Thursday newspaper round-up: ECJ, Italian debt, IAG, China

12th Jan 2012 06:47

A leaked draft of the Eurozone's new treaty shows that members will have to commit to keeping their deficits below 0.5% of GDP or face the European Court of Justice (ECJ). But they will also be allowed to "temporarily deviate" from the rules "in case of an usual event" or in "periods of severe economic downturn." The role of the ECJ has also been weakened in the draft. Rather than having the power to judge if countries are breaking the rules, the ECJ will be restricted to receiving complaints from other member states and imposing deadlines for nations to get their budgets back in line. Open Europe, the London-based think tank, argued that: "From the Eurozone's point of view, the draft may actually be worse news than the previous version, as the markets could judge the watering down of the enforcement mechanisms through the EU institutions as a weakness similar to those haunting the original Stability & Growth Pact," The Telegraph writes. Angela Merkel tried yesterday to soothe Italian nerves after an extraordinary tantrum from the country's new Prime Minister, Mario Monti, which marred his first visit to Berlin. The German Chancellor went out of her way to praise the sacrifices of Italians to trim their huge national debt mountain after Mr Monti warned of a backlash against Germany for forcing them to make savings. Mrs Merkel had prepared an honour guard for Mr Monti's debut at the Chancellery, only to wake up to an interview the Italian leader gave to a leading German newspaper suggesting that his hostess was the "ringleader of EU intolerance". Mr Monti could not hide his frustration that his technocratic Government's austerity measures had failed to bring lower market rates for Italian debt, according to The Times. The Indian Government could open up the country's airline sector to foreign investors to provide much needed cash to a struggling industry. A government panel has recommended allowing overseas airlines to own stakes of up to 49% in the country's carriers. Ajit Singh, India's Aviation Minister, said the Government would make a decision within days. Last night IAG, the owner of BA and Iberia, said it would "welcome" any easing of restrictions although it played down the prospects that it might buy a stake in the industry. India's principal airlines ? Kingfisher, Air India, Jet, Spice Jet, Go and IndiGo ? are facing an acute cash crunch. Together, they are expected to report losses in excess of $3bn (£2bn) this financial year, The Times reports. Tall-building boom may indicate impending disaster in China and India, claims a report by Barclays Capital. China could be the next country to go bust, if its headlong rush to build ever-taller skyscrapers is a guide to its future economic health. According to a study by Barclays Capital, the mania for skyscrapers over the last 140 years is a sure indicator of an imminent crash. It points out that the construction boom that threw up New York's Chrysler and Empire State buildings preceded the New York crash of 1929 and Great Depression. More recently, Dubai built a forest of skyscraping offices, hotels and apartment buildings, including the world's tallest, the Burj Khalifa, before it got into terrible financial difficulties. In 2010 Dubai had to be bailed out by its neighbour, Abu Dhabi, to avoid going bankrupt, The Guardian says. A looming hard landing in China will bring the financial and economic crisis of the past five years to a climax in 2012, one of the City of London's leading analysts has warned. Albert Edwards, head of strategy at Société Générale and one of the UK's leading "bears", said the next 12 months would be the "final year of pain and disappointment". Predicting a sharp slowdown in activity in the world's fastest-growing emerging economy, Edwards said: "There is a likelihood of a China hard landing this year. It is hard to think 2013 and onwards will be any worse than this year if China hard-lands." Although China emerged rapidly from the downturn of 2008-09, Edwards said the recovery had been the result of a massive reflationary package by the Chinese government. Beijing, he added, could not afford another big stimulus to offset a weakening of the economy, The Guardian writes. George Osborne piled on the pressure for pay restraint at Royal Bank of Scotland, saying that he personally wanted to talk to the management before any bonuses were paid out in the coming months. Under questioning from MPs on the Commons Treasury Select Committee yesterday, the Chancellor betrayed what appeared to be growing frustration with the reluctance of banks to accept pay restraint. One way for banks to offset the extra costs to customers of his banking reforms would be to take pay cuts. "They could actually reduce ? shock horror! ? remuneration packages," he said. He said that he would be pushing for particular restraint at RBS, where the Government owns an 83% stake, The Times reports. AB