The proposal includes a $1 billion cash investment in preferred stock and an option for the U.S. utility to sell to EDF non-nuclear assets of as much as $2 billion, Paris-based EDF said today. Buffett’s MidAmerican Energy Holdings Co. agreed earlier this year to buy all of Constellation for $4.7 billion.

“They’re much closer to what we thought all along was the fair value of the company,” James Halloran, who helps manage about $34 billion, including Constellation shares, at National City Private Client Group in Cleveland, said in a telephone interview. “They’ll have to give it serious consideration.”

EDF, which owns 9.5 percent of Constellation, in October backed out of a $6.2 billion bid for the whole company with buyout firms KKR & Co. and TPG Capital LP. Its new approach, through a proposed joint venture with the Baltimore-based utility, is designed to ensure EDF can own and operate plants in the U.S. and avoid possible opposition to foreign ownership of nuclear facilities.

Constellation said in a statement its board will review the proposal, and it has not withdrawn or modified its recommendation of the MidAmerican offer. MidAmerican, based in Des Moines, Iowa, has no comment to make on the offer, spokeswoman Ann Thelen said.

‘Good Time’

“EDF has to come up with the cash now, which could be negative in the current climate, but it’s a good time to make acquisitions because the market is at such a low point,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris.

EDF slid as much as 6.6 percent in Paris and traded down 2.305 euros at 42.265 euros as of 4:24 p.m. local time. Constellation surged as much as 20 percent to $30.17 on the New York Stock Exchange, the highest price since Constellation accepted the MidAmerican offer. It was up $3.27, or 13 percent, at $28.42.

“The offer is aimed at consolidating our role in developing new nuclear in the U.S.,” EDF Chief Executive Officer Pierre Gadonneix said in an interview in Paris. “It would bring long-term resources to Constellation,” he said, adding it was “far superior” to MidAmerican’s bid.

EDF said the proposal “is not subject to a financing condition” and approval from Constellation’s stockholders is not required. The Paris-based utility said its offer values the whole of Constellation at $52 a share, more than double yesterday’s closing price.

‘Significantly Undervalues’

“Constellation is fundamentally strong and EDF, like many others, believes that the proposed MidAmerican transaction significantly undervalues Constellation and its future opportunities,” Gadonneix said earlier in a statement. The offer provides “more than sufficient liquidity” to allow it to remain a standalone company, he said.

EDF agreed to buy Eagle Energy Partners I LP from bankrupt investment bank Lehman Brothers Holdings Inc. in September to expand gas and power trading in North America. The acquisition gave it power production, gas-storage and transportation assets.

MidAmerican moved to snap up Constellation in September for less than half its end-August market value after Constellation plunged 58 percent in New York amid investors’ concern that turmoil in financial markets would wreck its energy-trading business.

Competing Offer

“The timing of the bid is worrying investors because of the current credit climate,” Chicuong Dang, a Paris-based analyst at KBL Richelieu Gestion, which has about $6.2 billion under management, said by telephone. “EDF’s offer is reasonably priced. Buffett’s offer is really low.”

Constellation has called on shareholders to approve the deal with MidAmerican, priced at $26.50 a share, in a vote scheduled for Dec. 23.

“We haven’t had any independent talks with Warren Buffett or MidAmerican,” Gadonneix said in the interview, adding he hoped Constellation’s board would examine EDF’s offer “objectively.”

EDF’s offer of $1 billion in cash and the possible purchase of non-nuclear assets for as much as $2 billion “will more than cover” liquidity needs related to the termination of the agreement with MidAmerican, the French utility said in a document filed with the U.S. Securities and Exchange Commission. EDF estimates terminating the merger accord with MidAmerican would drain $2.4 billion in liquidity.

Breakup Fee

MidAmerican would walk away with a 9.9 percent stake, $593 million in cash, and $1 billion of senior notes paying 14 percent interest, Constellation said yesterday in an SEC filing. The cash portion includes a $175 million breakup fee.

Constellation would also have to return any unused portion of a $350 million credit line.

EDF’s offer is for a 50-50 joint venture that would own Constellation’s five nuclear-power reactors in the U.S., two at the Nine Mile Point plant and another at the Ginna plant in New York, and the two-unit Calvert Cliffs station in New York. Constellation has 3,869 megawatts of nuclear assets and 6,595 megawatts of non-nuclear facilities.

