'Tidal wave' of business failure feared as tax help scheme ends
Andrew Grice - The Independent
The Government has been warned that it faces a "ticking time bomb" of company closures and job losses when a scheme to allow firms to delay their tax payments is wound up.
Experts say the "time to pay" programme has been a resounding success and has kept many businesses afloat in the recession, since HM Revenue & Customs (HMRC) would normally have first call on their money and could have pushed them into liquidation or administration.
But insolvency firms expect that the £4.8bn scheme, which has helped 160,000 businesses employing 1.2 million people, will be axed after the expected May general election, so companies will have to stump up their delayed VAT, national insurance and other tax payments. Malcolm Shierson, a partner at Grant Thornton's recovery and reorganisation practice, said the number of business failures fell in the last three months of 2009 but were still a near historic high. "We expect the number of liquidations to shoot up even further when the future government stops extending the 'time to pay' tax scheme," he said.
Colin Burke, a partner at Milner Boardman corporate rescue and recovery firm, said a significant number of companies helped by the scheme were now falling behind with their payments and increasing the size of their debts to the Government.
He said: "This leaves HMRC with no option but to take action to prevent further default and recover the arrears, thus triggering formal insolvency proceedings. And whereas in the past such proceedings were evenly spread over a period, the Business Payment Support Service has created a backlog which some fear will lead to a tidal wave of business failures. I don't think there is any doubt that it will happen, it's just a matter of when."
George Bull, head of tax at Baker Tilly accountants, said: "I think to bring down the guillotine after an election would be a grave mistake because the system has worked really very well to help clients who want to pay, but cannot, to get more time to pay. If the right was suddenly halted after an election that would be desperately bad news."
Ric Traynor, executive chairman of Begbies Traynor Group, said: "Government support measures are providing welcome relief to the UK's struggling companies in the short term but they may exacerbate problems for some businesses as the need to repay debt catches up with them later in the year."
He said the "insolvency peak" of the recession remained some way off even though Britain officially returned to economic growth in the final quarter of last year. "While business finance is expected to become more readily available during the first half of 2010, we anticipate a rise in the levels of financial distress during the second half of 2010, as temporary financial support measures are unwound."
Government sources admit that there could be a delayed effect on company closures and unemployment when the outstanding tax payments are finally demanded. They point out that many of these firms would have gone under without the state help and insist that most of them will survive since only viable businesses experiencing cash flow problems are being helped.
Officials say it is impossible to estimate how many firms might eventually be pushed into closure when they settle their bills or how many jobs might be at risk. Ministers promised that the scheme would not be scrapped overnight and that the Government would ensure as much flexibility as possible – the whole point of the help in the first place, they said.
A Treasury spokesman said last night: "The 'time to pay' scheme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary. Any suggestion that it will end suddenly and businesses forced to repay is incorrect and runs counter to what the scheme was set up to achieve." The Treasury said more than 90 per cent of tax payments are being repaid on time. Of the £4.8bn deferred in tax, some £3.69bn is already in the process of being repaid.
Further increase in Scottish insolvencies
Heathrow faces threat from plan to link
high-speed rail route with Birmingham
Site near Birmingham International airport being considered as station on new route, according to rail sources
Dan Milmo - Guardian
A modestly sized airport off the M42 in Birmingham could become a serious competitor to Heathrow under government plans for a 200mph high-speed rail network.
A site near Birmingham International airport is being considered as a station on a new route that will link Britain's largest cities by a 50-minute train ride, according to rail industry sources. If the government pushes ahead with the plan it would take no longer to reach Britain's sixth largest airport from London's Euston station than it currently takes to get to Heathrow.
The route would see the line emerging from Euston before travelling to Old Oak Common in west London where an interchange would link the route to Heathrow airport and Crossrail, a £16bn rail service joining Heathrow to Canary Wharf due to open in 2017.
The line would then sweep through Buckinghamshire to the West Midlands where a parkway station, where drivers can park their vehicles and use buses to complete their journey, would be built near Birmingham International and the nearby National Exhibition Centre.
The first phase of the line, which the government hopes will become part of a UK-wide network, will terminate at a new station in Birmingham city centre but the main spur would continue up from Birmingham International through Trent Valley to join the west coast line north of Birmingham, where the services would continue at conventional speeds to Manchester and Scotland.
Ministers are particularly sensitive about where the route goes once it emerges from London because the line is expected to go through a section of the Chiltern hills in Buckinghamshire – one of 40 areas of outstanding natural beauty in England and Wales. The Chilterns Conservation Board, the public body responsible for protecting the area, has warned that parts of the countryside could be "trashed" by a high-speed route.
