recession | Andy Roberts

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Zapatero’s socialists defeated by People’s party in regional elections

http://distributedresearch.net/blog/2011/05/23/zapateros-socialists-defeated-by-peoples-party-in-regional-elections

Results seen as protest vote against Spain’s José Luis Rodríguez Zapatero’s handling of the Spanish economy since 2008This article titled “Zapatero’s socialists defeated by People’s party in regional elections” was written by Giles Tremlett in Madrid, for The Guardian on Monday 23rd May 2011 17.28 UTCThe socialist party of Spanish prime minister José Luis Rodríguez Zapatero is licking its wounds after defeat by the conservative opposition People’s party (PP) in municipal and regional elections.In what was widely seen as a protest vote against Zapatero himself and his handling of Spain’s economy, his party lost control of key city halls in places such as Barcelona and Seville while the PP took control of most of the country’s powerful regional governments.The central Castilla La Mancha region, Aragon and the Balearic islands all ejected socialist administrations.“We are aware of the situation that had distanced people from our party and caused them to criticise us with their vote or abstention,” party spokesman José Blanco said.The socialist drubbing came just 10 months before a general election and appeared to clear the way for PP leader Mariano Rajoy to take possession of the prime minister’s Moncloa Palace residence on his third attempt.The voting coincided with the eruption of numerous popular protests against established politics across Spain, with demonstrators camping out in Madrid’s Puerta del Sol and in dozens of other cities. A backdrop of 21% unemployment and sluggish growth has spread pessimism throughout Spain as the country struggles to find its feet after the 2008 crash.The socialists lost one in five voters on Sunday, compared to the municipal elections of 2007. Not all those votes were picked up by other mainstream parties, however, and the number of spoilt ballots doubled. But overall turnout was a high 66%.Zapatero is blamed by some for mismanaging a debt crisis that saw Spain on the edge of disaster last year. Others dislike the austerity measures he has since imposed in order to avoid a Portuguese- or Greek-style debacle in Spain.His popularity has plunged since a U-turn last year saw him bring in a strict deficit-cutting plan, which he has pledged to stick to, along with labour and pensions reforms.Markets reacted nervously to the poll result on Monday, pushing up the price of Spanish bonds and pushing down Spanish share prices.The PP urged Zapatero to call a snap general election. “Zapatero and the whole socialist party must reflect on what has happened. Spain cannot waste another year like this,” said the party’s general secretary María Dolores de Cospedal.The one socialist leader to have survived Sunday’s debacle, the head of the Extramadura regional government Guillermo Fernández, also suggested that an early general election might be considered.The socialists must first choose a new leader to take them into those elections, with deputy prime minister Alfredo Pérez Rubalcaba and defence minister Carme Chacón as favourites.Party officials said that a timetable for electing the new leader would be set on Saturday.With a general election due in Portugal on 5 June, and with opinion polls showing that socialist prime minister José Sócrates will struggle to hang on to power, the rolling back of leftwing politics that has already taken place in northern Europe now appears to have moved south. guardian.co.uk © Guardian News & Media Limited 2010Published via the Guardian News Feed plugin for WordPress.Thanks for subscribing to Andy Roberts blogZapatero’s socialists defeated by People’s party in regional electionsRelated posts:Blair to go, now give back the Labour PartyCatalan independence boost after Barcelona voteZapatero says Spain safe from bailout
May 23 2011, 12:35pm | Comments »
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Spain reveals pain over cuts and unemployment

http://distributedresearch.net/blog/2011/05/21/spain-reveals-pain-over-cuts-and-unemployment

