by no means be considered a success.
RT: Who's going to be the most affected by these latest cuts?
JW: Clearly the poor are going to be hit harder as a continuation of the mass experiment in human despair, which this coalition government has cheated to describe as an economic policy. It is ideologically driven and we see economics of the madhouse. And it is done with the objective of affecting the transference of wealth from the poor to the rich under the pretext of an economic crisis – not reason, it’s a pre-text. The economic crisis which hit this country in 2007 was their economic 9/11.
RT: Official figures show the deficit has been growing last year, despite previous cuts. So is there any point to them?
JW: Well, that’s what I’ve just said: this is ideologically driven. If you are considering these policies on the basis of economics, then clearly it is completely irrational. The US economist Paul Krugman lately described it as “a medieval doctor draining a patient’s blood,” and when that doesn’t work, draining more blood from the patient. This is entirely appropriate to describe this economic policy, this austerity. Austerity historically has been discredited. It doesn’t work in times of recession. At a time of recession the government needs to spend more to reintroduce the man which is contracted as profits stumble. And you must place this along the fact that the Office of Financial Statistics, the government’s own body set up to monitor these things, came up with a figure in April which stated that in the final quarter of last year UK businesses, excluding banks, were sitting on 318 billion pounds of surplus. And that money is money we need in the economy. They are not investing, they spend all the inducements from the government by the way of tax subsidies and tax cuts for the rich that the government has given to the rich over the last three years.
RT: What do you think is the best way that the government can fight the deficit?
JW: It has to start investing in the real economy. It has to start directing banks to lend rather than pleading with banks, especially banks in which we own a majority share, such as RBS. The government should take over RBS’s operations and start lending in the interest of the real economy. The economy needs it. We have a housing crisis in the country, it’s the worst in the world, it’s a scandal. And we need to start investing in affordable homes. Rather than punishing the poor for being poor we should start actually diverting money from the rich to the poor, as befitting a civilized society.
RT: Osborne announced cuts to the police budget. Do you think that will affect the crime rate?
JW: Well, not really, because based on what we know now a lot of criminals are actually in the police. They are also sitting in the boardrooms and in the House of Lords. It may have an effect. But I think they’ve consolidated the police and taken away the regional power from the police. It is yet to be seen. But as I say the cuts in the police budget are minimal compared to the cuts for the poor in terms of benefit cuts and so on.
Au-revoir austerity! France to cut government spending for 1st time since 1958
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| The co-president of the Left Party Jean Luc Melenchon (C) marches on June 2, 2013 against austerity in the southwestern city of Perpignan, France (AFP Photo) |
In their effort to ‘end austerity’, France will cut spending for the first time in over 55 years, by $2 billion.
Prime Minister Jean-Marc Ayrault confirmed on Tuesday that the French Government will decrease spending year on year. The government is facing opposition from lawmakers who claim the deficit will be higher than expected this year.
"This is the first time that we will propose to Parliament such a reduction. It is a structural effort," said Ayrualt.
The central government will cut spending in 2014 by $2 billion to avoid unpopular tax rises and quell unsustainable spending.
750 million euro will be cut from central government support and 750 million euro will be cut from ministry budgets. Ayuralt said the government’s priorities would remain unchanged: job creation, education, and housing.
Opposition lawmakers like Gilles Carrez who heads the finance commission at the national Assembly, said in an interview to Le Figaro the government would miss its targets, and that deficit in the euro zone's second-largest economy could reach 4 percent in 2013. Carrez calculated this to be €20 billion higher than anticipated.
After pledging to cut France's deficit to 3 percent this year, President Francois Hollande and the Socialist government revised their predictions and updated their deficit forecast to 3.7 percent of GDP.
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| Some of the estimated 30,000 demonstrators "against the austerity, against the finance and to ask for a Sixth Republic" on May 5th in Paris. (AFP Photo) |
Hollande has not yet been able to deliver on his promise of 0.1 percent growth, on which he campaigned a year ago.
Hollande isn’t alone. Within the 17 member eurozone, only Germany and Austria have managed to generate positive growth, the rest are left in a similar predicament as France- slow growth, high unemployment, a looming triple dip recession, and a need to somehow cut more.
To reach their budget deficit goal, France should cut the public deficit to 3.9 percent of gross domestic product this year, then 3.6 percent in 2014 and 2.8 percent in 2015.
