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CONTENTS

WATCHTOWER EU MEMBER STATES WORLDWIDE INSTITUTIONS EPP VIEWS OUR COMPETITORS' VIEWS FROM THE BLOGOSPHERE… UPCOMING EVENTS ANNEX

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“Watchtower”: Tobin 2.0? Foreword by CES Head of Research

The European Socialists and Democrats have been demanding it for some time already, for trade unionists and anti-globalists it has become a credo already in the 1990s, ATTAC is built on it, and now the German Social Democrats have officially joined the chorus: A global tax on speculative international financial transactions, in order to curb the “binge drinking” on the financial markets, as German finance minister Steinbrück put it. And, in order to kill two birds with a stone, also to help fill the gaping holes in public budgets around the globe. A kind of Tobin Tax 2.0. Is it feasible, and if yes, would it be desirable? With so far rather poor success in profiting from the global financial and economic crisis, it is understandable that Europe’s Left is groping for an issue to rally around. And never mind that James Tobin has disowned what he labels a misuse of his idea long ago. The real problem with this kind of tax is that it either works in seriously reducing the volume of speculation – then the global economy will suffer in the worst possible moment: precisely in the tricky phase at the beginning of the recovery. Or it doesn’t work – then it’s superfluous. Besides, the question of who would raise the tax, provided it is truly global, remains crucial. The United Nations? God help us! A new international bureaucracy? Good luck! Or should we maybe just introduce it on the EU level first, thereby even providing new funds for the Union, and hope that everybody else will soon follow? Of course, that would just push speculation out of the EU and elsewhere. Our financial hubs like London and Frankfurt would surely suffer, along with the political clout that goes with having such places. But the core of the issue is and remains: should speculation as such be curbed at all? More importantly, can a fairly fast and sustainable recovery be achieved at all without financial speculation? The answer is no, and it wasn’t speculation as such that caused the crisis but lack of oversight, sloppy regulation and too much (and wrong) state interference in the credit business. To simply reduce speculation won’t help to prevent another crisis. Better regulation will. And the exit strategy from our huge deficits will have to use a blend of carefully raising some existing taxes, budgetary rigour and, above all, new tax revenue through new economic growth. If all that is so, and Tobin 2.0 is feasible only at tremendous economic and political cost, and therefore not desirable, why does a sizeable portion of Europe’s political spectrum advocate it so passionately? The answer is simple: Window-dressing has always been part of the political toolbox. And what looks more popular at first sight than the proposal of a tax that only seems to punish the “evil speculators” in the banks that caused all the trouble (and then got bailed out for free), leaves “the people” untouched, and even serves a good purpose? Well, if it’s only the looks that count in this matter, then the task of EPP politicians should be to tell the truth about Tobin 2.0, expose its fallacies, and thereby spoil its looks a little bit.

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EU MEMBER STATES Austria Austria's Hypo Alpe Adria Bank expects to post a full-year net loss due to the effects of the financial crisis and rising risk provisions. Hypo, which reported a first-half loss of 162 million euros, said soaring risk costs hurt results and that it will undertake a major restructuring program in the second half of the year. The good news is that according to a study by German Deka Bank, Austria has escaped the worst of the world economic and financial crisis. The bank compared the difference between the strongest quarterly economic growth before the onset of recession and the weakest quarter after its start in 31 countries. The bank said the difference in Austria was 4.4 per cent of gross domestic product (GDP). Even though Austrian steel giant Voestalpine ends short-time work at the Linz plant, which has been introduced due to the decline in orders by nearly 50 per cent in the first half of 2009, its spokesman remains cautious in his statements: "The fact that short working hours are being abandoned for now at our largest site should not be understood as an indication that a sustained upturn in the economy is assured. There remains a risk of another economic slump over the course of 2010."

Belgium Belgium ranked as the 18th most competitive economy in the world according to a recent study of the World Economic Forum. The Belgian economy came ahead of France and Germany, the annual publication underscored the quality of the Belgian workforce and the business-friendly environment that convinced many multinationals to move their European headquarters to the country. Nonetheless, the study recognized the limits stemming from a rigid labour market, government instability and cumbersome bureaucracy. Bulgaria

