World Competitiveness Yearbook 2010: Asia Gains, U.S. Drops in Competitiveness

Asia Gains, U.S. Drops in Competitiveness

The World Competitiveness Yearbook 2010 from Swiss business school IMD finds the U.S. and Europe losing their edge to fast-growing Asian economies

By Mark Scott

• View Slide Show

A lot can change in 12 months. At this time last year, Western nations dominated the annual ranking of the world's most competitive countries prepared by the IMD business school in Lausanne, Switzerland. Now, in the most recent ranking released May 19, five of the top 10 are from the Asia-Pacific region. Emerging-power China, ranked No. 18, has gained ground, even as No. 3-ranked U.S. and No. 22-ranked Britain slipped in the global pecking order.

"For the first time, we're seeing the creation of a self-sufficient economic block of developing countries," says Stéphane Garelli, director at IMD's World Competitiveness Center and co-author of the World Competitiveness Yearbook 2010. "They have money, markets, technology, and global brands that didn't exist 10 years ago."

The eastward shift isn't likely to end soon. While Europe struggles to rein in gaping budget deficits and the U.S. continues to suffer from high unemployment, most emerging economies have weathered the economic downturn better—and are now back to work. Commodity-rich nations such as Brazil and Russia are benefiting from rising prices for everything from iron ore to oil to soya beans. Such manufacturing giants as China and India are tapping into growing domestic markets, fueled by emerging middle classes eager to spend their renminbi and rupees.

"Local investors who previously would have taken their cash overseas are looking at investment opportunities at home," says IMD's Garelli. "The U.S. and Europe have to realize the investment money just isn't coming back."

WORLD'S BIGGEST LOSER: EUROPE

The Swiss school's 2010 competitiveness yearbook will make for tough reading in the West. Based on a detailed analysis of economic output, government and business efficiency, skills, and infrastructure, the researchers ranked 58 of the world's economies to determine which are best-placed to succeed in the 21st century economic race. For the first time in 17 years, the U.S. lost the top spot, falling behind Singapore and Hong Kong, respectively. Australia, Taiwan, and Malaysia are additional Asia-Pacific countries that scored in the top 10.

The biggest loser in this year's rankings is Europe. Despite a combined gross domestic product of almost $15 trillion and a total population of nearly 500 million, only three Old World countries—Switzerland, Sweden, and Norway—broke into IMD's top 10 this year. Perennial stars Denmark, Finland, and the Netherlands dropped out of the top 10, replaced by Taiwan and Malaysia (as well as by Norway, which is outside the EU and euro zone). The continent's largest economies, Germany (No. 16), United Kingdom (No. 22), and France (No. 24), remained well outside the top 10; France alone among the three gained ground, rising four rungs. IMD attributes the Old World's relatively poor showing to high levels of government debt, a weakening infrastructure, and continued inefficiencies in European labor markets.

The U.S. may be better positioned to come back. While IMD finds grounds to criticize U.S. business regulation and government policy, the country retains two major global advantages, Garelli says. First is the sheer size of the domestic economy—far and away the world's largest; when GDP growth returns in earnest, the U.S. will be able to leverage its bulk into competitiveness gains. The U.S. also benefits from having the world's most advanced research and development capability and highest-ranked infrastructure. "We can't sell the U.S. short," Garelli says. "Once the [economic] turnaround takes hold, the country should bounce back relatively quickly."

For an introduction to the top 10 countries and others of interest in the IMD 2010 World Competitiveness Yearbook, check out our slide show.

Click here for a look at the results of IMD's 2009 competitiveness ranking.

Click here for an alternative competitiveness ranking from 2009, prepared by the World Economic Forum.

Click here for a look at the results of IMD's 2008 competitiveness study.

Scott is a correspondent in BusinessWeek's London bureau.

http://www.businessweek.com/globalbiz/content/may2010/gb20100519_766709.htm?chan=rss_topStories_ssi_5

Utusan must change ways, says Najib

Utusan must change ways, says Najib

UPDATED @ 12:56:52 20-05-2010
By Syed Jaymal Zahiid May 20, 2010

Najib urged Utusan to be more than just Umno’s mouthpiece. — file pic

KUALA LUMPUR, May 20 — Controversial Umno mouthpiece, Utusan Malaysia, must transform itself if it wishes to stay relevant, Prime Minister Datuk Seri Najib Razak said today.