France’s economy officially slipped back into recession in May, after it shrunk for a second consecutive quarter. The IMF has forecast the economy will shrink 0.2 percent this year, more than the 0.1 percent initially predicted.
Hollande has done all he can to appear to fight the German dictate of austerity, even auctioning off presidential vintage wines to contribute to the endangered budget.
President Hollande at first stood with Merkel on austerity, but after being met by 30,000 protestors on the first anniversary of his inauguration, among slews of other protests, he has shifted his position to resonate with public opinion.
France’s appeal to China
The President has asked China to increase investment in France, to create a balance in employment between the two countries, the head of state said at a speech at the Elysee Palace on Tuesday before members of the China Entrepreneur Club (CEC).
"There is no fear in French society," Mr. Holland assured the entrepreneurs, inviting the Chinese to up their stake in French projects, LePoint reported. Four percent of foreign investors in France are Chinese, and the CEC generates 245 billion euros a year.
Putin-backed bill on amnesty for businessmen submitted to parliament
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| RIA Novosti/Alexandr Piragis |
The Russian State Duma has started to look into a draft law suggesting amnesty for those convicted of economic crimes, the adoption of which could lead to the release of about 10,000 prisoners and suspects.
The draft statement on 'economic amnesty' was submitted to the Lower House on Tuesday, shortly after President Vladimir Putin presented the document in a speech at St. Petersburg Economic Forum and asked the parliament to pass it before leaving for summer vacation.
The draft provides that punishment will be lifted from those who had been sentenced for or charged with economic crimes for the first time on the condition that they compensate for the damages inflicted by their illegal activities. However, the crimes committed with use of violence or threat of violence will not be covered by the amnesty and neither will be the cases where the damage was inflicted to the state budget.
Economic crimes mentioned in the draft are insurance fraud, business fraud, money laundering, illegal entrepreneurship and banking, copyright breach, bankruptcy fraud and tax evasion. The Lower House Committee for Criminal Law approved the bill and recommended that the Duma approves it in the first reading and as a whole, the head of the committee, Pavel Krasheninnikov told the press.
Lower House speaker Sergey Naryshkin said the economic amnesty bill will be considered next week which will be the last week of the current plenary session.
One of the main sponsors of the economic amnesty bill – the ombudsman for entrepreneurs’ rights Boris Titov told reporters earlier that Russia has about 110,000 prisoners serving time for economic crimes. The ombudsman estimated that about 10,000 of them can be released under the bill. Deputy head of the Lower House’s economic policy committee, MP Viktor Zvagelskiy stated in press comments that about 13,000 convicted businessmen could walk free once the bill comes into force.
After the bill was backed by President Putin, ombudsman Titov welcomed the move saying that it was good for morals and ethics. Titov also noted that this will be a signal for entrepreneurs who would lead the country to further development and prosperity.
Critics of the bill, such as the head of the major bank VTB, Andrey Kostin, suggested it was offering impunity to representatives of big business, which was wrong. Former finance minister and influential expert in business and politics, Aleksey Kudrin, said that he welcomed the initiative but was surprised by the demand to compensate for damages as not all economic crimes are connected with material damages.
A public opinion poll conducted by the VTSIOM research center in late May showed that only 33 percent of Russians supported the idea of a business amnesty with 36 percent opposing it and 31 percent remaining undecided over the issue.
Market Buzz: Escalating fears over Chinese liquidity crisis
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| Mario Tama/Getty Images/AFP |
Russian stock market has opened on the positive territory on Tuesday, rebounding after Monday’s drop.
Investors however expect stocks to fall later in the day, as oil prices are declining and the international outlook remains negative on China liquidity crisis and concerns over Fed’s stimulus.
Russian stocks ended Monday with losses. The MICEX slipped 0.66 percent to the 1290.26 mark, while the RTS lost 1.02 percent to 1233.04. Equities of KAMAZ, Novatek, InterRAO, Rosneft and E.On Russia kept Russian market trade afloat with gains.
Major European stock markets also slumped Monday, reacting to worries over the Chinese liquidity crisis and the withdrawal of US Federal Reserve stimulus.
London's FTSE 100 index of leading shares slid 1.42 percent to 6,029.10, while Frankfurt's DAX 30 fell 1.24 percent to 7,692.45 points. In Paris the CAC 40 dropped 1.71 percent to 3,595.63 points.
