30/12/2011 World Business Report


30/12/2011

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after a snapper election. Time for World Business Report.

:00:20.:00:28.

Europe's airlines emissions trading scheme comes into force this Sunday.

:00:28.:00:36.

Data shows that China's factories are starting to slow.

:00:36.:00:40.

Austerity on the agenda for Spain. The government tries to bring its

:00:41.:00:50.
:00:51.:00:52.

finances under control and revive its economy.

:00:52.:00:58.

This Sunday, the EU brings into force its controversial carbon tax

:00:58.:01:04.

for airlines. Every airline that flies over EU airspace will have to

:01:04.:01:09.

purchase carbon credits to compensate for its emissions. The

:01:09.:01:14.

US and China are angry that the EU is daring to tax their airlines and

:01:14.:01:20.

both are threatening reprisals. Is this the beginning of a trade war

:01:20.:01:28.

in the skies? Over 20 years, the EU has been

:01:28.:01:33.

looking for a solution. It is making airline's purchase credits

:01:33.:01:37.

when they fly in European airspace to compensate for the carbon-

:01:37.:01:44.

dioxide they in it. By 2020, they hoped to reduce carbon emissions by

:01:44.:01:52.

500,000 tonnes per day. What is not universally accepted is the

:01:52.:01:57.

application of the mandate. The US says that the EU is going beyond

:01:57.:02:07.
:02:07.:02:08.

its powers. The judges of the European Court of

:02:08.:02:17.

Justice rejected the case of American Airlines. The industry is

:02:17.:02:23.

worried about the beginning of a damaging trade war. They are damned

:02:23.:02:29.

if they do and damned if they don't. This is an impossible situation.

:02:29.:02:33.

There is a distinct possibility that the US will take action

:02:33.:02:38.

against the EU Airlines because of the action being taken against

:02:38.:02:44.

their airlines by the EU. China is also weighing in against

:02:44.:02:47.

the EU with trade delegates complaining that the scheme would

:02:47.:02:52.

cost of their operators $100 million per year. They say that

:02:52.:02:58.

there airlines could be put at a disadvantage in comparison to the

:02:58.:03:02.

well established airlines of Europe on the intercontinental routes if

:03:02.:03:07.

they have to pay the EU surcharge. The majority of the world's

:03:07.:03:12.

airlines have condemned the EU scheme. The EU says that its scheme

:03:12.:03:21.

will go ahead as planned despite for exemptions. But it says it will

:03:21.:03:24.

expand the airline of any nation that comes up with a comparable

:03:24.:03:31.

carbon tax of its own. Europe is facing a bleak economic

:03:31.:03:38.

outlook for 2012. A recession is being widely predicted in the

:03:38.:03:45.

region next year. 10% of respondents suggest that the single

:03:45.:03:53.

currency will not be around in the eurozone for much longer. One of

:03:53.:04:00.

the participants in this survey joins us now. Welcome to the

:04:00.:04:07.

programme. Not a good picture in the eurozone next year? That is

:04:07.:04:11.

correct. It is important to remember that America and Asia are

:04:11.:04:17.

still growing and so the European story is not the entire picture but,

:04:17.:04:24.

yes, the anticipation is that the first half of 2012 could see at the

:04:24.:04:29.

least a mile the downturn in Europe. Can we therefore assume that

:04:29.:04:33.

interest rates will stay low? Official interest rates are likely

:04:33.:04:38.

to stay at their current emergency levels but it is worth mentioning

:04:38.:04:46.

that market interest rates are already beginning to increase. If

:04:46.:04:50.

banks must compete for limited funding, they will charge higher

:04:50.:04:56.

rates to savers. What about the single currency?

:04:56.:05:00.

There is talk about a break up but there is no mechanism to allow that

:05:00.:05:08.

to happen. And that would have catastrophic consequences in any

:05:08.:05:09.

case. The likelihood of a disintegration

:05:09.:05:19.
:05:19.:05:22.

of the euro, that is still a very unlikely outcome. One must separate

:05:22.:05:27.

the default of a government, the most likely one being Greece, from

:05:27.:05:32.

the actual disintegration of the eurozone. There is an entire

:05:32.:05:36.

network of contacts that connect these countries and for any one of

:05:36.:05:43.

them to break those contracts would be a devastating outcome, for

:05:43.:05:49.

example, for French and German banks. There is a powerful system

:05:49.:05:53.

holding all of this together. They are is more evidence that

:05:53.:06:00.

Europe's crisis is beginning to affect China. There are great

:06:00.:06:05.

concerns about the eurozone crisis in that part of the world.

:06:05.:06:13.

That is correct. China's factories are beginning to slow down possibly

:06:13.:06:20.

because of what is happening in the eurozone. This is a preliminary

:06:20.:06:26.

reading of the purchasing managers' index, which is compiled by HSBC,

:06:26.:06:29.

and is released before the official government purchasing managers'

:06:29.:06:39.
:06:39.:06:39.

index data. The report also showed that export orders are falling for

:06:39.:06:44.

the first time in the three months to December mainly due to the

:06:44.:06:49.

sluggish global demand for China's products particularly from Europe.

:06:49.:06:54.

That is likely to lead to more monetary easing policy is by

:06:54.:07:04.
:07:04.:07:05.

Chinese authorities. Last month's initiative to

:07:05.:07:15.
:07:15.:07:16.

encourage more lending was the first since 2008. The reserve ratio

:07:16.:07:22.

is still 21% for many of the largest banks in China. Despite the

:07:22.:07:28.

dismal figures, HSBC is still forecasting strong industrial

:07:28.:07:32.

growth for China between 12% and 13%.

:07:32.:07:37.

2012 is set to be a year of austerity for Spain as its

:07:37.:07:43.

government struggles to bring down one of Europe's largest budget

:07:43.:07:47.

deficits. The Prime Minister of Spain says that his Cabinet will

:07:47.:07:54.

pass legislation today in order to implement conservative fiscal

:07:54.:08:01.

measures. Getting ordinary people to accept these measures will be

:08:01.:08:06.

difficult. Mariano Rajoy wants to slash the

:08:06.:08:10.

deficit by 16 billion euros in 2012 but he has been tight-lipped about

:08:10.:08:16.

how he intends to do that. He will announce economic measures today to

:08:16.:08:22.

fill in some of those blanks. One prospect is of a frieze of the

:08:22.:08:32.

minimum wage. The country's main unions oppose it. TRANSLATION: This

:08:32.:08:36.

will not contribute to economic recovery and will aggravate the

:08:36.:08:43.

fall in consumption and investment. In cutting the deficit from over 6%

:08:43.:08:49.

to a target of 4.2% next year, Mariano Rajoy must tread carefully.

:08:49.:08:55.

He has promised not to touch pensions, for example. If areas

:08:55.:09:01.

like education and healthcare are affected, he is likely to face

:09:01.:09:05.

resistance. His Conservative Party has a majority in Congress but the

:09:05.:09:09.

economic challenges are daunting. Spain has the highest unemployment

:09:09.:09:16.

rate in Europe and the economy is still shrinking. The new government

:09:16.:09:21.

says that creating jobs is a priority and that a labour market

:09:21.:09:26.

reform is in the pipeline. His economic plans will become clearer

:09:26.:09:31.

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