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NEWS TICKER: WEDNESDAY, APRIL 1st 2015 : The EBRD is considering a credit line of up to €15m to Všeobecná úverová banka a.s. (VUB) in the form of an extension of a €5m existing facility signed in December 2014, bringing the total amount provided to VUB under SlovSEFF III to €20m. This operation will enable VUB to provide sub-loans to companies and residential sector borrowers (housing associations) for energy efficiency and renewable energy investments in the Slovak Republic and provide financing for sustainable energy projects with a focus on reducing greenhouse gas emissions and assist in mitigating high energy and carbon intensity in the region - CMS says it has advised Orifjan Shadiyev, owner of Capital Bank Kazakhstan, on the acquisition of RBS’s business in Kazakhstan (RBSK). The CMS team was led by Graham Conlon, a partner in the corporate and international private equity team, and supported by senior associate Tetyana Dovgan - CBRE Group Inc says it has agreed to acquire the Global WorkPlace Solutions (GWS) business of Johnson Controls Inc. (JCI) for $1.475bn in cash. GWS is a provider of integrated facilities management solutions for occupiers of commercial real estate and has operations around the world – The Securities and Exchange Board of India (SEBI) says it has allowed OTC Exchange of India (OTCEI) to exit as a bourse from the nation's securities markets. According to SEBI, OTCEI had complied with the regulator's conditions for exit and is therefore "a fit case to allow exit" from capital markets adding that the bourse had made payment of necessary dues to the regulator, including 10% of the listing fee and the annual regulatory fee. "From the valuation report and undertaking of OTCEI, it is observed that all the known liabilities have been brought out and that there is no other future liability that is known as on date," SEBI said in the order dated March 31. In allowing the exit, SEBI has asked the bourse to change its name and not to use the description ‘Stock Exchange’ or any variant of it and to avoid any representation of present or past affiliation with the stock exchange, in all media. The central government had granted recognition to OTCEI, as a stock exchange on August 23, 1989 initially for a period of 5 years, which was subsequently renewed from time to time. As per SEBI’s rules, a stock exchange, whose annual trading turnover on its platform is less than Rs1,000 crore, can apply for voluntary surrender of recognition and exit, while a bourse which fails to achieve a turnover of Rs 1,000 crore, is subject to a compulsory exit process - Independent subsea remotely operated vehicle (ROV) services provider, ROVOP, has established a Western Hemisphere headquarters and support base in Houston and has hired three ROV industry professionals to lead the business. Scott Wagner, Brett “Gonzo” Eychner and Wayne Betts bring a combined total of more than 100 years’ global experience in the ROV services sector to ROVOP. They join an established management team and staff of 130 based in Aberdeen, Scotland, who have developed ROVOP into a leading player in the ROV field. The company’s client portfolio includes oil & gas, offshore wind and telecommunications companies. Mark Vorenkamp, chairman of ROVOP, said: “ROVOP is changing the market for ROV services. Over the last two decades, ROV technology, capability and service has fallen behind the pace of change seen in other industries. ROVOP’s facility is located in North West Houston on a 1.5 acre site which includes a 4,500 ft2 office and 17,300 ft2 workshop where the company will manage their fleet of FMC Schilling Robotics and SAAB Seaeye ROVs. “The recent mobilisation of two Schilling Ultra-Heavy Duty (UHD) Generation III ROVs, capable of closing a blowout preventer (BOP) within 45 seconds to meet American Petroleum Institute (API) requirements, illustrates ROVOP’s commitment to supporting clients with industry leading technology in the Gulf of Mexico,” says Wagner - The Straits Times Index (STI) ended +0.01 points higher or 0.00% to 3447.02, taking the year-to-date performance to +2.43%. The FTSE ST Mid Cap Index gained +0.02% while the FTSE ST Small Cap Index declined -0.04%. The top active stocks were CapitaLand (unchanged), SingTel (-0.23%), UOB (+0.22%), DBS (+0.15%) and ST Engineering (unchanged). The outperforming sectors today were represented by the FTSE ST Technology Index (+1.13%). The two biggest stocks of the FTSE ST Technology Index are Silverlake Axis (+1.83%) and STATS ChipPAC (unchanged). The underperforming sector was the FTSE ST Basic Materials Index, which declined -1.24% with Midas Holdings’s share price unchanged and Geo Energy Resources’s share price gaining+0.52%. The three most active Exchange Traded Funds (ETFs) by value today were the DBXT MSCI Indonesia ETF (+0.14%), LYXOR China H (+0.29%), DBXT FT China 25 ETF (+1.75%).

