Global Economic News
China Export Collapse Taking Down Internal Economy
May 12 (EIRNS)China's external trade continued to crash for the sixth month in a row, as demonstrated by figures for April just published by the General Administration of Customs. Exports fell 22.6% from one year ago, to US$92 billion, a sharper fall than the 17% decline in March. Imports were also down by 23%, although this reflects to some degree the fall in commodity prices from a year ago.
China's Ministry of Commerce today warned that the collapse of external markets could undercut China's attempt to expand its domestic investment and consumption for a long period to come, Xinhua reported. The "grim" impact of the trade contraction could affect "all sectors" of the economy, the ministry said. Stabilizing external demand would be vital for the 80 million people whose jobs depend on foreign trade, 60% of whom are migrant rural workers, the ministry statement said. From figures for the past 30 years, the ministry calculated that each 1% point fall in exports would mean a 0.68% fall in consumption and a 0.74% fall in domestic investment. "If external demand remains weak, pressure will move from downstream to upstream, and from production to investment," the statement said.
Much is being made of a big increase in Chinese crude oil imports in April, but the 13.6% increase is in relation to a sharp fall in imports in April 2008. China's oil imports were way down the first three months of this year, despite lower prices, and the April increase could also be a result of this earlier slack.
On April 27, Commerce Minister Chen Deming, speaking on a visit to Washington, said that, while some Americans were projecting that the impact of the financial crisis on China has bottomed out, this assessment was wrong. In fact, "the impact that China suffers this time is huge, or even greater than in the Asian financial crisis ten years ago," Chen said. China is suffering "growing downward pressure on the economy," as well as "serious" trade declines, a big slowdown in industrial production, and "growing employment difficulties." Chen stressed that China's foreign trade "has witnessed negative growth five months in a row since last November."
Philippines Supreme Court Upholds Generic Drug Imports
May 11 (EIRNS)The Philippines Supreme Court stopped the prosecution of a Filipino businessman for importing generic versions of important pharmaceutical drugs and did so expressly on humanitarian grounds.
The Philippines Counterfeit Drug law forbids the importation of any registered, patented drug unless it is from the original manufacturer, calling any such generic version of a drug "counterfeit." The Court said it was "absurd" that the results of this ban would "deny the basic decencies of humanity," according to the Philippines Inquirer. The Court continued, "For a law that is intended to help save lives, [the drug counterfeit law] has revealed itself as a heartless, soulless legislative piece."
The drugs in questions are four antibiotics, whose patented, brand name versions are products of Glaxo SmithKline. There are multiple manufacturers of generic versions of these drugs from many sources, at prices far, far below that of the Glaxo SmithKline branded versions. There appears to be nothing in the ruling that limits the scope of the judgment to just these drugs, however.
German Steel Output Halved in Past 12 Months
May 11 (EIRNS)From April 2008 to April 2009, the output of the steel industry in Germany shrank by 53.1%, mostly because of a collapse of orders from the domestic machine-building, automobile, shipbuilding, and construction industries. More than half of the 94,000 steel workers are on short-work, already, with little positive expectations for the future, as shown by the drop in the automobile industry, one of the main steel consumers, in Marchby 32.2% compared to March 2008.
Having no forward-oriented concept at hand, the managements of the steel industry companies prefer cuts in production, jobs, and wages, with Thyssen-Krupp being in the forefront of massive layoffs, in the range of 5,000, of which 2,000 would occur in the coming weeks and months. Throughout Germany, Thyssen-Krupp workers took to the streets in protest, with today's action by 1,500 shipbuilders in Emden being one the largest actions.
Will France Admit That Its Banking System Is Also Bankrupt?
May 15 (EIRNS)The French government and banks have been very careful not to do say or do anything which would discredit the idea that "the French banking system is doing better than the rest," which has become their main marketing argument. It is becoming increasingly difficult to maintain this fiction, however. It was revealed yesterday, that Natixis, a joint subsidiary of two large savings banks, Caisses d'Epargne and Banques Populaires, revealed first-quarter losses of Eu1.8 billion this year, which adds up to Eu4.7 billion for the past 12 months. These losses come as a result of depreciations in their gigantic toxic asset portfolio of Eu36 billion, which was placed in a kind of "bad bank" in December.
The scandal is, that 2.5 million small shareholders, people who had their savings in those banks which were considered among the most seriously troubled, were led to place them in Natixis, which in reality was one of the most aggressive investment banks in Paris. The stock price, in the meantime, went from Eu20 to Eu1 per share.
