Thursday, June 30, 2016

Bloomberg News - Micklethwait: Goodbye to All That

British Prime Minister Margaret Thatcher at the 1985 Conservative Party Conference.
Photographer: Keystone/Getty Images
The great sweep of economic history is a series of “rises” and “falls”—from the fall of Rome to the rise of China. The intriguing episodes that spark the “what ifs” of history come lower down—when a medium-size power suddenly reverses an inevitable-seeming trajectory. That’s what Britain did under Margaret Thatcher and her successors: a crumbling country unexpectedly overturning years of genteel decline to become Europe’s most cosmopolitan liberal entrepĂ´t. My fear is this revival ended on June 23, 2016.
I can remember when my version of liberal Britain was born: in a sauna in San Francisco in 1981. I was visiting from the U.K., traveling around America with George, another 18-year-old, on our “gap year” between school and university. We were staying with George’s elderly cousin Antony, who had fled high-tax Britain, having made a lot of money on chickens. He took us to have a sauna with his equally elderly neighbor, a small intense man called Milton. They asked George and me about Thatcher, and when they discovered that we knew little, Milton took center stage, explaining how the prime minister, who took office in 1979, would break the unions, open up the economy, and transform Britain into a free-market exemplar.
George and I had no economics, but even we knew this was codswallop. Thatcher already looked in trouble: There were riots back home. The Britain we had grown up in was a class-ridden land of inevitable decline—sometimes benign (watching Upstairs, Downstairs), sometimes humiliating (being bailed out by the IMF), and sometimes uncomfortable (being taught by candlelight during the miners’ strikes). But the trajectory, pretty much since 1913, had been gradually downhill. Culturally, Britain could be cool—we had produced Mick Jagger and Monty Python. But economically we were finished. Later in my gap year, I watched the Grateful Dead and found them less hallucinogenic than the dreams of mad old Milton in that sauna.
When I returned to Britain, however, Milton Friedman was everywhere—the economist behind Thatcher’s free-market gamble. Sir Antony Fisher (as he later became) was less well-known, but he’s now celebrated as one of the great sponsors of the libertarian right. And what they forecast was basically correct; the trajectory of Britain did change.
You can argue that Thatcher was needlessly ruthless: Even today, many of the areas that voted for Brexit were in the industrial north that collapsed under her onslaught. You can claim she was an accident: Nobody in 1979 voted for “Thatcherism”; to most voters she seemed like a tough-minded pragmatist rather than an ideologue. You can say she was lucky: Had Argentina not invaded the Falklands in 1982, she might well have been a one-term prime minister. But the narrative changed—away from decline toward something more expansive, meritocratic, and confident.
Thatcher may have called herself a Conservative, but her inspiration was the classical liberalism of John Stuart Mill and Adam Smith, centered on free commerce and individual freedom and what we now call globalization. It sat at the heart of the first great Victorian age of globalization, which came to an end in 1914. For Thatcher these ideas were channeled through thinkers like Friedman. She wasn’t always as idealistic as she claimed, but the direction she set—and John Major and Tony Blair followed—was clearly toward open markets.
As a result, Britain has arguably been the big Western economy most comfortable with the current age of globalization. Not as successful as the U.S., to be sure. But we have usually been stauncher supporters of free trade and more at ease with foreigners buying our companies or running them, with privatizing government services, with the move from manufacturing to services, especially finance, and with foreigners playing for our football clubs or taking over our cuisine. And alongside that has grown a laissez-faire attitude toward individual freedom, from gay marriage to stem cell research.
This liberal Britain didn’t always work out well. Overreliance on finance meant we were especially exposed to the crunch in 2008. Even if in practice we were good at dealing with immigrants, there was still grumbling about foreigners, whether poor ones taking council houses or rich ones buying up Chelsea. We’ve been schizophrenic toward the European Union: We liked the single market but hated its tangle of regulation.
Yet this love-hate relationship has served Britain very well. The fact that we were at the free-market end of a sclerotic union increased our relative attractiveness. London has become the commercial capital of Europe and its talent magnet. Britain’s soft power has not been greater for decades.
What went wrong? The obvious rejoinder is liberal Britain worked a lot better for some Britons than for others. That is true. Many Brexiters also felt that they had been lied to repeatedly about immigration. Others see the EU as a doomed project—and think we are best out of it. Add in shameless political opportunism, a Euroskeptic press that told voters there was no cost to voting Leave, and polls that showed Remain was in the lead (so a protest vote was just that), and you get to 52 percent of the electorate.
The chaos could pan out in a liberal direction. A few Brexiters believe they are Thatcher’s heirs, rejecting the EU leviathan. But most of the Leave voters want less globalization, not more. And Europe is hardly in a mood to give special favors to perfidious Albion. The revolt against the age of globalization could well spread. In terms of soft power, Britain’s reputation as a tolerant, stable haven is being shredded, day by day.
Hence the fear that the years 1979 to 2016 will be seen as the great exception—a brief revival in the centurylong decline of a former Great Power. By 2050 historians may well deem it inevitable that the financial capital of Europe would move to Germany. One irony is there was as much accident in the end of liberal Britain as there was in its founding. If few Britons knew what they were getting in Thatcher, perhaps fewer thought through the consequences of Brexit. They just wanted to give their politicians a kicking, believing it was risk-free. A lot depends on how quickly they admit they were wrong. 
Micklethwait is editor-in-chief of Bloomberg.