A 1,000-page report compiled by High Speed Two, a government-backed company, was delivered last year to the transport secretary, Lord Adonis, including a detailed plan for the first phase placing the tracks within five metres in urban areas and 25 metres in the countryside.
It will include three broad proposals for a UK-wide network that would reduce the journey time from London to Edinburgh from four-and-a-half hours to two hours 40 minutes. London to Birmingham is expected to take 50 minutes using a service that will carry 18 trains per hour. Adonis is due to publish the report before the end of March, with construction on the first phase due to begin in 2017 and finish in 2025. A spokesman for Birmingham International said the airport had received no "formal or informal" indications that it will be on the high speed route, but added that a strong case exists for making it part of a new rail network because it will allow the airport to win back Midlands passengers who use Heathrow.
Birmingham International airport plans to nearly treble in size from 9.2 million passengers per year to 27 million by 2030 without adding a new runway. Instead, it is building a 400m runway extension that will allow the airport to host planes with heavier fuel loads, opening up destinations such as San Francisco and China.
A spokesman said that airports such as Manchester, Newcastle and Glasgow would also benefit.
Birmingham International broke ranks with the aviation industry last year to lambast the government's apparent obsession with Britain's largest airport. Birmingham International's chief executive, Paul Kehoe, said it was "preposterous" to let Heathrow develop further.
He added: "Heathrow sucks in traffic, we have to support it and if you don't support it you are made to look like climate change deniers."
A report by the Committee on Climate Change, a government advisory panel, has made the case for a third runway at Heathrow by forecasting that British airports can handle up to 140 million more passengers per year - which would allow at least four runways at Heathrow - by 2050.
However, connecting Birmingham International to a high-speed rail line would suit the Conservative party, which has pledged to block a third runway and build an ultra-fast rail network instead. The shadow transport secretary, Theresa Villiers, expects regional airports such as Birmingham to soak up the airport growth permitted by the government's advisory body on climate change. The committee said that UK airports could add 140 million travellers per year, on top of 230 million currently, without breaching the government's target of limiting aviation's carbon dioxide emissions to 2005 levels by 2050.
BAA, the owner of Heathrow airport, said any attempt to transform Birmingham International airport into a serious competitor would not work.
Heathrow connects 66 million passengers per year to 181 destinations around the world thanks to its two runways, while an attempt by British Airways to turn single-runway Gatwick airport into an alternative hub was a failure, it said. BAA executives estimate that 1.5 million people per year use Birmingham airport to fly to major European airports such as Frankfurt, Paris Charles de Gaulle and Amsterdam Schiphol and believe that establishing a high-speed link between Birmingham and Heathrow would see those travellers come to Heathrow instead.
A Department for Transport spokesman said the Birmingham airport station was "complete speculation".
He added: "We have yet to reach a view about specific routes. If the government decides to go ahead with plans for high-speed rail, it will publish a white paper by the end of March."
Scotland is denied fast rail link
Dubai World sale puts QE2 on the block
Jonathan Russell - Telegraph
Debt-laden Middle Eastern
conglomerate Dubai World is
preparing a
firesale of some of its most prestigious assets including the cruise
liner QE2 and circus troupe Cirque du Soleil.The disposals are part of an effort to pay down some of Dubai World's $22bn (£14bn) of debts.
Last week Istithmar, the investment arm of Dubai World, started the process by selling a 13pc stake in Indian domestic airline SpiceJet. It has also entered into talks to sell Inchcape Shipping Services, the UK port agent, with a mooted $700m price tag.
Istithmar either owns or has stakes in companies including Standard Chartered Bank, Gulf Stream Asset Management and EMPG, the publishing house that owns Harcourt Education. Standard Chartered is also one of the Dubai World's main creditors.
State-backed Dubai World has been building up a worldwide portfolio of assets including a large property holding over the last decade, investing in part with its own equity, but also using large tranches of debt from international banks. In November, however, the company said it was seeking to delay debt-servicing payments as it looked to undertake a capital refinancing.
Since then Dubai World has received about $6.2bn in emergency funding from the Dubai Financial Support Fund (DFSF), to help it finance its debt.
But doubts have now been raised that the financial support from DFSF could jeopardise a refinancing deal with Dubai World's 100 banks. The banks are understood to be worried DFSF's financial banking makes it a preferred creditor, pushing them further down the pecking financial order in Dubai World's capital structure.
It is understood that Dubai World will look to sell its assets individually rather than as a portfolio. The company is being advised on its financial restructuring by Deloitte.
Dubai World was unavailable for comment.