Constellation and EDF already have a 50-50 joint venture that was created last year called Unistar Nuclear Energy LLC to develop new nuclear reactors in the U.S. using Areva SA’s EPR Evolutionary Power Reactor design.

U.K. Deal

The U.S. power company said yesterday that 2009 profit will fall to as little as $1.50 per share should shareholders reject the takeover by MidAmerican.

The offer comes after EDF agreed in September to buy British Energy Group Plc for 12.5 billion pounds ($18.5 billion) to become the U.K.’s biggest power producer and gain control of eight sites to build reactors.

Exelon Corp., the biggest U.S. utility company by market value, offered in October to buy NRG Energy Inc. for $6 billion in stock, betting it will be able to refinance NRG’s $8 billion in debt at lower costs. NRG, based in Princeton, New Jersey, has urged its shareholder to reject the bid, which would create the largest U.S. power producer.

J.P. Morgan is the financial adviser for EDF, the French utility said.

An index based on a survey of about 700 service companies fell to 40.1, the lowest since the gauge began in 1996, Markit and the Chartered Institute of Purchasing and Supply said today. Nationwide Building Society said that consumer confidence fell to the lowest since at least 2004.

Manufacturing and construction surveys also showed the fastest contraction on record in November, signaling that the recession has intensified. The Bank of England may respond by cutting the benchmark interest rate tomorrow by one percentage point to the lowest level since 1951, economists say.

“We’re seeing a very sharp contraction in the U.K. economy,” said David Page, an economist at Investec Securities in London. “There’s a real risk that the Bank of England will go to effectively zero, perhaps around half a percent in interest rate terms.”

Investec changed its forecast after the release of the services data to predict a full percentage-point cut instead of only a half-point reduction from the current 3 percent.

The pound fell against the dollar and the euro today and traded at $1.4701 and 86 pence per euro as of 10:07 a.m. in London. The currency has dropped 26 percent against the dollar so far this year.

Services Shrink

The CIPS report today excludes retailers, which together with other services industries makes up about three quarters of the economy, compared with 20 percent for manufacturing and construction together. The index was lower than the 41.2 median prediction of 33 economists in a Bloomberg survey.

Nationwide, the nation’s second-biggest mortgage lender, said that its consumer confidence index dropped 6 points to 50 in November, the lowest since its survey of British shoppers started in May 2004.

Royal Bank of Scotland Group Plc scrapped its full-year profit forecast on Nov. 4 as credit losses worsened and bad loans rose. Shareholders have ceded control of the company to the British government as part of Prime Minister Gordon Brown’s plan to shore up the British banking system.

An index of permanent staff placements by recruitment companies fell to the lowest since at least 1997 in November, the Recruitment & Employment Confederation and Markit said in a report today.

Economy Contracts

CIPS surveys earlier this week showed manufacturing contracted at the fastest pace in at least 16 years, while construction shrank the most since at least 1997. U.K. economic growth contracted 0.5 percent in the third quarter after stalling in the previous three months.

Chancellor of the Exchequer Alistair Darling on Nov. 24 proposed the nation’s biggest fiscal stimulus in two decades to stem the economic slump and revive bank lending. Queen Elizabeth II may unveil further plans today as she presents the government’s annual legislative agenda in Parliament.

Bank of England policy makers reduced the benchmark by 1.5 percentage points last month to the lowest level since 1955. The Bank of England will cut it by a further one percentage point tomorrow, according to the median forecast of 60 economists in a News survey.

Traffic, or passengers carried multiplied by the distance flown, declined 11 percent for first- and business-class travelers from a year earlier, while economy traffic fell 4.8 percent, the airline said today in a statement. The load factor, or proportion of seats filled, dropped 2.2 percentage points to 74.4 percent.

“It’s a significant decline in premium traffic, with the Americas region affected most,” said Geoff Van Klaveren, an analyst with Exane BNP Paribas in London who has an “underperform” rating on the stock. “This shows that the financial crisis is impacting BA now.”

British Airways said yesterday that it’s in talks with Qantas Airways Ltd. of Australia about a merger that would help reduce costs as the industry’s losses mount. The International Air Transport Association said last month that global air travel fell for a second consecutive month in October. The group predicts combined losses of more than $5.2 billion this year.

