The FTSE 100 closed down 2.35pc, the Dax in Frankfurt fell 4.04pc, and the CAC in Paris was down 3.6pc following the news that Mr Stark, the top German official at the ECB, was leaving due to "personal reasons". Sources said his departure reflected a deep rift at the heart of the ECB, with Mr Stark opposed to the bank's policy of buying eurozone bonds to support highly indebted countries like Italy and Spain. Mr Stark was considered to be a hawk at the bank, favoring looser monetary policy including higher interest rates. The news came amid clear divisions in the G7 ahead of the two-day meeting, which began on Friday. Before arriving in Marseilles, Chancellor George Osborne was adamant that he would not waver from his austerity plan. "Britain will stick to the deficit plan we've set out," he said. However, Christine Lagarde, the head of the International Monetary Fund, said that policymakers in advanced economies should use all available tools to boost growth as the world economy entered a "dangerous new phase". Speaking alongside the Chancellor at Chatham House, she said that while Britain's £110bn deficit reduction plan was "appropriate", policymakers should be "nimble." An EU official in Marseilles admitted that Mr Stark's resignation was unhelpful: "People weren't expecting this and the timing is bad," he said. Joshua Raymond, chief market strategist at City Index, took a similar line: "[Stark's departure] escalates investor fears that Europe's leaders and central bankers are far from united in ideology at a time when the markets need to see credible and definitive action to prevent the sovereign debt crisis from sending European economies back into recession." Just hours after his resignation, Mr Stark called for drastic reforms to strengthen economic governance of the euro zone. He said that a "quantum leap" is necessary "at the European level" to reinforce its institutions. He added that "a large reform of decision-making mechanisms and sanctions" is necessary in order to secure in the future effective coordination of economic and fiscal policies of the euro zone countries. "We find ourselves in a situation where risks to public budgets undermine financial stability," wrote Stark.

Urban legends : Germany is strong economy & Italy is stable

Germany - Despite its stellar status, Germany is far from all-conquering. The Dax share index has lost 29% since the beginning of July – significantly worse than London's FTSE 100 – while business confidence is tumbling at the fastest rate since the collapse of Lehman Brothers. New data showed a sharper than expected fall in industrial orders in July, especially from beyond the eurozone. German taxpayers are becoming increasingly sceptical about efforts to help eurozone strugglers such as Greece. That in turn has put domestic pressure on the chancellor, Angela Merkel, whose coalition government has suffered a string of setbacks this year.

Italy - Against a backdrop of nationwide strikes, the government of embattled prime minister Silvio Berlusconi is scrambling to secure parliamentary backing for a revised reform package, new tax rises and spending cuts. The 20% VAT bracket will be raised to 21% and a special 3% levy will be imposed on incomes of more than €500,000 (£439,000). Berlusconi said ministers would approve a new "golden rule" in the constitution on balanced budgets and simplify local government.A strike in Rome on Tuesday showed the strength of feeling that richer Italians had escaped tax rises and spending cuts. Analysts believe Italy could be the next Greece. Economist David Mackie at JP Morgan said: "Once you say to Italy, we will not allow you to fail, they then have the upper hand. There has been a moral hazard issue with Greece for some time. Now we have one in Italy, too."

