China, U.S., Europe battling over a shrinking global-trade pie

In polite, diplomatic language, China this week accused Eurozone leaders of piling up debts that threaten a global economic crisis, and the Europeans countered with complaints that Beijing manipulates its currency to unfairly skew trade in its favor.

The subtle verbal shots fired on the fringes of the Asia-Europe Summit in Vientiane, Laos, echo a theme raised during the U.S. presidential election, when Republican challenger Mitt Romney vowed to take up the gauntlet of a trade war he said had been thrown down by China.

 Both battles reflect the fear and uncertainty confronting the world's biggest economies in this fifth year of stalled growth and persistent recession, trade experts say. And with little hope on the horizon for revving the main economic engines any time soon, the rhetoric and posturing are likely to grow sooner than the rivals' bottom lines.

The European Union is China’s largest trading partner, and the sovereign debt crisis afflicting the 17 nations that use the euro common currency has been cutting into Europeans’ ability to buy Chinese goods. On Monday, Chinese Premier Wen Jiabao told the European delegates that they needed to come up with “a clear and reliable" plan for resolving the debt crisis that is stifling growth and trade.

French President Francois Hollande countered with a swipe at China’s artificially suppressed currency value, which makes Chinese products cheaper than they should be and contributes to the trade imbalance favoring Beijing.

"Europe has always trusted the market on condition that the rule of reciprocity is the same for everyone," Hollande said, alluding to the artificially set value of the Chinese yuan, also known as the renminbi. "We need to have equal exchange. We believe in an open market system."

Trade and economic analysts say China has moved some distance to correct currency distortion over the last few years, with the yuan exchange rate improving from more than 8 to the dollar to 6.29 on Tuesday. That’s close to a 25% appreciation, most of it in the last four years, noted Perry Wong, director of research for the Milken Institute and a frequent visitor to China.

Some economists set the actual value at closer to 5 yuan to the dollar, but full correction cannot be accomplished overnight, Wong said.

"Transformation in China will take time. In terms of structural change, for them to rely less on exports and import more goods from foreign countries, and to promote the quality of labor in China, will take years," Wong said. Most countries intervene to some degree to "more fully accommodate their own domestic economic agendas," he added, including the U.S. Federal Reserve Board policy of quantitative easing.

China’s alarm over the European debt crisis is justified, as it could portend a coming period of global economic upheaval, said Bruce Abramson, a partner with the Rimon Law Group and an expert in valuation, intellectual property, trade and competition.

"The Eurozone crisis is likely to spread into a global monetary crisis. It’s a testament to the Eurocrats that they have held it together as long as they have," said Abramson, predicting a five- to 10-year period of recession or feeble growth on the continent, in the United States and potentially in China. Growth this year in China's economy is pegged at 7.4%, down from 10% to 12% only a few years ago.

The persistent pressures presage more friction over trade rules and practices, Abramson said.

"Economic growth is a necessary prerequisite for peace, tolerance, acceptance -- all kinds of good things. But when the pie is shrinking, everybody, whether local, individual or national, worries about how to hold on to what they already have."

When you’ve got 10 people vying for control of only nine things of value, "you either learn how to make more things or how to have fewer people," he said. "More things is economic growth. Fewer people is war."

Jamie Metzl, a senior fellow at the Asia Society, said voices within China's centrally planned economy are gaining strength in their calls for structural reforms that would boost wages and social services for Chinese workers and find a better trade balance by allowing the currency to float to its actual exchange value.

"China is making preliminary steps toward making its economy less oriented toward exports, but the economy is still massively oriented toward exports," Metzl said, pegging the share of its output sold abroad at 70%.

That imbalance will persist as long as the yuan is undervalued and workers are underpaid, Metzl said.

"Certainly recession in Europe and sluggish growth in the United States are harming China’s ability to export. But unless China undertakes significant structural reforms, growth in China is very likely to continue to decelerate because of the inherent problems and imbalances," he said.

China’s communist government also plays "way too strong a role in the domestic economy," he added, which stifles innovation in the private sector that would make Chinese products more competitive and foster a healthier global trade environment.

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Photo: A China Shipping Container Lines Co. vessel enters the Port of Long Beach this week. The U.S. Census Bureau is scheduled to release trade balance data on Thursday. Credit: Tim Rue / Bloomberg

Insert: Chinese Premier Wen Jiabao arrives at the Asia-Europe Summit in Vientiane, Laos, on Tuesday. Credit: Barbara Walton / European Pressphoto Agency

Greece hit by 48-hour nationwide strike on eve of key austerity vote

ATHENS -- Shopkeepers rolled down shutters, transport screeched to a halt and state agencies were closed Tuesday as millions of Greeks walked off their jobs to protest the toughest measures yet unveiled by the government in its bid to slash the nation's deficit and jump-start the stalled economy.

