‘No border’ solution does not exist, says former WTO head and ex-EU trade commissioner
Fri, Oct 27, 2017, 10:28
Former trade chief Pascal Lamy. “This is not poetry. This is business, and we have to be realistic.” Photograph: Nick Bradshaw
The idea that there will be a frictionless border between the Republic and Northern Ireland when Britain leaves the European Union (EU) is a “fairy tale”, according to a former director general of the World Trade Organization.
Pascal Lamy, who is also a former EU trade commissioner, was the keynote speaker at AIB Treasury’s Trade Through Brexit – The Inside Track event in Dublin on Friday.
“No border is simply impossible,” he said. “Borders are necessary to check, and police. There is no ‘no border’ solution.”
Mr Lamy said talk about “frictionless, invisible borders with no infrastructure” was “fairy-tale poetry”.
“This is not poetry,” he said. “This is business, and we have to be realistic.”
In terms of solutions on the Border, he said: “There is no good solution. We have to choose the least disruptive solution.
“I think putting a Border between North and South is not the least disruptive. I think putting a border around the island with the UK is probably less disruptive.
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State must prepare for ‘car crash’ on Brexit, AIB chairman warns
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“It would be a bit complex with the parliamentary situation in London today, but we have to look for some sort of special status.”
Mr Lamy added that the issues surrounding Brexit were “a British problem”.
“It is not as if we, on the continent, have an Irish problem with Brexit,” he said. “The reality is that we in the EU – Ireland and the continent together – have a desire to limit the damage of the consequences of the British problem in Europe.”
Gerard Lyons, a former chief economic adviser to Boris Johnson when he was mayor of London, spoke in defence of the UK.
“Nobody can leave something they have been in for four decades easily,” he said. “It is an economic shock.”
Mr Lyons said he expected the DUP to have a say on the negotiations and the fate of the Border. “I’m not a member of the government but I would imagine the DUP’s view on this is going to be important,” he said.
Mr Lyons also criticised EU trade deals as “penny deals” but added that a “messy break” would be an event whereby Britain tried to “undermine the core factors that keep the EU together”.
“I would say Brexit is a ‘win-win’ solution for both the UK and the EU if this works out properly,” he said.
Minister for Foreign Affairs and Trade Simon Coveney said there would be “no ‘no border’ solution” if the UK maintains its current approach.
“We don’t want to create separation between Northern Ireland and the rest of Britain,” he said.
“That is why the Irish Government’s position has consistently been that we want Britain as a whole to look at solutions that avoid the need for hard borders. We have an interwoven relationship with Britain that is impossible to undo. There is no clean break.”
Mr Coveney added that the Republic would not seek to use Brexit as a vehicle to achieve a united Ireland. “Brexit is a separate issue and it should be treated separately,” he said.
Former European Commission secretary general Catherine Day said support for Ireland was “very strong” in Europe.
“The sympathy is genuine,” she said. “I believe the commission can find the technical solutions. But this is going to be about Tory politics, and whether they will be compatible.”
Banker and Minister accuse UK politicians of misleading British public over EU talks
Fri, Oct 27, 2017, 09:10
Minister for Foreign Affairs and Trade Simon Coveney said UK politicians had misled the public in terms of what is achievable in talks with the EU. Photograph: Neil Hall/EPA
The State must plan for a “car crash” in case “headbanger” Brexiteers pushing for a hard exit from the European Union get their way, AIB chairman Richard Pym has said.
Speaking at an AIB Treasury event on international trade and the intricacies of Brexit negotiations at the Royal Hospital Kilmainham on Friday, Mr Pym said Britain’s decision to leave the EU was “quite extraordinary” from a business point of view.
“I can assure you a lot of British businesses feel the same,” said Mr Pym, who had a long career in British banking before joining AIB. “We must plan for the worst possible car crash Brexit if the headbanger Brexiteers who are determined to push for a hard Brexit get their way.”
Mr Pym said the Brexit campaign had made promises it simply cannot keep.
“They promised continued access to the single market while controlling immigration, and access to the customs union whilst developing additional trade deals.
