Argentine President Fernandez Won Landslide Re-Election, Exit Polls Show

By Eliana Raszewski - Oct 24, 2011 4:28 AM GMT+0700

Argentine President Cristina Fernandez de Kirchner won re-election today, television channels said moments after voting ended in South America’s second- biggest economy.

Fernandez won another four-year term by more than 40 percentage points over second-place finisher Hermes Binner, governor of Santa Fe province, America24 said citing an exit poll without giving details. Newspaper Clarin said Fernandez received more than 54 percent of the vote, which if confirmed would be the biggest tally since Juan Domingo Peron returned to power in 1973 after a two-decade exile.

Three leading candidates, including former President Eduardo Duhalde, conceded defeat before official results were available. Official results will be available beginning at about 8 p.m. New York time.

The 58-year-old president, who has overseen annual economic growth averaging 5.6 percent since 2007, is seeking to regain control of Congress, which she lost after threatening to raise taxes on farm exports in 2008. She’ll need the extra political muscle to tame consumer price increases that independent economists say are accelerating 24 percent annually and close a fiscal gap fueled by a surge in spending.

“The margin of victory will be historic,” said Mariel Fornoni, director of Buenos Aires-based pollster Management & Fit. “The government managed to win allies in the past with a very low approval rating, so now it will be even easier.”

End of History

About 29 million Argentines were eligible to vote today. Voting is mandatory for those under the age of 70. In addition to electing their next president, voters were choosing governors for Buenos Aires and other provinces as well as half of the 257- seat lower house and a third of the 72-member senate.

Argentines have rallied behind Fernandez as the country’s economic expansion reduced unemployment to a record low of 7.2 percent in the third quarter and fueled a boom in consumption. Shopping center sales rose 34 percent in August from a year earlier, the fastest pace in eight months.

Even as Argentines are busy buying cars and flat-screen televisions, investors remain wary of South America’s second- biggest economy a decade after its default on $95 billion of bonds. Traders see a more than 40 percent chance that Fernandez will stop payment on the country’s debt in her second four-year term. The cost of insuring against default for five years rose 406 basis points to 1,016 this year. The increase is the biggest in the world after Greece, Portugal and Pakistan.

Capital Flight

Argentines pulled $9.8 billion out of the country in the first half of this year, compared with $11.4 billion in all of 2010, as the debt crisis in Europe worsened and prices for grain exports to China fell. The capital flight led the central bank to sell $2.7 billion of reserves in August and September to control declines in the peso.

A budget surplus left by Fernandez’s late husband and predecessor, Nestor Kirchner, has turned into a shortfall as the government boosted spending on social programs and subsidies to keep energy and transport costs low. Economists estimate that inflation is running at 24 percent, more than double the 9.9 percent reported by the national statistics agency in September.

Fernandez hasn’t signaled how she’ll address the economic challenges in a second term. An easy victory may be taken as a sign that no major policy changes are needed, BNP Paribas said in a report last week.

Mourning Dress

“We need to correct what we have to correct and improve what needs to be improved,” Fernandez, wearing a black dress that’s become her staple outfit since her husband’s death from a heart attack a year ago, told supporters at a campaign rally Oct. 20 in Buenos Aires.

Against the worsening economic outlook, Argentina hasn’t regained access to global credit markets since its 2001 default. Fernandez restructured almost $13 billion in bonds outstanding from the default last year, yet creditors holding about $4.5 billion are pursuing payment in court. Without being able to sell bonds abroad, Fernandez has tapped central bank reserves to make payments on debt and plans to use $5.7 billion in savings next year for the same purpose.

The country hasn’t allowed the International Monetary Fund to review its finances, as it does for every other member country, since 2006. It’s also failed to reach an accord with the Paris Club group of creditor nations to settle claims on $9 billion in defaulted bonds.

Paris Club

“Is the central bank going to finance us for the rest of our lives or will we resolve differences with the Paris Club and IMF?,” said Maximiliano Castillo Carrillo, a former manager of macroeconomic analysis at Argentina’s central bank who now runs ACM, a Buenos Aires-based research company. “What we want to see is some kind of path.”

A lawyer and mother of two, Fernandez has built popular support by creating monthly stipends for families who keep their children in school and supporting wage increases that have helped reduce poverty to 20 percent from as high as 54 percent in 2003, said Artemio Lopez, a political analyst who runs Consultora Equis in Buenos Aires.

“The improvement in employment and the social welfare plans have eased the impact of raising prices,” Lopez said.

She’s also benefited from an outpouring of sympathy following Kirchner’s death. By softening the confrontational rhetoric of her longtime political partner, she’s turned his haggling with the IMF and foreign investors into a virtue, said Fabian Perechodnik, a political analyst at Poliarquia Consultores. Later this month, supporters in the couple’s home town of Rio Gallegos hope to erect a statue of Kirchner where one of Argentina’s 19th century patriarchs is currently located.

“She’s built a political narrative that resonates with people about their recent past,” said Perechodnik, in an interview in Buenos Aires. “To younger voters especially, she’s a symbol of resistance, of having stayed the course even amid a great deal of international pressure.”

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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Large Quake Rocks Eastern Turkey

By Emre Peker and Steve Bryant - Oct 24, 2011 12:38 AM GMT+0700

Turkey’s largest earthquake in more than a decade may have killed 1,000 people, destroying apartment buildings and damaging 4,000 homes in the eastern province of Van, government officials said.

State-run TRT television said 85 people have been confirmed dead, 60 of them in the northern town of Ercis, while 80 buildings, including a dormitory, have collapsed. Officials from the Kandilli Observatory and Earthquake Research Institute said 500 to 1,000 people may have died.

The magnitude 7.2-earthquake struck in the province of Van by the Iranian border at 1:41 p.m. local time and was followed by more than 80 aftershocks, the observatory at Bogazici University in Istanbul said on its website. The temblor, 5 kilometers (3 miles) below the earth’s surface, was the province’s biggest since 1976 and the country’s most severe since a 1999 quake killed more than 17,000 people.

“The area where the earthquake occurred is very shallow,” Mustafa Erdik, head of the Kandilli observatory, said in televised comments. “Normally quakes happen 30 to 40 kilometers deep -- this is less than 10 kilometers, therefore there will be more damage.”

CNN Turk television showed images of men in Van on the rubble of a collapsed dormitory building, digging away wreckage with shovels to reach people they believe were trapped underneath.

Aid Efforts

More than 1,000 rescue workers from about 30 provinces are heading to Van, about 1,300 miles from Istanbul, said Mustafa Aydogdu, a spokesman for the Disaster and Emergency Management Presidency.

Greek Foreign Minister Stavros Lambrinidis spoke with Turkish counterpart Ahmet Davutoglu to extend his condolences and assured him the country was prepared to assist its eastern neighbor, the ministry in Athens said in an e-mailed statement. The North Atlantic Treaty Organization also said by e-mail that it stands “ready to assist our ally Turkey.”

Other countries that called to convey condolences and offer help include Israel, Azerbaijan, Pakistan, Ukraine, Russia, Canada and South Korea, the U.S., the U.K, Germany, Poland, Hungary, Switzerland, Bulgaria, Georgia, China, Japan, Iran and Kosovo, the state-run Anatolia news agency reported.

The Turkish Red Crescent is coordinating initial efforts to get aid to Van from eight provinces, Erdem Coplen, a spokesman in Ankara, said in an e-mailed statement. Under the first stage of the emergency response, 1,163 tents, 4,250 blankets, 100 heaters and food has been shipped to the region, he said.

More Aftershocks

“I would advise our citizens to not enter damaged buildings without permission from local authorities,” Erdik said. “The biggest aftershock was magnitude-5.5 and these will continue for a week to 10 days.”

Prime Minister Recep Tayyip Erdogan arrived in Van and boarded a helicopter to Ercis, the worst hit area, TRT reported. Deputy Prime Minister Besir Atalay said government agencies are coordinating a response to the earthquake and will meet in the province, which is to the east of Turkey’s largest lake and south of Mount Ararat.

The quake in 1999 struck 100 kilometers (about 60 miles) east of Istanbul, causing damage estimated at the time at $6.5 billion. A temblor measuring 6.1 on the Richter scale killed more than 40 people in Elazig, west of Van, last March.

To contact the reporters on this story: Emre Peker in Ankara at epeker2@bloomberg.net; Steve Bryant in Ankara at Sbryant5@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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U.S. Stock-Index Futures Retreat Amid European Negotiations on Crisis Plan

By Rita Nazareth - Oct 24, 2011 7:33 AM GMT+0700

U.S. stock futures fell, following the Standard & Poor’s 500 Index’s longest weekly rally since February, after officials ruled out tapping the European Central Bank to boost the region’s rescue fund and inched toward a revamped strategy to contain the debt crisis.

