Banking

 

Powered by Guardian.co.ukThis article titled “Bank of England governor has ‘no regrets’ over interest rates – business live” was written by Graeme Wearden, for theguardian.com on Thursday 5th November 2015 14.52 UTC

Martin Beck, senior economic advisor to the EY ITEM Club, agrees that the Bank was more downbeat than expected:

“While we expected a downgrade to the MPC’s growth and inflation forecasts in November’s Inflation Report, the MPC’s latest assessment of the economy struck an unexpectedly dovish tone for interest rates.

“Based on market expectations that the first interest rate rise won’t happen until Q1 2017, the MPC forecast that inflation would only slightly exceed the 2% target by that date. This implies the Committee’s view of the appropriate timing of a rate rise is roughly in line with the market consensus.

Bank of England

Updated

The Institute of Directors has hit out at the Bank of England for playing a “dangerous game” by leaving interest rates so low.

Chief economist James Sproule, who has been calling in vain for a rate hike, says:

“Caution won out again at the Bank of England today, with the Monetary Policy Committee spooked by a worsening outlook for global growth. But, with strong consumer confidence and wages on the up, the arguments against raising interest rates from the current exceptionally low level are falling away.”

Sproule argues that the Bank is storing up trouble; asset prices are being forced up, consumers are putting on more debt, and capital is being misallocated.

And so it begins…

Savers should brace for interest rates to stay at record lows until perhaps 2017, says Maike Currie, associate investment director at Fidelity International.

“Super Thursday has quickly turned into Superfluous Thursday.

It’s now 80 months and counting since the Bank of England has failed to push the button on rising interest rates with its surprisingly dovish stance today….

It leaves investors and retirees facing the ongoing conundrum of finding a home for their money in an environment of low inflation and low interest rates – a backdrop which typically makes for measly returns

Updated

Kallum Pickering of Berenberg Bank has kindly sent a chart, showing how the BoE cut its growth forecasts today:

BoE forecasts

The FT’s Chris Giles reckons Carney attempted a repair job during today’s press conference, which was more hawkish than the actual Inflation Report.

He didn’t row too far – the pound is still down heavily.

Updated

The pound has been thumped against all major currencies since the Bank of England unleashed its unexpectedly dovish inflation report.

That highlights that investors expect rates to remain at record lows for at least another year.

If this was a “Super Thursday” club night*, you’d probably be entitled to a refund.

* – these still exist, right?

Press conference over. Hacks scramble back to base, Mark Carney and colleagues return to protecting the monetary affair of the nation.

I’ll pull some reaction together now.

Carney: We could cut rates (but we didn’t discuss it)

Business Insider’s Mike Bird asks Carney about the possibility that UK interest rates could be lowered from 0.5%.

He cites recent comments from ECB chief Mario Draghi on this issue of zero interest-rate policy, suggesting that borrowing costs could go lower than previously thought.

Carney replies that the MPC did not consider easing monetary policy today.

But it could potentially lower borrowing costs if needed.

Reuters snapped the key points:

  • BANK OF ENGLAND’S CARNEY – IF WE EVER NEEDED TO, WE COULD CUT RATES BELOW CURRENT LEVEL
  • BANK OF ENGLAND’S CARNEY – FACT WE ARE NOT AT ZERO LOWER BOUND WEAKENS ARGUMENT FOR NOT RAISING INTEREST RATES

That seems to have knocked the pound, it’s down 1.5 cents or 1% at $1.5230.

Mind you, that could be the impact of Mike’s wardrobe….

Q: What discussions has the BoE had with other central banks about the possibility that monetary policy diverges next year, with the UK and US may raising rates while the eurozone and Japan could get more stimulus?

It feels like we meet almost continually, says Carney wearily. We’ll be meeting again next week in Basel.

We don’t sit there saying ‘here’s what I told that press conference but here’s what we really think’, he promises

And he also insists that monetary policy isn’t secretly agreed in advance:

There is no major central bank that knows what it is going to do at its next meeting.

They all have frameworks and objectives, and the factors that influence its decisions.

And in all Carney’s years as a G7 central bank governor in Canada and the UK, this has only changed once:

The only time that was different was the depth of 2008, when we agreed to do certain things.

That was the wild days of October 2008, when the world banks announced co-ordinated rate cuts to try to calm the global panic.

Updated

Yield curves (which show investors’ expectations of rate hikes) have not matched up to the Bank’s own forecasts. So how worried is the governor that he’s losing credibility in the markets?

Carney insists that he’s “not at all” concerned about this. One can read too much into market yield curves.

Q: Some of this summer’s market mayhem was caused by speculation that US interest rates might rise soon, so are central banks making the situation worse?

Deputy governor Minouche Shafik agrees that there was significant volatility this summer – with the VIX index (which measures this) hitting its highest level since 2011.

But volatility has dropped back since, suggesting the markets are operating as they should.

We’re returning to how things were before the Great Moderation, Shafik adds.

Our Katie Allen asks Carney about the Bank’s belief that the UK economy is ‘resilient’ despite the government’s fiscal consolidation (George Osborne’s ongoing attempts to eliminate the deficit).

Q: Should we expect major changes to these forecasts in February, once we’ve seen the Autumn Statement?

We have incorporated the current fiscal plans into our forecasts, Carney says. We’ll make adjustment if the government’s fiscal stance changes but we won’t react to rumour.

And he notes that this fiscal consolidation is “material”, and has had a significant impact on the UK economy.

Updated

What are households expect to make of things?

Many people expect rates to go up in the next year, Carney replies, and that’s a “reasonable” idea.

Governor Carney isn’t spoiling us with too many straight answers.

Here’s the proof that the markets have been consistently wrong about UK interest rates going up:

Chris Giles of the Financial Times points out that house price inflation is running at 9% (according to the Halifax).

So, does the Bank need to unleash some macro-prudential tools to cool the housing market while it leaves rates so low?

Mark Carney agrees that the housing market appears to be picking up, and unsecured credit is growing too.

We do have to think about the balance in the recovery, and the potential implication of the continuation of those development…And that does bring into scope some macro-prudential issues.

That sounds like a YES.

So what might it mean? In theory, the Bank could impose tougher lending rules on banks and building societies to cool the market.

Updated

Q: The Federal Reserve says it could raise interest rates in December; Could the Bank of England say the same about the first half of 2016?

Mark Carney won’t be lured into any predictions.

We take a decision each month, based on many factors, and we are committed to getting inflation back to target, he says.

Sky News Ed Conway’s asks whether we should even bother looking at market expectations for bank rate (a key part of today’s inflation report).

Five years ago, market expected rates to be 3.75% today. A year ago, they expected 1%, so should we stop paying attention?

Carney says that the Bank doesn’t endorse these expectations.

Ed squeezes in a second question – is there something ‘chronic’ wrong with the UK economy that means rates are still so low, or have we just suffered a series of unfortunate events?

Ben Broadbent, deputy governor, responds, points out that the equilibrium inflation rate has been falling for many years, even before the financial crisis.

“There are deep global forces that were at work here – including demographics”

Therefore the level of official interest rates aren’t an arbitrary choice. – we are responding to the situation.

Our ambition is to return ‘sustainably’ to the inflation target, Carney says, rather than blunder by trying to fight the ‘persistent’ factors keeping prices low.

Updated

Carney: No regrets over rate predictions

Robert Peston has the microphone, and uses it like a laser beam to target Carney’s credibility.

Q: Do you regret telling the public that the decision over UK interest rates will come into ‘sharper relief’ at the turn of the year?

Absolutely not, Carney replies.

Growth has ticked down in recent months, but domestic conditions have evolved rather as the Bank expected. “Foreign effect” are to blame for weak inflation expectations.

We have a situation where there is mixed progress, but there is progress…. towards monetary normalisation.

Updated

Onto questions:

Q: Not much appears to have changed in today’s Inflation Report, but there’s a big reaction in the markets. Why?

Mark Carney says there have been some important changes since early August (the last meeting).

Firstly: Demand for risk-free assets has risen, and there’s been “a sharp selloff in risk assets”.

Bank funding costs are up, credit spreads are up, equity markets have fallen. There’s been “a big unwind”.

Secondly: concerns over the emerging markets has risen.

Now this is interesting. Carney says that the Bank expects to keep its stock of UK government bonds until interest rates have reached a level where they can be cut.

That means the BoE won’t be unwinding QE until rates have hit 2%.

There are a range of views among the monetary policy committee over the balance of risks to inflation, says Carney.

Mark Carney confirms that UK inflation is expected to remain below 1% until the second half of 2016, citing factors such as cheaper commodity prices and other imported goods prices.

Carney at Bank press conference
Carney at press conference Photograph: Bloomberg TV

Carney warns of global risks

“Remember, remember the 5th of November” grins Mark Carney as the press conference begins (maybe he’ll hand out some toffee apples later #hint)

So what’s memorable about today? There are some familiar themes – inflation remains low, rates remain unchanged, and it’s another 8-1 split.

But there are some subtle but significant shifts in the picture since August.

Global developments are the biggest change in the last three months; these post a downside risk to the UK economy.

But the UK economy is more encouraging, he adds.

Domestic momentum remains resilient, as does consumer confidence, while firms still have robust inflation intentions.

Updated

Bank of England Press Conference begins

The Bank of England press conference is starting now – you can watch it live here.