BRUSSELS—Euro-zone policy makers on Thursday appeared no nearer to settling a dispute over Finland's collateral demands in exchange for participating in a €110 billion ($158.6 billion) bailout for Greece, raising concerns that the Mediterranean nation may default. Markets have grown more worried about the potential for a Greek debt default amid an apparent lack of progress in resolving the collateral issue this week. Finland, meanwhile, shows no sign of backing down. Students protesting legislation trimming education spending scuffled with riot police Wednesday in Athens. Also Thursday, German Chancellor Angela Merkel unexpectedly canceled a trip to Russia in early September to shepherd through parliament a crucial change to the euro-zone bailout fund. The cancellation comes at a sensitive time for relations with Russia, and amid growing nervousness about dissent within the ranks of her own party over her handling of the euro-zone debt crisis. "The date collides with the introduction of the [European Financial Stability Facility] treaty into the Bundestag," a German government official said Thursday, adding that the chancellor wants to stay in Berlin due to the significance of the issue. Yields on Greek two-year bonds rocketed Thursday to a record of over 43%, according to Tradeweb, and the cost of insuring Greek government bonds against default also rose sharply. Greek five-year sovereign credit-default swaps were 1.37 percentage points wider at 22.75 percentage points, according to Markit. Euro-zone governments are looking into alternative forms of collateral after a cash deal reached earlier between Greece and Finland was rejected by key member countries, including Germany and the Netherlands. Under terms of that deal, Greece would pay Finland hundreds of millions of euros from its bailout loans as collateral for those same loans at the expense of other euro-zone countries. Since Finland is set to contribute just 2% of Greece's total rescue package, guarantees from the richer euro-zone nations would be going directly to Finland. The collateral dispute, if not resolved soon, could derail a second bailout package for Greece agreed by euro-zone leaders on July 21. Without support from all 17 euro-zone countries, no funds can be released, while changes to the European Financial Stability Facility, the currency bloc's bailout fund, can't go forward either. The International Monetary Fund, which has been contributing to Greek bailout loans, opposes any deal that would threaten its preferred-creditor status, which ensures the fund is always first to be repaid.

Would Germany subscribe to euro-zone bonds ? The market is hinting at the price of Germany's commitment to Europe. The cost of insuring its debt with credit-default swaps has risen sharply during the past month-and-a-half, to the point where five-year U.K. CDS are now cheaper than equivalent German ones. Although flight-to-safety trades have supported demand for German bonds, the CDS market suggests that might not last long if Germany were to commit to backstopping a common euro-zone bond. There's a further irony in Franco-German demands that all countries in the bloc boost their competitiveness. One of the major imbalances in the single currency is the lack of competitiveness of peripheral countries relative to the core. Unless the core is willing to lose ground here, the region is at an impasse. Saying every country in the euro zone should become more competitive is like saying every child in Lake Wobegon is above-average. A nice idea but it defies the math. Instead, what the Franco-German deal seems to have created is the circumstance under which peripheral countries will be forced out of the single currency. Then again, things were probably heading in that direction anyway.

Among Italian newspapers reacting to the new "solidarity" tax hike for high-earning Italians, Il Giornale – which is owned by Berlusconi's brother – was the fiercest, saying "We are furious" in a front-page editorial and claiming that the PM was hitting his own electorate hardest. Berlusconi himself appeared a shadow of his former ebullient self on Friday as he announced Italy's second austerity budget in as many months, blaming the global economic crisis. He said: "Our heart bleeds when we think that one of the good things about this government was that it had never put its hands in the pockets of Italians." For Italian daily La Stampa, the cuts and tax increases, which must now be approved by parliament, are another nail in the coffin of the scandal-weakened prime minister. "A funeral has been celebrated where the man officiating and the man buried were one and the same – Silvio Berlusconi," it wrote. Hastily concocted to satisfy the European Central Bank, which stepped in to buy Italian bonds last week after interest rates soared, the cuts have been criticised for threatening to strangle economic growth when Italy needs it most. But the decree also contains measures to liberalise the moribund Italian economy, seen as the best way to boost GDP and work off some of Italy's €1.9tn public debt, which has ballooned since Berlusconi took office. The simplification of Italy's complex local government structure will see the scrapping up to 35 provincial councils and around 50,000 elected posts. Companies will have freer rein to negotiate contracts with staff, while a plethora of non-religious holidays will be shunted to Sundays to improve productivity. But the decree offers no more than incentives to local authorities to privatise services and limited plans to open up Italy's closed-shop trade guilds, which help perpetuate the country's system of fixed prices and nepotism. Meanwhile, German Chancellor Angela Merkel will meet French President Nicolas Sarkozy in Paris on Tuesday in their latest effort to get a grip on the mounting sovereign debt crisis in the eurozone. The embattled leaders have promised to put forward "joint recommendations aimed at strengthening political and economic governance in the euro area", by the end of the summer.