The mission of the International Monetary Fund is in Sofia for a regular review of Bulgaria’s fiscal situation. Finance Minister Djankov said that at the moment there is "no rush" to seek emergency funding from the IMF, even though the worst effects of the economic crisis are still to hit the Bulgarian economy this autumn. However, further spending cuts should see the state balance its budget in 2009. Populist spending by the previous Socialist government raised concerns that Bulgaria's public accounts would slip into deficit for the first time in years. But Bulgaria's budget deficit shrank to 105 million lev in August from 565 million lev in July following a 15 per cent cut in government spending, the largest of any European Union member state. The new government also announced a freeze in government wages and pensions until the summer of 2010. At the end of August, Bulgaria's government approved a mid-term fiscal policy document, which brings together the country's key macroeconomic forecasts for 2010-2013. The document forecasts the contraction of Bulgaria's economy to slow down to 2 per cent next year from a 6.3 per cent shrinking in 2009. Unemployment will increase and wage growth will be lower than production efficiency. Already this year, the Bulgarian State Railways EAD Group

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Last updated on 14/09/2009 To view full articles click on hyperlinks. plans to lay off 1,330 of its employees as of 1 October, and when the new timetable is released on 12 December, the staff will be cut by another 670 people bringing total layoffs to 2,000. Signs of economic animation may be expected in 2011, with exports speeding up the recovery. Given a healthy recovery of the economy, Djankov said plans for a 2 per cent cut in the Value Added Tax (VAT) may be implemented in 2011, to be followed by another 2 per cent decrease before the term of the government expires. He confirmed government plans to apply in November to join the exchange-rate mechanism, the European Union's two-year currency stability test before the country can drop the lev and adopt the euro.

Cyprus Summer in Cyprus was marked by a decline in tourism turnover. The 9.5 per cent drop in Cyprus tourist arrivals in the second quarter has been reflected in figures for accommodation services (hotels), where the Statistical Service reported a decline in turnover of 12.6 per cent over the year earlier in the period April-June 2009. The broader sector of accommodation and food service activities (hotels and restaurants) recorded a milder decrease of 5.5 per cent, thanks mainly to a 1 per cent increase in the sector of food and beverage services. The Statistical Service also reported a turnover decrease of 28.2 per cent in the sector of travel agencies and a decrease of 11.7 per cent for information services. A fall of 13.9 per cent was recorded on the sector of computer programming and related activities. The number of registered unemployed recorded another sharp increase in August, rising by 6,987 over August 2008 to 17,788 people. This was 64.7 per cent higher than in August 2008, and marks the highest year-on-year increase so far this year. The biggest increase in terms of numbers was in the construction sector.

Czech Republic In July 2009 exports and imports at current prices fell by 17.9 per cent and 21.3 per cent respectively, compared with July 2008. However, the Czech Prime Minister Fischer said that the growth of the Czech economy might be higher than expected. He said that in 2010, the Czech economy might grow by about 0.5 per cent and that in the following years, Czechs could see “the light at the end of the tunnel”. Perhaps most seriously the economic crisis has hit Czech farmers and agriculture firms. Both small farmers and larger companies often owe money to their suppliers and are unable to pay their credits. Fruit growers report that their revenues will be lower by tens of millions of crowns this year. Market prices of wheat are about 50 per cent lower than last year and farmers keep most of this year’s harvest in the barns. Agriculture firms also have to sell milk at prices lower than production costs.

Denmark The Danish central bank has warned the government that given the rapid deterioration in public finances, it would be imprudent to consider any additional fiscal easing in addition to that already agreed. Highlighting the country's deteriorating international competitiveness, the bank also urged reforms aimed at permanently increasing the labour supply. But with unemployment now rising, far-reaching labour market reforms will remain elusive. Instead, the government wants to

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Last updated on 14/09/2009 To view full articles click on hyperlinks. cut taxes and raise spending to alleviate the effects of the downturn. The Danish government has so far employed a range of anti-crisis measures. These include tax cuts—personal income taxes have been lowered, with the government recently securing parliamentary agreement for a further phased reduction in 2010-11—and support for the banking sector, including state guarantees for lending and the provision of up to 63 billion Danish crowns (US$11.5bn) to recapitalise the financial system.

Estonia Estonia’s State controller made an offer to the government to adopt a credit limit for public universities and high schools taking large loans or credits, which are now having a negative influence on the overall budget deficit. At the same time, pensions as well as wages of medical professionals and teachers are at risk of further cuts. Meanwhile, the increase in the maximum rate in parental benefits causes puzzlement among opponents of the plan. This means that next year’s state budget will have to carry an extra burden of approximately 50 million kroons (3.2 million euros). Despite the economic crisis, Estonia plans to continue preparing for an extensive weapons purchase program for its defense requirements. Over the next ten years the country will spend 60 billion kroons (3.8 billion euros) on developing its defence forces.

