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To: Alex who wrote (21878)	10/17/1998 5:04:00 PM
From: goldsnow	Respond to of 116763

FOCUS-Fed cut pressures Italy more than Germany 12:25 p.m. Oct 16, 1998 Eastern By Thomas Atkins FRANKFURT, Oct 16 (Reuters) - The U.S. interest rate cut turns up the heat on European central banks to follow suit but it is Italy rather than Germany that will feel the greatest pressure, economists said on Friday. Germany is likely to resist a cut unless the Federal Reserve's move on Thursday triggers a big fall in the dollar, which would damage Germany's export-driven economy. The Bundesbank could then find it impossible to hold off. Bundesbank council member Hans-Juergen Koebnick said on Friday there was no automatic need for a German monetary easing in response to the U.S. rate cut and that interest rate convergence remained the priority. ''I don't see such an automatic relationship,'' Koebnick told Reuters in an interview. ''We have to consider the European and the German situation.'' Bundesbank council member Ernst Welteke backed this view. ''A Fed rate cut does not automatically trigger a European response,'' he told reporters in Frankfurt. ''Interest rate questions in Europe are a question for the ECB.'' Economists see the Fed's quarter-percentage-point cut having the biggest impact on Bank of Italy Governor Antonio Fazio, who has yet to cut rates in preparation for EMU amid fears that his country's political turmoil will reignite inflationary expectations. The already strong psychological pressure on Fazio from his central-bank peers can only increase now, said Alison Cottrell at PaineWebber in London. ''The man's skin is clearly thick,'' she said. The heads of the European Central Bank (ECB) and Germany's Bundesbank, Wim Duisenberg and Hans Tietmeyer, have dimissed global recession fears and maintain ''core'' European nations should refrain from interest rate cuts to help global growth. That stand is unlikely to change until the interest-rate convergence process for Europe's economic and monetary union (EMU) is completed by January 1, regardless of the Fed cut. Rate-cut talk by some Bundesbank ''doves'' does not reflect the council's position as a whole, and certainly won't sway Tietmeyer, analysts said. Convergence would bring interest rates in the 11 countries participating in EMU to the same level before they relinquish national monetary authority to the ECB. Economists widely believe that EMU rates will converge at 3.3 percent, the level in Europe's core nations -- Germany and France. Petra Koehler at Dresdner Bank in Frankfurt said the Bundesbank will not budge from its current level because European conditions differ fundamentally from those in the United States. ''It makes a lot more sense to go to 3.3 percent first -- we (in Germany) have a very expansive monetary policy,'' she said. ''We have much lower real rates than in the United States.'' Cutting core European rates now would make also convergence more difficult, Koehler said. While the Fed move does pressure EMU countries' central banks to complete rate convergence, it is not likely to alter existing rate-cut plans by the ''peripheral'' participants, such as Spain, Portugal and Ireland. ''What the Fed move does is increase their risks over the medium term and also, the lack of convergence does tie their hands at the moment and boost pressure to get convergence out of the way,'' Cottrell said. The Bundesbank, however, is likely to dig in its heels rather than succumb to renewed pressure, Koehler said. ''You get the opposite results from political pressure,'' she said. ''It's rather unproductive.'' Only if global financial crises worsen considerably or if the dollar plunges through 1.50 to the mark would the ECB consider a rate cut, she said. The dollar dropped as much as 1.8 percent against the mark on Thursday, but was holding up well later in the day around 1.61 marks. Cottrell and other economists agreed that the dollar's reaction to the rate cut will be more meaningful for the Bundesbank than any political pressure. Furthermore, because domestic conditions don't warrant a cut, an easing would probably do more harm than good by sparking fears that global turmoil is worse than it actually is, Koehler said. ''The move is based on the specific U.S. problem of a credit crunch, not for inflationary reasons,'' said Juergen Pfister, head of economic research at Commerzbank in Frankfurt. Helaba Chief Economist Jochen Schober said Europe is not suffering the same credit crunch as the United States, which was one reason cited by the Federal Reserve for its cut. ''We don't see a credit crunch in Germany,'' he said. The Fed cut has not changed most analysts' view that core Europe will not see an interest rate cut until the ECB takes over monetary policy. Analyst Anja Heilenkuetter at Deutsche Bank Research in Frankfurt sees the ECB starting off with a key rate of 3.30 percent and then lowering it in two steps to 2.75 percent by the summer of 1999. ((Frankfurt Newsroom +49 69 756525, frankfurt.newsroomreuters.com)) Copyright 1998 Reuters Limited

To: Alex who wrote (21878)	10/18/1998 11:09:00 AM
From: goldsnow	Respond to of 116763

Embattled Yeltsin Rests Amid Calls He Resign 07:38 a.m. Oct 18, 1998 Eastern By Peter Graff MOSCOW (Reuters) - Russian President Boris Yeltsin spent the weekend resting at a country house amid continuing calls that he should step down and a threat by parliament that it would try to force him out. A recovery in Russia's nearly wiped-out stock market last week gave a small sign that the country was beginning to stabilize after months of political and economic turmoil. But Interfax news agency reported that serious crimes such as murder and rape had surged by nearly 18 percent in the first nine months of 1998 over the same period last year, an alarming sign of the social crisis caused by deepening poverty. Yeltsin, who defied doctors' orders and confounded critics by showing up at work last week despite an illness that forced him to cut short a trip to central Asia, spent the weekend at his country lodge in Zavidovo, outside Moscow. But the Kremlin said he would be back to work Monday, holding a meeting with Prime Minister Yevgeny Primakov. The Kremlin says he is recovering from a respiratory infection, although Russia's media speculates his condition is much worse. Russia's benchmark RTS1-Interfax stock index closed the week up more than 30 percent on the previous week, a rare sign of buoyancy in the country's equities since its market was all but completely obliterated by the country's financial crisis. The index had lost some 90 percent of its value this year as Russia's finance ministry edged closer to bankruptcy, its banking system teetered and the rouble went into freefall. But trading volumes remain so thin that dealers are reluctant to ascribe any long-term meaning to the week's bounce. Former Soviet leader Mikhail Gorbachev added his voice to the growing chorus calling on Yeltsin to step aside. ''On October 7 millions of people demonstrated in the streets of Russian cities,'' he wrote in The New York Times. ''Their main demand was for the resignation of President Yeltsin...It was a clear verdict on the regime and the sort of 'shock' reforms that the country has had to endure for seven years.'' The Communist speaker of the State Duma lower house of parliament, Gennady Selznyov, said the chamber may proceed in November with the process of impeaching Yeltsin on charges he illegally dissolved the Soviet Union, dispersed parliament in clashes in 1993 and launched a war in breakaway Chechnya. Although the complicated impeachment procedure is unlikely to be brought to a conclusion, it will provide a stage for politicians from across the broad political spectrum to practice their anti-Yeltsin rhetoric. In an interview published over the weekend, the former prime minister who was sacked in August after allowing the rouble to slide and halting some debt payments said the administration that followed his had brought the country to the brink of a devastating default on sovereign debts. ''The misfortune was that talk began of a coalition government,'' Sergei Kiriyenko told the business newspaper Kommersant Daily. ''Who will take responsibility for measures that are clearly painful to the population?'' ''The answer has become clear: there will be no harsh anti-crisis program. Instead there will be populist measures, again expenditures will exceed revenues. As a result, we will not be able to pay our debts. In short, we are heading toward a default on sovereign debt,'' he said. A full-blown sovereign debt default would make Russia into a ''pariah with whom nobody will do business,'' he said. Copyright 1998 Reuters Limited.