The Malay-language daily pushes Umno’s agenda — often through racially-tinged articles against the party’s rivals — but Najib urged the 72-year-old newspaper to be more than just the party’s mouthpiece.

“I understand that sensational news sells... especially with that ‘one person,’” he said in a veiled reference to Utusan Malaysia’s constant attacks on Opposition Leader Datuk Seri Anwar Ibrahim.

“But you must also be a medium to build an intellectual culture, a critical society,” the Umno president added.

Najib’s call for change was made at the company’s ground-breaking ceremony for a new headquarters in its Jalan Chan Sow Lin plant here.

The prime minister said that the ceremony must coincide in a shift of paradigm for the newspaper.

While it may continue to fight for its so-called agenda to protect the nation’s majority “race, Islam and country”, Utusan must play a pivotal role in helping the government achieve its transformation plan.

“In the development of the new building, Utusan must also work towards handling changes,” he said.

Najib has embarked to re-brand the Barisan Nasional-led federal government’s image as an administration that stands on the all inclusive 1 Malaysia platform.

The New Economic Model has become the nation’s sixth prime minister’s map to drive the ruling coalition away from its Malay-centric path which has polarised the nation and crippled the economy.

But Utusan has not been doing Najib the much needed favours. It continues to draw blood through opinion pieces that have drawn the ire of the non-Malay population.

Though the prime minister did not touch on this in his speech before Utusan’s big guns, he made subtle hints that the newspaper must be quick to adapt to the current political and economic climate.

“Yes we can lean on history but what is the use of history if our survival is threatened,” stressed Najib.

And while urging Utusan to step up to the plate given the fierce competition in the news industry, Najib warned on the need for the Malay daily to safeguard its integrity.

“The integrity of our news reports is important. There is if we keep having to apologise. It must be fast, accurate and verified,” said Najib who is the son of the nation’s second premier, Tun Abdul Razak.

Echoing his past call to all media, Najib also urged Utusan to be partners to the government.

“Utusan must play its role as a partner to the government because we are heading towards change”.

http://www.themalaysianinsider.com/malaysia/article/utusan-must-change-ways-says-najib

Analysts differ on Wilmar’s prospects post scam claims

Analysts differ on Wilmar’s prospects post scam claims
By Lee Wei Lian May 20, 2010

KUALA LUMPUR, May 20 — Analysts differed on the outlook for plantation giant Wilmar International Ltd following allegations of tax fraud.

Wilmar was alleged to have colluded with Indonesian tax officials to claim tax rebates worth 3.6 trillion rupiahs or RM1.24 billion, but Wilmar has said that its internal records will stand up to scrutiny.

Research house OSK Research said in a report today that shares of Wilmar could be a bargain after the counter fell by nearly 7 per cent yesterday on the Singapore stock exchange and that it was encouraged by Wilmar’s strong stand on the allegations.

“Should the company be able to sort out the issue, the stock will be a bargain even at these levels,” said OSK Research. “While the stock may still weaken somewhat from here, we believe it is now cheap enough for investors to start nibbling on.”

The report also noted that Wilmar has clarified that its COO Martua Sitorus is not personally under investigation for tax fraud allegations.

“We believe the market will be relieved as Martua was the person who spearheaded Wilmar’s expansion in Indonesia,” said OSK Research which maintained its “Buy” call on Wilmar.

A separate report by a local research house said that Wilmar shares will be affected by uncertainties arising from the allegations and said that if the RM1.24 billion in tax rebates were to be charged to Wilmar’s profit and loss account, it would reduce the group’s 2010 profits by 23 per cent.

“What is more detrimental is the reputational damage to the group,” said the research house. “We wonder if the Chinese government would start scrutinising Wilmar’s tax payments and accounts due to the allegations in Indonesia.”

