Recession 'to return' to Europe, say economists
The vast majority of leading economists polled by the BBC believe recession will return to Europe next year.
One fifth said the eurozone would not exist in its current 17-member form, while the majority put the possibility of a eurozone break-up at 30%-40%.
The poll also found that most economists expect UK interest rates to remain at 0.5% throughout next year.
It was conducted among 34 UK and European economists who regularly advise the Bank of England.
Of the 27 who responded, 25 forecast recession for Europe next year.
Closer union
Growth in Europe has slowed in recent months as the eurozone debt crisis has forced governments to rein in spending and has undermined confidence in global financial markets.
The eurozone economy grew by 0.2% between July and September, while the 27 economies of the European Union grew collectively by 0.3%.
Politicians have attempted to resolve the crisis, including an agreement to forge closer ties between EU members, but markets have yet to be convinced the measures they have taken are sufficient.
The longer the debt crisis rumbles on, the more likely Europe will return to recession, economists believe.
Growth in the UK during the third quarter was 0.6%. However, growth in the previous three months was flat.
The CBI business group said that 2012 could be the beginning of a more prosperous future if the "pain" of deficit reduction passed quickly.
In his New Year message, the CBI's John Cridland said the eurozone crisis posed a "significant threat" to the British economy, because 40% of UK exports were sold there.
Mr Cridland added that the faltering recovery and the continuing debt crisis were stark reminders of the need to rebalance Britain's economy away from household and government debt.
Euro remains near its low for 2011
The euro is near its low for the year following a tumultuous 12 months in which its existence has been questioned.
But Germany's Finance Minister Wolfgang Schaeuble said he was confident that the currency union would survive.
"I think we will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilised the eurozone."
The euro was at $1.2916, a day after reaching a 15-month low of $1.2858.
Germany, the eurozone's largest economy, has been instrumental in organising bailouts of its neighbours, without which the monetary union might have fallen apart already.
Asked whether he could rule out the 17-nation eurozone breaking up, Mr Schaeuble said: "According to everything that I know at the moment, yes."
"Of course, the European Union cannot force anyone to stay in if they don't want to belong any more," he added. "But no such development can seen at the moment."
The euro has dropped 3.4% against the US dollar this year, and 2.2% versus the British pound.
Debt yields
In recent months, the yields on Italian and Spanish debt has risen as investors have worried about their ability to pay back their debts.
On Thursday, the Italian government sold 10-year bonds at interest rates as high as 6.98% - just a touch below a level considered unsustainable in the long run.
Italy has 161bn euros in debt repayments due between February and April 2012, all of which it will have to finance through new borrowing.
On Friday, the final trading day of 2011, Italian 10-year debt was trading at 6.96% - up from 4.8% at the end of 2010.
By contrast, on Friday Germany's 10-year debt yielded 1.8% and the UK's borrowing cost was about 1.95%.
Bailouts
Last year, the eurozone and the International Monetary Fund bailed out Greece and the Irish Republic, which were struggling to borrow in the financial markets and pay their debts.
This year, it agreed to bail out Portugal - and Greece for a second time.
In September, UK Foreign Secretary William Hague called the euro a "burning building with no exits".
But in November, eurozone leaders agreed a rescue plan that included boosting the size of its bailout fund, the European Financial Stability Fund, to capacity of 1tn euros.
In December, 26 out of 27 EU member states backed a tax and budget pact to tackle the eurozone debt crisis. Only the UK said it would not join.
Hungary close to passing controversial central bank law
Hungary is close to passing a law that critics say could undermine the independence of its central bank.
The ruling Fidesz party, which has a two-thirds majority, is due to approve the constitutional change in the final session of parliament this year.
Ratings agency Standard & Poor's downgraded Hungary's debt to junk status last week, partly due to the proposed changes to the constitution.
And EU and IMF officials have cut short aid talks with Hungary over to the law.
Hungary had been seeking a standby credit line of 15-20bn euros ($19.5bn, £12.6bn) in case it ran into trouble issuing new debt.
But the International Monetary Fund and the European Commission have both cast doubts over aid because of the law.
On Thursday, Hungary abandoned part of a planned bond auction, when investors demanded a higher interest rate on the debt the country planned to issue.
Hungary's central bank governor, Andras Simor, has said the proposed bill amounts to a takeover of the central bank.
