Citing current 'instabilities' such as the US trade deficit and the US national debt in the bank's quarterly economic review released today, Rabobank economists are urging central banks to 'undertake a coordinated effort to bring down the value of the US dollar to a more sustainable level' vis-a-vis the euro.

The bank's economists point to the fact that the Chinese central bank has thus far been buying US dollars on a large scale, thus effectively supporting current currency trading levels, but the researchers said that several factors may force the Chinese central bank to stop buying dollars, which could result in a worldwide sell-off of US dollars by currency traders as confidence in the currency would fade.

Some of the factors mentioned could be protectionism of the US domestic market by lawmakers, or an oil-exporting country like Iran deciding to switch to the euro instead of the dollar for oil trading purposes as a result of political tensions, the economists said.

The Rabobank economists also argue that the US needs to start reducing its national debt and budget deficit, and decrease the country's trade deficit to prevent a possible loss of confidence in the dollar by currency markets.

The landmark agreement among GM, the United Auto Workers union and parts maker Delphi Corp. -- a former GM subsidiary now in bankruptcy protection -- offers employees $35,000 to $140,000, based on seniority and age.


Ed Wolff works at Delphi Corp.'s plant in Dayton, Ohio. About 13,000 Delphi workers are eligible for the buyouts.
Ed Wolff works at Delphi Corp.'s plant in Dayton, Ohio. About 13,000 Delphi workers are eligible for the buyouts. (By David Kohl -- Associated Press)
What's Being Offered
As part of the deal with the United Auto Workers, 105,000 hourly GM workers and 13,000 Delphi workers will be eligible for voluntary early retirement buyouts of between $35,000 and $140,000. What's being offered:
Buyouts Only A Partial Solution For Delphi
The plan yesterday to offer buyouts to thousands of hourly union workers at beleaguered Delphi Corp. may not end the company's troubles as the auto parts giant struggles to cut costs and emerge from bankruptcy protection.
Background

* 2005 Loss For GM To Jump $2 Billion
* GM to Cut White-Collar Retirement Costs
* Delphi Puts Off Court Action
* Delphi Rescinds Plan To Slash Union Pay

GM sells 78 percent of GMAC Commercial Holding
NEW YORK (Reuters) - General Motors Corp. on Thursday said an investor group has completed the acquisition of a majority interest in GMAC Commercial Holding Corp. from GM's financing arm, General Motors Acceptance Corp.
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It is unclear how many of the auto goliath's 105,000 hourly workers will take the buyouts, though a significant portion are expected to. About 13,000 workers at Delphi -- GM's largest parts supplier -- will also be eligible for the buyouts.

Once the cornerstone of American manufacturing and cultural might, GM is laden with massive pension and health-care costs for its hundreds of thousands of retirees and their families. Meanwhile, vehicle sales have been hammered by high fuel costs while increasing waves of foreign rivals hit U.S. shores, shrinking GM's once-dominant market share from more than 50 percent to about 26 percent.

"GM invented the modern corporation, and it worked really well, but now it's over," said Sean McAlinden, the chief economist at the Center for Automotive Studies. "This is the end of 20th-century industrial America and hopefully the beginning of 21st-century industrial America and a globalized auto industry."

Under the new deal, GM and Delphi hourly employees -- mostly factory workers -- have a range of options to leave the two companies. For instance, workers with 10 or more years of seniority can take a one-time payment of $140,000 to sever all ties to GM and Delphi. The workers would keep their accrued pensions but lose health-care and other post-retirement benefits. Employees with less than 10 years can chose a one-time payment of $70,000 to walk away under similar circumstances. As many as 5,000 Delphi workers could move back to GM jobs based on a condition of GM's 1999 spinoff of Delphi.

Workers over 50 years old with at least 10 years on the job can retire immediately with full health-care and pension benefits. GM said it didn't know the full costs associated with the buyout. The deal requires approval of the bankruptcy court judge in the Delphi case.

