ECONOMIC AND FINANCE STORIES
INTEREST RATE IN ASIA IS GETTING STABLE
Feb 5, 2007: Interest rate in Asia is gradually getting stable. In the month of January, Central Bank
of Japan has kept its interest rate unchanged on its Jan 19 meeting while Thai Central Bank has
cut its rate on Jan 17 meeting. Bank Negara largely known as Central Bank of Malaysia has also
kept its interest rate unchanged on its Jan 26 meeting. Finally Federal Reserve System of USA
also kept its rate as before on its Jan 31 meeting. Keeping interest rate unchanged, has been a
sign of stability in the money market in Asia, would contribute greatly in enhancing business
environment.
Asian economies are registering lower rate of inflation in recent months, have allowed Central
Banks to keep interest rate unchanged. Lower rate of inflation has been possible because of the
plummeting of oil prices in recent days. In addition to that, Central Banks in Asia are maintaining a
higher interest rate for several years to tackle possible inflation due to hike in oil prices.
Interest rate in Asia has been stable further as the Federal Reserve System of USA has
maintained its interest rate on its January 31 meeting.
The task of the Central Bank is to manage interbank or money market interest rate by controlling
money supply using its various instruments.
CENTRAL BANK OF USA HAS KEPT FED RATE UNCHANGED
Jan 31, 2007: Federal Reserve System of USA, largely known as Central Bank of United States
has kept its interest rate unchanged at 5.25 percent in its meeting held on Jan 31. The interest
rate also kept unchanged at 5.25 percent in the past five consecutive meetings of the Central
Bank.
Federal Reserve raised its rate 17 times over the period of 2004 to 2006 to tackle inflation due to
high fuel prices.
Why the rate has been kept unchanged? Firstly, the fuel prices are on the way to plummet,
secondly although US economy has registered 3.5 percent growth in the 4th quarter of 2006, the
rate of inflation has been dwindled. The inflation rate that excludes food and energy gets down to
2.1 percent in the 4th quarter of 2006.
Most of the stock indices such as Dow Jones Average, Standard and Poor and the NASDAQ are
showing some upward trend due to the stability in the Fed rate. Fed rate is the interest rate at
which one commercial bank charges each other overnight basis to maintain its mandatory reserve
requirement.
In this month of January, Thailand has cut its interest rate while Japan and Malaysia have kept their
interest unchanged.
CENTRAL BANK OF JAPAN HAS KEPT INTEREST RATE UNCHANGED.
Jan 19, 2007: Central Bank of Japan has kept its benchmark interest rate, known as unsecured
overnight call rate unchanged at 0.25 percent. Central Bank raised interest rate to 0.25 percent in
last July after maintaining almost zero percent in last six years.
Interest rate in Japan has been kept lowest in the world to fight deflation and recession, Japan is
experiencing over the last ten years. Low interest rate has allowed Yen to depreciate and hence
the competitiveness in export has been robust. Currently, Japan’s trade surplus is one of the
highest in the world, contributing to pile up its foreign reserve to almost 900 billion US dollar.
Many analysts believe that it is not appropriate time to hike interest rate as the economy is just
recovering from recession. The real GDP is growing at a moderate rate, stands at 2.8 percent
over the year 2006 and the fuel prices are on the way to plummet.
BANK OF JAPAN MAY INCREASE INTEREST RATE AT ITS JAN 17-18 MEETING.
Jan 12, 2007: Central Bank of Japan may hike interest rate on its 17-18 Jan meeting as the core
consumer prices that exclude foods are gaining momentum in recent days. High payroll paid by
US employers and record low unemployment in USA may influence Bank of Japan to raise its rate.
WHETHER THE US CENTRAL BANK WOULD RAISE INTEREST RATE ON ITS JAN 31,
2007 MEETING?
Jan 5, 2007: The price of US benchmark 10 year Treasury note has gone down with an
expectation that US Central Bank will hike interest rate in its Jan 31, 2007 meeting. Since the
price of Treasury note gone down, its yield has gone up as usual.