“On immigration, there is ample evidence they can’t run the current system – never mind form a new one. Their currency has tanked, inflation is increasing, and euro-zone growth now exceeds the UK’s.
“The macabre irony is that the delay in the implementation of Brexit means the UK will [in the meantime] have to comply with EU rules that they have no hand in making.”
Mr Pym added that Britain and Ireland have been “extremely close partners” but that turbulent waters lie ahead.
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“AIB is in great shape,” he said. “Ireland is in great shape. Working together, we can get through this. But it would be much better if we didn’t have to.”
Speaking after Mr Pym, Minister for Foreign Affairs and Trade Simon Coveney said he had mentioned to the AIB chairman beforehand that his speech was not neutral.
“He said it’s not a time to be neutral, and he’s right,” said Mr Coveney. “I’m not coming at this from any sort of Anglophobic position. I care about and am interested in Britain’s future, as well as Ireland’s future. But my job here is to look out for Ireland’s interests and Irish people’s interests in the context of what we are facing.
“This is a hugely challenging negotiation that is not of the making of any other country apart from Britain.”
Mr Coveney said UK politicians had misled the public in terms of what is achievable in talks with the EU.
“What has been promised politically in the UK is simply undeliverable,” he said. “The realisation of that is dropping slowly.
“We must work towards a deal that recognises there are consequences to leaving the EU. That’s not a punishment. It is simply a fact that membership of the EU brings privileges, such as the trading structure.
“Leaving the EU cannot result in holding on to all the trade benefits of membership, while at the same time convincing your people that you can get all these other goodies. It can’t be done. It won’t be done, and it cannot be negotiated.”
Mr Coveney said the British people had made a “huge mistake” in its vote to leave the EU.
“The consequences of leaving the EU are now being laid bare,” he said. “This is a huge mistake by the British people, but it is their mistake to make. We have to accept the reality of it.
“The outcome we want is as close to the status quo as we can get. I’m not sure that view is necessarily shared – and understandably so – by other EU members states.”
Former European Commission secretary-general Catherine Day said the UK would “eventually wake up to the fact that they have way less influence in the world, and they will hate that”.
“They haven’t yet realised that the power play has changed completely, and that it will be the EU that sets the terms of their departure,” she said. “If that doesn’t happen, there will be no deal.”
Ms Day added that the UK’s exit from the EU would lift a “restraint” that it has placed on the bloc.
“I detect a new confidence in the EU,” she said. “A feeling that the UK has been a restraint on moving forward for a long time, and that has now been lifted. Sovereignty in a globalised world is an illusion. We only have clout if we work together.”
Planet Business: Companies beating analysts’ expectations, cities that love Amazon
Fri, Oct 27, 2017, 06:18
The sun sets behind a tree on a mild autumn evening in the vineyard of Osthoffen, outside Strasbourg, France. Photograph: Christian Hartmann / Reuters.
Gucci, one of the luxury brands beating the market. Photograph: Reuters/Stefano Rellandini
Image of the week: Wine evening
The sun isn’t setting on the wine industry, just this vineyard near the Vosges mountains in France, but production has dropped to a 50-year low as a result of extreme weather in Italy, France and Spain. The media has been its traditional calm self about this, naturally, with headlines such as as “Attention: The world is about to run out of wine” (Metro) and “We’re heading for a global wine shortage . . . and everyone’s freaking out about it” (The Sun) definitely not overstating the case. Anyway, total annual world output is on track to fall 8 per cent, according to the International Organisation of Vine and Wine, leaving us with just 247 million hectolitres to get through. (One hectolitre = 133 standard 750ml bottles.) No need for an aisle stampede just yet.
In numbers: Add to basket
Number of cities in North America that bid to host Amazon’s second headquarters, aka HQ2. Well, it’s more cities than bid to host the Olympics, to be fair.
Estimated construction cost of HQ2, wherever it ends up. Newark, New Jersey, dangled $7 billion in potential tax credits while, in New York, mayor Bill de Blasio ordered that landmarks such as the Empire State Building and One World Trade Center be lit up in “Amazon orange” before the bids were due last week.