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The European Review

By Patrick Artus, chief economist at Natixis

What kind of economy would the euro zone be without Germany?

Thursday, 28 June 2012 Written by 
What kind of economy would the euro zone be without Germany? There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans. We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany? We think that Germany’s fears are justified. http://www.ftseglobalmarkets.com/

There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans.

We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany?

We think that Germany’s fears are justified.

Federalism: pooling between euro-zone countries

The resolution of the euro-zone crisis will inevitably involve establishing certain forms of federalism (eurobonds, eurobills) and the pooling of certain investments and risks (a European bank guarantee system, the recapitalisation of the banks (e.g. Spanish banks) by the EFSF-ESM, an increase in structural funds or investments by the EIB, ESM access to ECB funding).



The pooling of risks between euro-zone countries already exists: the Target 2 accounts are a pooling of bank risks among euro-zone central banks, and purchases of government bonds by the ECB pool sovereign risk.

This trend to federalism and pooling is inevitable: in a monetary union without federalism, countries with external surpluses and countries with external deficits cannot coexist permanently due to the resulting accumulation of external debt.

A number of financing needs are too substantial to be borne by a single country, e.g. for Spain the need for recapitalisation of its banks. And a number of risks (e.g. the risk of a bank run) are also too great not to be pooled.

Is this move towards federalism and pooling a trap for Germany?

The view in Germany is clearly that this move towards federalism and pooling is a trap for Germany. It is claimed that Germany will have to cover most of the costs because it has public finances in good health, growth that is now stronger, higher living standards than the countries in distress, and excess savings.

Germany also has strong credibility in financial markets, as shown by its interest rate level, and it is the only country to be able to credibly insure risks and guarantee loans.

The Germans' concern is therefore understandable: if there is federalism and a pooling of investments and risks, will Germany "receive all the bills"?

To determine whether this is a real risk, let’s examine the situation of the euro zone without Germany: is it such a worrying region, will it have to be propped up permanently by Germany?

The economic and financial situation of the euro zone without Germany: Is it serious?

Without going into greater detail for each country, we shall examine:

·                   its competitiveness, the foreign trade situation; the weight of industry;

·                   its situation regarding its technological level, skills, productivity and investment; its potential growth;

·                   the situation of its businesses and households;

·                   its public finances.

1. Foreign trade, competitiveness, weight of industry

The euro zone without Germany has:

·                   a structural external deficit;

·                   a shortfall in competitiveness;

·                   a small industrial base;

·                   a large external debt.

2. Technological level, skills, investment, productivity and potential growth, capacity for job creation

The technological level of the euro zone without Germany is fairly low, as is the population's level of education; this zone invests little, has low productivity gains, and since 2008 it has destroyed jobs massively.

3. Situation of businesses and households

Corporate profitability in the euro zone excluding Germany is low, but private (corporate and household) debt is lower than in Germany; however, household solvency has deteriorated (in Germany, household defaults are low and stable; in France, Spain and Italy, they are high and rising).

4. Public finance situation

The public finances of the euro zone excluding Germany are in a very poor state compared with Germany. Indeed Germany’s debt to GDP ratio is expected to fall, while in the euro zone excluding Germany it should rise rapidly toward 100%; Germany has a 1% primary surplus, while the euro zone excluding Germany has a 2% primary deficit.

Conclusion: Are the German fears justified?

If the euro zone were to become a federal monetary union, with solidarity between countries and pooling of certain investments (recapitalisation of banks, for example) and risks, surely the rest of the euro zone excluding Germany could only be:

·                   benefiting from transfers from Germany;

·                   benefiting from Germany's credibility in the markets;

·                   benefiting from Germany's guarantee;

Or could it share this burden with Germany? We suspect that the burden on Germany would be very heavy.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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