How the euro-zone outs are fighting to retain influence in the European Union?

• One fear of European Union members outside the euro, either by choice or because they are not ready to join it, has been that they will be cut out of the big decisions being taken in Brussels. One hope of many of the euro’s founder members was the obverse: that the club would become more politically and economically integrated. That original tension between wide consultation and tight integration is now bubbling over in arguments over whether the euro-zone heads of government should have regular summits.
• Poland, a leading euro “out”, was horrified when a leak revealed internal German correspondence on the “competitiveness pact” proposed by Chancellor Angela Merkel and the French president, Nicolas Sarkozy. This confirmed the danger of a two-speed Europe that locked out non-euro countries and sidelined the European Commission. Yet Poland sees Germany as its best friend in the EU.
• The Polish prime minister, Donald Tusk, made his dismay thunderingly clear. He has got somewhere as a result. “At the European Council, Tusk never gets angry; he’s trusted and a credible negotiator,” says Piotr Kaczynski of the Centre for European Policy Studies in Brussels. “So on the occasion when Tusk does shout, Brussels stops.” The compromise “pact for the euro” makes concessions, including a role for the commission.
• The Poles will continue to fight plans to move decision-making from the 27 to the 17, accepting the smaller group only for matters directly related to the euro. But they like the competitiveness pact’s structural reforms, such as reforming wage indexation. Jacek Rostowski, the finance minister, says “it’s good if all Europe wants it, not just something for emerging economies.” And there is some scepticism about the ability of 17 very different euro-zone countries to agree on new policies.
• Poland plans in principle to join the euro. The fear of isolation is keener in Denmark and Sweden, which want more say but are unlikely to join the single currency for a while. The adoption of the euro by such new members as Slovenia, Slovakia and now Estonia was a reminder of their dwindling influence. “It really rankles that they can’t get into important policy meetings,” says an Estonian diplomat.
• In fact the centre-right coalitions of Sweden and Denmark, unlike their counterpart in Britain, are eager to adopt the euro. But their voters are not persuaded. The Danes have twice voted against joining, once in a referendum on the Maastricht treaty in 1992 and again when they were asked to reconsider in 2000. Swedish voters similarly rejected the euro in a 2003 referendum. Now the risk of a two-speed EU, with Sweden and Denmark in the outer lane, has led to speculation about fresh referendums in both countries.
• The Danish prime minister, Lars Lokke Rasmussen, floated the possibility earlier this month, arguing that Denmark should ratchet up its European commitment before it takes over the EU’s rotating presidency next January. But the timing could hardly be worse. One opinion poll in February suggested that voters might agree to scrap their opt-outs (from judicial and security co-operation as well as the euro) only if all three were dealt with in a single referendum. And this was a rare positive blip in an anti-euro trend. A December poll by Denmark’s Danske Bank found fully 43.5% were definite noes and only 25.5% certain yeses—an 18-point lead. “I don’t believe the prime minister will call a referendum; the risk of a no is too high,” says Steen Bocian, the bank’s chief economist. Another complication is that Denmark must hold a general election by November—and Mr Lokke Rasmussen is trailing in the polls.
• The travails of the single currency have hardened anti-euro sentiment in Sweden too. Danes fear that without the krone they might have sunk into an Irish quagmire. Swedes are proud that their economy has thrived on the outside. Far from being in the slow lane, in the fourth quarter of 2010 it was the fastest-growing in the EU. For now, Sweden and Denmark will remain out. Their governments will back Poland in resisting a bigger role for the euro group.
• On the face of it, the prospect of regular euro-zone summits is a setback also for Germany. Economic government was a French idea, loaded with dirigiste menace and peril for the independence of the European Central Bank. Mrs Merkel has always been the sworn enemy of class distinctions within the EU. In 2008 she rejected calls for a two-speed Europe when Irish voters rejected the Lisbon treaty. “The unity of Europe is not something we want just for its own sake,” she declared. “It is a great good.” Moves in the direction of a euro-zone economic government look like a climbdown.Mrs Merkel would deny this. No new club is being formed, and any arrangement cooked up by the 17 will be open to the ten non-euro members as well. Far from opening a dangerous new division within the EU, the Germans think they are closing one: between competitive economies and the laggards that threaten the survival of the euro. If they have their way, this euro-zone summit may be the last.
• From Mrs Merkel’s point of view, the alternative was worse. Germany may have as much as €200 billion ($280 billion) of exposure to rescue schemes for wobbly euro members and that figure could climb. So will resistance from voters and some members of Mrs Merkel’s coalition. The euro has become the top political issue, says Frank Schäffler, a hawkish Bundestag member from the liberal coalition party, the Free Democrats. The pact for the euro is supposed to help by breaking euro countries of the bad economic habits that got them into trouble in the first place. “She needs something to take to her increasingly sceptical coalition,” observes Daniela Schwarzer of the German Institute for International and Security Affairs. Not all are reassured. Mr Schäffler sees the pact as a “placebo to quiet the people.” European countries should compete rather than being forced to reform by a central authority, he thinks. Hans-Werner Sinn, a liberal economist, fears that France may use a euro-zone government to force Germany to raise wages.
• Mrs Merkel’s allies are awkwardly positioned between backing her diplomacy and setting limits on German concessions. On February 23rd the three coalition parties laid down conditions for approving a treaty change to set up a permanent euro-zone bail-out fund. One was more economic co-ordination within the zone—in other words, a version of the competitiveness pact and its embryonic economic government. Mrs Merkel may have long opposed a two-speed Europe, but pressure from voters, her coalition partners and other euro-zone countries seems to be pushing her into tolerating it.

