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POLITICAL ECONOMY
China central banker backs euro, vows more support
by Staff Writers
Beijing (AFP) Feb 15, 2012

China cuts US debt holdings as reserves fall
Washington (AFP) Feb 15, 2012 - China cut its holdings of US debt by nearly $32 billion in December as its own huge reserves fell in the fourth quarter, US Treasury data showed Wednesday.

The largest foreign investor in US debt, China's holdings of Treasury bonds fell to $1,100.7 billion last month, down from $1,132.6 billion in November.

In January Beijing reported its total foreign exchange reserves, including the US debt, fell to $3.18 trillion at the end of December from a peak of $3.27 trillion in October, as its trade surplus began to narrow and as capital moved out of the country as speculation eased that the yuan would continue to appreciate against the dollar.


China's top central banker Wednesday expressed confidence in the euro and pledged to continue buying European sovereign debt, as the Asian giant seeks to shore up support for its biggest trading partner.

President Hu Jintao also gave his vote of confidence in talks with visiting EU leaders, saying China supported measures taken to counter the eurozone debt crisis and reiterating Beijing's readiness to help solve the issue.

"China will... continue to invest in European government bonds and will continue... to get more involved in solving the European debt crisis," central bank governor Zhou Xiaochuan said.

"We have confidence in the euro," he added, during a speech at the opening of a euro exhibition in Beijing also attended by European Union president Herman Van Rompuy and European Commission president Jose Manuel Barroso.

Premier Wen Jiabao told the European leaders on Tuesday that Beijing was ready to increase its participation in efforts to help address the crisis, and was considering using Europe's bail-out funds, without elaborating further.

On Wednesday, Hu reiterated China's readiness to help out.

"China closely watches and supports the series of measures being taken by the European Union, International Monetary Fund and European Central Bank to counter Europe's debt problems," he told Van Rompuy and Barroso in a meeting.

"China... will participate in the international community's actions to support Europe and the eurozone," he added, in comments published on the foreign ministry website.

China has made clear its growing concerns over Europe -- its biggest export market -- and has repeatedly urged EU leaders to get a grip on the situation, which the foreign ministry said this week had reached a "critical juncture".

Barroso said Europe was "putting our house in order" but noted it was a long process.

"This is a marathon not a sprint," he said Wednesday.

Van Rompuy, meanwhile, said that European leaders "highly value" China's confidence in the region and vowed to do everything necessary to "maintain the euro and the financial stability of the eurozone".

Leaders of the 17-nation eurozone and eight other EU nations agreed last month to create a new fiscal pact requiring signatories to put balanced budgets into law.

But Moody's this week questioned whether Europe was pulling together adequate resources to deal with the crisis as it downgraded Italy, Spain and Portugal.

The ratings agency also put France, Britain and Austria on warning, saying they were increasingly vulnerable to the eurozone crisis.

China holds the world's largest foreign exchange reserves, and European leaders have been keen that it invest in a bail-out fund to rescue debt-stricken states.

Zhou said Wednesday that the Asian powerhouse had not reduced the proportion of its investments in euro-denominated assets during the crisis.

"We believe that so long as all the European nations can solidify themselves together they will have the ability to solve the problems they face," Zhou said.

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Italy slides into recession as budget cuts bite
Milan (AFP) Feb 15, 2012 - Italy has slid back into recession after the economy shrank 0.7 percent in the fourth quarter following stringent budget cuts aimed at stabilising the public finances, official data showed Wednesday.

The economy contracted 0.2 percent in the third quarter and a recession is normally defined as two consecutive quarters of economic contraction. Figures from the Istat data agency showed overall growth of 0.4 percent for 2011.

Italy's last recession was during the global financial crisis in 2009.

The fourth quarter shrinkage was bigger than expected by analysts polled by Dow Jones Newswires, who had been forecasting a 0.4-percent contraction.

Under attack on the financial markets over its giant 1.9-trillion-euro ($2.5-trillion) national debt, Italy has adopted several large scale austerity packages since 2010 which have slowed economic activity.

The government is currently forecasting a gross domestic product (GDP) contraction of 0.4 percent this year but the Bank of Italy has said it expects the shrinkage to be between 1.2 percent and 1.5 percent.

The International Monetary Fund estimates a fall of 2.2 percent.

Prime Minister Mario Monti, a former eurocrat and economics professor, took over from Silvio Berlusconi in November as the head of an unelected technocratic government charged with rescuing Italy from financial disaster.

He has promised long-delayed structural reforms to boost growth.

The growth data comes a day after Italy announced it would not make a bid for the 2020 Olympics in order to save money and as the defence ministry announced sweeping defence cuts including a cut in F-35 fighter jet orders.

Defence Minister Giampaolo Di Paola said the number of armed forces and defence ministry personnel would be reduced by 43,000 to 170,000 over the next decade through hiring cuts and transfers.

He said F-35 orders from the United States would be cut from 131 to 90.

The army will also lose two of its 11 brigades, as well as reduce the number of tanks, armoured personnel carriers, artillery pieces and helicopters.

The number of warships and submarines will be reduced from 24 to 14.

Di Paola said some defence ministry property would be sold off "to contribute to a restructuring of the defence ministry and more generally to a financial recovery in the country."

The Bank of Italy also announced that the public debt had gone down to 1.898 trillion euros in December 2011 from 1.905 trillion euros in November -- but was still higher than the level of 1.843 trillion euros in December 2010.



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POLITICAL ECONOMY
Eurozone delays Greek bailout as China pledges support
Brussels (AFP) Feb 15, 2012
The eurozone gave Greece a new ultimatum and delayed a decision on a debt rescue, but China expressed support for the euro pushing up stock markets on Wednesday. The ministers called off a meeting on the rescue to avert imminent default for Greece complaining that Athens still had not fulfilled two vital conditions, with time running out for a debt restructuring. China's top central bank ... read more


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