Daily Archive: February 10, 2013

Feb
10

Europe’s austerity hawks are celebrating a triumph over peanuts | Stephanie Blankenburg

Cameron and Merkel’s budget deal is an ideological victory that solves none of Europe’s deep political rifts

The compromise on the next long-term EU budget for 2014 to 2020, achieved last Friday in Brussels, has invariably been hailed as a victory for Europe’s austerity hawks, led by Britain and Germany, over its austerity doves, led by France. This it undoubtedly is. The new budget plan – which is what it remains for now: an executive plan to be put to parliament – has also been praised as a victory for the European Union on the grounds that any agreement was better than a repeat of the negotiation failure last November. This may be true in the short term, but it is much less clear beyond the shallow euphoria of next-day celebrations.

Economically speaking, the night-long standoff between pro- and anti-austerity factions, with Germany conveniently playing the role of master broker, was a storm in a teacup. The EU budget is pocket money, granted by member states to a supranational rump agency, currently involved in firefighting an existential crisis of its most ambitious project, European monetary union (EMU). And it still must be agreed in advance how that pocket money will be re-distributed to member states.

True, this is the first time that real cuts – mainly to cross-border infrastructure projects – have been agreed, and they will hurt those directly affected. But in the wider picture of an EU budget that amounts to scarcely 1% of the region’s gross national income, the victory of austerity hawks over austerity doves is to be counted in pennies rather than pounds, its true significance being ideological and political. By comparison, the US federal budget is nearer 20% of US GDP, and the national budgets of many EU member states are around half of their GDP, at market prices.

More importantly, the real fight about the role of nation-states in promoting European integration is taking place elsewhere. At its heart is the European fiscal compact that entered came into force on 1 January 2013. This in effect prevents EMU governments from borrowing, for whatever purpose, beyond a historically low debt-to-GDP ratio. If the EMU, or any member states, were hit by mass unemployment, an ecological crisis of major dimensions, a war or an invasion by aliens, its governments would have to stand by and let the private sector sort out the problem.

On closer inspection, the political basis for this ideological victory, won for the supposed reason of austerity over the unreason of public profligacy, also looks fragile. Germany’s Angela Merkel may have succeeded, yet again, as the EU’s undisputed power broker, while re-asserting herself as a credible austerity hawk at home. But she faces an uphill struggle in Germany’s national elections in September. While her Christian Democratic party is set to remain the strongest single party, its coalition partner, the Free Democratic party, is heading for political implosion. Merkel thus risks losing the election unless she can strike a deal with the Social Democrats.

François Hollande has been foiled, for now, in forging a strong enough pro-growth, anti-austerity alliance with Italy and Spain. This was mainly due to transitory factors, with Italy’s Mario Monti focusing on elections at home, and Spain’s Mariano Rajoy preoccupied with a corruption scandal. The battle lines that emerged between Germany and France at the weekend may be redrawn soon enough. With Merkel’s hands tied in the runup to German elections, Hollande will gain space for manoeuvre. In this context David Cameron is likely to be no more than one of Merkel’s famous tactical allies, useful one day, discarded the next.

Even if the long-term EU budget is approved, in one form or another, by the European parliament, the cuts achieved are economically insignificant in the wider picture. Politically, nothing has been resolved: the north-south divide in the EU (and the EMU) is widening, and the EU budget is woefully inadequate to even begin to address the underlying macroeconomic imbalances and socio-economic tensions. Ideological triumphalism over peanuts is a pathetic substitute for serious debate about deep rifts in the process of European integration.

European UnionEuropean monetary unionEuropeAngela MerkelDavid CameronFrançois HollandeMario MontiMariano RajoyEconomicsGermanyFranceStephanie Blankenburgguardian.co.uk

Feb
10

Barclays admits mistake in reporting of ownership of 2008 investment lifeline

Bank says ‘drafting error’ led to investor of £3bn being named as Manchester city owner Sheikh Mansour bin Zayed Al Nahyan

Trouble-hit Barclays has admitted making an embarrassing gaffe over the reporting of a lifeline investment in the bank that saved it from seeking a government bailout during the financial crisis of 2008.

