Finance topics

European Union finance ministers will give Chancellor Angela Merkel’s government until 2013 to bring Germany’s budget deficit back in line with EU fiscal rules, a draft document shows.

The German government should start reducing the budget deficit in 2011, cutting the shortfall by 0.5 percent of gross domestic product per year, according to the draft recommendation scheduled for adoption by ministers at a meeting in Brussels next week. The deficit, projected to reach 5 percent of GDP next year, should be back below 3 percent by 2013, according to the draft, which was obtained by Bloomberg News.

“In addition, the German authorities should seize any opportunity beyond the fiscal effort, including from better economic conditions, to accelerate the reduction of the gross debt ratio back toward the reference value” of 60 percent of GDP, according to the recommendation.

The document, prepared by a group composed of officials from the 27 EU nations, the European Central Bank and the European Commission, will be discussed by finance ministers at a meeting in Brussels on Dec. 1 and 2.

German Finance Minister Wolfgang Schaeuble has said he will bow to EU pressure to help strengthen the Stability and Growth Pact that was put in place to protect the euro. France has asked for an extra year to cut its deficit to 3 percent of GDP.

Merkel’s government has until June 2, 2010, to outline in detail how it intends to comply with the EU’s consolidation demands, according to the document. Merkel should enact policy measures that would help Germany’s economy grow at a faster pace in times of normal economic growth, the recommendation shows.

Economic Stimulus

EU finance ministers have committed to withdrawing economic stimulus after 2010 and to start reining in deficits that have swelled because of the recession. Germany’s budget shortfall will peak at 5 percent of GDP in 2010, and France’s deficit at 8.3 percent this year, the commission forecast on Nov. 3.

“For this government, the Stability and Growth Pact is not up for discussion and we will do everything to make sure it stays strong,” Schaeuble told reporters in Brussels on Nov. 10. To afford tax cuts promised to voters, Germany needs “a strict budget policy,” he said.

Merkel’s Cabinet on Nov. 9 approved tax cuts for 2010 totaling 6 billion euros ($8.9 billion). The measures, including expanded children’s benefits, are supplementary to about 10 billion euros in tax reductions taking effect on Jan. 1 that were approved in June by Merkel’s previous coalition.

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European exports to China, the world’s fastest-growing major economy, fell 5.3 percent in the first half of the year as the euro’s appreciation made the goods from the region less competitive abroad.

The value of exports from the 27-nation European Union to China declined to 37.4 billion euros ($55.8 billion) from 39.5 billion euros in the year-earlier period, the EU’s statistics office in Luxembourg said today. EU imports from China fell 8.4 percent to 102.7 billion euros, narrowing the trade deficit to 65.3 billion euros from 72.7 billion euros.

European officials have called on China to let the yuan strengthen and European Central Bank President Jean-Claude Trichet will travel to China this weekend to discuss the matter cheap payday loan. The euro has gained 15 percent against the Chinese currency in the past year, fueling complaints that yuan’s peg to the weakening U.S. dollar is creating an unfair advantage for China’s exporters.

China is the EU’s second-largest trading partner, after the U.S., with machinery and vehicles accounting for about 60 percent of European goods shipped to the Asian nation. The value of German exports to China decreased to 16.2 billion euros in the first half from 16.8 billion a year earlier, according to today’s report.

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A return to lavish bonuses for Wall Street’s top earners could be just the tonic that the Swiss watch industry needs this Christmas after months of austerity depressed sales.

The country’s watch sector, which makes up around 7 percent of exports, has been grappling with a sharp drop in demand over the past year after the worst economic crisis in decades killed consumers’ desire and ability to splurge on pricey treats.

But watchmakers are eyeing a modest rise in sales over the key festive period — the fourth quarter accounts for some 30 percent of sales — as a recovery in Wall Street earnings could lift bankers’ bonuses by up to 50 percent.

“The consumer mood between the continents varies, but on average it is better than last year,” said Philippe Merk, chief executive of privately owned Audemars Piguet, whose watches cost around $20,000 to $30,000.

“Luxury consumers, who are bankers, are better off now as this is the sector that has recovered the fastest. These are the indicators that tell us that this year’s Christmas sales will be better,” he said.

Bonuses are expected to be substantially higher this year despite pressure from politicians and regulators to restrain payouts.