The 48-hour nationwide strike, affecting the public and private sector, comes on the eve of a crucial parliamentary vote on $17 billion in added austerity measures that Athens needs to approve to unlock $39 billion in bailout funds from the European Union and the International Monetary Fund.

Without that cash infusion, Greece would have enough money to pay pensions, salaries and other expenses only until Nov. 16, Prime Minister Antonis Samaras has warned. After that, this Mediterranean nation, the epicenter of the euro debt crisis, would be bankrupt.

But three years of piled-on austerity and five years of recession have unleashed a wave of public unrest.

Union workers have pledged to flood Athens with protesters in two days of demonstrations and strike action, keeping schools closed, hospitals operating with only emergency staff, and road, rail and air services suspended.

Thousands of police have been deployed in Athens, and huge steel barriers have been erected around Parliament to shield the sprawling ochre-colored building from potential attacks ahead of Wednesday's scheduled vote.

The new measures include further pay cuts, tax hikes and an increase in the average retirement age by two years, from 65 to 67. The plan would also sack thousands of public employees and slash severance payments in a society where unemployment has already hit 25%.

Samaras' government says the measures are necessary in order to bring down Greece's deficit and squeeze out a primary budget surplus -- that is, before interest payments -- by 2014. But the prime minister is having trouble keeping his wobbly coalition together.

On Monday, the Democratic Left, the smallest party in the coalition, said it would stay in the power-sharing government but would refuse to vote for labor reforms that would cut wages by 10% and eliminate a series of severance payments. The about-face could leave Samaras with barely enough votes to eke out a majority in Greece's 300-seat Parliament.

"He'll get his victory," said George Kirtsos, a leading political commentator in Athens. "But implementation will be a problem. The government will have been seriously impaired."

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Photo: Protesters march to the Greek Parliament on Tuesday during a 48-hour nationwide strike to protest proposed austerity measures. Credit: Dimitri Messinis / Associated Press

Spain puts off burning all of its 'bridges'

MADRID -- As Spain's economy sputters, the 2013 calendar is helping the country do what its politicians can't: cut down the number of public holidays.

In a move to boost productivity, the cash-strapped Spanish government announced earlier this year that it would eliminate Spaniards' beloved puentes, or "bridge" weekends. That's when a holiday falls on a Tuesday or Thursday and, to make a long four-day weekend, workers take off the Monday or Friday in between. Many employers tacitly acquiesce to an extra vacation day, and some close their offices altogether.

With Spain's economy ailing, Prime Minister Mariano Rajoy has called the puentes a luxury his country simply can't afford. So with some exceptions, such as Christmas or New Year's Day, most holidays will be moved to the nearest Monday, creating a three-day weekend instead.

But the government has been mired in negotiations with the Roman Catholic Church, regional governments and labor unions -- all of which want their holidays celebrated on fixed dates, regardless of the day of the week. So despite an agreement with Spain's largest business federation back in January, the calendar of public holidays was not altered in time for the start of the school year two months ago.

By lucky coincidence for the government, most of Spain's 2013 holidays fall on Monday, Friday or weekends anyway, saving politicians the headache of rejiggering the calendar for now. However, two "bridge" weekends will remain, with more in certain regions.

The holiday shuffle will commence in earnest in 2014, Deputy Prime Minister Soraya Sáenz de Santamaría announced Friday. She outlined possible compromises: The Catholic Church, for example, may agree to celebrate All Saints' Day (traditionally Nov. 1) on a Monday, in exchange for having the Day of the Immaculate Conception fixed on Dec. 8. Unions are pushing for Labor Day to remain on May 1, in accordance with most of Europe. Disagreements persist over at least three other holidays.

Spain has an average of 14 religious and municipal holidays per year, 40% more than the United States. Germany has between eight and 11 public holidays, depending on the federal state. France has between 11 and 13, again depending on the region.

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Photo: A swimmer on the beach last week in San Sebastian, Spain. Credit: Juan Herrero / EPA

Eurozone unemployment figures hit a new high

 

This post has been corrected. See bottom for details.

LONDON — Europe’s economic gloom deepened Wednesday on the back of news that unemployment in the 17-nation Eurozone hit another record high in September as the region’s debt crisis continued to sap the confidence of business owners, investors and consumers alike.