British Airways declined as much as 7.9 pence, or 5 percent, to 149.2 pence in London trading and was down 1 percent at 3:14 p.m., giving the company a market value of 1.79 billion pounds ($2.64 billion). The shares have plunged 50 percent this year.

‘Consistent’

“Trading conditions remain broadly unchanged, with long- haul premium traffic stable and consistent with the trends of recent months,” BA said in the statement. “Financial guidance for the year remains unchanged.”

European airlines as a group posted an increase in passenger traffic for October of 0.1 percent, the Association of European Airlines said today. The increase followed a drop of 0.9 percent in September, though the association called the reversion to growth “illusory.” The October figure included recovery of traffic lost to strikes a year ago, it said. Discounting that would yield a decrease of 1.5 percent, AEA said.

Premium traffic at British Airways has gotten progressively worse for three months, with a 9.2 percent decline in October and 8.6 percent in September. Economy-class traffic declined 3.3 percent in October.

The airline is maintaining prices as it reduces capacity, in contrast with low-cost carriers that are slashing fares to fill seats.

Ryanair Gains

Ryanair Holdings Plc, Europe’s biggest discount airline, carried 11 percent more passengers in November after adding routes and planes. The carrier filled 79 percent of seats, a 1 point increase from last year, it said today.

British Airways last month raised its forecast for full- year revenue growth to 4 percent from 3 percent, promising to scale back spending and eliminate hundreds of management jobs.

The carrier, led by 47-year-old CEO Willie Walsh, remains in merger discussions with Iberia Lineas Aereas de Espana SA of Spain even as it talks to Qantas. British Airways had a first- half net loss of 49 million pounds, compared with net income of 493 million pounds a year earlier.

Dublin-based Ryanair is adding routes and cutting fares to lure passengers. The carrier, the largest investor in rival Aer Lingus Group Plc, made a 524 million-euro ($661 million) hostile bid on Dec. 1 for the rest of the shares. Ryanair also hopes to benefit as competing airlines go out of business.

Ryanair gained as much as 11 cents, or 3.8 percent, to 2.87 euros in Dublin trading and was up 2.7 percent as of 3:29 p.m. The carrier’s stock has declined 39 percent this year, reducing its market value to 4.18 billion euros.

Sibir tumbled 60 percent to 39.75 pence at 3:06 p.m. in London, valuing the company at about 154 million pounds ($227 million). Sibir’s board “concluded that the company must take over the bulk” of Tchigirinski’s real-estate business, the company said in a statement today.

“My advice for shareholders is to fire the management,” said Ivan Mazalov, a fund manager at Prosperity Capital Management in Moscow who helps oversee $5 billion of assets, and doesn’t own Sibir shares. “Investors in this company certainly don’t like the way it is bailing out the company’s major shareholder.”

Sibir is the second company in as many months to provoke criticism for buying assets to help billionaire investors, after Russian power generator OAO OGK-3 announced plans to purchase shares in companies controlled by Vladimir Potanin’s Interros holding company. Potanin owns a stake in Norilsk Nickel, which controls OGK-3. Moscow brokerage Renaissance Capital dubbed OGK- 3 the “bank of Interros” in a client note.

Stalin’s Hotel

Sibir has agreed to buy the Sovietsky Hotel in Moscow, built in 1952 at the order of Soviet leader Josef Stalin, among at least $158.9 million of real-estate, oil refining and marketing assets from companies connected to Tchigirinski and shareholder Igor Kesaev, who together own 47 percent of Sibir.

“This amounts to a significant transfer of value from the company to one of its shareholders,” said Alexander Burgansky, oil and gas analyst at Renaissance Capital. “It looks like the minority shareholders will not really have a say.”

In a separate statement, Sibir said Finance Director Alexander Betsky resigned yesterday, and that his replacement will be announced in due course.

Sibir is seeking to preserve its shareholder structure, after the global credit crisis “had a domino effect on Mr. Tchigirinski’s financial position,” according to today’s statement.

Tchigirinski’s net worth was estimated at $2.5 billion by Forbes magazine in May, making him Russia’s 44th-richest man, with a fortune built on oil and real-estate. Among his projects was a $320 million to $400 million renovation of St. Petersburg’s New Holland, a 7.8-hectare island built by Peter the Great in the early 18th century as a navy depot.

Tchiriginski started work in 2006 turning the dilapidated, red-brick navy storehouses into a seven-level commercial and cultural hub, including luxury hotels with over 500 rooms and leisure space.