S&P 500 futures expiring in December dropped 0.3 percent to 1,232.10 at 9:31 a.m. Tokyo time, paring losses from as much as 0.7 percent after Japan’s exports increased 2.4 percent in September from a year earlier, topping the 1 percent median growth forecast of economists in a Bloomberg survey. The benchmark gauge for U.S. stocks has risen three straight weeks, adding 9.4 percent.

“Let’s hope this is decision time in Europe,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “Maybe this time we’ll actually hear something that we can say, ‘OK, now we know and let’s go from there.’ We need to put this crisis behind us and get back to looking at U.S. corporate earnings.”

European leaders outlined plans to aid banks, heading toward a revamped strategy to contain the Greece-fueled debt crisis. The 13th crisis-management summit in 21 months excluded a forced restructuring of Greece’s debt, sticking with the policy of enticing bondholders to accept “voluntary” losses to help restore the country’s finances. The complete blueprint will be formed Oct. 26.

The S&P 500 ended last week at the highest level since Aug. 3, two days before S&P stripped the U.S. of its AAA credit rating, amid optimism Europe’s leaders will announce a plan to contain the debt crisis and after McDonald’s Corp. joined companies beating profit estimates. The stock index has surged 13 percent since Oct. 3, when it closed within 1 percent of a bear market, or 20 percent plunge, from its high in April.

Quarterly Results

This week, 191 companies in the S&P 500 are scheduled to report quarterly results. Profit for all companies in the index climbed 16 percent during the third quarter, and will increase 18 percent to a record $99.32 a share for all of 2011, according to analyst estimates compiled by Bloomberg. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ projections, the data showed.

United Parcel Service Inc. (UPS), the world’s largest provider of package deliveries; Caterpillar Inc., the biggest construction and mining-equipment maker; and Texas Instruments Inc., the largest maker of analog chips, are among companies scheduled to report results this week.

“Companies are making money,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion, said in a telephone interview. “It suggests that the economy is growing. If we can ease some of the risks related to the European Union, the market has further room to move higher.”

The S&P 500 rose 9.4 percent this month through Oct. 21, following five months of losses. Gauges of commodity, consumer discretionary and industrial companies, which are most-tied to economic growth, added at least 11 percent. The U.S. economy probably grew in the third quarter at the fastest pace this year, economists said before a report this week.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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EU Revamping Plans to Contain Debt Crisis

By James G. Neuger and Tony Czuczka - Oct 24, 2011 6:51 AM GMT+0700

European leaders ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund and outlined plans to aid banks, inching toward a revamped strategy to contain the Greece-fueled debt crisis.

Europe’s 13th crisis-management summit in 21 months also explored how to strengthen the International Monetary Fund’s role. The leaders excluded a forced restructuring of Greek debt, sticking with the tactic of enticing bondholders to accept losses to help restore the country’s finances.

“Work is going well on the banks, and on the fund and the possibilities of using the fund, the options are converging,” French President Nicolas Sarkozy told reporters at the Brussels summit yesterday. “On the question of Greece, things are moving along. We’re not there yet.”

Greece’s deteriorating finances have narrowed Europe’s room for maneuver in battling the contagion, which threatens to pitch the country into default, rattle the banking system, infect Spain and Italy and tip the world economy into recession.

The complete blueprint won’t come together until a summit in two days. Like yesterday, it will start with all 27 EU leaders before the 17 heads of euro economies gather on their own.

Euro Slips

The euro slipped on concern that the anti-crisis package won’t be comprehensive enough to resolve investor concern. The currency fell 0.4 percent from last week’s close to $1.3845 as of 8:41 a.m. in Tokyo.

“Bottom line: although full details are yet to be known, the proposals as they stand leave us vulnerable to disappointment that this is truly a comprehensive solution,” said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London.

The mayhem began in Greece in October 2009 when an unexpected cash shortfall left the new government unable to pay for its election promises. Since then, 256 billion euros of bailouts have failed to stem the tide, which rattled France this month, prompting Standard & Poor’s to warn it may lose its top credit rating.

Expressing concern over the potential impact on their nations, world leaders including President Barack Obama and Chinese Premier Wen Jiabao have stepped up calls for Europe to turn back the risk to the global economy.

Victory Claims

Europe has claimed victory over the crisis before. A plan in March was billed as a “comprehensive” strategy. A July accord on a second bailout for Greece and more powers for the rescue fund was hailed at the time as the “final package, of course,” by Luxembourg Prime Minister Jean-Claude Juncker.

Bank capital needs -- estimated at 100 billion euros by a person familiar with the deliberations -- will be met first by banks themselves, then by national governments, the European officials agreed.

Only when national efforts fail can governments tap the main rescue fund, the 440 billion-euro European Financial Stability Facility, for cash to channel to banks.

“What I can tell you is that this only will happen under strict conditions,” Dutch Prime Minister Mark Rutte said.

Germany achieved one of its main summit aims, defeating French efforts to bulk up the rescue fund by enabling it to borrow potentially limitless sums from the independent central bank. Policy makers are headed toward using the EFSF to guarantee government bond sales as a way to extend its reach. A second option is to set up an EFSF-insured fund that would seek outside investment in troubled bonds.

Expanding EFSF

“We have discussed options for increasing the firepower of the EFSF,” European Commission President Jose Barroso said. “I’m sure that progress can be confirmed on Wednesday.”

The goal is to complete the technical details within 24 hours, a European official said. The next summit will consider the two options as well as ways of getting the IMF to boost its involvement, the official told reporters. A separate statement called for “adequate” IMF resources with contributions from surplus countries such as China.

“Is it possible to get some extra funding from IMF, from BRIC countries for instance,” said Finland’s Jyrki Katainen.

Italy, with debt of 119 percent of gross domestic product, came under pressure to find more savings to be eligible for European help in fending off speculators.

Merkel on Italy

German Chancellor Angela Merkel made clear that Italy cannot count on unrestricted European support in what she called a “conversation among friends” with Italian Prime Minister Silvio Berlusconi.

“Confidence won’t result merely from a firewall,” Merkel said. “Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead.”

After a year of wrestling with the ECB over burden sharing for bondholders, Merkel was on the central bank’s side this time, sparing it from a role in financing state deficits.

What wasn’t decided is the fate of bond purchases by the Frankfurt-based ECB. The central bank has bought 165 billion euros of bonds, justifying the purchases as a way of smoothing markets and helping transmit its interest-rate decisions through the economy.

Central bankers have expressed reluctance to step up the purchases, which started with Greece, Ireland and Portugal last year and widened to Italy and Spain in August as those markets came under attack.

ECB Role

“One shouldn’t demand more from the ECB than it can achieve according to its statutes,” Austrian Chancellor Werner Faymann said.

Central bankers are also at the center of the dispute over writedowns for Greek bondholders. A reminder came on Oct. 21 when the ECB put a dissenting footnote into an assessment of Greece’s finances that envisioned writedowns as high as 60 percent.

That report, co-produced by the ECB, EU Commission and IMF, said Greece’s finances have “taken a turn for the worse” and called for bondholder losses that go beyond the 21 percent negotiated in July.

Officials are considering five scenarios to update the July agreement on losses for bondholders, people familiar with the deliberations said. The euro area is determined to avoid triggering credit-default swaps and may produce a projection for the overall writedown at the next summit, a Greek official told reporters.

Greece was tided over by an Oct. 21 decision to pay the EU’s 5.8 billion-euro share of an 8 billion-euro loan. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

EU leaders also agreed to look at “limited” changes to the bloc’s governing treaties to improve euro-area management, and designated EU President Herman Van Rompuy as the chairman of euro summits, a role he has played throughout the crisis.

“We have taken major steps to overcome the crisis,” Van Rompuy said. “See you on Wednesday.”

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Will American Troops Leave Iraq Better Off?

By Nicole Gaouette - Oct 23, 2011 9:56 PM GMT+0700
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U.S. soldiers with the 3rd Armored Cavalry Regiment speak with the Iraqi Police (IP) on July 19, 2011 in Iskandariya, Babil Province Iraq. Photographer: Spencer Platt/Getty Images

The end of the long American war in Iraq will begin the test of what that effort has produced.

After almost nine years, $800 billion and almost 5,000 U.S. dead, President Barack Obama announced last week that the 39,000 remaining troops will be home for the holidays, “heads held high, proud of their success.”