About 18.5 million people were out of work in the Eurozone in September, adding up to a jobless rate of 11.6%. That figure exceeds August’s record of 11.5% and follows the worrisome trend of the past half-year, during which unemployment has either remained static or worsened with each successive month.

The grim picture painted by Eurostat, the European Union’s statistical agency, comes as the continent’s debt crisis sits on the cusp of entering its fourth year with no full resolution in sight. Lawmakers in Greece, where the crisis began, are still grappling with another punishing round of austerity cuts demanded by international lenders, while Spain is keeping markets on tenterhooks over whether it will become the latest country to seek a bailout from its European partners.

According to Eurostat, there were 2.2 million more people out of work in September than a year ago in the 17 nations that share the euro currency. Since then, a number of those economies have tumbled back into recession, government debt ratios have risen, commercial lending has dwindled and investors have taken flight.

Greek journalist in court for revealing names of potential tax cheats

This post has been corrected. See the note at the bottom for details.

ATHENS -- A Greek journalist who was arrested after publishing the names of more than 2,000 fellow citizens believed to have stashed about $2 billion in Swiss bank accounts appeared in court Monday to answer charges of breach of privacy.

Kostas Vaxevanis, a prominent investigative journalist and editor of Hot Doc magazine, was arrested Sunday but released hours later pending trial. In an Athens courtroom Monday, his attorney requested a continuance to prepare for a hearing scheduled for Thursday.

"This is a case of utmost public interest, and we want it to be heard," Harris Economopoulos, Vaxevanis' attorney, said in a telephone interview. "We want the truth to come out. Greeks have endured enormous sacrifices, and they are facing yet a new wave of austerity [measures]. They have the right to know whether there is a case of political coverup."

Vaxevanis insists that the published list, which includes the names of high-profile Greek businessmen and politicians -- even the brother of former Prime Minister George Papandreou -- is the same list that former French Finance Minister Christine Lagarde relayed to her Greek counterpart two years ago to help Athens crack down on rampant tax evasion in Greece. His list, however, included more names than Lagarde reportedly handed over.

Since then, successive governments have been accused of trying to cover up the scandal, with two finance ministers and a number of judicial and tax officials shifting responsibility and blame.

Italy's Berlusconi vows to take on judiciary 'dictatorship'

ROME -– Former Prime Minister Silvio Berlusconi came out swinging Saturday after a court sentenced him to four years in prison for tax fraud, vowing to dedicate himself to reforming the Italian justice system, which he said was dominated by a “dictatorship of magistrates.”

“I’m staying in the game,” the flamboyant media tycoon said in an interview early Saturday, appearing to contradict the announcement he made days earlier that he was retreating from Italian political life.

But the combative 76-year-old former leader, who was forced to step down a year ago amid the country’s financial crisis, said later he had not changed his mind on seeking the premiership again but rather would work to change the judiciary “because we cannot go on this way. This is not a democracy.”

He did say, however, that he was revoking his self-imposed exile from television talk shows and print interviews and would resume speaking in public.

On Friday, a Milan court sentenced Berlusconi for what it said were millions of dollars in tax fraud connected to the buying and selling of rights to American television programs and movies. The sentence also barred Berlusconi from holding public office for five years. An appeal appeared certain, and he is not expected to go to prison any time soon.

After the court’s decision, the billionaire mogul said he had been the victim of “judicial persecution” and called the sentence “incredible, intolerable and political.”

France approves European treaty on public-spending limits

PARIS — French lawmakers voted by a large majority Tuesday to adopt the European budget pact that attempts to rein in nations' public spending, a key piece of Europe's strategy to combat its stubborn debt crisis.

After a week of debate, the treaty was ratified by 477 members of the National Assembly, the lower house of Parliament, with 70 members voting against.

The "golden rule" enshrined in the treaty demands that European countries reduce their public deficit to within 0.5% of gross domestic product, or GDP. At present, France's deficit is hovering around 4.6%, though the country's Socialist president, Francois Hollande, has pledged to reduce it to 3% by the end of next year.

The government has admitted that it is unlikely France will reach the standard of the "golden rule" before 2015. The country has not balanced its books in decades and has regularly flouted existing European Union rules that member states keep their spending to within 3% of GDP. In 2011, France's deficit hit 5.2%.

The pact was opposed by members of the far left, the far right and by some in the Green party. Opponents say that by limiting public deficits and debt, the treaty enshrines austerity into French law.

German leader Merkel greeted by protesters in Greece

ATHENS -- Visiting the epicenter of Europe's debt crisis for the first time since the troubles began three years ago, German Chancellor Angela Merkel on Tuesday tried to assure recession-racked Greeks that she understood their suffering but encouraged them not to abandon the road of austerity and painful spending cuts.