Traditionally, Europe closes for business in August unless there is a good reason policymakers should be shackled to their desks. This year there is. When the heads of the 17 eurozone governments met in Brussels on July 21, they agreed not just to bail out Greece for a second time but to put together a war chest that would enable them to take pre-emptive action in countries seen as vulnerable to attack. The message to the markets was clear: monetary union will be protected come what may, so think twice before turning on Italy and Spain. But it did not take long for the financial markets to unpick the Brussels agreement. They quickly discovered that while there was the promise of more money for the European Financial Stability Facility, it would take months for the funds to arrive, and then only if national parliaments agreed to pony up the cash. What looked on the surface a once-and-for-all solution was exposed as a naked attempt to buy time. Events in the United States over the past week mean the respite has been short. The threat that even the world's biggest economy might welsh on its debts has reignited concerns about the weaker members of the single currency. Dismal growth figures from the US have made matters worse, since the chances of countries like Spain and Italy growing their way out of trouble will be impaired if the recovery in the global economy stalls. That now looks much more probable than it did a fortnight ago.

The attempt to bail-out Greece and other struggling eurozone countries raised the prospect of a two-speed European Union with far closer ties between countries using the euro compared with those, such as Britain, that remained outside. Nicolas Sarkozy, the French president, said the deal had pulled the eurozone back from the brink of disaster and laid foundations for the creation of an EU “economic government”. He hailed it as “a historic moment” that would provide “bold and ambitious” plans for the creation of an embryonic EU treasury in the form of a European Monetary Fund. “By the end of the summer, Angela Merkel and I will be making joint proposals on economic government in the eurozone. Our ambition is to seize the Greek crisis to make a quantum leap in eurozone government,” he said. “The very words were once taboo. We will give a clearer vision of the way we see the eurozone evolving. We have done something historic. There is no European Monetary Fund yet, but nearly.” Even large euro countries such as Italy and Spain have seen their borrowing costs jump, raising fears of a financial crisis that could destroy the single currency. In response, eurozone leaders meeting in Brussels were drawing up a deal that would effectively use money from successful northern economies such as Germany to support the budgets of indebted nations in southern Europe. Greece will receive another bail-out worth €159 billion and will be allowed to default on some of its debts for the first time. Private investors holding Greek bonds will be asked to contribute to the bail-out, losing some of their money, or having to wait longer for repayment. European stock markets and the euro rose as investors bet that the deal would avert any immediate break-up of the single currency. The agreement being discussed last night will hugely expand the role of a €440  billion (£389 billion) eurozone emergency bail-out fund, effectively creating a European Monetary Fund. The European Financial Stability Facility was set up last year as a rescue fund for countries struggling to raise money from bond markets. Under the deal it will be given significant new powers to use its funds to pre-empt debt crises in euro economies. The fund will be able to make “precautionary” loans to eurozone members, which they could use instead of borrowing money from the markets. It will also be able to make loans to recapitalise banks in the weaker economies and buy back government bonds from private investors.

Germany and France struck a deal early on Thursday morning intended to rescue Greece and the euro from financial ruin. After six hours of talks in Berlin prior to a crucial summit in Brussels, Chancellor Angela Merkel and President Nicolas Sarkozy agreed a compromise on the losses that Greece's private creditors are to take, in a complex new bailout for Athens, German and French government sources said. Jean-Claude Trichet, the president of the European Central Bank, who has been Merkel's most vocal opponent in the wrangling over how to respond to the euro crisis, rushed to Berlin late on Wednesday night to take part in the negotiations. No details of the pact were revealed. But senior officials at the European commission in Brussels disclosed that a compromise was in the air to save Greece and halt contagion by levying a tax on banks in the eurozone – opposed by Berlin and proposed by Paris – as well as a long-term Greek debt rollover stretching for decades, and other measures aimed at reducing Greece's crippling debt level. It appeared that the multi-pronged formula would inexorably lead to Greece being deemed to be in sovereign default, at least temporarily. The last-minute deal, following a telephone dispute between the two leaders on Tuesday, is to be put to the heads of the European commission, council and central bank this morning before an emergency summit of the 17 leaders of single-currency countries. The Brussels summit – the 10th time in 18 months that European leaders will have tried to save the euro and Greece from collapse – is being staged amid grave pessimism that politicians will be able to bury their differences and combine to rescue the single currency. It remained to be seen if the Franco-German compromise would win the support of other leaders and would go far enough to satisfy the financial markets. Amid a febrile mood and an ominous sense that the euro was facing a make-or-break moment, an unusual hush descended on the key European capitals on Wednesday. It was as if leaders and officials had been struck dumb by the weight of the responsibility bearing down on them. The silence was broken only by José Manuel Barroso, the president of the European commission, who chastised the current crop of EU leaders, declaring that "history will judge this generation of leaders harshly" if they refuse to act decisively in the euro's darkest hour. The emergency summit brings together the 17 government leaders of the eurozone, plus the heads of the European Central Bank, the commission, and Christine Lagarde, until recently French finance minister and the new head of the International Monetary Fund. The main challenge is to forge a pact that will reduce Greece's crippling level of debt. The fundamental issue is who pays for that. On Wednesday night, the Germans insisted that Greece's private creditors pick up a large part of the tab, the main dispute with Sarkozy and Trichet. The markets are more than jittery, and Washington is nervous. President Barack Obama intervened on Tuesday by phoning Merkel. "Might this meeting finally bring an end to the farce surrounding the euro area's response to Greece?" said Daiwa Capital Markets. "No chance."

