Euro Watch

The chances for Germany’s Social Democrats leader Kurt Beck to lead his party into the upcoming national elections was in doubt after the domestic party revolution inclined SPD into chaos. Mt Kurt Beck by now is not popular politically after he did not keep his words by backing a controversial coalition with the anti-reform left party. His party suffered a heavy blow for the second time when this planned agreement collapsed due to confrontation from inside his party. This planned agreement gained nationwide attention since it would have made noticeable that SPD worked for the first time with the Left party in the western states of Germany. This planned agreement broke the prohibitions against the relationship because of the roots of the party in the previous party of East Germany’s Communist.
However, on 7th March, some of the senior officials of SPD rallied behind Kurt Beck as it was not clear whether he would stand against Angela Merkel as the chancellor candidate next year. SPD officials said that the deputy chairman of SPD and foreign minister Mr. Frank-Walter Steinmeier were the most possible alternatives. This crisis erupted on 7th of March when SPD leader Andrea Ypsilanti did take a decision in the western state of Hesse. She decided to abandon her notorious plan to run the state in the alliance with the Greens and also with the casual support of the Left party which also involves SPD dissidents and former communists.
Ypsilanti’s decision was followed by the announcement made by SPD legislator Dagmar Metzger that she would fight back against her party and probably vote against functioning with the Left party. However, before the January elections held in Hesse Kurt Beck had said that is party would not function with the Left party, later on he broke his promise by supporting Ms Andrea Ypsilanti’s alliance plan. Lowering the condemnations of Kurt Beck’s turnaround, Dagmar Metzger said that vows made by beck before the Hesse elections must be apprehended after the results.
The crisis of Hesse has done immense damage to the social democrats party said one of the spokesperson for Angela Merkel’s Christian Democratic Union, the partners of SPD in Berlin. Angela Merkel emerged fully supported by the events on 7th March, not slightest as the Christian Democratic Union even announced its plans to build an alliance with the Green party in the city of Hamburg. Last month’s regional elections were held in Hamburg. This type of coalition was the first of its kind and would increase the chancellor’s alliance alternatives after the national elections.
In spite of the troubles with SPD, the Hesse events occurred as a respite to the pro-reform section of the party which was led by Peer Steinbruck and Frank-Walter Steinmeier. Both these leaders had disagreed against the collaboration with the Left party. On 7th of March, Frank-Walter Steinmeier said that his party was not in a better condition however they would focus on looking ahead.

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Last Thursday saw pollsters from the office of Central Statistics and Meteorologists join sanitation workers, bank officials and teachers in the wave of cautioning strikes occurring across the public service sector. This new action began just hours prior to employers and union representatives embarked on two days of talks ,in Potsdam, on wages and conditions.

Heading into the discussions was Thomas Boehle, a representative for one of the employers concerned, who said that they were well prepared to be agile enough to improve their current situation. He told reporters that they would forward an offer to the unions if discussions proceeded effectively.

On January 1st, members of the labor union Ver.di had demanded wages to be increased by 5.5%, rather than the proposed 8%, for the 1.3 million workers of the public sector in Germany. Over the past two years the German government had only offered an increase of just 5% along with the longer working hours, this offer was not accepted by the labor union.

A possible outcome of the negotiations is that employers will offer an extra rise in wages and incentives in a long term agreement, said Boehle.

Frank Bsirske, the leader of the labor union said that he was hoping these strikes would deliver a strong message to employers. He disagreed that workers from the public sector deserved extra income through tax revenue raising as the economy of Germany improves.

Several thousand workers from the public sector have stopped working in airports, police forces, municipal offices, banks and schools in a bid to gain better conditions. This new wave of strikes have usually lasted for only a few hours, unlike the unrestricted, full-scale stoppage seen earlier in the month. Leader of the German Federation of Labor Union, Michael Sommer, told the daily Neue Presse that these warning strikes may end very soon, if employers renegotiate and make a sensible offer. The Wiesbaden based Federal Statistics office and Offenbach’s German Weather Service were hit badly due to the stoppage which focused on southern and central Germany last Thursday.

School Teachers and the Public transport workers in Bavaria, Baden-Wuertenburg and Hesse also walked off their jobs. The bus, tram and sub-way workers in Berlin also walked off their jobs for the second day for the 10 day public sector strikes which are intended to gain an increase in wages of 12%.

Disputes over wages roil amidst concerns over awareness in Germany of wealth from the present economy of the country being distributed illegally. In another dispute, the train drivers union GDL has also threatened to start a determined strike against the rail network of the region on Monday, if deutsche Bahn AG, the national railway operator, does not sign a negotiated agreement which was made earlier.

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E.ON, Germany’s major energy service provider, posted its fourth quarter profits, which fell more than had been estimated. Revenues of the energy service provider fell 23%, ending at 1.89 billion euros (2.9 billion dollars). According to the median estimation of seven analysts that were surveyed by Bloomberg, profits of E.ON was estimated to be around 1.03 billion euros.

Average energy prices in Germany rose 44%, which boosted electricity sales for the company. Compensating tax gains for the previous year in connection with energy offshoots also benefited revenues for the company.

Wulf Bernotat, the chief executive officer of E.ON, said that the company’s shares rose 88% in the last three years. These figures were confirmed by Ulf Moritzen, manager of shares at Nordinvest, who said the company will continue to make profits.

Utilities have undergone political pressures in the means of severe networking guidelines and competition. The company is been operating stably and is growing perfectly said Moritzen. E.ON gained 1.3% to end at 123.33 euros; this is the biggest gain for the company since it had seen a reduction of 15% last year.

Fourth quarter sales increased to 19.9 billion euros as compared to the estimated 18.2 billion euros the company was expecting. Profits before tax and interest deduction also climbed up to 2.06 billion euros, against the expectations of 1.98 billion euros.

E.ON proposed to increase its dividend from the year 2007 profits to 4.10 euros. In the previous year the fourth quarter profits of the company have always been boosted due to tax rebates totaling roughly 1.05 billion euros.

