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CONTENTS

FOREWORD BY CES HEAD OF RESEARCH

FINANCIAL CRISIS: ACTIONS TAKEN BY EU MEMBER STATES

FINANCIAL CRISIS: ACTIONS TAKEN WORLDWIDE

HIGHLIGHTS

OUR COMPETITORS’ VIEWS ON FINANCIAL CRISIS

UPCOMING EVENTS

ANNEX

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Foreword by CES Head of Research

“WATCHTOWER”

While the world is gearing up for the G-20 summit in London this week, it seems like amidst all the new

transatlantic harmony, the US and the EU have found a new field for controversy: The question of how

much stimulus is enough to shorten the depression and bring about recovery as fast as possible. Nobel

Prize winner Paul Krugman, for instance, has been criticizing the Europeans, and most of all the Germans,

quite explicitly – saying EU governments were simply not doing enough borrowing and spending, and

would risk losing a whole decade through stagnation, like Japan in the 1990s. There were two kinds of

European reactions to this rhetoric from across the Atlantic: One was rather blunt and a bit angry, like

acting Czech Prime Minister Mirek Topolanek’s statement that President Obama’s rescue plan is the “road

to hell” – though, of course, Mr Topolanek may have been angry about a few other things, too, like his

losing a confidence vote in the middle of an EU presidency. But even so this language stands out from the

majority of European reactions, which were much more moderate and tried to argue the following points:

- Most EU countries have considerably more substantial, state-financed health insurance and social

security systems than the US. These amount to a broad-based stimulus package in themselves: They

maintain, or recreate, purchasing power where it is most needed in depression-stricken economies - among

the newly unemployed and those threatened by unemployment. Seen in that context, the transatlantic gap

in the size of stimulus packages does not look that big.

- With its demographic structure, EU countries are still facing a pension crisis in the near future. Too much

borrowing now could exacerbate a future situation which the US, with their much more favorable

demographic structure, do not have to envisage to the same extent.

These two points should do much do take some of the bitterness out of the current transatlantic dispute.

The one factor on which the EU and the US actually and objectively differ, however, is the question of the

optimal distribution of stimuli over time: Many EU politicians, including the German government, but also

Commission President Barroso, keep repeating that we should wait to see how the recently enacted stimuli

actually work, before we engage in new massive borrowing and spending. The Washington majority view

on this seems to be that in order to have any effect, the stimulus must come massively and suddenly.

Ultimately, we will only know in a few years who was right and who was wrong on this.

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FINANCIAL CRISIS: ACTIONS TAKEN BY EU MEMBER STATES Bulgaria One of the government's measures to fight the effects of the crisis provides for payments of BGN 120 (half of the minimum monthly wage) for three months to every worker, whose employer is forced to reduce their working hours by half, i.e. to four hours a week, because of the lack of orders for their produce or services. (29/03/2009) The government's measure to fight the effects of the crisis (Sofia Novinite)

Bulgarian chemical companies have already been hit by the global financial crisis, and have seen a marked fall in profit. For the last three months of 2008 the total income of the five companies, Neochim PLC, Orgachim, Kauchuk J.S.CO., BG Polymers LTD, and Vidachim JSC, has decreased by 46,2%. The turnover lowered from BGN 159,7 M, for the third quarter of 2008, to BGN 85,9 M, for the October-December period. (24/03/2009)cccccccccccccccccccccccccccccccccccccccccccccccccccccccc Bulgaria chemical industry collapses over Global Financial Crisis (Sofia Novinite)

Czech Republic The European Union's Czech presidency blasted US plans to spend hundreds of billions of dollars to revive its economy as a "way to hell", before downplaying the remark to avert a diplomatic crisis. Outgoing Czech Prime Minister Mirek Topolanek said that "the United States is not on the right path" with its costly plans to jump start the world's biggest economy. (26/03/2009)xxxxxxxxxxxxxxxxxx EU presidency blasts US recovery plans as 'way to hell' (EUbusiness)

France French Prime Minister Francois Fillon has unveiled stringent restrictions on stock options and other executive perks for companies that have been bailed out by the state. Fillon announced that executives of hard-hit companies that have received public money to beat the downturn will have to “renounce their stock options and free share packages”. (30/03/2009)ccccccccccccccccccccccccccccccc French PM announces bonus bans on bailed-out companies (France24)

France's Renault is to shift part of its production from abroad to near Paris after receiving state aid in exchange for a promise not to shut French plants or axe French jobs, a minister said. Renault last month said its net profits collapsed by 78 percent in 2008 amid a dramatic drop in global demand for cars following the credit crunch. Sales fell 30 percent in the fourth quarter and seven percent for 2008 as a whole. (20/03/2009)cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc Renault will move car line to France after state aid (EUbusiness)

