EU summit
Rancour in Brussels
A sullen summit in Brussels fails to agree on how to move on from Ireland's rejection of the Lisbon treaty
A SUMMIT that was intended to show the unity of European leaders after the rejection of their newest treaty by Irish voters has instead ended in uncertainty and rancour.
European Union leaders met a week after Irish voters said no in a referendum on the Lisbon treaty—a sweeping set of changes to the rule book that governs the internal workings of the club. Legally, no EU treaty can come into force until it is ratified by all 27 member countries, and the leaders gathered in Brussels duly paid lip service to their “respect” for the decision of the Irish people. They then proceeded to devote most of their energies to trying to reverse the effects of that no vote, ideally by persuading Ireland to vote a second time on the same treaty early next year, in the hopes that this time the answer would be the “right” one.
However, the scale of the problem quickly became clear as the Irish prime minister, or taoiseach, Brian Cowen, declined to commit to holding a second vote on the Lisbon treaty. He listed several reasons why he felt that the treaty had been voted down, including: a sense that Ireland, a small country of 4.3m people, was losing clout in the enlarged EU; fears that EU judges might interfere in Irish laws on abortion and euthanasia; suggestions that the EU might try to impose higher tax rates on Ireland (which has done well from low corporate taxes); and fears that beefed up EU defence schemes might erode Ireland’s cherished neutrality.
Mr Cowen agreed to come back in October to tell his fellow EU heads of government his sense of the way forward. He resisted pressure to make that October summit a deadline for agreeing to a solution. Ireland received unexpectedly forceful backing from the Czech Republic, which is one of several countries yet to ratify the Lisbon treaty.
Czech leaders resisted pressure to agree, in writing, that they were moving towards treaty approval, instead securing a separate phrase in the summit conclusions noting that the text was currently being vetted by the Czech constitutional court. The court will not rule until the late autumn. Most other countries expect the Czechs to buckle before the end of the year. They take over the rotating presidency of the EU in January 2009 for a six-month stint. It would be tricky for the Czechs to hold the presidency and also be a hold-out on the Lisbon treaty, in effect a bad boy in the club and the club chairman at the same time.
A sullen atmosphere hung over the summit. The Irish no vote prompted aggressive briefing by French officials against the European Commission and its president, José Manuel Barroso, accused of impassively standing by while European citizens protested against the pain of rising food and fuel prices. Asked, point blank, whether he blamed Mr Barroso for the Irish result, the French president, Nicolas Sarkozy, said it would be quite unfair to blame the commission boss: he then turned round and heaped blame on the (British) EU trade commissioner, Peter Mandelson, who became a focus of protests by Irish farmers during the Lisbon referendum campaign. Mr Mandelson was completely isolated in his desire to lower EU trade barriers for farm goods in world trade talks, he said. Those plans would lower EU agricultural production by 20%, alleged Mr Sarkozy, at a time when a child died of hunger every 30 seconds somewhere in the world.
Mr Sarkozy’s stated hopes of using Europe to “protect” citizens from globalisation received their own setback at the summit. He arrived proposing tax cuts or freezes on fuel, but was rebuffed by a block led by Germany, Britain, Sweden and other countries, which said that lowering taxes on fuel would send the wrong signal to consumers, and ignore structural changes in energy markets. Mr Sarkozy will take over the rotating presidency of the EU on July 1st for his own half-year turn. Thanks to the Irish no vote, he will be navigating very choppy waters.
Commentary by Joe Mysak
June 20 (Bloomberg) -- Don't write off the American suburbs just yet.
With gasoline at $4-plus a gallon, lots of thinking people see the U.S. undergoing a vast demographic shift, with millions of people moving back to cities. The suburbs, and those places beyond the suburbs, the exurbs, will dry up and blow away.
The notion appeals especially to people who like to think they'll be in charge after the revolution. They would apparently love nothing more than for the population to be confined to Soviet-style concrete-block high-rises and be forced to take state-run streetcars to their little jobs at the mill.
Or something like that. It would all be so much more convenient, so much more environmentally friendly, too, according to these master planners.
I went to a wedding in Vermont last weekend, and driving to the reception, out in the woods and down a long road that became a dirt road, I thought that all the people who lived out there were in a fine pickle. My language was a bit more salty.
People who live out there have to carry out every transaction, even the smallest, with an automobile. Gasoline at $4-plus a gallon hurts.
It's easy to become hysterical and call for the end of the world as we know it. Wail: What's going to happen because of the high price of gasoline?
No Catastrophe
People will pay more to drive their cars.
Some people will sell their houses and move to the city, or closer to a city. Some people won't be able to sell their houses, and some people will lose their houses. Some towns may become ghost towns.