The research house maintained a “hold” call on Wilmar due to potential earnings disappointment from lower operating margins, the impact of a potential slowdown in the China market which accounts for 70 per cent of Wilmar’s earnings and uncertainties arising from the tax claim allegations.

PBB Group Berhad holds a 18.4 per cent stake in Wilmar and its shares dropped nearly six per cent yesterday on news on the allegations. Wilmar accounts for about 75 per cent of the PBB Group’s profits.

PBB Group said yesterday that the claims were still uncertain as investigations by Wilmar had yet to be concluded.

http://www.themalaysianinsider.com/business/article/analysts-differ-on-wilmars-prospects-post-scam-claims/#When:04:23:23Z

EU backs tougher rules for hedge funds, private equity

EU backs tougher rules for hedge funds, private equity


European Union finance ministers backed stricter rules for hedge funds and private equity groups on Tuesday.

Reuters
Published: 4:36PM BST 18 May 2010

Comments 2 | Comment on this article

European Union finance ministers backed stricter rules for hedge funds and private equity groups on Tuesday. German Finance Minister Wolfgang Schaeuble answers questions. Photo: AFP

The draft rules will control pay and borrowing at hedge funds as well forcing them to disclose extensive information about how they are investing or short-selling.

The strict regime is part of a wider set of pledges by world leaders to create a more stable financial system.

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"We are determined to accelerate the pace of regulation," Wolfgang Schaeuble, Germany's finance minister, said after the meeting.

"Up until now this was not regulated," he said of the hedge fund and private equity industry. "This hole will now be closed."

Britain had fought to water down the law and was hoping to overturn a provision that refuses to grant a single licence for foreign funds to do business across Europe. US Treasury Secretary Timothy Geithner has also objected to this.

London's objections were overruled in rare break with Brussels diplomacy which says no country should accept a law that it does not want to.

British diplomats said they had achieved the "best possible" outcome from the meeting, but concerns remain about the impact tighter regulations will have on London's hedge fund industry.

Britain is home to 80pc of the bloc's hedge funds and believes the new rules - likely to take effect around 2012 - will curb choice for investors by making it harder for managers to find investors across the EU's 27 countries.

Only the Czech Republic backed Britain in opposing the approval of the new rules by the finance ministers, insufficent support in the face of heavyweights France and Germany, who pushed for rigid restrictions.

The vote left Britain's new finance minister, George Osborne, outvoted at his first meeting with his peers. Officials said he did not speak during the deliberations on the issue.

The European Parliament's economic affairs committee approved its version of the draft measure on Monday evening, opening the door to formal negotiations on a final deal with EU states, perhaps by July.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/ditch-the-directive/7737229/EU-backs-tougher-rules-for-hedge-funds-private-equity.html

Hedge fund selling hits 18-month high

Hedge fund selling hits 18-month high


Hedge funds have embarked on their largest selling spree in a year and a half as market uncertainty drives many investors to sell shares as fears over the stability of many Western economies grow.

By Harry Wilson, Financial Services Correspondent
Published: 5:47PM BST 19 May 2010

In a sign of the speed with which market sentiment has deteriorated over the last month, hedge funds have made a dramatic switch from their biggest buying spree in more than two years to become big sellers once again, according to UBS.

The latest data from UBS's prime brokerage business, which handles the Swiss bank's dealings with hedge funds, shows that as of the end of last week selling by funds was at its highest monthly level since January 2009.

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Hedge funds have been blamed for much of the recent volatility in world markets, with the German government prompting chaos on Wednesday with its ban on short-selling in the shares of 10 major Germany financial institutions, including Allianz, Commerzbank and Deutsche Bank.

Based on the UBS data, hedge fund selling of bank shares has been relatively muted, with most of the net selling focused around the IT, consumer services and transport, telecoms, and metals and mining sectors.

From heavy selling earlier in the year, hedge fund and long-only investors' buying of bank shares has picked up in the last two months, leading some to question why the German government decided to institute its ban now.

Pedro de Noronha, managing partner of hedge fund firm Noster Capital, said the ban was "ridiculous".