The employers in USA has paid higher payroll in recent days. In addition to that, the rate of
unemployment has been record low 4.5 percent recently and the economy is growing at a steady
rate. All these factors are signaling towards inflation due to excess demand.
Whenever the economy shows signal about inflation, Central Bank is likely to raise interest rate to
combat inflation.
BANK OF JAPAN MAY INCREASE INTEREST RATE AT THE END OF THE YEAR
Nov 18, 2006: Nikkei 225 stock index, key stock index in Japan dropped with a fear that Bank of
Tokyo would increase interest rate at the end of this year.
Higher economic performance may prompt the Bank of Japan to raise interest rate at the end of
the year.
Currently, the benchmark overnight interest rate set by Bank of Japan is 0.25 percent. Yen is likely
to appreciate with rising interest rate.
RESERVE BANK OF INDIA LEAVES REVERSE REPO RATE UNCHANGED
Oct 31, 2006: Reserve Bank of India raised repo rate to 7.25 percent from 7 percent, the rate at
which Reserve Bank gives loan to financial intermediaries. Rising repo rate indicates that financial
institutes will have to be prudent in managing their cash flow as the lending rate has been
expensive.
Reverse repo rate unchanged at 6 percent, the key indicator of financial intermediaries on their
prime rate. Cash Reserve Ratio is kept unchanged as well.
Indian economy is expected to grow at about 8 percent while inflation rate has been target in
between 5 to 5.5 percent.
BANK OF ENGLAND HAS RAISED RATE
Nov 9, 2006: Bank of England has raised rate to 5 percent, the highest level in last five years. Rate
has been hiked to cut excess money supply in the system as well as to cool down over heated
property market.
Rate hike is likely to increase the debt especially originated from house and car loan.
AUSTRALIAN CENTRAL BANK HAS RAISED INTEREST RATE TO 6.25 PERCENT TO
COMBAT INFLATION
Nov 8, 2006 : Australian Central Bank has raised its key interest rate to 6.25 percent today. The
key interest rate is known as Cash Rate, a rate at which all financial intermediaries charge each
other.
Few reasons have been identified behind current hike. Firstly, to combat inflation Secondly, the
world economy is growing very fast in recent months despite US economy has been sluggish in
recent days Thirdly, world economy is expected to grow at a steady rate in the year 2007 and
hence there will be huge excess demand may cause price hike.
Current rate of inflation as per September 2006/2007 stands at 3.9 percent which is above the
targeted rate of 2-3 percent. Due to hike key interest rate, overall spending in the economy is likely
to go down, may cause a reduction in the inflation rate.
US inflation rate in Sept 2006 is 2.1 percent just half of Aussie. So US Federal Reserve did not
increase its interest rate over the last three meetings.
Official key interest rate hike will increase all types of interest rates in Australia including mortgage
rates. The debtor will face hardship to pay increased rates especially who have borrowed using
variable rates. Bond prices are likely to go down while yield will go up.
Increase interest rate will bring an appreciation in the Aussie dollar and inflow of foreign currency
which will in turn increase foreign reserve of the country. Current foreign reserve as per Oct 2006
stands at US $ 50.095 billion that includes foreign exchange, SDRs, reserve position in the IMF
and gold.
EUROPEAN CENTRAL BANK HAS RAISED INTEREST RATE TO 3 PERCENT
August 3, 2006: European Central Bank has raised its key rate to 3 percent immediately after the
interest rate hike of the Bank of England. The hike of the interest rate had been due to contain
inflation.
The prices in Euro Zone are continuously increasing due to hike in energy prices. Energy prices
have been escalated further due to current war between Israel and Lebanon. So the inflationary
pressure is cost push type, so there requires a hike in the interest rate to reduce overall economic
activities and spending.
The higher interest rate would make the interest rate bearing assets more attractive while the
equity market would be adversely affected. It would increase cost of mortgage and all types of
loans but investors will get benefit from higher yield on bonds.