Utilities stabilized even more than last year, according to International Financial Reports. Marcus Schenck, chief financial officer, said that according to the copies distributed to the reporters, higher restrictions in the wholesale business of producing energy and needed reevaluations for the regions nuclear waste disposal responsibilities had had a positive result.

Last year’s net income climbed to 7.2 billion euros, in comparison to estimations made by analysts which were 6.35 billion euros. The year’s sales also advanced to 70.8 billion euros, an increase of 4.6%. German utilities earned higher energy sales in the fourth quarter following increase in the energy prices. According to the GFI group broker, German energy sales averaged to 70.44 euros in comparison to 48.94 euros in the previous year.

Second largest utility company in Germany, RWE AG, said that its fourth quarter sales climbed to 11 billion euros, an increase of 6.7%. However the company’s quarterly net declined to 168 million euros, following American Water units reevaluating. In order to resolve the antitrust probes of the European Union into the company’s business observations, E.ON said that it had offered to sell its energy grid.

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Business leaders from Europe have warned that the euro may suffer if the EU fails to build up prevailing political organizations in order to stabilize the European Central Bank. President of Business Europe, one of the leading Pan-European Business organizations, Ernest-Antoine Seilliere, said that at present there is no stability between the supremacy of the European organizations and the European Central Bank. He also said that they consider the euro will suffer in the long term if there is no political support, especially by the eurogroup. Seilliere said this with the reference to the eurozones 15 financial ministers who hold official meetings every month.

As the euro ascended to its record breaking high in the markets of the foreign exchange, reaching 1.5347 dollars, Seilliere spoke to the reporters about the threats to euro in the near future.

On Friday morning, the euro had reached a record high of 1.5347 dollars against the British pound. Business Europe did not mention its desire to observe the tough responsibilities in co-coordinating the economic policies of the eurozone. Nevertheless, Seilliere did comment on accounts of the growing concerns of European Union on the increasing euro against the Asian currencies like Chinese Renminbi and Japanese Yen.

Seilliere also said that they were looking forward to eurogroup attaining more authority, power and genuine prospective when it holds meetings. Prime Minister, Jean-Claude Juncker has done much, but there is still more that can be done, added Seilliere, in reference to the leader of Luxembourg who holds meetings of eurogroup. He even said that synchronization in the European region for its economic policies is very much essential. He requested the Luxembourg leader to join forces with Washington, Beijing and Tokyo and discuss growing concerns of the world’s economy in order to maintain the monetary system of the world.

It may not be possible to hold talks immediately, but it can be done in the near future, otherwise the euro will decline to 1.80 dollars, said Seilliere. He even questioned the legality of the European Central Bank self governing system which entails much political involvement. Seilliere pointed out that due to agreements that currently govern the monetary system of the European Union , the ECB was in fact eurozone’s most powerful organization. This makes the reckoning of influence in economic discussions and global monetary difficult for the eurozone.

The supremacy of euro was undeniably making life hard for some of the export sectors in the European region, said Seilliere. Nevertheless, some of the business leaders in Europe cherished the supremacy of euro because it was helping to maintain the inflationary force of soaring gas and oil prices, added Seilliere. The resolution the competitiveness problem in Europe lies in labor market reforms, A better education system, and business innovation, said Seilliere. He also said that these business leaders should not miscalculate the importance of euros supremacy.

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For the first time in almost a week European stocks saw upward movement. The momentum being led by the regions leading insurance company, Allianz SE, phone manufacturer Nokia, and the largest bank in the region HSBC Holdings. Estimations for the Dow Jones Stoxx 600 index were down to the lowest level since 2002. As reports confirmed U.S. service industries had minimized less than anticipated, the stocks pulled out some noticeable gains. Investors had stated that they thought banks would offer funds which bond insurers needed to keep their AA ratings. As all the service industries advanced the Stoxx 600 climbed to 315.61 points, an increase of 1.7%. The Euro Stoxx 50 measured a 2.1% increase, while the Stoxx 50 climbed up to 1.5%.

Henk Potts of Barclays Stockbrokers market in London said that the markets were indeed facing a hard time, however some areas of the market are still floating along fine. Statistics showed that the concerns over the slowdown in the largest economy in the world, and the collapse of U.S. subprime mortgages might curb the profit growths which had helped Stoxx 600’s price earning ratio. The local index has declined to 13% so far this year, which was led predominantly by telecommunications companies, banks and retailers.

The index of national stocks moved up in all the markets of the 17 western European countries. UK’s FTSE 100 climbed 1.5%, whilst the CAC of France gained 1.7%, and the DAX of Germany added 2.1%. Europe’s second largest insurance company AXA climbed up 1.75% to end the day at 21.76 euros, while the leading insurance company of the region Allianz gained 2.6%, and ended at 116.04 euros. Even the leading bank in the region advanced to 2.5% to end at 788.5 pence.

CNBC said that the rescue arrangement by Ambac with the banks might be completed by March 5th. Barclays and Citigroup are the leading banks to hold the talks that extended till 10pm on March 4th. The largest phone manufacturer, Nokia, advanced 3.6% to end at 22.9 euros, breaking the reduction that had sent their shares into decline since January 23rd. Europe’s leading engineering company, Siemens, also advanced to 3.3% to end at 85.47 euros, and Daimler Chrysler the car manufacturer gained 1.8% to end at 54.89 euros.

Man AHL Diversified Futures Ltd advanced to 5.9%, whilst Man Group, the leading funds company gained 5.7% to end at 566 pence. Credit Agricole also advanced 5.8% to end at 18.2 euros, breaking the four day declines. After Britain’s leading builder said that the profit rested at about 66%, totally roughly 151 million pounds, the Balfour Beatty gained an increase of 6.5% to end at 457.75 pence. Profits climbed 44% to end at 6.47 billion pounds, though some analysts had estimated profits to be at 145 million pounds on 615 billion pounds of sales at this point in time.

