Another Lisbon Treaty hurdle may be removed as Ireland receives EU guarantees

The European Union (EU) has taken another major step forward toward implementation of its reform treaty, after agreeing on Friday to provide legally-binding guarantees to Ireland to overcome voters' misgivings.

"This decision gives legal guarantees that certain matters of concern to the Irish people will be unaffected by the entry into force of the Treaty of Lisbon," EU leaders said at the end of a two-day summit.

Ireland, which rejected the treaty in a referendum last year, agreed to have its citizens vote again in October this year to decide the document's fate.

"Any doubts that voters had last year are now clearly dealt with," Irish Prime Minister Brian Cowen said.

Surveys showed that this time a majority of Irish voters will approve the document.

The legally-binding document assures Ireland of its independent policy on various issues such as taxation, security, defense, abortion, and workers' rights.

During heated discussions at the summit, some EU states expressed concern that giving Ireland legal guarantees would further complicate the treaty's already-prolonged ratification process, as some countries may have to carry out another ratification procedure or reopen relevant debates in parliaments because of the additional protocol.

But Czech Prime Minister Jan Fischer, whose country holds the EU's rotating presidency, said the guarantees in a legal sense clarifies the treaty, and does not amend it, so it would not lead to reopening of the ratification process.

The treaty, designed to streamline EU's decision-making process with strong backing from France and Germany, has been treading a bumpy road since it was passed in October 2007 by leaders of all EU member countries. It is aimed at reshaping EU institutions and resurrecting major reform proposals embodied in the failed constitution rejected by the Dutch and the French in 2005.

In order to take effect, the treaty must be ratified by all 27-member states, and only Ireland is constitutionally bound to hold a national referendum on it.

Irish voters rejected the treaty last June, dealing a severe blow to many EU leaders who want early reform of the bloc. The Irish voters demanded that the country must maintain its long-cherished neutrality in foreign and defense affairs, as well as its sovereignty in moral and financial matters. They feared the treaty would leave Ireland, a small country with a small population, reduced veto power in the bloc under the new majority voting system.

Some voters also feared that future EU laws would tamper with Ireland's strict ban on abortion, and a centralized EU taxation system could lead to interference in Ireland's favorable and attractive system, and thus impair its economic development.

However, the global financial crisis has now changed the minds of many Irish voters.

Thanks to a 32 billion pounds (about 64 billion U.S. dollars) EU grant spread over the years, Ireland emerged from a poor, agrarian country into the second richest country (per capita) in the region after Luxembourg.

Once known as the "Celtic Tiger," Ireland's economy has not managed to escape the worldwide economic meltdown. It officially entered recession in September 2008 after two successive quarters of negative growth, becoming the first eurozone country to do so.

Official data shows that Ireland's economy contracted 2.3 percent in 2008, with a jaw-dropping 7.5 percent plunge in the fourth quarter, the worst annual performance since records began in 1947. Economists predict another 6.5 percent fall this year.

Meanwhile, unemployment in the country has jumped from 5 percent to 10.4 percent, a pace even faster than the United States.

The Irish economy has not experienced a recession since 1983, and maintained double-digit growth in the 1990s.

Its credit ranking was downgraded from the AAA to AA+ by Standard & Poor's (S&P) in March, and warned the evaluation might drop further if the country fails to rectify its public finances.

In view of the predicament, the Irish public may have realized that being isolated and excluded from the EU could hardly do any good for their economic recovery, observers said.

However, despite possible Irish approval, it is still too early to say whether the path ahead will be smooth. The Czech Republic, whose president is the strongest eurosceptic head of state in the EU, might remain an obstacle.

Although the treaty has been approved by the lower house and the senate of the Czech Republic, President Vaclav Klaus warned that he could delay the signing of the document.

Under the country's law, the treaty has to be signed by the president before it takes effect.

Klaus has strongly opposed the treaty. He believes it would breach the Czech constitution and weaken the country's international status by undermining its sovereignty.

It therefore remains to be seen whether the treaty, crucial to the EU's future development, can find its way through Irish voters and the Czech president.

Obama's European scorecard

U.S. President Barack Obama was celebrated like a rock star in Europe but returned home without much concrete support for his most ambitious plans.

Obama's diplomatic tour de force of Europe included pit stops at a Group of 20 summit in London aimed at saving the world economy; a NATO summit in France and Germany intended to celebrate the alliance's 60th anniversary and round up support for the crucial NATO mission in Afghanistan; a meeting with EU leaders in the Czech Republic, where Obama called for a world without nuclear weapons; and a final stopover in Turkey, where Obama reached out to the Muslim world.

