Chancellor Gerhard Schroeder
unveiled a long-awaited package of welfare, budget and tax reforms aimed at slashing state
spending and kickstarting growth in Europe's largest economy.
Boasting that his nine-mont-hold coalition had produced the biggest
economic programme in German history, Schroeder and Finance Minister Hans Eichel said it
set the stage for wider recovery in Europe and a brighter outlook for its unsettled single
currency, the euro.
Business groups have applauded the package, saying it underscored the
serious need for economic reform, but independent analysts were less positive about its
Schroeder's cabinet earlier backed a package of measures put forward by
Eichel, a moderniser ally of Schroeder within the centre-left Social Democrats, that will
cut 30 billion marks ($16 billion) off projected state budget costs for 2000.
Key reforms include a cut in corporate tax from 40 per cent to 25 from
2001 that is worth eight billion marks and designed to bring investment flooding back into
The tax breaks are offset by across-the-board savings within
ministerial budgets, the cancellation of many state industrial subsidies and, most
controversially, cuts to the "holy cow" of German state pension and other
The reforms are also intended to make sure Germany satisfies long-term
the Maastricht deficit criteria for taking part in the euro. Bonn's net borrowing
requirement is due to fall some four billion marks to 49.5 billion in 2000, with a
balanced budget by the end of the next parliament in 2006.
Weakness in the German economy, where growth is seen at a mere 1.5 per
cent this year and joblessness is entrenched above four million, has been cited as a major
factor in the decline of the euro since its introduction on January 1.
Acknowledging the central role of the German economy in the euro-zone,
Eichel said he was optimistic that an upturn across Europe would from next year start
buoying the single European currency.
Tight-fisted consumers hinder Asian
Asia's battered economies have begun to see light at the end of the
tunnel, but consumer confidence will not recover fully for at least two years, economists
"This is a question of years and not months," said Ron Leven,
head of Asian markets research for J.P. Morgan. "In terms of a solid, broad-based
recovery you're a long way from seeing that happen."
Leven said Asia's high savings rate and low levels of domestic activity
meant a pickup in consumer demand was needed to really turn around the economic
"Asia doesn't suffer from an external demand problem, the trouble
is excess savings," Leven added.
Domestic private consumption is the biggest engine of most Asian
economies. Japan's Economic Planning Agency said in a recent report that personal
consumption accounted for some 60 per cent of all economic activity in Japan.
A return to sustainable levels of growth in Asia is impossible without
a pick-up in consumer spending.
A survey by credit card firm Mastercard in December 1998 showed that
consumers in virtually every Asian economy expected economic prospects to brighten in the
first half of this year, but they were not as optimistic as before the crisis.
"We will continue to see a rise in confidence in the next survey
(to be conducted in June) ," said a Mastercard spokeswoman.
"We're still cautiously optimistic, and I'm not sure that within
the next index we'll see pre-crisis levels just yet."
Widespread unemployment and downward wage pressure are perhaps most
damaging for consumer sentiment, economists said.
Unemployment in economies like Singapore, Japan and South Korea is at
almost twice pre-crisis levels.
"One of the most important reasons behind the sharp falls in
consumption is uncertainty said Chan Chia Lin, head of economic research at investment
Mergers & Acquisitions
Group, Britain's biggest retail bank, said it was buying mutually owned life insurance and
pensions group Scottish Widows for around £7 billion.
VolvoScania: Swedish truck makers Volvo and Scania were at
the centre of renewed speculation in Europe's commercial vehicle sector, reported as
possible takeover targets in industry consolidation.
Cablecom: The three main shareholders of Switzerland's biggest
cable television group, Cablecom SA, said they wanted to sell their stakes, totalling 96
per cent, in a single block by the beginning of 2000.
Air FranceDelta: Europe's third-largest carrier Air France
unveiled a plan to form a strategic alliance with U.S. number three Delta marrying the
potential of two major transatlantic traffic hubs.
LufthansaPAL: German national airline Deutsche Lufthansa
AG said one of its subsidiaries had reached an agreement to buy the engineering and
maintenance divisions of Philippines Airlines (PAL).
Royal Bank of Scotland strengthened its
position in the United States by buying UST Corp for around $1.4 billion in cash, boosting
its Citizens unit to a clear number two spot in the Boston market.
Danish insurer Codan grabbed a 14 per
cent slice of the Swedish non-life insurance market by acquiring the non-life business of
premium brand Trygg-Hansa from Swedish commercial bank.
BOC: BOC Group said it had rejected a joint takeover approach
from two rivals in a move expected to kick off a bidding war for the British industrial
Daewoo: South Korea's Daewoo Group signed a deal to sell its
Seoul Hilton Hotel to a Luxembourg-based investment firm for $215 million, it said.
JT: Japan Tobacco Inc (JT), which recently hit the headlines
with its buyout of RJR Nabisco Holdings Corp's foreign tobacco operations, says it is
prepared to consider more takeovers and alliances in the future.
Goldman profit drops 28.6pc
U S. investment bank Goldman Sachs Group Inc. reporting earnings as a
public company for the first time, said net profits dropped 28.6 per cent to $340 million
in the second quarter because of a charge for its stock offering last month.
British Energy joins power supply club
Stage two of Britain's power industry consolidation began in earnest as
the last of Britain's major power generators acquired a retail energy supply business.