ITV’s Robert Peston is preparing to give Carney a grilling

The story: BoE signals rates will stay at 0.5% for a while

Here’s Katie Allen’s story on the Bank of England rate decision:

The Bank of England has sent a reassuring message to businesses and households that interest rates are to remain at their record low well into next year as it cut its forecast for near-term inflation.

The central bank signalled in its latest Inflation Report that interest rates would need to rise at some point from the current 0.5%, but it gave no indication a move was imminent and reiterated that when borrowing costs do go up, they will do so only gradually.

Rates have been at 0.5% since the depths of the global financial crisis more than six years ago. Minutes from the Bank’s latest rate-setting meeting, published alongside the report, showed that only one of the nine monetary policy committee members felt it was now time to start hiking. Ian McCafferty dissented from the rest of the MPC, as he has done in recent months, based on risks that inflation would start to pick up.

The Bank’s quarterly outlook said that based on recent falls in oil and other commodity prices, “inflation is likely to remain lower than previously expected until late 2017” and return to the government-set target of 2% in around two years’ time, then rise above it. The latest official figures put inflation at -0.1%.

The report also flagged a weaker outlook for global growth than at the time of its last forecasts in August and the MPC downgraded the prospects for emerging market economies. Such an outlook would continue to influence the UK economy and the path of interest rates.

Here’s the full story:

The Bank also flags up that market expectations of future interest rate rises have fallen since August:

It says:

Short-term interest rates in the United Kingdom, United States and euro area were lower in the run-up to the November Report than three months earlier.

While some of those falls may reflect lower expectations of the most likely path for policy, given the weaker outlook for global growth and inflation, some could also reflect increased perceptions of downside risks.

Bank of England inflation report

Updated

This chart explains why the Bank of England is worried about emerging markets:

Bank of England quarterly inflation report

The Bank’s new quarterly inflation report is online here (as a pdf).

It is packed with interesting charts.

These two show that the UK economy will take a serious hit if China suffers a hard landing.A 3% drop in Chinese growth wipes 0.3% off UK GDP.

Bank of England quarterly inflation report
Bank of England quarterly inflation report

The Bank says:

As in August, Chinese growth is projected to continue to moderate gently in the near term. But recent financial market developments have highlighted the challenges faced by the authorities in maintaining growth while both liberalising and rebalancing the Chinese economy…..

A sharp slowing in China could affect the UK economy.

Updated

Carney also told Osborne that inflation should start to pick up, from zero, in early 2016:

The Bank has also released a letter from governor Carney to chancellor George Osborne, explaining why he hasn’t managed to keep inflation on target.

He blames international factors such as cheaper oil and metals, the strength of sterling (pushing down the cost of imports) and limited earnings growth (although real wages are finally rising).

This chart of inflation forecasts shows exactly why the Bank isn’t rushing to raise borrowing costs:

The key message from the Bank is that the UK still needs record low borrowing costs to ward off the global downturn:

Peter Hemington, partner at accountancy firm BDO LLP, says the Bank of England made the right decision, given signs that UK growth is weakening amid a global slowdown.

“With rates so low, policymakers must act to insulate the UK economy from the increasingly gloomy global economic outlook. So far our recovery has largely been based on consumer spending, but we need business and public sector investment if we are to rebalance the economy, boost productivity and make sure that companies thrive across the country.

This will put the economy on the firmest possible footing for the potentially shaky months ahead.”

The Bank also reminds us that when (but when?!) Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.

The Bank of England remains fairly optimistic about the domestic UK economy.

The minutes say:

Domestic momentum remains resilient. Consumer confidence is firm, real income growth this year is expected to be the strongest since the crisis, and investment intentions remain robust. As a result, domestic demand growth has been solid despite the fiscal consolidation….

Robust private domestic demand is expected to produce sufficient momentum to eliminate the margin of spare capacity over the next year.

But with few inflationary pressures, and worries over the global economy, eight members of the committee voted to leave interest rates at 0.5%.

Updated

Pound hit by dovish Bank of England

DOWN GOES THE POUND.

Sterling is tumbling like a wounded hawk, as traders scramble to react to the Bank’s downgraded forecasts.

Sterling was trading at $1.5391 before the news broke, and it’s now dropped to $1.5312.

The Bank has also cut its inflation forecasts.

It now expects the Consumer Prices Index to remain below 1% until the second half of 2016, far from the official target of 2%.

BoE cuts growth forecasts on emerging market gloom

The Bank of England has also cut its forecasts for economic growth in 2015 and 2016.

In a gloomy statement, it reveals that it is less optimistic about the UK economy.

The outlook for global growth has weakened since the August Inflation Report. Many emerging market economies have slowed markedly and the Committee has downgraded its assessment of their medium-term growth prospects.

And the Bank also fears trouble in emerging markets:

While growth in advanced economies has continued and broadened, the Committee nonetheless expects the overall pace of UK-weighted global growth to be more modest than had been expected in August. There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies.

The BoE also voted 9-0 to leave its quantitative easing programme unchanged, meaning it will still hold £375bn of UK gilts.

Ian McCafferty was the only MPC policy maker to vote to hike to 0.75% again.

That has dashed speculation that Kristin Forbes or Martin Weale would join him on the hawks perch.

Updated

Bank of England leaves rates unchanged

BREAKING: The Bank of England has voted 8-1 to leave interest rates unchanged, at the current record low of 0.5%.

Updated

A Bank of England official is phoning the speaking clock right now…. (seriously).

ONE MINUTE TO GO!

Spoiler alert:

Reminder: We get the monetary policy decision at noon, along with the latest quarterly inflation report. Then there’s a 45 minute wait until Mark Carney faces the press pack.

File photo of the logo as seen at the Bank of England in the City of London<br />The logo is seen at the Bank of England in the City of London, Britain in this January 16, 2014 file photo. The Bank of England is expected to make an interest rate decision this week. REUTERS/Luke MacGregor/FilesGLOBAL BUSINESS WEEK AHEAD PACKAGE – SEARCH “BUSINESS WEEK AHEAD OCTOBER 5” FOR ALL 29 IMAGES” width=”1000″ height=”742″ class=”gu-image” /> </figure>
<p><strong>Over at the Bank, they’ll be putting the finishing touches to their announcements — we can expect some rapidfire tweeting once the clock strikes 12.</strong></p>
<p>That’s also the moment that economics correspondents are released from their lock-in. Fleet Street’s finest have been confined in the Bank this morning, getting an early peek at the Inflation Report. </p>
<p>My colleague <strong>Katie Allen</strong> is in Guardian colours….</p>
</p></div>
<p class=Updated

Super Thursday: What to expect

Here are some key points to watch for from the Bank of England today:

  1. The timing of a rate rise: Financial markets are pricing in the first rate hike in autumn 2016, but economists believe it will come sooner. Today’s data could force one side to rethink.
  2. The latest economic forecasts: Global inflation and growth look weaker since the Bank’s last big meeting, in August, so we could get downgrades today.
  3. The EU referendum. Is the Bank worried that Britain could vote to leave the EU? How much damage is the Brexit risk already causing?
  4. How the MPC votes. A second policymaker could join Ian McCafferty and vote to raise rates, or the committee could split 8-1 once again
  5. How the pound reacts. A hawkish performance from Mark Carney at the press conference could drive sterling up, which would not please exporters.

Marketwatch’s preview has more details:

5 things to watch for the Bank of England’s Super Thursday

The mood in the City is rather subdued today, as investors wait for the Bank of England to unleash a plethora of announcements and reports at noon.

The FTSE 100 has lost 27 points, under-performing the rest of Europe. It’s been pulled down by the mining sector, and supermarket chain Morrisons which posted a 2.6% drop in sales.

Biggest fallers on the FTSE 100
Biggest fallers on the FTSE 100 Photograph: Thomson Reuters

Alastair McCaig, Market Analyst at IG, predicts few surprises from the BoE today.

Last quarter’s Super Thursday was not that super and it is difficult to see where the shock and awe will come from this time round. City traders will have to digest a plethora of data in quick succession, with a rate decision, policy minutes and the inflation report all followed by a speech from Mark Carney.

We might see another member vote for change but other than a 7-2 result it would be hard to see any change being viewed as anything other than forced.

Despite the emissions scandal, Volkswagen still had two cars in the top-ten bestsellers in the UK last month.

This chart from today’s report shows that Golfs and Polos remained popular:

UK car sales
UK car sales Photograph: SMMT

And VW insiders are playing down suggestions that customers are shunning it.

ITV business editor Joel Hills says:

“It could have been a lot worse” a source at VW tells me. “UK sales are pretty robust”. VW’s Golf and Polo models moved up the best-seller list.

George Magnus

Experienced City economist George Magnus, adviser to UBS, is on Bloomberg TV now, arguing that there is no reason for the Bank of England to raise rates yet.

Instead, Mark Carney and colleagues should wait and let the US Federal Reserve make the first move (possibly at its December meeting).

Magnus says:

The danger if the Bank steals a march on the Fed it could push up the pound, which is bad for manufacturing.

Magnus also warned that the upcoming EU referendum is the “big unknown, hanging over the economy like a big black cloud”.

Two hours to go until the Bank of England begins the Super Thursday party:

Updated

The SMMT says it is too early to tell if the drop in VW sales is due to the emission scandal.

Mike Hawes, SMMT Chief Executive, argues that the UK car sector is still robust, even though sales growth has finally dipped.