All over Europe, Obamania followed the president, with crowds cheering him and heads of state and government eager to make Obama look like their new best friend. (Think French President Nicolas Sarkozy.) However, these very same leaders ducked most of Obama's concrete demands.

France and Germany vetoed the president's vision of a giant $1 trillion global stimulus plan, giving their green light only to extra funds for the International Monetary Fund and the World Bank -- a small success, at least.

At a NATO summit in Strasbourg, France, and Kehl, Germany, European nations ducked calls to send additional combat troops into southern Afghanistan, where NATO forces are engaged in bloody fighting with the Taliban-led insurgency.

HSBC says to cut 1,200 UK jobs

HSBC Holdings is cutting about 1,200 jobs in Britain as cost-cutting across the battered banking industry continues to force job losses.

HSBC said the operating environment for banks in Britain was "extremely challenging" and will remain so for some time.

Most of the cuts would be in processing and operations.

There will be some losses in finance, human resources and information technology, but no customer service staff in branches will be affected, the bank said in a statement.

A spokesman said the bank will close an operations center in Leamington Spa, in central England, affecting 290 jobs and another in Newport, Wales, affecting 90 staff.

HSBC cut 500 jobs at its UK banking business in December following a review of the business, and axed 1,100 investment banking jobs in September.

HSBC, Europe's biggest bank, employs about 58,000 people in Britain and 312,000 people globally.

U.S. calls on Russia to join its missile defense plans in Eastern Europe

U.S. Secretary of State Hillary Clinton on Friday urged Russia to join the Washington plan to deploy a missile defense shield in Eastern Europe.

"We believe that Russia and the United States to cooperate on defense - to include joint research and development. Assumingly And finally we can reach an agreement (on) joint deployment, "Clinton said in Brussels.

Clinton defended the idea of the Bush administration to deploy a strategic missile shield to defend the Czech Republic and Poland.

"Missile defense is an element of our (U.S. and EU), the common defense posture," she said after a meeting with the European Union (EU) Troika - the Presidency, the decision-making Council and the European Commission.

"It obviously has to be proven to work and be profitable to be deployed in the Czech Republic and Poland. But it is intended to be part of a deterrent and defensive reaction vis-à-vis Iran and Other players who could reach, and to determine the use of missiles against Europe, "she says.

Clinton, Obama said that the administration would not drop the Bush-era plan.

"We must be prepared to provide mutual defense effective ways, and we will continue to explore various ways to do so. If the defense is proven to work and it is profitable, it may be part of the defense in all, "said Clinton.

The U.S. plan has met strong opposition from Moscow, which insists that the missile defense system, if deployed, Russia will undermine national security. Clinton said she would tell Russian Foreign Minister Sergei Lavrov, that the proposed missile shield is intended to missile threats from Iran and terrorist networks, not Russia, during his talks with to Geneva, on Friday evening.

Clinton also praised the Czech Republic and Poland for "visionary leadership in recognizing that there are new missile threats to Europe than the United States needs help.

"If it were not for Poland and the Czech Republic are ready to step up and be part of this new defense posture, we would not be able to engage with Russia on this issue," she said .

Obama Offered Deal to Russia in Secret Letter

President Obama sent a secret letter to Russia’s president last month suggesting that he would back off deploying a new missile defense system in Eastern Europe if Moscow would help stop Iran from developing long-range weapons, American officials said Monday.

The letter to President Dmitri A. Medvedev was hand-delivered in Moscow by top administration officials three weeks ago. It said the United States would not need to proceed with the interceptor system, which has been vehemently opposed by Russia since it was proposed by the Bush administration, if Iran halted any efforts to build nuclear warheads and ballistic missiles.

The officials who described the contents of the message requested anonymity because it has not been made public. While they said it did not offer a direct quid pro quo, the letter was intended to give Moscow an incentive to join the United States in a common front against Iran. Russia’s military, diplomatic and commercial ties to Tehran give it some influence there, but it has often resisted Washington’s hard line against Iran.

“It’s almost saying to them, put up or shut up,” said a senior administration official. “It’s not that the Russians get to say, ‘We’ll try and therefore you have to suspend.’ It says the threat has to go away.”