"All it proves is how scary it is to have people who are unsophisticated in financial markets imposing regulations on products they don't understand," said Mr de Noronha.

To compound the sense of victimisation felt by hedge funds, the announcement of the ban came on the same day that European Union finance ministers voted through tough new industry regulations in a move widely seen as more political grand standing than considered law making.

The Alternative Investment Fund Managers directives will put hedge funds under a new super-regulator for the first time, despite repeated criticism from industry trade bodies.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7741612/Hedge-fund-selling-hits-18-month-high.html

Fear is gripping markets: economists

Fear is gripping markets: economists

EOIN BLACKWELL
May 19, 2010 - 7:44PM
AAP

Fear and uncertainty, not market fundamentals, drove the Australian dollar to an eight-month low on Wednesday and pushed the domestic share market into the red, economists say.

Fears over US and German regulatory reform, the European debt crisis and the Australian government's resource rent tax saw the local dollar hit an eight-month low of 85.17 US cents on Wednesday,

Local shares fell, too, sliding 1.87 per cent to close at a nine-month low at 4,387.1 points for the All Ordinaries index.

Investor sentiment darkened further after the Westpac-Melbourne initiate consumer sentiment index showed a seven per cent slide for May, its biggest percentage drop since the height of the credit crunch in October 2008.

"It's just been one hit after the other," ICAP economist Adam Carr said of the global and domestic concerns.

He said the worries were unfounded with the economic fundamentals of nations in general, and Australia in particular, strengthening.

"The US is seeing what looks like a V-shaped recovery," he said.

"Everyone is waiting for the fall to come in China and it's not going to happen.

"When you look past all the hysteria, the Australian economy, employment, both are going at a very strong rate and interest rates are only about average."

Yet the headlines have been dominated over the past week by the uncertainty surrounding Europe.

A 750 billion euros ($A1.06 trillion) bailout package for debt-laden EU nations like Greece initially calmed markets last week.

But the mood didn't last long amid renewed speculation the crisis could spread and slow EU growth.

4Cast Financial Markets economist Michael Turner said it was hard to see how Europe could escape its debt woes without serious structural damage.

"The way people are expressing that at the moment is through the euro and the stock market," he said.

The Euro was trading at 1.2215 US cents at Wednesday's close, compared with 1.3240 US cents on May 1.

The euro is still above its long-term average of 118 US cents, Mr Turner said.

"It certainly goes a long way to show how fearful markets are with the way all this plays out."

Investor uncertainty reignited on Tuesday when Germany's securities market regulator, Bafin, banned naked short selling of certain securities - often cited as key factor leading to the 2008 financial crisis.

In the US, meanwhile, proposed reforms to the financial regulations that govern Wall Street are before the US Senate and are being fought over Democrats and Republicans.

But it's all just noise, ICAP's Adam Carr said.

"If you're pessimistic over Europe then you might as well quit your job, buy a gun, get some land and learn how to farm," he said.

"Because if you're going to be pessimistic on Europe, then you have to write off the US and write off Japan."

ANZ senior rates strategist Tony Morriss said the safe-haven bond market should to do well amidst the uncertainty and fear.

"I think on the sentiment at the moment you'd sell on any sort of rally in currency, which means that bonds should be supported."

© 2010 AAP

Mining tax 'contagion' set to spread globally

Mining tax 'contagion' set to spread globally
May 20, 2010 - 10:39AM

Australia’s planned 40 per cent tax on mining "super profits" has set a benchmark for other countries weighing higher levies, reducing earnings forecasts for BHP Billiton and Rio Tinto and the attraction of mining stocks.

“It could create what the miners are now describing at a global level as a type of tax contagion,” said Tom Price, commodities analyst with UBS in Sydney. “They might levy a new tax at the miners in Brazil. Canada is another mineral province and South Africa.”

BHP, the world’s largest mining company, Xstrata and Rio said they are reviewing projects in Australia, the No. 1 exporter of coal and iron ore, after the federal government unveiled the tax earlier this month, saying a country’s resources belong to the people. Citigroup analyst Craig Sainsbury said Canada, Peru and Chile may be next.