Finland The recession will ease off during the remainder of the year, but great uncertainty will continue to prevail in the economy, predict both Nordea Bank and the Labour Institute for Economic Research (PT). Based on the Nordea and PT estimates, Finland’s economic prospects have slightly improved from the early summer. According to Nordea and PT, despite the structural crisis afflicting the forestry industry, Finland’s outlook is improving with the picking up of the world economy. Nordea and PT also agree that unemployment will continue to increase in the coming year. The recession has already caused reductions to paying bonuses and other extras to worthwhile workers.

France French President Nicolas Sarkozy assured on 5 September that he will continue his fight against unjustified remuneration of bankers at the next G20 on 24 September. However, many analysts see little chance of France and Germany to achieve a general deal at the next meeting, partly due to US and UK resistance. On the environmental side however, France will next year become the largest economy to levy a carbon tax, but will introduce it at a low starting rate to try to pre-empt a backlash from a heavily taxed public. President Nicolas Sarkozy hopes the move will underscore France's environmental credentials ahead of December's Copenhagen conference intended to draw up an international agreement for emission reductions after 2012. Germany Mixed German data highlighted concerns over a potentially fragile recovery in Europe's biggest economy. The good news was that the German trade surplus and exports posted gains in July as global economic activity began to rebound from a historic slump. The investor confidence figure known as the 'ZEW' showed a massive boost in sentiment in August. The figure beat expectations and

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is up at its highest level in more than three years. Germany is emerging from its worst recession in six decades and while the outlook for 2009 is brighter, it becomes more uncertain next year when government stimulus programmes are set to taper off. Unemployment will probably rise and German firms could also face a credit crunch that could curtail investment just as demand picks up. In an attempt to avoid a credit crunch, Germany's economics ministry is drawing up a raft of special measures with the Bundesbank. Axel Weber, Bundesbank chief and a key figure at the European Central Bank, said that the economy remains fragile and fundamental problems in the credit system had not been resolved. G20 policymakers promised to keep economic support packages in place until recovery is certain. Germany put forward proposals to discourage banks from paying excessive bonuses that promoted risk-taking behavior. Germany opposes any plans by the G20 to limit the size of banks to avoid individual institutions wielding too much influence in future and posing a risk.

Greece Greece suffered its first contraction in 16 years in the three months to June due to a slump in investment and weaker private consumption. In the second quarter, Greece’s economy managed to expand slightly. But Greece faces the risk of extended slow growth if it fails to adopt structural measures to boost competitiveness and correct its fiscal imbalances. There is no doubt that the most worrisome aspect of the present economic slowdown is the widening of the general government deficit to a projected 6 per cent of GDP or more at the end of June. The biggest challenge for the new government (early elections to be held on 4 October) will be to achieve fiscal consolidation without hurting economic growth. This means the key to growth is mainly private consumption and investment spending. Private consumption is a big question mark because lending is likely to pick up slightly but salaries and wages are unlikely to rise as much as in 2009 and 2008. Moreover, the rise in unemployment, the cuts in overtime work and the likelihood of flexible work hours being introduced in many private enterprises will definitely contain spending. On the other hand, the apparent rise in tax evasion helps consumption. Hungary The 2010 budget draft is to be submitted to Parliament on 11 September. Governor of National Bank of Hungary, Andras Simor, said the central bank considers it important that the 2010 budget draft ensures the 3.8 per cent-of-GDP deficit target is met. Simor acknowledged that a lower base rate would be necessary, but said the central bank also had to take into account financial stability and the financing of the country's debt. Hungary wants to extend the availability of the remaining two tranches of the IMF standby credit by six to nine months from the original March 2010 deadline, he added. An IMF delegation held discussions with the Hungarian authorities during 26 August – 7 September as part of a third review of the country’s economic performance. According to the delegation, Hungary’s economic outlook has stabilised since the last review. A real GDP is projected to contract by 6.7 per cent in 2009 and by a further 0.9 per cent in 2010. The current account deficit is narrowing sharply to 2.9 per cent of GDP this year. Inflation is expected to rise temporarily to about 6 per cent by end-2009, reflecting the increase in the VAT rate and excise taxes, and then to fall to below 3 per cent by mid-2010, as the effects of the indirect taxes fade.