ABN deal exposed RBS to Dubai debt
Branson warns that oil crunch is coming within five years
• Virgin chief and fellow business leaders call for action
• Energy crisis threatens to be more serious than credit crunch
Terry Macalister - Guardian
Sir Richard Branson and fellow leading businessmen will warn ministers this week that the world is running out of oil and faces an oil crunch within five years.
The founder of the Virgin group, whose rail, airline and travel companies are sensitive to energy prices, will say that the coming crisis could be even more serious than the credit crunch.
"The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well," Branson will say.
"Our message to government and businesses is clear: act," he says in a foreword to a new report on the crisis. "Don't let the oil crunch catch us out in the way that the credit crunch did."
Other British executives who will support the warning include Ian Marchant, chief executive of Scottish and Southern Energy group, and Brian Souter, chief executive of transport operator Stagecoach.
Their call for urgent government action comes amid a wider debate on the issue and follows allegations by insiders at the International Energy Agency that the organisation had deliberately underplayed the threat of so-called "peak oil" to avoid panic on the stock markets.
Ministers have until now refused to take predictions of oil droughts seriously, preferring to side with oil companies such as BP and ExxonMobil and crude producers such as the Saudis, who insist there is nothing to worry about.
But there are signs this is about to change, according to Jeremy Leggett, founder of the Solarcentury renewable power company and a member of a peak oil taskforce within the business community. "[We are] in regular contact with government; we have reason to believe their risk thinking on peak oil may be evolving away from BP et al's and we await the results of further consultations with keen interest."
The issue came up at the recent World Economic Forum in Davos where Thierry Desmarest, chief executive of the Total oil company in France, also broke ranks. The world could struggle to produce more than 95m barrels of oil a day in future, he said – 10% above present levels. "The problem of peak oil remains."
Chris Skrebowski, an independent oil consultant who prepared parts of the peak oil report for Branson and others, said that only recession is holding back a crisis: "The next major supply constraint, along with spiking oil prices, will not occur until recession-hit demand grows to the point that it removes the current excess oil stocks and the large spare capacity held by Opec. However, once these are removed, possibly as early as 2012-13 and no later than 2014-15, oil prices are likely to spike, imperilling economic growth and causing economic dislocation."
Skrebowski believes that Britain is particularly vulnerable because it has gone from being a net exporter of oil, gas and coal to being an importer, and is becoming increasingly exposed to competition for supplies.
"This is likely to put pressure on the UK balance of payments and in a world of floating exchange rates is also likely to put downward pressure on the valuation of sterling. In other words, the positive benefits to the valuation of the pound as a petrocurrency are now eroding," he said.
The question of peak oil came to centre stage last November when a whistleblower told the Guardian the figures provided by the IEA – and used by the UK and US governments for much of their planning scenarios – were inaccurate.
"The IEA in 2005 was predicting that oil supplies could rise as high as 120m barrels a day by 2030, although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this."
But Saudi Arabia launched a counter-strike at Davos, insisting the issue was overblown. "The concern about peak oil is behind us," said Khalid al-Falih, chief executive of Saudi Aramco.
Tony Hayward, the BP chief executive, downplayed fears about dwindling supplies in an interview with the Guardian last week.
Branson's bogus eco-drive
Toyota set to recall Prius hybrid over brake failure
In a further humiliation for the company, the owners of 300,000 cars will be told that their brakes may fail on icy surfaces
Leo Lewis, Robert Lea and David Robertson - The Times
Toyota is to order a humiliating global recall of the Prius — the hybrid electric car which has become the leader of the green motoring revolution.
In a deepening of the crisis at the world’s largest car manufacturer, Toyota will this week warn 300,000 Prius owners — 3,500 of them in the UK — that the brakes on their car may fail in icy conditions or on bumpy surfaces.
The news follows hard on last month’s recall of 8 million Toyotas over fears of accelerator pedal defects in several models. In Britain, the owners of 180,000 Toyotas have been told that their cars may have problems which lawyers in the US claim have led to 19 deaths.
Sources close to the company told The Times that the recall of the third generation Prius, launched last year, will happen within the next 72 hours.
A spokesman for Toyota Europe said: “We have been told any action would be global and the question is what we can do to reassure our customers. At the moment we are following the correct processes.”
Prius drivers in Britain are already aware of potential braking faults. Green Tomato Cars, a London taxi firm that operates a Prius-only fleet, runs 27 of the Mark 3 Toyota Prius.
It said it is yet to have any problems but is meeting with Toyota GB today to discuss the issue. A company statement said: “All of our Mk3 drivers are aware of the issue and have been trained accordingly — in avoiding and managing the issues and reporting to us should it occur.”