Wednesday, June 29, 2016

BBC News - US economic growth for first quarter revised higher

shoppersImage copyright
Image captionRetail sales were weak in the first quarter of the year
The US economy grew faster than previously estimated in the first quarter of the year, according to official figures.
The Commerce Department said gross domestic product (GDP) grew at an annual pace of 1.1% in the quarter, up from an earlier estimate of 0.8%.
The upwards revision was helped by stronger export sales.
However, growth in consumer spending was revised down to 1.5%, the slowest pace since the first quarter of 2014.
That weaker number was a reflection of slowing spending in service sectors such as health care and weak consumer spending during a harsh winter in many regions of the US.
This is the third estimate of first-quarter US GDP by the Commerce Department, which said "the general picture of economic growth remains the same".
The Commerce Department also revised upwards its estimate for the growth in the fourth quarter of 2015 to an annualised pace of 1.4%
The upward revision is a positive sign for growth in the current quarter, but there are concerns that the impact of the UK's decision to leave the European Union could send shockwaves through the US economy, slowing growth in the autumn.
Economists currently expect second quarter growth in 2016 to be close to 2.4%
Nariman Behravesh chief economist at IHS, said: "Consumers will resume their role as the powerhouse of the US economy, with personal consumption expenditures in the second quarter estimated to grow by 3.7%."

Tuesday, June 28, 2016

Reuters News - Europe presses Britain for quick exit to limit global fallout

Britain faced angry calls from other European leaders to act quickly to resolve the political and economic chaos unleashed by its vote to leave the European Union which the IMF said could put pressure on global growth.
Financial markets recovered slightly on Tuesday after the result wiped a record $3 trillion off global shares and sterling fell to its lowest level in 31 years, but trading was volatile and policymakers vowed to take all necessary measures to protect their economies.
British finance minister George Osborne, whose attempt to calm markets fell on deaf ears on Monday, said he would have to cut spending and raise taxes to secure fiscal stability after a third credit ratings agency downgraded the country's debt.
Firms have announced hiring freezes and possible job cuts, dashing voters' hopes the economy would thrive outside the EU.
European countries are particularly worried about the impact on the rest of the European Union of the uncertainty created by Britain's vote to leave, with little idea of when, or even if, the country will formally declare it is quitting.
European Commission President Jean-Claude Juncker told the European Parliament he would be urging British Prime Minister David Cameron to "clarify as soon as possible" the British position, but did not expect him to launch the two-year withdrawal process "today, or tomorrow morning".
"We cannot be embroiled in lasting uncertainty," he said in a speech which he interrupted to ask British lawmakers who campaigned to leave the EU why they were there.
Cameron, who resigned after it became clear he had failed in his efforts to persuade the country to stay in the EU in the referendum, which he called, says he will leave it to his successor to formally declare Britain's exit.
His party says it aims to choose a new leader by early September, but those who campaigned for Britain's leave vote have made clear they hope to negotiate a new deal for the country with Europe before triggering the formal exit process. European leaders have said that is not an option.
"No notification, no negotiation," Juncker said.