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Germany The head of Germany’s powerful BDI industry federation launched a vitriolic attack on the US fiscal stimulus, saying aid to the motor industry amounted to a “car war” that could distort competition to the detriment of Europe. (31/03/2009)ccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc German industry chief hits out at US stimulus (Financial Times)

Greece The Greek residential real estate market has been one of the first victims of deteriorating economic conditions. The large stock of unsold flats and detached houses, in conjunction with weak demand, create an unfavorable environment for the country’s residential market. According to most real estate experts, house prices have been on a slightly downward trend since the beginning of the year as the number of transactions also drop. (31/03/2009)cccccccccccccccccccccccccccccccccccccccccccccccccccc Residential housing market up against unfavorable factors (Kathimerini)

Greece’s economy is seen slipping into recession this year, according to the International Monetary Fund (IMF) which is expected to lower its expectations for the country’s economic performance in its next outlook due in April. The IMF had forecast that Greece’s economy will expand at an annual pace of 0.5 percent in last month’s projections, but has since revised down its expectations for global growth. Meanwhile, officials from ratings agency Fitch Ratings are expected to visit Athens to assess the state of the economy and Greece’s ability to service its large public debt. (30/03/2009)

IMF sees recession in outlook (Kathimerini)

Hungary Gordon Bajnai, the Hungarian economics minister who is set to become prime minister next week,

promised a period of ”painful” crisis management, as the country’s finance minister suggested the

new leader may get less than a year to do his job. He is expected to announce spending cuts, which

could include dramatic cutbacks to Hungary’s generous social safety net. (30/03/2009)ccccccccccccccc

Hungary faces ‘painful crisis management’ (Financial Times)

Italy The head of Italian auto giant Fiat slammed state aid given to the car industry in Britain, France and Sweden, saying it was "very dangerous" and hurt competition in the sector."The aid should either go to everyone or to no-one," he added. Italy has also moved to help its car industry but only through a bonus for people trading in their old vehicle to buy a new one. Fiat, Italy's largest private employer, saw sales fall 20 percent in the fourth quarter of 2008 and has announced a string of temporary layoffs. (28/03/2009)xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Fiat chief slams Europe state aid (EUbusiness)

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Latvia Latvian Prime Minister Valdis Dombrovskis ruled out a devaluation of the national currency, describing the issue as a "stumbling block" with the International Monetary Fund. "The International Monetary Fund has no objection to a devaluation of the lat, but the European Commission, Bank of Latvia and the government do not support this solution," Dombrovskis said. (26/03/2009) Latvian PM rules out currency devaluation (EUbusiness)

Latvian Prime Minister Valdis Dombrovskis has warned of more troubled times ahead, saying the country’s economic crisis would enter a critical phase following the introduction of severe budget cuts. Government discussions are continuing on the roll out of budget amendments, which is likely to include massive cuts across the entire public sector. (25/03/2009)cccccccccccccccccccccccccccccccccc Latvia’s crisis at critical level (Baltic Times)

Crisis-hit Latvia may ask for a fresh loan from international lenders in addition to the 7.5-billion-euro bailout it secured last year, Latvia's new Prime Minister said Riga agreed a total 7.5-billion-euro loan, including 3.1 billion euros from the EU, 1.7 billion euros from the International Monetary Fund (IMF) and 1.8 billion euros from the other states including the Czech Republic and several Nordic states. The loans were required to tackle its yawning budget deficit and troubled banking sector. (24/03/2009)ccc Latvia may need new bailout (Eubusiness)

The Netherlands Dutch Prime Minister Jan Peter Balkenende unveiled a 6.0-billion-euro (8.1-billion-dollar) stimulus plan for 2009 and 2010, but warned of cost-cutting from 2011 to bring down deficits. The plan includes investment for road construction, the abolition of a tax on air travel, funding for renewable energies and measures against youth unemployment. (25/03/2009)ccccccccccccccccccccccc Dutch PM unveils six-bln-euro stimulus plan (EUbusiness)

Poland Poland appears to be weathering the severe slump in the world economy better than many other countries, especially in eastern Europe. Its economy grew by 2.9% year on year in the fourth quarter of 2008, which—although well below an average growth rate of 6.3% in the previous ten quarters—was in line with results in Slovakia and Romania. Furthermore, Poland's performance compared very favourably with that of the Czech Republic (0.2%), Slovenia (-0.8%) and Hungary (-2.3%), and far outshone that of the Baltic states, some of which experienced a double-digit annual fall in output. (30/03/2009) Complacent in Poland (Economist)

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Romania The International Monetary Fund (IMF) and other lenders have agreed in principle to provide Romania 20bn euros in aid. The IMF will lend 12.95bn euros, the European Union will provide 5bn euros and the World Bank will lend 1bn euros. The European Bank for Reconstruction and Development (EBRD) is to invest up to 1bn euros in Romania over two years. The latest IMF economic program has been agreed by its staff mission, but needs approval from the executive board and management. Similarly the World Bank needs to agree its part of the deal and the European Commission must approve its contribution. (25/03/2009) vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv Romania gets IMF emergency loan (BBC)