While Natixis announced that it will raise Eu3.5 billion by June to bring its reserve ratio to a high, 9.4%, level, everybody is wondering how long this will last. The government is apparently considering a financial guarantee mechanism for the bank's toxic assets, or the creation of a "bad bank." According to Le Figaro, the other large banks are opposing the idea of creating "bad banks," because they fear the French government wants to get them to foot the bill for Natixis, as well.
Pecora Commission in The Netherlands
May 12 (EIRNS)The commission established by the Parliament of The Netherlands to investigate the causes of the financial crisis, begins its work this week. The commission bears similarities to the 1932-34 U.S. Pecora Commission, although there are significant differences. It is chaired by Jan De Witt of the Socialist Party, noted for its opposition to the European Union's Lisbon Treaty and the neoliberal economic policies of the European Commission.
In a discussion with EIR, Dutch Parliamentarian Ewout Irrgang, the Socialist Party's spokesman on finance, and representative on the economic-finance committee in Parliament, explained the powers of the commission. This is an investigative committee that has the power to call witnesses to testify. At this point, witnesses will not be put under oath, but that could change.
The investigation will have two phases. In the first six months, it will probe the causes of the financial crisis from the standpoint of the failure of current laws and regulatory authority, or lack thereof, respecting the financial sector. In the second six months, it will investigate how the crisis was handled.
Irrgang expressed the hope that the investigation would serve as a basis for drafting new laws and regulations. Unlike the original Pecora Commission, which had a very good idea of how to deal with the economic crisis, this investigation takes place in a Dutch government which, like all European governments, has no idea of how to deal with the crisis.
Latvia Fights Back Against Financial Locusts
May 12 (EIRNS)Latvian Prime Minister Valdis Dombrovskis, on May 8, attacked the rough methods which Swedish banks that dominate Latvia, are using to freeze accounts of businesses. "Almost all money flows are directed to debt payments without any consideration of tax payments and similar matters," he said. The Latvian Financial Control Authority is looking into these methods of the banks, as well as other complaints. Dombrovskis was speaking on national Swedish News Agency TT, and, on May 11 in Stockholm, he reiterated his critique of the Swedish banks.
In a press briefing with Swedish Prime Minister Fredrik Reinfeldt, Dombrovskis said, "For someone to borrow irresponsibly, there has to be someone who lends irresponsibly, and here is where the Swedish banks come in."
Latvia is now undergoing a fascist, IMF austerity program. The goal of the program is to keep the peg of the national currency, the lat, to the euro, because more than 80% of the domestic debt is in euros. A devaluation of the lat would lead to massive loan failures and losses, enough to bankrupt the Swedish banks. The Swedish government has paid out $1 billion and raised most of the IMF package of $8 billion. Conditionalities include cutting state employees' salaries by 35% and closing half the hospitals by 2013. The new IMF agreement allows for a deficit of 7%, up from the previous allowance of 5%.
In the first quarter, Latvian GDP crashed 18%, industrial production 22%, and retail trade 34%. These figures caused a representative of another "financial locust" foreign bank, Lars Christensen, chief analyst of Danske Bank, to say: "This is worse than what we could imagine in our worst fantasies. Latvia will have no chance to limit the deficit to 7% of GDP. We think it will be more than 15%."
On the current IMF program, Christensen said: "It is not enough. They have to renegotiate with IMF totally," Dagens Nyheter reported today.
The paper LaRouche movement in Sweden has issued a call for "Pecora" hearings in the Swedish Parliament, on the irresponsible practices by the Swedish banks in the Baltic states, and the whereabouts of the toxic structured and securitized debt today.
The Scandinavian media failed to report this, or the more sane approach by German Chancellor Angela Merkel. When Dombrovskis met Merkel April 30 in Berlin, she said, according the official Latvian government press release: "Dr. Merkel expressed her position that it seems quite impossible that Latvia could fulfill the commitments undertaken under the agreement concluded with its international lender at the end of the previous year in view of the current economic situation when the recession amounts to 12% of the GDP compared to the recession of 5% as anticipated at the end of the previous year. The German Chancellor emphasized that the agreement is unrealistic and Latvia cannot be requested to comply with it, taking into consideration the changes in Latvia's economic situation. Dr. Merkel noted that Germany will support a reasonable solution and changed conditions for an international loan to Latvia."