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Ireland Ireland looks at ways to come out of the crisis that undermined the run of the then-Celtic tiger. Ireland’s bad bank, which plans to buy soured commercial property loans from the Irish lenders, will be a catalyst to reshape Dublin banking, leading to mergers, possible closures and a reduction in competition in the industry. Analysts say a larger shake-up will take place once the government’s bad bank, the National Asset Management Agency (Nama), relieves five of the six Irish-owned lenders of burdensome loans worth about 87 billion euros (£74bn), amounting to half of Ireland’s gross national product. Job losses and closures are already in view for many in Ireland. “The emerging consensus is that there will only be three banking groups – Allied Irish Banks and Bank of Ireland, and a third containing, though not exclusively, Permanent TSB, Irish Nationwide and EBS,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. However, the insurance sector may have positive surprises for the future of the Irish financial industry. Zurich Insurance Plc. decided on September 6th to base its European insurance centre in Dublin. Zurich, having its primary headquarters in Switzerland, was considerably disadvantaged. It looked around Europe to find a business-friendly country that fulfilled all the requirements and they decided for Ireland.

Italy Italy’s economy shows first timid signals of recovery after facing its worst post-war recession. Confindustria’s research centre made a slight upward revision to its forecast for GDP growth next year to 0.8 per cent in 2010 compared to the OECD report estimating it around 0.2 per cent. Nevertheless, Confindustria, the main business association in Italy, remains cautious when talking about recovery. “Italy’s economic growth is likely to be slow and unstable in the future”, points out Luca Paolazzi, chief economist of Confindustria. Emma Marcegaglia, head of the business association, described 2009 as catastrophic and urged the government to undertake more ambitious reform plans in order to stimulate Italy’s growth capacity. Meanwhile, Finmeccanica, Italy’s largest high tech company, enjoys a very positive moment. After becoming the second-largest defence operator in the UK after BAE Systems, last summer Finmeccanica also acquired DRS, the US defence electronics company, the Italian enterprise just signed a deal with the Libyan Investment Authority to develop business in civil engineering. The venture aims to gain a generous slice of Mediterranean and Middle Eastern civil engineering orders.

Latvia The International Monetary Fund (IMF) warned Latvia that its entire 7.5 billion euros economic rescue package, granted last December, would be delayed unless the country reached agreement with the Fund over the latest aid instalment. After difficult negotiations over additional spending cuts and tax hikes, Latvia agreed on additional austerity measures to secure more aid from the IMF; i.e. Latvia has to cut its budget by 500 million lati a year until 2012. The breakthrough came as Latvia received its latest 1.2 billion aid payment from the European Union, its second instalment (the first 1 billion euro loan was received in February 2009) in the context of the Balance of Payment loan assistance granted to Latvia in January this year and it now looks forward to Latvia fulfilling the conditions for further

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Last updated on 14/09/2009 To view full articles click on hyperlinks. installments. As this Baltic country is struggling with the deepest recession in the EU, Estonia’s government also promised to sign up to a 100 million euro loan agreement with Latvia, which will be discussed during the work on Estonia’s state budget for 2010. On 27 August, the IMF agreed to increase Latvia’s allowed deficit for this year’s budget to 13 per cent of GDP.

Lithuania During the second quarter, Lithuania’s GDP declined by 22.4 per cent. The steeper than expected drop raised doubts about the country's ability to survive the crisis without international help and increased concern about the plight of neighbouring Latvia and Estonia. Lithuania's president, Dalia Grybauskaite, has admitted that her country could be forced to seek help from the International Monetary Fund if it fails in a bid to raise more money from foreign capital markets to prop up its weak economy.

ThefNetherlands Dutch banks will be the first in the world to put a cap on the value of bonuses paid to their most senior executives according to a new code that will restrict such pay-outs to one year’s salary. The code, drawn up by the Dutch bankers’ association and the finance ministry, will limit variable pay for executive board members to the same level as their annual salary, once it comes into effect in January. The deal is the result of pressure from the finance ministry following a series of bail-outs of the sector last year. It underscores a political will in the Netherlands to press ahead with caps on pay even if a broader international consensus fails to materialise at a G20 summit of big economies in Pittsburgh later this month.