“The UK car market has gone through a period of unprecedented growth and, so far, 2015 has been a bumper year with the strongest performance since the recession.

As expected, demand has now begun to level off but the sector is in a strong position, as low interest rates, consumer confidence and exciting new products combine to attract new car buyers. The current full-year growth forecast remains on track.”

Volkswagen UK sales fall nearly 10%

Volkswagen sales in the UK have fallen, suggesting the company has been hurt by the news that it faked emission test results.

Sales of Volkswagen-branded models tumbled by 9.8% year-on-year in October, from 15,495 to 13,970, according to the SMMT’s new report. That means its market share shrank from 8.62% to 7.86%.

Other VW brands saw sales fall.

SEAT sales tumbled by 32%, from 3,450 to 2,338, while Skoda dipped by 3%.

Audi, though, posted a 3% jump in sales compared to a year ago, even though it has been caught up in the scandal.

And it’s worth noting that other carmakers had a bad month. Sales of Minis (part of the BMW group) fell by a fifth from 5,262 to 4,112.

But it’s certainly not great news for VW, on top of the plunge in South Korean sales reported this morning (see 7.50am post)

Updated

UK car sales fall for first time in 43 months

Just in. UK car sales have fallen, for the first time since early 2012.

The Society of Motor Manufacturers and Traders reports that new registrations were down 1.1% in October, compared with a year ago.

Sales so far this year are still 6.4% higher than in 2015, but it looks like the long run of post-recession growth is finally tailing off:

UK car sales

Here’s the key points from the SMMT’s sales report:

  • New car registrations see 1.1% decline in October following period of phenomenal record growth.
  • Total market year-to-date up 6.4% to 2,274,550 units registered – the best performance on record.
  • Alternatively fuelled vehicle market enjoys 13.8% boost, with diesel and petrol registrations steady.

Just looking at the detail of the report now….

Updated

Jeremy Cook, chief economist at currency firm World First, reckons UK interest rates will remain at their record lows for another six months.

London newspaper City AM runs a ‘shadow MPC’, asking nine senior economists how they would vote.

And this month, it has split 6-3, with a trio calling for a rate hike.

One of the “shadow hawks” is Simon Ward of Henderson Global Investors, who argues:

Raise. Corporate liquidity is surging. Private pay growth is over three per cent, while productivity remains sluggish. Global risks have faded.

Andrew Sentance, who once served on the MPC, also believes the BoE should raise rates:

Here’s a handy chart showing which BoE policymakers appear keen to raise rates soon, and which are reluctant….

Andy Haldane, the premier Dove, has even suggested recently that rates might be cut to new record lows….

Updated

Some economists believe that divisions at the Bank of England over interest rate policy will widen today during Super Thursday.

At recent meetings, the monetary policy committee has split 8-1, with only Ian McCafferty voting to hike borrowing costs from 0.5% to 0.75%.

But a 7-2 split can’t be ruled out, or even a 6-3 (although that might be pushing it).

And that’s why Simon Wells, chief UK economist at HSBC, says today does feel like a “big day”.

Simon Wells of HSBC
Simon Wells of HSBC (left) Photograph: Bloomberg TV

He told Bloomberg TV:

It’s Bonfire Night, and if there are fireworks here, it will be in the vote.

Kristin Forbes has been very hawkish of late, and she may go and join McCafferty, and possibly Martin Weale too.

The markets would “react strongly” to a 6-3 split, probably driving the pound sharply higher on expectations of an early rate hike.

Wells expects that first rise will come in February 2016, so the BoE may be keen to communicate that today.

Today is probably the Bank of England’s last chance to prepare people for an interest rate hike early next year.

Brian Hilliard, chief U.K. economist at Societe Generale, explains:

“It’s make or break for clear communication on a first-quarter rate increase.

“If it is going to happen in February they’re going to have to send a strong and clear signal.”

German factory orders fall again

A German supporter with the national flags on her head watches the World Cup soccer match between Germany and Ghana at a public viewing area in Hamburg, southern Germany, on Wednesday, June 23, 2010. (AP Photo/Matthias Schrader)

As if the Volkswagen scandal wasn’t bad enough, Germany’s factories have also suffered another drop in demand orders.

Industrial orders fall by 1.7% in September, new figures show, the third monthly decline in a row.

That’s rather worse than expected – economists forecast a 1% rise – and it suggests Europe’s largest economy is suffering from weaknesses overseas.

The economy ministry didn’t try to sugar-coat the figures either, saying that “overall, industrial orders are in a weak phase”.

Updated

VW sales slide in South Korea

Sign at the Volkswagen Chattanooga Assembly Plant in Chattanooga, Tennessee November 4, 2015. Volkswagen told NHTSA that it would recall about 92,000 vehicles, which are some 2015 and 2016 models of Jetta, Passat, Golf and Beetle, in the United States. REUTERS/Tami Chappell

We have firm evidence that the emissions scandal has hurt Volkswagen, from South Korea.

Sales to South Korean customers almost halved in October, new figures show, dropping below the 1,000 mark for the first time since 2011.

The Korea Automobile Importers & Distributors Association reported that VW only sold 947 cars last month, following the revelations that it used software to cheat nitrogen oxide emission tests. That’s 46% lower than a year ago, and 67% below September’s figures.

The sales collapse for Volkswagen contrasted with a 6% rise in sales of imported cars in South Korea in the same period, Reuters points out.

Have UK drivers also abandoned VW? We find out at 9am when the latest sales figures are released….

Updated

Introduction: Bank of England rate decision, and more…

Bank of England Governor Mark Carney makes a speech at The Sheldonian Theatre in the University of Oxford on October 21, 2015 in Oxford, United Kingdom. Carney spoke about the benefits and risks of Britain’s EU membership. (Photo by Eddie Keogh-Pool/Getty Images)
Bank of England Governor Mark Carney, who will hold a press conference at 12.45pm today Photograph: Pool/Getty Images

Happy Super Thursday!

The Bank of England is preparing to hit us with a quadruple whammy of news and economic data at noon.

Firstly, the Bank’s Monetary Policy Committee will set UK interest rates. A rate rise isn’t expected, but some members of the MPC may vote for the first hike since the financial crisis began. Last month they split 8-1, but could another hawk jump the fence?

The minutes of the meeting are also released at noon, showing the details of the committee’s discussions and its views on the UK and global economy.

We also get the latest quarterly inflation report, packed with new economic forecasts.

And if that’s not enough of a treat, the Bank governor Mark Carney then holds a press conference at 12.45pm. That’s his opportunity to guide the markets – and potential housebuyers and borrowers – on the chances of an interest rate rise in early 2016.

Also coming up today….

We get new UK car sales figures for October at 9am. They are expected to show that some customers have deserted Volkswagen following its emissions crisis.

In the City, we have some disappointing results from Morrisons, which has reported its 15th straight quarterly sales fall.

And the European financial markets are expected to be calm, after a solid trading day in Asia which saw the Chinese market rise 20% above its recent low.

That means they are back into a bull market, as traders put this summer’s panic selling behind them.

We’ll be tracking all the main events through the day….

Updated

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USA 

Seven years following the banking crisis, senior bankers are still moaning about over-regulation, but with the government still owning major stakes in banks this is no time to water down the rules. This is not a normal state for the banking industry…

 

Powered by Guardian.co.ukThis article titled “The banking crash seven years on: it’s not yet business as usual” was written by Jill Treanor, for theguardian.com on Monday 12th October 2015 11.25 UTC

Seven years ago this week, Gordon Brown – the then prime minister – was in full combat mode. Royal Bank of Scotland (RBS) and HBOS were on the brink of collapse and risked bringing down the rest of the financial system with them. Brown was left with little option but to step in with billions of pounds of taxpayers’ money to act as a “rock of stability” to prevent the financial sector collapsing.

The intervening years have led to soul-searching through inquiries and changes in the rules about the amount – and type – of capital banks must hold to protect against collapse. Rules about the way bonuses are paid to top bankers have changed: deferral and payment in shares are now the norm for the most senior bankers. Changes are also being made to the way banks are structured following the recommendations by the Independent Commission on Banking, chaired by Sir John Vickers.

The government still owns 73% of RBS, down from 79%, and is yet to get rid of all its shares in Lloyds Banking Group, formed when HBOS was rescued by Lloyds TSB during the crisis. This is not a normal state for the UK banking industry.

Yet senior bankers are moaning about the difficulties their businesses face because of regulation. John McFarlane, the chair of Barclays, is again talking about national champions in investment banking. He raised it in July and again this week by suggesting that a merger of European investment banks (£) might allow a regional champion to be created to compete with US rivals.

Such remarks may help explain why, just a few weeks ago, Paul Fisher, a senior Bank of England official, issued a warning against watering down the post-crisis rules. “We probably won’t know for sure just how effective the new regime is until we reach another crisis. Meanwhile, we need to guard against the reforms being rolled back as a result of a period without crisis,” Fisher told an audience in London.

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Finance institute forecasts net capital outflow from emerging markets for first time since 1988 leaving states vulnerable to capital drought. The IIF’s analysts say the current reversal is the latest wave of a homegrown downturn…

Powered by Guardian.co.ukThis article titled “Global investors brace for China crash, says IIF” was written by Heather Stewart, for theguardian.com on Thursday 1st October 2015 18.34 UTC

Global investors will suck capital out of emerging economies this year for the first time since 1988, as they brace themselves for a Chinese crash, according to the Institute of International Finance.