Spain protests: Young protesters in Madrid and beyond have many different demands, but they are united in opposing the Spanish governmentThis article titled “Spain reveals pain over cuts and unemployment” was written by Giles Tremlett in Madrid, for guardian.co.uk on Saturday 21st May 2011 11.59 UTCThe arrival of the table, a battered piece of formica bashed on top of four rough, oversized legs raised a cry of joy. Never mind that anyone on a normal chair would barely be able to see over the top – here was another small triumph of the new Spanish revolution, the gathering of angry Spaniards of all colours, ages and persuasions that is sweeping across the country and beyond its borders.The table that arrived in Madrid’s Puerta del Sol square was part of the swirl of creative chaos, naive enthusiasm and pent-up frustration that has transformed it into a makeshift camp for thousand of protesters who call themselves los indignados, the indignant ones.Tents and mattresses, armchairs and sofas, a canteen, portaloos and solar panels have sprung up in a remarkable display of organisational prowess. And the mass of people jostling around, each pursuing their own dream or demand, or just watching others doing the same, seemed more like something transported from the Arab spring in North Africa than from Europe.As the protests continued to swell on Friday, with 60,000 people defying authorities to obey the campaign’s “Take over the square!” slogan in dozens of Spanish cities, and with copycat demonstrations across Europe, the question was whether this was the new May 1968 – a youth-led popular revolt against an establishment deemed to have failed an entire generation.Esther Gutierréz, an elfin 26-year-old, wandered through the crowd with a battered shopping cart full of fruit.“We’ve got so much food we don’t know what to do with it. People just bring it to us for free and it’s wonderful stuff,” she said. “We want real democracy. Not just freedom for bankers. You’re not from the Spanish press, are you? We don’t speak to them.”Cynical and ingenuous by turns, the Madrid protesters and those who last week refused to obey orders to budge from the occupied city squares have torn up the rule book of Spanish public politics. The heavyweights of old – political parties, trade unions and media commentators – are not wanted here.“I was sacked when the Madrid regional government closed down a women’s centre last year when it imposed cuts,” explained Beatriz García as she bashed a small frying pan with a wooden spoon. “The unions didn’t even bother to turn up.”The political parties were worse, she said. “There is no renovation. There is nothing new or different, just two parties who take it in turn to govern because our electoral laws favour them.”Just a week ago Spain was known for the passivity of its citizens as they put up with one of the most depressing eras in recent history. Despite unemployment hitting 21%, widespread spending cuts and a socialist government bound to obey the diktats of Germany’s chancellor, Angela Merkel, and the financial markets, they had refused to show their pain. Marches, sit-ins or riots were for the French – or British students. The real drama, anyway, was in North Africa. Spaniards stayed at home.All that changed this week as demonstrations organised via Facebook and Twitter became static protests in city squares, mushrooming into something that caught politicians, unions and the media by surprise.While journalists were following the dull routine of campaigning for Sunday’s municipal and regional elections, the steam was beginning to escape from a pressure cooker of discontent.Many Spaniards had told pollsters they were tired of the same, well-known political faces – especially those who are due to be re-elected despite being mired in corruption scandals. Politicians have rarely been held in such disregard, with the prime minister, José Luis Rodríguez Zapatero, and opposition leader, Mariano Rajoy, of the conservative People’s party, rating lowest. Rajoy seems set to take over after a general election next March.When police forcibly evicted the Madrid demonstrators on Tuesday morning, they came back in even greater numbers later that day. By Friday night authorities had lost the battle to impose rules banning public politics on the day before elections. Police could only look on. “Join us, police officers!” the demonstrators shouted.By the early hours of Friday, it was already elbow-room only in the Puerta del Sol – the square which prides itself on being Spain’s “kilometre zero”, the spot from which all other distances are measured.On the statue of King Carlos III, somebody had pinned a sign that read: “We are anti-idiots, not anti-politicians.” Other placards read: “We aren’t against the system, we want to change it”, “Democracy, a daily fight”, and “Take your money out of the bank!”“We’ve brought tents, food and even Trivial Pursuit to keep us entertained,” said Pablo Cantó, a fresh-faced 23-year-old journalism student. Like many younger protesters, and the movement as a whole, he had trouble expressing exactly why he was here. “We want change,” he said. “Things just can’t carry on as they are.”The heavy clouds of cannabis smoke suggested others had brought their own form of entertainment.“I’ve been protesting for decades,” said 60-year-old school teacher Rosa Marín. “I’m glad to see so many young people here. The questions is this: Is this another May 1968, or are they just here for the party?”A gang of drunken skinheads, mindlessly chanting football terrace slogans, were there for the latter.But a neat, disciplined circle of people intently debating social reform showed many were here in earnest. They took turns to stand up and make their proposals, the audience listening and using the sign language applause of the deaf – by shaking their hands above their heads – to show approval without drowning the speakers out.The proposals, due to make their way through a laborious process of committees, working parties and general assemblies, varied from calls for less spending on the military to helping businesses. “Because it is not just money for the owners. They are the ones who give people like us jobs,” said one young man.For some younger protesters, it was a political baptism. “I don’t know what will come out of this, but it is enough just to show everyone how upset we are,” explained Javier de Coca by phone from the protest camp in Barcelona’s Plaza de Catalunya, where there was a surprising absence of the nationalist or separatist symbols of protest movements in recent years.“It’s as if they’ve realised they have more serious problems to deal with,” said one protester. One of those problems is 45% youth unemployment.On a wall beside the tarpaulin-covered command centre in what some were calling Madrid’s “Republic of Sol” – home to a press office, an infirmary and a legal centre – a list of needs had been pinned up. Toilet paper and food were scratched off the list. Bookshelves, wood, rubber gloves and bottles of cooking gas were on it. Volunteers were needed for a creche.“We process the proposals and try to turn them into something that makes legal sense,” explained a volunteer at the legal centre.However, the open assemblies are painfully slow. Some last for hours, as everybody is given their turn to speak. After almost a week of protests, the demonstrators have failed to come up with a coherent set of demands.Electoral reform to end the two-party system and action to both punish corrupt politicians and limit their luxuries and privileges were the main areas of agreement.So is the Arab spring spreading to southern Europe? “You can’t really compare us to people who were risking their lives by protesting,” said 23-year-old computer engineer Jaime Viyuela. “But yes, you can say that we are inspired by the courage of the Arab spring.” guardian.co.uk © Guardian News & Media Limited 2010Published via the Guardian News Feed plugin for WordPress.Thanks for subscribing to Andy Roberts blogSpain reveals pain over cuts and unemploymentRelated posts:Zapatero says Spain safe from bailoutProtest march against coalition cuts expected to attract 300,000Anti-cuts campaigners plan to turn Trafalgar Square into Tahrir Square
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May 21 2011, 8:54am | Comments »
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Portugal admits it needs EU bailout