Italy's benchmark index, the FTSE Mib, closed 3.5pc down amid worries that political jostling in Rome threatens the country's fiscal stability. France's CAC 40 Index also suffered, dropping 1.6pc, and Germany's DAX lost 0.9pc. In Spain, the Ibex fell 2.6pc, while Portugal's PSI 20 ended 1.3pc lower. The flight from Italian government debt saw the yield, or return, on its 10-year bonds touch 5.3pc, a euro-era high. Mike Riddell, a fund manager at M&G, described the situation as a "bloodbath". "Whatever your view is or was [of Italy's finances], the reality now is that those pesky bond vigilantes have caught sight of Italy, and that is basically all that matters," he said. Investors are worried that Giulio Tremonti, Italy's finance minister, is threatened by corruption accusations against a former aide and seems to have lost the support of his prime minister Silvio Berlusconi. "He thinks he's a genius and that everyone else is stupid," Mr Berlusconi said yesterday. The fear is that if Mr Tremonti is forced out of government it could derail the austerity measures he has pushed through to bring down Italy's huge debt, which amounts to around 120pc of its GDP. That would leave Italy in greater danger of being sucked into the turmoil which overtook Greece and Portugal, as doubts about their finances saw them shut out of the international debt markets. Mario Draghi, Italy's top central banker and the next president of the European Central Bank, tried to offer reassurance with a statement backing Rome's austerity measures as "credible".

The over 4 million Romanians who contribute 3% of their gross monthly income to one of the eight funds have thus found out after three years that they finance, without their knowledge, UK banks or car manufacturers in Germany. The eight funds invested around 130 million lei in foreign shares, such as those of BMW, Daimler and Louis Vuitton and a further 308 million lei in corporate bonds, such as those issued by UK banks Royal Bank of Scotland, Lloyds and the Bank of Ireland. Investments of the eight funds on the Bucharest Stock Exchange amounted to 300 million lei, with the biggest investments targeting the five SIFs (Financial Investment Companies), Petrom and BRD, while investments in bonds issued by Romanian companies amounted to 50 million lei. Two thirds of the cumulated assets of the eight funds, i.e. around 2.2 billion lei, are invested in Romanian T-bills.

Wolfgang Ruttenstorfer, 61, the man who bought the biggest company in Romania, Petrom, will step down as CEO of OMV, after a nearly ten-year term at the helm of the Austrian petroleum group. Tomorrow Petrom and OMV announce the last financial results under Ruttenstorfer. Ruttenstorfer and Treichl, another austrian - CEO of Erste Bank, the owner of BCR in Romania - who's mandate will expire in one year, can be considered the most powerful executives in Romania given that Petrom controls around 40% of fuel distribution, and BCR accounts for 20% of the banking market. In fact, the two are also heads of the supervisory boards of Petrom and BCR respectively, set up after the privatisation of the two companies to keep a close eye on the performance of chief executives.According to 2009 data, Petrom generated around 17% of OMV's business, with the local company accounting for more than half the hydrocarbon reserves controlled by the Austrians, while in Erste's case around 20% of its assets are accounted for by BCR assets. Ruttenstorfer's departure from the helm of OMV was announced as early as the end of March 2009, when it was decided to extend his mandate until April 2011, and to appoint Gerhard Roiss as CEO of the group after that date. Roiss, 59, is currently deputy CEO and head of the refining, marketing and petrochemical division. (Z.F)