Higher interest rate is likely to contribute Euro appreciation.
European Central Bank maintains an interest rate corridor. The key interest rate which is main
refinancing operation is set at 3 percent while marginal lending rate (upper ceiling) and deposit
rate (floor) are set at 4 percent and 2 percent respectively
It is expected that key interest rate (main refinancing rate) would increase to 3.5 percent by the
end of this year as Federal Reserve Bank of USA and other Central Banks are likely to hike rates.
Although Euro Zone, a 12 member association is experiencing relatively low level of
unemployment compared to previous all years, the inflation is hiking due to energy price surge.
AUSTRALIA’S KEY RATE ROSE TO 6 PERCENT
August 2, 3006: Australian key interest rate (cash rate) has been increased to 6 percent to tackle
inflationary pressure which is stood at around 4 percent in recent days. Possibly this is the last
hike by the Ian Macfariane, the governor of Central Bank of Australia retiring soon.
The target is to keep inflation rate within 2 to 3 percent in Aussie.
This hike in interest rate is likely to pull down all stock indices in Aussie while Aussie currency is
likely to get appreciated.
This week there is expected to increases a number of rates by several Central Banks.
RESERVE BANK OF INDIA RAISES REVERSE REPO RATE (INTEREST RATE) TO COMBAT
PRICES HIKE
June 8, 2006: The reverse repo rate, the rate at which Central Bank borrows money has been
raised by 25 basis points to 5.75 percent. The repo rate which is linked with reverse repo rate is
increased to 6.75 percent at the same time.
The spread between repo rate and reverse repo rate is likely to be 100 basis points (one
percentage point) under Liquidity Adjustment Facility under which short term money supply is
managed.
The current hikes in rates have been for squeezing money supply in the system for shooting
inflationary pressure, primarily due to hike in crude oil prices.
BANK OF CANADA BOOSTS INTEREST RATE TO 4.25 PERCENT
May 24, 2006: Although inflation rate dropped to 1.6 in recent days, Bank of Canada hikes its key
interest rate to 4.25 percent from 4 percent in order to tackle possible future inflation.
Inter-bank interest rate is set at 4.25 percent is the key rate set by Central Bank of Canada. The
key rate is set to keep the economy at targeted 2 percent inflation.
Following reasons have been identified to raise the rate: Strong labour market and unemployment
rate dropped significantly. Retail sales is increasing considerably Economy is growing at a rate of
more than 3 percent. US has raised its interest rate again
Of course, consumer borrowing would be affected considerably due to hike.
Prices of bond are likely to go down as there prevails a negative relation between market interest
rate and bond prices. Stock indices may fall due to boost interest rate.
Hike of oil prices will not be able to affect economy much due to hike of interest rate.
CENTRAL BANK OF NORWAY INCREASES THE INTEREST RATE BY 0.25
PERCENTAGE POINT TO 2.5 PERCENT
March 17, 2006: Central Bank of Norway has decided to hike interest rate (sight deposit rate –key
interest rate) by 0.25 percentage point to 2.50 percent effective from March 17, 2006. The interest
rate on banks’ overnight loans is also raised by 0.25 percentage point. So the overnight lending
rate stands at 4.50 percent. So there exist 2 percentage differences between sight deposit rate
and overnight lending rate since August 3, 1993.
The sight deposit rate is the key interest rate of the Central Bank of Norway.
Following reasons have influenced the executive body to raise interest rate.
Output is growing at a faster rate while employment is rising. This positive scenario is expected to
bring higher prices and inflation In addition to that world economy is recovering especially Japan, China
and USA is growing at a faster rate. Since the world economy is integrated, the economic growth in
other part of the world would definitely impact on Norwegian economy.
High oil prices are expected to contribute towards general prices.
CENTRAL BANK OF MALAYSIA HAS RAISED INTEREST RATE TO 3.25 PERCENT
Feb 22, 2006: Central Bank of Malaysia (Bank Negara) has raised overnight policy or interest rate
to 3.25 from 3 percent today (Feb 22, 2006) in response to tackle inflation. Currently the economy
is experiencing 3.2 percent inflation due to hike in the price of petroleum.