Moscow has not responded, but a Russian official said Monday that Foreign Minister Sergey V. Lavrov would have something to say on missile defense to Secretary of State Hillary Rodham Clinton when they meet Friday in Geneva. Mr. Obama and Mr. Medvedev will then meet for the first time on April 2 in London, officials said Monday.

Mr. Obama’s letter, sent in response to one he received from Mr. Medvedev shortly after Mr. Obama’s inauguration, is part of an effort to “press the reset button” on Russian-American relations, as Vice President Joseph R. Biden Jr. put it last month. Among other things, the letter discussed talks to extend a strategic arms treaty expiring this year and cooperation in opening supply routes to Afghanistan.

The plan to build a high-tech radar facility in the Czech Republic and deploy 10 interceptor missiles in Poland — a part of the world that Russia once considered its sphere of influence — was a top priority for President George W. Bush to deter Iran in case it developed a nuclear warhead to fit atop its long-range missiles. Mr. Bush never accepted a Moscow proposal to install part of the missile defense system on its territory and jointly operate it so it could not be used against Russia.

Now the Obama administration appears to be reconsidering that idea, although it is not clear if it would want to put part of the system on Russian soil where it could be flipped on or off by Russians. Mr. Obama has been lukewarm on missile defense, saying he supports it only if it can be proved technically effective and affordable.

Mr. Bush also emphasized the linkage between the Iranian threat and missile defense, but Mr. Obama’s overture reformulates it in a way intended to appeal to the Russians, who long ago soured on the Bush administration. Officials have been hinting at the possibility of an agreement in recent weeks, and Mr. Obama’s proposal was reported on Monday by a Moscow newspaper, Kommersant.

“If through strong diplomacy with Russia and our other partners we can reduce or eliminate that threat, it obviously shapes the way at which we look at missile defense,” Under Secretary of State William J. Burns said about the Iranian threat in an interview with the Russian news agency Interfax while in Moscow last month delivering Mr. Obama’s letter.

Attending a NATO meeting in Krakow, Poland, on Feb. 20, Defense Secretary Robert M. Gates said, “I told the Russians a year ago that if there were no Iranian missile program, there would be no need for the missile sites.” Mr. Obama’s inauguration, he added, offered the chance for a fresh start. “My hope is that now, with the new administration, the prospects for that kind of cooperation might have improved,” he said.

The idea has distressed Poland and the Czech Republic, where leaders invested political capital in signing missile defense cooperation treaties with the United States despite domestic opposition. If the United States were to slow or halt deployment of the systems, Warsaw and Prague might insist on other incentives.

For example, the deal with Poland included a side agreement that an American Patriot air defense battery would be moved from Germany to Poland, where it would be operated by a crew of about 100 American service members. The administration might have to proceed with that to reassure Warsaw.

Missile defense has flavored Mr. Obama’s relationship with Russia from the day after his election, when Mr. Medvedev threatened to point missiles at Europe if the system proceeded. Mr. Medvedev later backed off that threat and it seems that Moscow is taking seriously the idea floated in Mr. Obama’s letter. Kommersant, the Moscow newspaper, on Monday called it a “sensational proposal.”

Mr. Medvedev said Sunday that he believed the Obama administration would be open to cooperation on missile defense.

“We have already received such signals from our American colleagues,” he said in an interview posted on the Kremlin Web site. “I expect that these signals will turn into concrete proposals. I hope to discuss this issue of great importance for Europe during my first meeting with President Barack Obama.”

A Crisis Is Separating Eastern Europe’s Strong From Its Weak

The owner of some of the Czech capital’s chic restaurants unveiled a novel approach this week to lure business clients to one of his upscale dining rooms: let diners pay what they like.

The owner, Sanjiv Suri, hopes executives will not want to appear cheap to their guests when presented with a blank check after dining at the lunch buffet, laden with grilled vegetables instead of foie gras. Even if they pay nothing, he added, they will almost certainly return as paying customers.

“During an economic crisis you need to be creative,” said Mr. Suri, sipping pinot noir in a half-empty dining room.

Breaching the old adage that there is “no such thing as a free lunch” is just the latest tell-tale sign that the financial crisis has reached the Danube, even in a relatively resilient economy like the Czech Republic’s. As exports to Western Europe — its biggest market — begin to falter, companies are scaling back. Unemployment is starting to rise, hitting 6.8 percent last month, versus 6 percent a year earlier. The country’s gross domestic product is expected to contract by about 0.3 percent in 2009, the Czech National Bank said this week, after growing about 4 percent in 2008.