Planned jobs at the new headquarters, which will be a “full equal” to Amazon’s Seattle base. The quantity of drones that will be unleashed into the chosen city’s airspace is not known.
The lexicon: Third wave (of) coffee
Profits have gone a bit lukewarm at Costa Coffee, the chain owned by FTSE-listed hospitality group Whitbread, but it says it’s okay: the “third wave” of coffee will be along in a minute. At about 11.15am, to be precise. Whitbread defined this third wave as “a period in which consumers’ preferences for coffee becomes more sophisticated and [they] are willing to spend more per cup for higher quality and innovative drinks”. Whitbread reckons Costa, as the market leader in the UK, has “a prime opportunity to capitalise on these attractive structural trends”. Iced coffee with a hint of faecal bacteria – a drink discovered at Costa, Starbucks and Caffe Nero, by the BBC’s Watchdog last summer – is presumably not one of the innovative drinks Whitbread has in mind.
Getting to know: Chris Heaton-Harris
Pro-Brexit Conservative MP Chris Heaton-Harris thrust himself into an unflattering spotlight this week after it emerged that he wrote a “McCarthyite” letter to every university vice-chancellor in Britain demanding a list of tutors lecturing on Brexit and “a copy of the syllabus”. One vice-chancellor described the “sinister” request as “the first step to the thought police, the political censor”, while another academic compared it to Joseph McCarthy’s “Red Scare” hearings of the 1950s. Labour’s shadow education secretary Angela Rayner later dubbed him a “pound-shop McCarthy”, while the UK government distanced itself from the letter, leaving Heaton-Harris to tweet that “to be absolutely clear” he definitely believes in free speech in universities and in having “an open and vigorous debate on Brexit”. Okay, cool.
The list: Beating expectations
Amid a flurry of corporate earnings, the Dow Jones and the S&P 500 have been setting new highs, and there’s quite a few expectation-beating third-quarter results to be found beyond Wall Street too.
1. Kering: Luxury goods are glowing, which was especially good news for the French group’s superstar brand Gucci.
2. Caterpillar: The earth didn’t quite move, but the stock market did when the construction equipment giant handily beat forecasts.
3. General Motors: GM did better than expected, helped by its investment in self-driving tech and ride-sharing service, Lyft.
4. LG Display: Profits have surged at South Korea’s LG, the world’s largest maker of the liquid crystal displays (LCDs) used in mobile devices and high-end TVs.
5. 3M: The maker of Post-it notes made a quarterly profit of $1.43 billion. “Rating: outperform” analysts wrote on a piece of yellow paper that they then stuck to a wall.
Northern administration has failed to direct resources into productive investment
about 18 hours ago
Updated: about an hour ago
The Titanic Belfast visitor attraction. The latest available data for the North, for 2012, shows investment there reached only 10 per cent of GDP, well below Scotland’s ratio. Photograph: Bryan O’Brien
Almost 20 years ago the Belfast Agreement was signed, ending decades of conflict in Northern Ireland. While the most important benefit it promised was the chance for real political progress, it was also expected that there would be a significant peace dividend for the North.
The decline in the Northern economy after 1970 was linked to both the effects of globalisation on its industry, and to the Troubles. Once an industrial powerhouse, as traditional industry declined the North became unattractive, as a result of the Troubles, to investors providing new jobs.
The UK government pumped in increasing sums of money to prevent a complete economic collapse.
Many of the private-sector jobs lost since 1970 were replaced with public-sector jobs, financed by transfers from London. The result was that public expenditure per head in the North was 133 per cent of the UK average in 1998, well above other poor UK regions, such as Wales or Tyneside. Thus the North had far more generous provision of public resources than elsewhere in the UK.
With the ending of the Troubles, it was possible to wind back spending on security, which accounted for a smallish part of the North’s public spending. However, London has continued to maintain a high rate of non-security transfers to Northern Ireland, and today supports a level of public spending there that is 125 per cent of the UK average.
The scale of continuing transfers from London represented a major opportunity for the new devolved administration when it took office. With the end of the Troubles facilitating the possibility of real growth in private-sector employment, much of this funding could have been used to rapidly develop the Northern economy, rendering it less dependent on London.
