Risks to Britain from eurozone
Anyone hoping for a seismic shift in the Brexit debate from Mark Carney’s speech at St Peter’s College, oxford may be disappointed. What they received is clear, cool analysis of what being part of the european Union has meant for Britain.
The upside is the openness and dynamism of the UK economy. It has benefited particularly from the free flow of capital that has made it the top destination for foreign direct investment in the EU.
Whatever one thinks of David Cameron’s obsequiousness to the Chinese, there is no escaping the fact that the new nuclear plant at Hinkley in Somerset could not happen without French expertise and backing and Chinese investment.
But as the Governor also observes, the openness that comes with being part of the EU exposes Britain to ‘foreign shocks’ as it has done since the eurozone crisis flared up in Greece in 2010 and spread like wildfire across the whole single currency area.
Britain’s flexible labour markets mean that it has been able to weather the eurozone shock and our jobless rate has come down faster than any country in the western world. But the UK’s banking system finds it harder to escape the clutches of the eurozone where British lenders have exposures that are twice their capital and equal to a quarter of national output.
It is the arrangements for financial stability in the european Union that give the Bank of england – the protector of the Square Mile – its greatest worry.
Carney specifically cites the bonus cap restricting how much pay can be clawed back from financial groups when there is bad behaviour. There is also concern that some of the capital which is meant to be a safety in the EU doesn’t actually make the banks safer.
Finally, he fears for the reduced role of national authorities in insurance supervision.
At the core of the Governor’s concerns is the fact that the EU makes rules in the eurozone’s interest which do not fully recognise that a one-size-fits-all approach may hurt a wider union comprising currencies ranging from the pound to the Dan- ish krona. That, in Carney’s view, poses ‘multiple risks’.
As was the case when the Governor spoke about dangers to currency union from the Scottish referendum, he has spelt out the dangers of an unreformed EU to Britain’s future.
This is certain to give the Brexit campaign some of the oxygen it is looking for.
Big movers
THE London stock market has been an extraordinarily volatile place largely as a result of computerised trading. nevertheless, the sharp negative reaction to trading statements from Homebase and Argos-owner, Home Retail Group, and education publishing group Pearson, which both witnessed falls of 16pc, indicates deep underlying problems. Homebase is really worrying. We are in mid-october and the company is in a terrible tiswas over whether or not to embrace America’s ‘Black Friday’ shopping bonanza on november 27 with the enormous logistical and pricing problems it poses.
one suspects the problems are deeper-seated. The company faces some socio-economic challenges as the Government begins axing tax credits. It also has a cost challenge from the other bit of George osborne’s budget package – the national Living Wage.
More fundamental, perhaps, is that the Argos transformation from traditional catalogue shopping to gee-whizz digital has so far only managed to preserve sales rather than increase them.
It is also in direct competition with Amazon, now a marketplace for a huge variety of retailers.
When it comes to electronic goods, one of its key sectors, shoppers seem to prefer the newly invigorated PC World and John Lewis where advice and follow-up servicing is possible. one analyst even goes as far as to suggest that Argos could be heading for a Woolworth/HMV moment.
As for Pearson, the post FT/economist company, now almost a pure education firm with a bit of publishing, is looking threadbare.
It may be at the forefront of the digital teaching revolution but more prosaic factors such as lower community college enrolments in its main US market and higher returns of textbooks are hurting. It is also having to deal with new challenges in its main American market including US testing and some political push back on the core curriculum.
There is much exciting stuff going on within the group. But without the support of its media enterprise it has lost both prestige and earnings. It could become ripe for an opportunistic takeover.
Tax truants
IF Starbucks and Fiat had any sense they would own up to their allegedly illegal tax deals with the Dutch and Luxembourg governments, thank their lucky stars and pay up the €20m to €30m (£15m to £22m) to the two governments concerned.
Instead they are screaming foul and accusing the european Commission of showing prejudice against multinationals.
The reality is they have been dealt with lightly. Perhaps the miscreant firms should cast their eyes over Paris-based bank BNP, which was forced into paying a $9bn (£5.8bn) sum to US authorities for sanctionsbusting and US financial group JPMorgan which coughed up $11bn (£7.1bn) over sales of securitised sub-prime mortgages.
That is corporate punishment with brass knobs.