How bad it gets remains to be seen. Czech optimists say that they should fare better than countries to the east, which are far more dependent on loans from Western banks and have less developed economies. Indeed, the crisis threatens to widen the economic divide within Eastern Europe, as richer, well-run countries like the Czech Republic better withstand the downturn, leaving weaker peers further behind.

“The disaster spotlight is now being pointed at east and central Europe,” said Gernot Mittendorfer, the Austrian chief executive of Ceska Sporitelna, a large Czech bank owned by the Erste Group of Austria.

“But panicked investors are wrongly lumping all of the countries in this region together, and the reality is that there is not widespread rot.”

The most vulnerable are the newer states. Moody’s Investors Service warned in a report last week that western owners of East European banks are coming under pressure to withdraw capital from countries already reeling from budget deficits and foreign borrowing. The countries most at risk, the report said, are the Balkan countries, Hungary, Croatia and Romania.

While Asian economies recovered fairly quickly from the 1990s financial crisis by exporting their way out of recession, the export outlook does not look promising. Demand for goods is plummeting almost everywhere in the world.

Here in the Czech Republic, the problem hit home last week after foreign guest workers, who filled manufacturing jobs during the boom years, were offered free airline tickets and a 500-euro allowance to go home.

Few economists expect the region to avoid the recession rippling around the world. Nonetheless, Mr. Mittendorfer said, panic is not justified. The financial perils in places like Ukraine, he said, are not inextricably linked with wealthier, better-managed economies like the Czech Republic, Slovakia or Poland, which are already in the European Union.

Indeed, while emerging European markets need to repay more than $400 billion in short-term debt this year, a recent UBS report noted that more than half this debt was held by relatively resilient economies like the Czech Republic.

Much of the alarm over Eastern Europe has been focused on Austrian banks like Erste, Raiffeisen and Bank Austria, which came to the region after communism fell, eager to profit from the heady appetite for consumption and credit. Today, Austria’s loans to the east amount to 70 percent of its gross domestic product. Though many Eastern European subsidiaries could scarcely survive without their parent banks, Austrian bankers and financial analysts said they are confident the banks can provide it.

Andreas Treichl, chief executive of the Erste Group, one of Austria’s top three banks, said in a telephone interview that Erste had no intention of retrenching. He said the bank remained profitable and had adequate capital to cover its foreign exchange risk, even in volatile countries like Romania. “We will definitely not retreat,” he said.

Mr. Treichl pointed out that while many in the West were experiencing profound economic crisis for the first time in their lives, Eastern Europeans are more resilient, having lived through communism, dictatorship and 300 percent inflation. “People in this region are 10 times better equipped to cope with a crisis than spoiled investment bankers in New York,” he said.

Even if they are not and the trouble spots implode, economists and analysts here said they were confident that the European Union, the world’s biggest trading bloc, would find a way to come to the rescue rather than allow financial chaos to spread across the Continent.

Manufacturers are planning for the long haul.

Radek Spicar, a spokesman for Skoda, the Czech automobile maker, said the company had suffered a steep decline in orders from Western Europe, in particular Germany. Skoda has reduced its temporary workers to 800, from 4,000, and has shortened its work week to four days, from five. So far, it has not dismissed any of its 25,000 full-time workers

Germany’s stimulus package includes an offer of 2,500 euros to every person who scraps a car nine years or older and buys a new one, and that is bringing more Germans to Skoda showrooms, Mr. Spicar said. The Czech government is designing its own stimulus package as well.

The biggest casualty of the crisis in Eastern Europe could be unfettered capitalism, ardently embraced by countries that came out of communism. Thousands of people have taken to the streets in Poland, Latvia, Bulgaria and elsewhere, angry that their social safety net is tattered. In the Czech Republic, there was palpable resentment this week that Czechs were being punished for economic transgressions committed elsewhere.

Tomas Sedlacek, who served as an economic adviser to former President Vaclav Havel, noted that in the 1990s, the West lectured the former Eastern bloc about the need to privatize and deregulate. Now, the message emanating from Washington is to nationalize and to regulate.

“This crisis has turned the world upside down,” he said. “People here who argue that open markets are the solution to everything are no longer being taken as seriously.”

Currency Issues Weigh on Eastern Europe

A new dividing line is settling across central Europe with economic repercussions that are already painful and could potentially be disastrous.

Rather than being based on ideology, the division this time is based on countries that use the euro and those that do not.