Goldman Sachs, for example, has set aside nearly $17 billion for bonuses so far this year and looks well on track to break the $20 billion mark, which could mean higher payouts per employee than in the previous record year, 2007.

This comes after a revival in profits for most investment banks, and contrasts with a bleak year for the financial sector that has seen governments bailing out major banks and nearly 400,000 job cuts.

Richemont’s most important Cartier brand, Swatch Group’s Tissot marque, luxury watchmaker Parmigiani Fleurier and the head of LVMH’s watch and jewelry unit have all said they expect stronger demand this Christmas.

And Tiffany & Co posted better-than-expected quarterly results on Wednesday that showed its upscale shoppers around the world were spending again.

One Swiss banker said he was treating himself to one of Maurice Lacroix’s latest watches this year, adding that some people bought watches and jewelry as a solid investment, especially after this year’s volatile equity markets.

But he cautioned that there would still be many in the financial sector who would have to forego such purchases.

“It will not be as easy as it was in the past. There is a real difference between the winners and the losers. Employees at those banks that are now state-controlled can forget about bonuses this year,” the banker said.

ASIA A BIG FACTOR

Swiss watch exports have tumbled 26 percent so far this year, ending several years of strong growth, but some analysts predict the watch industry will grow 3-4 percent thanks to an easier comparison base next year and thriving demand from Asia. 

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The federal agency in charge of product safety announced the recall of 2.1 million cribs Monday, citing defective hardware that can cause toddlers and infants to suffocate.

The Consumer Product Safety Commission said parents should immediately stop using Stork Craft drop-side cribs, which are made by Stork Craft Manufacturing Inc., of British Columbia, Canada.

About 1.2 million of the cribs have been distributed in the United States and 968,000 units distributed in Canada.

The recall includes about 147,000 Stork Craft drop-side cribs with the Fisher-Price logo, the CPSC said.

The cribs were sold at major retailers including Sears and Wal-Mart and online at Amazon.com and Target.com between January 1993 and October 2009.

The CPSC said the cribs’ drop-side, which is attached with plastic hardware, can detach unexpectedly and create a space between the crib wall and the adjacent mattress. Infants and toddlers can become trapped in the space and suffocate or fall to the floor, the agency said.

There have been 110 documented incidents of drop-side detachment, including 67 in the United States and 43 in Canada. Among those, four resulted in suffocation and 20 resulted in falls that caused injuries ranging from concussion to bumps and bruises.

It was the second time Stork Craft cribs were recalled this year. In January, about 535,000 were recalled amid safety concerns.

Safety advocates have urged federal regulators to impose tougher standards on companies that make drop-side cribs and some have called for an outright ban. "CPSC is working on new federal rules to make all cribs safer," said agency spokesperson Scott Wolfson.

Before Monday’s announcement, more than 5 million cribs, bassinets and play yards had been recalled since the beginning of 2007, according to CPSC.

This includes the recall of 400,000 drop-side cribs by manufacturer Simplicity in July, as the result of some fatalities, according to the CPSC. The agency also said that 600,000 drop-side cribs were recalled by Delta Enterprise in October electronic check payday advance. The recalls were prompted by concerns that infants and toddlers could get trapped by the mechanism of the crib and suffocate.

"This has certainly been a hazard that we’ve been aware of for some time," said Nancy Cowles, director of Kids In Danger, a Chicago-based advocacy group. Drop-side cribs have been associated with "dozens of deaths" over the years, she added.

Toys "R" Us, one of the largest retailers of nursery furniture, said it has decided to stop placing orders for drop-side cribs and expects to stop carrying them by the end of 2009.

Jennifer Albano, a Toys "R" Us spokesperson, said the company supports proposed standards that would, among other things, require that cribs no longer be manufactured with a drop-side.

Albano said a consortium of crib manufacturers, consumer safety advocates and a products standards organization met with the CPSC in March to discuss the possibility of changing voluntary production standards for cribs as part of ongoing efforts to improve safety.

However, no official decision has been made and Toys "R" Us does still have some drop-side cribs in stock, Albano said.

Major retailers in the United States and Canada sold the recalled cribs including BJ’s Wholesale Club, J.C. Penney, Kmart, Meijer, Sears (SHLD, Fortune 500), USA Baby, and Wal-Mart (WMT, Fortune 500) stores and online at Amazon.com (AMZN, Fortune 500), Babiesrus.com, Costco.com, Target.com (TGT, Fortune 500), and Walmart.com from January 1993 through October 2009 for between $100 and $400.

