European Union Imposes hefty fine on Microsoft for ‘abusing its dominant position’

By LUIS MIRANDA | THE REAL AGENDA | MARCH 6, 2013

The European Commission imposed a new huge fine against U.S. software giant Microsoft for failing to fulfill its commitment to include in its Windows operating system an option screen that allows users to install other alternative browsers besides Internet Explorer.

The Vice President of the Commission responsible for Competition, Joaquin Almunia, announced it would charge Microsoft a fine of 561 million euros for ignoring its own decision to correct the problem in its operating system. The fine, reports said, could reach up to 10 percent of the turnover made by Microsoft from its operating system Windows and its web browser Internet Explorer, but the Commission settled at just over half a billion euros.

Almunia’s spokesman had eluded confirmation of such a fine. Perhaps the reason is that it is the first time the EU executive punishes a company for breaking its commitments to correct an abuse of dominant position.

The display options in Windows to allow users to choose alternative web browsers was one of the ‘remedies’ promised by the Redmond company in 2009 as part of a case opened by Brussels for abuse the company’s dominant position in the market.

The aim was to prevent that Microsoft imposed its own Explorer browser on users as a way to expel its rivals from the market. The company was mandated to have this feature up until 2014.

In the statement of objections sent in October, the EU executive claimed that Microsoft did not include the options screen in Windows 7, Service Pack 1, which went on sale in February 2011.

“Between February 2011 and July 2012, millions of Windows users in the EU could have been deprived of the options screen,” said the Commission.

The company has already acknowledged the facts and has attributed the issue to a technical error.

The EU executive has already imposed three fines on Microsoft for abuse of dominant position since 2004 amounting to a total of almost 1,700 million euros.

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European bureaucrats take a haircut after budgetary negotiations

By LUIS MIRANDA | THE REAL AGENDA | FEBRUARY 11, 2013

European officials are preparing to apply extreme cuts to their budgets beginning next year. The budget negotiations held last week resulted in a reduction in administrative costs, slightly more than the latest estimates, although lower than what had been proposed by British Prime Minister, David Cameron.

Budgetary cuts only include a cut of 2,500 million euros compared to the initial scenario envisaged by the European Commission. This reflects the lack of agreement among members and the realization that cutting any further would have left the EU with even more unhappy bureaucrats. The 2.5 billion cut is peanuts when compared to the 1 billion euros.

The Commission is upset with the prominence acquired by the cuts during the debate and warns that it will be difficult to take on more responsibilities and welcome new countries in the EU family.

What European negotiators had no trouble agreeing on was on the maintenance of the 61.629 million euros budget dedicated to the administration of the European institutions, which represent an advance of nearly 8% over the current budget framework.

Much of that budget is used to pay fat retirement packages to European bureaucrats which is the reason why the Commission will begin to implement its own austerity plan, which has been taken by European leaders and agreed with Parliament.

Those supposed austerity measures will represent a 5% cut in public employment until 2017, representing 2,500 jobs lost through that will not be replaced. In addition, staff working 40 hours a week, will retire at age 65 — now can do it at 63 — and the so called solidarity tax will grow to 6% of the workers’ salaries.

In addition, the lowest wages and the highest among the administrative staff will fall between 20% and 45%. And there will be more possibilities of temporary contracts. Finally, annual travel will be restricted.

With the wave of austerity sweeping across Europe, these measures still leave Europe’s 55,000 public employees well above average, with  salaries ranging from 2,000 to 16,000 per month –. The comparison is less favorable if the riches in Europe are taken into consideration, who will obviously not seek work in Brussels.

But that will not be enough to accommodate the numbers agreed. So the Commission explores other hypotheses. One of them is to lower the bill of translation, which absorbs 15% of the EU administrative expenditure. It also proposes to reduce (or eliminate) the maintenance of national experts who travel to the EU capital, so that each country pays for their own. None of this measures will make any significant changes to the European budget, though. They are simply petty decisions made in an attempt to show willingness to cut, but not much as needed or on the matters that really need to be slashed.