“I know that the path to recovery has been difficult,” Merkel said after two hours of talks with Greek Prime Minister Antonis Samaras. “Still, the strides that have been made are worth being completed.”

Her words failed to placate many of the 30,000 people who swarmed Athens to protest a visit by the woman they blame for pushing Greece down the road to economic ruin through her relentless emphasis on austerity in exchange for emergency aid.

Just minutes before Merkel arrived in downtown Athens, protesters dressed as Nazi officers rolled into Syntagma Square, outside the Greek Parliament building, in a military jeep festooned with swastika-stamped flags.

Then, as the German leader gave only qualified support for Greece's continued membership in the Eurozone, the club of 17 nations that use the euro currency, militant protesters fired a flurry of firecracker-like projectiles at the police outside Parliament.

German leader Angela Merkel enters the lion's den: Greece

ATHENS -- With Europe's debt crisis deepening, German Chancellor Angela Merkel arrived in Greece on Tuesday to signal her support for a country where many blame her personally for driving their economy into the ground.

As the tough-talking German leader disembarked from a private jet, boarding a motorcade bound for central Athens, she swiftly shuttled into a lion's den of rage and resentment over the policies of austerity that she has insisted on as the price of emergency loans to keep cash-strapped Greece afloat.

Authorities deployed about 7,000 plainclothes police officers, snipers and commandos to lock down the Greek capital and fend off potential attacks from protesters angry over Merkel's visit, her first to this country since the European debt crisis began here three years ago. The visit is to last just seven hours.

As Merkel was being driven into downtown Athens, protesters dressed in Nazi uniforms rolled into Syntagma Square, outside the Greek Parliament building, in a military jeep festooned with swastika-stamped flags.

Since the visit was announced last week, opposition political parties, trade unions and anarchists have rallied Greeks to walk out of their jobs and join a string of protests that kicked off Monday and are set culminate later Tuesday when Merkel meets with Greek Prime Minister Antonis Samaras.

Spanish theater mounts shows -- and a 'carrot rebellion'

BESCANO, Spain -- Theater buffs no longer have to buy tickets for shows staged in this small Spanish village. Instead, they must purchase a rather expensive carrot.

That's the novel admission scheme hit upon by the director of Bescano's municipal theater, Quim Marce. Dismayed by a recent government tax hike on theater-ticket sales, Marce decided to abolish normal tickets and instead sell vouchers for carrots, with "free" admission to the show thrown in.

"We sell one carrot, which costs 13 euros [about $17], which I admit is very expensive for a carrot. But then we give away admission to our shows," Marce, 43, said in an interview Thursday at his theater. "So we end up paying 4% tax on the carrot, rather than 21%, which is the government's new tax rate for theater tickets."

Critics call it tax evasion. The Spanish media call it the Carrot Rebellion, another example of the creative lengths some Spaniards are willing to go to in order to get around austerity measures -- tax hikes and budget cuts -- imposed by the central government in Madrid.

Marce just calls it a way for his little theater to survive in this pretty village of about 4,000 people, in verdant hills about two hours north of Barcelona. With one in four local residents unemployed, even a modest hike in ticket prices might leave his 300-seat theater empty.

"And in this farming region, I naturally thought of carrots," he said.

Classified as a staple, carrots are subject to a 4% tax that was left unchanged when other taxes went up across Spain on Sept. 1. The highest value-added tax (VAT) rate on items like new cars and clothing rose from 18% to 21%, despite a campaign promise by Prime Minister Mariano Rajoy not to touch the top VAT rate, and the sales tax on movie and theater tickets soared from 8% to the new 21% rate.

"It seems to me like a great idea, because culture shouldn't be taxed so much," said Pilar Bayé, 45, a civil servant in Bescano who bought two carrots for admission to a show next month. "Culture should be accessible to all the people."

The Bescano theater's new logo features a carrot with the motto "For the Health of Culture," and is printed on posters tacked up on telephone poles throughout the village and on a huge banner hung in front of cornfields at the entrance to town. Carrots cost 13 euros if you buy them online in advance and 15 euros ($19.55) at the door.

Marce said the theater has re-recorded the standard audio announcement that plays before performances begin, warning the audience to turn off mobile phones.

"Now we've added, 'No chomping loudly on your carrots during the show,' " he said.

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Photo: Residents of one Spanish town can purchase culture with their carrots. Credit: Sam Hodgson / Bloomberg