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POLITICAL ECONOMY
EU reaches accord on token budget cuts
by Staff Writers
Brussels (UPI) Feb 8, 2013


China banks ramp up lending in January
Shanghai (AFP) Feb 8, 2013 - Chinese banks more than doubled their lending in January from December, official data showed Friday, as the government seeks to boost economic growth after it fell to a 13-year low last year.

Chinese banks granted 1.07 trillion yuan ($171.5 billion) worth of new loans last month, compared with 454.3 billion yuan in December, the People's Bank of China said in a statement.

The figure beat market expectations for 1.0 trillion yuan, according to a median forecast of 16 economists surveyed by Dow Jones Newswires.

Total social financing, a broader measure of credit in the economy, jumped to 2.54 trillion yuan last month from 1.63 trillion yuan in December, the central bank said.

Lu Ting, a Hong Kong-based economist at Bank of America Merrill Lynch, said strong credit growth would support the economy, which grew 7.8 percent last year, but could prompt regulators to tighten controls over lending due to inflation fears.

"We may see some unwinding of previous credit easing in the second half on concerns of overheating, rising inflation and insufficient regulations on shadow banking," he said in a research note.

Policymakers cut interest rates twice last year and have trimmed the amount of cash banks must place in reserve three times since December 2011 to encourage lending and pump up growth.

China's inflation slowed to 2.0 percent in January, separate data showed Friday, easing from a seven-month peak of 2.5 percent in December, but analysts expect a spike this month as people spend more during Chinese New Year holiday.

EU leaders agreed to cut spending but only by a token amount over 2014-20 amid deepening divisions on ways of tackling recession and inducing growth at the same time.

British Prime Minister David Cameron hailed the 3.3 percent reduction in the seven-year budget, indicating his government intended to celebrate the measure as a personal victory for the Conservative Party leader, who has been calling for EU reforms.

Critics said the cut was tokenistic as the European Union intends to spend $1.3 trillion taxpayers' money over the period.

How much of the spending will stimulate EU economies and how much will go toward the European Union's wasteful activities remains to be seen, said the critics, most of them from larger and richer member countries.

Calls for reforms such as doing away with dual seats of European Parliament in Strasbourg and Brussels were ignored.

EU leaders are increasingly split into several camps. The North Europeans want more austerity and southern and eastern Europeans want a continued flow of EU funds into their economies. British aides said they saw more support for their calls for drastic spending reforms to stave off a deeper crisis in the union.

The budget cuts could still be challenged in the European Parliament and could be rendered meaningless amid growing uncertainty over European Union's international engagement with terrorism in West Africa, growing military aid to the Syrian opposition and the cost of continuing confrontation with Iran over its nuclear program.

European Council President Herman van Rompuy called the talks "successful" and German Chancellor Angela Merkel indicated the European Union bought time with the deal.

"From my point of view this agreement is good and it is important because it gives us the ability to act in Europe in the coming years," Merkel said.

The BBC said the deal demonstrated "national politics still dominates. The European interest took second place."

The four biggest groups in European Parliament said they "cannot accept it as it stands because it is not in the interests of Europe's citizens," the BBC reported.

Countries that pay more into the European Union than they get back want "better spending" or a greater focus on innovative and growth-stimulating measures, Germany's Der Spiegel magazine said on its website.

Germany now agrees with Britain that the European Union's administrative costs of $83 billion are too high and should be cut.

Some of the bid spending, such as farm subsidies, is politically charged and unlikely to be touched. Money doled out to new EU members, ostensibly to help them stand next to richer members from northern and western Europe, was not touched either. About 36 percent of the budgeted taxpayer's money will go into the so-called cohesion funds.

What no one can predict is the amount the European Union will need for emergency bailouts of economically distressed members dogged by slow growth, unemployment and growing social discontent.

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