The government is not living up to its greatest cliche [ "will do
whatever is necessary"] in ditching British workers at CORUS while
Dutch ones are supported by their government.
Then at the last moment I've seen the government's aid plan for the
car industry given as the second item .
Next we turn to the future of the euro and I give a piece from the
WSJ saying that in practical terms it is unlikely that there will be
any defectors from the Euro. However in contrast Martin Feldstein,
Professor of Economics at Harvard University and President Emeritus
of the National Bureau of Economic Research writing (a very long
article) in Vox EU says, "the economic advantages of a single
currency in promoting trade and competition would be outweighed by a
higher rate of unemployment and by the risk of higher long-term
inflation." and "the primary motivation for the creation of the euro
was political, not economic and... the creation of the euro could
lead to increased conflict within Europe and with the US."
He adds that "Germany is still resisting any substantial fiscal
deficits and the ECB has a much higher interest rate than the Federal
Reserve or the Bank of Japan. Spain with a 13% unemployment rate and
a trade deficit of 10% of GDP must want a more expansive monetary and
fiscal policy than Germany. Smaller countries may now feel that they
have lost control over their economic future". He concludes that "in
these circumstances, it is possible that one or more countries might
actually withdraw from the Eurozone".
Then, on the same topic I give the article by Gideon Rachman from the
FT. He - on balance - thinks defections will probably not take place
but that there will be considerable dissent and anger.
XXXXXXXXXX CS
========================
THE TIMES 27.1.09
1. Steelworkers demand same government subsidies as European rivals
Carl Mortished, World Business Editor
The British steel industry, which plans to cut 2,500 jobs, has
accused Gordon Brown of leaving it at a disadvantage to its European
rivals.
Corus, the Anglo-Dutch company that took over former British Steel
mills, appealed to ministers to match subsidies by European
governments to allow it to keep skilled workers.
Union officials echoed its calls as the company confirmed plans to
make 2,500 workers redundant in Britain but far fewer - 1,000 - in
the Netherlands.
The measures will save the company £200 million. Corus employs 24,000
people in Britain.
The Dutch Government is paying 70 per cent of the salaries of those
workers hit by the rolling lay-off programme at the Corus plant in
Ijmuiden. The subsidy will be paid for at least six weeks.
Philippe Varin, the Corus chief executive, said that without similar
support, the outlook for British mills was "very serious".
Facing a precipitous fall in demand for steel from the motor and
building industries, Corus said that it needed help to subsidise
short-time working at mills that are operating below capacity.
Mr Varin said that demand in Europe had fallen by 40 per cent while
the Corus order book was down 30 per cent.
Yesterday's job losses could not be avoided, he said, and Corus
needed help in the short term to maintain employment levels. "We are
at a disadvantage against European competitors."
Mr Varin wants the Government to create a support programme for
workers put on short time, similar to schemes in France, Germany and
the Netherlands, and is in talks with Lord Mandelson, John Denham and
James Purnell, the Cabinet ministers for business, skills and work.
The Times has learnt that Lord Mandelson has rejected the idea of
straight handouts to subsidise wages on the Dutch model but is
exploring alternatives to help with retraining.
Under the plans sought by the unions, if a firm went to a four-day
week the Government would pay the difference in workers' take-home pay.
Lord Mandelson, though, is opposed to sustaining uneconomic jobs. He
and Mr Denham are known, however, to be drawing up proposals under
which employees whose working week was cut to four days would receive
government help to retrain on the fifth.
In Rotherham, Bob Hudson, branch secretary of the steel union
Community, questioned why the Government was bailing out banks but
not industry.
"We are not getting the same help we would be getting if we were
wearing bowler hats instead of hard hats," he said.
Corus is to mothball a hot strip mill in Llanwern, Newport, at a cost
of 600 jobs and it is in talks with an investor over a majority stake
in Teesside Cast Products, which makes slab steel.
Jobs will be lost in Rotherham, where steel is made by electric
furnace, a costly process in Britain because of high energy bills, Mr
Varin said.
Corus makes steel in Britain using coking coal, where it pays an
international price but every steel company faces a sudden and
unprecedented contraction in demand that began in October.
Typically, a quarter of Europe's steel is consumed by the car
industry and about a third goes into construction, Gordon Moffat,
head of Eurofer, the European steel industry body, said.
The remainder is used in packaging and a wide range of manufacturing
and engineering businesses.
Orders have collapsed by 60 per cent and prices have halved,
according to Mr Moffat, who expects a fall in steel consumption of 25
per cent this year.
"We have never seen such a reduction. We have seen a demand shock
since October and the collapse of Lehman [the American investment
bank]. It cannot continue like this without major restructuring."