Slovakia Under the influence of the global economic crisis, the general business climate has significantly worsened in countries such as Slovakia and this is expected to be reflected in the telecommunications sector. According to an analysis conducted by Deloitte Slovensko, a slowing in the growth of telecom revenues is expected for 2009 in comparison to the 3.7 percent overall growth of the Slovak telecommunications market and the 5.3 percent growth of its mobile services segment recorded in 2008. (23/03/2009) Economic downturn expected to hit the telecom sector (Slovak Spectator)

Spain Spain’s consumer price index appears to have contracted in March compared with the same period last year, fuelling fears that the recession-hit country could be entering a deflationary cycle. The National Statistics Institute said that a preliminary indicator showed that inflation had slowed to a negative 0.1 per cent for the month, down from a 0.7 per cent increase in March last year. It was the first contraction in prices since the current method of calculation was introduced in 1997. (30/03/2009) Deflation fears grow in Spain (Financial Times)

Spain's decision to rescue a regional savings bank has sent financial stocks in the country lower. The Bank of Spain is to take over Caja Castilla la Mancha in the first bank bail-out in Spain since the global financial crisis began. The government will also back the bank with 9bn euros in guarantees. Shares in banking giants Santander and BBVA declined on concern over the health of the banks in Spain, where the housing market has been badly hit. (30/03/2009) Spain bank bail-out hits shares (BBC)

Spain will launch a fresh round of government spending to pull its economy out of recession if another stimulus is needed later this year, José Luis Rodríguez Zapatero, prime minister, said on 26 March. He acknowledged that such a fiscal stimulus would have to be better co-ordinated, more modest and more focused than the previously announced stimulus packages that are draining the coffers of most of the world’s big economies. (26/03/2009)ccccccccccccccccccccccccccccccccccccccccccccccccccccc Zapatero favours ‘green’ stimulus (Financial Times)

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The European Commission gave its approval to the plans of Spanish authorities to grant 800 million euros in public aid to the textile and clothing sector. (24/03/2009)xxxxxxxxxccccccccccccccccccxxxxxx EU approves EUR 800m state aid for Spanish textile sector (EUbusiness) cccccc

Sweden Swedish protested on 26 February against the threat of job cuts at the Saab factory there. The loss of 750 jobs was announced two weeks later. Saab Automobile may be just another crisis-ridden car company in an industry full of them. But just as the fortunes of Flint, Mich., are permanently entangled with General Motors, so it is impossible to find anyone in this city in southwest Sweden who is not somehow connected to Saab. (22/03/2009)cccccccccccccccccccccccccccccccccccccccccccccccccc Sweden says no to saving Saab (International Herald Tribune)

UnitedcKingdom The number of new cars produced in the UK fell by a record 59% in February, year-on-year, as the motor industry continues to suffer from weak demand. Many major manufacturers have been forced to suspend or cut production in the face of falling sales. The size of the drop has led to renewed calls for more government help. However a row over protectionism has broken out after Renault's decision to move production back to France from Slovenia, prompted by government aid. (20/03/2009)ccccccc UK car production in record drop (BBC)

Europe and the United States should work closer together as "an unstoppable progressive partnership" to help pull the world out of its financial and economic malaise, British Prime Minister Gordon Brown. Addressing the European Parliament in Strasbourg, France, Brown called for more regulation of the financial markets and more stimulus of world economies in a coordinated fashion. (24/03/2009)ccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc Brown calls for EU-US cooperation on economic crisis (EUbusiness)

FINANCIAL CRISIS: ACTIONS TAKEN WORLDWIDE

China China's central bank has called for a new global reserve currency run by the International Monetary Fund to replace the US dollar. Central bank governor Zhou Xiaochuan did not explicitly mention the dollar, but said the crisis showed the dangers of relying on one currency. With the world's largest currency reserves of $2tn, China is the biggest holder of dollar assets. Its leaders have often complained about the dollar's volatility. (24/03/2009)ccccccccccccccccccccccccccccccccccccccccccc China suggests switch from dollar (BBC)

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China has increased the pressure on world leaders just days before the G20 world summit by calling for an overhaul of the global financial system. Chinese officials want a new global reserve currency and reforms of international financial institutions to give developing nations more power. (24/03/2009) China presses G20 reform plans (BBC)

Japan Japanese unemployment rose to 4.4 percent in February, up from 4.1 percent the previous month, as firms cut jobs and close factories to cope with the deepening recession. (31/03/2009)xxxxxxxxxxxxxxx Jobless rate rises to 4.4 percent (France24)