The new Prius is an eco-model which is sold for between £19,500 and £22,600. Its celebrity devotees include Brad Pitt, Leonardo DiCaprio, Jennifer Lopez and Cameron Diaz, but its brakes have been the subject of complaints in Japan and America.
Since last May around 170,000 of the new model have been sold in Japan, a further 100,000 in the US and nearly another 30,000 in Europe. The car has also been the subject of a big sales push in the Middle East.
The Prius scare may not end with the high-profile hybrid. Toyota is still investigating whether the same braking issues apply to other cars in its hybrid range, including several Lexus models that use the same energysaving technology.
Toyota insists that reported braking problems with the Prius are a “phenomenon” rather than a “defect”.
Under Japanese law, Toyota is expected to register the domestic recall of the Prius with the Government before announcing it to the public.
Not only does the latest scare puncture Toyota’s green credentials but it is also likely to heap further financial misery on the company that has seen its share price collapse. The recall over the accelerator pedal is already expected to cost $2 billion (£1.28 billion).
In some countries, such as the US, a full recall is likely. In other countries it is believed Toyota will present the initiative to customers as part of a “safety campaign”.
Toyota president Akio Toyoda was forced into a public apology last week after Yukio Hatoyama, Japan’s Prime Minister, offered Mr Toyoda “harsh advice” as to how Toyota’s protracted problems were dragging down the reputation of Japanese manufacturing generally and Japan itself.
Dealerships across Japan have been told to prepare for a deluge of Prius owners bringing their cars in for free repair. Across the world, Toyota technicians have been advised that they will have to work round the clock to assist owners of cars with potentially defective accelerator pedals.
The Prius braking problem, it is understood, can be fixed via a software upgrade that may take around an hour per car.
The fault lies in the computer system that links the Prius’s two braking systems – one conventional, the other part of the energy-storage technology.
Toyota is believed to have identified the braking problems in the Prius late last year. It has already made changes on its Japanese production line.
Prius models built since January have received the necessary software upgrades.
Bank of England panel condemns draft EU hedge fund legislation
Suzy Jagger - The Times
Draft European Union legislation designed to regulate the hedge fund industry would trigger “systemic failure and widespread market disruption” if it became law.
Those are the findings of the Financial Markets Law Committee (FMLC), which was established by the Bank of England, on the eve of a critical week for the EU hedge fund directive in Brussels.
The Times has learnt that European lawmakers will be presented today with about 2,000 amendments to the draft legislation, each of which must be debated.
Lawmakers in Brussels — led by the French — believe that the trading behaviour of hedge funds exacerbated the severity of the global credit crisis and played a key role in the collapse of a number of lenders.
The French and the Germans have long argued that hedge funds behaved like “locusts” on the financial system. Three quarters of Europe’s hedge funds are based in London and they contribute about £3.5 billion a year in tax revenues to the UK Treasury.
Using the European Commission’s Directive on Alternative Investment Fund Managers, a number of politicians in Brussels want to impose regulations on hedge funds that would limit the amount of debt they assume, force them to hoard more capital, disclose more data about their trading practices and clients and effectively block EU and non-EU hedge funds from taking stakes in one another.
Lord Myners, the City Minister, and Lord Mandelson, the Business Secretary, have sought to persuade Europe to tone down the draft legislation. The report from the FMLC, which was set up to monitor the draft legislation, has concluded that it is unworkable and would “create significant legal uncertainty” if implemented in its present form.
The committee said that it had spoken to a number of representatives of the fund management industry, who raised “an infinite number of legal uncertainty issues”. The report found that one of the biggest worries about the proposed legislation was that Brussels had no idea how to define a hedge fund or its activities. It also indicated that a number of conflicts existed between present legislation and the draft regulations.
The FMLC wrote of “the inconsistencies and inherent conflicts between the Commission’s proposal and existing financial services directives which create legal uncertainty as to the general application of Community legislation”.
The committee indicated that it was “aware that a number of other ambiguities and uncertainties have been identified in submissions by other parties”.
Andrew Baker, chief executive of the Alternative Investment Management Association, said: “There are still very important areas that need to be discussed, where agreement has not been reached. Measures governing leverage, depositaries, valuation and remuneration all have question marks over them. A number of the amendments will be boiled down, but it’s only after that that we will see what shape the directive will take.”
Mr Baker welcomed the FMLC report. He said: “What the report highlights is that no one [in Brussels] has sat down and thought: ‘How are we going to implement this?’ ”
Hedge funds and that Mayfair address
Labour election victory would 'panic' financial markets,
says Ken Clarke as Tory poll lead dwindles
Daily Mail
Victory for
Gordon Brown at the general election would cause 'panic' in
the financial markets, shadow business secretary Ken Clarke warned
today.The former chancellor said the City would take fright because the Government's plan for stabilising the public finances lacked credibility.