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A fresh round of public sector strikes has created chaos within Germany’s public transport system. On March 6th, as members of labor union Ver.di held the strike, airports and other public transport systems were completely paralyzed. These unusual strikes affected state-run institutions such as healthcare centers and hospitals as well, though not to the same degree as the transport system in Berlin which experienced a complete halt. If all their requests are not complied with, these strikes are likely to progress further said one of the employees of the association.

According to the airport spokesperson, around 180 flights at the Munich airport were being canceled due to the strikes. Frankfurt, the biggest airport in Germany was hit with 94 flights being cancelled. Some of the other main airports in the region such as Stuttgart, Munster, Düsseldorf, Cologne-Bonn and Nuremberg were also affected by these strikes. Even the CeBIT trade fair in the northern city of Hanover was affected. On March 6th, Lufthansa Airlines had to cancel over 300 domestic flights and instead recommended the passengers board trains to reach their destinations quicker. One spokesperson for Lufthansa said that international flights were not affected so they have transferred 18,500 passengers on the later flights.

Germany’s second-largest labor union Ver.di has said that this strike would continue for a week in order to force the local and state governments to hold fresh talks regarding negotiations which were supposed to take place on March 7th in Potsdam. The labor union has demanded an 8% increase in payrolls while the employers are offering only 5% with their working hours being increased to 40 hours a week from 38.5 hours. It was expected that airport employees would return to their shifts on Wednesday afternoon, though a new wave of strikes is set to hit the region. The labor union has insisted that all the workers from the child care, waste collection and transportation sector walk off their jobs, and even employees from state owned banks, theaters, city administrations, retirement homes, and hospitals have been asked to join the strikes.

Frank Bsirke, the labor union chief, said that the strikes were held to warn the government and to end the disputes by agreeing to the demands of the union. Meanwhile, the employers have slamed the industrial action. The head of German Association of Municipalities and Towns, Mr. Gerd Landsberg said that the paralyzing transportation system is entirely inappropriate. He also said that these negotiations are unavoidable.

The labor union has warned public employers that if their demands are not met then things may get worse. Bsirke said that the public employers should place an offer with considerable increase in the payrolls and there should even be a cut in working hours, or else unions are likely to act fiercely. The tram, subway and bus services were also affected by the unusual strikes. More than 12,000 employees were off duty which forced the regional trains to be over crowded amidst the snow flurries. The workers of the BVG transport company in Berlin threatened to extend their strikes until March 14th.

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Russian gas giant, Gazprom, and Ukraine’s energy monopoly, Naftogaz Ukrainy, agreed last Wednesday to resume shipments to Kiev, which has been causing much concern to the European region.

This comes in spite of allegations of unfulfilled contracts and non-paid debts on the part of the Gazprom; who prior to this issue had a very good reputation for reliability within the European region.

The dispute between the enegy providers has left Kiev and parts of Europe with around half of their normal supplies of gas.

According to the terms and conditions of the agreement between Naftogaz Ukrainy and Gazprom, they have settled on a 600 million dollar debt payment for the supplies of gas that have been sent for the present year. Both the sides said that Gazprom would restore consignments in full.

This latest series of disputes between the two energy monopolies occurred just after the prime minister of Ukraine Yulia Tymoshenko rejected to sign treaties with the Russian energy giant. However, Viktor Yushchenko, president of Ukraine, had agreed upon the contract.

Last Wednesday saw the Russian president, Vladimir Putin, and the Ukrainian president, Viktor Yushchenko, facilitate the contract. This happened immediately after Gazprom said that Ukraine was beginning to diminish the consignments to the European region in order to pay off huge deficits on the domestic gas market.

According to an arrangement made through mediators, Alexei Miller, the chief of Gazprom, and Oleh Dubyna, the head of Naftogaz Ukrainy, agreed upon the debt payments. This was done immediately after both the presidents had a chat via telephone.

However, both sides are yet to agree on some of the main issues of how much Gazprom will be paid by Naftogaz. Whether upcoming sales stablize and whether a joint undertaking which is half owned by the Russian gas giant are enacted are still not agreed upon decisions, said the representative.

Ukrainian energy monopoly Naftogaz was cautioned about the cutbacks that would create chaos in the European region regarding gas supplies. This would further raise disputes which might lead to shortfalls of gas supplies in the European region. 25 % of gas requirements for Europe are currently being supplied by Russia, most of which goes to Ukraine.

On March 6th, the European Union expressed its deep concern over the cutbacks of gas supplies while the International Energy Agency said that it was an extremely harsh move opted by Gazprom. The director of gas research at OIES, professor Jonathan Stern, said that Gazprom recognized it was eventually going to be responsible for the crisis although it was mainly motivated by Yulia Tymoshenko.

She eliminated liaison Ukrgazenergo from the gas market and refused to sign an agreement for the upcoming year. Jonathan Stern said that it was entirely foolish; this is what senior administrators do not do, senior administrators do not unexpectedly eliminate the counterparties.

Yulia Tymoshenko is at present looking forward to breaking the promise made by Yushchenko in February, who had agreed that the two gas giants, Ukrgazenergo and Rosukrenergo, would be restored with a joint undertaking between Naftogaz and Gazprom.

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The European consumer expenditure that accounts to about 60 % of the financial system, declined for the first time in the fourth quarter restricting the economic growth of the region. Since 2001 the consumer expenditure in the European region fell down to 0.1 % for the first time since six years. This happened after developing 0.5 % in the last three months reported the statistics office of European Union in Luxembourg. The development in the sickening domestic products relieved from 0.7 % to 0.4 %, harmonizing the evaluation that was published on 14th February. The towering prices of gasoline, bread and milk were corroding household expenditure control in the European region even as the unemployment declined to the lowest level since 1993.

The economic slowdown of United States at the same time also reduced the demands of European products. Even the increase in the euros records against the US dollar made the exports less feasible, making the companies to reduce investments. Unicredit MIB economist Aurelio Maccario, in Milan, said that the consumer figures were even worse than they were expecting. As the current investments seem to be the best news, the predictions are less glowing and the tendency may soften in the coming months. At present the figures show that the investment growth of the company has slowed down from 1.2 % to 0.8 %, whereas the government expenditure has slipped down to 0.1 %. Even exports had enhanced to 0.5 % in comparison to the previous three months which was at 2.1 %.