They will leave behind a U.S. presence in the form of the world’s largest embassy, without a large military force’s protection, intelligence, supply chain and transportation. Diplomats will encourage peace and development in a largely Shiite Muslim Iraq that is divided by ethnic and religious tensions and sits on the fault line between Persian Shiite Iran and the Sunni Arab world.

“This has profound implications,” said Mohsen Milani, chairman of the government and international relations department at the University of South Florida in Tampa, in a telephone interview. “It will intensify the competition for power inside Iraq, leave the Iraqi Shiites more dependent on Iran and the Sunnis on Saudi Arabia and leave the Kurds as orphans who probably will continue to align themselves with the Shiites.”

Gift to Iran

The U.S. pullout is “an unprecedented strategic gift to the Islamic Republic of Iran,” said Milani.

Anthony Cordesman, an analyst at Washington’s Center for Strategic and International Studies, said Iraqi forces may not be ready to provide security and violence will likely rise. U.S. diplomats in Iraq face unprecedented demands. Iran, as a result, stands to gain.

“The reality is that this is not success,” Cordesman said in a telephone interview. “It certainly isn’t a drastic failure, but we are now facing a major power vacuum in Iraq and dealing with a power vacuum of this magnitude is a very serious matter.”

Republican critics such as California Representative Buck McKeon said that leaving now will make it harder for the Iraqis to stabilize their country.

U.S. troop levels in Iraq hit 90,000 in March 2003 with the invasion and increased to 148,000 that year, according to U.S. Central Command figures. The U.S. deployment peaked at 166,300 in October 2007, during the troop surge to curb the outbreak of violence in largely Sunni Muslim Anbar Province. The level is currently about 39,000, according to the Pentagon.

Iraq War Ended

“In Iraq, we’ve succeeded in our strategy to end the war,” President Barack Obama said in his weekly radio and Internet address.

The U.S. has “invested too little in the greatest source of our national strength -- our own people,” Obama said. There must be renewed focus on the economy, he said, urging Congress to pass his $447 billion jobs proposal.

The administration proposed leaving a residual force of 3,000 troops in Iraq, if the Iraqi government were willing to extend them immunity from prosecution.

Kenneth Pollack, a director of the Brookings Institution’s Saban Center for Middle East Policy, said that number would have been too small to accomplish anything.

‘Ferocious’ Opposition

Iraqi hostility to the U.S. presence and “ferocious Iranian opposition” to it were all factors in the decision to pull all troops out, Pollack wrote in an analysis of the president’s announcement.

Obama said that talks on training and equipping Iraqi forces will continue, and his announcement doesn’t preclude the possibility that some American troops in Iraq might still be kept or return, especially if ethnic violence increases or Iran makes aggressive moves.

“No one should miscalculate our commitment to Iraq, most particularly Iran,” U.S. Secretary of State Hillary Clinton said today on ABC’s “This Week” program. “We’re not going to have bases in Iraq, but we have bases elsewhere.”

The U.S. withdrawal offers Iran an opportunity to form “a link to Iraq, Syria and Lebanon,” Cordesman said, increasing the possibility of a regional clash “at a time when we lack the budget to deal with a serious regional crisis.”

Ahmadinejad Offers Training

In an interview on CNN, Iranian President Mahmoud Ahmadinejad was asked if his government will help train the Iraqi army.

“I think we should -- we should have done it sooner, maybe seven or eight years ago, and they would avoid killing so many Iraqi people or Americans, as well,” Ahmadinejad told CNN’s “Fareed Zakaria GPS” program. He said Iran would wait for the decision of the Iraqi government about training military personnel.

Ahmadinejad also said on CNN that “we have these ties in faith and many of our religious clerics are from Iraq and many Iraqis are Iranian. And we have people in seminary schools from both sides.”

“This is a special relationship and I think it is very unique in the world,” the Iranian leader said on CNN.

The U.S. blames Iran’s elite Quds Force for training and equipping Shiite militia groups in Iraq, said David Newton, a former U.S. ambassador to Iraq from 1984 to 1988. It also has introduced anti-tank weapons into the country, Newton said in a telephone interview.

Iranian Victory

The U.S. withdrawal “is viewed in the region as a victory for the Iranians,” Senator John McCain, an Arizona Republican and ranking member of the Armed Services Committee, said today on ABC’s “This Week” program. “I’m very, very concerned about increased Iranian influence in Iraq.”

Administration officials said that reviews over the last seven to eight months have found that Iraqi security forces are ready to take on that challenge.

“One assessment after another about the Iraqi security forces came back saying these guys are ready, these guys are capable, these guys are proven,” Deputy National Security Adviser Denis McDonough said Oct. 21.

Newton said that, when the U.S. troops leave, they will take with them tools and resources that had been helpful to the Iraqi forces, including intelligence collection capabilities and equipment such as helicopter gunships.

“The Iraqis do have some special forces, but they’ve got a way to go,” Newton said, “Without the U.S. backup, in terms of intel collection, coordination, I think this will be pretty challenging for them.”

Those special forces will be overseen by a divided government without a functioning legislature or officials manning high-level posts, including that of defense minister.

History of War

Robin Wright, at the U.S. Institute of Peace, cautioned against the idea that withdrawal from Iraq will allow Iran to extend its influence. While both are both predominantly Shiite Muslim nations, they fought the Middle East’s deadliest war from 1980 to 1988, leaving 123,000 dead. They are rivals over religious leadership, identity, politics and territory, said.

“Yes, the Shiites have a natural link,” Wright said in a telephone interview. “But the nationalism and history also will be important in defining what happens to Iraq after the United States leaves.”

Newton concurred. “The Shias of Iraq, having waited so long to come to power, don’t want to hand it over to Iran,” he said.

Still, the withdrawal may intensify the rivalry between Iran and Saudi Arabia, said Milani. The Saudis blame Iran for fomenting unrest in majority-Shiite Bahrain and in Saudi Arabia’s Eastern Province.

Diplomatic Danger

The U.S. withdrawal will leave American diplomats in Iraq with new responsibilities and dangers. “The State Department is being asked to do things it’s never done before,” Newton said, including managing a huge contracted workforce.

With the troops gone, security for diplomats and facilities will be the responsibility of some 5,000 contract employees who probably will face increased violence and incidents of terrorism, Cordesman said.

U.S. intelligence officers who remain in Iraq and those contractors will no longer have the stream of information on potential threats that now comes from American military outposts around the country, said a U.S. intelligence official who wasn’t authorized to speak publicly.

Cities such as Kirkuk, with four linguistic groups, and Mosul, where there is long-standing friction between Sunni Kurds and Sunni Arabs, are most likely to erupt, Newton said.

Expanded Embassy

In all, about 16,000 personnel will be assigned to the embassy in Iraq, about 1,700 of them diplomats, experts in fields such as business and agriculture and law enforcement officers, while around 5,000 will be security contractors to guard personnel and facilities including consulates, according to State Department figures.

The newly established Office of Security Cooperation in the Embassy will have a core staff of 160 civilians and uniformed military alongside 750 civilian contractors overseeing Pentagon assistance programs, including military training. They will be guarded, fed and housed by 3,500 additional contract personnel.

The security cooperation office will also operate out of 10 offices around the country, half of them shared with other embassy personnel. The embassy will have consulates in Basra, Irbil and Kirkuk. The State Department will provide Iraqi police training with its own personnel.

“What’s unusual is the scale and the militarization of the foreign service” as it oversees the thousands of security personnel, Newton said. The agency will even run its own airline to shuttle staff around the country. “This is not the kind of thing that diplomats do,” he said.

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Large Quake Damages Buildings in Turkey

By Emre Peker - Oct 23, 2011 9:30 PM GMT+0700

An earthquake in Turkey’s eastern province of Van may have killed as many as 1,000 people and damaged 4,000 homes, government officials said.

Turkey’s state-run TRT television said that 28 people have been confirmed dead. Officials from the Kandilli Observatory and Earthquake Research Institute said that the death count may reach much higher. Communications with the province have been cut.

The magnitude 7.2-earthquake struck in the province of Van by the Iranian border at 1:41 p.m. local time was followed by more than 40 aftershocks, the Kandilli Observatory and Earthquake Research Institute at Bogazici University in Istanbul said on its website. It was the province’s biggest tremor since 1976 and was 5 kilometers (3 miles) below the surface, it said.

“The area where the earthquake occurred is very shallow,” Mustafa Erdik, head of the Kandilli observatory, said in televised comments. “Normally quakes happen 30 to 40 kilometers deep, this is less than 10 kilometers, therefore there will be more damage.”

More than 1,000 rescue workers are heading to Van from about 30 provinces said Mustafa Aydogdu, a spokesman for the Disaster and Emergency Management Presidency.