http://distributedresearch.net/blog/2011/04/07/portugal-admits-it-needs-eu-bailout

Finance minister Fernando Teixeira dos Santos says Portugal has ‘to resort to the financing mechanisms’ of the EU. That means a bailout.

This article titled “Portugal admits it needs EU bailout” was written by Larry Elliott, Heather Stewart and Simon Goodley, for The Guardian on Wednesday 6th April 2011 19.36 UTC Portugal admitted tonight that it will need aid from the European Union to overcome its financial troubles, as the country’s crisis intensified. Fernando Teixeira dos Santos, the finance minister, said: “In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework.” It was not clear from the comment whether he was referring to a short-term loan until the country’s 5 June snap general election or a fully-fledged bailout such as the ones received by Greece and Ireland – and which markets widely expect Lisbon to need next. The comments came as fears grew of a fresh debt crisis for weak countries on the fringes of the single currency zone as the European Central Bank prepared to start raising interest rates from the emergency level plumbed during the financial crisis. The euro rose on the foreign exchanges today in expectation that the European Central Bank would raise borrowing costs from 1% and signal further policy tightening in the months ahead. But City economists warned that the move would add to debt servicing costs and prove more problematic for countries such as Portugal and Ireland than for the core single country nations of Germany and France. Ben May, of Capital Economics, said: “If interest rates were to rise in line with market expectations, their impact would be greatest in the periphery and may prompt a further escalation of the region’s fiscal crisis. “Higher official interest rates will not only lower economic growth in the periphery, but will also prompt the average interest rate that governments pay on their debts to rise. Other things equal, then, higher interest rates will increase the chance of peripheral government debt spiralling out of control.” Along with other central banks, the ECB slashed interest rates during the financial crisis in an attempt to pull Europe out of recession, but it has responded to rising inflation in recent months with clear signals that borrowing costs will rise. The euro’s strength coincided with a rise in the price of gold to $1,454.84 an ounce. Marchel Alexandrovich, of Jeffries International, said a 1% increase in ECB rates would mean that mortgage debt interest payments of euro area households would rise by around 7% on average, but there would be a 30% jump in debt services payments for households in Portugal and Finland, a 15% increase in Ireland and around a 10% rise in Spain and Italy. “In aggregate, debt interest payments for the euro area households and non-financial corporations would rise by around 0.3% of GDP if ECB rates are one percentage point higher,” he said. “But Germany and France would see a rise of just around 0.1% of GDP, while Portugal, Spain and Ireland would see increases equivalent to 0.8% of GDP. “The countries which least welcome higher interest rates on economic fundamentals are likely to be the ones most affected by them. One more reason why the ECB would be wise to tread very carefully in the months ahead.” Several of Portugal’s banks have been calling on the government to accept help from its eurozone partners, warning that they can no longer continue to buy up Portuguese debt. Lisbon needs to find almost €5bn in repayments this month and another €27bn in June. The rising interest rate on Portuguese borrowing has added to the sense of crisis in the eurozone, amid reports that Greece is under pressure from the International Monetary Fund to default on its borrowing. The Irish government is understood to be concerned about weaker-than-expected tax revenues and the vulnerability of its banking sector. An informal meeting of European finance ministers is planned for Friday