Capital flooded into promising emerging economies in the years that followed the global financial crisis of 2008-09, as investors bet that rapid expansion in countries such as Turkey and Brazil could help to offset stodgy growth in the debt-burdened US, Europe and Japan.

But with domestic investors in these and other emerging markets squirrelling their money overseas, at the same time as international investors calculate the costs of a sharp downturn in Chinese growth, the IIF, which represents the world’s financial industry, said: “We now expect that net capital flows to emerging markets in 2015 will be negative for the first time since 1988.”

capital flows to emerging markets set to turn negative

Capital flows to emerging markets look set to turn negative. Photograph: IIF

Unlike in 2008-09, when capital flows to emerging markets plunged abruptly as a result of the US sub-prime mortgage crisis, the IIF’s analysts say the current reversal is the latest wave of a homegrown downturn.

“This year’s slowdown represents a marked intensification of trends that have been underway since 2012, making the current episode feel more like a lengthening drought rather than a crisis event,” it says, in its latest monthly report on capital flows.

The IIF expects “only a moderate rebound” in 2016, as expectations for growth in emerging economies remain weak.

Mohamed El-Erian, economic advisor to Allianz, responding to the data, described emerging markets as “completely unhinged”, and warned that US growth may not be enough to rescue the global economy. “It’s not that powerful to pull everybody out,” he told CNBC.

Capital flight from China, where the prospects for growth have deteriorated sharply in recent months, and the authorities’ botched handling of the stock market crash in August undermined confidence in economic management, has been the main driver of the turnaround.

“The slump in private capital inflows is most dramatic for China,” the institute says. “Slowing growth due to excess industrial capacity, correction in the property sector and export weakness, together with monetary easing and the stock market bust have discouraged inflows.”

At the same time, domestic Chinese firms have been cutting back on their borrowing overseas, fearing that they may find themselves exposed if the yuan continues to depreciate, making it harder to repay foreign currency loans.

The IIF’s analysis shows that portfolio flows – sales of emerging market stocks and bonds – have been more important than the reversal of foreign direct investment (for example, multinationals closing down plants or business projects) in the recent shift.

It warns that several countries are likely to find their economies particularly vulnerable to this capital drought.

“Countries most in jeopardy from emerging-market turbulence include those with large current account deficits, questionable macro-policy frameworks, large corporate foreign exchange liabilities, and acute political uncertainties. Brazil and Turkey combine these features.

This warning echoed a one from the International Monetary Fund last week, that rising US interest rates could unleash a new financial crisis, as firms in emerging economies find themselves unable to service their debts.

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Breakthrough in Washington between Democrats and Republicans could end the damaging cycle of “crisis-driven decision making” and avoid another shutdown next year. How the deal was announced- full story and analysts’ reaction…

 


Powered by Guardian.co.ukThis article titled “US budget deal brings relief; Lloyds hit with record fine over bonuses – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 11th December 2013 13.25 UTC

Simon Chouffot, spokesperson for the Robin Hood Tax campaign, says the record fine imposed on Lloyds over its staff bonus schemes shows that the government is still being too soft on banking greed:

“The people who run Britain’s banks seem to hold the public in total contempt – pressurising staff into ripping the rest of us off. Businesses are supposed to serve customers – but with banks, it’s the other way around.”

“Issuing fines after the latest scandal happens to be unearthed will not fundamentally change the relationship between banks and society. The Government must get a grip on the culture of greed in the sector and ensure it starts contributing positively to society.

Worth noting that Lloyds says it has now mended its ways.after continuing to use incentive schemes such as the ‘champagne bonus’ more than two years after the taxpayer bailed it out.

Market update

Back in the markets, and the big three European indices are all positive — as traders take some comfort from the détente between Democrats and Republicans over the US budget (see opening post onwards for details and reaction).

BAE Systems is the biggest riser on the FTSE 100, up 2.5%, with analysts predicting defence stocks will benefit from the increased US spending.

Liberum Capital analysts:

This is progress and will allow budget prioritisation.

Economists say the US economy will benefit too:

FTSE 100: up 25 points at 6551, +0.4%

German DAX: up 29 points at 9143, +0.3%

French CAC: up 33 points at 4124, + 0.8%

The boss of Tesco Bank also agrees that whopping bonuses for bank sales staff are counter-productive.

Updated

Our Money editor, Patrick Collinson, argues that Lloyds didn’t heed banking scandals of the past when it offered its staff hefty bonuses for selling products, and demotion if they failed.

Here’s a flavour:

The FCA uncovered incentives such as “champagne bonuses” and “grand in your hand” that owe more to the culture of Wall Street trading that a high street bank giving advice on the hard-earned savings of the Mr and Mrs Migginses of Britain. If Lloyds staff failed to meet their targets, they could lose nearly half their salary. No wonder desperate employees ended up flogging policies to themselves and their family members to keep food on the table.

As usual, the directors of the bank will be contrite, will say that lessons have been learned, and that it’s different this time. But one important fact should always be remembered about Britain’s bankers. How many have been jailed since the start of the financial crisis? None. Until the penalties become personal, the likelihood of any lessons being learned will remain at zero.

More here: Lloyds has failed to learn the lessons of previous mis-selling fines

Updated

Back on Lloyds…….. and unions are saying that they warned against the kind of sales targets at the heart of today’s record fine (details from 9.21am)

Dominic Hook, Unite national officer, said:

Despite the countless reports and investigations into the conduct of the banks the industry clearly has not learned the lessons of the financial crisis nor heard the concerns of customers and staff in order to adequately change.

(reminder, our news story on the fine is here)

Nikos Magginas, economist at National Bank, agrees that there are some glimmers of hope amid the news that Greece’s unemployment rate has hit a new high of 27.4%.

Magginas said (via Reuters):

The decline in the number of those employed was the lowest since early 2010.

The data shows a stabilisation trend in the jobless rate and a slowdown in new job losses, helped by a strong performance in tourism.

Updated

Looking for more details of how Lloyds staff were lured into mis-selling products by a flawed bonus structure, leading to today’s record fine of £28m? Look no further….

Lloyds mis-selling scandal: Q&A

It includes what to do if you think you were caught up in the scandal.

Italian PM promises reforms

In Italy, prime minister Enrico Letta has warned MPs that the country will slide into chaos unless they back him in a confidence vote due later today.

Letta urged politicians to throw their weight behind his reform programme, ahead of the first test of his parliamentary muscle since Silvio Berlusconi quit his coalition — trimming Letta’s majority.

Letta was also scathing over Italy’s failure to reform, saying MPs had avoided meaningful changes for 20 years.

Reuters has the details:

“I’m determined to work with everything I have to prevent the country falling back into chaos,” he said, pledging to throw his weight behind efforts to fight a growing tide of political disillusion and hostility to the European Union.

He said the next 18 months would be devoted to a broad package of institutional reforms aimed at creating a stable basis for economic growth, which he said should reach 1 percent in 2014 and 2 percent in 2015.

As well as a new electoral law and measures to untangle the conflicting web of powers between different levels of the administration, he promised to overhaul parliament to remove the Senate’s power to vote no confidence in the government.

He said the upper house would become a review chamber for legislation passed in the lower house, removing one of the key factors causing stalemate in the Italian political system.

On the economic front, he promised to rein in the deficit, cut Italy’s towering public debt, the second highest in the euro zone as a proportion of the overall economy, lower taxes on families and companies, reduce unemployment and boost public investment.

Privatisations would continue and the government would consider allowing employees to buy shares in the post office and other public companies, he said.

The lower house of parliament is expected to hold a confidence vote in the early afternoon, followed by the Senate tonight. Letta is expected to win both votes.

Updated

Greek unemployment rate rises

Greece’s unemployment rate has risen to a new record high, but there may still be some reasons for optimism.

ELSTAT, the country’s statistics body, reported that the number of people classed as unemployed rose by 14,023 between August and September. That pushed the jobless rate up to 27.4% in September, up 0.1 percentage point on August’s 27.3%.

The number of unemployed people rose by 14,023 persons in September to 1,376,463, a 1% increase during the month.

But the number of people in work also rose, by 5,397, to 3,639,429.

Those classed as inactive (not working or looking for work) dropped by 5,296 persons, which may suggest more people are now trying (and failing) to find a job.

Still, on an annual basis, the unemployment total is up by 5.9% and the employment total is down by 1.5%.

And the youth jobless rate remains a scar, at 51.9%.

The data is seasonally adjusted. ELSTAT’s believes there has been “a relative stability in the estimated seasonally adjusted unemployment rate” since the summer, but we’ll need to wait several more months until the picture becomes clear.

Here’s the official release.

And here’s some reaction:

Updated

Fog update: it’s not cleared yet:

Here’s our news story on the fine imposed on Lloyds for operating flawed bonus schemes for its staff:

Lloyds Banking Group fined record £28m in new mis-selling scandal

Updated

Now here’s an idea to keep Britain’s bank bosses in line:

The Independent’s Ben Chu points to the scale of the bonuses which Lloyds offered its staff to encourage them to sell products:

Back in Europe, the Finnish prime minister says he’s not given up hope of a proper deal on banking union before the end of the year (despite the limited progress made last night). That’s via his official spokesman.

Updated

Champagne bonus, anyone?