Mr Clarke delivered the stark message to voters amid signs that the Tories' advantage in the polls is dwindling.
Research by ICM for the Sunday Telegraph suggested their support has dipped below 40 per cent for the first time since last June.
The Tories are currently on 39 per cent, with Labour on 30 per cent and the Lib Dems on 22 per cent.
If repeated at the ballot box the figures would leave David Cameron short of an overall majority, fuelling speculation that the Prime Minister could choose to call the election earlier than the widely anticipated date of May 6.
A senior Labour source told the newspaper: 'May is still the favourite but you certainly shouldn't rule April out.'
Mr Brown used an interview with the Observer today to insist he was still confident of securing an outright victory when the poll takes place.
'I'm not complacent, but Labour can still win it,' he said. 'I'm absolutely sure of that.'
But Mr Clarke insisted it would be 'extraordinary' if Labour were to win.
'I think most people decided quite a long time ago that they have had enough of Gordon Brown,' he told Sky News' Sunday Live programme.
'I think there is a great general desire to get rid of him and the present government, which has plainly played out, and is quite incredible when it comes to tackling the debt and the deficit that they are leaving behind.
'There would be quite a panic on the markets, I think, if by some extraordinary turn of events Gordon Brown were returned to power.'
Shadow foreign secretary William Hague, Mr Cameron's effective deputy, insisted the Tory top team was not worried by the narrowing in the polls.
'I sit next to David Cameron every morning as we look at the political situation," Mr Hague told the BBC's Andrew Marr show.
'He does not wobble. He's not a man who wobbles. And nor do the rest of us sitting around him.'
He played down the ICM poll, saying it only showed Conservative support slipping marginally.
'We have never claimed we have sealed the deal with the electorate,' he added.
'The prospects for the election remain good from our point of view. But we will never take it for granted.'
ICM interviewed a random sample of 1,001 adults by telephone on February 3 and 4. The results were weighted to the profile of the UK population.
E.U. Debt Crises Highlight Bloc's Structural Weakness
Jack Ewing - New York Times
Whether he likes it or not, Jean-Claude Trichet is not just the president of the European Central Bank. Mr. Trichet, 67, is also the de facto president of Europe, at least for the 16 nations that rely on the euro as their common currency.
On paper, the European Union has just established a new president in Brussels and the E.C.B.’s sole responsibility is to keep inflation in check. Moreover, the central bank, based here in Frankfurt, has almost no formal policy tools to help an ailing member country like Greece.
But as investor alarm about Greek, Spanish and Portuguese indebtedness increases, the crisis has highlighted the fundamental weakness of the European monetary union. With no strong political arm to insure that members observe debt limits set by treaty, the responsibility ultimately falls to Mr. Trichet to try to bring the miscreants into line even as he struggles to calm jittery markets.
In the current situation, said Jörg Krämer, chief economist at Commerzbank in Frankfurt, only the E.C.B. president “has the authority and the expertise.”
In his public statements Mr. Trichet has walked a fine line between warning Greece and other highly indebted countries to get their acts together and reassuring global investors that everything will be all right.
On Saturday, Mr. Trichet told reporters at a meeting of Group of 7 finance ministers and central bank presidents in Canada that he was confident Greece would meet tough new belt-tightening targets.
“We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal,” Mr. Trichet said, according to a Reuters report.
Just a couple of days earlier, Mr. Trichet lectured European governments on the need to swiftly pare their budget deficits. “When you share a single currency with others,” he said during a news conference on Thursday in conjunction with the E.C.B.’s monthly policy meeting, “the counterpart is that you have to have a sound fiscal policy.”
But then, in a gesture that did little initially to calm nervous investors, Mr. Trichet pointed out that the overall deficit level among euro countries, at about 6 percent of gross domestic product, is still well below that of the U.S. and Japanese governments, each set to borrow more than 10 percent of their G.D.P. this year.
Mr. Trichet delivers such comments in excellent English with a distinct French accent. Though he can be stern, he sometimes displays a dry sense of humor. Before the G-7 meeting Saturday, he joked that gathering in a frozen Canadian territory meant, “We will have just the right environment to be as cool as possible in judging the situation.”
Mr. Trichet sometimes maintains that problems with individual euro members should be of no greater concern to Europe’s central bank than the fiscal problems of an individual state are to the Federal Reserve in Washington. After being peppered with questions about Greece on Thursday, Mr. Trichet responded: “I doubt that, in a press conference, Ben Bernanke would have a question on Alaska or Massachusetts.”
