EU probes Oracle-Sun deal, cites open-source issue

Despite an investment boom, GDP growth is hurt by falling E.U. demand for the nation's exports.

Economic reforms and European Union membership have generated an investment boom in Slovakia's manufacturing, construction and service sectors. Gross domestic product growth peaked at 10.4% in 2007 as new automobile and electronic plants started full-scale production.

However, Slovakia's performance is tied closely to E.U. demand for its exports, and the slowdown in E.U. growth is starting to be felt in Slovakia. The Statistical Office reported GDP growth in the third quarter slowing to 7% year-on-year after 9.3% and 7.6% in the first and second quarters, respectively. The government estimates that the economy will grow by 4.7% in 2009, with export growth slowing from 10% in 2008 to 5.9%. Recent data do not yet fully reflect the impact of the crisis, and some fear that growth could slow below 4%.

Anti-crisis package. Prime Minister Robert Fico argues that higher domestic consumption will help Slovakia get through the crisis and perhaps reverse disturbing trends in employment. Accordingly, the government has drafted a package of new economic measures to stimulate demand. These include completing a nuclear power station on the Bohunice site and using public-private partnerships to build new roads and expand Bratislava's Stefanik airport. The government also seeks to reform the labor market and provide loans to small and medium-sized enterprises.

Euro perspective. Meanwhile, Standard & Poor's 500 and Moody's have upgraded Slovakia's sovereign rating from A to A+. They cite Slovakia's modest debt burden, investment-oriented policies and the switch to the euro in January 2009.

Critics have argued that Slovakia is needlessly surrendering control over monetary policy and setting itself up for high inflation due to the switch-over. However, the timing for euro adoption now looks fortunate:

--The drive for the euro has meant long-term fiscal frugality and restrained the spending desires of Slovakia's left-leaning government.

--Slovakia's relatively low fiscal deficit of 2.25% of GDP in 2008 has reduced its need to borrow during the global financial crisis.

European Union leaders backed a 100-day deadline by which the world's leading economies should decide urgent global finance reforms, French President Nicolas Sarkozy said Friday.

Sarkozy, who chaired a special meeting of EU nations, said the financial crisis and economic downturn required a quick deal on an overhaul at a Nov. 15 summit in Washington bringing together leaders of the world's 20 largest industrialized nations and emerging economies.

"We are in an economic crisis. We have to take this into account," Sarkozy said. "We have to react and we have no time to lose."

"I'm not going to take part in a summit where there is just talk for talk's sake," Sarkozy told reporters after talks between the heads of the EU's 27 nations.

The EU is calling for a second global summit next spring to flesh out changes to the way the world economy is governed. They want to see far more supervision of big financial companies and are urging governments to jointly monitor them.

They want to prevent a repeat of the Wall Street excesses that caused havoc in markets worldwide -- and are bringing emerging economies China, India and Brazil on board for talks on shaping a new world economic order.

British Prime Minister Gordon Brown said the Washington talks should be a "decisive moment for the world economy."

A text agreed by EU leaders says they want an early warning system that would watch for financial bubbles and prevent "world imbalances" -- such as the swelling U.S. trade deficit.

They also suggest making the International Monetary Fund the world's financial watchdog, suggesting it be given more power to curb financial crises and give more money to aid countries in trouble.

The Europeans also want to close loopholes that allow some financial institutions to evade regulation, and ensure supervision for all major financial players, including ratings agencies or funds carrying high amounts of debt.

The leaders in a declaration called for greater transparency in markets that would no longer omit "vast swathes of financial activity from auditable, certifiable accounts." It also said "excessive risk-taking must be overhauled," a reference to the sale of high-risk debt securities and executive pay that may reward risk-taking.

EU leaders will call on the Nov. 15 summit to agree immediately on five principles: submit ratings agencies to more surveillance; align accounting standards; close loopholes; set banking codes of conduct to reduce excessive risk-taking; and ask the International Monetary Fund to suggest ways of calming the turmoil.

To date, European governments alone have committed some 2 trillion euros ($2.6 trillion) in cash injections, bank deposit guarantees, interbank loan coverage and partial or full nationalization to prop up consumer and business confidence.

The damage done worldwide is fueling a search for a "new Bretton Woods" -- a reference to the post-World War II conference that shaped the international financial system.