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Related posts:Portugal bailout fears rise as credit rating cut Portugal teeters on brink of bailout Ireland forced into new £21bn bailout by debt crisis
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April 7 2011, 2:35am | Comments »
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Punch Taverns plots another way out of £3bn debt and a pub empire in crisis

http://distributedresearch.net/blog/2011/03/27/punch-taverns-plots-another-way-out-of-3bn-debt-and-a-pub-empire-in-crisis

An eighth of the UKs pubs are owned bu Punch Taverns, and every time they spend money on re-branding interiors to meet different market segments rather than delivering good quality beer and cider and in a congenial atmosphere, they are slowly failing.

This article titled “Punch Taverns plots another way out of £3bn debt and a pub empire in crisis” was written by Andrew Clark, for The Observer on Sunday 27th March 2011 00.05 UTC There’s no logo above the door of its pubs. No branding, no advertising, not the slightest sign of corporate identity. But an eighth of Britain’s licensed houses are quietly owned by Punch Taverns, a sprawling, anonymous empire of neighbourhood drinking establishments disintegrating under a mountain of £3bn in debt. Punch owns 6,770 of Britain’s 52,000 pubs, an estate built over a decade of frenetic multibillion-pound purchases, sales, mergers and demergers at the height of Britain’s leveraged buyout boom. Its empire stretches from the Quayside Inn in Falmouth, Cornwall, to the Chieftain, in Inverness. But after slashing the balance sheet value of hundreds of struggling pubs, it slid to a £159m loss last year and had to make interest payments on its debts of £260m. Shares have slumped by 95% over four years amid mounting alarm that Punch could default on its debts. Top executives blame external factors – they say drinkers have been lured out of pubs by cheap lager on supermarket shelves and by the Labour government’s 2007 decision to outlaw smoking in pubs. “The dynamics in the market changed and that really started with the smoking ban,” says Roger Whiteside, managing director of Punch’s tenanted pubs division. “There’s been a long-term decline for decades in volume sales of beer. What used to be copeable with – a 2% or 3% drop a year – became 7% or 8%.” Whiteside says ultra-cheap lager in Asda, Sainsbury’s or Tesco has not helped, but blames the smoking ban, swiftly followed by a recession, for an unprecedented cash crunch: “Consumers are drinking more at home. That’s been driven by an ever-widening gap between beer prices in supermarkets and in pubs, exacerbated by the social aspects of banning smoking.” Punch, which narrowly trails Enterprise Inns as Britain’s second-biggest pub owner, briefed the City last week on its strategy for stopping the rot. It plans a demerger to separate Punch Partnerships, its vast rump of quasi-independent tenanted pubs, from its snazzier high-street managed division, known as Spirit, which is doing better because its outlets sell more food. Followers of the industry could be excused a weary sense of deja vu. The history of Punch Taverns reads like a corporate finance catalogue. It has kept lawyers, investment bankers and brokers in clover to a staggering degree since its creation in 1997 by former Pizza Express boss Hugh Osmond. In transactions worth billions, backed by massive bond issues, Punch bought pub estates from Bass, Allied Domecq, Pubmaster, Innspired and Inn Business. It has sold off pubs in dribs and drabs and unsuccessfully attempted a huge merger with Mitchells & Butlers in 2008. It has merged, demerged, remerged – and is demerging again – with Spirit. Along the way, some have made a fortune; former chief executive Giles Thorley, who ran Punch from 2001 until 2010, took home nearly £30m over five years. Investors objected, voting down the company’s remuneration policy in 2009. New boss Ian Dyson’s latest wheeze to split the group in two will cost £30m in advisory fees, prompting derision from certain bondholders, one of whom told the Guardian: “There’s a £30m corporate finance party on the top deck of the Titanic when attention should be focused on urgent engine room repairs.” Many have tired of constant financial engineering and ask why the City has added such spectacular complications to an ostensibly simple business – street-corner boozers. Jonathan Mail, head of policy