If a large number of workers take the buyouts, yesterday's agreement will slash company payroll costs and may help quell troubles extending beyond GM. At Delphi, UAW members had threatened a strike, as management demanded hourly wage cuts of more than one-half. Yesterday's deal somewhat reduces the likelihood of a costly Delphi strike that would have further destabilized cash-strapped GM and potentially engulfed the industry.

But some industry experts said the deal only temporarily relieves the burden of pension and health-care costs without fixing the problem.

GM pioneered generous benefits for workers, mainly the so-called "30 years and out" paradigm that guaranteed lifetime employment and retirement. But now, because of skyrocketing health-care expenses and intense global competition, GM says it can no longer afford the bills.

Worker reaction to yesterday's news was mixed. Some UAW members who posted to online forums complained that the union had sold out its membership.

Todd Jordan, a 27-year-old machine operator at a Delphi plant in Kokomo, Ind., said he will encourage co-workers not to take the offers. He said more focus needs to be placed on mismanagement at GM and Delphi as the source of the companies' woes.

"I just don't think that getting rid of autoworkers in America is the answer," Jordan said in an interview. "Downsizing our labor force will hurt our economy and hurt our quality in the factory."

Jordan said he fears an exodus of more senior workers who know the facilities' operations best. Another fear is that incoming workers at lower wages would feel sold out by other people in the plant. "How's it going to work if I'm working beside somebody who makes $14 an hour and I make $27," he asked.


Ed Wolff works at Delphi Corp.'s plant in Dayton, Ohio. About 13,000 Delphi workers are eligible for the buyouts.
Ed Wolff works at Delphi Corp.'s plant in Dayton, Ohio. About 13,000 Delphi workers are eligible for the buyouts. (By David Kohl -- Associated Press)
What's Being Offered
As part of the deal with the United Auto Workers, 105,000 hourly GM workers and 13,000 Delphi workers will be eligible for voluntary early retirement buyouts of between $35,000 and $140,000. What's being offered:
Buyouts Only A Partial Solution For Delphi
The plan yesterday to offer buyouts to thousands of hourly union workers at beleaguered Delphi Corp. may not end the company's troubles as the auto parts giant struggles to cut costs and emerge from bankruptcy protection.
Background

* 2005 Loss For GM To Jump $2 Billion
* GM to Cut White-Collar Retirement Costs
* Delphi Puts Off Court Action
* Delphi Rescinds Plan To Slash Union Pay

GM sells 78 percent of GMAC Commercial Holding
NEW YORK (Reuters) - General Motors Corp. on Thursday said an investor group has completed the acquisition of a majority interest in GMAC Commercial Holding Corp. from GM's financing arm, General Motors Acceptance Corp.

But Melvin Davis, vice president of UAW Local 2164 in Bowling Green, Ky., and a 30-year veteran of GM, said workers have been enthusiastic about what they've heard so far. He said he is unsure if he will take a buyout until he sees the details. Also, industrial jobs in the area are hard to find, he said.

"The main thing everyone is looking at is the dollar sign," Davis said. "Overall, it seems to be a pretty good offer."

Meanwhile, Larry Jones, 52, a 28-year veteran of a GM plant in Romulus, Mich., said his acceptance of the buyout would depend on the details, which he has not seen, including whether health-care and other benefits are guaranteed.

If he takes it, he plans to become a blackjack dealer in a nearby casino. "I'd love to see a person with 30 years take the retirement so young people can get a job and get a decent income," he said, sipping a Bud Light in a Romulus bar last night.

Delphi called the deal "a critical milestone in its restructuring." The agreement could open the door to lower pay, plant closings and divestitures that will affect Delphi's remaining workers. These are all thorny areas for labor. Delphi had threatened to slash union workers' salaries to as little as $9.50 per hour from the current rate of $27 per hour. The proposal galvanized labor opposition, forcing Delphi to back off. GM was drawn into the talks because of legal and financial ties to its former subsidiary Delphi and the prospect of a strike.

