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Business FRIDAY, MARCH 21, 2014

Japan passes record $937bn budget TOKYO: Japan yesterday passed its biggestever budget, a $937 billion spending package aimed at propping up growth as consumers brace for the country’s first sales tax rise for over 15 years. “The most important policy of the Abe government has been and will be to restore a strong economy,” Prime Minister Shinzo Abe told a news conference after the passage of the budget for the fiscal year beginning on April 1. “We will try to minimize the negative impact of the increase in the consumption tax.” A total of 136 lawmakers in the 242member upper house, controlled by the ruling Liberal Democratic Party, voted for the package, against 102 opposition votes, a parliamentary spokesman said. Two lawmakers did not cast a vote, one seat is vacant and the house speaker only casts a ballot in a tie. The lower house last month approved the 95.88 trillion yen ($937.4 billion) budget. The new budget comes as Tokyo pushes for speedy implementation of a $50 billion stimulus package specially designed to protect Japan’s fragile economic recovery, as the sales tax rises to 8.0 percent from 5.0 percent on April 1 — the first increase since the late 1990s. The increase is seen as crucial to bringing down Japan’s eye-watering national debt, which is proportionately the worst among rich nations.

But there are fears it will derail Abe’s policy blitz, dubbed Abenomics, aimed at kick-starting the world’s third-largest economy after it suffered years of growth-denting deflation. “It is our national project to bring Japan out of deflation,” the premier said. “With the passage of the budget, we showed to people at home and abroad a strong determination on the part of our parliament to end deflation.” Abe swept to power in late 2012 on a ticket to rescue Japan’s long-lumbering economy. The budget-up from 92.61 trillion yen for the current fiscal year-is seen as key to paying for Japan’s snowballing health and social welfare costs. The rapidly ageing population is putting pressure on the public purse, while low birth rates are threatening to create a demographic time bomb for the heavily indebted nation. Japan’s projected primary balance deficitthe shortfall between what the government takes in and what it spends, apart from debtservicing-is expected to shrink by 5.2 trillion yen to 18.0 trillion yen. That means Japan’s national debt, now more than twice the size of the economy, will continue to rise but at a slower pace. Public spending projects are part of the proposed budget as well as plans to upgrade Japan’s defense forces, as China bulks up its military and fears remain over North Korea’s nuclear arms potential. — AFP

Mulberry boss Guillon quits LONDON: Bruno Guillon has quit as chief executive of British luxury brand Mulberry, bringing an end to a twoyear tenure marked by three profit warnings during an attempt to move upmarket that has failed to pay off. Under Guillon, Mulberry hiked prices in an effort to become more exclusive and win back customers who were upgrading to pricier brands. But, like others in the market, it has been taken by surprise by the arrival of aspirational brands at the lower end of the luxury range, such as Michael Kors. At the end of January, it was forced to cut profit forecasts for the third time in 18 months, after weak demand in South Korea and heavy discounting over Christmas in Britain which contributes 65 percent of sales. “The board agreed that it was now time to part company,” a source familiar with the situation told Reuters. Mulberry, which makes Bayswater and Alexa handbags that sell for up to 4,500 pounds, said Frenchman Guillon would leave immediately, without saying if he would receive any payoff. The warning wiped over 25 percent off Mulberry’s shares in January, a loss from which they are yet to recover. Analysts see little short-term benefit from Mulberry’s growth strategy that requires investment at a time of slowing sales. The firm’s efforts to become a global brand were also dealt a heavy blow last September when the highly-rated Emma Hill, creative director behind the Alexa and Del Rey bags, quit. Media reports suggested that Hill did not agree with the group’s strategy and she is still to be replaced. “Given all the profit warnings at Mulberry, it was debatable how long the core shareholders would keep faith with the embattled CEO and his strategy,” analyst Nick Bubb said. Mulberry said chairman Godfrey Davis, 64, would become executive chairman until a successor was found. During his 27 years at the group Davis has been finance chief and CEO. Shares in the firm, which is 56 percent owned by Singapore billionaires Christina Ong and Ong Beng Seng, rose 1.3 percent to 644.5p at 1028 GMT. Mulberry is not the only luxury firm to pursue more exclusive aspirations, larger rivals like Kering and LVMH, respective parents to Gucci and Louis Vuitton, have also been surprised by newcomers grabbing customers at the lower end of the market. — Reuters