The FCA’s ruling against Lloyds includes detail of the bonus schemes that drove staff to sell inappropriate products to its customers:

· Variable base salaries

Advisers could be automatically promoted and get a pay increase or be automatically demoted and have a pay reduction depending on their sales performance. For a Lloyds TSB adviser on a mid-level salary, not hitting 90% of their target over a period of 9 months could see their base annual salary drop from £33,706 to £25,927; and if they were demoted by two levels their base pay would drop to £18,189 – almost a 50 per cent salary cut. In the worst example that the FCA saw, an adviser sold protection products to himself, his wife and a colleague in order to hit his target and prevent himself from being demoted.

· Bonus thresholds

Both firms had in place thresholds that meant should a certain sales target be reached large bonuses could be earned. At Lloyds TSB this incentive was called the ‘champagne bonus’ and could see an adviser receiving 35% of their monthly salary as a bonus as soon as they reached their sales target.

Updated

Lloyds responds

And here’s the full statement from Lloyds:

Lloyds Banking Group accepts the findings of an FCA investigation into its historic systems and controls governing bancassurance legacy incentive schemes for branch advisers, and has agreed to pay a fine of £28m.

The Group launched its new strategy in 2011 to fully refocus the business on its customers. As part of that approach, the Group has been addressing historic issues and ensuring that customers get fair and appropriate outcomes.

As soon as these issues were identified in 2011, the Group acted immediately to make significant changes to ensure that all its schemes focused on doing the right things for customers and providing good service. The FCA has acknowledged that we have made substantial improvements to systems and controls governing incentives.

Lloyds Banking Group has co-operated fully throughout the enforcement investigation and has agreed with the FCA the next steps with regard to customers.

The Group has already commenced a review to address potential customer impacts that may have occurred as a result of these failings. We are already contacting customers, and will continue to contact potentially affected customers over the coming months. Customers do not need to take any action at this stage to be included in the review and they will be contacted in due course.

The Group recognises that its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had. We are determined to ensure that any customer impacts are dealt with quickly and fully.

Lloyds has accepted the FCA findings, and says the record £28m fine won’t have a ‘material impact’ on the group.

11-Dec-2013 09:27 – LLOYDS BANKING GROUP SAYS ACCEPTS FINDINGS OF FCA INVESTIGATION INTO SALES PRACTICES 

11-Dec-2013 09:26 – LLOYDS BANKING GROUP SAYS COST OF FCA ENFORCEMENT AND REVIEW IS NOT EXPECTED TO HAVE MATERIAL IMPACT ON GROUP 

Updated

The FCA’s description of Lloyds’ sales practices is depressing, but it’s not a shock. Back in March, my colleague Hilary Osborne exposed how there was still a dangerous “‘sell, sell, sell” culture at the heart of Halifax, a key part of Lloyds Banking Group.

She wrote:

An employee of Britain’s biggest banking group has described a “disheartening and demotivating” sales culture that pressurises staff into selling financial products to customers in order to meet strict points-based daily targets.

The man, who did not wish to be named, but we will call David Elliott, works as a financial consultant for Halifax.

He says his job chiefly entails trying to sell insurance to customers. “I’ve been a counter clerk, banking adviser, financial adviser and now I’m a financial consultant – so I’ve been at every level there is in a retail bank. It gradually gets worse the higher you climb the ladder and now I’m at the highest seller point in banking and the pressure is abnormal,” he says.

More here: Exposed: bank’s high-pressure sales culture continues

Updated

FCA: Lloyds investigation does not make pleasant reading

Tracey McDermott, the FCA’s director of enforcement and financial crime, said that the watchdog’s investigation found serious problems at Lloyds:

The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere.

Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite.

McDermott added that Lloyds TSB and Bank of Scotland have made “substantial changes” in recent months, reviewing its sales practices and paying compensation to those affected.

Record fine for Lloyds over mis-selling failings

Just in: the UK’s Financial Conduct Authority has hit Lloyds Banking Group with the biggest ever fine levied for retail banking misbehaviour in the UK, after using unacceptable sales targets to motivate its staff.

The FCA has penalised Lloyds £28m, after an investigation found widespread evidence that the bank ran flawed sales incentive schemes that encouraged staff to sell products to customers regardless of whether they were in their best interest.

In a damning indictment of how Lloyds ran its business, the FCA explained that staff at Lloyds TSB Bank and Bank of Scotland were put under undue pressure to hit sales targets or risk losing bonuses.

These bonuses could be almost half of an employee’s wage packet.

The products in question were mainly investment products (such as share ISAs) and protection products such as PPI.

At one stage, staff were offered “a grand in your hand” for hitting a particular target.

In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted, the FCA said.

Lloyds’s fine was increased by 10% because regulators had warned that its incentive schemes were poorly managed, and because it was fined for the unsuitable sale of bonds in 2003 “caused in part by the general pressure to meet sales targets”.

The FCA also found that Lloyds staff received bonuses even if the bank knew they’d sold unsuitable products:

229 advisers at Lloyds TSB received a bonus even when all of their assessed sales were deemed unsuitable or potentially unsuitable; and 30 advisers received a bonus in the same circumstances on more the one occasion.

Updated

European finance ministers, incidentally, didn’t make as much progress as we’d hoped over banking reform last night. After a long, drawn-out meeting, ministers agreed some broad details, but couldn’t decide one key question — how to share the cost of dealing with a failed bank.

The FT’s Peter Spiegel and Alex Barker stayed up late for the action (or lack or) and reported:

A marathon negotiating session in Brussels produced a draft compromise, broadly based on Germany’s revised position, which sets out how eurozone countries cede power to a central bank resolution authority and establish a common funding network.

While the basic parameters are likely to survive in a final deal, several countries raised strong objections to Berlin-backed conditions that slowly phase in a single resolution fund – and gives big countries a greater say on when it can be used.

These voting arrangements and financing details – including the unaddressed issue of what happens should the bank resolution funds be exhausted – will be left to a final emergency meeting next Wednesday, on the eve a summit of EU leaders.

Here’s their full story: EU sets out framework for banking union

Updated

City traders also faced a challenge to find their offices in the fog gripping London today — as this lovely picture shows:

There’s a pretty muted reaction in the City, with the FTSE 100 up just 6 points.

It’s being dragged down a little by Royal Bank of Scotland – whose shares have fallen 1.6% as investors react to the news that finance director Nathan Bostock is resigning, apparently to join Santander.

Traders are also calculating that the outbreak of peace on Capitol Hill will encourage the Federal Reserve to begin slowing its stimulus programme, currently pumping $85bn into the system each month.

Budget deal: what the media say

The Financial Times reckons the deal is a decent start on the long road to dealing with America’s debts:

Due to its limited nature, the deal does not tackle broader fiscal problems affecting the US, such as the long-term cost of health and pension plans which could become more expensive as a consequence of the ageing population.

It also does not contain big changes to the tax code, which many on Capitol Hill want to see transformed.

“This bipartisan deal looks like a good step, but it doesn’t address the real drivers of our long-term debt,” said Michael Peterson, president of the Peter G Peterson Foundation, which advocates for a bigger deficit reduction deal. “We should all welcome our lawmakers coming together on a budget agreement that would end the recent cycle of governing by crisis. But make no mistake – we still have a lot more to do to put our nation on a sustainable fiscal path.

FT: US Congress strikes budget deal

Marketwatch points out that some in the Republican party could oppose it – -suggesting a battle to get it through the House of Representatives

House Speaker John Boehner praised the deal but didn’t address whether it can pass the House.

“While modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings,” he said in a statement.

Sen. Marco Rubio, a Florida Republican who may run for president, quickly came out against the deal, calling it “irresponsible” and charging that it doesn’t reduce the U.S. debt.

Marketwatch: Murray, Ryan reach two-year U.S. budget deal

Business Insider breaks down the numbers;

The legislation provides $63 billion in sequester relief over two years, which is split evenly between defense and non-defense programs. This is offset by targeted spending cuts and non-tax revenues that total $85 billion. Ryan and Murray said that the deal reduces the deficit between $20 and $23 billion.

Murray said that the deal includes an additional $6 billion in revenue from additional federal worker pension contributions. Military employees take the same hit in the deal.

BI: BUDGET DEAL REACHED — Here’s What You Need To Know

And here’s the Guardian’s take:

Aspects of the deal may alarm both parties, particularly Democrats, who are being asked to accept additional spending cuts, no new taxes and increased pension contributions from public sector workers.

Nevertheless the prospect of ending years of political deadlock appeared to satisfy political leaders of both parties, whose expectations have been lowered by the recent government shutdown and a virtual standstill on a host of other issues.

US congressional leaders unveil two-year budget deal

The deal doesn’t address one problem, though — America’s debt ceiling. Congress still needs to agree to raise US borrowing limits in February 2014, or risk a default.

The thawing of relations between Republicans and Democrats on Capitol Hill may mean the debt ceiling is less of a poisoned pill?

Here’s Michael Hewson of CMC Markets’s take:

The new deal, if approved by Congress, which seems likely, would last until 2015, and ease the severity of some recent budget cuts, with slightly higher spending levels of $63bn.

This agreement, while a positive for markets, would then remove one potential land mine for markets ahead of February’s debt ceiling deadline, which still remains unresolved. It is likely that neither side will be pleased with the deal on the margins, but the hope is that enough Democrats and Republicans will be able to swallow it to be able to push it through Congress.

Updated

The agreement reached by Ryan and Murray comes to $85bn — made up of $63bn in cancelled sequestor cuts, and and around $22bn in deficit reduction.