In Washington, there is little desire in the waning days of the Bush administration for a major overhaul of financial regulations.

But the United States and European nations are no longer the only players. China and Brazil and India are jumping at the chance to join a major international effort.

G-20 finance officials nations will meet this weekend in Sao Paulo, Brazil, to prepare next week's summit. This may pave the way for emerging economies to play a larger role in global finance talks. France is suggesting bring them on board as members of the exclusive world club of G-8 industrialized nations which regularly meets to discuss the global economy.

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Associated Press writers Robert Wielaard, Tobias Schmidt, Constant Brand and Paul Ames in Brussels, Alan Clendenning in Sao Paulo, Gillian Wong in Beijing and David Stringer in London contributed to this report.

Financial Crisis Tests Limits of E.U. Unity

PARIS, Oct. 9 -- Three weeks ago, as the Bush administration struggled to salvage collapsing U.S. investment banks, European leaders calmly reassured their people. Banks on this side of the Atlantic are more wisely regulated, they said, and unlikely to succumb to the chaos on Wall Street.

That was then.

The continent has in the intervening 20 days awakened to discover that its financial system is so interwoven with that of the United States and the rest of the world -- and so vulnerable to shaky assets -- that the virus in New York swiftly spread through the European banking network. In so doing, it revealed that Europe's leaders face challenges just as difficult as those bedeviling Washington and exposed the limits of the European Union's much-heralded economic integration.

But European leaders, with a tradition of state intervention lacking in the United States, responded forcefully outside the E.U. umbrella once they realized the depth of the crisis, bailing out banks, pumping hundreds of billions of dollars into the financial system and declaring publicly that no big financial institution would fail on their watch. Many people here feel they moved more swiftly than their counterparts in Washington. Jean-Claude Trichet, president of the European Central Bank, for example, said Europe had nothing to be ashamed of in its response to the crisis.

As they are increasingly pushed against the wall, some European leaders have begun to say out loud what many seem to have been thinking all along: that the original fault lies with the Bush administration and a hands-off, free-market dogma that led it to stand aside when the venerable Lehman Brothers investment house started to crumble.

"From my point of view, that was a true mistake," French Finance Minister Christine Lagarde said in a radio interview. "You knock over a domino," she added, "and the rest runs the risk of falling, as well." According to reports in Paris, President Nicolas Sarkozy has told associates he feels the same way but has refrained from saying so in public as he seeks to enlist President Bush for a summit to rewrite the rules of world finance.

If Lagarde or Sarkozy recognized at the time that the Lehman Brothers demise was the beginning of catastrophe, they did not sound the alarm. Neither did anyone else among leaders of the 27-nation E.U. "Well, they are human, too," said Katinka Barysch, deputy director of the Center for European Reform in London. "Nobody foresaw this."

One of the first European rescues targeted the giant Fortis group, in a joint operation by the governments of Belgium, the Netherlands and Luxembourg over the weekend of Sept. 27-28. Hardly was that fire put out when Paris and Brussels had to negotiate a bailout of Dexia, a Franco-Belgian bank specializing in lending to local governments, and Germany was forced to salvage its floundering Hypo Real Estate Group. Even Spain, whose banks were thought to be the firmest of all, announced Tuesday that government funds would be used to help liquidity.

The Dexia collapse illustrated two key aspects of Europe's financial turmoil.

First, it got in trouble through a New York subsidiary, Financial Security Assurance, a bond insurance firm that got stung in the U.S. subprime meltdown. Sarkozy was reported to be astounded to learn that what he knew as a wood-paneled institution for local financing in Europe was also a high-risk trader on Wall Street.

Second, Sarkozy and Belgian Prime Minister Yves Leterme made it clear in the bailout talks that their governments would not allow banks under their purview to fail, putting public money on the table at the outset. Similar pledges came from Finance Minister Peer Steinbrueck in Germany and Prime Minister Silvio Berlusconi in Italy. There would, they said in effect, be no Lehman Brothers cases in Europe.

By then, the facile claims that European banks were too well regulated to have any real trouble were long gone. French Prime Minister François Fillon warned that the continent had stood on "the edge of an abyss" until its leaders stepped up to guarantee against the spread of bank failures.