“Resource nationalism” is a major risk facing miners in the next few years, Evy Hambro, manager of BlackRock Investment Management’s flagship World Mining Fund said last month.

Chile, the biggest copper exporter, is proposing a temporary rise in mining taxes to help pay for earthquake reconstruction that may cost BHP, Xstrata and Anglo American $US1.2 billion ($1.4 billion) in the next two years. Brazil, the second-biggest iron ore exporter, may tax shipments of the commodity or raise royalties, Energy and Mining Minister Edison Lobao has said.

‘Markets suicide’

The Australian tax plan is “global financial markets suicide,” according to Charlie Aitken, the executive director of Southern Cross Equities, the equal top ranked predictor of BHP’s share price performance of 17 analysts, according to data compiled by Bloomberg.

Mining companies’ earnings may be cut by almost a third when the tax starts in 2012, Moody’s Investor Services said this week. The tax would be broadly credit negative for the sector and raise uncertainty for some companies over the short-to-medium term, Moody’s said.

The tax may also prompt European and Scandinavian nations to seek a greater share of revenue from production, Magnus Ericsson, a senior partner at Raw Materials Group, a mining data and analysis company, said. The proposal will make Australian mines the highest taxed in the world, according to Minerals Council of Australia.

“Economies, particularly European economies, are going to have to deal with deficits,” said Jamie Nicol, chief investment officer at Dalton Nicol Reid in Brisbane. “They are going to look at some sort of innovative tax solutions to try and claw back some of that.”

Levy wars

Nations that resist may attract investment. South Africa taxes mining companies at 33 per cent, Canada 23 per cent and China 30 per cent compared with a forecast 58 per cent in Australia after the tax, according to Citigroup data.

Treasurer Wayne Swan has said he “strongly disagrees” with claims the tax will damage miners. China’s demand for Australian metals will outweigh higher taxes, according to AMP Capital Investors, a unit of the country’s largest pension plan provider, which hasn’t changed its industry assessment.

Rio, the world’s third-largest mining company, this month said it will spend $US401 million to boost iron ore output in Canada, citing the “attractiveness of investing” in the North American nation. BHP has said the tax would stymie investment.

Fortescue, Australia’s third-largest iron ore exporter, this week placed $US15 billion of projects on hold, citing the tax.

“It doesn’t matter if it’s the Congo or Sudan, or it’s Australia or Canada, these projects require commitments by governments that are 30 years and when they move the goal posts they will have a serious rippling effect,” said Frank Holmes, chief investment officer of US Global Investors. “They could stifle the world.”

Bloomberg

Behind the drama in Europe lies a global crisis

Behind the drama in Europe lies a global crisis


The euro is under threat – along with our entire free-market system, warns Edmund Conway.

By Edmund Conway
Published: 7:49PM BST 19 May 2010

Comments 23 | Comment on this article

Angela Merkel, the German Chancellor, followed the unilateral German shorting ban with a warning that the euro was in danger, urging the EU speed up supervision of financial markets.Photo: Getty

It is now accepted, even by Angela Merkel, that as Europe battles its financial crisis, the very fate of the euro is at stake. Her belated discovery of this home truth is welcome, but she does not go far enough. The real concern is that the crisis bubbling on the other side of the Channel represents a make-or-break moment for globalisation.

If that sounds rather exotic, consider two apparently separate events from the past couple of days. The first features George Osborne. While things have gone pretty well back home for the new Chancellor, he is already having trouble in Europe, where the Commission has been fighting not only to de-claw the hedge fund industry – against British wishes – but also to impose new rules on its member states.

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The Commission's latest idea is that every European finance minister (including Osborne) should be compelled to send his Budget plans to Brussels for approval before announcing them to his own MPs and citizens. The rationale is that if there is to be a central bail-out fund for stricken European nations, there should be someone in the middle making sure no one misbehaves. Osborne, understandably, was having none of it, using his inaugural European summit to insist that when it came to a country's budget, "the national parliament must be absolutely paramount".

