Cracks appear in the eurozone: The EU is malfunctioning on a political and technical level, says ALEX BRUMMER
Britain’s conspicuous G7-topping inflation rate and the fall in the pound have reawakened Brexit critics.
The Resolution Foundation think-tank says that Brexit has reduced the competitiveness of the UK economy, with alarming implications for productivity and wages.
An analysis in the Financial Times argues that, six years after the EU referendum, economists conclude that the damage to Britain has been real.
The European Central Bank has fallen behind the curve in tackling rising prices. It is finding it hard to act because of turmoil in the market for sovereign bonds
Another reality is that the UK didn’t leave the EU until January 31, 2020 and two months later the global economy was crushed by Covid.
So reading too much into trade and other effects is premature. The UK, as one of the most open economies, suffers more than other countries from global shocks.
The assumption that the EU and the eurozone in particular is a wonderful thing needs correcting. It is malfunctioning at a political and technical level.
As pleased as some people will be to see Emmanuel Macron get his come-uppance, the idea that Marine Le Pen’s far-Right party now holds 89 seats in the National Assembly fills one with horror.
In Germany, the government has cast its Cop26 obligations aside and is firing up its carbon-emitting, coal-burning power stations. Fissures in the eurozone, which almost blew apart in the currency crisis of 2011-12, are reappearing.
This time, the focus is on Italy, not Greece, even though the former country is run by former European Central Bank (ECB) supremo Mario Draghi.
The ECB has fallen behind the curve in tackling rising prices. It is finding it hard to act because of turmoil in the market for sovereign bonds.
Italy’s ratio of debt to national output has surged to 150 per cent, making the UK’s 94 per cent look modest. As a consequence, the yield on ten-year Italian bonds has surged from 0.5 per cent in September 2021 to 4 per cent.
This led to the ECB holding an emergency meeting last week when it agreed to a new financing package to stabilise the market for eurozone bonds.
Europe effectively is turning on the printing presses while much of the rest of the industrial world is tightening.
Among the paradoxes are the number of policy-makers calling on the UK government to stabilise the pound.
Holidaymakers heading for the Continent this summer will find the euro is no great store of value at present.
The euro is on a downward trajectory against the dollar as investors globally place their faith in safe-haven US Treasuries.
Economists polled by Reuters believe that the US Federal Reserve is limbering up for rises in July and September that would carry the official Federal Funds rate up to a range of 2.75 per cent to 3 per cent, opening an even bigger differential with the UK.
That, unless governments take co-ordinated action to head it off, means a further strengthening of the dollar.
Hard running
No one could complain Peter Cowgill’s buccaneering management did not pay off for investors in JD Sports, including the 49 per cent stake owned by the Rubin family.
Long-delayed results for 2021 showed that profits before exceptional items were not far off £1billion.
The objective of the stand-in management is to normalise governance at the firm, which blotted its copybook with competition authorities, and has been criticised for undisciplined executive rewards.
There is insatiable demand for plimsolls and all things sports footwear and people are willing to pay full prices for the right designer, irrespective of the cost of living.
JD is confident enough to forecast similar profits in the current year as last. Same-store sales are dashing away with a 5 per cent lead on last year.
The search for a governance-savvy chairman is vital. As important will be a chief executive who doesn’t allow cash reserves to burn a hole in the company’s sole.
Loss leader
The disparity between US handling of rescued banks after the crisis of 2008 and that of Britain could not be greater. Washington ordered the sale of US share stakes swiftly, recognising losses were inevitable.
In the UK, the initial reaction was to behave like nervous ninnies worried about a bad reaction to red ink. Some 14 years after the implosion at NatWest the Government still has a 48.5 per cent stake.
Final disposals are postponed for another 12 months because of market turmoil.
When will it end?
