1. The Wall Street Journal - Europe - 10/24/2016 Page : A001
Copyright (c)2016 Dow Jones & Company, Inc. All Rights Reserved. 10/24/2016
October 24, 2016 10:42 am (GMT -1:00) Powered by TECNAVIA
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MONDAY, OCTOBER 24, 2016 ~ VOL. XXXIV NO. 187 WSJ.com
CONTENTS
Business & Fin.. B1-4
Crossword.............. A14
Europe File............... A2
Finance & Mkts..... B9-12
Heard on Street. B12
Journal Report. B5-8
Markets Digest... B10
Opinion.............. A12-13
Review................. A8-10
Technology............... B3
U.S. News.................. A7
Weather................... A14
World News........ A2-5
s Copyright 2016 Dow Jones &
Company. All Rights Reserved
What’s
News
Two dozen billionaires
have spent $88 million on
the 2016 presidential cam-
paign, with most of the
money going to Clinton. A1
Trump outlined plans for
his first 100 days if he is
elected president and re-
peated complaints of a
“rigged” political system. A7
Kurdish forces claimed
new advances against Is-
lamic State in the battle for
Mosul, but the extremists hit
back elsewhere in Iraq. A4
Fighting returned to the
Syrian city of Aleppo after a
three-day truce expired
with no aid deliveries or
medical evacuations. A4
Spain’s Rajoy was as-
sured of re-election as pre-
mier when his Socialist ri-
vals conceded defeat. A3
China’s Xi called for party
loyalty, culminating a media
blitz to hail Communist sac-
rifices during the “Long
March” of the 1930s. A5
Thailand’s Yingluck said
the junta that overthrew her
government fined her nearly
$1 billion over a botched
rice-subsidy program. A5
Maritime nations are
leaning toward setting rules
next week to cut the sulfur
in the fuel of oceangoing
vessels by over 85%. B4
South Africa initiated its
withdrawal from the Inter-
national Criminal Court. A4
AT&T is betting on tele-
vision with its more
than $80 billion deal for
Time Warner, while rival
Verizon is looking to Silicon
Valley to fuel growth. A1
BAT could catch up with
its tobacco industry rivals in
marketing cigarette alterna-
tives if it succeeds in its $47
billion bid for Reynolds. B1
Rockwell Collins is paying
$6.4 billion to buy B/E in a
deal that would unite two of
the global aerospace indus-
try’s biggest suppliers. B4
A SpaceX rocket blast
last month likely was linked
to fueling procedures rather
than a manufacturing flaw,
investigators believe. B4
Japanese regulators
cautioned against overly
strict lending standards by
banks to businesses. B9
All-Stars, a fund that bets
on Chinese tech and con-
sumer firms, has posted a
12% return this year despite
China’s slowing growth. B9
Moody’s expects the U.S.
to sue over bond grades it is-
sued prior to the 2008 hous-
ing-market collapse. B11
China Resources Pharma
has raised $1.8 billion in
one of the biggest Hong
Kong IPOs of the year. B12
Friday’s attack on web-
sites stemmed from video-
game players’ efforts to
slow their opponents. B3
Business&Finance
World-Wide
€3.20; CHF5.50; £2.00;
U.S. Military (Eur.) $2.20
DJIA 18145.71 g 0.09% NASDAQ 5257.40 À 0.30% NIKKEI 17184.59 g 0.30% STOXX600 344.29 À 0.0001% BRENT 45.95 À 0.39% GOLD 1265.90 À 0.02% EURO 1.0868 g 0.57%
EUROPE EDITION
Imagine a Sane
Donald Trump
OPINION | A13
SMALLER ECONOMIES
DRAW FRESH EYES
JOURNAL REPORT: WEALTH MANAGEMENT | B5
Calais Braces for Evacuation of Migrant Camp
NEILHALL/REUTERS
FACING OFF: Minor clashes broke out on Sunday between French police, above, and migrants at the refugee camp in Calais known as
the Jungle. On Monday, the camp is slated to be closed, and the inhabitants transferred to reception centers elsewhere in France.
The X-ray and CT scans showed a pro-
nounced bulge.