Production Level

In a separate report it showed that the inflation of the production level increased in the month of January to the record in 17 months as the energy prices mounted high. The decline in the development of the European region could extend this year, as the nastiest housing downturn of US in 25 years restricted the development in the largest economy of the world. Even the progress of euro against the dollar warns the sales overseas. In the past one year the euro rose up to 16 % against the US dollar, reaching to a record high of 1.5275 dollars on 3rd March. In Brussels it slipped down to 1.5196 dollars by 0.1 % at 11.45 am on the next day.
After this report the European stocks completed its declines. The Stoxx 600 fell to 0.7 % and the Dow Jones Stoxx 600 slipped to 0.9 %. The government bonds climbed up overturning the previous decline. The 10 year bund yield of the Europe’s target slipped to 3.85 % by 1 basic point. From the previous year the economy of the European region grew up to 2.2 % in the fourth quarter, altering the first 2.3 % evaluation. In the third quarter the economy grew up to 2.6 %.

Inflation in the Production Prices

Present day figures show that the inflation in the production prices increased from 4.3 % in the month of December to 4.9 % in the month of January. The energy growth prices also increased to 11 % whereas the prices for durable consumer goods and intermediate goods even mounted high. The Chief European economist Howard Archer said that the report on the production prices will manage the ECB’s worries on increasing pressures which reduce the supplying sequence. In the third quarter Germany’s GDP climbed to 0.3 % when it improved 0.7 % expansion in Netherlands and France, whereas the economic development of Spain increased from 0.7 % to 0.8 % in the third quarter.

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On 4th March, finance minister of Europe made clear that their main concern about the euro against the US dollar. They believed that they had not forced down to manage the intercessions of the central bank in the markets of foreign exchange. Finance ministers from the Eurozone’s 15 countries issued a report on 3rd March stating that in these situations they are very much concerned about the movements of the exchange rates and they believe that the present movements are shimmering economic essentials. As the euro mounted to 1.5275 dollars which was at the highest level since 1999, the finance ministers did began to react. During the previous year the euro had climbed by 6 % against the US dollar which is stronger than the Japanese Yen and Renminbi of China.
Some of the financial market analysts distinguished that the report of Eurozone was comparable in tone to which was utilized before the ECB mediated in September 2000 in support of the euro. On 3rd March financial ministers brought to notice the reality that ECB President Jean-Claude Trichet had stressed before having a conversation, which the authorities of United States had assumed that it was in the interest of US nationals to possess a strong dollar. In the financial market this was taken as a warning sign made by Trichet about the dollar.
However on 4th March, finance minister of Greece Mr. George Alogoskoufis said that there had been no debates between his colleagues on the common financial market intercessions by the US Federal Reserve and ECB. “There were no debates on that between us” said Alogoskoufis. He even added by saying that there was a minor increase of interest regarding the developments of currency market as the instability prolongs and this is what they do not prefer. However this instability does not mean to be drastic, it is a universal dilemma and not only the problem of Europe. He said that on their own they cannot do anything and so they need assistance from all the European countries.
The Eurozone finance ministers group chairman Mr. Jean-Claude Juncker did not even comment on the interventions of the central bank. He said that he believes this might be wise enough to provide goals to the financial markets. However, some of the Eurozone countries like Netherlands and Germany argued that there are benefits in the strength of their currency, which is serving to hold the inflation that is at present at a 14 year high. Moreover they observe modest impact on the export performance of Eurozone.
President of European Commission Jose Manuel Barroso said that the viewpoint was by no method miserable, even though in the last month European Commission had stopped Eurozone’s economic growth forecasts for the year 2008. He also said that they were facing financial headwinds which may have been strong enough during the previous years to sink them. However, at present Europe is beginning to develop and also produce more jobs. At present the employment rate in the region is at the highest level at 66 % and the unemployment rate is at the lowest level at 6.9 %.

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Tensions between the German and French leaders appear to have relieved as they have found solutions on the Mediterranean Union proposal. A freezing burst in the German-French relations might be melting at-least on the serious problem which had divided Paris and Berlin. On 3rd March, both Nicholas Sarkozy, French President and Angela Merkel, German Chancellor declared that they had come to a conclusion regarding the Mediterranean Union proposal made by Sarkozy. In the recent weeks, German Chancellor was constantly criticizing the project. However, on 3rd March both the leaders seemed to have counterfeited the agreement. Sarkozy said that both the leaders have compromised on the proposal that will not prohibit anyone. They have agreed on details and the principles said the French President.
Angelo Merkel the German Chancellor said that the following result should be known as Mediterranean Union and it also should be the joint venture for all the Members of the European Union. This was said in a press conference jointly held with Sarkozy at the CeBIT computer trade fair in which France was the official guest country. Merkel referred to the deal in order to create a union along with the Mediterranean States which border the countries of European Union. This deal should be agreed and well planned in combination with all the members of EU States and not just the Mediterranean states as the French President had proposed in the beginning.
However, both the leaders did not summarize any particular details. The French President said that they did not prefer to capture the spotlight of EU from Slovenia that at present holds the bloc’s revolving administration. France believes placement to be in the month of July and the French President had intended to make the organization of the Mediterranean Union the main attraction of the six months tenure of Paris.
Earlier, Merkel had blamed Sarkozy for avoiding the existing strategies of EU in an effort to boost diplomatic influence oversees of France and for offering expenditure finances from the bloc of 27-nation in order to assist the creation of a new union. Sarkozy hoped to utilize the idea of “Club Med” which was disapproved by the critics, after the holiday chain of France in order to strengthen relations with the nations of Middle East and North Africa including Turkey. However, diplomats from Germany observed it as an effort to set up a second-tier European Union dominated by France. Some of them accused Sarkozy for utilizing it to avoid the membership in the EU for Turkey.
Allgemeine Zeitung from Frankfurt noted on 4th March that the German Chancellor had at first rejected the plan proposed by Sarkozy not due to Germany but due to the interests of the European states. The main problem of France is that it wants to resolve the solution with its bordering states that are even alleged by the German Chancellor as common problems for the European Union such as environmental protection, climate, trade, illegal immigration and the peace process in the Middle East. The German Chancellor insists that this proposal should be included in the European Union’s Barcelona procedure that was established in the year 1995. He also aims at promoting talks between the ten bordering countries and European Union.