Stocks in Spain and Italy also fell on rising Italian and Spanish state borrowing costs on the bond market.
US stocks ended Monday’s roller coaster trade with steep declines. Benchmark stock indices demonstrated a steep fall after the opening bell.
The Dow Jones Industrial Average had been down as much as 250 points on Monday ending down 139.84 points, or 0.9 percent, at 14,659.56.
The S&P 500 finished down 19.34 points, or 1.2 percent, at 1,573.09, with all of its 10 major sectors in negative terrain. The NASDAQ closed down 36.49 points, or 1.1 percent at 3,320.76, following an intraday low of 3,294.95 and a session high of 3,344.66.
Tuesday’s news from Europe will include the UK’s industry data on mortgage approvals, reflecting the demand in the housing sector. Bank of England policymakers are to testify on inflation and the economic outlook before the parliamentary treasury committee, Investing.com reports.
Also on Tuesday Italy is to hold an auction of 10-year government bonds.
The US is to publish official data on durable goods orders and closely watched reports on consumer confidence and new home sales later in the day.
Asian stocks were struck by worries over problems in the Chinese banking system. Mainland Chinese stocks fell sharply for a second straight day on Tuesday. Losses hit markets in other Asian regions as well.
The Shanghai Composite lost 3.8 percent to 1,888.69 and Hong Kong's Hang Seng dropped 1.4 percent to 19,533.05. Japan's Nikkei 225 shed 1.6 percent to 12,848.96. South Korea's Kospi slid 1 percent to 1,780.81 and Australia's S&P/ASX 200 declined 0.5 percent to 4,645. Stocks in Taiwan and the Philippines also fell.
Brent oil is currently trading at $101.35, while WTI is up 0.17 percent, trading at $95.30.
International confidence in US economy ‘crumbling’ after Snowden leaks
Along with exposing widespread international surveillance, Edward Snowden has revealed how exactly the US is financing its military ambitions, according to Max Keiser.
RT: Surely not even you can make any kind of link between the Snowden saga and the US economy?
Max Keiser: The American economy runs on the confidence, confidence that the world accepts the US dollar as world reserve currency, confidence that the US bond market will remain the standard. And what we are seeing is a sell-off in a bond market and a sell-off in the stock market, because confidence in the US and its ability to maintain a global empire through interest rates and the Central Bank policy is crumbling before the world’s very eyes. What’s interesting is that Edward Snowden worked for Booz Allen. Booz Allen allegedly along with a few other companies are the masterminds behind LIBOR market rigging, energy market rigging, FOREX market rigging. And this is really the fuel that keeps the American military empire going, because the American economy itself cannot support its military ambitions so they’ve resorted to market manipulation and the kind of intelligence that Edward Snowden is able to aggregate is key to manipulating markets in ways that make Booz Allen, allegedly, the channel for billions and billions of dollars into America’s military campaigns. And this is really about money, markets and manipulations. It’s not about security. It’s not to do with anything that the White House says. Remember, the White House is a puppet of Wall Street, Booz Allen, the hedge funds and the financial interests of the corrupt bankers.
RT: Can you also give us an idea of how some of those big companies like Google, or Facebook could actually benefit from this surveillance program PRISM? Is there financial a financial gain from them?
MK: Absolutely, because all of the manipulation involves rigging the indexes. And the indexes are all data-sensitive. So, if you can manipulate the data, you can manipulate the indexes and you manipulate the markets. And if you have advanced knowledge of that inside information you can make billions of dollars of front-running, high-frequency trading, algorithmic trading. And, of course, all the banks on the Wall Street are in on this and all the banks in the UK. It’s very telling that the foreign minister of Ecuador said that, look “you are talking about us extraditing Edward Snowden, what about bringing back those bankers we asked you to bring back to Ecuador who we caught rigging and terrorizing our market?” What about the Icelandic bankers that have been asked by the government of Iceland to be extradited back to Iceland that are being held in the UK? What about these other instances where banking terrorists are being sheltered in the US and the UK? They’re not responding to extradition agreements. So this’s all about financial legerdemain, unfortunately, Americans don’t have enough money to fight their wars anymore so they have to resort to snooping, data-gathering, and market manipulation.
RT: What about the diplomatic fallout? We’ve seen tensions between China and Washington but that of course leads to economic tension. Could that impact trade between the two?