Cameron arrived in Brussels on Tuesday and went into a meeting with Juncker without exchanging any words in front of the media. He will also meet other European counterparts one-on-one before addressing them all at what promises to be a frosty dinner to discuss what has become known as Brexit.
EU lawmakers have made clear they hope he will trigger the exit process at the dinner, but an EU official said on Monday that was unrealistic given the political chaos in London, where both Cameron's party and opposition Labour are deeply divided.
The ruling Conservative Party in parliament is split into pro and anti EU camps and the leader of the opposition Labour Party, Jeremy Corbyn, faces a no confidence vote on Tuesday from parliamentarians who accuse him of lukewarm support for the EU.
"The 27 other members of the EU should not wait for the disorientated Tory (Conservative) party to get its act together," former Belgian PM Guy Verhofstandt, leader of the liberal group in the European Parliament, said on Tuesday, denouncing what he called the "lies" of the Leave campaign.
For Britain, the outlook is bleak. Fitch joined other major credit ratings agencies in downgrading its sovereign debt on Monday, making the promises by leave campaigners that Britain's economy would be stronger outside the EU appear empty.
"We are absolutely going to have to provide fiscal security to people, we are going to have to show the country and the world that the government can live within its means," Osborne, who, like Cameron campaigned to stay in the EU, told BBC radio.
Asked if that meant tax rises and spending cuts, he said: "Yes, absolutely."
After Cameron has addressed EU leaders on Tuesday evening, they will meet the next day to discuss Brexit without him.
Leave campaigners in Britain, among them Cameron's possible successor, former London Mayor Boris Johnson, have suggested Britain can retain access to the European single market and curb immigration - goals which are mutually incompatible under EU rules.
But German Chancellor Angela Merkel said Britain would not be able "cherry-pick" the parts of the European Union it wants, such as enjoying access to the single market, without accepting principles like freedom of movement when it negotiates its exit from the bloc.
"I can only advise our British friends not to fool themselves ... in terms of the necessary decisions that need to be made in Britain," she said.
Reflecting deep concern over the referendum result in London, where a majority voted to stay and people fear job losses if the city loses its status as a global financial center, Mayor Sadiq Khan said access to Europe's market was key.
"Remaining in the single market needs to be priority one, two and three of our negotiation with the EU," Khan said. "On behalf of all Londoners, I am demanding more autonomy for the capital - right now."
Scotland, where people voted strongly to remain in Europe, was due to hold a parliamentary vote seeking backing for a drive to keep Scotland's EU status. Scottish leader Nicola Sturgeon has suggested holding a possible second referendum on leaving the United Kingdom given the vote to leave the EU.
The impact looked likely to spread far beyond Britain's borders although European shares rose for the first time in three days after a heavy sell-off, partly due to hopes of a more co-ordinated central bank response to financial market losses.
European Central Bank President Mario Draghi said central banks around the world should aim to align monetary policies to mitigate "destabilizing spillovers" between economies.
Shares in European banks have come under particular pressure, particularly those based in Britain, over doubts about future market access, and Italy, with high levels of bad loans.
Sources told Reuters on Monday Italy was preparing to protect its banks from a destabilizing share sell-off following the Brexit vote and that Prime Minister Matteo Renzi would ask for more flexibility from the EU regarding public spending.
Brexit creates huge political uncertainty and will put pressure on global growth, the International Monetary Fund (IMF)'s Deputy Managing Director Zhu Min said on Tuesday at the World Economic Forum in Tianjin in northern China.
A key economic adviser to Japanese Prime Minister Shinzo Abe said the country should not give up the right to intervene if investors seeking safe havens drive the yen up too high, but that he thought Brexit would have less of an impact over the longer term.
"I think currency and stock markets overreacted to the shock caused by Brexit. I think the real effects of Brexit will not be as big as people fear no," he told Reuters.
Asian stocks rose and Chinese stocks hit a three-week closing high. They are protected from some of the turmoil by capital controls, but Chinese Premier Li Keqiang sought to reassure nervous investors.
"It's hard to avoid short-term volatility in China's capital markets, but we won't allow roller-coaster rides and drastic changes in the capital markets," said Li, speaking at the World Economic Forum (WEF) in the city of Tianjin.
(additional reporting by Alastair Macdonald and Paul Taylor in BRUSSELS and Sudip Kar-Gupta and Guy Faulconbridge in LONDON, writing by Philippa Fletcher; editing by Anna Willard)

