ECB’s Draghi faces heat over euro, Monte Paschi

Updated 07 February 2013
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ECB’s Draghi faces heat over euro, Monte Paschi

FRANKFURT: Mario Draghi faces a grilling over the European Central Bank’s sensitivity to the euro’s sharp rise and his connection to an Italian banking scandal at an ECB meeting on Thursday where interest rates are almost certain to be unchanged.
Ireland is on tenterhooks whether the ECB will sign off on a new proposal to reduce the country’s debt burden, for which its government rushed through emergency legislation early on Thursday to liquidate failed Anglo Irish Bank.
A source close to the negotiations told Reuters the ECB came close to agreeing a deal on Wednesday night, but in the end more work needed to be done and the Governing Council would continue discussions at its Thursday meeting.
Investors will seek to gauge how much further the euro must rise before its strength forces the ECB to express concern, or even reverse course and contemplate a rate cut — a scenario that shows virtually no sign of materialising on Thursday.
The euro has risen to a 14-month peak against the dollar this year, though it slipped on Wednesday, with traders becoming cautious in the event that Draghi expresses concern about the currency’s strength.
French President Francois Hollande said on Tuesday the euro zone must develop an exchange rate policy to protect the currency from “irrational movements.”
Erkki Liikanen, an ECB Governing Council member, later dismissed any prospect of the bank pursuing such a policy, saying “we have no foreign exchange target” — a line ECB chief Draghi is likely to take at his 1330 GMT news conference.
“The market will want to hear stronger words on the foreign exchange front to stop the upwards trend that’s in place but we doubt this will happen,” said Nomura economist Nick Matthews.
“I think he will focus more the comments around the exchange rate on the G20.”
At his news conference last month, Draghi read out a G20 statement on exchange rates. The G20 group of economic powers holds a mid-February meeting and France said on Wednesday it would raise concerns about the euro’s strength then and at talks among euro zone finance ministers next Monday.
BANK SCANDAL
At Thursday’s news conference, Draghi can also expect to be asked how much he knew about the derivatives scandal at Siena’s Monte Paschi bank, and what he did about it when he headed Italy’s central bank from 2006 to 2011.
Italy’s third largest bank has been at the center of a financial and political storm as a result of facing losses of about 1 billion euros from a series of derivatives and structured finance trades.
Draghi’s news conference offers reporters their first chance to quiz him directly on the scandal since his role came into focus late last month.
He faced criticism then after former Italian economy minister Giulio Tremonti said it was “stupefying” that in his role as supervisor of Italy’s banking system Draghi failed to discover or prevent loss-making derivatives trades at Monte Paschi.
Monetary policy should prove easier for Draghi to handle.
None of the 75 economists surveyed in a Reuters poll last week forecast a cut in rates from their record low of 0.75 percent on Thursday. The poll suggested the ECB would not change its rates until at least July 2014.
A batch of indicators cited by Draghi at his Jan. 10 news conference show the economic distortions of the euro zone debt crisis are starting to correct themselves, with the data flow positive over the last month.
One of the indicators shows the ECB’s balance sheet shrinking after banks jumped at the chance late last month to repay early 137 billion euros in long-term loans they took from the central bank.
This market-driven unwinding of ECB crisis funding measures is in stark contrast to the expansionary policies being pursued in the United States and Japan.


Jordanian cabinet approves new IMF-guided tax law to boost finances

Updated 21 May 2018
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Jordanian cabinet approves new IMF-guided tax law to boost finances

AMMAN: Jordan’s cabinet on Monday approved major IMF-guided proposals that aim to double the income tax base, as a key part of reforms to boost the finances of a debt-burdened economy hit by regional conflict.
“When only 4 percent of Jordanians pay (personal) income tax, this may not be the right thing,” Finance Minister Omar Malhas said in remarks after the cabinet meeting, adding the goal was to push that to eight percent. The draft legislation was submitted to parliament.
The IMF’s three-year Extended Fund Facility program aims to generate more state revenue to gradually bring down public debt to 77 percent of GDP in 2021, from a record 95 percent.
A few months ago Jordan raised levies on hundreds of food and consumer items by unifying general sales tax (GST) to 16 percent — removing exemptions on many basic goods.
In January subsidies on bread were ended, doubling some prices in a country with rising unemployment and poverty among its eight million people.
The income tax move and the GST reforms will bring an estimated 840 million dinars ($1.2 billion) in extra annual tax revenue that will help reduce chronic budget shortfalls normally covered by foreign aid, officials say.
Corporate income tax on banks, financial institutions and insurance companies will be pushed to 40 percent from 30 percent. Taxes on Jordan’s phosphate and potash mining industry will be raised to 30 percent from 24.
The government argues the reforms will reduce social disparities by progressively taxing high earners while leaving low-paid public sector employees largely untouched.
“This is a fair tax law not an unfair one,” said Malhas, who shrugged off criticism the law is lenient on many businesses connected to politicians whose transactions are not subject to tax scrutiny.
Husam Abu Ali, the head of the Income and Sales Tax Department, said a proposed IMF-recommended Financial Crime Investigations Unit will stiffen penalties for tax evaders. Critics say it will not tackle pervasive corruption in state institutions.
Abu Ali said the government could be losing hundreds of millions of dollars through tax evasion, which is as high as 80 percent in some companies.
The amendments lower the income tax threshold and raise tax rates. Unions said the government was caving in to IMF demands and squeezing more from the same taxpayers.
“It is penalizing a group that has long paid what it owes the state,” the unions syndicate said in a statement.
“It imposes injustice on employees whose salaries have barely coped with price hikes rising madly in recent years.”