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Luxembourg Court backs Iceland’s decision not to pay banker-created Debt

By LUIS MIRANDA | THE REAL AGENDA | JANUARY 29, 2013

Who has to pay the bankers in Iceland’s banking crash? Not the Icelanders. Different from countries such as Spain and Ireland, Iceland decided that taxpayers should not pay for the excesses of an industry that had grown disproportionately, but most importantly, that had ramped up the country’s debt to a point where upwards of 90 % of the debt written under the country’s name was actually bank debt.

Iceland will compensate the British and Dutch two of the countries that had bet more heavily in the fictitious financial products offered by banks out of Iceland. The citizens said no twice through referendums, and now, five years after the collapse of its banking system, a Luxembourg court just gave the northern nation the reassurance that they did what needed to be done to get rid of the bankers’ tentacles.

The Court of the European Free Trade Association (EFTA) believes that the country did not violate any law when it refused to return to 300,000 savers money deposited in foreign entities offering some interests that then seemed to good to pass. “It is a victory for democracy. It sends the message that banks can not reap the benefits and send the bill to taxpayers when things go wrong, “says Magnus Skúlasson, an Icelandic economist.

The court, which also represented Norway and Liechtenstein, provides a very interesting nuance: Iceland is not obligated to pay as “the deposit insurance fund was unable to meet its obligations in the event of a systemic crisis “. The decision by the court would be equal to the FDIC fund not having enough cash to ensure the banking entities in the United States, with bankers demanding that U.S. taxpayers assumed the responsibility of a carefully crafted collapse of the American banking system. Just as in the case of Iceland, U.S. taxpayers would not be liable for the banks’ misconduct and therefore they wouldn’t have to pick up the tab.

A community spokesman was quick to answer that Brussels clings to the obligations of the deposit insurance funds that remain “valid also if there is a systemic crisis.” Nevertheless, the European Commission says it needs time to study the ruling. “The ruling is also good for the Netherlands and the UK. If they had won, it would mean that the nation-state is responsible for all bank deposits, something no country wants, “adds Jon Danielsson of the London School of Economics.

After the bankruptcy, the governments in London and Amsterdam used their coffers to compensate customers of the Icelandic bank. Shortly after they began the legal process that came to an end yesterday, as the ruling that Reykjavik considered “satisfactory”, does not admit any appeals.

Despite the support of the courts, Iceland has ended up paying some of the money. Reykjavik has already repaid about 3,300 million euros, about half of the total paid in Icesave, that corresponds to debt that the government itself was actually responsible for. The money corresponds to the debt from Landsbanki, one of three banks that failed in 2008 and led the entire country’s banking system to bankruptcy. The amount paid is more than 90% of the guaranteed minimum that the State was obliged to return.

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IMF issues plan to starve Portuguese people even further in 2013

By LUIS MIRANDA | THE REAL AGENDA | JANUARY 10, 2013

Portuguese Prime Minister Pedro Passos Coelho warned a month ago: The Portuguese, that bears a progressive and growing cut in services for the last year and a half, intends to save another 4,000 million euros a year starting now. For ideas on where to do it, the Portuguese Executive requested a report to the International Monetary Fund (IMF). The report was released on Thursday and immediately sparked controversy (and fear) in the Portuguese population, as cuts and adjustments will be constant and repetitive in the months to come.

Technicians at the Washington-based institution advised Portugal to, among other measures, fire workers, increase working hours for government employees, reduce (more) unemployment benefits and cut (even more) pensions. Only then, they say, will the country reach 4,000 million euros in savings that the Liberal government of Passos Coelho considers necessary to reform the state so that, in his opinion, the Portuguese nation becomes efficient and competitive.

To begin, the IMF experts say the Portuguese system of social protection “is directed disproportionately towards the wealthier and the older.” It adds that the system “pushes out younger workers while keeping the older inside.” To solve that problem, the IMF suggests that unemployment insurance, which now provides subsidies for 26 months and that has already been cut, should be cut even further, and that once it gets to  ten months, it is reduced further to become simply a payment of social allowance of just over 400 euros.