See the monetary policy statement of Central Bank
http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=1189
This is the second rate hike since Asian crisis that hit the country in 1997-1998.
Since Malaysian economy is heavily reliant on export, the hike in prices will simply bring disaster
in the overall export performance. Statistic reveals that more than 100 percent of GDP comes
from export.
In addition to that, Central Bank has increased the rate due to recent hike of interest rate in USA
as well as in Euro Zone. USA is experiencing 4.50 percent interest rate while Euro zone is 2.25
percent recently set by European central Bank,
Experience suggests that a huge differential between interest rate between US and Malaysia
causes a capital outflow from Malaysia to USA in search of higher interest rate. This outflow will
cause a reduction of country’s foreign reserve upon which the defending power of the currency
relies.
Currently the country is enjoying almost USD 72 billion foreign reserve.
RISING US INTEREST RATE
Nov 5, 2005: The Federal Reserve of USA has raised interest or Fed rate again on Nov 1, 2005
to 4 percent to tackle possible inflation due to hike in oil prices. The rate could hike further to
almost 5 percent by the mid of next year, 2006 to squeeze overall spending of the economy.
Due to this current interest hike, the overall spending will be affected especially the consumer
spending will reduce considerable which accounts for about two thirds of the US economy. There
will be a reduction especially in housing industry that relies heavily on mortgage interest rate.
Hike of US interest rate may influence the monetary policy of many countries. The is an
expectation that European Central Bank may increase its interest rate little bit which has been
parked at 2 percent for the last few years. Central Bank of Malaysia may hike its rate to 3 percent
from current rate of 2.77 percent to reduce the interest rate differential between US and Malaysia.
UK CENTRAL BANK HAS REDUCED ITS REPO RATE (INTEREST RATE) BY 0.25
PERCENTAGE TO 4.5 PERCENT
August 4, 2005: The Monitary Policy Committee (MPC) of the Bank of England has decided
(nearly 5-4 voting) to decrease repo rate by 0.25 percentage to 4.5 percent amid high oil prices.
Sluggishness of economic growth and reduction of consumer spending have forced Monitary
Policy Committee to reduce repo rate. This cut will be helpful in cutting all base lending rates and
hence cheap credit for economic boost.
The repo rate is the interest rate at which Bank of England provides loan to financial institutes.
Repo rate 4.5 percent means that Bank of England will give loan to financial institutes at the rate
of 4.5 percent interest rate while financial institutes will have to surrender securities to Bank of
England as a collateral and later on financial institutes will have to buy it back again at a
predetermined rate.
Indeed repo operation is the short run open market operation to control money supply.
Bank of England has been criticized for reducing its rate in an environment when oil prices are
inflating and interest rates in most of the economies are on the rise. Many have complied with the
current reduction to enhance consumer confidence and tackling ailing economy.
RATE OF INTEREST IN MALAYSIA
August 1, 2004: Malaysian second finance minister has pledged once again to maintain overnight
interest rate at 2.7 percent to bolster the economy. It is anticipated that the overnight interest rate
(inter-bank rate) may hike little bit if the economy can grow around 6-7 percent.
HIKE OF US INTEREST RATE
June 30, 2004: The US Federal Reserve has raised the interest rate (fund rate) from 1 percent to
1.25 percent to tackle the possible inflation. The US economy registered more than 4 percent
growth in the 1st quarter of 2004, seems to be an attractive drive for local as well as world
economy. Together with other factors, $1.3 trillion tax cut enacted by US congress in 2001 has
fuelled today's US economy. But the ballooning budget and current account deficit have been a
threat to US economy.