Tchigirinski said in 2006 the complex was to have a covered outdoor amphitheater seating up to 3,000 people, with a stage rising out of the water in the center of an existing pond. Heated seats would allow the amphitheater to work year round, with concerts in warm months and skating events in winter.

The Financial Services Authority would have to overcome the twin hurdles of labor law and the dwindling days on the calendar to reduce bonuses payable in January that Britain’s Centre for Economics and Business Research said will total 3.55 billion pounds ($5.2 billion).

“We’re well into the time period over which bonuses are calculated and changing the terms of a contract can’t be done at the drop of a hat,” said Carlos Conceicao, a regulatory lawyer at London-based Clifford Chance LLP and a former FSA enforcement director. “Changing things now isn’t feasible.”

The FSA wants banks to abolish bonus structures that encourage excessive risk-taking, and it could force those that don’t comply to increase their capital by billions of pounds to make up for perceived risks. The agency is under political pressure to rein in the types of imprudent investment decisions that contributed to the worst financial crisis since the Great Depression.

Scrutiny of pay is among the “strings attached” to the government investment of 50 billion pounds in three of Britain’s biggest lenders to prop up the U.K. banking system. In addition, the board-members of banks receiving government money won’t be receiving bonuses this year.

Bonus Calculation

An FSA letter in October on bonus policy was merely guidance, said Jonathan Davies, a lawyer at London-based Reynolds Porter Chamberlain LLP. “If the FSA changed its rules — which requires a consultation — that would override contracts,” but there’s still “an issue if the employee has contractual entitlement to a bonus.”

Bonuses are typically paid in January based on performance the preceding year. The FSA letter says that even if pay reviews are under way, banks should “consider carefully” their policies.

The U.K. isn’t the only country trying to lower bonuses. The $700 billion U.S. bailout of the financial industry led to calls from New York Attorney General Andrew Cuomo and Rep. Henry Waxman, a California Democrat, for companies such as Goldman Sachs Group Inc. and Morgan Stanley to justify bonuses that totaled $39 billion at Wall Street’s five biggest firms last year.

FSA Chairman Adair Turner said last month that he was working with regulators in other countries to formulate a global policy, otherwise bankers will move where pay isn’t limited.

Global `Question Mark’

“Global policies are driven by the U.S.,” Conceicao said. “There’s a question mark over how easy it will be for those banks to change their policies in London.”

Goldman Sachs, which set a record for Wall Street pay last year, became the first U.S. bank to scrap 2008 bonuses for senior officers.

U.K. bankers shared in more than 31 billion pounds of bonuses over the past four years, according to the Centre for Economics and Business Research.

While Britain’s retail banks tend to make bonuses a percentage of overall profit, investment banks tie bonuses to revenue. A base salary of 200,000 pounds and a bonus of as much as 10 million pounds is common, said Mark Hoble, a principal at Mercer Human Resource Consulting.

Bonuses are “what the culture is all about,” Hoble said. “It’s more than something that’s quite nice on top of what you get paid.”

`Changing Behavior’

The FSA, in the letter last month to 28 banks and building societies, said cash bonuses based only on revenue are an example of poor practice. Banks should base bonuses on profits and to pay a mix of cash and stock, it said. The Treasury Select Committee will consider the approach to bonuses for the FSA on Nov. 19.

The FSA is asking company directors to examine how pay is calculated instead of trying to set or cap bonuses.

“This is about changing behavior,” said Steven Francis, an enforcement manager at the FSA until September and now at Reynolds Porter. “The actual amount of money in the bonus pool in relation to overall assets is a drop in the ocean.”

Banks must give a timeframe by when new pay structures will be in place, said Heidi Ashley, an FSA spokeswoman. She declined to comment on a conflict between FSA demands and U.K. law.

“The first point is how the FSA will characterize `too much’ risk,” said Ronnie Fox, head of Fox Lawyers, which specializes in employment law. “Banking is a high-risk, high- reward culture.”

`Star Performers’

Bonuses can be written into contracts or can be awarded at the employer’s discretion. The “vast majority” are discretionary, said Fox.

“A few star performers will have signed a contract” that they will get a “bonus of no less than X for the first three years,” said Jo Keddie, head of employment law at Dawsons LLP. Such contracted bonuses pose the biggest challenge to employment law, she said.