The Turkish Red Crescent is sending 600 tents, 2,500 blankets and 100 space heaters to the emergency zone, where 25 apartments and one dormitory collapsed, Erdem Coplen, a spokesman in Ankara, said in a telephone interview.

Prime Minister Recep Tayyip Erdogan is traveling to Van, NTV reported. Deputy Prime Minister Besir Atalay said government agencies are coordinating a response to the earthquake and will meet in the province, which is to the east of Turkey’s largest lake and south of Mount Ararat.

To contact the reporter on this story: Emre Peker in Ankara at epeker2@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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EU Pushes to Solve Debt Woes

By Tony Czuczka and James G. Neuger - Oct 23, 2011 7:24 PM GMT+0700
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A demonstrator dressed in a Greek national flag protests outside the parliament during the second day of a national strike in Athens. Photographer: Kostas Tsironis/Bloomberg

European leaders started the 13th crisis summit in 21 months seeking a breakthrough over how to stamp out the Greece-led debt shock that threatens to tip the world into a recession.

Chancellor Angela Merkel of Germany, Europe’s dominant economy, played down the odds of an agreement today to beef up the euro bailout fund, cut Greece’s debt without triggering a default, shield banks from the fallout and insulate Italy and Spain from the turmoil.

“Today one shouldn’t expect decisions,” Merkel told reporters before the Brussels summit. She spoke of “a technically complex process” with the aim of forging a comprehensive strategy at the next summit in three days.

With President Barack Obama and Chinese Premier Wen Jiabao piling on the pressure, Europe’s room for maneuver narrowed after a report showed Greek finances worsening. Measures on the table include writedowns of as much as 50 percent on Greek debt, 100 billion euros ($139 billion) in fresh capital for banks and the pooling of two rescue funds to deliver as much as 940 billion euros to contain the crisis.

After meetings at EU offices, luxury hotels and a suburban Brussels nature park yesterday, the scene shifted to EU headquarters today for a session of all 27 EU leaders. It is slated to end around 3 p.m., to be followed by a meeting of the 17 euro leaders that will stretch into the evening.

France Rattled

The mayhem began in Greece in October 2009 with the revelation that its finances were worse than previously reported. Since then, 256 billion euros of bailouts have failed to stem the tide, which rattled France this month, prompting Standard & Poor’s to warn it may lose its top credit rating.

France’s banks can cope with a Greek debt writedown of about 50 percent, Budget Minister Valerie Pecresse said on France 3 television today. She said banks can boost capital “using their own resources,” falling back on the government only as a last resort.

On a European scale, finance ministers yesterday tabbed banks’ needs at about 100 billion euros in capital after marking sovereign-debt holdings to market values, said a person familiar with the discussions. This amount is needed to reach a core tier 1 capital level of 9 percent based on a European Banking Authority test, said the person, who declined to be identified because the talks are continuing.

‘Chilling Effect’

“The crisis in the euro zone is having an effect on all our economies, Britain included,” U.K. Prime Minister David Cameron said today. “It’s having a chilling effect. We need to deal with this issue.”

Merkel and French President Nicolas Sarkozy took center stage late yesterday in trying to defuse German-French tensions over how to get more out of the 440 billion-euro rescue fund, the European Financial Stability Facility.

Afterward, Merkel was spotted sipping white wine with top aides in the bar of the Hotel Amigo a block from Brussels’ gabled main square. Sarkozy, staying at the same hotel, went straight to his room.

The German and French leaders held a pre-summit meeting today with Italian Prime Minister Silvio Berlusconi, an Italian official said without disclosing the outcome. Merkel and Sarkozy plan to brief the press before the start of the euro-area summit later today, a spokesman for Sarkozy said.

Finance ministers searched for other ways to leverage the EFSF after Germany and the European Central Bank rejected French calls for the fund to morph into a bank with the ability to borrow from the ECB.

ECB Bond Purchases

Narrowing the options for expanding the fund’s reach, ministers discussed setting up an EFSF-insured pool to entice outside investors including sovereign wealth funds to buy troubled euro-area government bonds, said a person familiar with the matter.

The special pool was weighed alongside the option of extending the EFSF’s coverage by offering 20 percent to 30 percent insurance on new bond sales by countries like Italy.

The fate of bond purchases by the Frankfurt-based ECB is also up in the air. The central bank has bought 165 billion euros of bonds, overriding opposition from Germans on its policy council.

Central bankers have expressed reluctance to step up the purchases, which started with Greece, Ireland and Portugal last year and widened to Italy and Spain in August as those markets came under attack.

Dissenting Footnote

“One shouldn’t demand more from the ECB than it can achieve according to its statutes,” Austrian Chancellor Werner Faymann said today.

Central bankers are at the center of the dispute over writedowns for Greek bondholders. A reminder came on Oct. 21 when the ECB put a dissenting footnote into an assessment of Greece’s finances that envisioned writedowns as high as 60 percent.

That report, co-authored by the ECB, European Commission and International Monetary Fund, said Greece’s finances have “taken a turn for the worse” and called for bondholder losses that go beyond the 21 percent negotiated in July.

Greek Prime Minister George Papandreou said two years of austerity have stretched citizens’ tolerance, calling on the rest of Europe to live up to its responsibilities.

“We are a proud people, we are a proud nation, we demand that respect,” Papandreou said today. “But it’s been proven now that the crisis is not a Greek crisis. The crisis is a European crisis. Now is the time that we as Europeans need to act decisively and effectively.”

Greek Loan

Officials are considering five scenarios to update the July agreement on losses for bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so-called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.

Finance ministers on Oct. 21 signed off on the payout of the EU’s 5.8 billion-euro share of an 8 billion-euro loan to Greece. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Saudi Crown Prince Sultan Has Died

By Glen Carey and Vivian Salama - Oct 23, 2011 6:55 PM GMT+0700

Saudi Arabia’s Crown Prince Sultan bin Abdulaziz Al Saud has died, setting in motion succession plans for the world’s largest oil exporter.

Prince Nayef, born in 1934, is the most likely candidate for the crown prince position. King Abdullah, who is 87, underwent surgery earlier this month to relieve back pain after traveling to the U.S. in November for three months of medical care.

The Saudis will want to convey a “message of continuity in terms of their economic policies, and reiterate their commitment to oil market stability at a time of global uncertainty and OPEC divisions,” Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said in a telephone interview. “There are certain policies that they have agreed on over the last few years and months, and they won’t change this.”

Saudi Arabia increased oil supply to help meet rising demand after exports from Libya collapsed during the uprising against Muammar Qaddafi. The kingdom failed in June to reach an agreement with other members of the Organization of Petroleum Exporting Countries to boost production quotas. It also announced $130 billion in social and housing spending after popular movements toppled leaders in Tunisia, Egypt and Libya this year.

Saudi Arabia’s benchmark stock index, the Tadawul All Share Index, rose 0.3 percent at 13:09 p.m.

Koran Verses

Saudi state television announced the death of Sultan, who is also minister of defense and aviation, then began playing verses from the Koran, as is the custom. The prince was born in Riyadh in 1928, according to the Saudi Embassy in Washington, and was heir apparent to the throne. He will be buried in an unmarked grave, as stipulated by the Sunni Wahabbi version of Islam.

Sultan died “outside the kingdom after suffering an illness,” the Royal Court said in a statement posted on the official Saudi Press Agency website. “Prayer will be held at Imam Turki Bin Abdullah Mosque in Riyadh after Asr prayer on Tuesday.”

During Sultan’s five decades as defense minister, Saudi Arabia relied on the U.S. for military protection in return for stable oil supplies. The kingdom spent $11.2 billion on U.S. weapons between 2005 and 2008, making it the biggest foreign buyer of U.S. arms during the period, according to the Congressional Research Service in Washington.

Six Kings

Six kings have ruled Saudi Arabia since it was established in 1932. When King Fahd died in 2005 after ruling the kingdom for 23 years, the Royal Court announced the same day that Abdullah would become the monarch. The 1992 basic law stipulates that the king must be a son or grandson of the kingdom’s founder.

“The succession scenario has been set in motion,” Theodore Karasik, director of research at the Dubai-based Institute for Near East and Gulf Military Analysis, said yesterday in a phone interview from Dubai. “It’s pretty obvious, based on what we know, that the next crown prince will be Nayef because of his credentials. I expect the transition to be smooth.”

Nayef is the next-most senior member of the royal family after Sultan, according to Hani Sabra, Middle East and Africa analyst at the New York-based Eurasia Group. Nayef has controlled the Interior Ministry since 1975.