sensex rose 623 points, measures proposed in the Union Budget 2011-12 would attract foreign inflows

• The Sensex closed at 18475 (provisional), up 651 points from its previous close, and Nifty closed at 5532 (provisional), up 199 points.
• The markets registered robust growth today with all sectoral indices closing in the green. Auto was the biggest gainer of today’s trade followed by capital goods, banking and realty.
• Indian shares provisionally rose 0.7 percent on Monday, after the annual budget announced incentives for private investment in infrastructure.
• Indian shares were up more than 1 percent in early trade on Tuesday tracking firm Asian equities, and after the finance minister said he expects the economy to grow by nearly 9 percent in the next fiscal year.

• Finance Minister Pranab Mukherjee on Monday presented to parliament the budget for the coming financial year beginning in April.

Following are the highlights of the budget:
BORROWING
* Gross market borrowing for 2011-12 seen at 4.17 trillion rupees.
* Net market borrowing for 2011-12 seen at 3.43 trillion rupees.
* Revised gross market borrowing for 2010-11 at 4.47 trillion rupees.
FISCAL DEFICIT
* Fiscal deficit seen at 5.1 percent of GDP in 2010-11
* Fiscal deficit seen at 4.6 percent of GDP in 2011-12
* Fiscal deficit seen at 3.5 percent of GDP in 2013-14
SPENDING
* Total expenditure in 2011-12 seen at 12.58 trillion rupees.
* Plan expenditure seen at 4.41 trillion rupees in 2011-12, up 18.3 percent.
REVENUE
* Gross tax receipts seen at 9.32 trillion rupees in 2011-12.
* Corporate tax receipts seen at 3.6 trillion rupees in 2011-12.
* Tax-to-GDP ratio seen at 10.4 percent in 2011-12; seen at 10.8 percent in 2012-13.
* Customs revenue seen at 1.52 trillion rupees in 2011-12.
* Factory gate duties seen at 1.64 trillion rupees in 2011-12.
* Non-tax revenue seen at 1.25 trillion rupees in 2011-12.
* Service tax receipts seen at 820 billion rupees in 2011-12.
* Revenue gain from indirect tax proposals seen at 113 billion rupees in 2011-12.
* Service tax proposals to result in net revenue gain of 40 billion rupees in 2011-12.
SUBSIDIES
* Subsidy bill in 2011-12 seen at 1.44 trillion rupees.
* Food subsidy bill in 2011-12 seen at 605.7 billion rupees.
* Revised food subsidy bill for 2010-11 at 606 billion rupees.
* Fertiliser subsidy bill in 2011-12 seen at 500 billion rupees.
* Revised fertiliser subsidy bill for 2010-11 at 550 billion rupees.
* Petroleum subsidy bill in 2011-12 seen at 236.4 billion rupees.
* Revised petroleum subsidy bill in 2010-11 at 384 billion rupees.
* State-run oil retailers to be provided with 200 billion rupee cash subsidy in 2011-12.
GROWTH, INFLATION EXPECTATIONS
* Inflation seen at 5 percent in 2011-12.
* Economy expected to grow at 9 percent in 2012, plus or minus 0.25 percent.
TAXES
* Standard rate of excise duty held at 10 percent.
* Service tax rate kept at 10 percent.
* To widen scope of service tax.
* To raise minimum alternate tax to 18.5 percent from 18 percent.
* Iron ore export duty raised to 20 percent.
* Personal income tax exemption limit raised to 180,000 rupees.
* To reduce surcharge on domestic companies to 5 percent.
DISINVESTMENT
* Disinvestment in 2011-12 seen at 400 billion rupees.
POLICY REFORMS
* Foreign direct investment policy to be liberalised further in 2011-12.
* To create infrastructure debt funds.
* To boost infrastructure growth with tax-free bonds of 300 billion rupees.
* Raised foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure by $20 billion.