Instead, over the 20 years since the Belfast Agreement, the transfers have been used to fund continuing very high levels of public services.
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Controlling for price differences, the North spends more than 40 per cent more per head on public services such as health, education and security than we do in the Republic, in spite of the fact that their output per head is 15 per cent less than that in the Republic.
This is made possible because 30 per cent of income in Northern Ireland comes as a transfer from London.
The Northern administration has failed to direct resources into productive investment, including infrastructure.
An economy can sustain its growth only if it invests. In normal economies which are growing, investment takes up about 20 per cent of national income (when the Republic’s investment rate peaked at more than 30 per cent it was, however, unsustainable). The latest available data for the North, for 2012, shows investment there reached only 10 per cent of GDP, well below Scotland’s ratio.
That level of investment in the North was hardly sufficient to maintain existing infrastructure, much less develop a vibrant economy.
The low investment rate in the North has been translated into a steady fall in labour productivity, measured as output per person employed, relative to the UK average. Between 2000 and 2014, the North’s productivity fell from 93 per cent of the UK average to 80 per cent.
What makes that even worse is that the UK’s productivity has itself been declining over the last decade relative to European Union partners. So the North has been experiencing a falling share of a falling index.
The case of eastern Germany provides a striking contrast, where stronger investment performance has supported achievement of greater regional convergence.
The former East Germany faced massive problems when the Berlin Wall fell, with Soviet-era infrastructure, and productivity levels lagging well behind the West. However, over the last quarter of a century the German government has undertaken massive investment in the former East Germany to raise the infrastructure of the region to an appropriate standard.
While the former East Germany is still much poorer than the German average, the investment boost it received has seen output per head grow steadily relative to the rest of Germany. Its productivity has risen from 73 per cent of the German average in 2000 to almost 80 per cent by 2014.
The failure to develop a vibrant Northern Ireland economy, and particularly a strongly-performing private sector, is a major concern. The looming spectre of Brexit is a danger point, with the North more vulnerable than other UK regions to its adverse effects.
If London continues to supply generous transfers, that could offer the North some insulation. However, a UK economy that is hurting from Brexit, along with jealous looks from other struggling UK regions at the scale of transfers to the North, will put this lifeline at risk in the future.
Finance commissioner Pierre Moscovici calls for ‘a solution at EU level’
about 4 hours ago
Pierre Moscovici, European Commissioner for Economic and Financial Affairs
Further pressure looks set to be heaped upon the Irish Government over its resistance to European Union-wide corporation tax reforms, after the European Commission launched a public consultation on the taxation of internet giants such as Google and Facebook.
The commission has called for public submissions on “how the EU can ensure that the digital economy is taxed in a fair and growth-friendly way”. It said the existing framework is out of date. The consultation will run until January 3rd.
In comments that may not be well-received within Leo Varadkar’s Government, finance commissioner Pierre Moscovici called for a European-wide taxation framework for web multinationals.
“Nobody can deny it: our tax framework does not fit any more with the development of the digital economy or with new business models,” he said. “Member states want to tax the huge profits generated by digital economic activity in their country. We need a solution at EU level, bringing robust solutions for businesses and investors in the single market.”
Mr Varadkar has previously warned against heaping further taxation on the digital economy, while the Government has generally resisted any EU-wide corporation tax initiatives, believing they will erode Ireland’s base.
Despite cut to economic stimulus, any rise in the ECB rate is unlikely until 2019 at earliest
about 10 hours ago
President of the European Central Bank Mario Draghi speaks to media. Photograph: Armando Babani/EPA
The ECB is moving to end its extraordinary period of monetary stimulus, but only slowly. The bottom line for borrowers from the latest announcement is that it now looks like the first move upwards in official ECB interest rates will not come until 2019 at the earliest. How quickly interest rates will rise after that will depend on how strongly the euro zone is growing.
The ECB announced today that its programme of massive buying of government and corporate bonds – so-called quantitative easing – would be cut from €60 billion a month now to €30 billion next January.
