Sri Lanka unexpectedly raised interest rates for the first time since 2007 to curb credit growth in the nation and ensure inflation stays low.
The Central Bank of Sri Lanka raised the reverse repurchase rate to 9 percent from 8.5 percent and the repurchase rate to 7.5 percent from 7 percent, the Colombo-based bank said in a statement on its website today. All seven economists in a Bloomberg News survey predicted rates would be unchanged.
Central bank Governor Ajith Nivard Cabraal
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Europe is getting tougher on government debt. After more than two years struggling to rescue financially shaky governments, leaders of the 17 countries that use the euro are ready to agree on a treaty that will force member countries to put deficit limits into their national laws.
At first glance, it seems logical _ after all, the crisis erupted after too many governments spent and borrowed too much for too long.
But a number of economists _ and some politicians _ say the focus on cutting deficits is misplaced and that more fundamental problems are being left unaddressed.
It’s how the euro was set up in the first place, they say _ one currency, but multiple government budgets, economies moving at different speeds and no central treasury or borrowing authority to back them up.
Until those institutional flaws are tackled, the economists say, the euro will remain vulnerable. So far, Greece, Ireland and Portugal have turned to other eurozone governments and the International Monetary Fund for emergency funds to avoid defaulting on their debts.
Nonetheless, Europe’s leading countries are pushing a new Europe-wide treaty that would as the leading edge of their effort to reassure markets. European Union leaders hope to agree on the treaty’s text at a meeting starting Monday, and sign it by March.
The proposed treaty pushes countries to limit “structural” deficits _ shortfalls not caused by ups and downs of the business cycle _ to a tight 0.5 percent of gross domestic product or face a fine. That comes on top of other recent EU legislation intended to tighten observance of the eurozone’s limits: overall deficits of 3 percent of GDP and national debt of 60 percent of GDP.
European leaders are also urging countries to improve growth by reducing regulation and other barriers to business.
Yet economists like Jean Pisani-Ferry, director of the Brueghel think tank in Brussels, says it’s striking that governments are focusing on budget rules, given Europe’s earlier experience with them. An earlier set of rules were largely ignored at the behest of France and Germany in the first years after the euro’s 1999 launch.
And some of the countries that now are in the deepest trouble _ such as Spain and bailed-out Ireland _ stayed well within the debt limit for years.
“This suggests that the simplistic view _ that a thorough enforcement of the rules would have prevented the crisis _ should be treated with caution,” Pisani-Ferry wrote in a recent article for Brueghel.
Some European politicians are also voicing doubts about focusing primarily on deficits. They include new Italian Prime Minister Mario Monti, who has warned that growth is the real answer to shrinking debt in the long term. International Monetary Fund head Christine Lagarde has urged a broader approach. She calls for a willingness to share the burden of supporting banks and other financial risks so troubles in one country don’t become a crisis for the entire currency bloc.
Here are four reasons for concern cited by economists _ but not yet on the summit agendas of the eurozone’s leaders.
NO COMMON BORROWING: Without a central, pan-European treasury, there’s no steady central source of support for eurozone countries that run into economic or financial trouble. Many economists say issuing jointly guaranteed “eurobonds” would make sure no one country would ever default and governments would always be able to borrow. Governments would give up some of their sovereignty, allowing review of their spending and borrowing plans, to get the money.
Pisani-Ferry argues that this would protect governments from the kind of self-fulfilling bond market panic fueled by fears of default, that pushed Greece, Ireland and Portugal over the edge.
Yet the idea of more collective responsibility remains unpopular in prosperous EU countries such as Germany, Finland and the Netherlands. They can borrow cheaply due to their strong finances and would likely pay more to borrow at the rate that includes the shaky ones.
Eurobonds would also likely require a time-consuming change to the European Union’s basic treaty _ which currently bans members from assuming each other’s debts. There would also have to be a mechanisms in place to stop countries with shoddy finances from borrowing too much.
Opponents say that’s unrealistic. “If you have mutual debt responsibility, and freedom of each country to borrow, then each country can drive the eurozone into bankruptcy,” said Kai Konrad, managing director of the Max Planck Institute for Tax Law and Public Finance in Munich.
BANK BAILOUTS: Europe currently has no safety mechanism that would stop a country from sinking under the weight of having to bail out banks based in that country.
At the moment, each country bears the brunt of rescuing its own banks. This can create serious problems in a crisis.
For example Ireland’s loosely regulated banks borrowed heavily and loaned out money freely for speculative real estate projects. When the real estate market collapsed and the loans were not paid back, the Irish government had to step in to guarantee the bank’s bonds _ and quickly went broke. Ireland had a very low debt level of only 25 percent of annual economic output in 2007. As bank losses moved to the government’s balance sheet, by 2011 debt hit 106 percent of annual GDP. The country remains on EU-IMF life support.
Simon Tilford of the Centre for European Reform in London draws an analogy with U.S. insurer AIG, which was bailed out by the U.S. federal government in 2008. AIG was incorporated in the U.S. state of Delaware, yet Delaware did not go bankrupt handling the rescue. The central government stepped in.