at the Campaign for Real Ale, says: “Because of the financial engineering and debt companies have taken on, lessees haven’t been able to make sufficient profit to invest so that pubs can evolve and change with the times.” Critics of Punch, and its similarly vast competitor Enterprise Inns, argue that, far from being companies with a passion for pubs, they are property businesses largely concerned with milking tenants for rent. Greg Mulholland, the Liberal Democrat MP who chairs parliament’s all-party “Save the pub” group, says: “The big so-called pub companies are really property companies, and very largely property speculators. Some are playing Monopoly with pubs that mean an awful lot to communities they serve.” As 20 pubs a week close in Britain, Mulholland argues that Punch and its fellow megaliths are follies born on the drawing board of City dealmakers during an era of reckless exuberance prior to the financial crisis: “Apart from the fact their size is unwieldy, it’s bad for both tenants and consumers to have so many pubs in the hands of a couple of big companies. The folly of the business model and some of the bad decisions made by Punch are coming home to roost.” Under the tenanted model favoured by Punch, most of its pubs are franchised out to licensees who pay rent at a level fixed over periods of five years. They are obliged to buy their beer from Punch, which, because of its vast scale, can negotiate steep discounts with brewers. However, disaffected tenants complain that Punch has hiked the price of beer in recent years as it struggles to meet debt repayments. Simply servicing the group’s debt costs each of Punch’s pubs an average of £39,000 last year, a hefty chunk of typical annual takings of £200,000-£250,000. For landlords, profit margins are often wafer-thin; a 2009 report by the Commons business and enterprise committee found that 78% of lessees were dissatisfied with their “tie” to big pub companies. Two-thirds earned less than £15,000 a year. The churn as landlords quit has caused concern; Punch says 13% of its outlets are under temporary management. “The model doesn’t work,” says Steve Corbett, founder of the Fair Pint Campaign. “It’s financial engineering in the extreme, whereby they’ve managed to extract the maximum profit to the detriment of tenants and consumers.” The City has little patience for sentiment about pubs. Nigel Parsons, an analyst at Evolution Securities, says licensed houses ought to be treated as dispassionately as any business: “Pubs don’t deserve a special place in society – they’re only there because they work. The ones that go to the wall deserve to because they don’t offer anything special.” He believes that the tenanted model in not inherently flawed, but that players such as Punch have simply over-reached: “The application of the model works, but they’ve pushed it too aggressively.” Punch plans to halve in size from 6,700 pubs to about 3,000. In addition to spinning off its Spirit estate, it intends to sell 2,200 poorly performing pubs. It reckons two-thirds are likely to stay open as pubs, while a third will go to developers for transformation into shops, care homes or residential developments. The company insists its deal-making has raised the standard of pub life. “The choice of beer has absolutely exploded, we sell more than 700 ales,” says Whiteside. “We’ve been instrumental in investing in pubs, putting food into pubs and creating a more pleasant environment.” The Fair Pint Campaign demurs. Corbett says: “Walk down any street in Britain and you can spot a tied pub a mile off. It’s the one falling apart… and may have had four or five tenants over 10 years.” Timeline 1997 Hugh Osmond establishes Punch Taverns by buying 1,400 pubs from Bass 1999 Buys 688 pubs from Inn Business; 3,000 from Allied Domecq 2002 Spirit Group, its managed estate, demerged; 4,200-strong tenanted estate floats as Punch Taverns 2003 Buys rival Pubmaster for £1.2bn, adding a further 3,115 pubs 2004 Purchases Innspired Group for £335m, gaining 1,064 more pubs 2006 Buys back Spirit for £2.7bn 2007 CEO Giles Thorley is the highest paid in the FTSE 100, earning £11.3m 2008 Merger bid for Mitchells & Butlers is rebuffed; trading begins to falter 2009 Emergency cash call raises £375m; executive pay policy voted down 2010 Recession squeezes pub takings; Thorley quits as chief executive 2011 Shares plunge on fear of default; another demerger of Spirit proposed