Delphi said it will continue talks with GM and the UAW to resolve remaining issues. The deal outlined yesterday does not specify what Delphi workers will be paid once the supplier emerges from bankruptcy protection, a key issue for labor. Delphi said it will continue talks with the union to work for a comprehensive agreement, including the wage issue, by March 30.

If the company cannot settle with the union, it can extend the deadline for talks or ask a bankruptcy judge to throw out the existing high-wage contract and impose lower wages.

According to the Center for Automotive Research, the average age of a GM worker is 50, and many are within a few years of hitting the 30-year retirement point, if they haven't already surpassed it.

In a statement, GM chairman and chief executive Rick Wagoner said he is pleased with the deal. Wagoner has cited the resolution of the Delphi situation as a major corporate objective.

Wagoner and his team at GM have lots of other problems to untangle. GM lost $10.6 billion last year and is in the midst of a vast overhaul of its North American manufacturing operation. GM is wrestling with an ongoing government accounting investigation, important new-vehicle launches and the complicated sale of its GMAC financing subsidiary.

GM has been hounded by financial analysts and investors who are pressing for faster change at the automaker. Some have predicted bankruptcy for GM if its many problems aren't solved.

GM is heavily dependent on Delphi parts. For example, Delphi supplies heating and air-conditioning units for GM's full-size sport-utility vehicles, the success of which are key to GM's ability to reverse steep financial losses. In recent years, GM executives working closely with UAW leaders have defused problems that could have blown up into strikes.

Charles Craver, professor of labor and employment law at George Washington University, called yesterday's deal a temporary slowdown in a "rush to the bottom" for the cheapest labor. He said that in the long run, GM and Delphi will have to start laying people off.

Craver said U.S. industrial companies are in dire straits because health-care and retirement costs in the U.S. are so high. "We have to do something that will help fill that gap and alleviate the huge amount of pressure on private employers," Craver said.

Car-parts supplier Dana Corporation defaulted last week on $2.5bn of debt, following Delphi and Tower Automotive last year.

Concern that General Motors may now be sliding towards the brink - linked to an estimated $200bn in credit derivatives - has renewed fears that the over-heated credit swap market could seize up in a crisis.

Global investors are already jittery after the crash of the Icelandic krona, which sparked flight from hot assets as far afield as Hungary, Turkey and New Zealand.

There is concern that monetary tightening in Europe, Japan, and America in unison might drain much of the excess liquidity fuelling the global asset boom.

Timothy Geithner, president of the New York Federal Reserve, warned in a recent speech that the $300,000bn derivatives market had raced ahead of the infrastructure needed to support it.

He said the plethora of new instruments may have led to a more dangerous concentration of risk.

"They have not ended the tendency of markets to occasional periods of mania and panic. They have not eliminated the possibility of failure of a major financial intermediary. And they cannot fully insulate the broader financial community from the effects of such a failure."

"There are aspects of the latest changes in financial innovation that could increase systemic risk in some circumstances, by amplifying rather than dampening the movement in asset prices," he said.

The New York Fed was caught off guard in 1998 when the Russian default caused global bond spreads to widen further than computer models had programmed.

Long Term Capital Management - a hedge fund with two Nobel laureates on its team - was left on the wrong side of almost $100bn in trades on Italian, Spanish, and Portuguese bonds, among others, until it was rescued by the emergency rate cuts. The Fed said at the time the meltdown had put the entire global financial system at risk.

This time Mr Geithner is demanding that the International Swaps and Derivatives Association (ISDA) clean up it act before - not after - any credit crunch. He said the "most conspicuous" problems were in the $12,400bn market for credit derivatives, which has doubled in size every year for the last decade. A "significant" proportion of total trades do not even match up, he said.

Credit derivatives are an easy way to bet on credit quality without having to buy actual bonds, which are less liquid. Mr Geithner said the risk was very heavily concentrated, with America's ten biggest banks holding $600bn in potential credit exposure (on $95,000bn of notional trades), equal to 175pc of their financial reserves.