TRADE IMBALANCES: Economists point out that gaps in how well countries compete and trade with one another have steadily widened since the euro was created.
Greece’s current account deficit _ the broadest measure of trade _ is even worse than its budget deficit. It buys and borrows far more than it sells and earns abroad.
Normally trade imbalances are evened out by fluctuating exchange rates _ but that can’t happen within the euro. Countries can improve their competitiveness by doing what Germany did in the 2000s _ cut labor costs to business by cutting general unemployment benefits. They can cut red tape and taxes. But that takes years.
Meanwhile, the region is also hampered by an inflexible pan-euro interest rate. Low interest rates _ set by the European Central Bank to see Germany and France through stagnation in the early 2000s _ were too low to control wage inflation and reckless borrowing in places like Greece and Ireland. Wage costs and debt levels rose. Competitiveness and exports declined, weakening the economy and undermining government finances.
CENTRAL BANK POWERS: Yet another structural issue is the limited power of the European Central Bank to support governments.
The bank resisted calls to buy larger amounts of government bonds. That resistance observes the spirit of the EU basic treaty, which forbids the central bank from financing governments.
But it’s a constraint that central banks such as the U.S. Federal Reserve and the Bank of England don’t have. They can buy up their country’s debt, a move that can push down government borrowing costs and reassure markets the state will always pay its debts.
The ECB remains “a limited-purpose central bank,” says Tilford.
He notes that Britain has more debt than Spain, 81 percent of GDP versus 67 percent, yet borrows at just over 2 percent annual interest for its 10-year bonds, while Spanish debt for the same period has a 5 percent-plus interest rate. One difference: markets know the Bank of England has the ability to support the government in a crisis by buying bonds and driving down interest rates.
Many of these issue were raised before the currency was launched in 1999, then got less attention.
Tilford says that “the tendency has been to say the currency union needs all these things but in practice it’s not necessarily the case” so long as countries obey budget rules and manage their finances well.
“It’s become harder to maintain that kind of argumentation now, given how bad things have got.”
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Egyptian soldiers clashed with hundreds of rock-throwing protesters in central Cairo for a second consecutive day on Saturday, in a resurgence of turmoil just days after millions voted in parliamentary elections.
The clashes underlined simmering tensions between activists and security officers and threatened to ignite a new round of violence after two peaceful days of voting in balloting considered the freest and fairest in the country’s modern history.
Hundreds of protesters threw stones early Saturday at security forces that have sealed off the streets around the country’s parliament building with barbed wire. Soldiers on rooftops pelted the crowds below with stones, prompting many of the protesters to pick up helmets, satellite dishes or sheets of metal to try to protect themselves.
The violence first began early Friday morning after soldiers stormed an antimilitary protest camp outside the Cabinet building near Tahrir Square, expelling demonstrators demanding an end to military rule and an immediate transfer of power to a civilian authority. At least seven protesters were killed in the violence, activist said. Scores have been injured.
The military took over after longtime President Hosni Mubarak was ousted in a popular revolt in February. Rights groups and activists charge that the military is carrying on the practices of the old regime, including arresting and beating dissidents.
Mustafa Ali, a protester who was wounded by pellet shot in clashes last month, on Saturday accused the military of instigating the violence to “find a justification to remain in power and divide up people into factions.”
The young activists who led the protests against Mubarak have not translated that success into results at the polls, where Islamist parties won a clear majority of seats in the first round of voting last month over the more liberal parties that emerged from the uprising. Results from this week’s second round are expected in the coming days, with the rest of the country set to vote next month.
Images of troops protecting polling centers and soldiers carrying the elderly to the polls have served to boost the military’s image as guardians of the country. The military remains the ultimate authority on all matters of state in absence of a president.
The second round of voting took place Wednesday and Thursday in nine of the country’s 27 provinces. It covered vast rural areas where the religious stand of Islamist parties has strong support.
Floodwaters have reached the northern edge of central Bangkok and are threatening the Thai capital’s subway system.
The water that has been creeping through northern Bangkok for more than week flooded Lad Phrao intersection on Friday. The area is home to office towers, condominiums and a major shopping mall and is not far from the famed Chatuchak Weekend Market.
Local media reported the water depth at 15 inches (40 centimeters).
Officials from Bangkok’s subway system say they are closely monitoring three stations in the area, though all remain open.
The government has asked residents to evacuate eight of the city’s 50 districts because of the flooding. It has killed more than 400 people in Thailand since late July.
DETROIT
Choosing a much-detested raccoon as its mascot made a clear statement: Porter Airlines was going to be a daring, different kind of airline.
And the upstart that some doubted could ever succeed given the volatility of the aviation industry is celebrating its fifth birthday on Sunday.
Robert Deluce, president and CEO of Porter Airlines, uses the mascot, whom they call Mr. Porter, an alter-ego of sorts, to illustrate why they
Stronger retail sales and surging profits from Google are sending stocks higher.