Poland Although Poland had originally planned a budget gap of 18 billion zloty, the global slowdown forced the government to increase the projected deficit to 27.2 billion zloty. Struggling to plug a hole in its budget, the government has decided to speed up sales of assets in a string of companies in order to raise nearly 37 billion zloty by the end of 2010. The International Finance Corporation (IFC), a member of the World Bank Group, plans to invest $5 million in Poland's first microfinance bank to support the microfinance sector and improve access to finance for micro and small businesses. The Polish Information and Foreign Investment Agency (PAIiIZ) has opened a one-stop information center for foreign companies interested in obtaining European Union funds to help finance projects in this country. Poland still remains an attractive investment destination despite the global economic crisis. Polish exporters are helped by a weaker zloty, which has made Polish exports more competitive. However, an increasing number of economists are warning that it will not be the last two quarters of this year which will be the poorest period for the domestic economy, but rather the first half of 2010. They fear is that GDP could fall to a negative value after being pulled down by falling consumer demand, decreased corporate investments and a reduction in the value of net exports. The Polish Oil and Gas (PGNiG) could be in need of an enormous cash injection by the middle of 2010 when its €600 million credit line expires.

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Portugal After official figures revealed that the Portuguese economy had emerged from a year-long recession, comes yet another sign that the country is firmly on the road to recovery. The latest evidence comes from the respected Global Property Guide. In its latest report it says that Portugal is one of only seven countries in the world to report increases in house prices for the second quarter of the year, while the building industry reported double-digit growth. Globally, the crisis has resulted in the loss of 152,000 jobs in the space of one year. Unemployment figures rose to 9.1 per cent, meaning more than half a million people in this country are without a job. According to the National Statistics Institute’s (INE) figures from April, May and June, more than 1.5 million employees earn less than 600 euros per month, the equivalent of 35 per cent of all workers employed by someone else. However, these statistics also reveal that the number of people who earn poor salaries has decreased. This is believed to have been a result of the economic crisis, which mainly affected those with non-qualified professions, such as construction and factory workers.

Slovakia The financial crisis has hit Slovakia harder than many expected. The Ministry of Finance expects gross domestic product to contract by 6.2 per cent this year (recovering to an anaemic 0.5 per cent growth in 2010), after a rise of 6.4 per cent last year and 10.4 per cent in 2007. The main cause of the slump is the economy’s dependence on exports to Western Europe, primarily Germany. With Germany in a steep decline, sales of Slovak cars and electronics have fallen sharply. The Volkswagen factory north of Bratislava temporarily shut down production earlier this year. The country’s other two big car makers, Kia and PSA Peugeot Citroën, have also slashed production and occasionally halted output at their factories. But they have fared slightly better than Volkswagen because of the recent increase in German sales caused by the government car-scrapping subsidy of 2,500 euros, which has helped makers of smaller cars. Factories such as the Whirlpool washing machine facility in northern Slovakia have been forced to shed workers as exports plunge. The Slovakia-based low-cost carrier declared bankruptcy on 31 August after seven years on the market. SkyEurope was the only company which managed, without the assistance of the state, to boost the Bratislava airport – and from approximately 500,000 passengers in 2004 increased the number to 2 million in three years. The budget deficit is expected to reach 6 per cent of GDP this year, but so far the government is not doing much to slash spending and bring in further necessary reforms. Programmes announced so far call for symbolic steps such as halting purchases of cars and copying machines for ministries. Joining the euro has provided some protection against the turmoil unleashed by the economic crisis, but being a member of the common currency also has its costs. Slovakia’s workers are now more expensive than their counterparts in Poland and Hungary, which could impede the speed of an eventual recovery.

Spain The Spanish unemployment rate climbed up to 17.9 per cent at the end of the second quarter of 2009 according to Spain’s National Statistics Institute (INE), the highest level in the eurozone and well above the 8.9 per cent average of the 27 EU member states. In fact, Spain makes up over half of the

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Last updated on 14/09/2009 To view full articles click on hyperlinks. past year’s increase in eurozone unemployment, with over 30 per cent of the eurozone’s jobless living in Spain. The Organization of Economic Cooperation and Development (OECD) predicts that Spain’s jobless will reach 20 per cent of the workforce during 2010, gradually edging closer to the historic high of 24 per cent recorded in 1994. The large number of unemployed not only presents obvious economic difficulties for Spain such as falling productivity and a heavy drag on demand, but the social consequences are also being felt. Protests have erupted across Spain as citizens struggle to deal with the economic crisis. The government in Spain announced it will extend benefits for unemployed. The government is also considering an increase in capital-gains tax as a result of the economic crisis, but will not raise tax rates on earned income. Spain’s Prime Minister, Mr. Zapatero, and his cabinet have overseen a yawning budget deficit expected to reach 10 per cent of gross domestic product this year. They are now struggling to prepare a budget for 2010 in the face of falling revenues, higher state spending and resistance from the smaller political parties they need to pass laws in Parliament. Mr. Zapatero insisted that the government would restore budgetary stability and meet the EU target of a maximum deficit of 3 per cent of GDP. Spain says it will meet the target again by 2012, but independent economists are skeptical given the dire state of government finances and the fact that the country has the highest unemployment rate in the EU. The Spanish economy shrank 4.2 per cent in the second quarter compared with the previous year and unlike other large eurozone economies is expected to continue contracting for the rest of the year.