Japan's exports saw a record plunge in February, falling by nearly half compared with a year earlier, according to the country's finance ministry. Exports fell 49.4% year-on-year to 3.526tn yen ($36bn; £24.6bn), though this was in line with forecasts. The world's second-largest economy is suffering in the downturn as demand for its products has collapsed. (25/03/2009)ccccccccccccccccccccccccccccccc Japan's February exports halved (BBC)

Russia Russia's economy will shrink by 4.5% this year because of the global downturn, the World Bank has predicted. The Bank said Russia, a major oil producer, would be particularly hard hit by the low price of oil. It said the Kremlin should shift the focus of its anti-crisis programme to the poor because of "the threat of significant social pressure". The Bank added that aid to Russia's poor might have the added benefit of stimulating domestic demand. (30/03/2009) Russia's poor 'need crisis help' (BBC)

Prime Minister Vladimir Putin said Russia would offer hundreds of millions of dollars to help its heavily indebted biggest carmaker AvtoVAZ, with aid for other firms in trouble too. (30/03/2009) vvvvvvvvvvv Putin offers to pump money into maker of Lada cars (France24)

South Korea South Korea will urge the Group of 20 countries gathering in London to “roll back” all protectionist measures adopted since November and call for the World Trade Organisation to “name and shame” countries that erect barriers to trade or finance. (29/03/2009) S Korea seeks to halt protectionist drift (Financial Times)

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UnitedcStatesc President Barack Obama said that leaders of the G20 major global economies should send "a strong message of unity" on confronting the world financial crisis. The U.S. leader also said he saw signs of improvement in the slumping world economies, including areas of the American housing market where the crisis began. Obama told that his objective for the G20 summit was to get the leaders to take a "robust approach to stimulus," deal with toxic assets in the financial system and agree on regulatory reform to keep such a crisis from occurring again. (30/03/2009) Obama seeks strong message of unity at G20 (Reuters)

The White House says neither GM nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants. (30/03/2009)vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv Obama denies bailout funds for automakers (CNBC)

The White House on 29 March pushed out the chairman of General Motors and instructed Chrysler to form a partnership with the Italian automaker Fiat within 30 days as conditions for receiving another much-needed round of government aid. (30/03/2009),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, U.S. lays down terms for auto bailout (International Herald Tribune)

Three days after unveiling a plan to cleanse banks of their troubled loans and securities, America’s treasury secretary was back in front of a congressional committee outlining proposals to extend the government’s grip on the financial system. These would mark the biggest expansion of federal regulation since the 1930s.The new framework has four parts: containing systemic risks; protecting consumers and investors; streamlining the regulatory structure; and international co-ordination. (26/03/2009) The Obama administration unveils core elements of its financial-regulation agenda (Economist)

HIGHLIGHTS

G20 Summit

G20 leaders hope support for banks, higher spending and more money for the IMF will lift the world economy out of recession by the end of 2010, according to a draft G20 communique. Stimulus measures already taken will raise global output by more than two percentage points and create more than 20-million jobs worldwide, quoting from the draft. (29/03/2009)nnnnnnnnnnnnnnnnnnnnnnnnn G20 sees growth by end of 2010 (Mail&Guardian)

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As delegates gather for the G20 summit in London on 2 April, it is worth looking to the last time London hosted a world economic summit. In June 1933, delegates from 66 countries gathered in London to try and agree plans to revive the world economy in the midst of the Great Depression. (23/03/2009) Lesson for G20 from 1933 London summit (BBC)

European Business Summit

Up to 200,000 corporate insolvencies are expected in Europe this year, according to the European Commission's SME envoy, Françoise Le Bail, who said the reluctance of banks to lend to SMEs will force thousands of viable companies out of business. Speaking at the European Business Summit in Brussels, where she addressed a workshop entitled 'SMEs in times of crisis: red tape or red carpet?,' she said 19 EU member states had already launched recovery packages for the real economy which will directly benefit small companies. (30/03/2009)vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv Commission expects bankruptcy surge in 2009 (EurActiv)

The European Commission said it will propose binding powers for new EU-wide supervisory authorities in its upcoming review of supervision rules for cross-border banks and insurance groups, expected in May. But sensitive issues on how to deal with the collapse of a multinational group remain open, it emerged from debates at this year's European Business Summit (EBS). (27/03/2009)bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb EU unveils details of financial supervision overhaul (EurActiv)

FEB/Insead report wants public-private partnership to re-skill the EU's labour force. The national governments of the EU should agree a European skills pact to ensure that the Union has a sufficiently well-educated workforce to respond to global challenges once the current economic crisis has passed, according to a report released today in Brussels at the European Business Summit. (26/03/2009)ccccc Report calls for EU skills pact to prepare for post-crisis era (European Voice)

EU Summit

Summit approaches economic crisis from all fronts: financial market regulation, economic stimulus, job security. Leaders agreed to use €5bn in unspent EU funds to upgrade energy and internet connections. And they raised the ceiling on EU aid to countries having difficulties. The credit line – which covers countries not using the euro – was lifted to €50bn. Leaders also pledged €75bn in additional support to the International Monetary Fund to help countries in trouble. Wrapping up a two-day summit, the leaders issued a joint statement saying the bloc had made “good progress” in implementing the €200bn stimulus package adopted in December. Leaders expressed confidence the measures – which include tax cuts and bank bailouts – would revive the economy but said it would take time.