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Russian’s natural gas company Gazprom stopped its supply of gas to Ukraine after Ukraine failed to solve the disputes of debts which raised concerns over the European supplies. Sergei Kupriyanov said to the reporters in Moscow that Gazprom has cut down its supplies to Ukraine by almost 25 %. However, Gazprom is ready to supply in full to the European consumers he said. Russia has described this argument as a business dispute whereas Ukraine has blamed Russia for forcing energy to uphold its regional pressure. These arguments boom Gazproms discontinuation of gas supplies to Ukraine that disturbed the exports to EU.

Leader of research at the Renaissance Capital in Ukraine said that the gas stores in Ukraine are not enough to survive the cuts in particular during the present serene weather. Andris Piebalgs the energy commissioner of EU said that gas supplies in Europe are not at risk. As Russia will provide Ukraine will transfer. Viktor Yushchenko the Ukrainian President insisted on Yulia Timoshenko the Prime Minister and the head of Naftogaz, Oleh Dubyna to make sure that successful discussions with Russia will not arouse a dispute over the gas problem. Timoshenko had needed to refuse the gas deal with Russia that both the presidents has agreed on 12th of February, avoiding the stoppage of gas supplies by Gazprom.

As Dmitry Medvedev, the chairman of Gazprom won the presidential elections recently, he promised to carry on the policies of defending the interests of Russia being implemented by Putin by all possible measures. The relationship between Ukraine and Russia worsened since 2005 when Yushchenko took over the office as he promised to created good relations with NATO and EU. The gas prices have climbed up since then up to 179.50 dollars. On 7th February, Gazprom declared its first threat to cut down gas supplies to Ukraine after Ukraine had won the consent in the WTO two days before the declaration.

Ilya Savvin said that Naftogaz is revising a new proposal from Gazprom and is about to send an assignment to Russia. In the last week Gazprom demanded repayment of gas debt, consent to further gas supplies and sign a deal for the supply of fuel from Ukraine or else risk the cuts of gas supplies thereby. Chief strategist of UralSib Financial Corporation Chris Weafer said that Ukraine is in a better situation to possess a prolonged argument. Timoshenko is willing to transform the present situation of the agreement. Gas supplies to Ukraine were cut down by 35 % or 46 million cubic meters per day said Savvin.

Gazprom has demanded Ukraine to agree to the formation of these two companies in order to control the gas business by substituting RosUkrEnergo the only gas company that permitted to import gas to Ukraine. Naftogaz and Gazprom equally share the rights of the innovative companies. RosUkrEnergo is mainly owned by both Ukraine and Gazprom. As Gazprom stopped its gas supplies to Ukraine, Germany’s natural gas supplier E.ON has anticipated maintaining normal supplies to its customers in Ukraine. Astrid Zimmermann refused to remark on whether E.ON has observed any changes in its gas supplies. He said that the E.ON draws gas from a number of resources.

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HSBC has cautioned that the rotation of its business in US might capture until the end of next year, since it disclosed a 17.2 billion dollars strike from the loan provisions and bad debts. The HSBC group exclaimed its write-downs in relation to the non-payments in the last year which climbed up to 63 % more than what they had expected. However the group which is the leading bank is still managing to post a 10 % increase of 24.2 billion dollars in the pre-tax profits. The consumer banking business in US climbed by 80 % to 11.7 billion dollars, however the crisis of US housing has been experiencing a record of non-payments and recoveries as high threats fight back to gather loan repayments.

The bank is at present reliant on the general health of the economy in the US for a rotation said Douglas Flint the finance director of HSBC. A year ago they were expecting a turnaround in the year 2008, but now it looks like it would be at the end of 2009 which is also not sure, said Flint when asked about when the circumstances would mount. Majority of the customers were maintaining their loans in United States with customers having bad-credit are largely obliterated from its functions added Flint. He also said that if in case the unemployment issue stays for a longer period then it is possible they would see a turnaround in 18 months. And if it does not then it is likely to take a longer time as it depends on the common health in the United States.

The entire operation of HSBC in North America supplied 91 million dollars of total pre-tax profits that was maintained by extremely strong presentation in the upcoming markets like Asia. HSBC’s division in Asia Pacific and Hong Kong generated 13.3 billion dollars of profits with the European division adding another 8.6 billion dollars. Profits from the 1,500 branches in United Kingdom were down up to 740 pounds which is a decline of 16 %. HSBC said that this decline was due to the repayment overdraft of 115 pounds in the year 2007. In its financial records HSBC has cautioned that the entire budding repayment could be up to 600 million dollars due to the outcome of legal action.

However the profits from the commercial banking sector in UK topped the mark of 2 million dollars for the foremost time. The consumer business of HSBC in US which comprised of personal loans, credit cards and mortgages deteriorated during the middle of the year with the downfall of 7.9 billion dollars. This was after the strike of 3.8 billion dollars for the initial six months. Shareholders of HSBC said that they have implemented forceful actions in order to avoid further losses which include the shutting down of 400 branches, reduction in the quantity of products and tighter lending measures.

Douglas Flint even pointed out that the problem of bad debts were not to spread from its business of mortgage to its personal or credit card divisions. Stephen Green the chairman of HSBC cautioned that the credit outlook of United States might deteriorate before any signs of enhancement. He also said that the outlook for the concluding year of 2008 is doubtful as the credit outlook and the economic slowdown in United States might well get deteriorated before improving.