The banks may have precedent and sentiment on their side if they choose to cut guaranteed payments. English courts have been reluctant to intervene in disputes over bonuses, Fox said.

A 2006 case against Commerzbank AG, brought by one of its highest-paid traders, was thrown out. He claimed the bank owed him 8 million pounds in bonuses. The House of Lords said bonuses are discretionary.

Even for the few with bonuses in contracts “there are no jobs elsewhere, so they don’t want to make claims,” said Keddie. “There’s a lot of nervousness about.”

Banco Santander SA, Spain’s biggest bank, and the U.K.’s HBOS Plc and BNP Paribas SA of France slipped more than 6 percent. HeidelbergCement AG tumbled 22 percent on concern the cement maker’s owner may have to sell shares to help prop up an investment company. Tesco Plc slid 6.6 percent after JPMorgan Chase & Co. recommended selling Britain’s biggest retailer.

Europe’s Dow Jones Stoxx 600 Index lost 2.6 percent to 200.37 in London, pushing this year’s decline to 45 percent. Japan’s economy shrank in the third quarter, entering the first recession since 2001, and the business group said the U.K. economy will contract the most in almost three decades next year.

“We are not seeing any kind of recovery at all in the world economy,” said Gianluca Tarolli, a Geneva-based equity strategist at Lombard Odier Darier Hentsch & Cie., which has the equivalent of $134 billion under management. “We are cautious and are underweight equities. We have a lot of concerns about growth overall in Europe.”

More than $30 trillion has been erased from the value of global equity markets this year as credit losses and writedowns totaled $966 billion in the worst financial crisis since the Great Depression. The Stoxx 600 is headed for its steepest annual drop since records began in 1987.

National benchmark indexes fell in all 18 markets in western Europe. The U.K.’s FTSE 100 slipped 2.7 percent. Germany’s DAX sank 3.3 percent as did France’s CAC 40.

`Longer’ Recession

The U.K. economy will drop 1.7 percent in 2009, the most since 1980, the Confederation of British Industry said. The recession is “likely to be deeper and longer lasting,” according to CBI.

House prices in the U.K. are falling at the fastest pace since at least 2002, Rightmove Plc said today. The average asking price for a home fell 7.1 percent from a year earlier, the most since records began six years ago, according to the country’s most-used property Web site.

The U.S. has entered a recession that will persist into next year, and economies around the world will follow suit, a poll taken by the National Association for Business Economics showed.

Santander, the Spanish bank that owns U.K. mortgage lender Abbey, lost 6.9 percent to 6.08 euros. HBOS, the U.K. bank that agreed to be bought by Lloyds TSB Group Plc, sank 14 percent to 74.5 pence. BNP Paribas, France’s biggest bank, dropped 8.1 percent to 43.02 euros.

Citigroup Job Cuts

Citigroup Inc., the fourth-biggest U.S. bank by market value, said it plans to eliminate 50,000 jobs, or about 14 percent of the workforce, and reduce expenses by 20 percent from their peak as the global economy contracts.

Banks and brokerages worldwide have shed almost 160,000 jobs since the subprime mortgage market’s collapse last year sparked a credit crisis.

The cost of borrowing dollars for three months in London increased for a third day as banks balked at lending on concern about the severity of the global recession.

HeidelbergCement, Germany’s biggest cement maker, tumbled 22 percent to 39.90 euros on concern its billionaire owner Adolf Merckle may have to sell shares to help prop up one of his investment companies.

Tesco lost 6.6 percent to 308.7 pence. JPMorgan said discount grocer Aldi Group poses a “major threat” and cut its recommendation to “underweight” from “neutral.”

Bodycote Plc sank 22 percent to 96 pence. The U.K. supplier of metal-strengthening services to Ford Motor Co. said it will halve a 260 million-pound ($383 million) payment to shareholders to pay off debt in light of financial market turmoil.

United Internet AG tumbled 12 percent to 5.26 euros after Credit Suisse Group AG cut Germany’s third-largest Web-access provider to “underperform” from “neutral,” citing “weaker- than-expected” third-quarter results.

“We believe risk to 2009 conensus could be greater given a worsening European economy and ongoing DSL (digital subscriber line) competition,” the bank added.

Gross domestic product in the 15 euro nations shrank 0.2 percent in the third quarter from the previous three months, when it also contracted 0.2 percent, according to the median estimate of 39 economists in a News survey. The two quarters of contraction — the result of this year’s surges in the cost of credit, the euro and oil prices — would mark the first recession since the single currency was introduced almost a decade ago.