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Looking ahead to the G20 summit on 2 April, leaders spelled out a common position on how to improve regulation and oversight of the financial industry.Leaders also approved the development of closer ties with countries to the east. The Irish government updated EU leaders on its plans for a re-run of the Lisbon Treaty referendum.bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb Presidency Conclusions: download (pdf) (20/03/2009)cccccccccccccccccccccccccccccccccccccccccccc EU leaders confident and determined in face of economic crisis (European Commission)

OUR COMPETITORS’ VIEWS ON FINANCIAL CRISIS PSE

Socialist Euro MPs voiced concern that a European Commission draft proposal on Hedge Funds was

"no more than window-dressing". Information leaked to the socialist group suggests the Commission

will conclude fast track internal consultations on the proposal. European Parliament spokesman on

Hedge Funds Poul Nyrup Rasmussen said: "The proposal lacks rigorous content. In essence, Hedge

Funds would simply have to register in the EU and could then compete freely without having to meet

any extra condition. This is no more than window -dressing. It is completely unacceptable".

(26/03/2009)

Commission accused of "window-dressing" on hedge funds (PSE News)

ALDE/ADLE Paolo Costa MEP (ALDE), Chairman of the European Parliament Committee on Transport, has been appointed rapporteur on the EU common rules for the allocation of slots at European airports in view of responding to the effects of the economic crisis on the aviation sector and to dramatic traffic reduction affecting almost all European airports and carriers. In this light, Paolo Costa MEP has started a number of consultations with the main European stakeholders, including representatives from airports, airlines, low cost carriers and national authorities in charge of allocating the slots. (26/03/2009) Paolo Costa appointed rapporteur on urgent measures (ALDE News) European Liberals and Democrats believe investment in transport, infrastructure and broadband connections will create jobs now, and prepare Europe for the future."We have made a pledge of more money for the IMF, a promise of more support for Europe’s most troubled economies and an agreement on moving ahead with European supervision of the financial system. I congratulate the Czech Presidency on that achievement" said ALDE Leader Graham Watson. (25/03/2009)xxxxxxxx EU Summit sets the tone for a common European line at the G20 meeting (ALDE News)

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UEN UEN Group proposed a resolution on the future of the car industry : 1. Considers that the current aid measures for the automotive industry could represent a serious and important opportunity to address long-term structural issues which still exist in the car industry; 2. Stresses that state economic intervention must at all times comply with EU state aid rules and the principles of the internal market; 3. Reaffirms the necessity to maintain a high level of research and development investment, in particular in the area of clean technologies; 4. Underlines the fact that since this global crisis affects other world actors in the automotive sector, in particular the United States, a global solution requires a permanent dialogue with third countries and the main EU trading partners; 5. Calls on the Commission to postpone conclusion of the free trade agreement between the European Union and South Korea until a balanced solution on the implications for the car sector is found; etc. (24/03/2009)ccccccccccccccccccc UEN Group resolution on the future of the car industry (UEN Latest News)cccccccccccccccccccccccccc

Greens/EFA Green parties from across Europe have launched their campaign and manifesto for the 2009 European elections in June, calling for a 'Green New Deal for Europe' and accusing EU politicians of ‘greenwashing' their current, too-small stimulus packages. (30/03/2009) Europe's Greens accuse EU of ‘greenwashing' stimulus packages (EU Observer) During the Greens’ organised conference on A Green New Deal, professor Schmidt-Bleek made a clear call for a new economy that functions within the laws of nature. For him, the current financial and ecological crises stem from the same roots. (27/03/2009)cccccccccccccccccccccccccccccccccvvvvvvvvv A Green New Deal to tackle the triple crisis: A Greens/EFA conference (Greens News)

GUE/NGL During a debate in the European Parliament speaking on behalf of the GUE/NGL group, Czech MEP Vladimír Remek said "it is clear that ways out of the crisis need to be sought but confidence building and financial stability must be part of the deal." We have experienced a sharp rise in unemployment; this needs to be tackled urgently." MEP Remek said he was not in favour of providing financial support to ailing companies. (25/03/2009)bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb Job creation and protection vital for the EU's post-crisis future (GUE News)

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UPCOMING EVENTS

Event: Meeting of G20 heads of states and governmentdddddddddddddddddddddddddddddd

Date: 2 April 2009, Londoncvccccccccccccccccccccccccccccccccccccccccccccccccccccccc

Event: EU Finance Ministers and Central Bank Governors in Prague for informal ECOFIN meeting

Date: 3 - 4 April 2009, Prague

The meeting will be chaired by Czech Minister of Finance Miroslav Kalousek and also attended by Commissioners

Joaquín Almunia and Charlie McCreevy, President of the European Central Bank Jean-Claude Trichet and

President of the European Investment Bank Phillipe Maystadt. Minister Kalousek also invited a number of other

prominent guests, e.g. Jacques de Larosière, who is in charge of the High-Level Group on Financial Supervision

and the former Italian Minister of Finance and present President of the think-tank Notre Europe, Tommaso

Padoa-Schioppa.

Editor:cRolandcFreudensteinffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff

Research Assistance: Katarína Králikovácccccccccccccccccccccccccccccccccccccc/cccccccccccccccccccccc

Design: José Luis Fontalbaccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc

Questions and comments: briefs@thinkingeurope.eu

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ANNEX

G20: ECONOMIC SNAPSHOT

The leaders of the Group of 20, or G20, of the world's most powerful countries meet in London in April - and top of their agenda will be the global economic crisis.

ARGENTINA

One of South America's largest economies, Argentina was in economic difficulties even before the

global downturn struck. Expansionary policies had caused the economy to overheat, fuelling inflation,

while tax revenues shrank because the country's farm exports were fetching lower prices on world

markets. The government responded to the fall in tax revenues by increasing taxation on agricultural

exports, a move that sparked continuing protests by farmers. President Cristina Fernandez, who came

to power in December 2007, nationalised the private pension system in November to help plug the

hole in the government's finances. Previously privatised companies such as Aerolineas Argentinas have

also returned to state control.

AUSTRALIA

Australia has experienced a long period of stable economic growth since its last recession in 1991,

benefiting from the rise of China and India as markets for its raw materials. However, its resources-

based economy has struggled since the worldwide financial turmoil began in the middle of 2008. Its

mining firms are cutting back on capital spending, reducing staff numbers and mothballing projects.

The government of Prime Minister Kevin Rudd recently announced a 42bn Australian dollar ($26.5bn;

£19bn) stimulus plan, as it seeks to shield the country from the global downturn. Mr Rudd has argued

that the G20 alone has the global economic reach to tackle the world economic crisis. Mr Rudd

continues to enjoy strong approval ratings over his handling of the economy, and is renowned for his

strong work ethic, earning him the nickname Kevin 24/7.

BRAZIL

Latin America's biggest economy is also the world's biggest exporter of products ranging from beef

and chicken, to orange juice and coffee. But it has been hit by sharp falls in world commodity prices as

the global downturn curbs demand. Brazil's currency and stock markets have also suffered, after

foreign investors sold off assets in order to cover losses back home. The financial turmoil has already

seen one big banking merger, between local giants Itau and Unibanco, and further consolidation may

be in prospect. Brazil's government recently criticised the "Buy American" clause in the US's $787bn

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(£563bn) economic stimulus package. Brazilian President Luiz Inacio Lula da Silva said the US and other

developed countries should not turn to protectionism. And he hopes the G20 summit will lead to a

greater role for developing countries in the world economy.

CANADA

Thanks to the North American Free Trade Agreement (Nafta), Canada's economic health is closely

linked to that of the US, which buys three-quarters of its exports. The ailing car industry, for instance,

is as big a problem for Ottawa as it is for Washington. As a result, Canada has copied many of the US

government's tactics, such as cutting interest rates and drawing up stimulus packages, although with

the same lack of success. However, Canada's banking sector and housing market are in better shape

than in the US, with far fewer sub-prime mortgages. In February, the Canadian parliament passed a

40bn Canadian dollar ($32bn; £23bn) economic stimulus package as part of the country's annual

budget. The successful vote was, however, hard to come by for the Conservative government, as

opposition parties said the original stimulus deal was insufficient, sparking a political crisis. The storm

resulted in Prime Minister Stephen Harper suspending parliament for six weeks so his government

could revise the plans.

CHINA

The global downturn failed to prevent China overtaking Germany as the world's third-largest

economy, but it has had serious consequences for the country, both internally and externally. Chinese

exports have been hit hard by falling world demand, with millions of rural migrants returning to their

villages after the factories that employed them closed down. China's waning appetite for raw

materials has had a knock-on effect on other countries' exports, crushing hopes that key emerging

markets could compensate for the developed world's slowdown. Its banks have not felt the impact like

elsewhere, but ordinary people have - with migrant workers especially hard hit. While China's growth

remains relative strong compared to other countries, it has launched a $587bn stimulus package and

has underlined that it now has the largest deficit in twenty years. And China has recently been talking

about the possibility of a new world currency to replace the dollar.