After reports of Galaxy Note 7 smart-
phones catching fire spread in early Sep-
tember, Samsung Electronics Co. executives
debated how to respond. Some were skepti-
cal the incidents amounted to much, ac-
cording to people familiar with the meet-
ings, but others thought the company
needed to act decisively.
A laboratory report said scans of some
faulty devices showed a protrusion in Note 7
By Jonathan Cheng in Seoul and John
D. McKinnon in Washington
Faced with the same satu-
rated wireless market, the two
biggest telecom companies in
the U.S. have placed divergent
bets on the future.
With its more than $80 bil-
lion agreement to buy Time
Warner Inc., AT&T Inc. has
turned to television while Veri-
zon Communications Inc. has
looked to Silicon Valley, with its
$4.4 billion purchase of AOL last
year and pending $4.8 billion
acquisition of Yahoo Inc.
Both operators are trying to
solve the same riddle—each
with a different piece of the ill-
fated 2001 merger of AOL and
Time Warner.
They both have millions of
wireless subscribers who pay
monthly fees to use their net-
works to share photos, watch
videos and tap into social net-
works. But that wireless business
alone lacks the means to drive
growth now that the majority of
Americans have a smartphone.
At the same time, their two
smaller rivals are chipping away
at their subscriber base.
“They need to find a path for-
ward for their core U.S. business
that offers something better
than inexorable decline,” said
Craig Moffett, an analyst at Mof-
fettNathanson LLC. The internet,
mobile phones and smartphones
fueled rapid growth, but “for the
first time in memory, there is no
‘next big thing’ in telecom.”
AT&T’s agreement to buy
Time Warner doubles down on
its view that traditional televi-
Please see DEAL page A2
BY RYAN KNUTSON
AT&T,
Verizon
Set Own
Strategies
of Icelanders, is an online da-
tabase that contains the full
genealogy of 720,000 Iceland-
ers, living and de-
ceased. Assembled by
combining old Icelan-
dic genealogy books
and church records, it
launched online in
January 2003 and
gives Icelanders an
outlet for their crav-
ing for genealogy, an
ardent hobby for
many in the country
of 330,000.
Now, as social me-
dia and apps expand
the dating pool, many
people are turning to the web-
site to ensure they aren’t
swimming in the same gene
pool.
On Íslendingabók, Mr.
Geir Konráð Theodórsson
thought he had chemistry with
a young woman he was con-
versing with via the popular
dating app Tinder. The conver-
sations were going well, so
they decided to move it to
Facebook. Facebook revealed
some mutual friends between
the pair: her mother, her
grandmother and the sister of
her grandmother.
“This is suspicious,” she
messaged him.
Mr. Theodórsson, 30, lives in
Borgarnes, a town located on a
peninsula in western Iceland. It
has a population of fewer than
2,000. With their mutual
friends signaling a red flag, he
logged into Íslendingabók.
Íslendingabók, or the Book
BY JENNA BELHUMEUR
has been Donald Sussman,
founder of Paloma Partners, a
Greenwich, Conn., hedge fund.
Mr. Sussman donated $19 mil-
lion to Mrs. Clinton’s super
PAC through September, and
an aide said he had donated
another $2 million this month.
The second-largest donor
has been Robert Mercer, an
executive at the New York
hedge fund Renaissance Tech-
nologies. Mr. Mercer, who ear-
lier this cycle spent $13 mil-
lion bankrolling a super PAC
to support Texas Sen. Ted
Cruz’s presidential campaign,
has since spent another $2
million to support Mr. Trump.
Including the billionaires,
about 56 donors in both par-
ties who wrote checks of $1
Please see MONEY page A7
batteries supplied by Samsung SDI Co., a
company affiliate, while phones with batter-
ies from another supplier didn’t.
It wasn’t a definitive answer, and there
was no explanation for the bulges. But with
consumers complaining and telecom opera-
tors demanding answers, newly appointed
mobile chief D.J. Koh felt the company knew
enough to recall 2.5 million phones. His sug-
gestion was backed by Samsung’s third-gen-
eration heir apparent, Lee Jae-yong, who has
advocated for more openness at one of the
world’s most opaque conglomerates.
