France, Germany in EU summit showdown

BRUSSELS, Belgium - France and Germany crossed swords Wednesday, May 23, over how to spur growth in the debt-stricken eurozone at an EU summit tinged by plunging markets and the euro hitting a near two-year low.

"We have to act straight away for growth," French President Francois Hollande insisted amid deepening worries over Greece's eurozone future and Spain's troubled banks. "Otherwise there will still be doubt on the markets."

"We have no time to waste," the freshly elected Socialist leader stressed at his first EU summit after a cost-conscious train ride from Paris.

German Chancellor Angela Merkel faced pressure to give ground on her hardline austerity doctrine as the European single currency fell to US$1.2564 and London, Frankfurt and Paris stock exchanges each shed well over 2%.

However, she rejected a call by Hollande for eurobonds -- jointly pooled eurozone debt -- on the grounds they are "not a contribution to stimulating growth in the eurozone" and adding that such instruments ran contrary to EU treaties.

Berlin fears eurobonds would only result in German taxpayers permanently underwriting the public finances of weaker eurozone economies.

In a German press interview appearing on Thursday, Merkel's finance minister Wolfgang Schaeuble maintained that "the differences between ourselves and France are not so great."

Floating ideas

Schaeuble said Hollande wants more done to kickstart growth, but insisted that the French president "does not want to water down" a treaty obliging balanced budgets the Frenchman initially said he wanted to re-negotiate.

"We're not talking about an easing of budgetary discipline," Schaeuble insisted.

A member of Hollande's entourage said he was "floating ideas" but "not coming to Brussels with a Kalashnikov."

Non-euro Britain also flexed muscles, ruling out in advance other core ideas put forward by European Union officials and backed by Hollande -- including a tax on financial transactions.

Home to three quarters of Europe's financial services industry, London vehemently rejects the tax.

Opening the dinner talks, EU president Herman Van Rompuy underlined the need to find "a strong will to compromise" with the risk of knock-on effects from a Greek eurozone exit exercising markets.

After Germany's central bank said the picture in Athens ahead of June 17 elections was "highly alarming," leaders were expected to remind Greek voters that they expect Athens to honour a 237-billion-euro ($300 billion) bailout deal agreed in March.

"I don't believe we can afford to allow this issue to be endlessly fudged or put off," said British Prime Minister David Cameron, notably urging the European Central Bank (ECB) to do more.

Treasury officials from the other 16 eurozone member states were told this week to "reflect" on what an exit would mean for their economies, a diplomat from one eurozone country told AFP.

Spain's case

The Greek finance ministry in Athens "categorically" denied this was the case.

Contingency planning that diplomats called "commonsense" stems from arguably greater worries about Spain and Italy, after a report by Fitch Rating agency showed foreign investors had fled Spanish and Italian debt in huge numbers.

Spanish Prime Minister Mariano Rajoy said Spain did not require the support of European rescue funds, saying there were "faster instruments" -- an apparent allusion to the ECB which has previously bought government bonds in sell-on markets.

Analysts see this as inevitable, with consultant Sony Kapoor warning that Spain otherwise "is headed toward needing a fully-fledged bailout."

Wednesday's talks were set to endorse a trial for 230 million euros in seed money from the EU's budget this year and next by way of EU "project bonds."

This is intended to attract 4.5 billion euros of long-term private investment for Europe's incomplete energy, transport and digital networks.

Other ideas on the table included a 10-billion-euro boost to European Investment Bank (EIB). - Agence France-Presse

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Jackson Hole Summit to Help Boost the Slowing US Economy

Jackson Hole Summit speech of Federal Reserve Board of Governors Chairman Ben Bernanke on Friday may hint at yet another monetary push to boost the slowing U.S. economy.

However, the Wall Street Journal reported most economists think that such suggestions at the annual conference of economists in this Wyoming resort “are overly optimistic.”