FRANCE

Unlike most other G20 countries, France has already seen social unrest in response to the global

downturn. In January, millions of French workers in both public and private sectors took industrial

action in protest at the government's handling of the economic crisis. The government has since

announced a 26bn-euro ($33.1bn; £23.5bn) initiative designed to revitalise the economy. While France

has not officially entered a recession, there are expectations that it will do so in 2009. Its trade deficit

hit a record 55.7bn euros ($71.4bn; £48.6bn) in 2008. President Nicolas Sarkozy has won domestic

plaudits for his plans to offer financial support for French industry, most notably the country's

carmakers. However, this has angered other European governments, who accuse him of

protectionism.

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GERMANY

Germany's economy, which accounts for about a third of eurozone output, is set for a grim year. The

government has predicted that the economy will shrink by 2.25% in 2009, which would be its worst

performance in the post-World War II era. The news has come as a shock to many Germans, who

prided themselves on their fiscal rectitude, unlike the free-spending, highly-indebted British and

Americans. However, Germany's export-led economy has been relying on demand in other countries,

which has now dried up because of the global slowdown. In February, the country approved a 50bn

euro ($63bn, £44bn) stimulus plan, and Chancellor Angela Merkel said Germany would emerge from

the economic crisis stronger than when it entered it. "We are operating on the principle that Germany

is strong and therefore can come to terms with this difficult economic situation," she said. However,

Mrs Merkel has warned other countries not to expect Germany to reflate its economy further before it

sees how the initial stimulus package has worked.

INDIA

India's economy has undoubtedly been affected by the global recession. The most recent official

figures showed that its economy grew by less than expected in the last three months of 2008. The

country's gross domestic product (GDP) grew by 5.3% between October and December, compared

with 7.6% in the previous three months, and 8.9% in the same period a year earlier. Agriculture, which

makes up about a fifth of the economy was one of the sectors to see growth fall, while industrial firms

such as Tata have been severely affected by the freeze in world credit markets and general fall in

global spending. The Congress-led government of Prime Minister Manmohan Singh now faces a

general election, starting on 16 April. It is hoping that pledged to waive farm loans and a rural

employment guarantee scheme will help it win a second term in power. India is worried that without a

global stimulus plan at the G20, its economic boom may be over.

INDONESIA

Globalisation has been a significant economic benefit for Indonesia in recent years. Thanks in no small

part to a big growth in manufacturing facilities for major multinationals, its economy grew 6.1% in

2008. However, with Western firms cutting back production towards the end of the year, Indonesia's

exports dropped sharply in the final three months of the year. To help lift the economy, the

government of President Susilo Bambang Yudhoyono has passed a $6bn (£4.3bn) fiscal stimulus. But

with overseas debts estimated at $151.7bn, the government has its own financial woes. Critics also say

it isn't doing enough to stamp out corruption that continues to deter some would-be investors.

ITALY

The Italian economy, the third-largest in the eurozone, was one of the first to enter recession. Its

economy has now shrunk for three quarters in succession: in the final three months of 2008, it

declined by 1.8%, following previous contractions of 0.5% and 0.4%. It was also one of the first to

approve a stimulus programme. In November, the government of Prime Minister Silvio Berlusconi

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approved an 80bn euro ($102bn; £66bn) emergency package that included tax breaks for poorer

families, public works projects and mortgage relief. Italy has the world's third-highest debt burden,

expected to top 110% of GDP this year.

JAPAN

By the Japanese government's own admission, it is facing the worst economic crisis since the end of

World War II. The slowdown in the world's second-biggest economy is steeper than that being

experienced in the US or Europe, as Japan has been hit particularly hard by falling global demand for

its products, particularly electronic equipment and cars. Consumers have cut back too, alarmed by

rising unemployment. The economy contracted by 3.3% in the last three months of 2008, its worst

showing since the oil crisis of the 1970s. And in January its exports plunged 45.7% to a 10-year low.

Prime Minister Taro Aso is now pushing to introduce a stimulus package, but commentators said he is

being hampered by his growing unpopularity within his own party.

MEXICO

The Mexican economy is so intertwined with that of the US that when Wall Street sneezes, Mexican

firms can find themselves in intensive care. Under the North American Free Trade Agreement (Nafta),

the proportion of Mexico's exports heading for the US has grown to 85%, leaving the country

vulnerable to falling US demand. Mexico also thrives on remittances from workers who have migrated

to the US, but these have fallen for the first time since records began in 1995. In January, thousands

attended a rally in Mexico City to protest at the economic policies of President Felipe Calderon's

government.

RUSSIA

Russia's economy is reeling from the effect of a sharp fall in the price of oil. The 2009 budget is

expected to slip into deficit and analysts predict that the country is heading for its first recession since

1998. Russia's stock markets have plunged in recent months and the central bank has spent billions of

dollars trying to support the rouble. The country has also seen unemployment rise sharply recently.