Taxes will go up for the survivors who remain, and they will find fewer and fewer businesses to fulfill their needs. States that are more rural will find it in their best interests to try and pay people to live there, and offer subsidies for them to buy food and fuel. The implications for state and local credit ratings are profound.
The high price of gasoline is a relatively short-term problem, not a catastrophe that is going to cause a massive population shift. When whale oil became scarce in the 19th century, people didn't sit in the dark; they came up with new ways to light their lamps.
Virtue and Vice
The suburbs aren't unreasonable. They aren't symptoms of selfishness, greed and extravagance. They sprouted up because cities are inherently cramped, and the continental U.S. is enormous. It's not a matter of virtue (cities) and vice (suburbs, exurbs). So everyone stop being silly.
Cities are cramped, unless you are rich. Of course Tom Wolfe captured the subject perfectly, and long ago, well before the real-estate bubble started to inflate. There's a scene in his 1987 novel, ``The Bonfire of the Vanities,'' where one of the characters, a lawyer who works in the prosecutor's office, bumps into his wife's pantyhose and stockings hanging up and drying in their tiny city bathroom. But precisely! -- as Wolfe would write.
I think the bride whose wedding I attended in Vermont, and who lives in New York City, wants to buy a house. Is this somehow unreasonable? She wants a little more space.
I was looking at a real-estate Web site this week, and came across a nice house on Schermerhorn Street in Brooklyn Heights. And as I looked at the pictures of the place, I thought, ``Hey, I know this house.'' We used to live across the street. Right out the front parlor's windows I could see our old front door.
The Airedales
We rented an apartment in a townhouse back then, 20 years ago it must be, and could see into the house, and admire the front parlor. We called the people who lived there the Airedales, because they had an Airedale improbably named Pedro, and imagined the privileged and perfect lives they led in this nice house. I remember the time the fabulous chatelaine came home on a Christmas Eve afternoon in a taxi full of bags of presents.
I looked at the listing, and now got to see inside, with the photographs, and the floor-plan, and you know what? It's a house, a very nice house, but not especially grand, not what anyone would really call a mansion or a palace. The price: $5,895,000.
Do you really think the cost of a gallon of gasoline is going to doom suburbia?
June 20 (Bloomberg) -- Google Inc., owner of the most popular Internet search engine, may have some unlikely allies in defending its proposed partnership with Yahoo! Inc.: the very advertisers that critics say may be hurt by the deal.
Microsoft Corp., the software maker that tried to buy Yahoo, and lawmakers argued that the agreement announced last week may reduce competition in Internet advertising and raise prices. Some customers say the arrangement for Yahoo to show ads sold by Google actually may lower their costs because Google ads do a better job targeting Web users.
``The agreement between Yahoo and Google should help the relevancy of our advertising on Yahoo, which should actually make the dollars we spend more efficient,'' said Geoff Atkinson, vice president of tactical marketing at online retailer Overstock.com Inc. in Salt Lake City.
The views of advertisers may help determine whether the tie- up between the two biggest Internet ad companies passes U.S. government muster. Google already gets $7 of every $10 spent on sponsored search links in the U.S., according to researcher IDC in Framingham, Massachusetts.
Google, based in Mountain View, California, and Yahoo, in nearby Sunnyvale, say they will wait up to 3 1/2 months for a Justice Department review before closing the deal.
Waiting will give executives time to address concerns and avoid forcing the government to sue to halt the transaction, said antitrust lawyer Glenn Manishin at Duane Morris in Washington.
Government Review
``We are looking at the proposed transaction,'' Justice Department spokeswoman Gina Talamona said. She declined to comment further.
Google Chief Executive Officer Eric Schmidt said last week the deal will improve the relevance of ads on Yahoo's pages, so customers are more likely to buy. Yahoo CEO Jerry Yang forged the agreement, which Yahoo says may add $800 million in annual sales, after merger talks with Microsoft collapsed.
Google fell $5.14 to $555.06 on the Nasdaq Stock Market at 9:35 a.m. New York time and had lost 19 percent this year before today. Yahoo, the second most popular search engine, slipped 37 cents to $22.36. Yahoo spokeswoman Diana Wong declined to comment. Google's press office didn't return e-mails.
Among those questioning the deal are Senator Herb Kohl, a Democrat from Wisconsin, who said June 12 that the partnership raises ``important competition concerns.''
`Makes It Easier'
Representative Joe Barton, a Republican from Texas, sent Yang a letter this week with eight questions about it. Harry Alford, head of the National Black Chamber of Commerce in Washington, said in an e-mail last week the arrangement would hurt small businesses that advertise online.
Eric Parkinson, who runs distribution at Empire Film Group Inc. in Beverly Hills, California, disagrees. He said he sees advantages for his company in the Google-Yahoo pact.
