Wednesday, September 12, 2012

ESM – The Savior?

Finally a gargantuan obstacle has been overshadowed for the survival of the Eurozone by the German Constitutional Court as it delivered a momentous decision with far reaching implications for the euro’s future by ratifying the bailout fund and budget pact. Germany was the only country in the 17-nation euro zone that had to ratify the European Stability Mechanism (ESM), which was meant to erect a 700 billion-euro firewall against the spread of the three-year-old sovereign debt crisis.1

Rejecting injunction requests from 37,000 plaintiffs seeking to block the ESM and a separate pact on new budget rules, the court set two main conditions for the treaties to go ahead.2

It said German liability in the rescue fund must be limited to 190 billion euros, the share set out in the current ESM treaty, and that any increase in that amount would require prior approval by the Bundestag lower house of parliament.3

Now as the firewall has been erected and ratified, will ESM be the facility which would bailout and bring back the financial stability of the beleaguered zone? Many analysts believe that the 700 billion-euro firewall won’t be enough for the European sustainability. It might delay the essential fiscal consolidation restructuring but it cannot eradicate the viability of it. Though the corpus of the mechanism might help the debt stricken countries like Spain and Italy to make a comeback in terms of financial stability but the sustainability of the present contagion i.e. Percentage of Debt to GDP ratio (which is alarmingly high) is still a major concern.

Creation of sustainable banking structure across the union, capping extravagant expenditure and rather utilizing the easily availability of monetary resources in asset creation, generating more employable options and benchmarking the wage rates to the Asian peers can raise hope to curb this financial malady. Strong conviction across the union leaders and trade opportunity creation by the developed partners for the developing ones can substantiate the 700 billion-euro injection.

Though ESM would surely resurrect the mood of revival in the Eurozone but the political collaboration among the countries is also of an utmost importance for the economic survival of the monetary union. Only if the political willingness moves in tandem with the economic affirmation this European Stability Mechanism ratification would be justified.

And as it is quoted by Andy Warhol, an American artist  “The idea of waiting for something makes it more exciting” and so it would be really interesting to see how this ‘stimulus package’ is used? And will this mechanism mark the political and economic resurrection of European Union once again?

 2 & 3 -

Sunday, September 9, 2012

Captive Competitiveness

It has been uttered, noted, depicted and even analyzed that the domestic economy is really dented by the recession and its negative effects are now palpable across the industries. The results are: Flat corporate earnings, weak top and bottom line, plummet in exports and expanding twin deficits. In short a hard recession hit financials are really worrisome. But still in this tough financial environment where nothing seems to be soaring up except the Inflation, there is one financial value which is growing at an abnormal speed. 

From some few thousands of crore of rupees to lakhs of crore of rupees (and its recession proof too) that is the financial value of scams in our country. From 2G to Coalgate - Indian National Rupee amounting to – 1860000000000 (don’t get astonished by the zeros added to the figure because that is the reality) is what our exchequer lost because of the Coal allocation scam which was unearthed by the CAG report a fortnight back. We as the citizens are now so much used to these gargantuan monetary figures that indifference has seeped deep within us.

But one peculiar thing which was highlighted by the CAG is that the Coal mining scam is even bigger and shoddier than the infamous 2G scam, where at least some of the benefits were passed on to the final consumers in the form of increased competition and lower call charges. But that was not the case with unused coal blocks, which did not increase availability of coal, or lower the price of power or steel.
The CAG report narrates how the government favored and benefitted private players through its policies. The report says that coal fields in the period 2004-2009 were allocated to private entities instead of being auctioned. The Prime Minister’s Office has also been bought under scrutiny as it delayed introducing the process of competitive bidding, though cleared by the Law and Justice Ministry. The report also states that mining was undertaken only in 28 out of the 86 captive coal blocks that were scheduled to take up production, and they failed to produce even half of what was targeted from those blocks.

There are many questions which comes to my mind after reading about the issue – Why was the competitive bidding policy was wrapped in obscurity? Why did the end users’ benefits were not considered while allocating captive blocks? And even if nepotism was at peak during allocation, still there was no fundamental change in the authentic usage of blocks, why? When the democratic process is brutally murdered it endangers the sovereignty of the state and this is what is happening today and not only the sovereignty is at risk but the Mother Nature’s appalling misuse is also a major concern.

Lastly, in order to restore the democratic fundamentals of the states these blocks and captive mines should be re-allocated only through the process of transparent competitive bidding. Or simply it should be handed over to Coal India. The government has been pushed to the limits, having even considered a vote of confidence, as the Opposition stalls the proceedings of Parliament. The mood of the nation inclines towards a mid-term poll, and the ruling coalition is well aware of this fact. Many key UPA allies can be seen actively preparing for mid-term polls and may even be ready to ditch the Congress and form a Third Front should the NDA fail to produce substantial numbers in the polls.

Excerpts from news-opinion and Indian