The IMF also recommends reducing the wages of civil servants in an amount which can range between 3% and 7%, and get rid of up to 120,000 public employees (from 10% to 20%), focusing mainly on teachers , health professionals and low-skilled employees. In addition, Fund staff recommend ending the discrimination suffered by other employees, who work 40 hours a week, with respect to staff, whose working week is 35.

According to the IMF, the payment for doctor visits (already implemented in Portugal) could be increased up to a third of the expense involved in supplying such service. Right now, going to the emergency room in a hospital in Lisbon costs 20 euros. If the government accepted the IMF’s recommendation, the same visit would cost 50 euros. A mammogram can cost 15 euros and a GP consultation would cost around ten euros.

Pensioners, whose payments have been greatly cut, will experience even more cuts. According to the IMF, for starters, Portugal should raise the retirement age from 65 to 66 years, reduce the amount received by pensioners by 20% so that all payments are equally low.

The report has raised considerable media dust. The left accuses the government of Passos Coelho of thoroughly dismantling the country piece by piece, and establishing a process that will cost more than a mere private insurance scheme. Portuguese State Secretary, Carlos Moedas, has clarified that the report is “very good”  and that it will be considered by the Government.

The Portuguese government plans to present in February its own savings plan, which is why it requested the report from the IMF. Now, Portugal plans to include almost all of the recommendations in the report as its own since the IMF itself has now called for such measures.

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Shadow Banking Bonanza hits $67 Trillion in 2011

REUTERS | NOVEMBER 19, 2012

The system of so-called “shadow banking,” blamed by some for aggravating the global financial crisis, grew to a new high of $67 trillion globally last year, a top regulatory group said, calling for tighter control of the sector.

A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policymakers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and banking activities.

The FSB, a task force from the world’s top 20 economies, also called for greater regulatory control of shadow banking.

“The FSB is of the view that the authorities’ approach to shadow banking has to be a targeted one,” the group wrote in a report, noting the current lax regulation of the sector.

“The objective is to ensure that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial stability,” it said.

Officials at the European Commission in Brussels also see closer oversight of the sector as important in preventing a repeat of the financial crisis that has toppled banks over the past five years and rocked the euro zone.

The study by the FSB said shadow banking around the world more than doubled to $62 trillion in the five years to 2007 before the crisis struck.

But the size of the total system had grown to $67 trillion in 2011 — more than the total economic output of all the countries in the study.

The multitrillion-dollar activities of hedge funds and private equity companies are often cited as examples of shadow banking.

But the term also covers investment funds, money market funds and even cash-rich firms that lend government bonds to banks, which in turn use them as security when taking credit from the European Central Bank.

Even the man credited with coining the term, former investment executive Paul McCulley, gave a catch-all definition, saying he understood shadow banking to mean “the whole alphabet soup of levered up non-bank investment conduits, vehicles and structures,” such as the special investment vehicles that many blamed for the financial crisis.

The United States had the largest shadow banking system, said the FSB, with assets of $23 trillion in 2011, followed by the euro area — with $22 trillion — and the United Kingdom — at $9 trillion.

The U.S. share of the global shadow banking system has declined in recent years, the FSB said, while the shares of the United Kingdom and the euro area have increased.

The FSB warned that tighter rules that force banks to hoard more capital reserves to cover losses could bolster shadow banking.

It advocated better controls, although cautions that shadow banking reforms should be dealt with carefully because the sector can also be a source of credit for business and consumers.

Forms of shadow banking can include securitization, which can transform bank loans into a tradeable instrument that can then be used to refinance credit, making it easier to lend.

In the run-up to the crisis, however, banks such as Germany’s IKB stored billions of euros of such instruments in off-balance sheet vehicles, which later unraveled.

Another example is a repurchasing agreement, or repo, where a player such as a hedge fund could sell government bonds it owns to a bank, agreeing to repurchase them later.

The bank may then lend those bonds onto another hedge fund, taking a position on the government debt. Such agreements are used by banks to lend and borrow. A risk could arise if one of the parties in the chain collapses.

The European Commission is expected to propose EU-wide rules for shadow banking next year.

Copyright 2012 Thomson Reuters.