The cribs were manufactured in Canada, China and Indonesia.

Meanwhile, the legislature in Suffolk County, N.Y., at the eastern end of Long Island, banned sales of the drop-side crib in October.  

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CHICAGO–When the U.S. holiday shopping season kicks off the day after American Thanksgiving, retailers hope to see millions of less frightened, more bargain-hungry customers cross their thresholds.

Industry analysts expect a strong turnout Black Friday, which falls on Nov. 27 this year, as deep discounts lure shoppers after more than a year of subdued spending. They add that consumers in the U.S. still remain cautious.

"Given what we know about consumer shopping patterns, even this month, I would suspect, it will turn out to be a very strong performance," said Michael Niemira, chief economist of the International Council of Shopping Centers.

Special promotion days have been big drivers of sales, he said, pointing to the lift retailers saw on the Nov. 11 Veteran’s Day holiday.

Retailers and websites dedicated to Black Friday deals have leaked sales plans earlier than usual in the hopes of sparking demand for flat-panel televisions, toys and other goods after experiencing 2008, the worst holiday season in decades.

In 2008, holiday shopping started just weeks after the global financial crisis froze lending.

"Certainly, last year was a year of tremendous uncertainty going into Black Friday because we were right in the middle of the storm," said Chris Donnelly, a partner in Accenture’s retail practice.

More than 172 million shoppers visited stores and websites from Thanksgiving Day through Sunday last year, up from 147 million in 2007, according to the National Retail Federation. Average amount spent by shoppers over that year-ago weekend rose 7.2 per cent to $372.57 (U.S.) per person.

Even those numbers did not prevent the sales slide of 2.8 per cent for the entire shopping season last year, the first since the federation started tracking data in 1995.

The retail umbrella group has not issued a Black Friday forecast but it expects 2009 holiday sales to rise 1 per cent. The shopping centres council forecasts a 1-2 per cent rise.

With retail sales not stellar, but stabilizing, it’s hoped "as we go into the holiday season, that we are going to see some stability as well," Donnelly said.

Niemira, for one, refers to Black Friday as "Bargain Friday" since it is known for deals.

Sixty-one per cent of chief marketing officers at leading U.S. retailers, polled by BDO Seidman, expect Black Friday sales to be flat, while 33 per cent predicted an increase.

Market research firm IBISWorld expects total retail sales over the coming Black Friday weekend to rise 2.8 percent to $42.9 billion. It expects 76.9 million people to swarm into retail stores on Black Friday alone.

Fewer retailers are vying for that business. Bain & Co. reports 27 retailers went bankrupt in 2008, with 18 more gone this year. Together, those chains used to account for about $25-$30 billion in sales.

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The independence of the Federal Reserve is essential for credible monetary policy and doubts about the U.S. central bank’s ability to do its job without political interference could hurt the nascent economic recovery, a senior Federal Reserve official said on Sunday.

“Talk of eroding the Fed’s independence can be counterproductive for economic recovery,” St. Louis Federal Reserve Bank President James Bullard said in slides to accompany a presentation prepared for a panel discussion in New York.

Bullard said that non-independent central banks have historically been forced to finance large government budget deficits. “This can be very inflationary,” he added.

Last week, a U.S. congressional panel approved a measure to open the Fed’s monetary policy decisions to government audits — a surprise blow to the central bank’s efforts to shield its independence and a signal of the frustration on Capitol Hill with the central bank.

The amendment was a further congressional slap at the U.S. central bank after a Senate regulatory overhaul proposed stripping the central bank of its regulatory authority.

Some lawmakers fault the Fed for failing to anticipate or prevent the financial crisis that pitched the economy into a deep recession.

Bullard batted back criticism that the Fed missed the brewing crisis, saying the central bank provided “important warnings” before the crisis began.

He noted that his predecessor at the St. Louis Fed, William Poole, argued in the early 2000s that Fannie Mae and Freddie Mac were “ticking time bombs,” while former Federal Reserve Bank of Minneapolis President Gary Stern published a book entitled “Too Big To Fail,” warning some financial firms were growing too large for proper supervision payday loan.

“These types of warnings show that the Fed is well aware of systemic risk concerns in real time,” Bullard said in his slides.

He argued the Fed needs a role in regulating institutions to whom it may lend if required to as the “lender of last resort.”

