Europe’s economy is on a roll — raising the question of exactly when the European Central Bank will end its extraordinary stimulus efforts. Bank President Mario Draghi will be at pains this week to leave that point open.

No changes in stimulus settings or interest rates are expected at Thursday’s meeting of the bank’s 25-member governing council, which sets monetary policy for the 19 countries that use the euro.

Draghi’s post-meeting news conference, however, will be closely scrutinized for any hints of a change in the timetable for withdrawing a key stimulus component — a massive bond-buying program — later this year.

Here is a fast guide.

Where’s inflation?

Stubbornly low inflation is why Draghi and his ECB colleagues want to keep the stimulus program running.

The bank’s mission is to keep inflation consistently close to but below 2 percent. Usually that means fighting inflation, but in the case of this economic recovery, prices have been unusually slow to respond to a pickup in demand for goods. Annual inflation was just 1.4 percent in December. Excluding oil and food, it was even lower, at 0.9 percent. Meanwhile, the economy is expected to have grown 2.4 percent in 2017; unemployment has fallen from over 12 percent to 8.7 percent.

ECB officials say that eventually growth will lead to higher wages as unemployment falls and labor becomes scarcer. But inflation has taken its time to show up.

Stimulus settings

So Draghi has been urging patience. The bank lowered its bond purchases to 30 billion euros ($37 billion) a month at the start of the year, from 60 billion euros, and has said they will run at least through September — and longer if necessary. The purchases, started in March 2015, pump newly printed money into the economy, which should raise inflation and make credit easier to get.

Much of the speculation in markets has centered on whether the purchases will stop in September, or be continued, perhaps at a lower level. Draghi and the governing council majority have so far resisted stimulus skeptics on the board, such as Germany’s Jens Weidmann, who say it’s time to head for the exit from stimulus.

Promises, promises

A key point to watch is the wording the bank uses to manage expectations of its future actions. Right now, the bank has included wording in its policy statement that it could increase the bond purchases if necessary. Dropping that phrase would be a first step to prepare markets for an end to the stimulus. This week’s meeting might be too early for that tweak, but the wording is being watched in the markets.

The bank has also promised it won’t raise interest rates — its benchmark rate is currently zero — until well after the end of the bond purchases. That puts a first rate increase well into 2019.  

Why you should care

The withdrawal of the stimulus by the ECB and other central banks such as the U.S. Federal Reserve will have wide-ranging effects on the finances of ordinary people.

Higher interest rates will mean more return on savings accounts and an easier time funding private and public pension plans. They could also mean trouble for “zombie companies” that might not have any profits if they had to pay higher rates to borrow. Such bankruptcies would be painful in the short term, but would free investment for more profitable uses.

More interest earnings on conservative holdings such as bonds and time deposits would make riskier assets — like stocks — relatively less attractive, and ease the pressure on investors and savers to rummage for returns in riskier holdings.

Down, euro, down

Market reaction is a key concern for Draghi, particularly when it comes to the euro’s exchange rate. The euro has risen in the past several weeks, to around $1.22, in part because markets are anticipating an end to the stimulus. Monetary stimulus can weaken a currency, so investors are bidding the euro up on speculation that the stimulus might come to an earlier end due to the strong economy.

A stronger euro, however, can hurt Europe’s many exporters and further weaken inflation.

Here’s the take from analyst Florian Hense at Berenberg Bank: “The ECB should and will likely stop asset purchases after September: Recent hawkish comments, including the minutes of the last meeting, point in that direction.

“However, in order to not trigger a further appreciation of the euro, the ECB will likely change its communication only cautiously and gradually — and not in January already.”
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A trade group representing U.S. auto parts makers on Monday urged the Trump administration to adopt NAFTA automotive rules that cover research, engineering, design and software development work as part of North American regional value content goals.

The proposal from the Motor and Equipment Manufacturers Association (MEMA) was sent to U.S. Trade Representative Robert Lighthizer as a sixth round of negotiations to revise the North American Free Trade Agreement began in Montreal.

U.S. demands for sweeping changes to automotive content rules are among the most contentious issues in the NAFTA talks, including a requirement that half the value of all North American vehicles come from the United States and a far higher content requirement of 85 percent from North America.

Canada and Mexico have said the U.S. targets are unworkable, but have not responded with counter-proposals.

They are expected to do so at the Montreal talks ending Jan 29. Lack of progress in bridging the gap on autos could jeopardize the negotiations and increase the chances that President Donald Trump follows through on his threat to seek a U.S. withdrawal from NAFTA.