Small beer, compared to America’s $17 trillion national debt — but enough to avert another shutdown in January.

Chris Weston of IG says it’s a cause to celebrate:

Finally US politics is starting to look like it can actually function without political partisanship or using the economy or markets as a bargaining tool like we’ve seen over the recent year.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, reckons the deal means investors should fret less about America’s fiscal problems in 2014.

He told CNBC the deal was good for stocks:

The short-term fiscal easing next year, the fact that Congress after years of dysfunctional behaviour has reached a compromise on their own without a crisis – all of those things are positive.

US budget deal could avert another crisis

Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and the business world.

There’s a sense of relief in the financial world this morning after an unexpected burst of bipartisan co-operation in Washington.

Democrats and Republicans negotiators have agreed a deal to set spending levels until 2015 – averting the risk of a repeat of the government shutdown which gripped the markets in October.

In a welcome development, Senate Budget Committee chairman Senator Patty Murray, and her House counterpart Paul Ryan, stood shoulder-to-shoulder to announce the proposal, which could be voted through within days.

Ryan declared:

I think this agreement is a clear improvement on the status quo. It makes sure we don’t lurch from crisis to crisis.

The plan hammered out by Murray and Ryan is significant for two reasons — it eases some of the pain of looming spending cuts (the sequester), and it could end the damaging pattern of deadlock between the two parties.

President Obama hailed both sides for breaking “the cycle of short-sighted, crisis-driven decision-making to get this done.”

Under the agreement, federal spending would be fixed at around $1.012tn — a compromise between the two sides.

It means an extra $63bn in government spending over the next two years — which should please the International Monetary Fund, which feared the US was tightening fiscal policy too fast.

That’s got implications for the European economies too — the sequester threatened to knock the eurozone’s already weak recovery off course. 

As our Washington Bureau chief Dan Roberts explains, the deal is not without its critics:

Rather than raising new taxes to pay for the sequester relief – something Republicans were implacably opposed to – negotiators agreed to raise additional government revenue through fees, such as airport charges and by demanding that federal workers pay more toward their pensions.

Union umbrella group, the AFL-CIO, has already hit out at the proposal, arguing that federal workers were acting as a “punching bag” for Republicans.

The deal still needs to be voted through Congress. And it doesn’t fix America’s fiscal challenges – but it’s a start.

As Murray put it:

For years we have lurched from crisis to crisis. That uncertainty was devastating to our fragile economic recovery.

Reaction to follow, along with other details of the day ahead….

Updated

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Bank of England governor’s move to persuade markets that interest rates will not immediately rise has provoked skepticism. His first 100 days as Bank of England governor have been a noisy medley of speeches, impeccably tailored photo-calls and pzazz…

 


Powered by Guardian.co.ukThis article titled “Is Mark Carney’s forward guidance plan a step backwards?” was written by Heather Stewart, for theguardian.com on Monday 7th October 2013 14.00 UTC

If Mark Carney was going to live up to his billing as a “rock star central banker” – and his £874,000 a year pay package – he had to arrive in Threadneedle Street on a crashing crescendo. His first 100 days as Bank of England governor have been a noisy medley of speeches, impeccably tailored photo-calls and pzazz.

From the need for more women on banknotes to his love of Everton football club, Carney has had plenty to say on a range of subjects since his appointment on 1 July this year. However, it’s the Bank’s new policy tool of forward guidance that has provoked the most interest, and a good measure of scepticism, among seasoned Bank-watchers.

Honed by Carney in Canada and adopted by the US Federal Reserve and the ECB in different forms, forward guidance is a way of signalling to the public and financial markets how the Bank will respond to shifts in the economy. In this case, the monetary policy committee has pledged to keep interest rates at their record low of 0.5% at least until the unemployment rate falls to 7%.

“Forward guidance is an attempt to persuade the markets that interest rates are not immediately going to go up,” says John Van Reenen, director of the Centre for Economic Performance at the London School of Economics. “It’s one more tool in the toolbox.”

However, as implemented by Carney and his colleagues in the UK, guidance is hedged about with three separate “knockouts” – rates would rise if inflation, financial stability or the public’s inflation expectations got out of control. Moreover, the governor has stressed that the 7% unemployment rate is not a trigger for a rate rise, but a “staging post”, which will not necessarily prompt tighter policy.

During a somewhat fraught hearing with MPs on the cross-party Treasury select committee last month, in which Carney sought to clarify the policy, chairman Andrew Tyrie expostulated that it would be a hard one to explain “down the Dog and Duck”.

Financial markets have also been less than convinced. The yield, or effective interest rate, on British government bonds – partly a measure of investors’ expectations of future interest rates – has risen rather than fallen since the Bank’s announcement. That is partly because the latest data suggests the economic outlook is improving, but rapidly rising bond yields can be worrying because they tend to push up borrowing costs right across the economy. Carney, though, has insisted he is not concerned.

Meanwhile the pound has risen almost 4% against the dollar since Carney took the helm – again signalling markets expect rates to rise sooner than the Bank is indicating. Last week sterling hit a nine-month high, although it came off that peak as investors began to question if the UK’s recovery could continue at its current pace.

“I don’t think in practice forward guidance is very successful,” says Jamie Dannhauser of Lombard Street Research. He believes Carney has failed to convince the City he means business, because he has failed to back up forward guidance with action, such as the promise of a fresh round of quantitative easing – the Bank scheme that has pumped £375bn of freshly minted money into the economy.

“[Forward guidance] doesn’t work if you’re not willing to take on the markets if you don’t get your way,” says Dannhauser.

David Blanchflower, a former member of the MPC, is more blunt: “He looks already, within a hundred days, to have lost control. Bond yields are rising, the pound is rising like mad, and they’ve got no response.”

He argues that the hedged nature of the new policy is likely to reflect “horse-trading” between Carney and his fellow MPC members. Unlike in Canada, where what the central bank governor says goes, decision-making on the MPC is by vote. With a recovery now under way, its various members are known to have differing views on what are the most pressing risks to the economy.

Another former MPC member said: “Had I been on the MPC I would have let him do it [forward guidance], because I don’t think it does any particular harm; but I don’t think it does much good either.”

It’s not just the Bank’s approach to monetary policy that has changed on Carney’s watch. When outgoing deputy governor Paul Tucker, who missed out on the top job, leaves for the US later this month, it will mark the latest in a number of personnel changes that are starting to make Carney’s Bank look quite different from Lord (Mervyn) King’s.

Blue-blooded banker Charlotte Hogg joined as the Bank’s new chief operating officer, a post that didn’t exist under the old regime, on the same day as Carney. Meanwhile Tucker will be replaced by former Treasury and Foreign Office apparatchik Sir Jon Cunliffe. With long-serving deputy governor Charlie Bean due to leave early in 2014, Carney will be given another opportunity to bring in a new broom.

Insiders say the atmosphere in the Bank’s Threadneedle Street headquarters has already changed. Carney is often seen eating lunch in the canteen or showing visitors around. His approach is less hierarchical than that of King, who was derided as the “Sun King”, by former chancellor Alistair Darling – though Carney is said to be no keener on intellectual dissent than his predecessor.

He will need all the allies he can get both inside and outside the Bank, if he is to deal successfully with what many analysts see as the greatest threat facing the economy: the risk that an unsustainable bubble is starting to inflate in Britain’s boom-bust housing market.

Carney and his colleagues on the Bank’s Financial Policy Committee (FPC), the group tasked with preventing future crashes which partly overlaps with the MPC, have new powers to rein in mortgage lending if they believe a bubble is emerging, and the governor has said he won’t hesitate to use them.

But the FPC is untested and largely unknown to the public, and bubbles are notoriously hard to spot. Using the FPC’s influence to choke off the supply of high loan-to-value mortgages, for example, would be hugely controversial at a time when large numbers of would-be buyers have been frozen out of the market. Meanwhile, the government’s extension of the Help to Buy scheme, with details to be laid out on Tuesday, is likely to increase the demand for property, potentially pushing up prices.

Van Reenen warns that if property prices do take off, Carney could find himself in an unenviable position. “We have this terrible problem in this country that house prices have got completely out of kilter with incomes. I would be very reluctant to see interest rates start pushing up. Using other methods, such as being tougher on Help to Buy, and trying to do things through prudential regulation is better – but the fundamental thing is lack of houses, and Carney can’t do anything about that.”

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Data for April shows contraction in Germany’s business activity, with prospects for service sector ‘increasingly gloomy’. The services purchasing managers index fell to 49.6 last month from 50.9 in March– the first contraction since November…

 


Powered by Guardian.co.ukThis article titled “Eurozone recession set to deepen as private sector shrinks for 15th month” was written by Rupert Neate, for The Guardian on Monday 6th May 2013 13.53 UTC

The eurozone's private sector shrank for the 15th consecutive month in April – suggesting the single currency area will fall deeper into recession.

Germany, the powerhouse of the eurozone, also suffered a contraction in business activity during the month, which could send a worrying signal for the rest of the bloc.

An official indication of eurozone GDP is due next week and on Monday the president of the European Central Bank, Mario Draghi, stressed that the policymakers would be ready to cut rates again after taking a quarter of a percentage point off the benchmark rate to a record low of 0.5% last week.

"We stand ready to act again," Draghi said in remarks that knocked the euro lower. Wall Street, meanwhile, remained close to last week's record highs.