Monday, June 27, 2016

BBC News - Osborne: UK economy in a position of strength

George Osborne has said the UK is ready to face the future "from a position of strength" and indicated there will be no immediate emergency Budget.
The chancellor said there would still be a need to "adjust" the economy, but said it was "perfectly sensible to wait for a new prime minister" such action.
Mr Osborne's comments, his first public statement since the referendum result, were aimed a calming financial markets.
However, the FTSE 100 and the pound have continued to fall sharply.
Mr Osborne said: "I said we had to fix the roof so we were prepared for whatever the future held and thank goodness we did," he said.
On the process of the UK's departure from the EU, he said: "Only the UK can trigger Article 50. And in my judgement, we should only do that when there is a clear view about what new arrangements we are seeking with our European neighbours.
"In the meantime, during the negotiations that will follow, there will be no change to people's rights to travel and work and to the way our goods and services are traded or to the way our economy and financial system is regulated."
Despite the comments, the FTSE 100 extended loses in late morning trading, with bank, airline and property shares tumbling.
Meanwhile, sterling hit a 31-year low, and yields on 10-year government bonds sank below 1% for the first time.
The chancellor's statement came as the repercussions of the Brexit vote continued to shake the UK's political system.
George OsborneImage copyrightPA
Image captionMr Osborne said he would play 'an active part' in the Brexit process
The opposition Labour party has seen 14 of its senior members resign since shadow foreign secretary Hilary Benn was sacked in the early hours of Sunday after he told Mr Corbyn he had lost confidence in him.
The latest front-bench resignations, on Monday morning, are by shadow foreign minister Diana Johnson, shadow civil society minister Anna Turley and shadow defence minister Toby Perkins.
In response, Labour leader Jeremy Corbyn has announced a reshaped shadow cabinet, but he still faces a potential no-confidence motion from Labour MPs.

Analysis: Kamal Ahmed, economics editor

From Project Blimey This Is Scary, welcome to Project Reassure. George Osborne made a deliberate attempt this morning to soothe twitchy markets - the fundamentals, the chancellor insisted, have not changed.
The problem with the "steady as she goes" mantra is that markets do not wait for politicians.
As with the Exchange Rate Mechanism crisis of 1992 and the financial crisis of 2008, pressure on currencies and on stock markets happens second by second, a clock not set by the stately desires of Parliament.
Sterling is sliding downhill this morning. Banking stocks alongside property and leisure stocks are all heading south, some at precipitate rate.
These moves were always likely to be the outcome if Britain voted to leave the UK. And there is not much "reassuring words" from the chancellor can do about that.
As far as the markets are concerned, nothing of substance has changed.

At the same time, Boris Johnson, widely seen as the most likely successor to Prime Minister David Cameron, has said the UK will continue to "intensify" co-operation with the EU following the country's vote to leave.
The leading pro-Leave campaigner said exit supporters had to accept that the 52-48 result was "not entirely overwhelming".
In other developments:
  • Potential Tory leadership contender Boris Johnson says the UK will continue to "intensify" co-operation with the EU following the country's vote to leave
  • Prime Minister David Cameron will chair the first meeting of the cabinet since the EU referendum result. It is not a political cabinet and Mr Johnson will not be there
  • The executive of the 1922 Committee of backbench Tory MPs is set to meet to draw up the timetable for the Tory leadership contest
  • German Chancellor Angela Merkel and French President Francois Hollande will hold talks later in Berlin to discuss the fallout of Brexit
  • Scotland's First Minister Nicola Sturgeon says Holyrood could try to block the UK's exit from the EU
  • The House of Commons petitions committee says it is investigating allegations of fraud in connection with a petition calling for a second EU referendum
Mr Osborne said he had spoken to Bank of England governor Mark Carney and that there were "well thought through contingency plans if needed".
He said he had also been co-ordinating with fellow finance ministers in Europe, the International Monetary Fund, central banks and the US Treasury Secretary to help markets cope with the shock.
"You should not underestimate our resolve," he said.
Mr Osborne said the referendum result was "not the outcome that I wanted", but added: "The British people have given us their instructions."
He also appeared to rule out resigning in the near future, saying that the UK needed to negotiate its exit from the EU with its "European partners and allies".
"I intend to play an active part in that debate," he said.