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March 27 2011, 5:00am | Comments »
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Regional theatre should take more risks

http://distributedresearch.net/blog/2011/03/23/regional-theatre-should-take-more-risks

Programming Barrie, Noël Coward or Daphne Du Maurier is understandable when times are tough. But if regional theatre wants to safeguard its future, it must look beyond plays of the past

This article titled “Regional theatre should take more risks” was written by Lyn Gardner, for guardian.co.uk on Tuesday 22nd March 2011 11.57 UTC A couple of years back, in a passionate post on this blog about regional theatre, the Royal and Derngate’s artistic director Laurie Sansom observed that “Regional artistic directors used to behave as if they were on Countdown: ‘I’ll have a Coward, please, a Shakespeare, a new play in the studio, and another Coward, please, Carol.’ These days, I can only imagine producing Noël Coward if an artist has a personal connection to the material and a burning desire to give it fresh theatrical life.” Two years is a long time in theatre. Since Sansom’s post on the vibrancy of programming in regional theatres, we’ve had an election, the formation of a coalition government that has no understanding of the crucial role theatre can play in its community both economically and socially, and the prospect of funding cuts. But it is clear that, long before the axes have fallen, many theatre programmes have taken on the look of a nervy Countdown selection. Perhaps it’s hardly surprising: just as hemlines go down in a recession, maybe artistic directors are inclined to look backwards rather than forwards. Perhaps even more importantly, it is a reminder how much confidence and psychology plays a part in creating the conditions necessary for a theatre to take risks, then reap the rewards. Back in 2001, the fact that there was money on the way (in the form of the £25 million that was injected into theatre after the Boyden report) created a sea-change in British regional theatre that was apparent long before theatres saw a penny of the cash. In the circumstances, then, perhaps it is no surprise that the seasons currently gracing our stages – in many cases programmed more than a year ago – reflect a certain nervousness about audience attendance, and suggest a headlong retreat into pre-Look Back in Anger drama. That impression may be somewhat skewed by the Rattigan centenary, not that I begrudge him his moment in the sun: Thea Sharrock’s timely (and award-winning) After the Dance at the National made as good a case for Rattigan’s rehabilitation as the Almeida’s revival of The Deep Blue Sea in 1993. But, even if you take Rattigan out of the equation, we’re still seeing a rash of Cowards and Priestleys, even the odd Du Maurier and W Somerset Maugham. Or how about Barrie’s The Admirable Crichton? Restoration comedy seems to be making a come-back too. I can’t recall so much interest in The Rivals since the 1980s. Of course there’s wrong with directors rummaging around in the theatrical attic and finding plays that glimmer in the dark. There are also horses for courses: Salisbury Playhouse, which recently saw a fine revival of The Constant Wife, may actually be the only theatre in the country where you could still do Somerset Maugham, and there is no one more qualified to do it well than Philip Wilson – who knows how to mine beneath a brittle surface and who, incidentally, has previously has proved himself a superb director of Coward. Sansom was right two years ago and he is still right now, in suggesting that it is a burning desire to give a play new theatrical life that makes it worth doing. The results can be transforming, as we saw in the 1990s with Stephen Daldry with An Inspector Calls, or have seen recently at the Finborough with a rare revival of Emlyn Williams’s Accolade. And David Grindley’s touring revival of Journey’s End demonstrates that even an old war horse can have real vigour and relevance. So I certainly don’t want to write off the plays of the past, but do want to point out that if regional theatre wants to safeguard its future it can’t play things too safe. It’s risk-taking that keeps theatre alive.

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March 23 2011, 6:22pm | Comments »
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Mervyn King: rebalance global economy or risk a trade war

http://distributedresearch.net/blog/2011/03/15/mervyn-king-rebalance-global-economy-or-risk-a-trade-war

Funny the way nobody seems to ever listen to the governor of The Bank of England.

