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NEWS INTERNATIONAL Looming U.S. “fiscal cliff” threatens to overshadow Obama poll victory Automatic tax rises, spending cuts set for 1 January Americans celebrated the annual Thanksgiving holiday in November amid an atmosphere of guarded optimism that the government would avoid plunging the country over the so-called “fiscal cliff” triggered by automatic tax increases and spending cuts set to come into effect on 1 January 2013. The looming financial crisis has taken the edge off President Barack Obama’s re-election on 6 November over Republican contender Mitt Romney. The victory allowed the Democratic Party to retain the Senate, with the Republican Party holding onto the House of Representatives. The tax rise is due because several temporary tax cuts – together worth US$400 billion for 2013 alone, according to The New York Times – are scheduled to expire. Some of the tax cuts date back to President George Swiss bank UBS axed up to 10,000 jobs worldwide last month, immediately sending tremors across the European banking industry. In London alone, the bank cut 3,000 jobs in dramatic style as employees turned up to find that their office entry passes no longer worked. They were then taken aside and given a letter asking them to stay away from the office until further notice. 6 December 2012 Barack Obama AFP W. Bush’s administration, while Obama enacted others in 2010. About US$100 billion in spending cuts will come from the end of some unemployment benefits, a reduction in federal healthcare payments to doctors and a US$85 billion federal budget cut, of which US$32 billion will come from military spending and US$53 billion from cuts to education, healthcare, law enforcement and social programmes. The UBS move is reflective of a solemn mood in the sector. According to a report by Roland Berger Strategy Consultants published earlier this year, Cost Reduction in the European Banking Sector, the industry will need to cut costs by at least 10 percent over the next five years in order to “achieve a 55 percent cost-toincome ratio by 2016, assuming a flat revenue growth environment.” Half of the cost cutting Only the federal social security system and the Medicaid healthcare programme for the poorest households escape spending reductions. Benefit cuts to Medicare, a wider healthcare programme, are limited to 2 percent. Corporations are already planning for the worst: Reuters reported that Wal-Mart Stores moved its planned dividend to December from January to help shareholders avoid a tax increase. would come from workforce cuts, the report forecast. According to the Financial Times, banks are facing cyclical issues that are dampening revenues, such as a weak global economy, low trading activity and a low interest-rate environment. These have forced banks to scale back costs by restructuring, such as UBS’s decision to give up most of its fixed- income trading and the Royal Bank of Scotland’s Japan giants cut down by grim outlook Three Japanese electronics brands delivered grim announcements last month, hinting at uncertain futures. Television producer Sharp announced that its full-year net loss forecasts doubled to US$5.6 billion, raising “serious doubts about [its ability] to continue.” Sony stated that while it is still making profit, it expects to sell fewer hand-held PlayStation portable products, TV sets and digital cameras. Despite this negative outlook, the company maintained its full-year profit forecast at US$1.63 billion, Reuters reported. Meanwhile, Panasonic said it expected to lose almost US$10 billion this year amid low demand and a strengthening yen. The losses have driven the company to restructure operations and cut 8,000 jobs in the second half of this year. UBS cuts 10,000 jobs amid forecasts of banking sector shake-up decision to shut down or sell its brokerage, cash equities and equity capital markets businesses. The Roland Berger study said that, while most banks have announced cost-cutting, only a third of the top 25 banks have “an ambitious cost transformation plan.” However, because of inherent differences across Europe, “Spanish banks, and to a lesser extent, Italian and Greek banks need to make the most significant cuts.”
Talks over European Union budget end without deal amid divisions Negotiations to restart next year after “convergence” reached A European Union summit in Brussels held last month to decide the bloc’s budget for the next seven years ended without a deal. According to the Financial Times, the proposed budget fell through because the European Council president, Herman Van Rompuy, was unable to find a middle ground between the spending demands of the southern nations, such as France, Spain and Italy, and proposed austerity measures from the northern members, such as the United Kingdom and Germany. However, Van Rompuy did keep in place a spending ceiling and said talks would resume next month. “The talks... show a sufficient degree of potential convergence to make an agreement possible in the beginning of next year,” he told a news conference. “We should be able to bridge Canada bank chief named to BoE post George Osborne, the United Kingdom’s Chancellor of the Exchequer, placed Mark Carney, governor of the Bank of Canada, at the head of the Bank of England in a bid to shake up the central bank. Carney, the first foreigner to run the BoE in its 318-year history, will succeed Sir Mervyn King in July. The Financial Times reported that the move was hailed by the City because it sends the message that the U.K. is “open to business” from abroad. It took Osborne nine months to attract Carney, who also heads the Financial Stability Board, the international body set up to monitor the global financial system. Carney’s basic salary will be £480,000 a year – an increase from Sir Mervyn’s salary of £305,000. He will be serving a five-year term instead of the usual eight-year term outlined in legislation. Economic reforms, central bank to be issues in Japan election Japan’s prime minister, Yoshihiko Noda, dissolved parliament last month, placing the nation on track for a general election this month. Surveys suggest the election will oust the current Japan Democratic Party and swing in favour of the Liberal Democratic Party led by Shinzo Abe who was briefly prime minister in 2006- 07 before quitting due to stress. However, a minority govern- AFP AFP Herman Van Rompuy existing divergences.” The European Council – which comprises the heads of government of the EU member states along with the president of the European Commission and the president of the European Council – oversees the EU budget. The European Commission, the executive arm of the EU which drafts its laws, initially requested a budget for 2014-2020 of €1.025 trillion, an increase of ment or a fractious coalition are possible results. Abe has called for drastic reforms of the economy with easing policies. According to a report by Bloomberg, two of the nine members of the Bank of Japan’s board have already shown signs of favouring more stimulus measures, which is in line with Abe’s policy. In light of deflation and a strengthening yen, Abe has also 4.8 percent over its 2007-2013 budget. Van Rompuy said the ceiling for the next budget would be set at €973 billion. At the end of the summit, British Prime Minister David Cameron, who was adamant on pushing through further spending cuts, told reporters that the U.K. was “not going to be tough on budgets at home just to come here and sign up to an increase.” German Chancellor Angela Merkel echoed Cameron’s views on cuts but remained positive.“The discussions, both the bilateral discussions and the common discussion, have shown us that there is sufficient potential for an agreement,” she said. Although the discussions failed to yield any fruit, France was able to persuade Van Rompuy to scale back the proposed cuts to agricultural subsidies and regional aid. called for an increased inflation target of 3 percent, compared to the central bank’s current 1 percent goal, which should weaken the Japanese currency. “There is no time to wait for the BOJ governor to change next year, so I want to act now,” Abe was quoted as saying by Bloomberg. According to a Morgan Stanley report titled 2013: The Year of JPY Weakness, “additional pressure on the central bank to act more aggressively should catalyse sustained [yen] weakness.” Furthermore, Liberal Democratic Party officials told Bloomberg that Abe might also consider changing the law to reduce the bank’s independence. In September, Japan revised down its growth projections for the second quarter this year raising significant concerns about the world’s third largest economy. December 2012 7
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