Succession Rules

King Abdullah, who was born in 1924, changed the kingdom’s succession rules in 2007 to give an appointed commission of princes, called the Allegiance Council, more power to select a new ruler. The council would be responsible for naming a crown prince, who will then be in line as the new king.

“There is a possibility, and I don’t know how possible, that the king may decide to enact the Allegiance Council,” said Khalid al-Dakhil, a political science professor at King Saud University. “The process will be delayed if the king goes with this. With oil markets and the turmoil in the Middle East, they don’t want to give an impression of uncertainty.”

The council consists of appointed male descendants of the kingdom’s founder, Abdulaziz bin Saud, the SPA said. In March 2009, Abdullah appointed Nayef as second deputy prime minister, a role that makes him the most senior Saudi royal in the absence of the king and the crown prince.

Greater Transparency

The decree aims to give greater transparency to the royal family’s decision-making process, which in the past was done through consensus-building among princes. Abdullah’s son, Prince Abdul Aziz bin Abdullah, is the kingdom’s deputy foreign minister, while Sultan’s son, Prince Khaled, is the deputy defense minister. Nayef’s son, Prince Mohammad, is the assistant interior minister.

Sultan spent much of the period between 2008 and 2011 out of the country to receive medical care for an undisclosed illness. He traveled to New York in June for a “private holiday” that included medical tests, although the Saudi government didn’t release details about his health, according to the SPA. Time magazine reported in 2005 that he had colon cancer.

Sultan was named crown prince that year following the death of his brother, King Fahd. Sultan was appointed minister of defense and aviation in 1963, oversaw the expansion and modernization of the Saudi military into a force that participated in the U.S.-led war to oust Iraqi forces from Kuwait in 1991. Saudi troops also fought Houthi rebels along the nation’s southern border with Yemen in a three-month battle that ended in February 2010.

Arms Sales

The U.S. Defense Department told Congress in October 2010 that it wants to sell as much as $60 billion in weapons to Saudi Arabia. U.S. policy makers want the proposed sale to include F- 15 fighter jets, attack helicopters, and satellite-guided smart bombs to counter Iranian military ambitions in the Persia Gulf and regional extremists.

“King Abdullah will use the crown prince’s passing as an opportunity to reform the Ministry of Defense and Aviation,” Danny Sebright, vice president of the New York-based Cohen Group, said in an interview in Jordan. “What we will see is a process over the next number of weeks, months where there will be some leadership changes at the ministry.” The group was formed by former U.S. Secretary of Defense, William S. Cohen.

Sultan was educated in religion, culture and statecraft at the royal court of his father, King Abdulaziz Al Saud. His career in public service began in 1947, when he was appointed governor of Riyadh, whose main task is resolving disputes among the 7,000 members of the royal family. Five years later, he became the kingdom’s first minister of agriculture.

To contact the reporters on this story: Vivian Salama on the Dead Sea, Jordan, at vsalama@bloomberg.net; Glen Carey on the Dead Sea, Jordan at gcarey8@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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China Must Control Food Prices to Curb Inflation, Sustain Growth, Wen Says

By Bloomberg News - Oct 23, 2011 11:49 AM GMT+0700

China must continue efforts to control food and housing prices to ease soaring inflation and maintain economic development and social stability, Premier Wen Jiabao said.

Authorities must help boost output of farm products, control the non-food use of corn and increase land supply to make more residential housing available, Wen said in a statement posted yesterday on the central government’s website.

Wen’s government has tightened lending and boosted imports of agricultural reserves to keep inflation from derailing growth in the world’s second-biggest economy. China probably won’t ease monetary policies until inflation slows to less than 5 percent, Yu Yongding, a former central bank adviser, said Oct. 21.

“The government has been more flexible in balancing its tightening policies” with the state of the economy, and the measures have worked, said Li Qiang, managing director of Shanghai JC Intelligence Co., the country’s biggest independent agricultural researcher. “Food prices, including pork, are trending lower.”

Inflation moderated to 6.1 percent from a year earlier in September after reaching a three-year high of 6.5 percent in July. Gains in consumer prices will drop to 5.8 percent by the end of the year, Yu said. He estimated the inflation rate may be less than 5 percent next year as food and pork prices stabilize.

Farm Incentives

The government will give incentives to maintain animal-feed prices and increase hog production, Wen said during a trip to Nanning in southern China’s Guangxi province, according to the statement. It must strictly control projects that convert corn to starch and biochemical products, as prices have abnormally exceeded wheat, he said.

China’s corn imports in 2011-2012 may total 5 million metric tons, compared with 970,000 tons in 2010-2011, state- owned researcher Grain.gov.cn said Oct. 21. That would be a record, according to U.S. government data compiled by Bloomberg.

“The government has shown willingness for more imports” departing from past policies which resisted overseas purchases, said Li, who estimated imports in the year that began Oct. 1 will total about 10 million tons.

China needs also to increase land available for residential projects and properly manage the construction of guaranteed housing by measures including ensuring capital, Wen said. The control of the property market is at a “critical” period, he said.

China’s economy grew 9.1 percent from a year earlier in the third quarter, the slowest pace since 2009.

To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net

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European Leaders Push to End Debt Crisis

By Tony Czuczka and Thomas Penny - Oct 23, 2011 5:01 AM GMT+0700

European leaders descended on Brussels in a last-ditch effort to stamp out a two-year-old financial crisis that threatens to tip the world into a recession.

Government chiefs take over after two days of meetings by finance ministers at a 10 a.m. summit to be followed by another on Oct. 26. That’s their self-imposed deadline to complete a plan to beef up the euro bailout fund, cut Greece’s debt without triggering a default, shield banks from the fallout and ensure Italy and Spain don’t succumb to the contagion.

With President Barack Obama and Chinese Premier Wen Jiabao urging a fix, Europe’s room for maneuver narrowed after a report showed Greek finances worsening. Measures being considered include a boost in rescue funds to 940 billion euros ($1.3 trillion), deeper writedowns on Greek debt, and a demand that banks increase Tier 1 capital to 9 percent by mid-2012.

Investors believed the euro region was “a secure terrain, only to find out that you can lose money here -- that, for all of us in Europe, is a troubling message,” German Chancellor Angela Merkel said yesterday. “We need to protect the other countries in the region -- that’s why we’re erecting this big protection umbrella.”

The crisis has prompted warnings from the Group of 20 that failure by policy makers risks a triggering a global slump. The contagion began in Greece in October 2009 with the revelation that its finances were worse than previously reported. Since then, 256 billion euros of bailouts have failed to stem the tide, which rattled France this month, prompting Standard & Poor’s to warn it may lose its top credit rating.

Crisis Convention

European Union office buildings, luxury hotels and a suburban flower park became scenes of a crisis-management convention involving national and EU-level leaders, finance ministers, central and commercial bankers and their aides.

Merkel and French President Nicolas Sarkozy spoke on the phone yesterday before meeting with European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso, EU Economic and Monetary Affairs Commissioner Olli Rehn and International Monetary Fund Managing Director Christine Lagarde.

Lagarde also joined 10 hours of talks as ministers haggled over what they called a “credible firewall” against fallout from deeper writedowns.

Bank Capital

The finance ministers, who failed to produce a blueprint for the role of investors in a Greek rescue, agreed that European banks may need about 100 billion euros in capital after marking sovereign-debt holdings to market values, said a person familiar with the discussions. This amount is needed to reach a core tier 1 capital level of 9 percent based on a European Banking Authority test, said the person, who declined to be identified because the talks are private.

“We have made real progress and we have come to important decisions on strengthening European banks,” U.K. Chancellor of the Exchequer George Osborne told reporters after the meeting. “That is just one part of the package and obviously there’s more work to do.”

Narrowing the options for expanding the reach of the 440 billion-euro rescue fund, ministers discussed setting up a pool to entice investors to buy troubled euro-area government bonds, said a person familiar with the matter. The fund was weighed alongside the option of using the European Financial Stability Facility to insure countries’ bond sales as well as those purchased through the investment vehicle.

EFSF Guarantees

A special-purpose vehicle was also discussed at this month’s meeting of the Group of 20 finance ministers and central bankers. It would be run by the IMF as a way to channel loans from countries such as China and Brazil.

“To be able to do this we’d have to create a special purpose vehicle, which we have done in the past in other circumstances,” Antonio Borges, the IMF’s European department head, said Oct. 5. “It could be done, it’s not to be excluded.”

Expansion of the EFSF was the focus of a Franco-German dispute in which France backed down. France had complained that the insurance option wouldn’t be enough and sought to turn the fund into a bank that could borrow from the ECB, a step opposed by Germany and the central bank.