International pressure
The government wants to keep interest rates low to boost growth - but last week, Hungary's central bank increased rates for the the second month in a row, to 7% from 6.5%.
"Some amendments have been made since the original draft was presented before the Christmas holiday, but concerns remain that the essence of the law has not changed," said the BBC's Eastern Europe reporter Nick Thorpe.
"The reform of the bank would introduce deputy governors and allow the government greater potential influence over key aspects of monetary policy, such as the level of interest rates."
Hungary was given a 20bn-euro standby loan by the IMF in 2008 to prevent it having to default on its debts.
But the newly-elected Prime Minister Viktor Orban decided not to renew the standby facility last year.
Standard & Poor's has cited heightened risks to the country's ability to repay its debts due to the weakening domestic and global economic outlook.
"In our view, the predictability of Hungary's policy framework continues to weaken, harming Hungary's medium-term growth prospects," S&P said.
Last month, fellow ratings agency Moody's also downgraded Hungary to junk status, blaming the economy's high levels of debt and weak prospects for growth.
Japan delays sales tax increase amid growing opposition
Japan's ruling party, the Democratic Party of Japan (DPJ), has agreed to postpone a sales tax increase amid growing opposition against the move.
A DPJ panel has agreed to delay raising the tax to 8% until April 2014, with a further increase due in October 2015.
The 8% tax level was due to come into force by April 2013.
Prime Minister Yoshihiko Noda has been seeking to double the sales tax from current 5% to improve the country's finances, amid growing debt levels.
Japan, the world's third-largest economy, has the highest public debt to gdp ratio among the world's developed economies.
The delay in tax increase comes just days after Japan unveiled a 90.3tn yen ($1.2tn; £742bn) draft budget plan for the financial year running from April 2012 to April 2013.
Japan has been facing an increased pressure on its finances as it continues to rebuild its infrastructure and economy after the earthquake and tsunami in March.
According to the Cabinet office, the twin disasters are estimated to cost it between $198bn (£127bn) and $309bn.
Analysts said the delay in the tax increase was likely to put pressure on Japan's already-stretched finances.
"We are now in a spending-oriented economy without a meaningful tax reform policy," Martin Schulz of Fujitsu Research Institute told the BBC.
"The tax increase would have counterbalanced the budget that the government have drafted," he added.
Tough to convince?
The planned increase in the sales tax has been a hotly debated topic in Japan, not just among the ruling and the opposition parties, but also the general public.
Analysts said, while people understood that Japan was facing tough times, they wanted the government to first scale back its own expenses.
"The public is against it as they want to first see spending cuts and reforms from the government side before they give their support to any such move," said Mr Schulz.
"It's very simple - it is impossible to increase the consumption [sales] tax." he added.
At the same time, there are fears that an immediate tax increase may dent consumer sentiment in Japan and hurt its economy.
According to the latest figures, retail sales in Japan fell 2.3% in November from a year earlier, raising concerns about a slowing domestic demand.
Verizon to charge $2 fee for online payments
Verizon Wireless will soon make some customers pay for the privilege of paying their bills.
The nation's largest wireless company is instituting a $2 "convenience charge" for those customers who make one-time bill payments using a debit or credit card, either online or by telephone. The fee will go into effect on Jan. 15.
There are three ways for customers to avoid the charge: Customers can make a one-time payment using an electronic check, they can pay their bill using their home banking accounts, such as Citibank (C, Fortune 500) Online, or they can use a Verizon gift card or rebate card. Otherwise, single telephone and online payments will incur a $2 fee.
"The fee will help allow us to continue to support these single bill payment options ... and is designed to address costs incurred by us for only those customers who choose to make single bill payments," the company said in a statement.
Customers can still enroll in a service that will debit their bank accounts or charge their credit cards on a recurring basis for free. They can also show up at a Verizon store to pay without incurring the fee, and they can mail checks to the company.
It's not clear how many of Verizon's 91 million customers will be affected by the new charge. A spokesman from Verizon did not reply to a request for comment.
The news came one day after Verizon Wireless' 4G network suffered its third nationwide outage in as many weeks.
Elsewhere in the industry, a Sprint (S, Fortune 500) spokesman said the company does not have similar fees, though according to Sprint's website, certain customers who have accounts with spending limits are subject to a $5 monthly fee if they're not enrolled in automatic payments.
T-Mobile charges customers $5 if they make payments over the phone with a company representative, a spokeswoman said. AT&T (T, Fortune 500) did not return requests for comment.