True enough, if only because Mr. Bernanke, the Fed chairman, almost never holds a press conference. In fact, Mr. Trichet needs to be more outspoken because he operates with many more constraints than Mr. Bernanke does.
The lack of a strong central government to back up the euro is the most obvious difference. The European Council, the body that represents the 27 national governments in the European Union, has had a president since last month, Herman Van Rompuy. But he has few powers to discipline the 16 euro members.
“The ultimate problem is the nonexistence of a political union,” said Mr. Krämer, the Commerzbank economist. “This is the big, big reason behind all the problems we are talking about.”
The other big difference is that the E.C.B., unlike the Fed, is prevented from buying government bonds or offering direct support to troubled banks within its sphere. During the recent financial crisis, however, the E.C.B. showed it was able to find creative ways of bolstering the European banking system. It vastly expanded the volume of lending to banks, thus helping to avoid a more serious credit crunch.
Given its legal restrictions against offering loans to member governments, what can the E.C.B. do to prevent Greece or any other vulnerable country from defaulting on its debts?
For the moment, it can do so only indirectly. The E.C.B., in fact, is already aiding Greece by accepting Greek bonds as collateral that banks in Greece can use to borrow money. As long as Greece maintains its current credit ratings, the bonds qualify under E.C.B. rules.
If the situation worsens it would fall to European governments to arrange a rescue of Greece or another ailing country like Portugal. For weeks, European Union officials have been discussing privately how to deal with the debt crisis. While wanting to avoid anything that encourages further reckless borrowing and excessive government spending, they have indicated they will do whatever it takes to prevent a sovereign default of a euro member.
But the European Commission, the E.U.’s executive body, lacks the expertise to manage the delicate mixture of carrots and sticks that would be involved in any bailout. Last year, when growth collapsed in countries in Eastern Europe like Latvia, Hungary and Romania, Brussels essentially outsourced the rescue to the International Monetary Fund.
European leaders, however, do not want to turn to the I.M.F. for help rescuing a member of the euro zone, its core unit.
That probably leaves it with the alternative of advancing aid funds, issuing bonds on behalf of Greece that would be backed by other European countries, or guaranteeing Greek bonds.
While the E.C.B. itself cannot supply the money, Mr. Trichet is bound to play a discreet but influential behind-the-scenes role. Mr. Trichet has the advantage of being able to speak his mind without worrying about getting elected.
That becomes a greater concern as the consequences for taxpayers slowly dawns on the European public. Many seem resigned to some sort of bailout.
Martin Mann, a proprietor of a Frankfurt wine shop, said that he expected the Union to wind up paying for Greece one way or another.
Asked if that made him angry, Mr. Mann shrugged. “As a taxpayer, I already have to pay the bill for so many messes created by other people,” he said. “I would have to be mad every day.”
More consumers just say no to credit cards
Sandra Block - USA TODAY
Emily Maddox, 24, of Knoxville, Tenn., is the kind of customer credit card companies covet. She has a good job as an Internet marketing coordinator, and she lives within her means. But she's never had a credit card, and she has no plans to apply for one.
Credit cards, she says, "make me really nervous, and I've never felt comfortable having one."
In a country where the average consumer owns five credit cards, Maddox may seem somewhat quaint, like an Amish farmer who drives a horse-drawn buggy. But proponents of a no-credit-card lifestyle say there's nothing old-fashioned about their choices. And they're convinced that their numbers will grow as consumers become increasingly disenchanted with credit card industry practices.
Credit card usage is slowing. Revolving credit — largely made up of credit card debt — fell by nearly 20% in November, the largest drop on record, according to the Federal Reserve, reflecting less borrowing by consumers and banks' tighter lending standards. Through October, the number of new credit card accounts was down 46% from the same period in 2008, according to Equifax.
But abandoning credit cards is a much more radical step than using them less. Consumers who don't own a credit card often have a hard time renting a car. Some hotels won't book rooms to travelers who want to pay with a debit card or cash. Those that accept debit cards may place a hold on several hundred dollars in the customer's bank account, which could cause checks to bounce. And many consumer experts say that responsible use of credit cards is one of the most effective ways to build a good credit record.
Those concerns haven't swayed Dann Zinke, 22, of St. Paul, who works at a gas station to save money for college. He's never owned a credit card and doesn't plan to get one any time soon. "I refuse to recognize it as a rite of passage into adulthood," he says. "I don't want to go through the hassle of signing up and receiving other credit card offers."
Reasons consumers are opting to live without credit cards:
•Desire for a simpler lifestyle. Two years ago, Adam and Courtney Baker decided to reduce their debts, sell most of their stuff, and spend a year or two traveling around the world. By selling their small business and a rental property, they were able to pay off more than $11,000 in credit card debt.