Unite, the trade union, said it would not accept compulsory
redundancies at Corus.
Derek Simpson, the union's joint leader, said: "We understand that
Corus face difficulties but before this recession Corus had been
making extremely healthy profits. Our members have supported Corus
through good times and bad and now expect Corus to support them."
The latest poll reveals that 64 per cent of voters believe that the
Prime Minister's strategy for the economy will either achieve nothing
or make the situation worse.
Only 31 per cent think that it will improve the situation, according
to the Guardian/ICM poll. Overall Conservative support is up six
points since last month's survey by the same pollsters to 44 per cent
- only one point below its 25-year ICM high.
Labour is on 32 per cent and the Liberal Democrats are on 16 per cent.
=============
2. £2.3 billion rescue plan for car industry - but it's no bailout
says Mandelson
Philippe Naughton
The Government announced a major package of help for the UK's ailing
car industry today, including £1 billion of direct loans and a
national strategy designed to help British manufacturers meet demand
for greener, cleaner cars.
Lord Mandelson also unveiled guarantees for £1.3 billion in loans
from the European Investment Bank, but the Business Secretary said
that there was "no blank cheque on offer" and no operational subsidies.
"Today's measures will provide a specific boost to the industry,
providing real help and laying the foundations for its reinvestion
for a low-carbon future," [Ye Gods! No money available unless you
subscribe to a Green madness -cs] Lord Mandelson told peers. "This
industry is not a lame duck and this is no bail-out."
Lord Mandelson said that around a million people work in the UK
automotive industry, for suppliers, manufacturers and dealers,
contributing £10 billion in "added value" for the UK economy.
But he said that industry had fallen "further and faster" than any
other during the credit crunch as the financing dries up which allows
customers to buy new cars. Industry figures showed production in
December last year at barely half the level of December 2007.
Of the major manufacturers, Nissan has cut 1,200 jobs at its
Sunderland plant, Jaguar Land Rover has cut 450 jobs and Honda, Aston
Martin and Toyota have all announced cutbacks.
The union United has been calling for aid of up to £13 billion for
manufacturing, including car companies. The union's joint leader,
Tony Woodley, said that without a robust intervention from the
Government the car industry was heading for a "catastrophe" with the
loss of tens of thousands of jobs.
Mr Woodley said of today's package: "Two billion pounds sounds like a
lot of money but at least half of this will be taken up by Vauxhall
and Jaguar Land Rover alone, leaving little or nothing for the
hundreds of component companies. This is a fraction of the support
being given by almost every other government in Europe."
He said that the Government should double the money it had announced
today, warning that the spectre of redundancy was hovering over
thousands of skilled workers.
Derek Simpson, Unite's joint leader, added that the money from Europe
was "months away", adding: "There could be little left of the
industry by the time it arrives. This package is too little but it is
not yet too late. Ministers must leave behind the failed free markets
philosophy once and for all and intervene decisively now."
Today's package echoes in some parts an auto industry rescue plan
announced by President Obama this week designed to help Detroit's Big
Three wean themselves off gas-guzzlers.
Lord Mandelson said a further £35 million could be made available to
increase funding for retraining workers in the automotive sector and
there will be a "step change" in research for greener vehicles.
The new trade and investment minister Mervyn Davies, a former top
banker, will also draw up a plan to improve the car companies'
financing arms' access to funding.
"Britain needs an economy with less financial engineering and more
real engineering," Lord Mandelson said. "The car industry can and
should be a vibrant part of that future."
=============================
WALL STREET JOURNAL 26.1.09
A Single-Country Default Wouldn't Necessarily Sink the Euro Zone
By MATTHEW CURTIN
What would happen if a euro-zone country appeared at risk of
defaulting on its debt? That is no longer just an academic question.
In recent weeks, Spanish and Portuguese sovereign debt was downgraded
and Greece was cut to one notch above the minimum the European
Central Bank will accept for its repurchase facilities.
It is no longer fanciful to imagine that a euro-zone member might
struggle to sell its bonds.
But if a euro-zone member did face default, it would be unlikely to
spell the end of the currency union.
True, the treaty creating the European monetary union prohibits the
ECB from bailing out individual countries by lending to them
directly. Member states weren't prepared to accept the idea of having
to pay up for profligate borrowing and public spending in another
country.
But that still leaves other options. While the ECB can't lend
directly to a euro-zone country, with the approval of governments it
can buy its debt on the secondary market. That would help underpin
demand for the issuer in question.
Other governments also might find it in their self-interest to lend
if only to prevent a domino effect. Leaving investors with big losses
on euro-zone government debt would damage the euro's credibility,
leading to higher borrowing costs for everyone.