MK: I hope Russia, China, and Ecuador stand up to the financial terrorists in America and Britain. Stay the course. Don’t give in and don’t appease the financial terrorists on Wall Street.
RT: But how could a small country like Ecuador stand up to a giant like America, where there is indeed trade between the two?
MK: What Edward Snowden has proved is that if you live a principled life and stay true to your convictions then you can change the world.
RT: Are we going to see financial fallout between China and the US?
MK: Well China has got a fantastic card to play, one trillion US dollars that they can dump on the market anytime and jack interest rates up five or six points, which would throw the real estate market back into collapse. China is pulling the strings here and China has all the cards to play. America is the biggest debtor nation in the world. Look at the bond market today, it’s selling off spectacularly all over the world because confidence in the American hologram of finance is collapsing. They flipped the switch. They see that the emperor has clothes. They see that there’s no underlying economic activity to support the military and financial occupations emanating from the US. It’s game over!
US Fed's plan to end bond purchases drags markets down
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| Reuters / Larry Downing |
Global markets tumbled after the US Federal Reserve Chairman Ben Bernanke said the US monetary regulator will begin tapering its aggressive $85 billion bond buying stimulus later this year. Bernanke spoke Wednesday at a media conference after the two-day policy meeting of the FOMC. He says the US economy is expanding strongly enough for the Fed to consider pulling out of its aggressive stimulus in 2013 and end the bond buying around mid-2014 if economic data warrants it.
"The committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year, and if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year," Bernanke said.
Investors’ fears have come true, as the news sent stocks and bonds sharply lower, pushing benchmark Treasury yields to a 15-month high, Reuters reports. The uncertainty on when exactly the Fed will start scaling back the stimulus still looms.
The US central bankers believe that moderate growth will bring further improvement to the labour market. The number of unemployed people in the US is expected to slip to 7 percent from the current 7.6 percent by the time the Fed ends bond buying. The Fed expects the unemployment rate in 2013, 2014, and 2015 to be lower than previously forecast. Bernanke added that in case the optimistic forecasts do not come true, the Central Bank could resume bond purchases.
Ben Bernanke also said the Fed expects inflation to climb towards the 2 percent target mark. The US central bank’s forecast for 2013 GDP growth was updated to a slightly lower reading, however the outlook for 2014 was upgraded.
"The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall," FOMC said.
In fact not much new was said on Wednesday since the FOMC last released the minutes of its previous meeting in May. Then Bernanke spoke of the possibility of pulling out of the huge bond buying if the labor market shows “substantial improvement.” However there has been no “substantial improvement” yet, says David Williams, director at Strategic Gold Corporation who spoke to IBTimes TV.
“They are not going to change anything because it hasn’t improved substantially, so that’s just giving us more time, at least until the end of the year even not after that,” he said. “I think things will stay generally the same.”
According to a Reuters poll of 17 top Wall Street bond dealers, 16 of them expect the scaling back the bond purchases will begin with September’s FOMC meeting.
Stocks, bonds and commodity markets in Europe and Asia sold off sharply on the news from the Fed.
Gold tumbled to a 2 and a half year low also reacting to the news from the US. Bullion prices fell below $1,300 an ounce in London, exceeding April’s drop into a bear market, Bloomberg says. In 2013 the precious metal has already lost 22 percent, as investors sold off gold becoming less confident in it as a hedge from inflation. This year’s drop may well become the biggest annual decline in more than three decades.
Silver also slid significantly, diving to the lowest price since 2010.