The U.S. auto industry, including MEMA and trade groups representing Detroit and foreign-brand automakers, have largely sided with Canada and Mexico in arguing that the U.S. proposals would hurt the industry’s competitiveness.

The MEMA letter to Lighthizer makes no mention of the proposed U.S. and regional content targets, and focuses instead on recommendations that its members believe will help retain and grow automotive jobs in the United States.

“We think it lines up very well with the president’s initiatives and his stated goals for NAFTA and other free trade agreements,” Ann Wilson, MEMA’s senior vice president of government affairs, told Reuters. “What we have been trying to do is find other ways of getting to the president’s objectives without getting to a 50 percent domestic requirement.”

Counting the well-paid engineering, design, research and software development as part of a vehicle’s value content would provide an incentive for companies to retain jobs doing this work now largely done in the United States.

The proposal also urges the Trump administration to preserve “tariff-shifting” for automotive parts as a means to retain the higher value-added work being done on sophisticated automotive electronics and other systems.

Currently, companies that import components and materials into North America and convert them into automotive parts can “shift,” or apply, NAFTA tariff-free benefits to such inputs.

For example, off-the-shelf electronics parts from Asia such as lidar and radar units, cameras, sensors and circuit boards currently gain this benefit as they are assembled into vehicle crash avoidance systems. Steel tubing converted to fuel injectors also can gain such benefits.

But the current USTR autos proposal would require that virtually all components be subject to a “tracing list” to verify their North American origin so they can count toward regional value targets.

The tracing list would be expanded to steel, glass, plastic resins and other materials, under the proposal.

Industry executives have argued that these requirements are likely to push auto and parts companies to source more products outside the region and simply pay the low 2.5 percent U.S. tariffs on many parts.

MEMA also urged Lighthizer to negotiate an agreement that provides incentives to U.S. companies to train and expand the U.S. workforce, as parts companies struggle to fill open positions amid rising retirements. The group also urged that aftermarket parts be subject to the same NAFTA rules as original equipment parts.
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China invited Latin American and Caribbean countries to join its “One Belt, One Road” initiative on Monday, as part of an agreement to deepen economic and political cooperation in a region where U.S. influence is historically strong.

Chinese Foreign Minister Wang Yi said the region was a natural fit for the initiative, which China has leveraged to deepen economic and financial cooperation with developing nations.

“China will always stay committed to the path of peaceful development and the win-win strategy of opening up and stands ready to share development dividends with all countries,” Wang said at a meeting between China and 33 members of the Community of Latin American and Caribbean States (CELAC).

Representatives from China and CELAC signed a broad agreement to expand ties in the second time China has met with CELAC – a bloc formed in Venezuela in 2011 that does not include the United States or Canada.

Though it had few specific details, the agreement is part of an evolving and more aggressive Chinese foreign policy in Latin America as the United States, under President Donald Trump, has taken a more protectionist stance.

The “One Belt, One Road” initiative, proposed in 2013 by Chinese President Xi Jinping, promotes expanding links between Asia, Africa and Europe, with billions of dollars in infrastructure investment.

Wang emphasized projects to improve connectivity between land and sea, and cited the need to jointly build “logistic, electricity and information pathways.”

The so-called Santiago declaration, signed by China and CELAC delegates, also calls for bolstering trade and taking action on climate change.

Chile Foreign Minister Heraldo Munoz, who has criticized Trump in the past, said the agreement marked an “historic” new era of dialogue between the region and China.

“China said something that is very important, that it wants to be our must trustworthy partner in Latin America and the Caribbean and we greatly value that,” said Munoz. “This meeting represents a categoric repudiation of protectionism and unilateralism.”

China has sought a bigger role overseas since Trump was elected, presenting its Regional Comprehensive Economic Partnership trade agreement as an alternative to the Trans-Pacific Partnership, which the United States has abandoned.

The country is already testing U.S. dominance in Latin America, offering the region $250 billion in investment over the next decade. It is the top trading partner of many countries in the region, including Brazil, Chile and Argentina.

Still, Wang played down the idea of a race for influence.

“It has nothing to do with geopolitical competition. It follows the principle of achieving shared growth through discussion and collaboration,” Wang said in his remarks. “It is nothing like a zero sum game.”

In recent years, Chinese companies have moved away from merely buying Latin American raw materials and are diversifying into sectors such as auto manufacturing, e-commerce and even

technology businesses such as car-hailing services.