Consumers and companies are feeling the pain as sales, profits and hiring deteriorate, forcing the European Central Bank to embark on the fastest round of rate cuts in its history and governments to line up fiscal-stimulus programs. The slump may prove longer-lasting than those in the U.S. and Asia, with Bank of America Corp. and Deutsche Bank AG predicting Europe’s economy to shrink in 2009 and no return to growth until late next year.

“We’re in for a pronounced downturn in Europe,” said Paul Donovan, an economist at UBS AG in London. “It’s going to be at least two years of very weak growth.”

The European Union’s Luxembourg-based statistics office is scheduled to publish the euro-area GDP data at 11 a.m. today.

The German economy, Europe’s largest, contracted by a bigger-than-expected 0.5 percent in the third quarter, confirming it has entered its worst recession in at least 12 years, its government said yesterday. The Italian, French and Spanish economies also probably shrank in the third quarter, according to separate polls of economists.

Surprised Economists

The downturn surprised economists who in July saw just a 35 percent chance of a recession occurring in 2008, according to the median of 26 forecasts. Policy makers expressed confidence earlier in the year that the economy would dodge a recession even as the U.S. faltered. The European Commission began the year predicting growth of 1.5 percent in 2009, only to cut its forecast to just 0.1 percent as the financial crisis escalated.

The economy is suffering from multiple shocks, including the euro’s rise to a record $1.60 in mid-summer, the strongest inflation in almost 16 years and oil’s jump to an unprecedented $147 a barrel in July. The cost of credit then surged globally following the September collapse of Lehman Brothers Holdings Inc., forcing banks to cut lending to businesses and households and shattering demand for euro-area exports from America to Hungary.

Earnings Decline

Holcim Ltd., the world’s second-biggest cement maker, on Nov. 12 said it would shut a factory in Spain as earnings decline. German chemicals supplier BASF SE and French tire maker Michelin & Cie. are also cutting output and jobs. CRH Plc, the world’s second-largest building-materials supplier, this week cut its target for full-year earnings after weaker-than-expected sales in Europe.

“The financial crisis has arrived in the real economy,” BASF Chief Executive Officer Juergen Hambrecht said on Oct. 30. “It all has some kind of a flavor of a recessionary development.”

Other major economies may not be far behind the euro region as the International Monetary Fund predicts the worst global slump in almost three decades. The U.S. economy, the world’s largest, contracted 0.1 percent in the third quarter, after a fiscal stimulus package boosted it by 0.7 percent in the previous three months. The U.K. economy shrank 0.5 percent, marking the first decline in 16 years.

Further Cuts

The ECB last week lowered its benchmark rate by a half- point to 3.25 percent, the second such reduction within a month. Having raised rates as recently as July to combat inflation, policy makers are now signaling further cuts.

The euro region is already “in recession,” ECB council member Ewald Nowotny said yesterday in Brussels. “Inflation expectations should come down fast and that will give the ECB room for additional expansionary measures.”

Investors expect the ECB will lower its key rate by at least another half a percentage point at its next meeting on Dec. 4, Eonia forward contracts show. Economists at Fortis and Morgan Stanley this week revised their outlooks to show the ECB cutting to 2 percent next year, while those at Deutsche Bank expect 1.5 percent to be reached for the first time.

While the recent decline of the euro against the dollar and a halving in the price of oil from its peak may provide some strength to the economy, analysts warn the recession may persist for longer in Europe than in the U.S. because its policy makers have been slower to act than counterparts in Washington.

Fiscal Easing

Thomas Mayer, chief European economist at Deutsche Bank, calls the ECB’s July rate increase a “mistake” and estimates the region’s fiscal easing will be half that of the U.S. He predicts expansion in the U.S. will resume in the second quarter of 2009 and not until the final three months of the year in the euro region.

Recovery may also be delayed by debt-laden companies and labor laws that make it hard for payrolls to be cut. With its benchmark rate now the highest among the Group of Seven nations, inflation may still not retreat fast enough for the ECB, which seeks to keep it just below 2 percent. Competition among businesses is weaker than elsewhere and employers have less flexibility on wages because of regulations that set minimum levels or tie worker pay to past inflation rates.