Tim Moore, a senior economist at Markit, said prospects for Germany's service sector were increasingly gloomy. "A renewed slide in services output during April, alongside falling manufacturing production, raises the risk that the German economy will fail to expand over the second quarter," he said.

Data gauging the level of activity across thousands of companies and regarded as a good indicator of general economic conditions came in below the crucial level of 50, which separates contraction from expansion. At 46.9 in April, Markit's eurozone composite purchasing manager's index (PMI) was an improvement on initial readings of 46.5 and March's output of 46.5 but it has been below 50 for more than a year.

Germany's PMI, which measures growth in manufacturing and services and accounts for more than two-third's of Germany's GDP, fell to 49.2.

Germany's economy performed well during the first two years of the eurozone crisis, but growth slowed last year as it was knocked by the slowdown in China. The services sector fell to 49.6 last month from 50.9 in March – the first contraction since November. Germany's wobble is likely to drag the whole of the eurozone deeper into recession, Markit warned. "The eurozone's economic downturn is likely to have gathered momentum again in the second quarter," Chris Williamson, its chief economist, said. "The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4%-0.5% in April."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The latest data and survey evidence fuel concern that the eurozone is headed for further GDP contraction in the second quarter after highly likely suffering a sixth successive quarter of contraction in the first quarter of 2013."

The European commission last week warned that it expects the eurozone's GDP to shrink by 0.4% in 2013, an increase on the 0.3% it had previously forecast. The recovery pencilled in for 2014 will also be slower than expected and the unemployment crisis in the eurozone will persist, the commission said in its spring forecasts.

ECB executive board member Benoît Cœuré had also indicated that the central bank would be ready to cut interest rates further if the economic outlook in the euro area worsens. "It's a historic low and we'll cut again if indicators confirm the situation is deteriorating," Cœuré said in an interview with France Inter radio station on Monday.

Williamson said it was difficult to believe that a mere 25 basis point cut from an already low level will have "a material impact on an economy that is contracting so sharply".

In further gloomy news, a separate EU report published on Monday showed retail sales across the eurozone dropped 0.1% in March following a 0.2% fall in February.

There were also fears that the service sector is slashing prices to drum up business. Official figures released last week showed prices across the region rose 1.2% in April – well below the central bank's 2% target – while unemployment hit a new high of 12.1%.

An index that measures sentiment in the eurozone improved, but illustrated concerns about Germany. "While investors' assessments of the economy for the eurozone are stabilising, those for Germany are clouding a little, albeit at a significantly higher level," research group Sentix said.

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It is time for the European Central Bank to show its independence and act in the interests of all eurozone citizens– not just Angela Merkel’s, writes The Guardian’s economics editor Larry Elliott.  A different approach is needed to save the eurozone…

 


Powered by Guardian.co.ukThis article titled “European Central Bank must heed eurozone warning signs” was written by Larry Elliott, economics editor, for The Guardian on Tuesday 30th April 2013 12.57 UTC

The warning signs are flashing red for the eurozone. Inflation is plunging, unemployment is rising and activity is weakening across the board. Unless Europe wants to become the next Japan, mired in permanent deflation and depression, action is needed now.

Stage one of the process should be a cut in interest rates from the European Central Bank (ECB) when it meets in Bratislava on Thursday. The latest inflation figures show the annual increase in the cost of living across the 17-nation single-currency area fell from 1.7% to 1.2%, its lowest in three years and well below the ECB's 2% ceiling. Even Jens Weidmann, the ultra-hawkish president of Germany's Bundesbank, would be hard pressed to say there is a threat to price stability.

It's not hard to see why inflationary pressure is abating: the eurozone economy has been flat on its back for the past 18 months. Unemployment rose by 62,000 in March, taking the eurozone jobless rate to yet another record high of 12.1%. Spain and Greece remain the weak spots, but even in Germany labour market conditions are becoming more difficult. Across the eurozone, almost one in four young people are out of work.

Why is unemployment rising? Again, you don't have to be John Maynard Keynes to figure it out. Europe's banking system is bust, there is a shortage of credit, real incomes are under pressure and the deficiency of demand is being exacerbated by austerity overkill. Retail sales figures from Greece show that in February spending was more than 14% lower than a year earlier.

The malaise is spreading from the eurozone's periphery to its core. It will be mid-May before the official growth data for the first quarter of 2013 is published, but the early evidence from Spain, where GDP fell by 0.5%, is not encouraging. Judging by the grim forward-looking surveys of business and consumer confidence, the second quarter will suffer more of the same.

Monetary policy works only with a lag, so whatever the ECB does on Thursday will be too late to prevent the recession deepening. Angela Merkel has made it clear that she does not want to see a cut in the cost of borrowing, but it is time for the ECB to show its independence and act in the interests of all eurozone citizens, not just the one seeking re-election in the German polls this autumn.

In itself, a quarter-point cut in interest rates to 0.5% would do little to revive demand, ease the credit crunch or create jobs. Instead, it should be part of a three-pronged approach to boost growth. The cut in rates should be accompanied by an ECB announcement that it is willing to embrace the unconventional methods deployed by the Federal Reserve, the Bank of England and Japan to underpin activity. It should also be the catalyst for a less aggressive approach to cutting budget deficits, with countries given more time to bring their deficits below the eurozone ceiling of 3% of GDP.

For the past three years, macroeconomic policy in the eurozone has been run on sadomasochistic principles: that only regular doses of pain will ensure countries stick to strict reform programmes.

The upshot of this policy is clear for all to see. Businesses that are starved of credit are mothballing investment and cutting their workforce. Weaker growth means higher-than-expected budget deficits. Permanent austerity has bred social dislocation and political extremism. A different approach is needed to save the eurozone from catastrophe – starting on Thursday.

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Frankfurt professor’s concerns echo recent alarms being sounded across Europe over Berlin’s stance on EU fiscal policy. A leaked policy paper from France was redolent with fear of and hostility to Merkel and her prescriptions in the euro crisis…

 


Powered by Guardian.co.ukThis article titled “German role in steering euro crisis could lead to disaster, warns expert” was written by Ian Traynor in Leuven, for theguardian.com on Sunday 28th April 2013 14.37 UTC

One of Germany's most influential political thinkers has delivered a stark warning that its post-second world war liberal democracy cannot be taken for granted and its dominant role in managing Europe's debt crisis could lead to disaster.

Jürgen Habermas, the Frankfurt professor whose political thinking has helped shape Germany over the past 50 years, called for the EU to be turned into a supranational democracy and the eurozone to become a fully fledged political union, while lambasting the "technocratic" handling of the crisis by Brussels and European leaders.

In his first big speech on the euro crisis, delivered at Leuven University, east of Brussels, Habermas called for a revival of Europe's doomed constitutional ambitions, arguing that the disconnect between what needed to be done in economic policy and what was deemed to be politically feasible for voters was one of the biggest perils facing the continent. "Postponing democracy is rather a dangerous move," he said.

At 83, Habermas has long been revered as a guru and mentor to the post-1968 generation of centre-left German politicians. He is a champion of a democratically underpinned European federation, and has reserved some of his most trenchant criticism for Berlin's role in the three-year crisis.

"The German government holds the key to the fate of the European Union in its hands. The main question is whether Germany is not only in a position to take the initiative, but also whether it could have an interest in doing so," he said.

"The leadership role that falls to Germany today is not only awakening historical ghosts all around us, but also tempts us to choose a unilateral national course or even to succumb to power fantasies of a 'German Europe'.

Euro coins and banknotes
Habermas says the EU elite’s response to the currency crisis has been to construct a technocracy without democratic roots. Photograph: Reuters

"We Germans should have learned from the catastrophes of the first half of the 20th century that it is in our national interest to avoid permanently the dilemma of a semi-hegemonic status that can hardly hold up without sliding into conflicts."

Habermas's wakeup call came at the end of a week of similar alarms being sounded on both sides of the country's borders. The Polish prime minister, Donald Tusk, in the presence of the German chancellor, Angela Merkel, in Berlin last week, said there were worries about German domination of the EU "everywhere, without exception".

A leaked draft policy paper from France's governing socialist party on Friday was redolent with fear of and hostility to Merkel and her policy prescriptions in the euro crisis.

Habermas demanded a sea change in German policy, away from insisting on "stabilising" the budgets of vulnerable eurozone countries by slashing social security systems and public services, to a policy of "solidarity" entailing common eurozone liability, mutualised debt, and euro bonds.

He located Germany's traditional EU enthusiasm in the post-Nazi quest for international rehabilitation through reconciliation with France and driving European unification processes, all occurring under the protection and promotion of the US in cold-war western Europe until the Soviet collapse in 1989.

Habermas said: "The German population at large could develop a liberal self-understanding for the first time. This arduous transformation of a political mentality cannot be taken for granted … Germany not only has an interest in a policy of solidarity, it has even a corresponding normative obligation … What is required is a co-operative effort from a shared political perspective to promote growth and competitiveness in the eurozone as a whole."

Such an effort would require Germany and several other countries to accept short- and medium-term redistribution in its long-term interest, he added, "a classic example of solidarity".

The structural imbalances between the economies of greatly divergent eurozone countries at the root of the crisis were certain to worsen under the policies being pursued, Habermas argued, because governments were making decisions "exclusively from [their] own national perspective. Until now, the German government has clung steadfastly to this dogma".