The start of the six-day summit marathon on Oct. 21 was overshadowed by the report by the European Commission, ECB and IMF on Greece that highlighted the dilemma of righting Greece’s finances without sending shockwaves through the banking system.

Greek Finances

A deepening recession and delays in enacting budget cuts have raised Greece’s financing needs by at least 20 billion euros since July, when euro leaders hammered out a 159 billion- euro package, the people said.

“We have to discuss with the private sector and see what is suitable,” Spanish Economy Minister Elena Salgado told reporters. Ministers discussed investor losses of “more than 21 percent,” she said.

Officials are considering five scenarios to update a July agreement that foresaw 21 percent losses on Greek debt for private bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so- called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.

The ministers on Oct. 21 signed off on the payout of the EU’s 5.8 billion-euro share of an 8 billion-euro loan to Greece. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; Thomas Penny in Brussels at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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GDP Probably Picked Up in Third Quarter: U.S. Economy Preview

By Alex Kowalski - Oct 23, 2011 11:00 AM GMT+0700

The U.S. economy probably grew in the third quarter at the fastest pace this year, easing anxiety that the recovery was on the verge of stalling, economists said before a report this week.

Gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate after advancing 1.3 percent in the previous three months, according to the median forecast of 68 economists surveyed by Bloomberg News before the Commerce Department’s Oct. 27 release. Orders for business equipment rose in September and new-home sales stabilized, other data may show.

Consumer spending last quarter may have climbed more than twice as fast as in the prior three months, helping the economy withstand the plunge in stocks caused by Europe’s debt crisis. Nonetheless, the pace of growth has failed to cut unemployment, prompting Federal Reserve officials like Janet Yellen and Daniel Tarullo to say that more monetary stimulus may be needed.

“We’ve gotten a reversal of some of the bigger shocks that really restrained growth in the first half of year,” said Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York. “The economy could grow at the rates we see now or even better if we could avoid some of the shocks from Europe and the uncertainty around U.S. fiscal policy.”

The economy expanded at a 0.9 percent rate in the first half of 2011, the weakest since the recession ended in June 2009. The risk that one or more of the countries in the euro zone would default helped trigger a plunge in stock values. The Standard & Poor’s 500 Index fell 14 percent in the third quarter, the worst decline since the final three months of 2008.

With data showing growth has picked up, shares have climbed. The S&P 500 is up 9.4 percent so far this month.

Consumer Confidence

The rebound may be helping household sentiment. The Conference Board’s consumer confidence gauge climbed in October for a second month, rising to 46.5 from 45.4, according to the median projection in a Bloomberg survey before the New York group’s Oct. 25 report. Even with the gain, the measure is close to a two-year low as unemployment hovers around 9 percent.

“We continue to be cautious with respect to the magnitude and pace of the economic recovery both here in the U.S. and abroad and about the level of consumer confidence,” Todd Teske, chairman and chief executive officer at Briggs & Stratton Corp. (BGG), said on an Oct. 22 conference call with analysts.

Sales for the quarter ended Oct. 2 at the world’s largest maker of engines for outdoor power equipment rose 19 percent from the same three months in 2010, led by purchases of portable generators.

Gasoline Prices

Cheaper energy costs may have helped Americans spend on other goods and services in August and September even amid diminished confidence. The cost of a gallon of gasoline at the pump was $3.43 at the end of September, down 7.5 percent from the July high of $3.71, according to AAA, the largest U.S. auto organization.

Consumer purchases, which account for about 70 percent of the economy, increased at a 1.9 percent annual pace from July through September after gaining 0.7 percent in the second quarter, according to the median projection ahead of the Commerce Department’s GDP release.

Corporate investment in new equipment may have also contributed to the acceleration in growth last quarter. A report from the Commerce Department on Oct. 26 will show a 0.4 percent rise in September orders for durable goods excluding transportation equipment, according to the median forecast in a Bloomberg survey.

New-Home Sales

The same day, another report from the Commerce Department may show new-home sales increased in September to a 300,000 annual rate from a six-month low 295,000 pace in August, a sign the industry is struggling to gain its footing.

Yellen, the Federal Reserve’s vice chairman, said on Oct. 21 that a third round of large-scale securities purchases may be necessary to boost the economy and spur hiring. A day earlier, Fed Governor Tarullo, said the central bank should consider resuming large-scale purchases of mortgage bonds to help combat a “crisis” in employment.

The residential real estate industry, since 1982, has aided every economic recovery except the current one that began in June 2009.

The Fed’s Open Market Committee announced Sept. 21 a plan to replace some debt in the central bank’s portfolio with longer-term Treasuries in an effort to cut borrowing costs. Central bankers also said they would reinvest maturing housing debt into mortgage-backed securities. Housing weakness is a key reason for the “frustratingly slow pace of the recovery,” Fed Chairman Ben S. Bernanke said during a Sept. 8 speech.

                        Bloomberg Survey  ==============================================================                         Release    Period    Prior     Median Indicator                 Date               Value    Forecast ============================================================== Case Shiller Monthly MO  10/25      Aug.      0.1%      0.2% Case Shiller Monthly YO  10/25      Aug.     -4.1%     -3.6% Consumer Conf Index      10/25      Oct.      45.4      46.5 Durables Orders MOM%     10/26     Sept.     -0.1%     -0.9% Durables Ex-Trans MOM%   10/26     Sept.     -0.1%      0.4% Cap Goods Core MOM%      10/26     Sept.      0.9%      0.3% New Home Sales ,000’s    10/26     Sept.      295       300 New Home Sales MOM%      10/26     Sept.     -2.3%      1.7% GDP Annual QOQ%          10/27      3Q A      1.3%      2.5% Personal Consump. QOQ%   10/27      3Q A      0.7%      1.9% GDP Prices QOQ%          10/27      3Q A      2.5%      2.4% Core PCE Prices QOQ%     10/27      3Q A      2.3%      2.2% Initial Claims ,000’s    10/27     22-Oct     403       400 Cont. Claims ,000’s      10/27     15-Oct     3719      3700 Pending Homes MOM%       10/27     Sept.     -1.2%      0.1% Pers Inc MOM%            10/28     Sept.     -0.1%      0.3% Pers Spend MOM%          10/28     Sept.      0.2%      0.6% PCE Deflator YOY%        10/28     Sept.      2.9%      3.0% Core PCE Prices MOM%     10/28     Sept.      0.2%      0.1% Core PCE Prices YOY%     10/28     Sept.      1.6%      1.7% Employ Costs QOQ%        10/28       3Q       0.7%      0.6% U of Mich Conf. Index    10/28     Oct. F     57.5      58.0 ============================================================== 

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

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Google May Finance an Offer to Acquire Yahoo

By Brian Womack - Oct 23, 2011 1:45 AM GMT+0700

Google Inc. (GOOG) is considering providing financing for an acquisition of Yahoo! Inc. by another company or a group of bidders, according to a person who has been briefed on the matter.

The company may opt not to take part in any offer and hasn’t engaged in serious discussions with would-be partners, said the person, who asked not to be identified because the deliberations are private.

Yahoo is weighing strategic options after firing former Chief Executive Officer Carol Bartz, in part for her failure to keep pace with Google in the online advertising market. Google, which is under regulatory scrutiny from governments around the world, may lend its financial support to preserve Yahoo as a rival and bolster competition in the Internet industry, said Greg Sterling, an analyst at Opus Research in San Francisco.

“If competition dissipates or diminishes, then the hand of regulators is strengthened,” Sterling said. “If competition is diminished or marginalized, then all the arguments about Google being a monopoly ring more true.”

Google, which has $42.6 billion in cash and short-term investments, is considering helping finance other bidders, rather than trying to acquire Yahoo outright, the person said.

FTC Review

The U.S. Federal Trade Commission began a review of Google’s business practices, including search and advertising, the company said in a regulatory filing in June. The European Union and the state of Texas also have begun investigations of the company’s leadership in search and advertising markets.

Potential financing by Google for a bid for rival Yahoo has parallels with the $150 million investment that Microsoft Corp. (MSFT) made in competitor Apple Inc. in 1997 to help preserve competition in the computer market, Sterling said.

Still, regulators might scrutinize any Yahoo acquisition effort that involves Google. The U.S. government threatened to challenge an earlier proposal by Google to place ads on Yahoo’s site, causing Google to abandon the effort in 2008.

Representatives of Sunnyvale, California-based Yahoo and Mountain View, California-based Google declined to comment. The Wall Street Journal reported earlier today that Google is considering financing a bid by private equity firms for Yahoo.