Governments also are looking to protect their economies and support among voters. German Chancellor Angela Merkel said this week she may expand her fiscal stimulus program from the 50 billion-euro ($62.6 billion) package endorsed by her Cabinet last week. She and other leaders from the Group of 20 economies today begin crisis talks in Washington.

First Test

The response of governments may mark the first test of 2005 revisions to the Stability and Growth Pact, which caps deficits to 3 percent of GDP unless growth undershoots forecasts. EU Monetary Affairs Commissioner Joaquin Almunia said Nov. 4 that “we agree on the need to use the flexibility” contained in the revised pact.

“Monetary policy is not as effective as in previous crises and that brings us to fiscal policy,” said Carsten Brzeski, an economist at ING Group in Belgium. “We might see a 180-degree turn in Europe’s approach on using fiscal policy if it’s the last rescue anchor for the economy.”

RBS to cut 3,000 jobs worldwide

The bank has been hit hard by the global financial crisis

Royal Bank of Scotland (RBS) is to cut about 3,000 jobs in the next few weeks, the BBC has learned.

The positions will go in its global banking and markets workforce, spanning more than 50 countries, but will likely include City of London posts.

It is understood the bank’s High Street operations, and those of subsidiary NatWest will be unaffected.

RBS, which predicts a first annual loss this year, hopes to raise £20bn as part of the government’s bail-out plan.

It employs around 170,000 people, of which around 100,000 are in the UK.

“RBS is paying the price for lending far too much in the good times,” says business reporter Nick Cosgrove.

“It had too much exposure to the sub-prime market in the United States and it overpaid for the giant Dutch bank ABN Amro at the height of the boom.”

Sub-prime loans are those to people with poor credit records. An RBS consortium paid 71bn euros ($91bn; £61bn) for ABN Amro in October 2007.

Unemployment figures

The news of RBS’s cuts comes within 24 hours of BT saying it will have cut 10,000 posts by March next year.

Recent days have also seen announcements of a total of more than 5,000 jobs axed by Virgin Media, Yell, GlaxoSmithKline and JCB.

Official figures earlier this week revealed UK unemployment in the three months to September at an 11-year high of 1.82 million.

Meanwhile, Prime Minister Gordon Brown will join a meeting of 20 world leaders in Washington this weekend for a summit on the global economic downturn.

Earlier this month, RBS announced expectation of a first full-year loss in its almost 300-year history.

The announcement followed a £691m loss in the first half of the financial year.

The bank also detailed plans to raise up to £15bn from investors by selling shares at 65.5p each. If the shares are not taken up, the government will acquire them.

The government will also directly buy preference shares in the bank – worth a total of £5bn.

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Intel, the world’s largest semiconductor maker, sank 6.7 percent in Germany after cutting its fourth-quarter revenue estimate by about $1 billion. Zurich Financial dropped 1.7 percent. Emerging market stocks fell, sparking trading halts in Kuwait and Russia.

The MSCI World Index lost 1 percent to 861.25 at 8:34 a.m. in London as all 10 industry groups decreased. The German economy, Europe’s largest, shrank more than economists expected in the third quarter, confirming it ha s entered its worst recession in at least 12 years.

Germany’s slump “was a steeper drop than I was fearing,” said Andrew Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London. “We’ll see equities go lower. People will have to revise down further their outlook for corporate earnings.”

Gross domestic product in Germany dropped a seasonally adjusted 0.5 percent from the second quarter, when it fell a revised 0.4 percent. Economists expected a 0.2 percent decline in a survey.

Europe’s Dow Jones Stoxx 600 slipped 0.1 percent as six stocks fell for every five that rose. BHP Billiton Ltd., the world’s largest mining company, sank 3.8 percent as metals prices slumped. Futures on the Standard & Poor’s 500 Index added 0.5 percent. The MSCI Asia Pacific Index sank 5 percent today.

Earnings Scorecard

Earnings for the 1,428 companies in western Europe that reported results since Oct. 7 declined 17 percent on average, trailing expectations by 7.7 percent.

The MSCI Emerging Markets Index slid 3.2 percent. The Kuwait Stock Exchange suspended trading after a court ordered its closure to protect investors from further losses after the bourse’s main index slid 31 percent this year. The measure declined 10 percent this week and is at its lowest since July 2005. The Micex Stock Exchange, Russia’s biggest bourse, halted trading for two days after stocks plunged.