That decision in early September—to
push a sweeping recall based on what
Please see PHONES page A6
MISTAKE DOOMED
SAMSUNG’S NOTE 7
Rushed decision based on incomplete evidence forced firm to kill the model
A growing number of inves-
tors and policy makers, seeing
central banks as powerless to
revive an anemic global econ-
omy, are championing a resur-
gence of fiscal spending.
A move away from central-
bank-led policy, and toward the
use of the government’s taxing-
and-spending power to revive
growth, would end a years-long
economic era and could cause
upheaval in financial markets.
Investors, among them
bond king Bill Gross, once
feared that government profli-
gacy was a death knell for sov-
ereign bonds. Back in 2011, Mr.
Gross dumped U.S. Treasurys
and declared that U.K. govern-
ment bonds were resting “on a
bed of nitroglycerine.”
Today, he is calling for more
government spending.
It is far from clear that the
shift is yet upon the world—
especially Europe and Japan,
which are deep into the un-
precedented monetary experi-
ment of negative interest
rates. But there are glimmers
that it is coming.
The U.K. is wrestling with
the market and economic ef-
fects of its June vote to leave
the European Union. This
month, the prime minister
bashed loose monetary policy
while her Treasury chief talked
up spending on infrastructure
and housing. Other European
countries have eased off the
austerity that defined their re-
sponse to the continent’s years-
long debt crisis.
And the International Mone-
tary Fund, once a proponent of
budget cuts, now urges govern-
ments to spend more.
For several years, govern-
ments have feared incurring
more debt to do so. Instead,
they have left it to central banks
to lower the cost of borrowing
and thus encourage households
and businesses to spend.
That hyperactive monetary
policy has pushed up prices of
assets—including bonds—and
damped market volatility. Ex-
cept for the occasional “tan-
trum,” stocks and government
Please see SPEND page A2
BY JON SINDREU
Fiscal Stimulus Gains Fans
More investors back
government spending
as central-bank moves
fail to ignite growth
Spain’s Leadership Impasse Ends
RE-ELECTION: Spanish Prime Minister Mariano Rajoy, shown above
in Brussels on Oct. 20, is headed for another term after his Socialist
rivals conceded defeat Sunday, ending a 10-month deadlock. A3
EMMANUELDUNAND/AGENCEFRANCE-PRESSE/GETTYIMAGES
Two dozen billionaires have
spent $88 million on the 2016
presidential campaign, bank-
rolling an election in which
both major-party nominees
have railed against the influ-
ence of money in politics.
Democrat Hillary Clinton
has been the largest benefi-
ciary of billionaires’ cash, with
19 of them donating a total of
$70 million to her top allied
super PAC, Priorities USA Ac-
tion, according to the latest
Federal Election Commission
disclosure. Four billionaires
have given $18 million to the
set of super PACs backing Re-
publican Donald Trump.
The largest individual do-
nor of the presidential election
BY REBECCA BALLHAUS
Billionaires Spend
More on Clinton
Theodórsson discovered he
and the woman from Tinder
had the same great-grandfa-
ther.
“We decided to
not speak of this
again and try to
avoid each other at
the next clan meet-
ing,” Mr. Theodórs-
son said.
Previously Mr.
Theodórsson had
been engaged to a
woman related five
generations back.
That was fine, he
said, though it was
still uncomfortable
when her grandmother and his
aunt spoke to each other using
terms of endearment reserved
for close relatives at the din-
Please see DATES page A6
Iceland’s Top Dating Rule: Make Sure You’re Not Cousins
Connections are common in a country of 330,000 citizens,
leading singles to check family backgrounds
Geir Konráð
Theodórsson
Opinion: AT&T’s wireless leap
over Obama.............................. A12
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2. The Wall Street Journal - Europe - 10/24/2016 Page : A002
Copyright (c)2016 Dow Jones & Company, Inc. All Rights Reserved. 10/24/2016
October 24, 2016 10:42 am (GMT -1:00) Powered by TECNAVIA
Copy Reduced to 46% from original to fit letter page
A2 | Monday, October 24, 2016 THE WALL STREET JOURNAL.
THE WALL STREET JOURNAL.