The second event took place a few thousand miles away in Washington, where the US Senate voted 94:0 to prevent the International Monetary Fund from using its cash to help countries that are inextricably trapped in a debt spiral. Though barely reported on this side of the Atlantic, this vote could have enormous consequences – such as preventing the fund from providing its share of the grand European bail-out package announced with such fanfare last week, which amounts to a third of the trillion-dollar total.

Though superficially unconnected, the two events share a similar theme: for the first time in many years, the technocrats who run our economies are realising that the main barrier to resolving a crisis and reinstating business-as-usual is not so much our ability to afford it, but our populations' willingness to pay.

As long as things were going well, economies were growing rapidly, and affluence was increasing, it was easy for politicians to pretend that when it came to economics, national borders didn't much matter any more. But now the chips are down, nationalism is back.

The rule of thumb here is as follows: of the three aims we have been striving towards in recent history – democracy, national sovereignty and global free trade – you cannot have any more than two at any one time. 

• Want to run your country as an independent state, open to the whims and volatility of the free markets? The voters will punish you at the ballot box. 
• Insist that your nation has full control of its own affairs? Then you have to jettison any plans to play a full part in the global economy. 
• Want democracy and globalisation? Then you have to suborn your sovereignty.

This is what Professor Dani Rodrik of Harvard University calls the "policy trilemma", and it is what lay behind the breakdown of the last era of globalisation, which coincided with the Industrial Revolution. Under the British Empire, free trade flourished, reinforced by the gold standard (in some senses a precursor to the euro) and the Royal Navy.

However, this only came about because most politicians were able to ignore their citizens' protectionist impulses. The first decades of the 20th century brought not only the First World War but also a mass electorate; when Churchill tried to revive the gold standard in the 1920s, at the cost of deflation and depression in the UK, the public revolted. Churchill called the blunder his "worst ever mistake".

Scarred by the beggar-thy-neighbour policies of the 1930s, John Maynard Keynes could only contemplate a "globalisation-lite" as he rebuilt the world's economic structure after the Second World War. But the Bretton Woods system, which intentionally suppressed the free market through capital controls, lasted only so long. Liberalisation went into overdrive with the fall of the Berlin Wall and the opening-up of China. Yet the resulting system is actually something of a patchwork. Europe exemplifies the problem: the continent is a hodge-podge of nations trying to disguise itself as a completely liberalised market. Unfortunately, its people have different ideas: the Germans are furious about the Greek bail-out; the British insist on remaining on the sidelines.

Perhaps recognising the danger of alienating her voters, Mrs Merkel has now taken what might be a first step towards curtailing economic globalisation, by banning the short-selling of German banks. Some worry that a return to capital controls is the next step in the European effort to prevent meltdown. Others suspect that the European Central Bank has already intervened in the markets to prop up the euro.

Quite what the real plan is remains to be seen. Most likely, there isn't one – yet. But unless they intend to embrace totalitarianism, Europe's members will eventually have to abandon either their national sovereignty or globalisation itself. Given the continent's size, and our reliance on it as our largest trading partner, this is not a drama we can afford to ignore.

http://www.telegraph.co.uk/finance/comment/edmundconway/7742164/Behind-the-drama-in-Europe-lies-a-global-crisis.html

Elizabeth Warren: a tough sheriff who oversees the US TARP bail-out fund.

Elizabeth Warren: a tough sheriff in finance's Wild West


Elizabeth Warren, who oversees the US TARP bail-out fund, blames America’s housing downturn on the banking industry and 'the bizarre way’ many mortgages were created .


By James Quinn, in Washington DC
Published: 5:30PM BST 19 May 2010

With the US Capitol's dome glistening in the fading moonlight behind her, Professor Elizabeth Warren is wolfing down one half of an Egg McMuffin.

Sat on the edge of a sofa in a television studio green room – ahead of at least six "on camera" interviews – at just gone 6am, she coyly apologises for needing to "charge her batteries".

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Although it's dark outside, and having been up until 1am the night before – after two days of meetings with the Treasury, the Federal Reserve and her own oversight committee – the woman charged with overseeing the Treasury's $700bn (£471bn) bank bail-out fund is far from tired.