More than $29 trillion has been erased from the value of global equity markets as credit losses and writedowns totaled $949 billion in the worst financial crisis since the Great Depression. Europe’s Stoxx 600 is down 44 percent in 2008, headed for its worst year since records began in 1987.

Intel, STMicro

Intel fell 6.7 percent to $12.62 in Germany. The company, whose chips run more than three-quarters of the world’s computers, said its profit margin also will fall short of an earlier prediction. The company cited “significantly weaker” demand across its entire product line.

STMicroelectronics NV, Europe’s largest maker of semiconductors, lost 2.6 percent to 6 euros. Infineon Technologies AG, the region’s second-biggest, retreated 2 percent to 2.26 euros.

LG Display Co. tumbled 11 percent to 20,100 won in South Korea, while Sharp Corp. fell 8.4 percent to 667 yen in Japan. Samsung Electronics Co., the world’s second-largest semiconductor maker after Intel, lost 1.4 percent to 474,000 won.

Zurich Financial dropped 1.7 percent to 212.2 francs. Switzerland’s largest insurer said third-quarter profit sank 90 percent to $154 million, falling more than analysts estimated, after debt writedowns and losses from hurricanes in the U.S.

BHP tumbled 3.8 percent to 912.5 pence, while Rio Tinto Group, the world’s second-biggest iron-ore supplier, lost 3.5 percent to 2,458 pence. Copper slid to the lowest in more than three years in London.

StatoilHydro, Norway’s largest oil and natural-gas producer, declined 2.3 percent to 109.9 kroner. Crude oil fell below $55 a barrel as slowing economies of the major consuming nations cuts demand for fuels.

ICAP

ICAP Plc, the biggest interbank broker, tumbled 10 percent to 255 pence, and rival Tullett Prebon Plc lost 9.8 percent to 155 pence. The companies were downgraded to “underweight” at Morgan Stanley, which cited a `tough revenue outlook.” ICAP was lowered from “equal-weight” while Tullett Prebon was cut from “overweight.”

“Our work with heads of trading/sales and consultants drives our revenue expectations,” the analysts, including Chris Manners, wrote in a research note dated today. “We expect 2009 revenue declines of 5-25 percent by product.”

Most of the 10,000 cuts, out of a workforce of 160,000, will be in the area of “indirect labor” such as agency, contractors, subcontractors and offshore workers, the company said in a statement today. Earnings before interest, taxes, depreciation, amortization and costs to cut jobs dropped 1.3 percent to 1.43 billion pounds ($2.1 billion) in the fiscal second quarter.

BT surged the most in six years in London trading. The economic downturn makes it more difficult to win new clients and complete contracts, Chief Financial Officer Hanif Lalani said in a Television interview today. About 4,000 positions of the planned 10,000 have already been slashed, BT said. Job cuts among people working directly for BT will be largely achieved through natural turnover, the company said.

“It’s definitely the right thing to do,” said Andy Lynch, a fund manager at Schroder Investment Management Ltd., which oversees $2.9 billion. “It’s currently difficult to win new business, so cost cuts are necessary do defend profitability.”

BT gained as much has 14.2 pence, or 13 percent, to 126.7 pence, the biggest intraday surge since September 2002. The stock, which before today had lost 59 percent this year, traded at 124.7 pence as of 8:38 a.m. in London.

Analysts predicted second-quarter Ebitda excluding costs for job reductions of 1.37 billion pounds and sales of 5.24 billion pounds, the average estimates in a News survey.

`Not Good Enough’

The company aims to cut costs by 700 million pounds to 800 million pounds this fiscal year, Livingston told reporters in a conference call today. When asked how long he predicts the current economic slump will continue, he said it “will get worse before it gets better.”

BT said on Oct. 31 that second-quarter Ebitda was “slightly below expectations” in the three months through September. The company cited lower cost savings than forecast, a disappointing performance in the global services division and a slump in the U.K. The company reiterated Ebitda in the 12 months through March is predicted to show a “small” decline, while sales will rise.

“Three out of our four business units, BT Retail, BT Wholesale and Openreach are delivering on or ahead of target,” Chief Executive Officer Ian Livingston said today. “But profits in BT Global Services are simply not good enough and we are taking decisive action to put matters right.

The head of the global services unit, Francois Barrault, resigned on Oct. 30. He was replaced by Lalani.