BANGLADESH UNVEILED ITS NATIONAL BUDGET FOR 2005-2006
June 25, 2005: The national budget of Bangladesh is unveiled on 9th June, 2005 for the fiscal year
2005-2006. Some of the features of the budget are given below:
Total expenditure would be 64 thousand 383 crore taka (643.83 billion taka). Since the targeted
revenue is expected to be smaller than total expenditure, the size of the deficit would be 4.5
percent of GDP. This deficit is expected to meet by local resources (borrowing by the government)
and foreign assistance.
The share of foreign loans and grants are 10.9 percent and 5.1 percent respectively of the total
budget. The highest allocation has been given to education and information technology which
stands at 15 percent followed by transport and communication sector, 10 percent.
The budget is expecting to enjoy 6 percent growth rate in the fiscal year 2005-2006. In the last
fiscal year 2004-2005, the country has enjoyed 5.5 percent growth despite flood and natural
calamities.
Critics say that, the size of the budget is too big and over ambitious and hence can not be
materialized. In the past, it has been observed that almost half of the targeted development budget
has not been spent due to inefficiency of the government sector.
Agricultural subsidy has been doubled in the budget to support the poor. The provision for
converting black money into ‘white’ has been extended for another one year which has received
considerable criticism.
MALAYSIAN ECONOMY IN LAST THIRTY YEARS
January 22, 2005: Just 30 years back the majority of the Malaysian were living in rural and semi
urban areas where agriculture was the primary means of economic activities. Over the years they
have been scientists, physicians, engineers, programmers and so forth primarily due to a
dramatic shift from agriculture to manufacturing export and the economy is currently venturing into
knowledge based economy aiming at fulfilling the vision 2020. Coupled with considerable political
stability, heavy investment on educational sector helped the nation to build appropriate human
resources. Moreover the pragmatic and investment friendly policy attracted considerable amount
of foreign direct investment resulted Malaysia as hub of foreign companies. Malaysia has become
the world supplier of manufacturing goods and turned into a trading nation. Since the developed
economies are unable to enjoy economies of scale in producing manufacturing products in their
homeland, they installed manufacturing plants in Malaysia to enjoy competitive advantage while
they have furnished their economies with capital intensive high value added service and
knowledge sector.
MALAYSIAN NATIONAL BUDGET FOR 2005
October 1, 2004: The Federal budget has been declared by the Prime Minister as well as the
Finance Minister Dato Seri Abdullah Ahmad Badawi on the September 10, 2004 for the year
2005. The special features are given below:
The government has targeted to spend an amount of RM 117.4 billion (USD 30.9 billion). The
estimated revenue will be around RM 99.2 billion. So the Federal budget deficit would stand at 3.8
percent of GDP.
The government has targeted to make the badger balanced by 2007. Of the total budget, 75.9
percent would be spent for operating expenditure (Non-development expenditure) while the rest on
development expenditure.
It has been observed that operating expenditure takes the largest share of the budget in case of
semi-developed and developed economies. The reason lies behind that these economies have
already developed their infrastructure. Hence, need to spend more on maintain ace (operating
cost).
6 percent growth is expecting in 2005. The main thrust has been given on human resource
development, high value added activities, improve the government’s financial management and
better living environment.
As before civil servants will get benefits in terms of bonus. Teachers, principles, police officers
and mosque officials will get some benefits. Incentives are given to agriculture to reduce import bill
which stood at RM 13.9 billion in 2003. Agriculture has been given as third engine of growth after
manufacturing and service sector. Adoption of modern technology in agriculture will be given
emphasis. Commercialization of agriculture has been a target through R&D.
Increase the excise duty in cigarettes to have a healthy society. Incentives are given to arts and
culture to make Malaysia as an international centre. To enhance health tourism, immigration
conditions for foreign medical specialists and patients would be relaxed. Tax rebate will be given
for the purchase of personal computers to RM 500 from RM 400 in order to enhance ICT sector.
Halal food produces will receive various incentives. Malaysia wants to be an international center of
Islamic banking.
Bumiputra will continue to receive special government assistance as before. The target of the
government is to create an entrepreneurial class in the Bumiputra race. The budget did not explain
the detailed description about the expected total revenue and expected expenditure.