Foreign direct investments in 2009 were around 1.4 billion euros lower than original calculations had shown, down 63% against the previous year, instead of the original 48% decline.
The NBR (National Bank of Romania) has revised its statistical data on foreign direct investments, coming up with an overall 1.4 billion-euro decline against the original value that resulted from the monthly calculations of the central bank. Originally, the NBR had reported foreign direct investments worth 4.9 billion euros, down 48% against 2008, but the real decline was 63%, to 3.5 billion euros. "The National Bank conducts an annual research in collaboration with the National Statistics Institute to determine the amount of foreign direct investments, based on which investment data calculated on a monthly basis during the year are revised. The investigation offers various information on foreign direct investments, such as: their structure, investments by economic sectors and reinvested profit," Constantin Chirca, deputy manager of the NBR's Statistical Department told ZF.

Two of the leading Petrom top managers, who were in the company's management team ever since the privatisation of the oil and gas producer in 2004, have this year left to carry out the reorganisation of OMV's latest acquisition: Petrol Ofisi."I won't be talking about Petrom today because it is already going in the right direction, of integration. Let's talk about Turkey." This was one of the opening messages conveyed by Wolfgang Ruttenstorfer, CEO of OMV in London, at the latest media summit organised by the Austrian oil group, Petrom's majority shareholder.
In mid-October, OMV finalised the acquisition of Turkey's biggest petrol station chain, Petrol Ofisi, for which it paid one billion euros, securing a significant share of a market credited with the biggest chances of growth in the next period.Reinhard Pichler, 49, former CFO of Petrom, left his position last week, being replaced by Daniel Turnheim, a member of the OMV group since back in 2002. Pichler is not leaving the group, however, but will go to Turkey, where he will fill the same position he has occupied in Petrom since 2004.At the beginning of this year Tamas Mayer, who used to be in charge of Petrom's marketing operations, i.e. of the nearly 550 distribution stations, left the position to become Vice Chairman of the Board of Directors of Petrol Ofisi. According to some sources, Mayer will be running marketing operations within Petrol Ofisi, as well.Agerpres, Mediafax, Romanian Vancouver Sun,Global News, Financial Times,Tribune, ,Wall Street Journal,The Washington Times,Athens News,The New York Times,USA Today,Le Monde

China - the new frontier for EU Investors

China's rapid growth is easing to a manageable pace and Beijing can do more to reconfigure its economy to promote domestic consumption and reduce reliance on trade, the World Bank said Wednesday. Inflation that has risen steadily this year should level off and is unlikely to be a serious problem, the bank said in a quarterly China outlook. The Washington-based bank raised its 2010 growth forecast from 9.5 percent to 10 percent and said the expansion should slow to 8.7 percent next year. Growth eased to 9.6 percent in the three months ending in September, down from 10.3 percent the previous quarter, as the government imposed lending and investment curbs.
"We think that coming from this very strong growth, China should be able to ease into a more sustainable growth rate in the long term," said the report's main author, Louis Kuijs, at a news conference.
The outlook reflects China's status as the first major economy to rebound from the global crisis on the strength of a flood of stimulus spending and bank lending. While Washington and others are trying to shore up growth, Beijing faces the challenge of cooling inflation and restoring normal conditions.
Beijing needs to boost wages and consumer spending and promote growth of private and service businesses to reduce reliance on exports and energy-intensive heavy industry, the World Bank said.
"The need to rebalance to more domestic demand-led, service sector-oriented growth seems stronger now than five years ago," said Kuijs. "Internationally the environment is less favorable than it was."
Communist leaders made raising domestic consumption a priority in their latest five-year economic plan crafted at a meeting last month. But it also was a goal in their previous plan and private sector analysts say Beijing has yet to take major steps to shift emphasis away from manufacturing and construction. The World Bank recommended opening up more industries to private business, changing the way energy prices are set to encourage efficiency and nurturing private-sector research and development. The bank cautioned against abrupt steps such as mandating sharp wage hikes, saying Beijing instead should look at gradual changes such as allowing more rural workers to move to cities and changing energy prices that favor heavy industry."We are looking for a market-oriented, market-friendly way of getting this consumption growth, consistent with continued strong growth," Kuijs said. Inflation that hit 3.6 percent in September, well above the 3 percent government target, should level off but might stay as high as 3.3 percent next year, the bank said. Kuijs said that in developing economies such as China, inflation of 3 to 5 percent might be acceptable as industries grow rapidly and demand for resources shifts."We still do not think China's inflation is at a very serious risk of escalating but we also do not think China will go back to the very low rate of inflation it saw in 2005," he said.
The bank also cautioned that China's politically contentious trade surplus is likely to rebound in 2011 after narrowing temporarily this year.
The multibillion-dollar trade gap has strained relations with Washington and other trading partners and prompted some U.S. lawmakers to demand sanctions over Chinese currency controls blamed for widening the surplus.