This article titled “Mervyn King: rebalance global economy or risk a trade war” was written by Larry Elliott, economics editor, for The Guardian on Monday 14th March 2011 07.05 UTC Mervyn King will be able to see for himself the devastation wrought by the natural disaster in Japan when he gives a speech in Tokyo today* stressing the need to rebalance the global economy and to head off protectionist pressures. Like the rest of us, the governor of the Bank of England could be forgiven for thinking that the gods continue to punish us mortals for the greed and stupidity of the bubble years. The first obstacle thrown in the way of recovery from the Great Recession was the ruinous cost of the crisis to sovereign states. Then, violent political unrest rippled across the world’s most significant oil-producing region, sending the cost of crude rocketing. Now, Japan has been laid low by one of the biggest earthquakes of the past 100 years at a time when its public finances are in a parlous state. In a sense, the obstacle-strewn road to redemption should come as no surprise. This was no ordinary crisis and it is proving to be no ordinary recovery. The debts that caused the global system to self-destruct back in the summer of 2007 have not gone away, they have merely been passed on to the public sector. This was always a solvency crisis, because it was clear four years ago that many banks were bust and would have gone under without the aid of governments. It is still a solvency crisis, because some countries – Greece, Ireland and soon perhaps Portugal – are struggling with the enormous cost of paying off their debts. But it is not just the small fry who are financially impaired. Japan already has a debt-to-GDP ratio of getting on for 200%, while the US national debt is now in excess of $13tn (£8tn), up from $1tn 30 years ago. This, of course, is before anything like the full impact of the ageing of the baby boomer generation has been felt. Here, then, are some predictions. Contrary to the knee-jerk reaction in the oil market on Friday, the earthquake and tsunami in Japan will be positive for growth, at least given the somewhat bizarre way statisticians calculate gross domestic product. There will be a massive reconstruction effort in Japan, which will be funded by a mixture of quantitative and fiscal easing. The rest of Asia will continue to expand briskly, leading to higher demand for oil. Crude prices will continue to rise, with Brent hitting $130 a barrel in the spring if speculation about turmoil spreading from Libya to Saudi Arabia continues. City analysts who travel to Asia and Latin America return with tales of how the emerging world is booming. It is certainly true that the big developing economies have been crucial to the recovery of the global economy since the spring of 2009. But the warning signs, flashing amber a few months ago, are now flashing red. Commodity prices, especially oil, were on a sharp upward trend before the unrest began in north Africa. Higher oil prices mean higher inflation, which in the four previous oil shocks has tended to mean higher interest rates. The European Central Bank will be the first to move, having signalled that it feels the time is right to start unwinding the ultra-expansionary policy stance of the past two years. In the UK, there will be intense pressure on the Bank of England to follow suit, not least because the ECB’s action will result in a weaker pound, making imported goods more expensive. Dearer borrowing will be a double whammy for the weak countries on the fringes of the eurozone. It will slow their growth and make the cost of paying their ruinous debts more expensive. Europe provided itself with some additional firepower to tackle a sovereign debt crisis late last week, but this will deliver only short-term relief from a problem that will eventually ensnare Spain and Belgium as well as Greece, Ireland and Portugal. The position of these developed countries is little different from that of poor countries in the 1990s: they are burdened with excessively high debts. Yet there is no Jubilee 2000 for Greece, and nor is there a bankruptcy mechanism for sovereign states. It is infra dig to suggest that bankers and bondholders should “take a haircut” for their duff decisions, and since they have declined, ordinary taxpayers will have to do so. The fundamental problem for countries such as Greece, Ireland and Portugal is that they need growth to pay off their enormous debts, yet are unable to do so because of the deflationary policies inflicted on them by the European Union and the IMF. The widening of bond spreads suggests that something is going to give sooner or later. This can either be in an orderly manner if policymakers get their act together or in a chaotic fashion if there are attempts to get through the crisis with a mixture of bluster and confusion. The debt crisis, tighter borrowing conditions and the squeeze on incomes and profits caused by higher energy costs will mean that global activity will start to cool over the coming months. Indeed, we could be quite close to the point where the main cause for concern ceases to be inflation and becomes growth. Interest rates will rise but not by nearly as much as the markets expect. In the UK, inflation will hit 5%, intensifying the policy debate at the Bank of England. If the Bank does act, a combination of tighter monetary policy and fiscal austerity will push the economy back into recession. Watch out for the second quarter of 2011: it is not going to be pleasant. Elsewhere, a deep and long recession will be followed by an unusually weak and shallow upturn, particularly given the size of the stimulus provided by central banks and finance ministries. The realisation that there will be no easy return to pre-2007 business as usual will trigger a wave of bankruptcies among firms that have been kept on life support in expectation of better times. Banks will have to own up to some of their hidden losses, resulting in a second phase of the financial crisis. This will be a bitter-sweet outcome for people like King, who have been warning that there will be no permanent solution to the crisis without addressing the global imbalances and to rein in the activities of big finance. Who knows, if things get really bad, his warnings may be acted upon? * The text of the speech was released ahead of Mervyn King’s visit, which was cancelled in the light of the earthquake.

guardian.co.uk © Guardian News & Media Limited 2010 Published via the Guardian News Feed plugin for WordPress.

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March 15 2011, 6:25am | Comments »
I posted to distributedresearch.net

The fallout from the crash of 2008 has only just begun

http://distributedresearch.net/blog/2011/03/09/the-fallout-from-the-crash-of-2008-has-only-just-begun

The world impact of the biggest financial crisis since 1929 has only just got underway. Demand is falling. Talk of recovery is dangerously premature.