TOKYO: LINE Corporation chief strategy and marketing officer Jun Masuda (letf), Toei Animation director Shinji Shimizu (center) and HIT Entertainment Limited president Bryce H Inoue (right) pose for a photo during a press preview for their new product, “LINE Kids Animation”, yesterday. LINE Corporation, offering an instant messaging application on smartphones and personal computers, announced they will start shortly the “LINE Kids Animation” service for children with a target age between one and six-year-olds.— AFP

Europe strikes deal to complete banking union No common euro-zone backstop foreseen for now BRUSSELS: European policymakers agreed yesterday to complete a banking union with an agency to shut failing euro-zone banks, but there will be no joint backstop for a fund to pay the costs of closures. The breakthrough ends an impasse with the European Parliament, which persuaded euro-zone countries to strengthen the scheme. It completes the second pillar of banking union, starting at the end of the year when the European Central Bank takes over as watchdog. The accord means that the ECB has the means to shut banks it decides are too weak to survive, reinforcing its role as supervisor as it prepares to run health checks on the still fragile sector. “Today’s compromise allows us to complete the architecture of banking union for the euro-zone,” said Michel Barnier, the European commissioner in charge of regulation. “The second pillar of banking union will allow bank crises to be managed more effectively,” he said, helping to bring “an end to the era of massive bailouts”. Thursday’s accord makes it harder for EU countries to challenge the ECB if it triggers bank closures, and establishes a common 55 billion euro back-up fund over eight years - quicker than planned but far longer than the ECB’s watchdog had hoped. But the new system, which Barnier conceded was not ‘perfect’, has shortcomings. For one, the ‘resolution’ fund is small and would, in the view of the ECB watchdog, be quickly spent. To remedy that the fund will be able to borrow, but euro zone governments will not club together to make it cheaper and easier for it to do so. The 18 zone countries do not intend to cover jointly the cost of dealing with individual bank failures, a central tenet of the original plan for banking union. Germany resisted pressure from Spain, France to make such a concession. Its finance minister Wolfgang Schaeuble welcomed what he called “the clear participation of private creditors” - new rules forcing them to take losses - and that “the mutualized liability of participating member states remained ruled out”. Neither will there be any joint protection of deposits. Deadly embrace Almost seven years since German small-business lender IKB became Europe’s first victim of the global financial crisis, the region is still struggling to lift its economy out of the doldrums

and banks are taking much of the blame for not lending. The banking union, and the clean-up of banks’ books that will accompany it, is intended to restore their confidence in one another. It is also supposed to stop indebted states from shielding the banks that buy their bonds, treated in law as ‘risk-free’ despite Greece’s default in all but name. Under the deal reached, a fund made up by levies on banks will be built up over eight years, rather than 10 as originally foreseen. Forty percent of the fund will be shared among countries from the start and 60 percent after two years. It also envisages giving the European Central Bank the primary role in triggering the closure of a bank, limiting the scope for country ministers to challenge such a move. Mark Wall, Deutsche Bank’s chief euro-zone economist, said new rules to impose losses on the bondholders of troubled banks would reduce the burden on the fund but warned that its size was too modest. “A cross-European fund of the size of 55 billion raises some eyebrows in terms of scale,” he said. The fund will be able to borrow against future bank levies but will not be able to rely on the euro-zone bailout fund to raise credit. Critics say this means primary responsibility for problem lenders remained with their home countries and that the banking union will never live up to its name. “The key to the banking union is an authority with financial clout. They don’t have it so we don’t have a banking union,” said Paul De Grauwe of the London School of Economics. “The whole idea was to cut the deadly embrace between bank and sovereign. But if a banking crisis were to erupt again, it would be back to how it was in 2008 with every country on its own.” Carsten Brzeski, an economist with ING, said that while he believed the size of the fund to be irrelevant because it would only be used in the distant future, the decision-making process to shut a bank was too complicated and long-winded. The fragility and politicized nature of Europe’s banks has been highlighted by Austria’s Hypo Alpe Adria. Vienna will sponsor a bad bank to isolate roughly 18 billion euros of bad loans extended by the bank after Joerg Haider, the far-right politician who governed its home province, earlier ramped up its activities. Despite the impact on its national debt, many politicians feel Austria has little choice. Were banking union in place, this situation would be little different. — Reuters

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