"The same names show up in multiple types of positions. These create the potential for squeezes in cash markets, magnifying the risk of adverse market dynamics," he said.

Market traders are scathing about such warnings, accusing the watchdogs of basic ignorance. "Regulators have been going on like this for five years now," said one veteran.

Unconvinced by such blithe assurances, the investor Warren Buffett has been warning since 2003 that derivatives are a ticking "time bomb", although his new metaphor is New Orleans' burst levee.

This month, he was explaining it has cost Berkshire Hathaway $404m to extract itself from derivatives inherited through General Re, the reinsurance group.

He said: "We are a canary in this business coal mine. Our experience should be particularly sobering because we were a better-than-average candidate to exit gracefully.

"General Re has had the good fortune to unwind its supposedly liquid positions in a benign market. It could be a different story for others in the future," Mr Buffett said.

"There will be a right-sizing of the U.S. and European vehicle engineering groups," the newspaper quoted a GM executive as saying. "Where there's duplication of engineering among North America, Europe and South America, you can eliminate it and reduce the number of people involved."

The report comes a day after GM announced a sweeping program of buyouts intended to coax tens of thousands of its production workers to accept early retirement in a bid to cut its payroll and pension costs.

GM has set a goal of cutting 30,000 blue-collar jobs by the end of 2008 as it closes factories to adjust to a long-running decline in its U.S. market share.

The company has also set a goal of cutting its U.S. salaried levels this year, but it was not immediately clear if the reported engineering job cuts were part of that previously announced cost-cutting.

In a rare insight into the prime minister's private thoughts about some of Britain's closest European partners, Anthony Giddens warned of further trouble unless the three countries reform.

"Is there enough shock in France and Germany and Italy to produce ... changes because a great deal of Europe's unemployment is concentrated in those three countries?" the academic asked in an interview with Guardian Unlimited.

"There manifestly is a kind of crisis in France, Germany and Italy."

Lord Giddens' remarks came as the EU's 25 leaders prepare to descend on Brussels this afternoon for their annual spring summit, which is traditionally devoted to jobs and economic growth, known in EU parlance as the "Lisbon agenda". The meeting, which was meant to show voters that European leaders are concentrating on bread and butter issues after the rejection last year of the EU constitution, is being held amid an increasingly gloomy economic climate.

Violent street protests have erupted in France as students battle against a key reform designed to lower France's chronic youth unemployment which, at 23%, is among the worst in Europe. The "first employment contract" (CPE) is meant to encourage companies to hire young people by making it easier to fire workers under the age of 26.

With the French government destabilised by the street protests, Paris is spearheading a wave of protectionism that has alarmed more liberal countries like Britain. Dominique de Villepin, the embattled French prime minister who is championing "economic patriotism", has named 11 "strategic" French business sectors which should be shielded from foreign bidders.

More underhand methods are reportedly being used to protect other areas which should be open. Italy is accusing France of engineering a merger of Gaz de France and Suez, the Franco-Belgian energy giant, to undermine a bid for Suez by its Italian rival, Enel.

France's behaviour prompted an extraordinary series of attacks from liberals who believe that the EU's historic "four freedoms" - free movement of people, capital, services and goods - are under threat.

Giulio Tremonti, the Italian finance minister, likened the wave of economic nationalism to the mood of "August 1914". Charlie McCreevy, Ireland's arch free market European commissioner, said it was useless building "political Maginot lines" around a country's economy, a barbed reference to France's famously useless defences in the second world war.

Amid this atmosphere the Italian prime minister, Silvio Berlusconi, is said to be spoiling for a fight at the summit. Under severe pressure in the Italian general election campaign, Mr Berlusconi is planning to criticise the French president, Jacques Chirac.

But Mr Berlusconi is in such a weak position back home that he is struggling to win support. Italy was forced to withdraw a plan to publish a letter condemning protectionism after liberal countries, such as Britain and Sweden, refused to sign up.