Bullard also said that to do its job of setting monetary policy effectively, the Fed needs to know the conditions of the financial system.

“The need to know the status of financial markets has been underscored by recent events,” Bullard said. The United Kingdom’s model, in which the Financial Services Authority is in charge of regulation and the Bank of England is in charge of monetary policy “did not work well during this crisis,” he said.

“The crisis in the UK has been even worse in some dimensions than in the U.S.,” Bullard said.

He also said that despite the current crisis, the Fed’s track record of handling crises in the last 25 years has been “reasonably good.”

Bullard, who will vote on the Fed’s policy-setting panel next year, did not comment on outlook for monetary policy.

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JPMorgan Chase & Co is beefing up in Europe by buying the half of Cazenove it does not already own in a deal valuing the 190-year old UK brokerage at $3.4 billion.

J.P. Morgan Cazenove will become a wholly owned part of JPMorgan and its UK investment banking operations will continue to operate as J.P. Morgan Cazenove, the U.S. investment bank said on Thursday.

The deal, which will land windfalls for dozens of top London dealmakers, involves David Mayhew remaining chairman of J.P. Morgan Cazenove, while Chief Executive Naguib Kheraj will oversee the integration, the company said.

JPMorgan (JPM, Fortune 500), the second largest U.S. bank by assets, bought half of Cazenove five years ago to create a UK investment banking joint venture, and as expected took up the option to complete the deal.

JPMorgan has weathered the financial crisis better than most rivals and is now taking advantage of their problems and grabbing opportunities. It said it will pay 535 pence per Cazenove share, valuing the 50% stake at £1 billion ($1.67 billion).  

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It’s a tough time to be starting a career.

This year has been extremely rough: New college graduates had 40% fewer job prospects, a new report shows. And the outlook for 2010, while better, is still not very promising.

Jobs for graduates with bachelor’s degrees, which account for most new graduate hires, will drop nearly 1% next year, according to Michigan State University’s survey on recruiting trends.

Overall, hiring of grads with any degree will decline by 2% compared to 2009.

"Things fell apart really fast last year, but it looks like the job market for graduates has hit a bottom," said Phil Gardner, director of MSU’s Collegiate Employment Research Institute, which conducts the annual survey.

For sure, the job market in 2009 suffered an extraordinary decline. A year ago, Gardner anticipated that employment for new graduates would fall by as much as 10% in 2009. The national unemployment rate, now 10.2%, was 6.8% last November.

Hiring of master’s degree graduates will plummet by 11% based on a weaker labor market for accounting students, the study said.

Jobs for Ph.D.s will spike by 20% and those for MBA graduates will rise 11%.

Who’s hiring? Large companies, those with more than 4,000 employees, plan to decrease hiring of all graduates by 3%, and medium-sized companies, those with between 500 and 4,000 employees, expect to lower hiring by 11%.

Smaller companies, however, may provide a bright spot in the job market for new graduates.

Employers with fewer than 500 staff members said they expect hiring at their companies to jump by 15%. These companies will hire 11 new graduates on average in 2010, and 8 of them will be at the bachelor’s level.

A third of employers said they would consider graduates regardless of their major.

"Employers want to be much more flexible," said Gardner. "They want skill sets that they can plug in anywhere as the they evolve instead of getting stuck with someone focused in one area."

But even as companies look for versatile candidates, the most sought-after graduates are those who majored in environmental science and statistics, for whom job opportunities will climb by 6% and 11%, respectively cash advance in one hour.

"There is a reawakening in American society that environment sustainability is important, and there’s also a lot of stimulus money in that area," Gardner said. He added that statisticians are in demand because they are "quantitatively literate and companies are looking to tap into people that can manipulate and understand numbers."

Hiring will increase in sectors such as agricultural production, food processing, nonprofit and manufacturing. Hiring in consulting services, including engineering, computing, research and marketing, will hold steady at last year’s pace.

Where are the jobs? U.S. companies that recruit nationally are expected to rebound with a 3% uptick in hiring, and employers based in the South Central, Southwest and Northwest regions of the country are also indicating an improvement in hiring, the study said.

Job opportunities in the South Central will rise by 6%, in the Northwest by 4% and in the Southwest 2%.

Employment prospects for graduates in other regions of the country will still sag.

Hiring in the Mid-Atlantic will drop by 8%, in Southeast by 7%, in the Northeast and the Great Lake Region by 4% and in the Upper Plains by 3%.