Initially, they planned to use an American Express card during their travels, says Adam Baker. But once the couple wiped out their debt, they decided to stick with debit cards and cash. Going without credit cards helps them keep a handle on their spending and suits their stripped-down lifestyle, says Baker, 25, a freelance writer whose blog about his family's experience is titled Man Vs. Debt (www.manvsdebt.com).
"We enjoy not having them (credit cards) in our lives," says Baker. "Getting 1.5% cash back for using four cards and juggling them is just not something that interests us. We have bigger and better things we want to focus our attention on."
Louis Rosas-Guyon, 37, a business technology consultant in Miami, says his life has become less stressful since he stopped using credit cards 10 years ago. His epiphany came after he plugged his $18,000 in balances into an Excel spreadsheet and learned that, at the rate he was going, it would take him 180 years to pay off his credit card debts.
Instead, he went into what he calls "aggressive debt-payment mode." He negotiated with his lenders, consolidated his debt and borrowed money from a relative, eventually paying off the balances.
"I have far fewer bills and headaches and fears about that monthly billing cycle," Rosas-Guyon says. "My life has gotten substantially easier because I've offloaded 10 to 12 different credit cards that I no longer have to make a payment on."
•Increased acceptance of debit cards. A decade ago, consumers who didn't want to use credit cards had two choices: carry a lot of cash or write checks and hold up the supermarket line. Today, debit cards blend the discipline of cash with the convenience of plastic and are accepted by most merchants that accept credit cards. In recent years, their popularity has soared.
A July 2009 survey by Auriemma Consulting Group found that 28% of consumers had shifted the way they pay for purchases in the past year, with an increase in debit card usage coming at the expense of credit cards. Forty-six percent of consumers surveyed said they believed debit cards helped control their spending.
"There's quietly been a debit card revolution," says best-selling personal finance author Dave Ramsey, who urges fans of his radio and Fox Business TV show to cut up their credit cards. Now that debit cards are broadly accepted, he says, using a credit card "with all its fees and interest rates and traps with customer service is really stupid."
Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, says the shift reflects a desire by consumers to get a better handle on their spending, rather than a rejection of credit cards.
"It's easy to demagogue the big credit card industry," he says. "Credit and debit card services play a vital role in our economy. Seventy percent of our GDP is based on consumer purchases, and credit cards and debit cards make that easy, safe and fast."
•Outrage about industry practices. Tim McFarlin, a consumer bankruptcy attorney in Irvine, Calif., 34, stopped using credit cards eight years ago because he thought the industry's business practices were unfair to consumers. "Any time there's even a hint of a financial issue in the consumer's life, the credit card company will raise the interest rate to the high 20s, or 30%," he says. "They'll do anything they can to make life as difficult as possible."
Last year, Congress enacted legislation that will make it more difficult for credit card issuers to raise interest rates on existing balances and charge certain fees. But those rules don't take effect until Feb. 22, and in anticipation of the change, credit card companies have aggressively raised interest rates and fees, even for borrowers who pay their bills on time. In addition, credit card companies have lowered credit limits for many customers.
The changes have been particularly hard on small-business owners who rely on credit cards for short-term business loans. Jennyvi Dizon, 29, a self-employed bridal wear fashion designer in Phoenix, says her credit card lenders cut her credit limit in half last year and raised the interest rate several times. Like many small-business owners, Dizon carried a balance, but says she always paid her credit card bills on time. About three months ago, she decided to stop using credit cards and resolved to pay off the remaining balances.
She now uses her savings to buy supplies, which hasn't been easy. Sometimes, she has to negotiate with suppliers because she doesn't have the cash on hand for a full order. But it's been worth it, Dizon says. "It's just a hassle these days to trust credit card companies," she says.
The public's opinion of credit card companies, which has never been particularly high, has plummeted during the past two years. Forty-seven percent of consumers surveyed in July said they trust credit card companies less now than they did a year earlier, according to Auriemma Consulting. Only national banks and the federal government fared worse.
The financial services industry provides choices for consumers, says Kenneth Clayton, senior vice president of the American Bankers Association. "If they don't like what a credit card company is providing, they should say no and move on to something that works for them better."
Drawbacks to doing without
Some consumer experts say consumers who have sworn off credit cards are misguided. Among the reasons:
•Debit cards provide fewer consumer protections than credit cards. If fraudulent charges show up on a credit card bill, the card holder can simply refuse to pay them. Federal law limits credit card holders' liability to $50 of fraudulent charges, and most card issuers have zero-liability policies for victims of identity theft.