Britain is wary of siding too closely with Mr Berlusconi because Downing Street is calculating that he may well be out of office within weeks. No 10 is understood to have dispatched emissaries to mend fences with his challenger, Romano Prodi, after Mr Blair fell out with him during his time as European commission president.

In his Guardian Unlimited interview Lord Giddens made clear that Blairites regard Mr Berlusconi as a failure. "Italy's got virtually zero growth rate," the former director of the London School of Economics said.

"Berlusconi ... [is] a businessman and [was] supposed to apply his special skills to pull the economy round. That hasn't happened at all. The economy is in a worse condition than it was when he got into power."

Lord Giddens said that Italy, France and Germany should follow the example of Britain, the Netherlands and Scandinavian countries which have reformed their labour markets. "The Netherlands and the UK were two of the weakest economies in Europe for at least 20 years. It was consciousness of that in the end which prompted enough motivation for reform."

His remarks were echoed by Peter Mandelson, Britain's European commissioner, who accused many European countries of failing to wake up to the challenge of globalisation. In a recent interview with the Guardian, he said: "I don't know whether we're witnessing the death throes or the birth pangs of protectionism ... People are coming to terms with new forces in the global economy.

"We're not going to come to terms with that by trying to shelter ourselves from the global economy and what is changing in it. Sometimes you listen to people and wonder if they just imagine that if they bring a comfort blanket over their heads far enough and firmly enough all that is happening in the world will pass them by and they can reemerge and carry on business as usual as if nothing has changed in due course. That, to put it mildly, is an unrealistic assumption."

The two-day meeting was supposed to focus on economic co-operation and reform but is likely to be overshadowed by a simmering row over protectionism.

France and Italy have clashed over a deal to merge two French energy firms, which critics say thwarts competition.

Italy has failed to persuade EU leaders to issue a declaration condemning so-called "economic nationalism".

Takeover battles

But Italian Prime Minister Silvio Berlusconi is still expected to call for countries to uphold the rules of the single market and not protect firms from foreign takeover - putting him on a possible collision course with French President Jacques Chirac.

Analysis: Modest summit goals

President Chirac is expected to mount a staunch defence of France's policy of giving firms in key sectors of the economy - such as defence and energy - extra legal protection from takeover.

This policy - dubbed "economic nationalism" - has been criticised by European Commission President Jose Manuel Barroso among others.

He has called on EU governments - several of which have openly opposed foreign takeover deals in the steel, banking and energy sectors - to tone down nationalist rhetoric.

EU leaders had been hoping to push the dispute to one side, focusing instead on issues such as energy co-operation and measures to increase youth employment.

French students protesting about new employment contracts
French labour market reforms have sparked widespread protests

An Italian plan which would have seen all 25 EU members sign a letter condemning protectionism was dropped on Wednesday.

Rome was forced to back down after a number of other countries - including Denmark, Finland, Ireland, the Netherlands and Sweden - refused to support the move.

But observers believe that Mr Berlusconi - who is trailing in the polls ahead of next month's general election in Italy - is unlikely to let the matter rest.

"I think it is almost certain that he will use the summit to launch an attack against French protectionism and reaffirm his liberal values," said Gianni Bonvicini, director of the Italian Institute of International Affairs.

Jobs focus

Mr Berlusconi could win backing from the United Kingdom, as Prime Minister Tony Blair is a strong supporter of moves to open Europe's state-dominated energy markets to more competition.

The Austrian Presidency wants the summit to focus on job creation, cutting bureaucracy and investment in skills and scientific research.

Despite the outlook for many EU economies starting to improve, France and Germany are still suffering from high unemployment.

The EU's record of job creation since it launched the Lisbon Agenda - a 2000 plan aimed at transforming Europe into the world's largest economy - has been poor.

French efforts to reform its labour market by giving employers more flexibility to hire and fire workers have provoked widespread protests in recent weeks.