The programme has been extended to September 2018 and the ECB has made clear that it could run beyond that, depending on economic conditions in the meantime. Growth has picked up in the euro zone but the rate of inflation remains well below the ECB’s target of 2 per cent, so the central bank is moving slowly. A German-led group at the ECB believes this should mean an early end to quantitative easing, but a majority of the bank’s governing council felt otherwise.
Crucially for borrowers, the ECB has now said that it expects interest rates “to remain at their present levels for an extended period of time” and does not expect them to start rising until “well past the end” of the quantitative easing programme.
ECB president Mario Draghi suggested at his press conference on Thursday that quantitative easing is unlikely to end “suddenly” after September 2018, meaning it could be phased out over a longer period. This suggests that ECB rates will not start to rise until well into 2019 and even that would depend on a significant euro-zone recovery being sustained. So ECB base rates are going to stay at zero per cent for some time yet.
Questions for NTMA
This is good news for borrowers and for the Government in terms of its own borrowings, though the gradual winding-down of the ECB buying programme does raise questions about the cost of raising borrowings for the NTMA in the years ahead. The exchequer has been a beneficiary of the quantitative easing programme, allowing us to raise new cash more cheaply, and this bonus is now going to start to slowly peter out.
Government bond markets may start to react to this next year, pushing up the cost of borrowing. For savers the current pain of almost no return on regular savings accounts looks set to continue.
For mortgage and other borrowers, interest rate changes over the next year will thus be driven by competition rather than ECB changes, though if long-term interest rates start to anticipate an ECB rate change next year, we could see this reflected in fixed interest rate offers. With standard variable mortgage rates here well above the euro norm, competition could even see these edging lower.
However, those taking out longer-term loans such as mortgages need to realise, too, that the interest rate cycle will start to head upwards, sooner or later. Economists are debating the timing and how high rates will go in the next cycle, but one thing for sure is that a zero per cent interest rate is not the norm. The era of super low interest rates is not over yet, but today’s ECB move is another step along the road back to normality and higher borrowing costs.
Interest rates left unchanged and expected to remain at current levels until 2019 at least
about 11 hours ago
European Central Bank (ECB) President Mario Draghi at the European Parliament in Brussels.
The European Central Bank (ECB) has announced that it is to run down its programme of quantitative easing, cutting the amount of bonds its buys from €60 billion per month to €30 billion from next January.
The programme has been extended from the end of this year to September 2018, and possibly beyond.
The ECB left its interest rates unchanged, and said it expects rates to remain at current levels for an “extended period of time”, and well past the end of the quantitative easing purchasing.
This indicates that ECB rates are not set to rise until well into 2019 at the earliest.
The announcement was broadly in line with market expectations.
The ECB’s decision to maintain its option to increase or extend the bond buying programme is an apparent victory for policy doves who argued that they should not commit to ending the buys since possible euro gains could exacerbate weak inflation.
Designed nearly three years ago to fight off the threat of deflation, the bond purchase scheme has cut funding costs, revived borrowing and lifted growth, even if it ultimately failed to raise inflation back to the ECB’s target of almost 2 per cent.
“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the governing council stands ready to increase the asset purchase programme in terms of size and/or duration,” the ECB said in a statement.
The ECB added that its main refinancing operations and the three-month longer-term refinancing operations will continue to be conducted as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2019.
Hawks such as Germany and the Netherlands wanted a commitment to end bond buys arguing that growth is now above trend and that more purchases do next to nothing for inflation.
Doves on the bloc’s periphery meanwhile warned that a rapid exit could tighten financial conditions, undoing years of work.
The broader outlook is as good as it has been since before the global financial crisis. An unbroken growth streak has created seven million jobs and the expansion is now self-sustaining, driven by domestic consumption.
Banks are better capitalised, lending is growing, and divergence between the core and the periphery, the biggest failure of the currency project, appears to have halted.
Inflation, however, is expected to miss the ECB’s target of almost 2 per cent at least through the decade as labour market slack remains large, keeping a lid on wages and supporting the case for continued support.
The ECB is also slowly running out of bonds to buy in some countries, suggesting that market constraints will play an increasingly large role in the policy debate as a major redesign of rules risked sending the wrong signal when the bank is working on an exit strategy.