THE DISTILLERY: European charity

Jotters look at the strained global efforts to resolve Europe's debt crisis, while one finds a precedent for Gina Rinehart's Fairfax play.

Global efforts to heal Europe’s debt problems have produced two crucial problems of late, as explained in this morning’s edition of The Distillery. Firstly, western nations have too much control over global institutions like the International Monetary Fund, which is largely being funded by the east at present. Secondly, the market simply does not support the shift in emphasis from austerity to stimulus. Elsewhere, two more commentators look at the takeover jostling at Fairfax Media and Echo Entertainment.

The Australian’s Richard Gluyas makes the good point that the United States isn’t contributing enough (anything, really) to the IMF and its eastern counterparts will eventually secure greater influence over it.

"China's commitment ($US43 billion), which is the third largest after Japan ($US60 billion) and Germany ($US54.7 billion), compares with a weighty contribution from the mighty US – zero. The US is clearly wrestling with its own problems, and a donation to Europe's begging bowl would be political poison in an election year. Even so, the latest commitments to the new $US430 billion fund, which were announced during the G20 summit in Mexico, highlight the anomaly of the US and Europe controlling key global institutions such as the IMF and the World Bank, when the centre of economic power is tilting east. China's contribution was eagerly awaited, given it has the world's deepest pool of foreign reserves at $US3.2 trillion. It meant that total commitments from emerging economies came to $US95.5 billion. This helped the IMF raise an extra $US430 billion – almost doubling its lending capacity.”

Attached to this move, Gluyas writes, is an anticipation that reforms agreed to in 2010, particularly a change in the IMF’s voting structure, would progress in a "timely” manner. Meanwhile, The Australian’s economics editor David Uren runs a critical eye over the urgings of Prime Minister Julia Gillard and Treasurer Wayne Swan for Europe to support its ailing economies.

"The ratings agencies and financial markets accepted the blow-out in Australia's public sector debt because they had faith in the government's ability to return the budget to surplus. But faith is in short supply in financial markets these days. This was shown when the Europeans displayed striking resolve, agreeing to a €100 billion bailout for Spain's banks two weeks ago. The intervention failed to win more than 24 hours' relief in the market pricing for the Spanish bonds. Investors are increasingly doubtful about the ability of major countries to repay the debts they have and are unlikely to view favourably measures that increase them. Italy is having a go, announcing on Monday it would pay for tax incentives for new investment, including home renovations with asset sales, but markets would want to see the assets sold first.”

Elsewhere, The Australian Financial Review’s Chanticleer columnist Tony Boyd says another billionaire appears to be adopting some of the strategies from the Kerry Packer playbook aside from James Packer. Enter Mrs Gina Rinehart.

"There are striking parallels between what is happening at Fairfax and what occurred at Seven Network. Both hit a sweet spot of timing and happenstance. The common elements include an aggressive interloper with a thick hide and a reputation for taking no prisoners, an unhappy group of shareholders owning stock trading at low multiples to earnings, poor financial performance and big blocks of shares held by a handful of holders. At this stage the Fairfax situation differs from the Seven Network case study because the board has a mix of people with skills in the media, and its chairman looks to have the necessary mongrel to stand up to someone seeking control without paying a premium.”

And while we’ve mentioned Packer, The Australian Financial Review’s Matthew Stevens writes that the billionaire and Genting’s KT Lim will almost certainly decide the fate of Echo Entertainment if the state governments let them both take 20 per cent of the register.

"What is uncertain is just how Echo’s grip on self-determination will be loosened. Has Genting returned to the Australian casino market to take to make a full bid for Echo or has cagey KT made himself the natural partner in Crown’s attempt to assume authority over Sydney’s casino without delivering any sort of premium to its minority owners. The potential that Crown and Genting interests are somehow aligned around Echo is one that has been seeded by Packer channellers from the moment James flew north to have a chin-wag with Malaysia’s casino king. But the problem some have in accepting that idea is that the point of alignment between the interests of Crown and Genting remains broadly elusive to the point of being truly counter-intuitive. For all the nods and winks about some sort of concert of investment by Packer and KT Lim, investment logic says Genting just has to bid.”

Similarly, Fairfax’s Elizabeth Knight says the emerging rivalry – or perhaps cooperation – between Packer and Lim on Echo will render the board to the status of spectators.

In other company news, Fairfax’s Malcolm Maiden says Rinehart should call a meeting with his employer’s shareholders to bring the uncertainty to a head.

The Australian’s Bryan Frith looks at the escalating game of brinkmanship between DuluxGroup and Alesco Corporation, while Fairfax’s Insider columnist Ian McIlwraith speculates on the recent strong stockmarket performances of Woolworths and Breville. Elsewhere, The Australian’s John Durie reveals that the objections to NBN Co’s proposal for regulatory oversight are consistently negative, while Fairfax’s Martin Pretty checks the weak pulse of Australia’s mining services industry.

In economics news, Fairfax’s Michael Pascoe believes that the strong car sales numbers and weak housing figures go some way towards explaining the confusing divergence between consumer confidence and consumer behaviour. Housing underpins confidence, but cars are indicative of actual behaviour.

The Australian Financial Review’s economics editor Alan Mitchell says the Gillard government should allow the supermarkets to move in on the inefficient pharmaceutical distribution system. Fairfax’s Ross Gittins gives his readers a typically astute economics lesson – this one to demonstrate how anger for job losses is to some extent misplaced.

Finally in resources, The Australian’s Criterion columnist Tim Boreham foresees a rebound in uranium prices thanks to Japan’s decision to restart some of its nuclear reactors 15 months after the earthquake that set the whole Fukushima Daiichi nuclear disaster up. And The Australian’s Barry Fitzgerald foreshadows a return of gold mergers.

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