Mario Draghi pulls the plug
AS IF Brussels hasn’t delivered enough pain to the eurozone’s southern tier, where jobless rates are well into double digits, along comes the European Central Bank to deliver a fresh blow.
Its president Mario Draghi vowed in London in 2012 to do ‘whatever it takes’ it takes to save the euro.
The ‘ Target 2’ scheme has kept zombie banks in Greece and Italy out of the knackers’ yard. The ECB’s asset purchases, or quantitative easing ( QE), have seen €2.6trillion (£2.3trillion) pumped into a moribund euro area since March 2015.
The ECB has been buying everything in sight including government debt, assetbacked securities, such as bundled-up mortgages, and covered bonds.
This extraordinary operation has been the equivalent of handing out nearly £7,000 to every citizen of the 17-country bloc.
Easy monetary policy had the desired effect and lifted the euro area out of its stupor, with 2.4pc output growth in 2017.
But it is premature that Draghi has just decreed to withdraw the monetary assistance at the very moment that the European economy is in retreat.
The pivotal German economy had a bad third quarter in 2018, shrinking by 0.2pc as the car industry ran out of diesel.
French cities have been on fire, leading President Macron into a fiscal U-turn. Italy’s populist administration has bowed for the present to the dictates of Brussels by agreeing to lower the budget deficit forecast from 2.4pc to 2.04pc.
But there is very little detail as to how Rome is going to address youth unemployment, falling incomes and deprivation.
To ease the transition away from printing money Draghi is offering concessions: postponing normalisation of super-low interest rates until next summer and reinvesting in maturing assets, such as corporate bonds.
But there is no escaping the fact that the decision to end QE is as ill-judged as the ECB’s slow decision-making on lowering interest rates, launching QE in the first place and recognising the parlous state of euroland’s banking system.
Gordon Brown’s best decision as Chancellor was keeping the UK out of a dysfunctional currency zone. As the euro area encompasses 17 out of 28 EU economies it makes absolute sense for the Britain to reach an agreement which allows it to row away from the EU as soon as practicable.
Flawed hero
MIKE Ashley is not everyone’s cup of tea. But at a moment of drama on Britain’s high streets he is one of the few proprietors to actively back shops.
His demarche directed at Debenhams may be regarded as a hostile act and insensitive given the department store group’s 25,000 staff. But after the ‘worst’ November in recent memory and with credit insurers worried about Debs’ future, the offer of £40m of free credit in the final run-up to Christmas should be a godsend.
Ashley is determined to protect his near 29.9pc stake in the chain, now worth a fraction of what he paid. His motivation may be to switch the debt to equity and be in a dominant position with 40pc of the stock.
That might be a better outcome than Debenhams being part of the annual closing down sale on the high street when rents have to be paid and surplus stocks have to be unloaded at knockdown prices.
Moreover, ownership by Sports Direct, or Ashley personally, could be better than prepack administration which usually ends with the pension fund being dumped on the Pension Protection Fund’s bail-out scheme, which automatically cuts benefits.
Transparency in Ashley’s empire, treatment of his workforce at Shirebrook in Derbyshire and perceived nepotism may not have endeared him to governance mavens.
But Ashley can listen. Cardiff store manager Cally Price, elected as workers’ representative, has been appointed a non-executive director of Sports Direct.
And Ashley is striving to renegotiate House of Fraser leases, to keep stores open. He may not be a hero yet but deserves recognition for trying.
Chinese whispers
WHO can work out what is going on with Masayoshi Son? In June 2018 the Softbank chief cheaply sold off the Chinese offshoot of Britain’s smart- chip champion Arm Holdings to a state-controlled China fund.
Now Son is to replace all the Huawei hardware in his Japanese mobile networks because he doesn’t trust Beijing not to eavesdrop. Inconsistent or what?