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The European inflation remained at a record high of 3.2 % in the month of February. This will further enhance possibilities of the ECB’s rate of interest to be left tightly on hold at the council meeting on Thursday the 7th of March. The ECB overturned its representation as a sluggish business, through its quick response in the previous year due to the warning of financial markets grabbing up and leading an example in forcing emergency liquidity. However, the inflation information on Monday pressed on higher due to fuel and food prices which mean an extra watchful nature is possibly to overcome on the 7th of March.

ECB president Jean-Claude Trichet argued that the main task of the bank is to fight inflation, the task which is undoubtedly different from its responsibility to ensure the systematic implementation of the financial markets. The primary interest rate of ECB is unchanged at 4 % since the month of June last year despite clear signs which show European economic development has severe cuts and slowed down in borrowing incomes by the Federal reserve of United States. Trichet was very much worried about the interest of US in the strong dollar; however the main concern for ECB is about the flow in inflation. The prices for food and fuel seem to be the main concern for the bank.

As the European Central Bank expects to revise its predictions for the development in the present year significantly, it also predicts to revise the inflation to be upwards. Even in the coming year it could show an enhanced threat where the Eurozone inflation could be above the target which is below the normal 2 %. However, few of them are worried that the bank is taking the economic threat too lightly. Marco Annunziata said he feared that the ECB would fall in a trap while trying to avoid the considerable slowdown of growth. Development is slow due to higher inflation in the commodity prices whereas contraction in the credit is not yet been seen in the statistics added Annunziata.

Even as the improvement in the Eurozone was at a record high against the US dollar and also on the basis of trade-weighted controlling the development, it appears that this is even viewed as useful in dealing with the price demands. The vice president of ECB Lucas Papademos disagreed that the impact is not possibly to be significant on the economic activity of the financial market chaos. According to the ECB statistics the borrowing business in the Eurozone raised at the record high which approached 15 % in the month of January.

According to the indices of the purchasing manager, the main concern was in the manufacturing unit of Spain were its production fell for the first time in more than five years in the month of February. However, Netherlands and Germany seemed to be enduring the financial blizzard better. On the other hand ECB has changed its attitude on the possible course of the interest rates. Jean-Claude Trichet normally stressed on the curiously high altitude of insecurity that emerged to open the doors for these cuts.

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Europe’s leading bank HSBC Holdings Plc revealed its second half profits of the year 2007 which rose up to 18 % since budding market loans and an accounting gain alleviates the subprime losses of the United States. According to the estimate of thirteen analysts investigated by Bloomberg, HSBC’s net income most likely rose up to 8.3 billion dollars from 7.1 billion dollars in the previous year. The dreadful loan will most likely increase up to 9.3 billion dollars from 6.7 billion dollars according to five other analysts.

In the month of November last year, HSBC said that the losses of subprime mortgage was spreading to the unsecured loans and credit card as decreasing house prices grasped consumers in the United States. The bank also said that the 1.3 billion dollar gains from the income borrowed before the credit spreads extended in the previous year will assist their profits. The Chief Investment Officer at the Royal London Asset Management Mr. Robert Talbut said that they were looking for accuracy and practicality as much as possible with regard to the present situation and even their contacts to several financial mechanisms.

Royal Bank of Scotland which is based in Edinburgh posted its written note for the year 2007 of about 2.5 billion pounds which was related to the securities of the credit market. Even Barclays based in London posted its written note of about 1.64 billion pounds for the previous year. Stephen Green, the Chairman of HSBC set aside 3.4 billion dollars in the third quarter in order to cover the defaults by United States. The Company said that the division of investment banking has inadequate guaranteed debt responsibilities which are linked to dangerous credit.

The investment banking unit of HSBC which is led by Stuart Gulliver has supplied 29 % of profits in the first half and in the second half it was the leading sponsor of Asia Pacific link outside Japan. After the last weeks scaling down dangerous loans and exiled managers to manage bad debts HSBC appointed Brendan McDonagh as the chief executive officer of the unit in the US. It extended into subprime by its 15.5 billion dollars achievement of Prospect Heights at the household international based in Illinois.

The company prepares to enhance the pretax profit from budding markets and assigned Vincent Cheng as the Asian board director. Standard Chartered Bank posted its second half profits of 1.44 billion dollars, a rise of 23 % this week. It was motivated by the profits from the markets like India and Honk Kong which makes 90 % of the earnings.

In the recent year’s trades in London, HSBC has declined to 12 % in comparison to the 16 % drop in the European Banks index. The market value of HSBC is about 92.2 billion pounds. After HSBC posted 10.6 billion dollars of bad loans in the year 2006, Knight Vinke the investor of Asset Management has sought a self determining appraisal of the HSBC’s plan.

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E.ON, Germany’s major energy service surprisingly made an announcement that it is likely to vend its transmission network, that might influence the European Commission’s future plan to ease up the energy sector. On Thursday the 28th of February, E.ON announced this breakup that could in fact influence the constant combat between the governments of the European Union over the European Commission’s future plan. Peter Hinze, the secretary of the state for the financial system in Germany said that this particular announcement was quite surprising. He even added that the timing of these proceedings is at present a doubtful fixture when the European Commission is about to force through an extremely sharp location against the minority.

Edf of France and Germany’s EnBW & RWE are other energy services in the European Continent which have reacted unemotionally to this development of the latest markets. A senior executive at one of the energy sectors in Europe said to the Financial Times that this surprising announcement made by E.ON is actually unbelievable and this has made everyone unhappy.

This particular announcement could not have approached at a bad time like this he said. E.ON Company’s surprising decision is probably to weaken severe opposition of Berlin to the idea of Brussels to straighten out the energy supply and production division of the company.
Along with countries such as Austria, France, Slovakia, Luxembourg, Latvia, Greece and Bulgaria, Germany has formed an overcrowding marginal group within 27 countries of the European Union. However, the European Commission has greeted the E.ON Company’s preposition by saying that if it has been approved then E.ON would constructively revolutionize the energy sector in the country. And this could generally stimulate opposition in the energy sector to the benefit of industrial and domestic customers of the country.