Verizon's (VZ, Fortune 500) "convenience charge" was announced at the end of a year in which banks were vilified for charging customers a fee for using their debit cards. The banks claimed that the fees were necessary because new regulations would limit how much revenue they could make on the cards: New rules that went into effect in September capped the fees banks could charge retailers when customers swipe their debit cards.
Bank of America (BAC, Fortune 500) inspired by far the most outrage from customers after it announced it would charge its customers $5 a month for the privilege of using their debit card. Even after most other banks eventually dropped their fees, citing a customer uproar, Bank of America held fast to its decision
"They'll understand what we're doing -- understand we have a right to make a profit," BofA CEO Brian Moynihan stated in October. But by November, the company retreated and dropped the charge.
Verizon's fee is also akin to Ticketmaster, which famously bills a "convenience charge" and "processing fee" on top of the price of every ticket
North Korea says it won't deal with South Korean government
North Korea said Friday that it remained steadfast in its refusal to engage with the current South Korean government, dismissing the prospect of a shift in relations with Seoul after a dynastic succession in Pyongyang.
"We solemnly declare with confidence that the South Korean puppets and foolish politicians around the world should not expect any change" from North Korea, the country's National Defense Commission said in a statement reported by Pyongyang's state-run Korean Central News Agency (KCNA).
The statement came after two days of elaborate ceremonies in Pyongyang that honored Kim Jong Il, who died earlier this month, and underlined the rise of his son and chosen successor, Kim Jong Un, to the position of "supreme leader" of the secretive state.
The nuclear-armed North "will have no dealings with the Lee Myung-bak group of traitors forever," the statement said in an English-language version of the KCNA report. Lee is the South Korean president.
The North criticized the South Korean government's decision to allow only a select group of private citizens to visit Pyongyang to pay their respects to Kim Jong Il.
Lee's government's "show of enmity" toward North Korea "culminated in its act of blocking south Koreans who wanted to visit Pyongyang to mourn the demise of leader Kim Jong Il," the statement said.
Seoul allowed a group of South Koreans, including a former first lady and a leading businesswoman, to travel to the North earlier this week to express condolences over Kim Jong Il's death, which was announced last week.
That move, along with a number of other gestures like expressing condolences to the North Korean people, suggested a slight softening in Lee's government's hardline stance toward Pyongyang.
The North, though, did not appear to be impressed by those efforts, expressing anger Friday that more South Koreans weren't permitted to visit Pyongyang and that groups were allowed this week to release leaflets near the border criticizing North Korean leaders.
It also said that the South's decision to put its military on alert after Kim Jong Il's death created "a war-like atmosphere on the ground and in the seas and air."
In one of the more vehement passages of saber-rattling rhetoric, the defense commission warned of revenge over these perceived misdeeds.
"The veritable sea of tears shed by the army and people" of North Korea "will turn into that of retaliatory fire to burn all the group of traitors to the last one and their wailing into a roar of revenge to smash the stronghold of the puppet forces," the statement said.
US aircraft carrier in drill zone: Iran
A US aircraft carrier entered a zone near the Strait of Hormuz that is now being used by the Iranian navy for military drills, an Iranian official said on Thursday amid rising tensions over the key oil-transit channel.
"A US aircraft carrier was spotted inside the manoeuvre zone ... by a navy reconnaissance aircraft," Commodore Mahmoud Mousavi, the spokesman for the Iranian exercises, told the official IRNA news agency.
Iranian aircraft recorded video and photos of the US vessel, he added.
Mousavi also said the Iranian navy's aircraft and helicopters continued surveillance and reconnaissance operations during the sixth day of major naval drills to monitor activities of all units in the area of the military exercises.
The US aircraft carrier was believed to be the USS John C. Stennis.
US officials announced on Wednesday that the ship and its accompanying battle group moved through the Strait of Hormuz, a narrow stretch at the entrance to the Gulf that is the world's most important choke point for oil shipments.
War of words
Iran's navy chief Admiral Habibollah Sayyari said on Wednesday that closing the Strait of Hormuz, the passage at the mouth of the Gulf through which about 15 million barrels of oil pass daily, would be "easier than drinking a glass of water".
On Tuesday, Mohammad-Reza Rahimi, Iran's vice-president, said his country will close the Strait of Hormuz, if Western nations impose sanctions on its oil shipments.