Europe Edition ISSN 0921-99
The News Building, 1 London Bridge Street,
London, SE1 9GF
Thorold Barker, Editor, Europe
Grainne McCarthy, Senior News Editor, Europe
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WORLD NEWS
EU Ponders Trade Deal’s Fate—and Its Own
Perhaps the European
Union’s problem is too much
democracy rather than too lit-
tle.
Until last week, few out-
side Belgium even knew of
the existence of Wallonia, let
alone that this region with a
population of 3.5 million had
a parliament with the power
to block trade deals backed by
the rest of the EU, with a
combined population of 500
million.
Now Wal-
lonia’s objec-
tions may
have killed
the EU’s
Comprehen-
sive Economic and Trade
Agreement with Canada,
which was supposed to be
ratified by all 28 EU leaders
and Canadian Prime Minister
Justin Trudeau this week.
E
ven if Wallonia can be
persuaded to change its
mind, CETA’s future
isn’t assured. The deal can
only be provisionally applied.
The most contentious aspect
of the deal—the creation of
independent dispute arbitra-
tion tribunals which will allow
investors to sue governments
if they believe national rules
have been set that breach the
terms of the agreement—
must still be ratified by each
of the EU’s 37 national parlia-
ments and assemblies.
There is strong opposition
to CETA in several countries
including Germany, Austria
and France. What happens if
it is later rejected by a na-
tional parliament isn’t clear
say EU officials: there is no
precedent.
The real harm from CETA’s
potential failure lies not so
much in the loss of a much-
needed but largely speculative
economic boost but in the
damage to the self confidence
of the EU itself; not least its
own leadership.
Over the past 18 months,
as it has struggled to manage
a series of crises ranging from
the Greek debt crisis to the
migration crisis to the trauma
of the Brexit referendum, the
draining of confidence in the
EU’s long-term future has
been palpable.
The EU measures its self-
worth by its ability to find
common solutions to common
problems. Yet it now finds
that not only are many of the
EU’s problems of its own
making—reflecting past deci-
sions to create the euro and
abolish internal borders with-
out putting in place the struc-
tures to withstand shocks—
but that the task of finding
common solutions has be-
come far harder.
It was never easy to get 28
governments to agree, but
once they had struck a deal,
they could usually be relied
upon to secure parliamentary
approval. But as is clear from
the CETA debacle and the
growing opposition to euro-
zone bailouts, this is no lon-
ger the case as insurgent par-
ties of left and right pull the
ground from under main-
stream pro-European parties.
Now some policy makers
wonder whether the EU
could find an effective politi-
cal response to any future
shock. This is worrying given
the multiple risks to the EU
outlook.
The EU last week dodged a
bullet when the rating agency
DBRS maintained Portugal’s
investment grade rating: a
downgrade would have left
Portuguese government bonds
ineligible for purchase by the
European Central Bank, in all
likelihood necessitating a new
bailout. But a new Portuguese
bailout may still be necessary
unless Lisbon can soon per-
suade the private sector to
provide much-needed capital
to its banking system.
N
or is there any sign of
a breakthrough in the
long-running standoff
between Germany and the In-
ternational Monetary Fund
over the timing and quantity
of debt relief for Greece, rais-
ing the specter of a new
Greek debt crisis when it in-
evitably runs out of money
again next year.
Meanwhile, Italy tops the
list of many EU policy makers’
worries: Rome recently dared
the European Commission to
reject its new rule-breaking
budget ahead of a referendum
which could trigger the fall of
Prime Minister Matteo Renzi’s
government and reignite
doubts over the country’s fi-
nancial stability.
Indeed, some European of-
ficials privately fear that the
eurozone is just one shock
away from disaster—a disas-
ter that has so far only been
averted by the ECB’s bond-
buying program, which has
eased the fiscal pressure on
eurozone governments, allow-
ing them to borrow and spend
their way to a modest recov-
ery.
Yet the ECB’s money print-
ing operation is already run-
ning into serious political
constraints as it looks for
ways to overcome a scarcity
of bonds eligible for it to buy
under its current self-imposed
rules. It has given itself until
December to decide whether
to start buying bank debt, or
buy government debt at
prices that guarantee it will
face losses, or switch the fo-
cus of its bond-buying away
from Germany toward less
creditworthy countries such
as Italy. Whichever it chooses
risks a political backlash.