The energy commissioner of European Union Mr. Andris Piebalgs told the journalists that it would encourage them as the offer made is in fact a productive one and that would even not generate any problems for any of the energy sectors in the nation. He said this over the intention of Brussels to push back for the complete liberalization which is also known as possession unbundling. This plan recommends the splitting up of energy companies transmission and production divisions by means of forcing the main company E.ON to vend its transmission networks.

Over the predictions for his suggestions by getting the permission from the groups of European Union Mr. Andris Piebalgs said that all the member states would without doubt like to have a deal by the month of June. And this deal would be able to overpass the dissimilarities. However, he said, he cannot guarantee this but there is definitely a fair amount of chance to implement this deal in the near future.

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The Russian leading gas producer Gazprom is expected to cut down shipments of natural gas to its neighboring country Ukraine on 3rd of March. Due to the price disputes which dented the gas supplies to Europe in the year 2006, both the countries confronted on their main energy supplies. At present the Russian gas dominant Gazprom has warned to cut down gas supplies to Ukraine by almost 25 %. This has been done in opposition to the non settlement of 1 billion dollars of gas bills for the previous & present year by Ukraine. It has even claimed that Ukraine has not agreed to sign a treaty for the gas supply for the present year.

On Sunday the 2nd of March spokesperson of Gazprom Mr. Sergei Kupriyanov said that it is still likely that the treaty can be signed by the cut-off date by 10 am in Moscow. However if not then the gas shipments to Ukraine will be cut down to around 25 % on 3rd of March. This disagreement started just three weeks after the Russian President Vladimir Putin and his counterpart Victor Yushchenko declared a last-minute declaration to avoid the reduction of gas supplies to Ukraine. Gazprom is one of the largest gas producers which possess several huge pipeline system transporting gas supplies to the whole of Europe.

The handshake treaty between both the countries predicted the elimination of notorious middlemen from the gas deal. This agreement was anticipated to avert the repetition of price disputes in the year 2006 which caused shortage of gas supplies in the European countries. Since then both Naftogaz Ukrainy and Gazprom have failed to sign an agreement subsequent to the presidential settlement. In the month of February, Gazprom newly warned Ukraine to cut down the gas supplies; however both the countries have persisted that the consumers in Europe would not be influenced by this.

On the 1st of March, the Prime Minister of Ukraine Ms. Yulia Tymoshenko expected that Gazprom would not cut down gas supplies in conflict that the obligations were not fulfilled by Ukraine. Yulia Tymoshenko repeated her previous promises to eliminate the murky middlemen businesses from the gas deal between Central Asia, Russia and Ukraine. She called these middlemen as fraud & dishonest and raised the spectrum that these middlemen might have avoided to make the payments to Gazprom. This remains doubtful when an ultimate agreement could be achieved and if it could include additional price rises of gas for Ukraine.

Managing the disagreement is observed as a litmus check for Yulia Tymoshenko who has returned as the prime minister last year subsequent to the strong presentation in the parliamentary elections. The agreement of cutting down gas supply is not observed as a big warning to Ukraine as the demand for gas has lowered since last winter due to the unusual weather. While addressing the journalists, Yulia Tymoshenko said that the government is looking to cut down the wastage of gas consumption in the country that consumes about 70 billion cubic meters of gas annually.

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On the 28th of February, the Dollar went one step lower to reach a record low against the Euro. The dollar has been doing very badly in the recent past against the euro. On Thursday it came down a bit too low to make a record. The reason for the decline in dollar value on the 28th was because of some of the depressing economic reports about the US economy that came out. Another reason for the drop in dollar value is because of the wide spread belief that the Federal Reserve is going to keep cutting the interest rates.

The Euro during the day hit a sequence of highs of which $1.5087 was the highest. The Euro finally settled at $1.5059 when trade closed in the evening. The value of Euro on Tuesday in the late trading session in New York was $1.4967. The dollar also took a fall against the Japanese Yen. It fell from 107.26 yen to 106.07 yen by the end of trade on the 28th of February.

The effect the low of dollar is going to create is rather harsh on the Americans who will be visiting the European continent. The rising value of pound along with the euro is going to mean that the Americans will find it very difficult indeed. They would end up paying a lot more than what they are used to paying during their stay in Europe.

On the contrary the high value of Euro against the dollar would mean good news for the Europeans. They would be able to buy more than what they would have usually done so because of the high value. Another positive thing for the Europeans about the euro gaining more value against the dollar is that the goods that are coming from the continent would become more expensive for the customers who are living outside it. This would then hack into the manufacturer’s profit if they try to keep the price of products at a constant level as that of US Dollar.

This prompted the budget minister of France to call the Euro a ‘handicap for their exports’. The strength of the euro is not expected to create any lasting impact on the German economy as per the words of the chief economist of Germany’s Chamber of Commerce.

Many economists in the continent feel that the Euro is not going to lose value anytime soon. The main reason that is attributed for this is because of the worsening in the American interest rate differentials. This in the process would then take out an important support for the US dollar. Over that the possibilities of many other countries switching a part of their foreign currency reserves out of the US dollars in some time is very high.

Since the US economy is trying to keep a recession out of the country by any means the fears of inflation are very high in the country. All this put together hints that the US economy is not going to recover anytime soon. This would also mean that the US dollar is going to stay in a weak position for quite a while.

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On the 28 of February, the chairman of the largest bank in Switzerland had to face the demand of majority of the shareholders in the bank for his resignation. The angry shareholders were asking for his resignation as a result of him admitting some of the mistakes the bank had made as a result of the sub prime crisis. The demands for his resignations were made when his controversial SFr13bn (£6.1 billion) fund raising got the approval from most of the investors during a specially called meeting.

During the specially convened meeting the bank’s chairman announced that the ongoing sub prime crisis in the US market had caused him to go through a lot of stress and that the bank during this period of time had made some mistakes. While facing an audience of almost 6,500 shareholders in the city of Basel Marcel Ospel admitted that the largest money lender in Switzerland had not been doing too good in the recent past. He said that it was a result of the economic turbulences that were happening in the country of USA.

