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Executive Summary


Shaking a Finger at Greece

The European Union is stepping up its efforts to rehabilitate the debt-ridden bad boy of the Continent. On Feb. 16, EU finance ministers gave Prime Minister George Papandreou one month to show progress in slashing Greece's budget deficit, which in 2009 reached 12.7% of GDP, to 8.7% this year. The government already has announced $14.5 billion in budget cuts and tax hikes, but markets remain unpersuaded, unions are taking to the streets, and more unrest is expected as Papandreou & Co. rein in overspending. If the EU isn't satisfied with Greece's plan by Mar. 16, it may demand specific measures such as new taxes. It also will carry out quarterly progress reviews. The ministers remained studiously vague about a possible bailout. In an upbeat signal from the bond market, Spain—another indebted southern European country—easily raised $6.9 billion on Feb. 17. The yield on the 15-year bonds was 4.65%, slightly higher than previous placements, which helped spur investor demand.

China Taps the Brakes

As China enters the Year of the Tiger, it's taking steps to tame roaring growth. GDP leaped at an annual rate of 10.7% in the last quarter of 2009, and housing prices rose 9.5% in January over the year before. So on Feb. 12 the central bank ordered financial institutions to set aside more reserves for the second time in a month. That sends a message to ease off on lending: The $204 billion in loans made in January amounts to almost 20% of this year's planned total. China watchers expect more tightening, with steeper interest rates virtually certain this year. And Goldman Sachs chief economist Jim O'Neill predicts that Beijing could soon allow the yuan to appreciate by as much as 5%, while other analysts figure the currency won't shift until late 2010.

Stagflation in Britain?

Britain's economy is huffing and puffing, with jobless claims jumping unexpectedly by 23,500 in January, to 1.64 million, the highest level since April 1997. The unemployment rate stayed steady at 7.8%. Paradoxically, inflation is also acting up: On Feb. 16 the government said consumer prices rose 3.5% in January over the previous year, a 0.6-percentage-point leap from the December figure. That's the second-highest monthly increase since the index now in use was launched in 1996. Economists pointed to an increase in the sales tax and rebounding oil prices as a reason for the January inflation number, which is much higher than the official target of 2%. The Bank of England tried to calm fears by expressing confidence that inflation would ease in coming months.

Bayh Steps Down

Already staggered by the loss of Ted Kennedy's Massachusetts Senate seat, Democrats took another body blow on Feb. 15 when Indiana Senator Evan Bayh said he won't run for a third term. A prominent and popular moderate Democrat, Bayh had won both his Senate races in a Republican-leaning state with more than 60% of the vote and had seemed highly likely to win reelection. His exit put the seat very much up for grabs in an electoral season fraught with pitfalls for his party. Adding insult to injury, Bayh used his announcement to denigrate the Senate as gridlocked. "There is too much partisanship and not enough progress—too much narrow ideology and not enough practical problem-solving," he said. "Even at a time of enormous challenge, the people's business is not being done."

Nuclear Plants Are Back

With much fanfare, President Barack Obama announced on Feb. 17 that the Energy Dept. had approved $8.3 billion in loan guarantees to help Southern Co. build two nuclear reactors in Georgia. Obama said the project would create jobs and generate clean power—and stressed that the move is evidence of his willingness to meet Republicans halfway in the national energy debate. The pledge draws from $18.5 billion in federal loan guarantees approved in 2005 by Congress. In his State of the Union address in January, Obama said he wants to triple the amount to $54 billion in order to build up to 10 nukes. Don't expect much GOP support for Obama's overall energy policy: After his speech, Republican leaders continued to call the cap-and-trade climate-change bill an "energy tax."

Bad Buzz for Buzz

Google customarily releases new Internet tools in Beta versions before they're perfected. That technique backfired with Google Buzz, a social-networking service aiming to compete with Facebook and Twitter. Following its release on Feb. 9, numerous bloggers complained that Buzz allowed anyone to see the names of people its users communicate with regularly. In response, Google apologized and said it's making privacy controls more prominent. "We quickly realized that we didn't get everything quite right," said Todd Jackson, product manager for Buzz, in a post on the company's blog. Meanwhile, the search giant isn't neglecting its core business: On Feb. 12 it acquired Aardvark, a service that taps the knowledge of friend networks to make search results smarter.

Battle of the Mall Giants

It's a faceoff between two titanic families: the Bucksbaums, who founded General Growth Properties with a single Iowa shopping center in 1954, and the Simons, who control Simon Property Group, the biggest mall operator in the U.S. On Feb. 16, Simon offered $10 billion for its rival, which literally shopped till it dropped last April, falling into bankruptcy after running up $27 billion in debt making acquisitions. Simon's bid comes to about $9 a share, plus $7 billion in assumed debt. General Growth spurned the offer, and investors pushed the stock past 12, betting on a rival bid or a sweetened deal.

Bharti Airtel's African Bid

As competition picks up at home, Indian and Chinese cellular operators are dialing Africa for growth. Bharti Airtel, India's largest phone company, has begun exclusive talks with Kuwait-based Zain to buy Zain's African mobile business, the companies announced on Feb. 15. Bharti, which last year failed for the second time to buy South Africa's MTN Group, will offer $10.7 billion (including $1.7 billion in assumed debt) to Zain, which operates in 15 African nations. The companies set a Mar. 25 deadline to make a deal.

Toyota: More Body Damage

Mr. Toyoda goes to Washington? Not this week. Toyota Motor President Akio Toyoda said he will not attend congressional hearings on Feb. 24 that will probe the recall of Toyota's cars. Instead he'll send the company's North American chief, Yoshimi Inaba, Bloomberg News reported on Feb. 17. A spokesman for Representative Darrell Issa (R-Calif.) criticized the carmaker's CEO, saying that he "is not as eager to give Congress and the American people answers as we first thought." Toyota, which has recalled more than 8 million cars this year, said on Feb. 17 that it's investigating the power steering in its popular Corolla compact and may recall the model.

The Optimism Meter: Powered by Positive Thinking

The Meter climbed to 46 on Feb. 16, up from a seven-month low of 31 one week earlier as positive attitudes toward the U.S. stock market, real estate, and employment all increased by more than 10%. Developed by Bloomberg BusinessWeek using data from pollster YouGov, the Meter is a proprietary measure of sentiment and expectations, economic statistics, and market forecasts. It evaluates shifts in outlook among individuals, professional investors, and economists in the areas of U.S. economic growth, jobs, equity markets, and real estate. (Calculated using consumer polling, economic forecasts, and financial markets data; 0=lowest and 100=highest)

Data: YouGov, Bloomberg BusinessWeek


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