H
ow can the EU respond
to this worsening po-
litical climate and per-
suade its citizens of the bene-
fits of seeking common
solutions to common prob-
lems?
The one area where the
Commission believed it could
make a difference was trade,
over which the EU in theory
has exclusive power to act on
behalf of member states.
Yet now the EU’s member
states have effectively taken
back control of trade policy
too. Mr. Trudeau recently
asked what the point of the
EU is if it can’t do a trade
deal with Canada. It is a ques-
tion that in their despairing
moments some EU officials
ask themselves.
EUROPE FILE
SIMON NIXON
part of the logic behind AOL’s
2001 merger with Time Warner.
AT&T will have both satellite
and mobile subscribers to serve
up Time Warner’s roster of
movies and popular television
programs.
Verizon, meanwhile, is build-
ing up an online advertising
business based on its 2015 ac-
quisition of AOL. It has said it
wants to rival Facebook Inc. and
Alphabet Inc.’s Google in web
advertisements and considers
its Yahoo deal as a part of that
platform.
It has also invested in lesser-
known media companies that
have tens of millions of young
followers, such as Complex Me-
dia and AwesomenessTV. That
content, which Verizon hopes
will one day help disrupt legacy
media businesses, is being dis-
tributed via its mobile video
app, called go90.
“We’re skating to where the
puck is going,” Verizon CEO
Lowell McAdam said at an in-
dustry conference last year.
Both strategies face chal-
Videos make up the bulk of
the traffic on smartphones, but
no wireless carrier has found an
effective way to make money off
it. Mobile apps like Facebook,
Apple Inc.’s FaceTime and
WhatsApp destroyed carrier
revenue from voice minutes and
text messages, but charging for
increased data usage is hard be-
cause of intense price competi-
tion between the four national
carriers.
The carriers also face new
competition from cable compa-
nies. Comcast and Charter Com-
munications Inc. say they plan
to offer mobile-phone service,
though for now that will largely
be done by reselling Verizon’s
connection.
Jonathan Chaplin, an analyst
at New Street Research, says
AT&T and Verizon’s underlying
strategies are similarly seeking
to create value from their net-
work infrastructure by adding
content.
If AT&T succeeds in acquiring
Time Warner, “they will have
dramatically reduced their expo-
sure to U.S. wireless in the space
of just a couple of years,” Mr.
Chaplin said. “Verizon has been
more tentative, with small ac-
quisitions that won’t hurt too
much if they turn out poorly.”
Mr. Shammo said Thursday
that the carrier doesn’t feel the
need to do a large deal.
Last year, AT&T’s Mr. Ste-
phenson asked a group of in-
terns at the company’s Dallas
headquarters whether they paid
for a monthly TV subscription.
Only one said yes, and many
said they used their parents’
login credentials to watch TV
over the web. Mr. Stephenson
felt that showed young people
wanted traditional television
packages, just delivered in a dif-
ferent way.
Verizon executives, finding
similar trends, drew a different
conclusion.
“Millennials don’t want linear
TV content,” said Mr. Shammo,
on a call last year with analysts.
“They’re disconnecting their ca-
ble for just internet content and
mobile content.”
sion’s future is mobile. Last year,
it bought satellite television
business DirecTV for $49 billion,
making the former Baby Bell the
country’s largest pay-television
provider. With Time Warner, the
company would get a rich lineup
of networks like HBO, CNN and
TNT plus a library of TV shows
and movies with its Warner
Bros. studio that could help sup-
port a video-streaming service it
is developing.
“A big customer pain point is
paying for content once but not
being able to access it on any
device, anywhere. Our goal is to
solve that,” AT&T Chief Execu-
tive Randall Stephenson said in
statement announcing the Time
Warner deal.
The strategy to bring an en-
tertainment provider together
with a distribution network has
been tried before when Comcast
bought NBCUniversal, and was
ContinuedfromPageOne
DEAL
lenges. For AT&T, DirecTV has
been losing subscribers, and
cord-cutting upsets the business
model Time Warner has long re-
lied on. Nor will it be easy for
Verizon to repair a weakened Ya-
hoo and convince young people
its video app is worth watching.