Social unrest has already been broken out in Vladivostok, while the financial crisis has cut the

combined fortune of the 10 richest Russians by 66% to $75.9bn, according to business magazine

Finans. Overseas investment in the country is also being deterred by the perception that state-run

firms bully or intimidate foreign companies into handing over control of their investments. There is

also widespread cynicism as to how much President Dmitry Medvedev is really in control, and whether

power really lies with Prime Minister and former President Vladimir Putin.

SAUDIcARABIA

The Saudi kingdom is the only G20 country that also belongs to oil producers' cartel Opec (Indonesia

allowed its membership to lapse at the end of 2008). The global downturn has led to lower demand

for energy, further depressing world oil prices, despite Opec's attempts to cut output. As a result, the

International Monetary Fund predicts that Saudi Arabia and its neighbours will record fiscal deficits of

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up to 3.1% of GDP in 2009, a marked decline from surpluses of 22.8% of GDP in 2008. King Abdullah

recently replaced the country's central bank chief in a rare reshuffle.

SOUTHcAFRICA

South Africa has the continent's biggest economy and is the only African member of the G20. The

country has already been hit by the global recession, its economy contracting for the first time in 10

years in the last three months of 2008. Between October and December it shrank 1.8% from the

previous quarter. Like Brazil, it fears that the global downturn will lead to a rise in protectionism in rich

nations, making it even harder for developing countries to gain a foothold in key markets and

increasing their sense of economic isolation. South Africa's finance minister Trevor Manuel told the

World Economic Forum in Davos in January that Africa was "at risk of decoupling, derailment and

abandonment together". The African National Congress government of President Kgalema Motlanthe

continues to face tough challenges in alleviating poverty and reducing crime levels. The country goes

to the polls on 22 April.

SOUTHdKOREA

The government in Seoul, like its neighbours in the region, fears that the global slowdown could lead

to a repeat of the 1997-98 Asian economic crisis. South Korea's economy shrank by 3.4% in the last

quarter of 2008 compared with the year before, while President Lee Myung-bak has warned that his

country faces an "economic emergency". In response, the government has announced a stimulus

package worth 14 trillion won ($10.9bn; £6.6bn) to boost the economy, with eleven trillion won aimed

at public projects and three trillion won for tax cuts to encourage spending. Meanwhile, interest rates

have fallen to record lows.

TURKEY

As it tries to revive its EU membership bid, Turkey has been talking up its response to the downturn as

evidence that its reactions are those of a developed country, not an emerging market. In the past

three months, the central bank has cut interest rates by 3.75 percentage points, although the rate

remains high by world standards at 13%. However, the Turkish lira fell 25% against the dollar in 2008,

while industrial output fell 19% in December. Loan talks with the International Monetary Fund were

suspended in January after disagreements over the terms. As well as trying to reduce unemployment

levels from the current 12%, the government of Tayyip Erdogan has had to face constant suspicion of

its Islamist routes, in a country where the secular and religious are often divided.

UNITEDcKINGDOM

The International Monetary Fund expects the UK to suffer the worst contraction among advanced

nations in 2009, with its economy predicted to shrink by 2.8%. The Bank of England has already cut

interest rates to just 0.5% in a bid to help the British economy out of recession, while unemployment

is now over 2 million - the highest level since 1997. It has also begun a programme of quantitative

easing to pump more funds into the economy by purchasing government bonds. Troubles in the

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banking sector have led the government to bail out some of the country's biggest financial institutions,

including Royal Bank of Scotland, in which it now holds a 68% stake. Recently, the governor of the

Bank of England warned that the UK economy could not afford another stimulus package, with the

government deficit set to soar to 11% of GDP.

UNITEDcSTATES

The global economic turmoil began in the US, thanks to the sub-prime mortgage crisis in which

underperforming home loans were repackaged and sold on as toxic debt. The Federal Reserve has cut

interest rates to near zero in a bid to unfreeze the credit markets, while new Treasury Secretary

Timothy Geithner has announced a partnership with the private sector to purchase toxic assets, in

order to get them off the banks' balance sheets. President Barack Obama has signed into law a

slimmed-down economic stimulus plan worth $787bn (£563bn), but problems in the wider economy

are worsening, with unemployment at its highest since 1992. The government has also announced

new plans for tougher financial regulation, including international oversight. But President Obama has

made it clear that he expects other countries to join the US in doing the heavy lifting of pulling the

world economy out of recession.

EUROPEANcUNION

Sixteen of the 27 European Union countries share the euro as their common currency. Their individual

economic performances vary considerably, but the eurozone as a whole has been in recession since

September 2008 and is forecast to shrink by 1.9% in 2009.

Unemployment in the euro area is expected to exceed 10% in 2010, up from 7.5% in 2008. The eurozone's key interest rate is now at 2%, its lowest level since December 2005. The worst performing EU economy is Latvia, which does not belong to the eurozone. Latvian GDP could fall by as much as 10% this year.

<<Source: BBC: Special Report >>