BUDGET DEFICIT STOOD AT 5.3 PERCENT IN MALAYSIA IN 2003
Sept 2, 2004: Since the Asian crisis in 1997/1998, Malaysian Federal government has been
formulating deficit budget to tackle unemployed economy. Currently the country is experiencing
almost full employment and the growth rate is expected to be 6 percent or above this year. In
2003, budget deficit had been 5.3 percent of GDP. Since there has been continuous deficit
financing over the last 6 years, the national debt is likely to hike. The national debt stands at
almost 50 percent of GDP which is still manageable and the federal government may borrow
further to tackle economic woes. The federal government has targeted to come up with a balanced
budget by 2007.
US NATIONAL DEBT IS BREACHING ITS LIMIT
September, 2004: The national debt or public debt of the US Federal government has been
record high, $ 7.3 trillion this month just adjacent to the debt limit of $7.4 trillion set by US congress.
In the beginning of August the US Treasury Secretary John Snow appealed to the US Congress to
breach the debt limit of $ 7.4 trillion otherwise the government would be defaulted by late
November this year on its debt what never happened in its 228 year history. It is anticipated that
US Congress would comply with the appeal made by John Snow soon. A Federal default will
simply force the rate of interest higher and cause a panic in the bond market.
The national debt generally gets heightened due to the accumulation of all fiscal deficits (minus in
case of budget surpluses). Historically it is observed that most of the years the US Federal
government drafted deficit budget either to tackle recession or funding the war that caused today’s
huge debt. Massive tax cut also played a role in swelling deficit and hence national debt. The
accumulated debt that has cropped up over the last 200 years reached at somewhere $ 1 trillion
at the beginning of 1980s but just in last 22 years from 1982 to date the debt figure augmented to
a record high at $7.3 trillion recently. This phenomenon indicates that US Congress as well as the
Federal Government has been aggressively outlaying since 1982 onward.
If we look at the US debt history, the national debt peaked at 120 percent of GDP in 1946 due to
heavy spending on Second World War. Since then the national debt continued to decline and
plunged to a record low during President Jimmy Carter period (1977-81), registered at less than
35 percent of GDP. But when President Ronald Regan (1981-89) took the office in 1981 the debt
began to hike at a robust rate and reached at a considerable height at the end of President H.W.
Bush reign (1989-93) about 64 percent of GDP. Massive tax cut and tackling the recession have
been the reasons behind the mounting debt during 1981 to 1993. The debt dwindled again in the
last five years of President Clinton’s (1993-2001) reign to about 57 percent of GDP. This has
been possible because of formulating surplus budget to contain debt. The debt situation worsened
again during President George W. Bush as his administration practiced huge deficit to tackle
recession and terrorism as well as funding the Iraq and Afghanistan war. The budget deficit is
expected to be around $ 450 billion this year, close to 5 percent of GDP. At this moment the
national debt is around 70 percent of GDP, that is $ 7.3 trillion, the highest in the world. In terms of
absolute value the US debt is the highest but when it considers in terms of GDP ratio, the United
States is far below than Japan, Italy, Belgium etc.
The US Federal Government borrows fund through selling securities to the local and international
markets. These securities are associated with particular return and maturity date. Almost 78
percent of the securities are owned by the US state and local governments, Federal Reserve,
financial institutions and individuals while the rest 22 percent are owned by the foreigners. Most of
the Asian foreign reserve is now invested in US securities in search of better return and security.
Since the large portion of the national debt belongs to US agency and individuals, they say: Our
debt is to our people
Although there has been a huge accumulation of debt, the country enjoyed a steady growth over
the decades. Coupled with the availability of millions of knowledge workers the risk taking attitude
and the presence of full blown knowledge industry has made the country most competitive in the
world.