The Dow Jones industrial average turned positive for the year Friday, and the S&P 500 index had its best week in more than two years.
Retail sales increased 1.1 percent in September, the biggest gain in seven months.
Google Inc. shot up nearly 6 percent after its quarterly income jumped 26 percent. Apple Inc. rose 3 percent as its new iPhone went on sale my credit score.
The Dow rose 166 points, or 1.4 percent, to close at 11,644. The S&P 500 rose 21, or 1.7 percent, to 1,225.
The Nasdaq rose 48 points, or 1.8 percent, to 2,668.
Five stocks rose for every one that fell on the New York Stock Exchange. Trading volume was below average, 3.6 billion shares.
The Federal Deposit Insurance Corp. seized Sun Security Bank in Ellington, Mo., after the troubled bank was shut down by Missouri bank regulators.
Sun Security has 27 branches, including two in St. Charles County. The bank held $355.9 million in assets and $290.4 million in deposits.
In a deal with the FDIC, Great Southern Bank of Springfield, Mo., has agreed to assume all the deposits of Sun Security.
The federal regulator said all Sun Security branches will open on Saturday, and after Columbus Day, the offices will become Great Southern branches. Columbus Day is a bank holiday.
Customers with questions about the seizure can call the FDIC at 1-866-806-6128 Payday Loan for Bad Credit.
The failure of Sun Security Bank is expected to cost the FDIC $118.3 million.
Sun Security, which has two branches in St. Charles County, was formerly led by Shaun Hayes as chief executive.
The FDIC’s seizure Friday of Sun Security and Wyoming, Minn.-based Riverbank increases to 76 the number of U.S. bank failures this year.
Two children and their parents were killed by machine-gun fire Saturday while trying to flee Moammar Gadhafi’s hometown along with hundreds of other residents, as forces loyal to the ousted regime engaged in heavy clashes with revolutionary fighters surrounding the city.
Their bodies were brought to a makeshift hospital outside Sirte, said a doctor there, Nuri Naari. They were hit by machine-gun fire as they drove toward the positions of revolutionary forces on the edges of the city, he said. It was unclear who killed them.
Sirte is one of the last cities to remain in loyalist hands. After months of stalemate in Libya’s civil war, anti-Gadhafi forces swept into the capital in August and their leaders set up a transitional government. But the continued fighting in holdout cities and the failure to find and capture Gadhafi has kept Libya’s new leaders from being able to declare victory.
Revolutionary forces had given families inside Sirte two days to leave the city starting Friday, said Mustafa Abdul-Jalil, head of the National Transitional Council that now runs the country. They tried to keep a safe corridor open for civilians fleeing the coastal city.
“This period will give a chance for families to leave the areas of fighting,” he said at a press conference Saturday.
Hundreds of cars carrying Sirte residents formed long lines at revolutionary forces’ checkpoints leading out of the city, calmly waiting to be checked by the fighters as explosions echoed in the distance.
After weeks of fighting Gadhafi’s loyalists inside Sirte, the fighters now hold positions about three miles (five kilometers) from the city center, said commander Mustafa al-Rubaie.
Last week, the Libyan Defense Ministry announced that Sirte’s port, airport and military base were all under their control.
Al-Rubaie told The Associated Press that fighters from the east seized control of Sirte’s first residential district and a hotel where Gadhafi’s snipers were based.
“There is heavy fighting going on in the streets of Sirte right now,” he said. “The enemy is besieged from the south, east and west but it’s still in possession of highly sophisticated weapons and a large amount of ammunition.”
Al-Rubaie said Gadhafi forces were also in control of strategic positions inside the city, including high-rise buildings where snipers are positioned, making the revolutionary forces’ advance slow and hard.
“The plan is that the eastern and western forces will meet in the middle of Sirte,” al-Rubaie said. “When we reach this point, we will celebrate the liberation of Sirte.”
Fighters on the western approaches to the city fired rockets and tank fire at loyalists’ positions, while NATO aircraft were heard circling overhead.
Gadhafi’s spokesman Moussa Ibrahim, meanwhile, denied reports that he had been captured, telling the Syrian-based TV station Al-Rai that he was traveling with 23 fighters in Sirte. There was no way to verify the identity of the man speaking in the audio recording, but it sounded like his voice and the TV station has become the mouthpiece for Gadhafi’s resistance.
Many of those fleeing Sirte said conditions in the city continue to deteriorate, with food in short supply and no water or electricity.
“We couldn’t leave our homes because of the shelling; we had to leave the city,” said Ahmed Hussein as his wife, mother-in-law and two children watched the fighters search their car.
Cars, buses and trucks loaded with families and heaped with household goods lined up at the first checkpoint about half a mile (kilometer) from the front lines. Volunteers gave the families food and water while fighters checked documents and cars.
A small contingent from the humanitarian group Doctors Without Borders attempted to enter Sirte on Saturday to deliver medical supplies but turned back because of heavy shelling and no guarantees that the Gadhafi loyalist would hold their fire.
In between the bouts of shooting, Libyan fighters prayed.
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