The pressure facing the com-
panies is intensifying. In Veri-
zon’s third-quarter earnings, the
carrier had its second straight
quarter of declining revenue af-
ter six years of growth, and suf-
fered a net loss of 36,000
monthly phone subscribers.
Even more monthly wireless
customers have left AT&T.
Verizon Finance Chief Fran
Shammo said the amount of
money consumers are willing to
pay for phone, internet and TV
services has been flat for nearly
two decades, “so we have to
think about a different way to
monetize our network.”
AT&T’s agreement to buy Time Warner doubles down on its view
that traditional television’s future is mobile.
RICHARDB.LEVINE/NEWSCOM/ZUMAPRESS
Canada’s trade minister, Chrystia Freeland, and Martin Schulz, president of the European Parliament
MELANIEWENGER/EUROPEANUNION/EUROPEANPRESSPHOTOAGENCY
Christine Mehring, an art
historian at the University of
Chicago, was incorrectly iden-
tified as overseeing the
school’s public art catalog in a
Page One article about a con-
crete Cadillac in the Friday-
Sunday edition.
CORRECTIONS
AMPLIFICATIONS
Readers can alert The Wall Street
Journal to any errors in news articles
by emailing wsjcontact@wsj.com.
should balance your books to
the realization that nothing is
working,” said Mike Riddell,
London-based fund manager at
Allianz Global Investors.
On top of skepticism about
its power to steer output and
inflation, monetary policy is
shouldering blame for its effect
on banks. By pulling interest
rates into negative territory and
pushing down long-term yields,
central banks have torpedoed
the profitability of private lend-
ers.
“It’s not really a win-win sit-
uation to keep doing this,” said
James Athey, portfolio manager
at Aberdeen Asset Management.
In the eurozone and Japan,
bank shares have dropped
roughly 20% and 29%, respec-
tively, since the start of the
year. Fiscal stimulus could
change that.
“The first place where you
will see it is Japan,” said Ma-
rino Valensise, head of multi-as-
set investment at Barings, who
has started buying Japanese
bank stocks.
Investors are also eyeing
companies that directly benefit
from public infrastructure
works. Construction and engi-
neering stocks in the S&P 500,
for example, have lagged far be-
hind since 2014, but this year
are up 18% compared with 4.8%
for the broader index.
Commodities, which have
had a dismal couple of years,
would be beneficiaries of stron-
ger global demand as well. That
would be good for emerging
markets, which are often com-
modity exporters, even though
a stronger dollar and an outflow
of money back to advanced na-
tions could pose problems.
“If there was a real snap-
back in interest-rate expecta-
tions and in yield curves, that
could in the short term cause
some volatility for emerging
markets, but overall you’d
think that kind of action
would be positive for world
growth,” said Stephanie Flan-
ders, chief European market
strategist at J.P Morgan Asset
Management.
Still, some investors warn
that risky assets overall could
take a hit, because higher inter-
est rates make the returns they
promise look less attractive.
“This could pose problems
for equities, credit and high
yield,” said Joachim Fels, man-
aging director at Pacific Invest-
ment Management Co.
To be sure, most analysts ex-
pect central banks to keep inter-
est rates low for a long time, as
fiscal policy still faces much po-
litical resistance to be deployed
in abundance.
“The extent to which it can
happen is going to be limited”
because of big public debt piles,
said Didier Saint-Georges, a
member of the investment com-
mittee at Carmignac. As a pre-
caution, the French asset man-
ager is reducing its exposure to
bonds, but believes that betting
on very loose fiscal policy re-
mains too much of a risk.
“We are reluctant to get car-
ried away,” Mr. Saint-Georges
added.
bonds have marched ever up-
ward.
But there is growing evi-
dence that central-bank policy
is underwhelming: Households
and businesses haven’t gone
on a spending binge. What’s
more, the policy has come at a
cost to commercial banks,
which have seen their profits
compressed at a time when
many are already weak.
So policy makers are toying
with the old idea of having the
government do the spending.