Only two out of 10 of the newest Eastern European members of the European Union, Slovakia and Slovenia, are members of the 16-nation euro zone. And the other eight countries are desperate for help as their companies and economies are buffeted by currency fluctuations and declines.

The European Central Bank, which oversees the euro, puts money into the system by lending against collateral, and since the beginning of the current economic crisis, this practice has expanded vastly.

While euro zone members have priority, such lending also has become broader. British banks have benefited through their euro zone subsidiaries, and the central bank has even provided loans to central banks in Poland and Hungary.

What the central bank has not done for the new members yet to adopt the euro is to provide temporary currency swaps — along the lines of what the Federal Reserve did for Brazil, Mexico, Singapore and South Korea last October to enable those countries to convert their currencies more easily to dollars.

And the central bank does not accept as collateral the bonds issued in zlotys, forints or the other local currencies in Eastern Europe.

“This has made it unattractive for euro-area financial institutions to hold noneuro government bonds, thus contributing to their sell-off,” said Zsolt Darvas, a visiting fellow at Breugel, an independent economics research group in Brussels.

The global financial crisis was slow to reach this part of Europe because its banks had few troubled assets. But when the collapse of Lehman Brothers last September sent new shock waves through the global banking system, Eastern Europe and other emerging markets were no longer spared.

Hungary and Latvia were particularly vulnerable; Hungary because of its deep exposure to foreign lending, and Latvia because of its shaky banking system and overextended consumers. When foreign currency financing dried up, the domestic interbank money markets stumbled and currencies came under pressure. Both countries were rescued by the International Monetary Fund and the European Union, with a heavy price attached in the form of government spending cuts.

Political and psychological factors also make attracting funds more difficult outside the euro zone, said Vasily Astrov, an economist at the Vienna Institute for International Economic Studies.

“Investors have become risk averse, at least with regard to financial markets,” he said. “They are opting for countries which hold the major currencies.”

The extraordinary pace with which currencies have declined has only aggravated such problems. In Poland, the zloty has fallen in value by 50 percent against the euro.

In theory, that should help exporters. But Aleksander Drzewiecki, chairman of the House of Skills, a consulting company, said many export-driven companies depend on imports in the first place. “The turbulence with the exchange rate is horrible,” he said. “We have no idea where we stand.”

Poland, with almost 40 million people, is the biggest of the new member states. It lost an opportunity right after joining to quickly prepare to adopt the euro. The nationalist-conservative government then, led by Lech Kaczynski, was intensely skeptical toward the euro and resistant to abandoning the zloty.

The new center-right government, led by Donald Tusk, which took office in late 2007, is more “euro friendly,” Mr. Astrov said. But its target entry date of 2012 is now called into question by the economic turmoil.

Elsewhere in Eastern Europe, the Czech Republic is keeping its options about joining the euro zone open, although it would need support from President Vaclav Klaus, a euro skeptic.

The Baltic states would like to join as quickly as possible, but their economies are contracting so much that it would be impossible to meet the criteria, which, among other things, stipulates that budget deficits should be below 3 percent of gross domestic product.

Without its subsidiary in Germany, things could be a lot worse for Ergis-Eurofilms, the biggest manufacturer of plastic films and laminates in Poland, which last year had revenue of 150 million euros ($189 million at current exchange rates) and a profit of about 10 million euros.

By contrast, Fiam, a family-owned company in Slovakia that specializes in recycling plastic materials, has its subsidiaries outside the euro zone, in Hungary, Poland and the Czech Republic. As a result, Fiam has been protected from currency fluctuations in its home market, which has adopted the euro, but faces havoc when selling eastward.

“Leaving aside the fact that many economies are all in recession, there is predictability inside the euro zone because there are no currency fluctuations,” said Ivan Saro, the company’s chief financial officer, whose father started the business in 1988.

Andreas Tostmann, chairman of the board of Volkswagen’s subsidiary Skoda in Slovakia, said the elimination of exchange rates meant “higher stability in planning and not least, the simplification of transactions inside the VW Group.”

But VW, similar to Fiam, has markets outside the euro zone area, where its products become more expensive. “It is a nightmare,” Mr. Saro said.

The fluctuations have motivated the company to try to sell more to the euro zone area.

But Mr. Saro is still facing problems with tight credit. The banks, he said, are stricter in granting loans and customers are paying late.

“We get paid but we don’t know when,” he said. “The point is that having adopted the euro, it is some kind of guarantee. But don’t ask me to look beyond the short term. These times are just too crazy.”