Recent Investments - Eastern Europe - Romania

Bancroft has acquired a significant stake in Dumagas Transport, a leading Romanian road transportation company. Dumagas Transport engages in general and specialised transportation of liquid, powder goods, and vehicles and holds a prominent position in controlled temperature warehousing and logistics.
It is the second investment in the third fund launched by Bancroft Private Equity, LLP, a Central and Eastern European, mid-market, private equity fund manager. This transaction was completed in July 2010. Bancroft will support the founding shareholders and managers as they continue developing the company’s activities across all its business lines, consolidate the group’s positions in key export markets, and speed up the development of the controlled temperature warehousing and logistics markets.

Fears of "currency wars"

Fears of "currency wars" characterized by competitive devaluations and protectionism continue to dominate headlines in the run–up to the G20 summit in November. In our lead article this week, we examine Brazil's latest policy response to the appreciation of its currency. By raising the tax on capital inflows again, however, the government is unlikely to slow the Real's rise for long. China, too, remains central to the global debate over exchange rates. We focus on the record rise in the country's foreign reserves, a development certain to fuel further calls for revaluation, even though abrupt change is neither likely nor desirable.Elsewhere, French strikers are on the warpath over proposed pension reforms. With more austerity on the way, tensions between the government and the public could drag on. Nor is France, of course, the only country grappling with the consequences of belt–tightening. From Risk Briefing we feature a webcast with our UK analyst, Neil Prothero, who expects the cuts announced in the British government's spending review to hit economic growth.Industry Briefing looks at the rise of micro finance in Europe, which suggests that micro loans are not just relevant to borrowers in poor countries. Finally, Executive Briefing examines a refreshingly counter–intuitive social networking strategy, the idea of which is to connect with fewer, not more, people as a means of deepening relationships with customers.How do these issues affect your business? Please let me know at: arbitraj@aol.com

Fate of the Romanian Economy in 2011 depends on talks with IMF

Yesterday saw the start of two weeks of negotiations with the Fund, which are set to provide some answers to essential questions as far as next year is concerned.
Romania could find out in about two weeks' time if and how much economic growth it will see next year, what the main taxes will look like - flat rate, social contributions, VAT, what the new arrangement to be signed with the IMF in spring will look like and implicitly how big the RON/euro exchange rate volatility will be.
The first official talks between the IMF's review mission and the authorities began yesterday.Jeffrey Franks, the mission chief, says the Fund's forecasts regarding the Romanian economy could be adjusted, but not significantly.Forecast modifications have become a current practice over the course of the arrangement sealed in the spring of 2009, with the IMF so far only revising its calculations for the worse, after failing to anticipate the economic trends. Now the Fund expects a 1.5% GDP growth for 2011.The final forecasts will be an essential tool towards building next year's budget. The draft that recently featured in the press but has yet to be officially assumed is already suspected of overestimating the revenue potential. Things are made even more complicated by the chaos on the political scene, which was reflected yesterday in the Parliament in the decisions on introducing a 5% VAT rate on basic food items and on exempting from taxation pensions of less than 2,000 RON, after there had been talk of taxing all incomes of this type.If these decisions are politically assumed, by the head of state inclusively, attempts by the main ruling party PD-L to talk to the IMF about cutting the flat rate to 12%, cutting overall social contributions to 41% and increasing the minimum wage to 700 RON will fail.

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