“Bernanke is unlikely to fulfill the markets’ hopes that he will pave the way for a third round of asset purchases (QE3),” economists from Toronto’s Capital Economics wrote in a note Wednesday that was reported in the Wall Street Journal. “And even if he did, QE3 is unlikely to boost the economy, equity prices or commodity prices by as much as QE1 and QE2 [did].”

At last year’s conference, Bernanke unveiled plans for a $600-million round of bond buying, which the Journal said he “essentially unveiled QE2.” The action triggered positive market reaction.

This year, markets will be listening closely to Bernanke’s words for any hint at a stimulus from the United States government. The New York Times reported that speeches from the Fed are made to “cause minimal market excitement – either good or bad” and previous announcements by the Fed suggest little change in policy.

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Medvedev reportedly in for summit with Kim Jong Il (AP)

By NATALIYA VASILYEVA and HYUNG-JIN KIM, Associated Press Nataliya Vasilyeva And Hyung-jin Kim, Associated Press – 20 mins ago

MOSCOW – Russian President Dmitry Medvedev reportedly arrived Wednesday in remote eastern Siberia for a summit with North Korean leader Kim Jong Il expected to focus on energy deals, economic aid and nuclear disarmament.

Kim has been rolling across eastern Russia aboard his special armored train in a trip that began Saturday. It is his first visit to North Korea's Cold War ally since 2002. His train arrived Tuesday in Ulan-Ude, the capital of Buryatia, a Buddhist province near Lake Baikal.

Medvedev arrived Wednesday morning at an army base on the outskirts of Ulan-Ude for a meeting with Kim later in the day, South Korea's Yonhap news agency reported, citing unidentified sources in Ulan-Ude. Kim, however, had yet to show up at the meeting venue, Yonhap said.

The leaders plan to discuss Moscow's proposal to build a pipeline through the North's territory that would allow Russia to stream natural gas to South Korea, Yonhap and other South Korean media have reported. North Korea, long reluctant, has recently shown interest in the project, South Korea officials said. Seoul has expressed hope that negotiations on the project will make progress.

Another energy project long under discussion would involve the extension of power lines to make it possible for Russia to sell electricity from plants like the Bureya hydroelectric plant that Kim visited at the start of his trip.

How to resume long-stalled six-nation talks aimed at ending the North's nuclear weapons program in return for aid is another likely topic at the summit. North Korea has expressed its willingness to restart the talks. The Korean peninsula has seen more than a year of tension during which the North shelled a South Korean island and allegedly torpedoed a South Korean warship.

North Korea is pushing for outside aid ahead of an important national anniversary next year. Kim has promised his 24 million people that he will build a "powerful, prosperous" nation to coincide with the 100th anniversary of the birth of his father and North Korea's founder Kim Il Sung, South Korean officials said.

Last month, North Korean diplomats separately met U.S. and South Korean officials to discuss the resumption of the talks, which have been stalled for more than two years. The negotiations involve the two Koreas, the United States, China, Russia and Japan.

The itinerary for Kim's visit, expected to last about a week, has been largely kept secret because of worries about security from North Korea. A few people managed to take photos of Kim during his visit to the hydroelectric plant on Sunday, but heavy police cordons kept the media and onlookers in Ulan-Ude away from the train station and the adjacent square.

On Tuesday, Kim's motorcade headed for a picturesque village on the shores of Baikal, a huge freshwater lake.

Kim took a two-hour Baikal tour on a yacht guarded by two North Korean boats, the Inform Polis Online website reported, quoting eyewitness accounts. The water in Baikal is ice-cold even in summertime, so Kim decided to take a swim onshore, in a pool filled with Baikal water. The speaker of Buryatia's legislature joined Kim in the swim, the news website reported.

On shore, the North Korean leader was treated to traditional Buryat food, including meat dumplings and Baikal fish prepared over an open fire.

Later Tuesday, Kim went back to Ulan-Ude to visit a major aircraft factory, which among other things produces Sukhoi attack planes, the ITAR-Tass news agency reported from the plant.

___

Kim reported from Seoul, South Korea.

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