Sheikh Mansour bin Zayed Al Nahyan, the owner of Manchester City, was named at a vote of shareholders on 24 November as the investor who had pumped in £3bn to the then cash-strapped bank.

But the following day, only the small print of regulatory disclosures by the bank showed that he had passed the stake on to the International Petroleum Investment Company, owned by the state of Abu Dhabi, of which he is chairman.

The Barclays annual report of 2008, issued much later, still refers to Mansour as being the owner of the stake, something that Barclays now calls a “drafting error”.

The mistake came to light in during an investigation by the BBC’s Panorama programme to be aired on Monday night . The programme questions whether shareholders were properly kept informed.

Professor Alistair Milne, an expert on City regulation, tells Panorama that banks are expected to release accurate information about major deals. “Any discrepancy of that kind is serious because it raises questions in the minds of investors,” he says. “Every bank is well aware the annual report is a critical document and a huge amount of time and attention is put in to trying to get all the details correct.”

The mistake comes at an awkward time for the bank which is in the middle of an investigation into disclosures it made when it raised funds from Qatar at the same time. It also comes just ahead of a key “strategy day” briefing by Barclays chief executive, Antony Jenkins, when he will try to outline a new way forward for a business hit by Libor and others

Feb
10

Lloyds TSB survey adds to signs that UK economy is slowly recovering

OECD the Paris-based thinktank forecasts that UK economy will grow by 0.7% in 2013 and the eurozone will grow equally slowly

Businesses entered the new year in buoyant mood according to a wide-ranging survey that adds to the growing pile of evidence showing the UK will avoid a triple dip recession.

A slowdown in the last months of 2012 was reversed in January following a jump in activity, according to the Lloyds TSB regional purchasing managers’ index.

Eight of the nine regions in the study expanded output with Yorkshire and Humber recording the fastest rate of growth.

The rebound also encouraged firms to hire more staff, confirming a Recruitment and Employment Confederation survey last week that showed an increase for the fourth consecutive month in permanent jobs coupled with a rise in starting salaries.

Lloyds said that although the latest figures showed only a moderate pace of expansion across the regions overall, this was the highest level of output growth seen since September 2012. Companies that saw an increase in new orders mostly cited improvements in business confidence and the launch of new projects, according to the survey, which was conducted by financial data provider Markit.

David Oldfield, a spokesman for Lloyds, said: “Despite fears that private sector output at the start of the year would be disrupted by the heavy snowfall in January, the latest survey revealed an upturn in business activity across most of the English regions.

“Yorkshire and Humber led the way in January, with the fastest rate of output growth of all the English regions, and the east Midlands and the south-east saw a welcome return to output growth last month. The only exception to the brightening regional economic picture at the start of 2013 was the north-east, which saw moderate declines in business activity and incoming new work.”

Several surveys of business activity have pointed to a recovery in the UK’s fortunes in the new year after a sharp slowdown in the last three months of 2012. Official figures showed the economy contracted by 0.3% in the fourth quarter of the year, triggering fears that Britain would suffer its third recession since the financial crash. A recession follows two consecutive quarters of contraction.

Construction output has improved and the services sector, which makes up three quarters of economic activity, remained steady in January. High street lending has improved and unemployment has declined in recent months.

However, many economists have warned that the UK economy remains weak and growth is unlikely to pick up this year. The OECD, the Paris-based think tank, forecasts that growth will be 0.7% in 2013 and that the UK’s major export destinations in the eurozone will grow equally slowly or remain in recession.

Meanwhile the latest Bank of England report due this week is expected to say inflation will stay above the 2% target for the rest of this year.

The Recruitment and Employment Confederation/KPMG survey of the jobs market showed the number of vacancies increased to a 21-month high last month, suggesting employers are regaining confidence in hiring following the double-dip recession.

Recruiters placed more people in permanent jobs in January with engineering and IT staff most in-demand. Confirming the Lloyds survey, the North of England saw the fastest rate of growth in permanent jobs.

Economic growth (GDP)EconomicsRecessionInflationBank of EnglandPhillip Inmanguardian.co.uk