What’s the pay? A majority of employers, 80%, will not be raising starting salary offers above those made last year. But 8% will lower base pay by 5%, according to the survey, and 12% will of employers will increase salaries by a modest 3%.

The average salary for bachelor’s degree graduates will be $39,900.

Only 7% of employers said they will offer signing bonuses, and 20% will provide performance-based bonuses at the year’s end, down from 33% in 2009.  

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GATINEAU, QUE.–Canadian television could get skinnier.

Some of the nation’s broadcasters are suggesting Canadians be offered a "skinny basic" package of TV channels, a smaller but cheaper version of the basic channels available today.

They made their arguments Tuesday during hearings before the Canadian Radio-television and Telecommunications Commission, though cable and satellite providers are vehemently against the idea.

For consumers, the proposition might mean giving up channels on the current basic package and paying a low fee set by the CRTC for a smaller set of channels consisting of local, regional and some national programming.

It is one of several ideas Canada’s conventional broadcasters are offering to help their ailing industry, at a time when falling advertising revenue and the splintering of ad dollars among scores of channels have made local programming unprofitable.

"We know it can work. We know, on a cost basis, it can be done by cable companies," said Steven Guiton, chief regulatory officer at CBC/Radio Canada. "And that’s why we think it’s realistic."

When pressed for details of such a proposal, Hubert Lacroix, president and CEO of CBC/Radio Canada, said the state-owned broadcaster is holding its comments for a separate set of CRTC hearings scheduled for early December.

The CRTC’s commissioners quizzed CBC officials on the subject repeatedly, and threw questions about a basic package at officials of Bell Canada, who also appeared before the commission.

Both Monday and Tuesday, CRTC chair Konrad von Finckenstein seemed almost to beg the broadcasters and their rivals, the cable and satellite carriers, to negotiate a deal among themselves and come to him for approval. The carriers have refused to negotiate, saying they have nothing to gain.

The cable and satellite carriers are dead set against the idea of a smaller basic cable package. Bell Canada said its own basic service – which is larger than the one broadcasters are suggesting – is a loss-making venture that attracts few customers cash till payday.

"There’s little take-up, so what’s the point?" asked Mirko Bibic, Bell’s vice-president for regulatory and government affairs.

Rogers Communications Inc. argued a slightly different position on Monday: that a basic TV package, such as the one suggested by the CBC, would remove channels from Canadians and force them to replace them at a cost, leading to a widespread consumer backlash.

Pam Dinsmore, vice-president, regulatory, for Rogers Cable, said a "skinnier" package is a customer-friendly way of loading additional fees onto consumers.

Earlier, in a formal presentation to the CRTC, CBC/Radio Canada used the example of Quebec’s Vidéotron as a possible model. Under that system, consumers pay a cheaper rate for a more basic package and extra for non-basic, specialty channels.

CBC also argued Tuesday for the right to negotiate a fee for its local signals.

The CRTC has twice rejected proposals by broadcasters for so-called "fee-for-carriage," but is hearing from both sides in the debate for a third time.

Broadcasters including the CBC, Global and CTV are asking the federal government to step in and find a way to force cable and satellite providers such as Rogers Communications, Bell Canada and Shaw to sit down and negotiate a fee to carry local TV.

The carriers want to keep the status quo, which is profitable for them. However, broadcasters say their current business model is "broken" and losing them money as advertising declines.

If broadcasters win before the CRTC, the cable and satellite providers have said they would have no choice but to pass the cost on to consumers in the form of what they call a TV "tax."

The hearings continue until Nov. 27.

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World Bank chief economist Justin Lin said the global recovery is still “fragile” and governments should maintain fiscal stimulus measures.

“It’s important to discuss the quality of the fiscal stimulus instead of an exit,” Lin told reporters in Seoul. Measures should be withdrawn when “we see private sector investment resume as well as unemployment decline to an acceptable level. So far I think we’re still in a fragile state of the economy and maintaining fiscal stimulus is important.”

Leaders of the 21-member Asia-Pacific Economic Cooperation group, including U guaranteed online payday loans.S. President Barack Obama and his Chinese counterpart, Hu Jintao, pledged in Singapore two days ago to maintain stimulus policies until a “durable” economic recovery is secure.

Lin said China’s economy may grow at an annual pace of between 8 percent and 10 percent in coming years. He declined to comment on China’s currency policy.

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