Nuclear generator British Energy Plc said it was paying £105 million for the electricity
supply business Swalec, giving it the right to bill 980,000 energy customers in Wales.
P&O to invest $2b
Britain's Peninsular & Oriental Steam Navigation Co, the world's
third largest cruise company, ordered five more ships at a cost of $2 billion to meet the
surge in popularity for sea cruises.
The order, which brings the total number of new ships commissioned by
the company to nine, will lead to a doubling in the size of P&O cruises and its Los
Angeles-based subsidiary Princess Cruises.
Demand for HK unit trust seen deficient
The Hong Kong government will need to consider additional ways of
disposing of its blue-chip stocks because demand for its proposed unit trust will be
smaller than its huge portfolio, fund managers said.
A day after the unit trust plan cased investor fears that the
government would simply dump its Hang Seng Index stocks on the market, some fund managers
questioned the plan, saying it would likely appeal only to foreign institutions.
The Hong Kong government acquired the shares largely through its August
1998 stock market intervention at a cost of HK$118.13 billion. It has said repeatedly the
action was aimed at thwarting market manipulators and it planned to dispose of the shares
in an orderly manner.
BoJ sells yen to help exports
Japan sold its own currency again and signalled it was willing to let
the yen drop sharply in order to support the economy and help the nation's flagging
The aggressive intervention in the currency market by the Bank of Japan
(BoJ) and strong words for a weaker yen from top financial diplomat Eisuke Sakakibara came
just as fresh data showed exports in May slumped across the board.
"Further weakening of the yen is possible if it is necessary for
the economy," said Sakakibara, Japan's vice finance minister for international
affairs. "We are flexible on foreign exchange."
Tokyo authorities are ready to "take decisive action" again
to stem a premature yen rise, he said. "What is of paramount importance is to ensure
Japan's economic recovery as soon as possible."
Asia's poor may not get G8 relief
Laos, Myanmar and Vietnam, three of Asia's poorest countries may not
qualify for debt relief under an agreement forged by rich nations, an Asian Development
Bank official said.
"I think these countries are relatively in better shape than
African countries," Yoshihiro Iwasaki, chief of the ADB's strategy and policy office,
"So we are not expecting these countries to get debt relief from
the major bilateral donors. We are not faced with the situation to consider it
Leaders of the Group of Eight nations at the weekend agreed to relaunch
the Highly Indebted Poor Countries (HIPC) initiative as a vehicle for faster and deeper
Some 36 countries stand to receive debt write-offs totalling $70
Japan's trade surplus falls
Japan's trade surplus slid 31.5 per cent in May, its heaviest fall in
three years, as exports tumbled the finance ministry said.
The trade surplus, which measures the balance between imports and
exports, fell to 834.3 billion yen ($7 billion), falling for the second straight month.
Exports in May dropped 11.8 per cent to 3,565 billion yen pushed down
by a surge in the value of the yen and a sharp fall in office equipment and ship exports.
Exports to Europe were particularly badly hit, which analysts said
signalled a slowdown across the European Union.
Japan's imports in the month were down a modest 3.3 per cent to 2,730.7
billion yen, in part due to a heavy fall in aircraft and liquor imports.
France seeks end to bank merger battle
French authorities stepped in to try to end a takeover battle between
France's leading banks, calling on BNP, Societe Generale and Paribas to start talks to
find a solution agreeable to all parties.
The committee of credit institutions, chaired by Bank of France head
Jean-Claude Trichet, said in a statement it wanted the banks' chairmen to try to work out
a "different" solution to the two merger proposals currently on the table.
Longbridge's statement soon, say BMW and UK
German car maker BMW and Britain said a statement was imminent on state
aid securing the production of a new medium-sized car and thousands of jobs at the
company's Longbridge plant in central England.
A deal would allow BMW to push ahead with plans to produce a new mass
market car in a bid to turn around its loss making Rover subsidiary. In return the British
government would help safeguard around 50,000 jobs in the English West Midlands.
The Munich-based car maker said an announcement on British state aid in
return for new investment by the company in its Rover subsidiary's Longbridge plant was
Europe marts forge closer electronic ties
European bourses took additional steps to forge closer electronic ties
in a bid to boost liquidity and reinforce market positions amid increasing competition.
Sweden and Denmark became the world's first two national bourses to
share an electronic trading system when their equity alliance Norex came on stream after a
week's delay to get dealers up to speed.
Norway was again urged to join.
"We hope Norway will join and we are doing all we can to get them
to choose cooperation with the joint Sweden-Denmark system rather than
Frankfurt-London," President Carl Johan Hogbom of the Stockholm stock exchange said
at the launch of the Nordic Exchanges, or Norex.
Oslo bourse spokesman Bernt Bangstad said the bourse's board is looking
at two alternative linkups, Norex and the FrankfurtLondon led panEuropean alliance, but a
decision is not expected before August.
Thailand launches bankruptcy court
Thailand cranked up its campaign against bad debtors by launching a
central bankruptcy court to quickly get rid of a huge pile of bad debts that is paralysing
But market analysts, while welcoming the court's launch as a central
plank of new financial reform legislation, said the court will have to do a lot to take
care of a growing number of bad debtors.
Thailand's financial system was already saddled with nonperforming
loans amounting to as much as 47 per cent of total lending, they said.
Sivaporn Dardarananda, adviser to the central bank governor said the
court was a positive start but cautioned against hoping it would be the quick panacea for
the ailing credit system.