130,000 leave Germany due to failing economy, lack of business opportunities
Thousands are emigrating from Germany, one of Europe’s strongest economies, to seek opportunities elsewhere, citing “no safety for the future” and overcomplicated business legislation as the reasons behind their decision. Some 130,000 people – the most in a generation – left Germany in 2012, RT’s Peter Oliver reported. Recent government data has shown that unemployment in Germany climbed by 21,000 in May – four times more than economists forecast. At the end of May, the Federal Labor Office published unemployment statistics showing that 2.96 million Germans (3 percent of the country’s population) are currently jobless. This, combined with mounting economic problems, has forced some Germans to look for career opportunities elsewhere, with Switzerland, the US, Australia and Canada among the top destinations. Business owner Jens Blecker and his family have chosen to leave Germany for Canada; he will also be relocating his €2 million business.“Germany is a nice place but right now the future looks really dark, so we are getting out,” Blecker said. “All they are doing is taking the debt higher and higher, and breaking their own rules. Look at the laws prohibiting bailouts, as soon as it suited them politically this just went out of the window. As a business man there's no safety for the future.”A Bavarian lawyer identified as Dr. Roth is moving to New Zealand. He slammed Germany’s current economic system for its bureaucracy.“Look at the ten commandments, there are probably around 500 words there,” Roth said. “Then look at the regulations on something small, like producing candy in the EU, it's over 10,000 words, most of them nonsense. This will leave Europe like a banana republic with so many laws no one can follow them.”Reports from Moody’s Investors Service have reaffirmed this gloomy outlook: In April, Moody’s predicted that Germany’s gross domestic product (GDP) would only grow 0.4 percent in 2013. Germany’s economic growth declined to 0.7 percent in 2012, down from 3.0 percent in 2011. Economists say that the country has begun to feel the pinch of the eurozone debt crisis, which has devastated the European Union since 2009. Germany is considered one of strongest economies in Europe. However, in 2012 its GDP declined more than other member-states such as the Netherlands, Austria, Belgium and Sweden, according to Eurostat.
G8 leaders sign tax evasion declaration
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| Country leaders Germany's Chancellor Angela Merkel, Russia's President Vladimir Putin (L), Britain's Prime Minister David Cameron (C) and U.S. President Barack Obama (R) attend a working session at the Lough Erne golf resort where the G8 summit is taking place in Enniskillen, Northern Ireland June 18, 2013.(Reuters / Yves Herman) |
G8 leaders have signed the 'Lough Erne Declaration', pledging to change the international financial scheme that currently allows individuals and companies to hide money and avoid paying taxes, thus creating a more transparent international economy. After two days of resolutions on ‘the three Ts’ – tax, trade, and transparency- leaders have signed a concluding summit document to update tax rules which date back half a century to the League of Nations. "You have to collect the taxes that are owed," Cameron said at his press conference. "Tax authorities across the world should automatically share information so those who want to evade taxes have nowhere to hide," said Cameron. All G8 leaders signed the Long Erne Declaration, which sets out to drive growth, reduce poverty, create jobs, and promote prosperity. The document states the following can only be accomplished under fair and transparent tax and trade laws, which must be managed by good governance. "You're going to see concrete achievements today on changing the international rules on taxation, so individuals can't hide their money offshore and companies don't shift their profits away from where the profit is made," George Osborne, UK Chancellor, told the BBC before the official meeting.
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| Prime Minister David Cameron is the first to sign the Long Erne Declaration. Photo from twitter.com user @Number10gov |
David Cameron attended a key discussion on tackling tax evasion to provide a blueprint ahead of the G20 meeting in St. Petersburg in September, where it is expected a final cooperative directive will be issued to put a halt to tax evasion. Company directors have a "duty" to ensure their firms pay fair share of tax as well as maximize shareholder value, said Paul Collier, director of the Center for the Study of African Economies at Oxford University and an adviser to Cameron. Downing Street released and official document after the meeting, the 'UK Action Plan to prevent misuse of companies and legal arrangements' which states the UK's commitment to implementing transparency in corporate governance. The post-recession economic climate has led to stiff competition between struggling G8 economies for both investment and tax revenue. Governments can no longer afford to miss out on tax revenue from companies or individuals stashing their money in havens. An estimated $8.5 trillion sits in offshore accounts, which doesn’t draw tax revenue back to the source of the wealth, and has come under attack from politicians as the economic crisis deepens. “I am particularly pleased to fight against offshores because it’s not not only a problem for Russia but for the entire world economy," Russian President Vladimir Putin said in his press conference, pointing to Cyprus as a case study of how a rogue offshore can derail and hinder investment worldwide. Companies, use creative tax schemes to shelve profits and avoid taxes, a practice which is currently not a criminal offense.