“Our relations with China are very broad, this (CELAC) is one more pathway for Brazil to work with China. Together we identified more areas of cooperation,” said Brazil’s Vice Foreign Minister Marcos Galvao.
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The EU’s justice commissioner is working on a proposal that could oblige member states such as Poland, which has clashed with Brussels over reforms to its courts, to pass tests on the independence of their judicial systems before receiving funding.

Vera Jourova said there was agreement within the executive European Commission to work on ideas to encourage strong judiciaries in planning for the new budget from 2021.

“One way could be to insist that independent justice systems are necessary for effective control of the use of EU funds,” she said. “I would like to propose that link.”

Seven-year budget plan

A Commission spokesman said on Monday the work by Jourova was part of broader preparations for a new, seven-year EU budget plan, due to be published in May, and was in line with policy outlines the EU executive has put forward since last year.

The remarks by Jourova, the Commission’s Czech member, come as the EU executive is challenging Poland, a major recipient of Union funds, to amend judicial reforms which Brussels says will hurt democracy and its oversight of EU trading rules.

Facing the prospect of filling a hole left in the budget by Britain’s exit from the EU, and irritated by Poland and other governments in the ex-communist east on a range of issues, some wealthy Western governments have pushed for a clearer link between getting subsidies and abiding by EU standards.

Warning for Poland

The German commissioner in charge of the budget, Guenther Oettinger, warned Poland this month that it could lose some of its 7 billion euros annual funding if it fails to heed Brussels’ complaints about undermining the rule of law.

More broadly, Jourova is also hoping for a review of EU policy on judicial standards in the second half of this year. EU officials say that might, for example, include regular reviews of the performance of national justice systems, along the lines of existing biennial reviews of government economic policies, which are meant to promote “convergence” toward EU-wide goals.

‘Cohesion’ policy

As a former national official handling the regional funding that is a key part of EU efforts to bring poor regions closer to the prosperity of others, Jourova stressed that she saw any new rules applying to all EU funding for all states, not just to so-called “cohesion” policy. She also said it should not be seen as a punitive measure but designed to encourage good practice.

She also said discussion on the proposals could be used to help simplify some of the hurdles to applying for EU funds.

Any Commission proposal seen as too radical by governments risk being killed off by member states. 

 
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The International Monetary Fund says the global economy grew at a faster than expected 3.7 percent pace in 2017 and will do better this year and next.

IMF Managing Director Christine Lagarde called predictions of strengthening growth “very welcome news.” She spoke Monday in Davos, Switzerland, at the annual World Economic Forum.

IMF experts say 120 nations, representing three-quarters of the global economy, saw growth last year. IMF experts said tax cuts in the United States will have a positive but “short term” impact on the economy.

Lagarde urged political and economic leaders to take advantage of good times to make reforms that will soften the impact of the next, inevitable, economic downturn.

She said there is “significant” uncertainty in the year ahead, where a long period of low interest rates may have inflated the value of stocks and other assets to unsustainable levels. She also says a rise in debt levels is a concern.

Growth must be more inclusive, she added. She also said more efforts to retrain people displaced by automation, create opportunities for young people and bring more women into the labor force will all help.

Lagarde is only one of many leaders expected to speak at the Davos gathering. U.S. President Donald Trump is scheduled to address fellow heads of state and others later this week, but White House officials say Washington’s current political impasse that has shut down many normal functions of government make that trip “not very likely.”
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Some in the U.S. solar-power industry are hoping a decision this week by President Donald Trump doesn’t bring on an eclipse.

Companies that install solar-power systems for homeowners and utilities are bracing for Trump’s call on whether to slap tariffs on imported panels.

The solar business in the U.S. has boomed in recent years, driven by falling prices for panels, thanks in part to cheap imports. That has made solar power more competitive with electricity generated from coal and natural gas.

A green-technology research firm estimates that tariffs could cost up to 88,000 U.S. jobs related to installing solar-power systems.

On the other side are two U.S. subsidiaries of foreign companies that argue the domestic manufacturing of solar cells and modules has been decimated by a flood of imports, mostly from Chinese companies with operations throughout Asia.

The four members of the U.S. International Trade Commission – two Republicans and two Democrats – unanimously ruled in October that imported panels are hurting American manufacturers, although they differed on exactly how the U.S. should respond. Trump has until Friday to act on the agency’s recommendations for tariffs of up to 35 percent.

Trump has wide leeway – he can reject the recommendations, accept them, or go beyond them and impose tougher tariffs. Congress has no authority to review or veto his action. Countries harmed by his decision could appeal to the World Trade Organization.