Federal laws also limit liability for debit card theft, but resolving the problem is more complicated. Money used with a stolen debit card is immediately drawn from the holder's account, which means the consumer must fight to get the funds reimbursed. In the meantime, outstanding checks could bounce.
It's also more difficult to dispute a defective purchase that has been paid with a debit card. Credit card holders can refuse to pay for the item; debit card holders have to battle for a refund.
And while debit card users don't have to worry about interest rates and late fees, they need to keep close tabs on how much money is in their bank accounts. Otherwise, they risk triggering hefty overdraft fees on debit card purchases that exceed the amount of available funds. Overdraft fees at the largest banks average $34, which means even a few small overdraft purchases could trigger hundreds of dollars in fees.
•Responsible use of credit cards helps consumers develop a good credit profile. Consumers who don't carry a credit card have an average credit score of 563, vs. 689 for those with at least one card who carry a monthly balance, according to Credit Karma, a consumer website that provides free credit scores. The data were based on TransUnion credit scores.
"We still live in a credit-dominated society, and even if a person chooses to live on a cash basis, most of us are going to need credit when it comes time to buy a house or a car," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "This means having a thick credit file and a high credit score, which can only be accomplished by having some degree of credit and treating it responsibly."
While debit cards resemble credit cards in many respects, they don't help consumers' credit scores, says John Ulzheimer, president of consumer education for Credit.com, a consumer website. "A debit card is a plastic form of a check," he says. "You don't have an obligation to manage it appropriately." Debit cards, he adds, "have zero value" as far as credit scoring is concerned.
Ironically, Ulzheimer says, people who have sworn off credit cards are the best candidates for credit. "Those are the people who would manage credit cards very well, because they're so disciplined," he says.
Emily Maddox is one of those people. She pays cash for day-to-day purchases and uses debit cards when she shops online. That way, she says, "I don't buy anything I can't afford."
But Maddox learned the downside of living without a credit card recently ago when she decided to buy a new car. A local Nissan dealer made her an attractive offer on a 2010 model, but her application for a five-year-loan was rejected because she has no credit history.
Maddox ended up buying the car with her fiancé, a graduate student, and each signed for the loan. Maddox's fiancé has a credit card, so his credit history, combined with her income, let them jointly qualify for a loan with very favorable terms, she says.
Even after that experience, Maddox says she has no interest in applying for a credit card. She's hoping the car loan — which she plans to pay off before the term expires — will help her establish a credit history.
"I've known people who have had credit cards, and I've seen what can happen if you get behind and how hard it is to get out of debt," she says.
"I don't like owing people money."
First credit crunch traced back to Roman republic
New Aussie hybrid problem-free: Toyota
Kellee Nolan - Sydney Morning herald
The new
Australian-made Hybrid Camry
will not be plagued with the
brake, accelerator and floor mat problems that have struck Toyota
models around the world, Toyota Australia head David Buttner says.Launching the Hybrid Camry on Monday, Mr Buttner said the car did not have the floor mat problem, blamed for a fatal crash in the US last year, the accelerator problem, which has forced a recall of 2.3 million Toyota cars in the US, or the Prius braking problem, which the company is investigating.
"The recall that has been announced on the accelerator pedal doesn't impact any vehicle either imported into Australia, or made in Australia," Mr Buttner told reporters in Melbourne.
"It's totally different and a totally different supplier."
He said the floor mat issue also did not affect any Toyota cars in Australia and the braking system on the new Hybrid Camry was totally different to that of the Prius.
While Mr Buttner said he hoped publicity over the company's global problems would not spoil the launch of the new Hybrid Camry, but he conceded it would damage Toyota's image.
"I couldn't stand before you and tell you for a moment that it will not have some impact on the brand."
But the company has no plans to run a marketing strategy to combat the bad publicity's effect on the launch of the new Hybrid Camry, the first hybrid car to be made in Australia.
After selling 13,000 overseas-made hybrid models in Australia since 2001, Toyota hopes to sell 10,000 of the new locally built Camrys in the next year.
Running on combined electric and petrol generated motor power, the car is claimed by Toyota to be the most advanced ever built in Australia.
Mr Buttner said it was more fuel efficient and emitted less carbon dioxide than other cars, was 95 per cent recyclable and had almost zero particulate emissions.
The Hybrid used six litres of fuel every 100km compared with 9.3 litres per 100km for rival cars, he said.
For someone driving 20,000km a year, this would save $15 a week in fuel costs and cut carbon dioxide emissions by one and a half tonnes a year.
"Driving 20,000 kilometres in a year, a Hybrid Camry owner will get the last 7000 kilometres mileage for free compared with someone driving the same distance in Australia's best-selling car."
The Hybrid Camry will retail for $36,990, with a luxury model priced at $39,990.
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