Sweden The Swedish government announced it intends to boost Sweden's municipalities and councils with some $US 810 million in order to combat recession. More than half of the money will be paid this year, the rest of the sum will be remitted over the next four years. Even though the Association of Local Authorities and Regions has conceded that the shortfall in taxes actually turned out less severe than feared, everyone expects the number of citizens relying on social welfare benefits to rise in the coming years. The head of the Association of Local Authorities and Regions, Anders Knape, also welcomed the budget proposal calling it a helpful means to avoid layoffs. Another more or less unforeseeable item on the bill is the preparations concerning a possible epidemic outbreak of the swine flu. Two weeks ago, the government had already signalized that local regions will get an extra 135 million dollars to vaccinate the population against the H1N1 virus.

United Kingdom The British government will act immediately to moderate further increase in public debt. British Prime Minister Gordon Brown raised it in his speech to finance ministers at the G20 summit of the most important economies. Mr Gordon Brown wants to prove the current government is capable to rein in an increasing budget deficit that in April touched 175 billion pounds. Britain had much bigger debt before, and right now across the developed world other governments are also seeing their balance sheets blow out, thanks to the financial crisis and its recessionary aftermath. Moreover, some of the borrowing was necessary - it helped shore up the banking system and mitigate the worst effects of the recession. The next government will have to be able to juggle the necessity of keeping up the

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Last updated on 14/09/2009 To view full articles click on hyperlinks recovery while avoiding instability of public finances: “A policy of sole budget cuts risks sending a recovering economy straight back into intensive care”. In fact, Bank of England took the decision of holding interest rates at 0.5 per cent considering that it was premature to review fiscal and monetary stimuli.

WORLDWIDE

Brazil Brazil’s Finance Minister Guido Mantega announced on 9 September that the government will make a one-off 10 billion dollars contribution to the International Monetary Fund (IMF) to finance programs that help countries affected by the financial crisis. The agreement will be formalised this month in Pittsburgh, Pennsylvania, at the G20 summit on 24-25 September. Brazil, counting on foreign exchange reserves of more than 200 billion dollars, is one of the countries that were least affected by the global financial and economic downturn.

China Chinese Premier Wen Jiabao vowed to continue his government's aggressive stimulus efforts, saying the world's third largest economy faces persistent problems and uncertainties from the global recession despite an upturn in growth. Meanwhile the economic stimulus sustains employment levels in China. The rapid rebound in the economy is considered to be a result of heavy public investment. Russia Dmitry Medvedev announced positive economic data for the third quarter of 2009, which Russia’s president says point to the first signs the country may be emerging from its year-long economic crisis. The Russian economyis showing 7.4 per cent gross domestic product growth in the second quarter compared with the first. However, Russia’s president remains cautious and announces that the future is still uncertain. The figures for 2009 still represent a sharp 10.9 per cent drop when compared to the second quarter of last year. Furthermore, employment and industrial production remain at their lowest levels since 1999.

UniteddStates The US government sees now the possibility to implement an exit strategy for its emergency financial market support programmes put in place in late last year and early this year to stop the financial system from collapsing. Treasury expects large banks to pay back $50 billion or more in government preferred equity on top of the 72.3 billion dollars in preferred stock and loans repaid to date. On the other side, the battle for the Healthcare plan continues. President Obama set the size of a health-insurance plan at 900 billion dollars over 10 years. It is to be self-financed through spending cuts and tax increases. Most individuals would be required to purchase health insurance, but the costs would

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Last updated on 14/09/2009 To view full articles click on hyperlinks. be mitigated by generous tax credits. Large employers would also face a requirement to offer health coverage to employees or pay a fine, while most small businesses would be exempt.