``When it comes to online advertising, it's simpler to reach people if the access to the marketplace is controlled by fewer sources,'' said Parkinson, who has released more than 800 movies and is best known for marketing ``The Terminator.'' ``As the market matures and the number of players consolidates, it actually makes it easier.''
Parkinson plans a $750,000 Web campaign for the Sept. 5 release of ``Hounddog,'' a drama starring Dakota Fanning.
Customers will flee if Google abuses its power, Parkinson said. ``If it turns out that Google becomes the bully of the marketplace, hopefully someone will step in and not be a bully,'' he said.
Zappos View
Darrin Shamo, who manages search ads for Zappos.com Inc., the shoe retailer in Henderson, Nevada, said he and his staff have concluded that prices won't change much because of a Google- Yahoo partnership.
Zappos, whose ads run with queries for ``slingback pumps'' and ``gladiator shoe,'' pays about 40 cents on average each time a potential customer clicks on its ads, which are sold by Google and Yahoo in online auctions. There's a limited pool of bidders for the searches Zappos wants to appear next to, and the Google- Yahoo accord won't change that, he said.
Ad buyers such as WPP Group Plc's New York-based GroupM Interaction Worldwide, which calls itself the world's largest buyer of online media, said the deal may put too much of the $41 billion Web advertising market in Google's hands.
Rob Norman, CEO of GroupM Interaction, which buys online ads for companies such as AT&T Inc. and Dell Inc., told employees and clients in an e-mail last week that the deal ``takes one innovator out of play'' and may give Google more power over ad rates.
Split at Microsoft
``Any deal between these two companies will increase prices for advertisers and start to consolidate more than 90 percent of the search advertising market in Google's hands,'' said Jack Evans, a spokesman for Redmond, Washington-based Microsoft.
Not even everyone at Microsoft agrees, though.
``What it will ultimately do is allow us to get broader distribution out of Google's ad platform,'' said Matt Greitzer, vice president of search marketing at Avenue A/Razorfish, the ad firm Microsoft got in its purchase of AQuantive Inc., a Seattle- based company that also makes advertising software, last year.
The partnership ``is going to be good news for advertisers,'' Greitzer said.
June 20 (Bloomberg) -- Mexico's central bank unexpectedly increased its benchmark interest rate and said inflation may exceed its forecast this year and in the beginning of next.
Banco de Mexico's five-member board voted today to raise the overnight lending rate by a quarter percentage point to 7.75 percent. Only eight of 26 economists surveyed by Bloomberg forecast an increase, while the rest predicted the bank would leave rates unchanged.
The decision to lift rates defied suggestions by President Felipe Calderon, who has hinted that borrowing costs are already too high. He urged the central bank on June 4 to take into account the spread, or difference, in benchmark interest rates between Mexico and the U.S. when setting monetary policy.
``The recent inflation dynamic is worrying,'' the bank said in a statement on its Web site. ``The balance of risks for inflation has worsened.''
Mexican consumer prices rose 4.95 percent last month from a year earlier, the most since December 2004, driven by food, housing and air transportation costs. That annual inflation rate came close to exceeding the bank's forecast of 4.5 percent to 5 percent in the second and third quarters.
``The bank needs to send a signal to the market,'' said Rafael de la Fuente, senior economist for Latin America at BNP Paribas in New York.
Peso, Bonds
The peso strengthened 0.3 percent to a five-year high of 10.2781 per dollar at 10:32 a.m. New York time. Yields on the government's benchmark 10 percent bonds due December 2024 rose 2 basis points, or 0.02 percentage point, to 8.97 percent. The bond's price slipped 18 centavos to 108.83 centavos per peso, according to Banco Santander
Calderon announced this week that industry leaders reached an accord with the government to freeze the price of tortillas, cooking oils, beans and about 150 other items this year. He said the agreement would help fight inflation and ensure Mexico's poorest families can still afford food.
The bank said at its last meeting that the risks of lower economic growth had increased. April industrial production fell 0.8 percent when adjusted for seasonal factors, the national statistics agency said June 17. Economic growth slowed to 2.6 percent in the first quarter.
Morgan Stanley, Credit Suisse and Barclays Capital released reports in the past week predicting that Banco de Mexico would increase its key lending rate by a quarter-point today.
Inflation Risks
``The balance of risks on the inflation front have deteriorated since the central bank's last meeting in May,'' said Gray Newman, chief Latin America economist at Morgan Stanley in New York, who forecast a rate increase.
Barclays said it based the forecast on the outlook for inflation, rising global food prices and a June 16 central bank presentation highlighting the importance of its independence.
Calderon has also tried to fight higher food prices by lifting import tariffs on corn, wheat, rice and beans in May. He eliminated import taxes on nitrogen-based fertilizer, and cut in half the tax on imported powdered milk.
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