He said the EU elite's response to the crisis had been to construct a "technocracy without democratic roots", trapping Europe in a dilemma of legitimacy and accountability, between "the economic policies required to preserve the euro and, on the other, the political steps to closer integration. The steps that are necessary are unpopular and meet with spontaneous popular resistance".

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Ultra-low interest rates and purchases of government bonds may be shifting instability from banks to other parts of economy, according to the IMF. The Washington-based organization said risks would increase the longer the stimulus was kept in place…

 


Powered by Guardian.co.ukThis article titled “IMF warns over rock-bottom interest rates” was written by Larry Elliott, economics editor, for The Guardian on Thursday 11th April 2013 17.40 UTC

The International Monetary Fund has warned central banks to be alert to the potentially damaging side-effects of ultra-low interest rates and "unconventional" measures to boost growth after the deep slump of 2008-09.

While backing the use of exceptional action to prevent the collapse of the financial system, the IMF said the risks would grow the longer the stimulus was kept in place.

The Washington-based body used a chapter in its latest global financial stability report to note that rock-bottom interest rates and purchases of government bonds might be shifting instability from banks to other parts of the financial system or other parts of the global economy. It added that care would have to be taken when central banks decided the time was right to remove the stimulus.

"Interest rate and unconventional policies conducted by the central banks of four major regions – the euro area, Japan, the UK and the US – appear indeed to have lessened vulnerabilities in the domestic banking sector and contributed to financial stability in the short term," the IMF said.

"Policymakers should be alert to the possibility, however, that financial stability risks may be shifting to other parts of the financial system, such as shadow banks, pension funds and insurance companies. The central bank policy actions also carry the risk that their effects will spill over to other economies."

Finance ministers and central bank governors will discuss the results of what the report called their "unprecedented intervention" when they gather in Washington next week for the IMF spring meeting. The discussions will be given added spice by Japan's recent decision to use ultra-loose monetary policy to lift the economy out of deflation.

US federal reserve building
The US Federal Reserve is considering slowing quantitative-easing measures. Photograph: Karen Bleier/AFP/Getty Images

After the collapse of Lehman Brothers in September 2008, central banks cut interest rates and also created electronic money in an attempt to compensate for the drying up of credit from hamstrung commercial banks. Although the measures were intended to be temporary, borrowing costs have not been raised and quantitative-easing (QE) programmes have not been reversed.

Minutes of the latest meeting of the US Federal Reserve's policymaking committee revealed that a debate was under way over whether the pace of QE should be slowed, and this approach was backed by the IMF in its report.

In the UK, the Fund noted that the impact of the Bank of England cutting its key interest rate to 0.5% – the lowest in its 319-year history – and £375bn of quantitative easing could be encouraging lenders to "evergreen loans rather than recognise them as non-performing". There was a possibility, the IMF said, that non-viable firms were being kept alive, and that this explained the low level of corporate insolvencies in Britain.

"Despite their positive short-term effects for banks, these central bank policies are associated with risks that are likely to increase the longer the policies are maintained. The current environment shows signs of delaying balance sheet repair in banks and could raise credit risk over the medium term. Markets may be alert to these medium-term risks, as central bank policy announcements have been associated with declines in some bank stocks and increases in yield spreads between bank bonds and government bonds," the report said.

"Central banks also face challenges in eventually exiting markets in which they have intervened heavily, including the interbank market; policy missteps during an exit could affect participants' expectations and market functioning, possibly leading to sharp price changes."

The IMF said monetary policy – measures affecting the money supply, interest rates and exchange rates – should remain stimulative until recovery was well established but added that policymakers needed to exercise "vigilant supervision to assess the existence of potential and emerging financial stability threats".

It suggested tougher capital and liquidity standards, coupled with the need to make provisions against future losses, adding: "The crisis has shown that corrective policies enacted after the risks materialise may be too late to contain damage to financial stability."

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Europe could have dealt with Cyprus cheaply and painlessly with a pan-European body able to recapitalize the country’s banks. Next could be Malta and Slovenia where the government is already making contingency plans for coping with bank losses…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis demands one banking policy, one fiscal policy – and one voice” was written by Larry Elliott, economics editor, for The Guardian on Monday 1st April 2013 13.24 UTC

It had all started to look quite promising. The US was picking up, China had avoided a hard landing and in Japan the early signs from the new government's anti-deflation approach were encouraging. Even in Britain, the first couple of months of 2013 provided some tentative hope – from the housing market and consumer spending, mainly – that the economy might escape another year of stagnation.

Then Cyprus came along. The last two weeks of March brought the crisis in the eurozone back into the spotlight, and by the end of the month the story was no longer rising share prices on Wall Street on the back of strong corporate profitability or the better prospects for Japanese growth. It was, simply, which country in the eurozone would be the next to require a bailout.

The past few days has seen what Nick Parsons, head of strategy at National Australia Bank, has called the "reverse Spartacus" effect after the scene at the end of Stanley Kubrick's epic in which captured slaves are offered clemency if they identify the rebel leader. All refuse.

In the aftermath of Cyprus, it has been a case of "I'm not Spartacus". Four members of the eurozone felt the need to issue statements explaining why they were different from the troubled island in the eastern Med. We now know that Portugal is not Spartacus, Greece is not Spartacus, Malta is not Spartacus and Luxembourg, which has the highest ratio of bank deposits to GDP in the eurozone, is not Spartacus. As Parsons noted wryly, Italy was unable to say it was not Spartacus because it still doesn't have a government to speak on its behalf. Otherwise it would probably have done so.

Few of the independent voices in the financial markets take such attempts at reassurance seriously. Another crisis in the eurozone could be avoided, but only if those in charge (sic) act more speedily and effectively than they have in the past. As things stand, another outbreak of trouble looks inevitable.

Cyprus has enough money to get by for a couple of months, but by then will be feeling the impact of a slow-motion bank run as depositors remove their money at the rate of €300 (£250) a day. The economy has been crippled by the terms of the bailout, a Carthaginian peace if ever there was one, and the country's debt ratio is bound to explode.

Investors are already casting a wary eye over Malta, which appears to have been the short-term beneficiary of capital flight from Cyprus, but the bookies favourite for the next country to need a bailout is Slovenia, where the government is already making contingency plans for coping with bank losses.

By focusing on the eurozone's minnows, the markets are in danger of overlooking a much bigger potential problem. If attempts to put together a new government in Rome fail, Italy will be facing a second general election and in such a scenario opinion polls currently put Silvio Berlusconi ahead.

It is not hard to sketch out a sequence of events in which Berlusconi completes a political comeback, the markets take fright, Italian bond yields go through the roof, the European Central Bank (ECB) under Mario Draghi says it will only buy Italian debt if Berlusconi agrees to a package of austerity and structural reforms, the new government refuses and then calls a referendum on Italy's membership of the single currency. Italy has already had six consecutive quarters of falling GDP and is on course for a seventh, making the recession the longest since modern records began in 1960. So when Berlusconi says he cannot let the country fall into a "recessive spiral without end", he strikes a chord.

If policymakers are alive to the threat posed by one of the six founder members of the European Economic Community back in 1957, they have yet to show it. The assumptions seem to be that Cyprus is exceptional, that the ECB will ride to the rescue if it proves not to be, and that Europe will be dragged out of the danger zone by the pick-up in the rest of the global economy.

This is the height of foolishness. The factors causing the crisis in Cyprus are replicated in many other member states. The ECB's "big bazooka" – buying the bonds of struggling governments without limit – has yet to be tested, and because Europe is the world's biggest market, the likelihood is that the re-emergence of the sovereign debt crisis will seriously impair growth prospects in North America and Asia.

Economists at Fathom Consulting draw a comparison between the eurozone today and the UK at the very start of the financial crisis. Mistakes were made with the handling of Northern Rock because of fears that a bailout would create problems of moral hazard – in other words helping a bank that had got itself into trouble through its own stupidity would encourage bad behaviour by others. The systemic risks were not recognised, with disastrous consequences.

Similarly, the eurozone has not understood the systemic potential of the current crisis, Fathom argues, not least the "doom loop" between fragile banks and indebted governments. Austerity is making matters worse because cuts to public spending and higher taxes hit economic activity by more than they reduce government deficits. Public debt as a share of national incomes goes up, not down.

Austerity can work, but conditions have to be right for it. It helps if a country's trading partners are growing robustly, because then the squeeze on domestic demand can be offset by rising exports. It helps if the central bank can compensate for tighter fiscal policy by easing monetary policy, either through lower interest rates or through unconventional measures such as quantitative easing (QE). And it helps if the exchange rate can fall. Not one of these conditions applies in the eurozone, which is why the fiscal multipliers – the impact of tax and spending policies on growth – are so high. Put bluntly, removing one euro of demand through austerity leads to the loss of more than one euro in GDP.

So what should be done? Clearly, the self-defeating nature of current policy needs to be recognised. Countries need to be given more time to put their public finances in order. The emphasis should be shifted from headline budget deficits to structural deficits so that some account is taken of the state of the economic cycle, and the ECB needs to be ready with its own version of QE.

Simultaneously, work needs to speed up on creating a banking and fiscal union. Europe could have dealt with Cyprus cheaply and painlessly had there been a pan-European body capable of recapitalising the country's banks. Delay in setting up such a body threatens to be costly.

Finally, the eurozone needs to start talking with one voice. A bit of "I'm Spartacus" would not go amiss.

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