He acknowledged the fact that the bank had been completely unable to recognize the signs that were coming from the US housing market at the right time. The fact that UBS was a very cautious and careful bank, which was even averse to risky banking, makes the situation even more depressing. He admitted that the bank had faltered in reading the signs well. However he waived off the cries for his resignation by saying that he would not go away until he had brought UBS back into the path of success.

UBS till date was one of the worst affected banks in Europe as a result of the credit crunch in the USA. Through a series of declaration, the bank has been forced to get $18 billion (£9.1 billion) of fees. This was because the investment bank suffered a lot of losses trying to compete with the rivals on Wall Street in many fast credit markets which collapsed almost completely last summer. This was a major blow to the bank and resulted in UBS having to declare a loss for the year 2007. This was the first time the bank reported a loss since it was formulated almost 10 years ago.

As if to make thing worse, the bank took another blow when HSH Nordbank, a lender in Germany claimed for losses from UBS. The claim was on $500 million of guaranteed debt obligations that the German lender says UBS abandoned on them just before the markets crashed.

Now the bank is trying to raise a huge capitol to enhance its capital position and to retain the big rich clients it had always had. The plan however has not pleased many investors as the move would mean they will have a portion of their stock diluted. Whatever the move is going to be, it is going to create a lot of tension amongst the shareholders of the company.

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On the 29th of February it was confirmed that the economic sentiment in the Euro zone has deteriorated a lot more than what was forecasted for the month of February. But inflation has remained at the forecasted level itself although many economic data suggests that energy and food costs triggered a record shoot up in the month of January.

The monthly economic survey conducted by the European Commission on the monthly economic sentiment showed that the sentiment had fallen by 1.6 to reach 100.1 in the month of February from 101.7 in the month of January. This fall was a lot bigger drop than what the economists were expecting. The leading analysts that had forecasted for the month of February predicted the sentiment to drop to 101.2 and not less than that.

The reason behind the massive drop in sentiment is because of the ever decreasing optimism that exists in the Euro zone’s service segment. This sector accounts for generating more than 65 percent of the 15-member region’s gross domestic product.

When the consumer optimism remained at the same state, the construction and industry sentiment took a fall. The fact that the economy is not doing well is reflected from the fact that the only sector which showed an improvement in the sentiment was the retail sector.

The survey conducted by the European Commission however showed that the people’s expectation of inflation had remained unchanged. This is a closely watched indicator by the European Central Bank. This is the fourth month for which the expectations of inflation have remained unchanged. In the last 4 months the expectation has remained at a steady 28 points. Even though the expectation has remained stable, it is still more than the long term average, which is 23 points.

The expected selling price among businesses also remained unchanged at 14 points according to the Commission’s survey. The European Central Bank recently said that cementing inflation expectations was very essential to control the growth in price after it had taken off in the closing months of the previous year. The ECB in its recent announcement had said that it wanted the inflation to be not more than 2 percent.

On the 29th of February the European Union’s information office said that the prices in the Euro zone had fallen by 0.4 percent in the month of January as compared to the month of December. The year-on-year rise was by 3.2 percent. This was a confirmation of the previous annual predictions and other market expectations.

This annual gain was essentially due to energy prices which just shot up in the year. It had gone up by an incredible 10.6 percent. This rise was as expected by the economists.

Measuring the nucleus inflation helps the European Central Bank to determine how much the increase in the volatile apparatus influences the prices of other items in other sectors. Another thing the ECB has been trying to achieve was to get the wages to develop more than productivity. But since the unemployment in the euro zone is at a record low this is something that does not seem to happen anytime in the future.

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The job market of Germany seems to be heating up because the unemployment rate in the country slid down to lowest in February this year since November 1992. Pleasant weather and worldwide demand in cars and machinery forced companies to increase their number of workers. The Federal Labor Agency in Nuremberg said that the unemployment rate managed for the seasonal fluctuations declined to 8% from its earlier 8.1 percent in January. This unemployment rate for Germany is the lowest since November 1992 and it also confirms to be the average forecast of about thirty eight estimates carried out by Bloomberg News survey.

The managed number of individuals who did not have jobs dropped by 75,000 to 3.34 million. Strong exports and national investment are supporting payroll growth in the German economy which is the biggest economy of Europe and it managed to achieve this drop in unemployment in the face of sluggish economic growth worldwide, highest oil prices in the international market as well as the robust value of the euro. There was also a surprise rise in investor confidence and business sentiment. As per the German weather service the month of February was strangely warmer and dry. Federal Labor Agency’s president Frank-Juergen Weise also confirmed that the unusually pleasant weather helped in the drop of unemployment in the country.

The president during the television interview also said that the demand in the country is steadying at a great level with small and mid sized companies hiring workers and the companies are mostly involved in machine making. The rate of hiring workers is greater than the rate in job cuts he further added. A soft winter is helping construction companies to keep people and this is strengthening the dropping unemployment rate in the country. According to meteorologist at the Offenbach-based weather service DWD, Andreas Friedrich, at 3.6 degrees Celsius the standard temperature for February was 3.3 degrees greater than the long term average temperature in the country. The world’s biggest car component manufacturer, Robert Bosch GmbH, is in need of filling up 1,500 jobs for the current year according to Andreas Kempf, the spokesman for the company; the new jobs will be an addition to the 1,800 new workers hired in the last year by the company. The spokesman further elaborated that there is no sign of export orders stopping.

Rising employment for the people means enhancement in consumption which is the greatest part of the German economy. The disposable incomes of households grew by one percent for the fourth quarter according to the statistics office. There is also an improvement in retailer sentiment the Ifo index confirmed. As per the Bloomberg purchasing managers’ index retail sales in Germany grew for the first time in five months in February this year which is also helped by pleasant weather conditions. Given this encouraging development the highest $1.5144 per euro drop of the dollar is making the German goods less aggressive outside Europe. Fuel prices have risen to over $100 a barrel and it is restricting companies and a person from spending and it is also feeding inflation.

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