A growing roster of private equity firms is considering whether to pursue Yahoo, which has a market value of $20.35 billion. Microsoft is weighing providing financing, a person familiar with the matter has said.

A potential investment by Microsoft, a longtime Google rival, also may have prompted Google’s interest in a financing deal involving Yahoo, Sterling said.

Alibaba Interest

Alibaba Group Holding Ltd., whose largest shareholder is Yahoo, has said it’s “very interested” in the Web portal, an arrangement that would help the Chinese company buy back its 43 percent stake.

KKR & Co. and Blackstone Group LP (BX) are among firms weighing an offer for Yahoo, people familiar with the matter said earlier this month. Alibaba has discussed a plan with Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group interested in an offer includes Providence Equity Partners Inc. and former News Corp. executive Peter Chernin, people have said.

Google advertising customers are able to buy space on Yahoo sites through Google’s Invite Media service, according to the person familiar with Google’s deliberations.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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EU Talks Yield ‘Limited’ Progress on Banks’ Role in Greek Crisis

By Aaron Kirchfeld and Mark Deen - Oct 23, 2011 1:40 AM GMT+0700

A 10-hour meeting in Brussels failed to yield a blueprint for banks’ role in a revamped Greek rescue as European finance ministers haggled over what they called a “credible firewall” against fallout from deeper writedowns.

The ministers’ meeting broke up at about 7 p.m. after reaching agreement that European banks may need about 100 billion euros ($139 billion) in capital after marking their sovereign-debt holdings to market values, according to a person familiar with the discussions. This amount is needed to reach a core tier 1 capital level of 9 percent based on a European Banking Authority test, said the person, who declined to be identified because discussions are private.

The struggle to get an accord on bank capital was just one piece of solving the two-year-old financial crisis. Governments also are pushing for deeper writedowns on banks’ holdings of Greek debt, a step the investors are resisting.

“Discussions are making progress, albeit limited,” Charles Dallara, managing director of the Institute of International Finance, the umbrella group for 450 of the world’s biggest financial companies, said in a statement late today.

The negotiations were part of a six-day stretch of talks aimed at stopping contagion spreading to Spain and Italy as the turmoil pushes Greece closer to default, roils global markets and dents confidence in the survival of the 17-nation currency. Finance ministers now yield the conference tables after two days of talks to leaders, who meet tomorrow and on Oct. 26.

Pace of Talks

Negotiations among finance ministers from the 27-member European Union, including U.K. Chancellor of the Exchequer George Osborne, were repeatedly extended and the plenary discussion eventually broke off into small groups focused on particular issues after 4 p.m. Brussels time.

“We’ve had a 10-hour meeting, but we have made real progress and we have come to important decisions on strengthening European banks,” Osborne said. “That is just one part of the package and obviously there’s more work to do.”

Vittorio Grilli, the top bureaucrat in Italy’s Finance Ministry, was given the mission by euro-area finance ministers to negotiate deeper writedowns for Greek bondholders, Austria’s Maria Fekter said. She declined to give details of the mandate for Grilli, head of the EU’s Economic and Finance Committee and director general of the Italian Treasury.

Under the terms of a July 21 accord, the banks would take losses of 21 percent on their holdings of the nation’s debt.

Plans now being considered involve an exchange with a 50 percent reduction in net present value, or upfront bond exchanges into either AAA rated bonds from the European Financial Stability Facility or new 30-year Greek government debt, according to people familiar with the matter. Upfront exchanges could involve a 50 percent discount off face value.

“We remain open to explore options on a voluntary approach built on a realistic outlook for the Greek economy and restoration of Greece’s market access,” Dallara said.

To contact the reporters on this story: Mark Deen in Brussels at markdeen@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Merkel Takes Aim at Italy With Demand That Euro Members Live Within Means

By Patrick Donahue - Oct 22, 2011 7:56 PM GMT+0700

Chancellor Angela Merkel took aim at Italy as typifying profligate government, saying the resolution of Europe’s crisis will only emerge if countries slash their debt and live within their means.

Italy’s outstanding debt at 120 percent of gross domestic product can’t be blamed on speculators, Merkel told a group of women in her Christian Democratic Union today. Markets demand higher interest rates on Italian bonds because the level of such debt is “seen very critically,” she said.

“We want to and we must defend the euro -- and we will -- but not to the extent that we forget what the source of the crisis is,” Merkel said in a speech in the western German city of Wiesbaden before heading to Brussels to tackle the crisis.

European leaders are converging on the Belgian capital in an attempt to narrow differences on how to address the crisis that threatens to spiral out of control. Merkel’s swipe at Prime Minister Silvio Berlusconi’s government also comes a month after the Italian leader was caught on a wiretap making denigrating comments about the chancellor.

Merkel and Berlusconi may meet in Brussels at a gathering of leaders aligned with the European People’s Party before heads of state and government gather tomorrow.

Even as President Barack Obama calls on European leaders to lay aside their differences, Merkel took the U.S. government to task for failing to manage its own debt.

“It doesn’t look much better in America, even if the markets aren’t quite concentrating on that,” Merkel said today.

Merkel also reiterated her objection to jointly issued euro bonds, saying that while such an arrangement could act initially as a salve to markets, common borrowing would lead to “solidarity in mediocrity.”

“This will be the message for the coming years,” Merkel said. “It will be very, very hard -- our task is no longer to live beyond our means. That goes for Germany and for every other European country.”

To contact the reporter on this story: Patrick Donahue in Wiesbaden, Germany at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Google Said to Consider Helping Finance a Third-Party Offer to Buy Yahoo

By Brian Womack - Oct 23, 2011 1:45 AM GMT+0700

Google Inc. (GOOG) is considering providing financing for an acquisition of Yahoo! Inc. by another company or a group of bidders, according to a person who has been briefed on the matter.

The company may opt not to take part in any offer and hasn’t engaged in serious discussions with would-be partners, said the person, who asked not to be identified because the deliberations are private.

Yahoo is weighing strategic options after firing former Chief Executive Officer Carol Bartz, in part for her failure to keep pace with Google in the online advertising market. Google, which is under regulatory scrutiny from governments around the world, may lend its financial support to preserve Yahoo as a rival and bolster competition in the Internet industry, said Greg Sterling, an analyst at Opus Research in San Francisco.

“If competition dissipates or diminishes, then the hand of regulators is strengthened,” Sterling said. “If competition is diminished or marginalized, then all the arguments about Google being a monopoly ring more true.”

Google, which has $42.6 billion in cash and short-term investments, is considering helping finance other bidders, rather than trying to acquire Yahoo outright, the person said.

FTC Review

The U.S. Federal Trade Commission began a review of Google’s business practices, including search and advertising, the company said in a regulatory filing in June. The European Union and the state of Texas also have begun investigations of the company’s leadership in search and advertising markets.

Potential financing by Google for a bid for rival Yahoo has parallels with the $150 million investment that Microsoft Corp. (MSFT) made in competitor Apple Inc. in 1997 to help preserve competition in the computer market, Sterling said.

Still, regulators might scrutinize any Yahoo acquisition effort that involves Google. The U.S. government threatened to challenge an earlier proposal by Google to place ads on Yahoo’s site, causing Google to abandon the effort in 2008.

Representatives of Sunnyvale, California-based Yahoo and Mountain View, California-based Google declined to comment. The Wall Street Journal reported earlier today that Google is considering financing a bid by private equity firms for Yahoo.

A growing roster of private equity firms is considering whether to pursue Yahoo, which has a market value of $20.35 billion. Microsoft is weighing providing financing, a person familiar with the matter has said.

A potential investment by Microsoft, a longtime Google rival, also may have prompted Google’s interest in a financing deal involving Yahoo, Sterling said.

Alibaba Interest

Alibaba Group Holding Ltd., whose largest shareholder is Yahoo, has said it’s “very interested” in the Web portal, an arrangement that would help the Chinese company buy back its 43 percent stake.

KKR & Co. and Blackstone Group LP (BX) are among firms weighing an offer for Yahoo, people familiar with the matter said earlier this month. Alibaba has discussed a plan with Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group interested in an offer includes Providence Equity Partners Inc. and former News Corp. executive Peter Chernin, people have said.

Google advertising customers are able to buy space on Yahoo sites through Google’s Invite Media service, according to the person familiar with Google’s deliberations.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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EU Weighs New Fund to Attract Outside Money

By Tony Czuczka and Fred Pals - Oct 22, 2011 8:48 PM GMT+0700

European finance ministers are considering setting up a fund to entice outside investors to buy troubled euro-area government bonds, as they struggled over how to tame the Greece-fueled debt crisis, said a person familiar with the matter.