The comment drew a quick response. The US Defense Department warned on Wednesday that such action "will not be tolerated".
Separately, Bahrain-based US Navy 5th Fleet spokeswoman Lieutenant Rebecca Rebarich said the navy is "always ready to counter malevolent actions to ensure freedom of navigation".
Iran has repeatedly said it could target the Strait of Hormuz if attacked or its economy is strangled.
China hopes stability can be maintained in the Strait of Hormuz, Foreign Ministry spokesman Hong Lei said on Thursday during a news conference.
Ye Hailin, a researcher with the Institute of Asia-Pacific Studies of the Chinese Academy of Social Sciences, dismissed the prospect of imminent military conflict triggered by the Iranian exercise, saying the regional situation is not ready for such conflicts.
If the US attacks Iran, it would further complicate the regional situation, which is not what the US wants, he said.
"As for Iran, despite all the publicity and gestures, it is not the country's style to resort to military force, and Iran does not need to use military force directly to challenge the US," he added.
Ye said Iran does not need to block the shipping, the threat itself is a political gesture that can cause a havoc on the oil market, which would be effective enough. Some US analysts have doubted Iran's ability to block the strait, saying the country's navy is not large enough for a sustained physical blockade of the Strait, but it does have mine-laying and missile capabilities, according to Reuters.
Ye also said Iran can afford the economic consequences of blocking of the strait because it has already suffered sanctions for years.
But a possible war triggered by a blockade is a much bigger concern, which would prevent the country from turning to the last resort, he added.
AL observers visit Syria amid continuing violence
Syria still faces continuing violence despite the arrival of Arab League observers in the country. On Thursday, amateur video emerged purportedly showing Arab League observers running from gunfire.
The killings in Syria show no sign of abating.
In the restive city of Homs, amateur video emerged on Thursday that seemed to show the body of a dead child being placed on the bonnet of an Arab League vehicle.
The caption posted with the online footage alleged the child was killed by Syrian government forces in the city.
This amateur footage also showed observers amid gunfire.
Casualty figures and other information are hard to verify as most foreign media are barred from Syria.
The mission of the Arab League peace monitors is to check whether government forces have halted violence against protesters. Opposition activists say the city of Homs has seen the worst of the violence since the revolt began nine months ago, with army tanks in action and three dozen people killed the day before the monitors arrived.
The monitors headed to three more Syrian cities on Thursday. These cities included Deraa, Hama and Idlib.
The Arab mission is the first significant international involvement in Syria’s conflict.
Though President Bashar Assad’s regime has made concessions to the observers, the military seemed intent on pressing ahead with a campaign to put down mostly peaceful protests.
In the two days since the Arab monitors arrived, amateur video that continues to emerge seems to indicate the bloodshed has not stopped.
Russia Says Crew Inside Burning Submarine in No Danger
The Russian military says crew members still inside a burning nuclear submarine docked in a northern Russia shipyard are not in any danger.
An official said Friday the undisclosed number of crew members are monitoring temperatures and carbon dioxide levels inside theYekaterinburg nuclear submarine vessel to ensure its safety.
The military says at least seven people, including firefighters,have been taken to the hospital for smoke inhalation after the fire erupted Thursday.
Russia says the blaze aboard the submarine has been brought under control and there has been no radiation leak.
The fire happened while the vessel was docked for repairs in the northern Murmansk region.
The Russian Defense Ministry said all of the submarine's weapons had been unloaded before the repairs and its reactor had already been shut down. The Delta IV class vessel is able to carry 16 intercontinental ballistic missiles.
Video footage showed large clouds of smoke rising from the area. The blaze is believed to have started on the wooden scaffolding at the shipyard.
In August 2000, Russia's Kursk nuclear submarine sank at sea, killing all 118 crew members on board.
Deadly Cyclone Hits Southern India
Indian weather forecasters say a cyclone has hit the country's southeastern coast, killing at least six people.
Cyclone Thane made landfall near the former French colonial town of Pondicherry early Friday with winds up to 135 kilometers per hour, before gradually decreasing.
Heavy rain and high winds disrupted power supplies, communication networks, and uprooted trees.
Authorities say the deaths in the Cuddalore district of Tamil Nadu state were caused mostly by wall collapses and electrocution.
Authorities say coastal villages were evacuated to shelters before Thane landed. Fishermen were also warned from venturing out into the rough seas.
Heavy rain in southern India was expected to continue for 12 hours.