The trade case grew out of a complaint by Suniva Inc., a Georgia-based subsidiary of a Chinese company, which declared bankruptcy last April. Suniva was joined by SolarWorld Americas, the U.S. subsidiary of a German company. Both blame their difficulties on a surge of cheap imports, mostly from Asia. Suniva wants higher tariffs than those recommended by the trade commission.

The U.S. Commerce Department imposed stiff anti-dumping duties on imported panels made from Chinese solar cells in 2012. Tim Brightbill, SolarWorld Americas’ lawyer, said Chinese companies have gotten around those sanctions by assembling panels from modules produced in other Asian countries such as Malaysia and Vietnam. That makes the current trade case even more important, he said.

“It is a global case. It addresses the global import surge,” Brightbill said. “We need the strongest possible remedies from President Trump to maintain solar manufacturing here in the United States.”

A consultant for SolarWorld said tariffs on imports could create at least 12,000 jobs and up to 45,000 depending on capacity growth, and that installer jobs would also increase.

While U.S. solar manufacturing has shriveled, installations – from home rooftops to utility-scale operations – have boomed. Installations have soared more than tenfold since 2010, with the biggest jump coming in 2016, after prices for solar panels collapsed.

The Solar Energy Industries Association, a trade group for U.S. installers, says tariffs would drive up the cost of installing solar-power systems, leading to a drop in demand.

“We are selling energy that can be created by wind, by natural gas, by hydro, by coal, by nukes. When you raise the price of what we are selling, we can’t compete,” said Abigail Ross Hopper, the group’s president.

Jim Petersen, CEO of PetersenDean, a California company that installs solar rooftop panels mostly for residential customers, once favored tariffs on imported panels, which he found to be of inferior quality. He has changed his mind.

Petersen said tariffs could stunt his business by raising the cost of a job, which ranges from $6,000 to $60,000 or more. He said he might be forced to lay off up to 25 percent of his 3,200 installers.

“This is bad for American jobs, bad for the consumer,” he said.

In the New Mexico desert, Albuquerque-based Affordable Solar is working on a $45 million solar farm to help power a massive new data center for Facebook. The company’s president, Kevin Bassalleck, said tariffs would hurt homegrown companies that make racks, tracking systems and electronics that are part of a power system. He said jobs at those companies are hard to outsource.

“If you ever set foot in a solar module assembly factory, most of what you see are robots. There are very few people,” he said. “But if go out on to any one of our project sites like the Facebook project, you would see a small army of people working and installing things.”

U.S. Sen. Martin Heinrich, a New Mexico Democrat and advocate for renewable energy, says his state could lose more than 1,500 jobs by 2020 if tariffs are imposed, and tariffs won’t revive U.S. solar manufacturing.

“The jobs that have been lost because of cheaper solar cells have already been lost,” Heinrich said in an interview. “These tariffs are then going to take the very rapidly growing, successful, good jobs that we have built in manufacturing of the other equipment, in installing, and reduce those jobs to a fraction of what they should be.”

The conventional wisdom is that Trump will impose sanctions. Developers anticipating tariffs began flooding foreign manufacturers with orders last fall, driving up prices.

Brightbill, the lawyer for SolarWorld Americas, sounded confident.

“This administration’s focus is on U.S. manufacturing and U.S. jobs and getting tough on China for the trade deficit,” he said, “so we think the administration’s goals are very well-aligned with saving U.S. solar manufacturing.”
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The exiled former leader of the Maldives said Monday that this year’s presidential election could be the last chance to extricate his country from increasing Chinese influence, which he described as a land grab in the guise of investments in island development.

Mohamed Nasheed told reporters in Sri Lanka’s capital that current President Yameen Abdul Gayoom has opened the doors to Chinese investment without any regard for procedure or transparency.

“A large emerging power is busy buying up the Maldives,” Nasheed said, explaining that he was referring to China.

China is “buying up our lands, buying up our key infrastructure and effectively buying up our sovereignty,” he said.

China considers Maldives to be key cog in the Indian Ocean in its “One Belt One Road” project along ancient trade routes through the Indian Ocean and Central Asia. The initiative is Chinese President Xi Jinping’s signature project and envisages building ports, railways and roads to expand trade in a vast arc of countries across Asia, Africa and Europe.

Nasheed is disqualified from contesting the presidency this year due to a prison sentence. He is now living in exile in Britain after going there for medical treatment while in prison.

Nasheed said he is awaiting a decision from the U.N. Human Rights Committee, which he hopes will ask the Maldivian government to allow him to run in the election. His trial on terrorism charges and 13-year prison sentence in 2015 drew widespread international criticism for an alleged lack of due process.