The investment vehicle was one of two options being weighed, along with using the European Financial Stability Facility to boost the rescue firepower from 440 billion euros ($611 billion) currently, the person said.

“The principle that we leverage the EFSF with private money is being subscribed by everyone, but the level of success is uncertain,” Dutch Finance Minister Jan Kees de Jager told reporters on the second day of crisis talks in Brussels. “How much can we raise, that is being looked at.”

Europe’s room for maneuver narrowed yesterday with a report that Greece’s economy is deteriorating, piling on pressure to build a stronger anti-crisis firewall by a self-imposed Oct. 26 deadline. Measures being considered include a boost in bailout funds to 940 billion euros, deeper writedowns on Greek debt, and a demand that banks increase Tier 1 capital to 9 percent by mid-2012.

Stocks and the euro rallied yesterday on signs that warnings from global leaders including President Barack Obama have jolted European policy makers into action.

European Union office buildings, luxury hotels and a suburban Brussels flower park were the scenes today for a crisis-management convention involving national and EU-level leaders, finance ministers, central and commercial bankers and their aides.

Bank Recapitalization

All 27 EU finance ministers discussed bank recapitalizations in the morning, followed by the second session in two days of the 17 ministers from euro countries. Neither session yielded a formal announcement.

German Chancellor Angela Merkel and French President Nicolas Sarkozy meet privately in early evening before a later sitdown with European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso and EU Economic and Monetary Affairs Commissioner Olli Rehn. International Monetary Fund Managing Director Christine Lagarde will also be there.

The special purpose investment vehicle, the newest option on the table, would buy bonds in the primary and secondary markets, the person said. The purpose would be to attract outside investors and sovereign wealth funds, tapping reserves built up by countries like China.

EFSF Guarantees

A special-purpose vehicle was also discussed at this month’s meeting of the Group of 20 finance ministers and central bankers to be run by the IMF as a way to channel loans from countries such as China and Brazil.

“To be able to do this we’d have to create a special purpose vehicle, which we have done in the past in other circumstances,” Antonio Borges, the IMF’s European department head, said Oct. 5. “It could be done, it’s not to be excluded.”

The other option also involves EFSF first-loss guarantees, yet without creating the special fund. It was backed by Germany and was the front-running option until this week, when France complained that it wouldn’t be enough and sought to turn the fund into a bank that could borrow from the ECB.

Aid of 256 billion euros for Greece, Ireland and Portugal has failed to stabilize markets or prevent the turmoil from spreading to France, co-anchor with Germany of the European economy. French bank shares have tumbled on concern they are vulnerable to losses around Europe’s periphery.

France’s climbdown was signaled late yesterday by Finance Minister Francois Baroin. Tapping the central bank “is not a definitive point of discussion for us,” he said. “What matters is what works.”

ECB Opposition

Yesterday’s start of the six-day summit marathon was overshadowed by the report by the EU Commission, ECB and IMF on Greece that highlighted the dilemmas of righting Greece’s finances without sending shockwaves through the banking system.

Divisions over the handling of Greece were thrown into relief by the report, which was obtained by Bloomberg News. It contained a footnote that the ECB, which has lobbied against writedowns, “does not agree” with the inclusion of the bond- loss scenarios.

Officials are considering five scenarios to update a July agreement that foresaw 21 percent losses on Greek debt for private bondholders, people familiar with the deliberations said. They range from sticking with a voluntary swap to a so- called hard restructuring that forces investors to exchange Greek bonds for new ones at 50 percent of their value, the people said.

A deepening recession and delays in enacting budget cuts have raised Greece’s financing needs by at least 20 billion euros since July, when euro leaders hammered out a 159 billion- euro package, the people said.

“We have to discuss with the private sector and see what is suitable,” Spanish Economy Minister Elena Salgado told reporters. Ministers discussed investor losses of “more than 21 percent,” she said.

The ministers yesterday signed off on the payout of its 5.8 billion-euro share of an 8 billion-euro loan to Greece. It’s the sixth installment of a 110 billion-euro package awarded in May 2010.

To contact the reporters on this story: Tony Czuczka in Brussels at aczuczka@bloomberg.net; Fred Pals in Brussels at fpals@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Saudi Arabia’s Sultan, Heir to Throne of Main World Oil Supplier, Has Died

By Vivian Salama and Glen Carey - Oct 22, 2011 12:52 PM GMT+0700

Crown Prince Sultan bin Abdulaziz Al Saud, Saudi Arabia’s deputy prime minister and minister of defense and aviation, has died. He was born in Riyadh in 1928, according to the Saudi embassy in Washington, and was heir apparent to the throne.

State television in Saudi Arabia, which holds the world’s largest oil reserves, announced the death and then began playing verses from the Koran, as is the custom.

The prince died “outside the kingdom after suffering an illness,” the Royal Court said in a statement posted on the state-run Saudi Press Agency website. “Prayer will be held at Imam Turki Bin Abdullah Mosque in Riyadh after Asr prayer on Tuesday.”

Prince Sultan spent much of the period between 2008 and 2011 out of the country to receive medical care for an undisclosed illness. He traveled to New York City in June 2011 for a “private holiday” that included medical tests although the Saudi government didn’t release details about his health, according to the SPA. Time magazine reported in 2005 that he had colon cancer.

Sultan was named crown prince in 2005 following the death of his brother, King Fahd. He is the half brother of the kingdom’s current ruler, King Abdullah.

During his five decades as defense minister, Saudi Arabia’s policy involved relying on the U.S. for military protection in return for stable oil supplies. The kingdom spent $11.2 billion on U.S. weapons between 2005 and 2008, making it the biggest foreign buyer of U.S. arms during the period, according to the Congressional Research Service in Washington.

Arms Sales

The U.S. Defense Department told Congress in October 2010 that it wants to sell as much as $60 billion in weapons to Saudi Arabia. U.S. policy makers want the proposed sale to include F-15 fighter jets, attack helicopters, and satellite-guided smart bombs to counter Iranian military ambitions in the Persian Gulf and regional extremists. The weapon sales, if approved, could occur during a 10-year period.

He was educated in religion, culture and statecraft at the royal court of his father, King Abdulaziz Al Saud. His career in public service began in 1947, when he was appointed governor of Riyadh, whose main task is resolving disputes among the 7,000 members of the royal family. Five years later, he became the kingdom’s first minister of agriculture.

In 1955, Sultan was named the transportation minister, and oversaw the construction of a railway system linking Dammam on the Persian Gulf coast to the capital, Riyadh. He was the chairman of Saudi Arabian Railways Organization.

Military Modernization

Sultan, who was appointed minister of defense and aviation in 1963, oversaw the expansion and modernization of the Saudi military into a force that participated in the U.S.-led war to oust Iraqi forces from Kuwait in 1991. Saudi troops also fought Houthi rebels along the nation’s southern border with Yemen in a three-month battle that ended in February 2010.

He is also known for more peaceful endeavors. In 1986 Sultan established the National Commission for Wildlife Conservation and Development. He also founded the Prince Sultan Bin Abdulaziz International Prize for Water, a group that recognizes advancements toward sustainable water conservation.

In 2003, Prince Sultan invited Christians to practice their faith in the kingdom, although he added that building churches would contradict Saudi Arabia’s role as the center of the Islamic faith. “We are not against religions,” the SPA reported, citing a speech he delivered. “This country is the cradle of prophecy and the true message and we will not contradict this.”

Kings Rule

Saudi Arabia is an absolute monarchy that has been ruled by six kings from the Al Saud family since the modern kingdom was formed in 1932.

King Abdullah, who was born in 1924, changed the kingdom’s succession rules in 2007 to give an appointed commission of princes, called the Allegiance Council, more power to select a new ruler. The council will be responsible for naming a crown prince, who will then be in line as the new king.

The new king must reveal his choice for crown prince to the commission within 10 days of taking the throne. The commission consists of appointed male descendants of the kingdom’s founder, Abdulaziz bin Saud, the SPA said.

The decree provided greater transparency of the royal family’s decision-making process, which in the past was done through consensus building among princes.

Interior Minister Prince Nayef bin Abdulaziz Al Saud is the next most senior member of the royal family after Sultan and the likely successor as crown prince, according to Hani Sabra, Middle East and Africa analyst at the New York-based Eurasia Group.

Sultan had four wives. One of his sons is Prince Bandar bin Sultan, Saudi Arabia’s ambassador to the U.S. from 1983 to 2005. Another son, Prince Khalid bin Sultan, is assistant minister of defense and aviation for military affairs.

To contact the reporters on this story: Vivian Salama in Abu Dhabi at vsalama@bloomberg.net; Glen Carey in Dubai at gcarey8@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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