INSTITUTIONS

G-20 Finance Ministers Meeting: The focus of the G20 meeting on 4-5 September shifted from crisis-fighting to figuring out how to establish a safer financial system. After two days of meetings in London, the Group of 20 finance ministers and central bankers agreed the broad outlines of a tough new regulatory framework for financial institutions. In broad terms, the group agreed three major points about banking regulation: banks must raise much more capital once the financial crisis has passed, complex financial institutions should develop “living wills” to plan for their unwinding should that ever become necessary and banks should be required to retain some portion of loans they repackage and sell as asset-backed securities. But beneath the rhetoric, significant differences remain between the US and the UK on one hand, Europe, and the developing countries led by China. The finance ministers asked the newly created Financial Stability Board to come up with a set of principles to put to the Pittsburgh Summit in three weeks time - and indeed the broad principles have been in place since the last G-20 in March. These include the right of regulators to regulate the overall total bonus payments, and the way compensation is paid. Although the global economy looks brighter than when the Group of 20 finance ministers and central bankers met in April, their closing statement said they would not remove economic stimulus until the recovery was well entrenched. While the timing of these eventual policy reversals may vary, the G-20 said for the first time there should be some coordination to avoid adverse international fallout.

European Union (EU): The European Central Bank (ECB) has raised its forecast for economic growth in the eurozone and kept interest rates at 1 per cent. The head of the bank said there was an expectation that "severe contraction" would now be followed by a period of "stabilisation and gradual recovery". Eurozone rates were cut from 1.25 per cent to a record low of 1 per cent in May this year. Eurozone economic activity rose in August for the first time in 15 months, according to an influential survey. The latest Purchasing Managers' Index (PMI) figure rose to 50.4, raising hopes that the eurozone could soon emerge from recession. But separate figures show that retail sales in the eurozone fell in July. In the eurozone, the unemployment level hit a 10-year high in July as the impact of the recession continued to be felt. The number of people unemployed across the eurozone region totalled 15.1 million people in July, a seasonally-adjusted rate of 9.5 per cent. This was the worst monthly percentage figure recorded since May 1999.

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International Monetary (IMF): IMF Managing Director Dominique Strauss-Kahn said the global

economy "appears to be emerging" from the downturn, but warned the rebound may be sluggish. The financial sector is not immune from further instability, "particularly if efforts to restore banks to health are not completed," he said. He said there's a "real danger" policy makers will withdraw support measures for their economies too soon, jeopardizing the recovery from the global recession. "Given the fragility of the recovery, there are risks that it could stall," Strauss-Kahn said, "Premature exit from accommodative monetary and fiscal policies is a principal concern."

Organisation for Economic Cooperation and Development (OECD): A recovery in the world’s economy now looks likely to come earlier than had been expected just a few months ago, although the return to normal conditions is likely to be slow and protracted, according to the Organisation for Economic Co-operation and Development.

EPP VIEWS Stepping up his campaign to win a second term as President of the European Commission, José Manuel Barroso promised more action to pull Europe out of the economic downturn. President Barroso published a 41-page policy agenda in which he offered to be more accountable to European deputies and to attend a regular “Question Hour.” The document notes that some officials have tried to use the economic crisis “as a pretext to attack the single market,” which, José Manuel Barroso wrote, the commission regards as “the rock on which European growth is built.” The EPP Group supports Barroso's model of a social market economy. Joseph Daul MEP, Chairman of the EPP Group in the European Parliament stated: “Having been plunged into the worst economic crisis in its recent history, the European Union must act in unison, in a coordinated fashion, and without protectionism to come out on top”.

OUR COMPETITORS’ VIEWS Taxing cross-border capital transactions could represent an alternative source of funding for the EU budget, and such revenue might also provide financial means to fight climate change, European Socialist and Green leaders have said. The President of the Party of European Socialists Poul Nyrup Rasmussen said in a debate that a transaction tax should be considered at European level as a “sort of second generation Tobin Tax” . The “Tobin Tax” was initially proposed in 1971 by later Nobel Prize James Tobin, intended to tax cross-border currency trading and restrict short-term currency speculation. It is often said to be fixed at 1 per cent but despite repeated debate it was never implemented or taken seriously even when the EU had a majority of Socialist governments. Rasmussen also renewed the proposal for EU bonds as a means to raise money in the name of the European Commission and helping to reform the funding system of the EU.

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Last updated on 14/09/2009 To view full articles click on hyperlinks

FROM THE BLOGOSPHERE…

Why the public option matters: Paul Krugman on the healthcare reform proposed by the Obama Administration.