Having spent the majority of her working life focusing on middle-class families and bankruptcies – her day job is as a law professor at Harvard Law School, where she has taught for the last 18 years – it's little surprise that she's looking out for middle America in her temporary role to point out the good and bad of the Troubled Asset Relief Programme (TARP).

"We can't have a robust economy when we're looking at 1m foreclosures," she says. "Our economy just can't take this." Citing statistics that show almost one in four US mortgages is under water, she notes that government attempts to help those in trouble have failed, saying that for every borrower who has avoided foreclosure, another 10 lost their homes.

"Today we've got a [housing] market that won't heal itself, and if it doesn't heal, we'll all be paying this year, next year, and for years to come."

Prof Warren points out that the original idea behind the bail-out fund was to buy parcels of toxic mortgages burning holes in banks' balance sheets: "Part of what we're trying to accomplish is to remind Treasury that it should be about mortgage foreclosures, that's the trigger for the crisis that has not yet been resolved."

She blames the housing downturn on the very banking industry which was the recipient of half of the first wave of the $700bn fund, and "the bizarre way" many mortgages that are now delinquent were created, with "first mortgages on top of second mortgages" and individuals given home loans they could never afford.

Little surprise then that she is the most ardent supporter of a strong consumer financial protection agency as part of the current financial reform legislation winding its way through the US Senate.

Noting that there are currently seven US regulators who have some form of oversight over consumers – the largest being the Fed – she wants an independent agency to look out for middle America.

"I want Senators to have to vote 'yes' or 'no' on an agency with real muscle. I'm not interested in some pretend agency that lets everyone congratulate themselves when in fact it won't make any real difference."

At that point, Senator Richard Shelby, a leading Republican, walks by en route to his own interview and tells Warren: "You're doing good things."

It's ironic as the senator is blocking Democrat proposals for a consumer agency, saying it is "an incredible expansion of the government's reach without any basis in the current crisis".

Prof Warren knows she faces an uphill struggle, and admits that a year ago pushing through such a consumer body would have been easier: "The crisis had started with bad credit policies... I thought it would be the least contentious part of regulatory reform."

Part of the difficulty, she says, is that as banks' finances have recovered, and with foreclosures off the front pages, the problems of the past are further from the minds of those making the decisions. "When only the insiders are part of the conversation, then every policy that results is helpful only to insiders," she retorts.

A career academic, Prof Warren, 60, took up her current position in November 2008 when Senator Harry Reid, the Democrat leader in the Senate, asked her to chair the committee. A key part of her job has involved pointing out what she believes is wrong with not only the consumer agency proposals but other parts of the regulatory framework. On the need for a way to winding-up large institutions without wasting taxpayer funds, Prof Warren would like to see an authority that is "tough enough that it truly liquidates these financial institutions in an orderly way".

She adds: "They need to understand the consequence of their mistakes is that the shareholders are wiped out, the top management is fired and creditors take a haircut."

She is equally unrelenting when it comes to derivatives legislation, speaking of a "huge shadow market" born out of investment banks' realisation that there is little money to be made in equities because of greater efficiencies and transparency.

"The notion that a portion of our economy, which is so significant, can simply trade wildly with no transparency, with no clarity in how that market operates, is dangerous. If we didn't learn that over the last year-and-a-half, then we must have rocks for brains."

As she winds her way across Washington, stopping off for a photo shoot followed by a series of meetings, and talking to The Daily Telegraph along the way, she jokes that she's "a lot more fun in the classroom as nobody's taping" but it's clear she enjoys her role grand-standing on behalf of the American people.

That's why she taken the oversight panel on the road with stops in towns across America. "It's enough sometimes just to tear your heart out. The people who show up and want to talk always have something interesting, something personal, to say."

Prof Warren clearly has little time for the US capital's lobbyists and the banks they represent. "This is the new Wild West, the place where extraordinary profits can be made and the bonuses that come from them are to be sought," she says. "Remind me, what ARE they for? Business as usual? Because that did so well for us, right?"

Though effervescent and approachable, she dodges the question when asked if she would like to head the consumer protection agency – a role for which she is clearly well suited and often tipped for.