* Food security bill to be introduced this year.
* To permit Securities and Exchange Board of India (SEBI) registered mutual funds to access subscriptions from foreign investments.
* Public debt bill to be introduced in parliament soon.
SECTOR SPENDING
* To allocate more than 1.64 trillion rupees to defence sector in 2011-12.
* Corpus of rural infrastructure development fund raised to 180 billion rupees in 2011-12.
* To provide 201.5 billion rupees capital infusion in state-run banks in 2011-12.
* To allocate 520.5 billion rupees for the education sector.
* To raise health sector allocation to 267.6 billion rupees.
AGRICULTURE
* To focus on removal of supply bottlenecks in the food sector in 2011-12.
* To raise target of credit flow to agriculture sector to 4.75 trillion rupees.
* Gives 3 percent interest subsidy to farmers in 2011-12.
* Cold storage chains to be given infrastructure status.
* Capitalisation of National Bank for Agriculture and Rural Development (NABARD) of 30 billion rupees in a phased manner.
* To provide 3 billion rupees for 60,000 hectares under palm oil plantation.
* Actively considering new fertiliser policy for urea.
FINANCE MINISTER ON THE STATE OF THE ECONOMY
* “Fiscal consolidation has been impressive. This year has also seen significant progress in those critical institutional reforms that will pave the way for double digit growth in the near future.”
* “At times the biggest reforms are not the ones that make headlines, but the ones concerned with details of governance which affect the everyday life of aam aadmi (common man). In preparing this year’s budget, I have been deeply conscious of this fact.”
* Food inflation remains a concern.
* Current account deficit situation poses some concern.
* Must ensure that private investment is sustained.
* “The economy has shown remarkable resilience.”
FINANCE MINISTER ON GOVERNANCE
* “Certain events in the past few months may have created an impression of drift in governance and a gap in public accountability … such an impression is misplaced.”
* Corruption is a problem, must fight it collectively.

• ASSOCHAM cheers budget proposals aimed at reducing fiscal deficit. Apex chamber ASSOCHAM described the proposals of Union Budget for 2011-12 as positive and encouraging which attempt at reducing the fiscal deficit down to 5.1 per cent from the earlier estimate of 5.6 per cent for the current fiscal year and 4.6 per cent for the next.

• NASSCOM today expressed its disappointment on the Union Budget Proposals 2011-12 that chartered a roadmap on sustaining a high growth trajectory for the country, but missed the relevant thrust for business to enable this growth.MAT imposed on SEZ; 10A/10B tax incentives withdrawn.Policies announced for service tax refunds; transfer pricing – need to ensure implementation.
• The three key macroeconomic concerns before Union Budget 2011-12 were high inflation, high current account deficit (CAD), and fiscal consolidation. Additionally, there was an expectation that the government would restart the reform process. The Budget has made an attempt to address all these issues, albeit through small steps. Despite the strong performance of the economy in 2010-11, the outlook for 2011-12 is clouded by stubborn and persistently high inflation, and rising external risks. The Budget factors in a GDP growth target of 9 per cent, which is on the optimistic side. CRISIL expects GDP growth to moderate to 8.3 per cent in 2011-12.