Why it is still too early to start withdrawing stimulus: Martin Wolf analyses the prospects for global economic recovery and the role played by economic stimulus packages.

The economic potential of high-speed rail: Ben Adler on the US project to develop high speed rail services in the United States and the possible impact on the economy.

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Annex

EU interim forecast: coming out of the recession but uncertainty remains high

As global conditions improve, signs for an immediate economic recovery are increasing – but may not prove

lasting. The European Commission published its latest interim economic forecasts on 14 September 2009. The

underlying message is that signs for an economic recovery are apparent, also thanks to strong policy

interventions, but the sustainability of the recovery remains to be tested. The Commission sees signs of an

imminent economic recovery and fears of a prolonged and deep recession are fading. GDP growth is set to turn

positive in the second half of the year. However, the forecast for 2009 as a whole remains unchanged as the

previous estimates for 2008 and the first quarter of 2009 proved weaker. GDP is expected to fall by 4 per cent in

both the EU and the euro area this year. The improved economic outlook reflects external conditions being

increasingly favourable. Recent data for trade and industrial production, as well as business and consumer

confidence, are generally encouraging. The resilient private and public consumption and advancements in the

inventory cycle will also support growth in Europe.

Table 1: Real GDP growth

Quarterly GDP forecast

(%, quarter-on-quarter)

2009

Annual GDP forecast

(%, year-on-year)

2009

2009/1 2009/2 2009/3 2009/4 Spring forecast

May 2009

Interim forecast

Sep. 2009

Germany -3.5 0.3 0.7 0.1 -5.4 -5.1

Spain -1.6 -1.1 -0.4 -0.2 -3.2 -3.7

France -1.3 0.3 0.4 0.3 -3.0 -2.1

Italy -2.7 -0.5 0.2 0.1 -4.4 -5.0

Netherlands -2.7 -0.9 -0.4 0.0 -3.5 -4.5

Euro area -2.5 -0.1 0.2 0.1 -4.0 -4.0

Poland 0.3 0.5 0.1 0.0 -1.4 1.0

United Kingdom -2.4 -0.7 0.2 0.5 -3.8 -4.3

EU27 -2.4 -0.2 0.2 0.1 -4.0 -4.0

Note: the quarterly figures are working-day and seasonally adjusted, while the annual figures are unadjusted

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The rate of consumer-price inflation declined in the first half of 2009 driven mostly by the base effects of past

hikes in energy and food prices. Inflation seems to have reached a trough of 0.2% in July in the EU (-0.7 per cent

in the euro area). Inflation rates are projected to increase towards the end of the year as base effects reverse

and commodity prices are on the rise. For the year as a whole, the outlook for consumer-price inflation remains

unchanged at 0.9 per cent in the EU for 2009 (and 0.4 per cent in the euro area).

Table 2: Consumer price inflation

Quarterly HICP forecast

(%, year-on-year)

2009

Annual HICP forecast

(%, year-on-year)

2009

2009/1 2009/2 2009/3 2009/4 Spring forecast

May 2009

Interim forecast

Sep. 2009

Germany 0.8 0.2 -0.2 0.6 0.3 0.3

Spain 0.5 -0.7 -0.8 0.9 -0.1 0.0

France 0.7 -0.2 -0.6 0.2 0.2 0.0

Italy 1.4 0.9 0.1 1.1 0.8 0.9

Netherlands 1.8 1.6 -0.1 1.2 1.4 1.1

Euro area 1.0 0.2 -0.3 0.7 0.4 0.4

Poland 3.6 4.3 4.2 3.3 2.6 3.8

United Kingdom 3.0 2.1 1.3 1.1 1.0 1.9

EU27 1.6 0.9 0.3 0.9 0.9 0.9

Looking into next year, uncertainty is rife also due to the influence of temporary factors. The full impact of the

economic crisis on labour markets and public finances is, at least partly, still to be faced. Risks to the outlook

appear broadly balanced. While the strength of the recovery could surprise on the upside in the near term, its

sustainability is yet to be tested – and will be considered in the upcoming fully-fledged forecast in which all

countries are assessed over a forecast horizon that includes 2011 (planned for 3 November). The Commission

usually publishes economic forecasts four times a year – comprehensive spring and autumn forecasts and

smaller interim forecasts in February and September. The Commission's interim forecast is based on updated

projections for France, Germany, Italy, the Netherlands, Poland, Spain and the UK – together accounting for

some 80% of the EU’s GDP.