When pressed, she points out that she has spent her "whole career" on consumer protection and the middle classes, who "have [been] squeezed to the point that as a country we face the real possibility that our middle class could collapse."

In the next breath, she says: "You need a lot of things, and a leader is one of them. But I really don't want to make this about me."

But as a woman of the people – with a penchant for McDonald's morsels rather than Washington power breakfasts – she would say that, wouldn't she?

Professor Elizabeth Warren's CV

Age 60
Role Chair, Congressional Oversight Panel on TARP
Day job Leo Gottlieb Professor of Law, Harvard University
Family Married, two grown-up children
Education University of Houston; Rutgers University
Tipped for Chair, future Consumer Financial Protection Agency


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7740307/Elizabeth-Warren-a-tough-sheriff-in-finances-Wild-West.html

Euro crisis biggest test - Merkel

Euro crisis biggest test - Merkel
May 20, 2010 - 7:03AM

Germany rocks world markets

Germany's ban on risky trading sent ripples of shock through the markets, stunning investors and sending the euro back down to a four-year low.

Chancellor Angela Merkel has called for a radical overhaul of Europe's fiscal rules along German lines, warning of "incalculable consequences" for the European Union if the euro were to fail.

Defending Germany's part in a near trillion US dollar package to prevent the troubles of debt-ridden Greece spreading to the rest of Europe, she said the single currency was facing an "existential test" as it plunges on the markets.

"The current crisis facing the euro is the biggest test Europe has faced in decades, even since the Treaty of Rome was signed in 1957," she said in a speech in parliament on Wednesday, referring to the treaty that created the European Union.

"This test is existential and it must be overcome ... if the euro fails, then Europe fails," she said, facing frequent heckling and jeers from opposition parties.

"The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable," she cautioned.

To overcome the turmoil that has battered the euro, the German chancellor proposed a "new stability culture" in Europe.

"We need a comprehensive overhaul of the Stability and Growth Pact," the rules stating that EU countries should keep budget deficits below three per cent of gross domestic product (GDP) and debt below 60 per cent of GDP.

"The rules must be geared to the strongest, not to the weakest ... our (German) stability culture is tried and tested."

German Finance Minister Wolfgang Schaeuble will on Friday propose a raft of measures to tighten the rules at a meeting with EU president Herman Van Rompuy.

Merkel said that European funds could be withheld from fiscal sinners and voting rights withdrawn. She also said that an "ordered sovereign insolvency procedure" needed to be established in Europe.

She confirmed a decision made on Tuesday by Germany's securities market regulator to ban so-called naked short-selling in the shares of 10 financial institutions and eurozone government bonds.

Naked short-selling is when investors sell securities they do not own and have not even borrowed, hoping to be able to buy them back later at a lower price, thereby earning a profit.

She said the ban would be in place until Europe-wide regulations were agreed, prompting scorn from market players.

Saying that Merkel had "thrown her toys from the pram" in a fit of pique, Howard Wheeldon from BGC partners in London said she appeared "determined to undermine the euro and the euro economy at this particularly difficult time.

"It seems to me that all the German chancellor has managed to do by this affront to market integrity is succeed in fuelling more fears that the European sovereign debt crisis may just be even worse than it looks," he said.

The euro hit a new four-year low against the dollar after the move was announced.

Merkel also reiterated that she would campaign at the Group of 20 leading industrial powers for an international tax on the financial markets.

Schaeuble later told a parliamentary committee: "If we can get that through on the global level, then good. That would be ideal. If that does not work, then we must look to the Europe (European Union)."

"And if we have a problem with Britain, then I think we should try it with the eurozone," he added.

Frank-Walter Steinmeier, parliamentary head of the opposition Social Democrats, attacked Merkel for her conduct in the crisis, branding her "powerless and helpless."

Germany's parliament is expected to vote Friday on the country's share of the 750 billion euros ($A1.06 trillion) eurozone bailout package, which could be as much as 150 billion euros ($A211.83 billion).

Merkel's party has a clear majority in the parliament, meaning the package is certain to pass.

AFP