This article titled “The fallout from the crash of 2008 has only just begun” was written by Seumas Milne, for The Guardian on Wednesday 9th March 2011 21.45 UTC To listen to government ministers and boardroom barons, you’d think that the economic crisis that erupted in 2008 was as good as over. Recovery might be weak and choppy, they’d have us believe, but it’s nevertheless under way. Cuts might be painful, they insist, but they’re essential for a rebalanced economy – and anyway they’re all the fault of the previous government. As elsewhere, there is a determined attempt in Britain to restore the economic model so comprehensively discredited in the crash of 2008. But the evidence is piling up that the full impact of the crisis is only starting to make itself felt – and that both the economy and politics will be transformed before it has run its course. In Britain the loyalty to a failed past is most striking in the Tory-led government’s resolute refusal to bring to heel the banks that delivered the economic meltdown. Bankers’ greed might be the object of public revulsion and ritual political handwringing; and the banks’ survival might depend on the greatest public handouts and guarantees in history. But once again, their executives have awarded themselves hundreds of millions of pounds in pay and bonuses, while real wages are being forced down across the workforce. Even Stephen Hester, the chief executive of state-owned RBS, is pocketing £7.7m while failing to carry out the bank’s essential function of boosting lending to credit-squeezed businesses. And instead of directing the banks they own or underwrite to ditch bonuses and drive recovery, George Osborne and his Liberal Democrat lieutenants have in effect cut Labour’s bank levy, slashed corporation tax and signed a toothless agreement that will clearly achieve neither. Given that over half the Conservative party’s funding now comes from bankers, hedge fund managers and private equity moguls, perhaps that’s not so surprising. But, combined with a scale of brutal and counter-productive spending cuts only matched in Europe’s basket cases, the result for the British economy has already been disastrous. Put to one side the arbitrary convention that two successive quarters of economic shrinkage are needed to qualify for a recession. Britain has in fact already had a double dip, as the economy shrank by 0.6% in the last quarter of 2010 – and that’s before the effects of most cuts and tax increases have been felt. Greece and Portugal are the only other European Union countries whose economies declined in the same period. But it has taken the Bank of England governor Mervyn King of all people to nail the endlessly repeated falsehood that the deficit is the result of Labour profligacy – rather than the breakdown of an unregulated and unreformed financial system enthusiastically endorsed by the entire political class. King blamed the bankers for the cuts, and warned of the threat of further crises unless the financial behemoths were brought to book. And it was Richard Lambert, the outgoing head of the employers’ CBI, who took the government to task for absurdly relying on the ruthlessness of its cuts to deliver growth. David Cameron’s response has been to promise more deregulation and blame civil servants for “loading costs on to business”. That will be the theme of this month’s budget. It’s got all the makings of a 1980s revival, complete with the Thatcherite favourites of increased VAT, deep cuts in the poorest areas and mass privatisation. Ministers seem determined to reinstate a neoliberal order that is beyond repair, while the conditions that eventually allowed economic recovery in the 80s after the destruction of 20% of the country’s industrial base and the creation of 3 million unemployed under Margaret Thatcher – including a far more benign international economic environment – are simply not there. The latest slow-motion aftershock of the 2008 crash is being felt in the oil market. The Arab uprisings of recent months have targeted dictatorship and had multiple causes. But the trigger for the Tunisian revolution, which sparked the wider revolt, was economic: rising food prices and unemployment in the IMF poster-boy state, combined with declining workers’ remittances from recession-hit Europe. Now that the upheaval has spread to oil-rich Libya and is echoing across the Gulf kingdoms, oil prices have started to spike. If the Libyan stalemate continues, or the revolution reaches the main oil producing states, the impact of sharply higher prices on global recovery is likely to be dramatic – a boomerang effect of the original crisis, which would further squeeze growth and fuel inflation. Already European and British central bankers are preparing to make a renewed downturn more likely by threatening higher interest rates in response to rising energy and food prices. Add to that the continuing turmoil in the eurozone, and the damage of a new oil shock on a stagnant economy like Britain’s – already bled white by market dogma – could be far-reaching. The aftermath of the crash of 2008 demands a different kind of political economy. If Britain’s coalition government carries on imagining it can cut and deregulate its way out of emerging stagflation, it will fail and its unpopularity deepen. But Labour also has to break with policies that helped generate the crisis in the first place. David Miliband, the party’s failed leadership contender, this week defended New Labour’s record, arguing that European social democrats need to move away from reliance on high public spending and state power if they are to regain support in an era of economic crisis. But it isn’t public intervention that is behind the failure to invest or lend – it’s the lack of it. And it wasn’t New Labour’s over-regulation of the City that made Britain especially vulnerable to the credit crash. It was the opposite. Right now, publicly owned banks and their cash mountains should be at the heart of an investment programme to propel recovery. But that would mean moving on from an economic model broken by its own excesses. Instead, they’re being fattened for privatisation. Mervyn King expressed surprise last week that the “degree of public anger has not been greater than it has” over the costs of the system’s failure. But as those costs are rammed home, both in Britain and across the world, it will become clearer that the fallout has only just begun.

guardian.co.uk © Guardian News & Media Limited 2010 Published via the Guardian News Feed plugin for WordPress.

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March 9 2011, 5:15pm | Comments »

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