‘Britain must put its own house in order’
UK leaders may find it difficult to convey to their international counterparts they are ready to lead the effort against tax evasion, as they have made little ground at home on the issue. It is estimated one fifth of the world’s illicit tax haven money is situated in accounts in British Overseas Territories and Crown Dependencies, and in 2012, the UK lost $156 billion in tax revenue from those individuals who dodged mainland taxes, instead keeping their assets offshore. Tax evasion has a €1 trillion effect on the EU economy, and in Britain, at least $150 billion is lost to tax schemers. Oxfam, a UK-based charity, estimates that some $18.47 trillion is being held by individuals in tax havens around the world. Of this some $7.18 trillion is in accounts situated in British Overseas Territories and Crown Dependencies. "Of course Britain's got to put its own house in order," said Osborne before the meeting. It will be a long and drawn out process, because some countries have specifically catered and developed their economies around the loose tax haven regulations, most notably Switzerland, Austria, and Luxembourg, which have become financial hotspots because they offer a niche for low corporate taxes. The tax evasion would need to be a global overhaul, because if just one country decides not to comply, and offer lower tax rates for people trying to hide money, the whole effort is void. EU leaders met in Brussels on May 22 and agreed to aggressively dismantle the dangerous tax loopholes and havens through 2020. The tax evasion topic spills into the transparency theme, which focuses on developing countries and commodities.
Call for transparency
The UK wants to create a public tax register, a country by country report on taxes, which would bring to light to any ‘shell companies’ operating abroad engaging in tax evasion gimmicks. A shell company is a subsidiary of a multinational set up in another country with lower corporate tax rates in order to ‘hide’ their liabilities from taxes in their home country. Apple has come under fire for setting up offices in Ireland, where they paid less corporate taxes than they would in America, but they are not alone. Osborne has stressed taxes should be paid where the profits are generated, whether it’s Apple, or a natural resource company mining in Africa. On Monday US President Obama and Cameron officially announced plans to create the ‘biggest bilateral trade deal in history’.
Detroit rock bottom: City announces $2.5bn debt default
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| The abandoned and decaying Packard Motor Car Manufacturing plant, built in 1907 and designed by Albert Kahn, is seen near downtown Detroit (Reuters/Rebecca Cook) |
Detroit said it will stop making payment on $2.5 billion of the city’s massive $18.5 billion debt and has asked creditors to accept 10 cents in the dollar of what the city owes them in a bid to avoid the largest municipal bankruptcy filing in US history.Detroit Emergency Manager Kevyn Orr said the city would stop making payments on its unsecured debt in a bid to “conserve cash” for vital services like police and firefighters. He further said pension benefits both present and future along with healthcare would face cuts, while control over the city’s water and sewage would be turned over to an independent body.“We’re tapped out," Orr was quoted by WWJ-TV as saying. "We need to come up with a plan to restructure our debt obligations and our legacy obligations going forward — that is: pension, other employee benefits, healthcare, so on and so forth."Orr continued that $1.25 billion would be set aside over the next decade, $750 million of which will go towards public safety, including funds for police, fire, streetlights and other endeavors. The remaining $500 million will be for blight removal.The emergency manager spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors holding Detroit debt on Friday in an effort to fix fiscal problems which have left the city insolvent.One bond holder present at the meeting who asked not to be identified told Reuters Orr’s proposal was likely more than debt holders would be able to accept."It's just too much. It is an unprecedented amount to ask."If creditors reject the plan, Detroit could be forced into what would be by far the largest-ever municipal bankruptcy in US history.Orr said there is a “50:50” chance the city will be forced into bankruptcy and that decision would likely happen in the next 30 days."Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin," Orr said.In a report issued to creditors on Friday, Detroit’s skyrocketing debt, pension and healthcare obligations will sell to almost 65 percent of total city revenue by 2017, up from the current level of 42.5 percent.Detroit has also experienced a 26 percent decline in population since 2000, while unemployment surged from 6.3 percent in June 2000 to 18.3 percent in June 2012, further shrinking the city’s revenue base. Meanwhile, the city’s budget deficit is likely to exceed $380 million by July 1.Orr, who was appointed three months ago by Michigan Governor Rick Snyder to salvage the city’s finances and operations, has been met with skepticism by local residents who have accused him of exaggerating the current situation.“We feel that the bankers and the creditors who are here today with the emergency manager are not going to negotiate in the best interest of the people of the city of Detroit. And we are saying that the same financial institutions that Mr. Orr is negotiating with today are responsible in large part for the crisis that exists in Detroit,” Abayomi Azikiwe, a protester outside the meeting told PBS.Leaders of some of Detroit’s 48 public sector unions were also upset by the proposals, with water and sewage workers vowing to strike over the privatization plans.