oil crisis ahead

• A month ago Brent crude oil stood at around $96 a barrel and Hosni Mubarak was ensconced as Egypt’s ruler. Now he is gone, overthrown by a display of people power that is shaking autocratic leaders across north Africa and the Middle East. And oil has surged above $115. Little wonder. The region of Egypt provides 35% of the world’s oil. Libya, the scene of growing violence this week, produces 1.7m of the world’s 88m barrels a day (b/d).
• So far prices have not been pushed up by actual disruptions to supply. Oil hit a peak even before news emerged that some foreign oil firms operating in Libya would cut production and that the country’s ports had temporarily closed. As Adam Sieminski at Deutsche Bank points out, oil prices are driven both by current conditions and by future expectations.
• Oil markets don’t like surprises. The sudden ousting of Mr Mubarak and the unrest in Libya, Bahrain, Yemen, Iran and Algeria (which between them supply a tenth of the world’s oil) had added 20% to oil prices by the middle of this week. The big worry is that spreading unrest will culminate in another shock akin to the oil embargo of 1973, the Iranian revolution or Iraq’s invasion of Kuwait.
• Oil is more global than it was during those previous crises. In the 1970s production was concentrated around the Persian Gulf. Since then a gusher of non-OPEC oil has hit markets from fields in Latin America, west Africa and beyond. Russia overtook Saudi Arabia as the world’s biggest crude supplier in 2009; OPEC’s share of production has gone from around 51% in the mid-1970s to just over 40% now.
• Yet the globalisation of oil supply has not diminished OPEC’s clout as the marginal supplier of crude. Markets are tight at the moment. Bumper inventories, built up during the downturn, are running down as the rich world recovers and Asia puts on a remarkable growth spurt. Demand rose by a blistering 2.7m b/d last year, according to the International Energy Agency, and is set to grow by another 1.7m b/d this year by Deutsche Bank’s reckoning. Many other producers are already running at full capacity; OPEC has its hands on the only spare oil.
• If Libya’s oil stopped flowing importers would look to Saudi Arabia to make up the shortfall. The oil could probably flow to fill the gap in Europe, Libya’s main market, in a matter of weeks. OPEC claims that it has 6m b/d on tap but that looks wishful. Analysts think the true number is nearer 4m-5m b/d, with 3m-3.5m b/d in Saudi hands. That is ample to plug a Libyan gap but would hasten the day when growing world demand sucks up all spare production capacity. Analysts at Nomura reckon that it would only take a halt of exports from Algeria as well to absorb all the slack and propel oil to a terrifying $220 a barrel.
• Despite saying it stands ready to produce more oil, Saudi Arabia has so far been reluctant to turn its stopcocks. OPEC claims that the world is amply supplied with oil and seems content with a price around $100 a barrel. Traders hope that Saudi Arabia will boost production stealthily or that OPEC will call a special meeting to raise quotas and calm markets.
• The worst-case scenario for oil prices would be some kind of disruption to Saudi supply itself. That concern has become livelier given the unrest in neighbouring Bahrain. The tiny island kingdom produces little oil but is of vital strategic importance in the Persian Gulf, a seaway that carries 18% of the world’s oil. America’s 5th Fleet uses the country as a base.
• The Saudis may also fear that protests by Bahrain’s Shia population could spill over their own borders. Saudi Arabia’s eastern provinces are home to both its oil industry and most of its Shias, who may also have cause for grievance with their Sunni rulers. The king this week announced $36 billion in benefits for his people. One crumb of comfort is that oil facilities across the region are generally located far from the population centres, where protests tend to be concentrated, and are well defended against anything but a concerted military assault.
• What might be the effects of a more general supply crisis in the Middle East and north Africa? The oil shocks of the 1970s spurred the world to build stockpiles, such as the 727m barrels of crude oil in America’s strategic petroleum reserve, to be drawn on in the event of upheaval in the Middle East and elsewhere. China is building up a strategic reserve of its own. America’s Energy Information Administration puts total rich-world stocks in the hands of governments and industry at 4.3 billion barrels, equivalent to nearly 50 days of global consumption at current rates.
• The impact of a crisis would therefore depend on how much oil production was lost and for how long. Even seismic shocks in oil-producing countries might not cut off supplies for very long. Yet the example of Iran shows what can go wrong. Leo Drollas of the Centre for Global Energy Studies, a think-tank, points out that pre-revolutionary Iran pumped 6m b/d. The new regime ditched Western oil experts and capital, and it has never come close to matching that level of output since; it now produces just 3.7m b/d. Middle Eastern oil is largely state-controlled but, as Amrita Sen of Barclays Capital observes, foreign investment remains vital to north Africa’s oil industry. If new regimes emerged that were more hostile to outsiders, that might have a lasting effect on production.
• The world could probably weather a short-lived crisis. But the damage if oil prices spiked and stayed high for a long time could be severe for the recovering economies of the rich world. As for the prospects of reducing the importance of the Middle East to global oil supplies, forget it. Strong Asian demand is likely to mean that OPEC’s share of oil production rises again as it pumps extra output eastward. A troubled region’s capacity to cause trouble will not diminish