The U.N. working group on arbitrary detention said Nasheed’s sentencing was unlawful.

Nasheed became the archipelago state’s first democratically elected president 10 years ago, ending a 30-year autocratic rule. However, he resigned in 2012 after public protests for ordering the arrest of a senior judge.

He lost the 2013 presidential election to Gayoom.

Maldives’ democratic gains have largely diminished under Gayoom’s presidency, with all of his potential election opponents either jailed or in exile. Nasheed says the opposition parties are in discussion to field a common candidate if he is unable to run.

“President Yameen wants a coronation; not an election. We won’t let that happen,” he said.

There was no immediate comment from the government.
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Australia has filed a formal complaint with the World Trade Organization that accuses Canada of placing “discriminatory” rules on the sales of imported wine.

Canada is Australia’s fourth-biggest wine market. Officials in Canberra say rules in Canada unfairly discriminate against overseas wine.

An official protest has been lodged with the World Trade Organization (WTO) against regulations in the Canadian province of British Columbia, where wine produced locally can be sold in grocery stores but imports must be sold in a “store within a store” with a separate cash register.

Canberra’s objection also targets policies in other provinces, including Ontario, Quebec and Nova Scotia, as well as federal practices in Canada, which could breach a WTO agreement. They mean higher prices for foreign wines, as well as other barriers to sale, according to the Australian complaint.

“Australia is seeing its market share and that market erode. That concerns me, it concerns wine exporters,” said Australian trade minister Steve Ciobo. “Potentially this could cost Australian jobs, so I want to make sure we are on the front foot about protecting Australia’s interests.”

Australia’s complaint to the WTO is similar to one made by the United States, which has accused Canada of placing unfair limits on the sale of imported wine.

In October, the U.S. said British Columbia was favoring local vineyards by giving their wine an exclusive retail outlet in grocery store shelves and cutting out U.S. competition.

A spokesman for Canada’s international trade minister said the federal government works to ensure its liquor policies “are consistent with our international trade commitments”.

Under WTO rules, Canada has 60 days to settle the dispute with Australia.

After that, Canberra could ask the WTO to adjudicate, which could result in Canada being forced to change its laws or risk trade sanctions.

 
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Iran’s supreme leader has ordered the Revolutionary Guard to loosen its hold on the economy, the country’s defense minister says, raising the possibility that the paramilitary organization might privatize some of its vast holdings.

The comments this weekend by Defense Minister Gen. Amir Hatami appear to be a trial balloon to test the reaction of the idea, long pushed by Iran’s President Hassan Rouhani, a relative moderate. Protests over the country’s poor economy last month escalated into demonstrations directly challenging the government.

But whether the Guard would agree remains unclear, as the organization is estimated to hold around a third of the country’s entire economy.

Hatami, the first non-Guard-affiliated military officer to be made defense minister in nearly 25 years, made the comments in an interview published Saturday by the state-run IRAN newspaper. He said Supreme Leader Ayatollah Ali Khamenei ordered both the country’s regular military and the Guard to get out of businesses not directly affiliated to their work.

“Our success depends on market conditions,” the newspaper quoted Hatami as saying.

He did not name the companies that would be privatized. The Guard did not immediately acknowledge the supreme leader’s orders in their own publications, nor did Khamenei’s office.

The Guard formed out of Iran’s 1979 Islamic Revolution as a force meant to protect its political system, which is overseen by Shiite clerics. It operated parallel to the country’s regular armed forces, growing in prominence and power during the country’s long and ruinous war with Iraq in the 1980s. It runs Iran’s ballistic missile program, as well its own intelligence operations and expeditionary force.

In the aftermath of the 1980s war, authorities allowed the Guard to expand into private enterprise.

Today, it runs a massive construction company called Khatam al-Anbia, with 135,000 employees handling civil development, the oil industry and defense issues. Guard firms build roads, man ports, run telecommunication networks and even conduct laser eye surgery.

The exact scope of all its business holdings remains unclear, though analysts say they are sizeable. The Washington-based Foundation for Defense of Democracies, which long has been critical of Iran and the nuclear deal it struck with world powers, suggests the Guard controls “between 20 and 40 percent of the economy” of Iran through significant influence in at least 229 companies.

In his comments, Hatami specifically mentioned Khatam al-Anbia, but didn’t say whether that too would be considered by the supreme leader as necessary to privatize. The Guard and its supporters have criticized other business deals attempting to cut into their piece of the economy since the nuclear deal.
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