Friday, June 24, 2016

BBC News - UK interest rate 'likely to hit zero' following Brexit

Bank of England buildingImage copyright
UK interest rates are likely to hit zero in the next six months as the Bank of England moves to shore up the economy after the vote to leave the EU.
David Tinsley, UK economist at UBS, said Brexit meant "sharply lower growth, a large drop in the pound, and further easing from the Bank of England".
He expects two rate cuts from the central bank over the next six months.
It would take rates from a current record low of 0.5% to zero.
Rates have been at 0.5% since 2009 as Britain has struggled to recover from the 2008 financial crisis.
UBS also expects the vote to put off rate rises in the US.
Economists had thought Janet Yellen, governor of US central bank the Federal Reserve, would put rates up in September - something UBS now thinks won't happen.
Mr Tinsley expects UK growth rates to fall to zero in the second half of the year, the economy had been growing by about 2%, and in the long term there could be even greater damage.
Much depended on future trade negotiations, and what type of access the UK had to the European single market.
"In our view [Brexit] could lower long-run UK GDP by about 3.0% under a scenario in which access is very restricted," he said.

Thursday, June 23, 2016

BBC News - World's priciest cities for expats revealed

Hong Kong skyline
Hong Kong is the world's most expensive city for expats, leapfrogging Angolan capital Luanda in the annual chart compiled by consultancy firm Mercer.
Luanda, which had consistently topped the list in recent years, fell in the ranking owing to the weakening of its local currency.
Zurich and Singapore were third and fourth on the list, unchanged from a year ago. Tokyo rose to fifth.
The survey is designed for companies to calculate expat workers' allowances.
It weighs up the cost of living in 209 cities across the world, comparing the cost of more than 200 items in each location, including housing, transport, food, clothing and entertainment.

Hong Kong

The world's most expensive city

12077 $US
rent for a 3-bedroom house
  • 128 $US for a pair of jeans
  • 7.8 $US for a cup of coffee
  • 4.8 $US for a hamburger meal
  • 1.2 $US for a small imported beer
Kinshasa was ranked sixth, appearing in the top 10 for the first time, followed by Shanghai, Geneva, N'Djamena, and Beijing.


Mercer said that rankings were affected by "volatile markets and stunted economic growth in many parts of the world".
The world's least expensive cities for expats, according to the cost of living survey, is the Namibian capital Windhoek, followed by Cape Town.

What's the rent?

For a 2-bedroom apartment, no furniture, good neighborhood

6809 $US
Hong Kong
  • 6700 $US Luanda
  • 5100 $US New York
  • 4583 $US London
  • 4200 $US Moscow
In the UK, London dropped five places to 17th, Aberdeen fell seven places to 85th and Birmingham, in 96th, dropped by 16 places. Further down the list, Glasgow dropped 10 places to 119th and Belfast was down three places to 134th.
A survey earlier this year, by the Economist Intelligence Unit (EIU), ranked Singapore as the priciest city in the world ahead of Zurich, Hong Kong, Geneva and Paris.
World's most expensive cities for expats
1. Hong Kong6. Kinshasa, Democratic Republic of Congo
2. Luanda, Angola7. Shanghai, China
3. Zurich, Switzerland8. Geneva, Switzerland
4. Singapore9. N'Djamena, Chad
5. Tokyo, Japan10. Beijing, China
Source: Mercer