AGRICULTURAL SUBSIDY AND WTO ACCORD
August 26, 2004: Eventually WTO consisted of 147 members in Geneva have been able to come
to an accord to eliminate agriculture and export subsidy as well as support to the farmers of
world's wealthiest nations namely United States, EU and Japan. The wealthiest nations have
signed the accord with a condition that developing world will have to open their manufacturing,
auto and service sector to them. In other words, tariff and non-tariff barriers will have to eliminate
or reduce so that they can enter the market of developing world. The agriculture in Australia and
New Zealand are not really subsidized but market driven.
The World Bank, IMF and Oxfam International are criticizing and pressurizing the wealthiest
nations since long to eliminate all the subsidies to their farmers so that poor farmers in developing
nations can enter their market. An estimate reveals that the size of the subsidy and support stands
at almost US $ 300 billion annually provided by wealthiest nations to their farmers. Another
statistic estimates that the current amount of subsidy has been almost six times than the foreign
aid wealthiest nations give to that developing world. Since the wealthiest nations are giving
subsidy, there occurs an over production and this over produced agricultural commodities are
dumped in the world market, causes a huge reduction of agri- prices in the world market. Since
the prices are low of agri-produces, farmers in developing world do not get their revenue properly.
Dumping is prohibited as per WTO rule. Moreover, wealthiest nations impose high tariff so as to
protect their farmers. For example, Japan has imposed almost 490 percent tariff on rice to
support their rice cultivators. In fact, the last WTO talk held in Cancun, Mexico had been failed on
subsidy issue as the EU, United States and Japan declined to eliminate or reduce their subsidy
and export support to their farmers.
If the developing world would have faced fare agri-prices, their income would have increased
many times and hence the millennium goal of halving the world poverty by 2015.
EUROPEAN COURT CONDEMNING GERMANY AND FRANCE
July 13, 2004: EU Court in Luxemburg has condemned Germany and France for breaching
Growth and Stability Pact. Under this pact each Euro member must contain budget deficit within 3
percent of GDP. Germany and France may be fined up to 10 billion and 7 billion Euro respectively
for violating the pact.
ESTONIA, LITHUANIA AND SLOVAK ARE JOINING EURO
June 30, 2004: Three countries namely Estonia, Lithuania and Slovenia started action from June
27, 2004 to join Euro. Initially they will have to follow 'Exchange rate mechanism (ERM-2)' for
minimum two years i.e. their currencies should not fluctuate against Euro by more than 15 percent
over the next two years. If they are successful these three newly joined EU economies will be
allowed to join Euro some time in 2007.
In addition to that these economies will also have to maintain maximum 3 percent budget deficit
and maximum 1.5 percent rate of inflation to get the Euro membership.
EU SUBSIDY ON SUGAR AND WORLD’S FARMERS
June 27, 2004: EU commissioner Franz is trying to eliminate or reduce subsidy on the sugar.
Under this package, the guaranteed price may be reduced by one-third and farmers will have to
cut production. Under this reform if can be implemented there would be a huge reduction of sugar
production in EU.
In fact, EU is being criticized by the developing world for its subsidy to sugar producers. The WTO
is pressurizing EU to dismantle all types of agri-subsidy and open the door for farmers of
developing world. Since the sugar regime is very influential in Europe, it would be hard for Agri
commissioner to reduce or eliminate subsidy. Estimation by Oxfam international reveals that for
every one euro worth of sugar exports, the EU's spending is almost 3.30 euro as subsidy.
BUILDING GURU CLASS
January 1, 2004: Several hundred years before the Christ when the people of Europe were
dwelling in cave, an wonderful civilization was emerged in Greece. Why there was such a
civilization? We notice that the citizens of Greece had an appetite for knowledge resulted in a
creation of a number of Gurus such as scientists, artists, sculptures, teachers etc. Moreover, the
presence of scholars like Socrates, Aristotle, Plato and Xenophon had helped in popularizing the
knowledge as an attractive assets to the people, resulted in a creation of intellectual community in
the then Greece. Socrates, for the first time identified knowledge as the root of all well being and
expressed his great opinion ‘no one errs intentionally, one does out of ignorance'. People around
the world had a tendency to visit Greece at that time, the way we visit to West today for higher
learning.
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