Such a change, were it to come
to fruition, isn’t likely to have
the same salutary effect on
stocks and bonds as central-
bank stimulus, which relies on
pushing up the value of finan-
cial assets.
“We are leaving this very
certain, very comfortable in-
vestment environment,” said
Guy Monson, chief investor for
almost 20 years at London-
based Sarasin & Partners LLP.
“We are moving into a new
world.”
The first sign is seen in bond
yields, which rise when bond
prices fall. In the U.K., yields are
up sharply in the days since
Theresa May and Phillip Ham-
mond made their remarks.
Bond yields have crept up
from their record-low levels
elsewhere. In Germany, the 10-
year bond now yields 0.007%—a
tiny sum, but at least positive
after being below zero for much
of the summer.
ContinuedfromPageOne
SPEND Indeed, bonds have been the
main beneficiaries of monetary
stimulus. Since the start of the
year, they are up 6.5% globally,
figures by Bank of America
Merrill Lynch show. They have
even outperformed equities,
traditionally riskier and higher-
returning investments, which
have gone up only 4.5%, accord-
ing to MSCI.
Loose fiscal policy could
mean higher bond yields, be-
cause central banks are ex-
pected to offset the inflation-
ary effect of government
spending by raising rates, or
at least lowering them by less.
Yields on bonds tend to follow
interest rates.
Stronger global demand be-
cause of fiscal stimulus would
help commodities, exporters
and builders. Stocks more
broadly might be mixed, be-
cause higher rates would weigh
on them.
“If you had lots of fiscal ex-
pansion you could change the
growth dynamics globally quite
dramatically,” said Geoff Kend-
rick, economist at British bank
Standard Chartered. “It would
be a step back to somewhere
normal.”
Fund managers at BlackRock
Inc. believe higher government
spending will mean a rough
2017 for bonds around the
globe.
U.S. Treasury Secretary Ja-
cob Lew said in September that
policy makers are “no longer
debating growth versus auster-
ity, but rather how to best em-
ploy fiscal policy to support our
economies.” The IMF has also
moved beyond the “expansion-
ary austerity” it championed in
2010.
Indeed, European officials
decided in July against fining
Spain and Portugal for spending
too much.
“People have gone from be-
lieving stimulus is evil and you
Germany
Italy
U.K.
France
Spain
Japan
U.S.
Tight Belts
Many rich countries have engaged in fiscal tightening in recent years,
reducing structural* budget deficits or in one case moving to surplus.
THE WALL STREET JOURNAL.Source: International Monetary Fund
*Adjusted for economic cycles and temporary swings
2
–12
–10
–8
–6
–4
–2
0
%
2001 ’05 ’10 ’15 ’20’21
Forecasts
Belgium Gets
Monday Limit
To Back Pact
BRUSSELS—The European
Union is giving Belgium until
Monday evening to decide
whether it will agree to sign a
trade deal with Canada after a
Belgian region has persistently
refused to support the accord,
Belgian and EU officials said.
A spokesman for Belgian
Prime Minister Charles Michel
said European Council Presi-
dent Donald Tusk set an “ulti-
matum” for Monday evening,
demanding that Belgium pro-
vide Europe with a “clear posi-
tion” on whether it is in a posi-
tion to sign the so-called
Comprehensive Economic and
Trade Agreement, or CETA. The
trade deal between the EU and
Canada needs the full backing
of all 28 member states.
While the Belgian federal
government supports the trade
pact, it still needs the green
light from its five regional au-
thorities before it can give its
official approval. The deal has
been on thin ice in recent weeks
after protests by Wallonia, Bel-
gium’s French-speaking region,
have kept the country’s leader-
ship from supporting the deal.
Mr. Tusk is scheduled to
speak again with Mr. Michel on
Monday evening, as well as Ca-
nadian Prime Minister Justin
Trudeau, to whom he will relay
his decision on whether to hold
the EU-Canada summit Thurs-
day. Some EU officials, however,
remained skeptical about the
likelihood of reaching an agree-
ment with Wallonia by Monday
evening. An EU official said it
could take at least several
weeks, stressing the problem is
a domestic issue in Belgium.
—Natalia Drozdiak
and Valentina Pop
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