Goldman Sachs Group reckons European Union central banks could
mobilize nearly ?400 billion ($519 billion) in foreign-exchange
reserves to rescue member states.
Indeed, the 16-nation euro zone already has acted to prevent
contagion spreading to its own economy. The EU contributed to a ?20
billion financing package along with the International Monetary Fund
and the World Bank for Hungary last year. The ECB provided liquidity
for the Danish, Hungarian and Polish banking systems in October and
November.
These measures were made available for countries that haven't adopted
the euro, but it demonstrates the capacity for impromptu emergency
action.
A member state also could go to the IMF for support. Although with no
independent currency to devalue, the IMF is likely to demand harsh
conditions, including painful structural reforms and fiscal policy.
Other European institutions, such as the European Investment Bank and
the European Bank for Reconstruction and Development, also might be
roped in to provide conditional, emergency funding.
But whatever painful conditions might be attached to a bailout, the
alternative of leaving the euro zone would probably be worse for a
struggling country.
It would face the prospect of rebuilding fiscal and monetary
credibility from scratch while trying to raise new financing
denominated in a volatile and depreciating currency. Lenders likely
would demand punitive terms
===========================
FINANCIAL TIMES 27.1.09
When Europe starts to melt at the edges
By Gideon Rachman
I once knew a senior European Union official - an Austrian - who
argued to me that Greece had no place in the European Union. "Greece
is not really culturally European, it's part of the Middle East," he
insisted. "Just listen to their music."
To this the Greeks might legitimately reply: "Plato, Aristotle and
(on the musical issue), Demis Roussos." But my Austrian friend's
views, while eccentric, touched on a real and sensitive issue within
the Union: the fear that it is economically and politically divided
between a northern hard core and a flaky southern fringe.
This division became temporarily less important when the EU expanded
to let in the countries of the former Soviet bloc - which then became
the objects of the condescension formerly reserved for the likes of
Greece and Portugal. But the EU's north-south divide is now being
brought back into focus by the global economic crisis.
The difference between the performance of the southern and northern
European economies is now so acute that even pro-European think-
tanks, such as the Centre for European Reform - in "The Euro at Ten:
Is Its Future Secure?" by Simon Tilford - are speculating that
Europe's single currency, which currently includes 16 EU countries,
could break up under the strain.
It might seem a little cheeky for somebody writing from London to
predict a crisis in the eurozone. The pound is plunging and some are
comparing Britain's plight to that of Iceland. But just because
Britain is in trouble, it does not follow that the eurozone will fare
well. On the contrary, it is heading into a deep recession with
unemployment projected to rise to more than 10 per cent by 2010.
So what would a eurozone crisis look like? It would have three
elements - financial, economic and political. The financial part
would come when some of the weaker economies in the euro area found
the markets were increasingly unwilling to finance their budget
deficits. When euro-watchers hyperventilate over the "widening of
spreads", this is what they are referring to - the fact that
investors are increasingly demanding a higher rate of interest to buy
Greek or Italian debt, as compared with debt from the more fiscally
continent Germans.
The crisis in the real economy would involve all the usual malign
elements - recession, unemployment, bankruptcy. But there would also
be a direct link to the financial problem. As the markets demanded
higher interest rates from them, so countries such as Italy, Greece,
Spain, Portugal and possibly Ireland would find managing their public
finances ever harder. As Mr Tilford of the CER notes: "Membership of
the euro insulates countries from the risk of a currency crisis, but
currency risk can be replaced by credit risk."
Behind this is the broader issue of loss of competitiveness on
Europe's southern fringe. Unable to devalue their currency, weaker
economies can only restore competitiveness by cutting jobs and real
wages. That is obviously a recipe for social unrest, which leads on
to the political crisis.
Eurosceptics predict popular upheaval that will eventually force
countries to leave the eurozone. Charles Dumas of London-based
Lombard Street Research exults that: "Italy will have to leave the
euro at some stage. The fundamental fallacy of Emu [economic and
monetary union] is revealed by the crisis."
Europhiles sigh that this is all absurd. A country that is in
financial trouble would be crazy to leave the safe haven of the
eurozone. Iceland, after all, is thinking of joining. In their view,
the political consequences of the crisis will not be the
disintegration of the eurozone or the EU - but ever deeper
integration. Arch-federalists, such as Jean-Claude Juncker, the prime
minister of Luxembourg, are floating the idea of the "mutualisation"
of national debts within the eurozone.
This would involve the wider euro area assuming the debts of the
weaker nations. But, naturally, they would want something in return
for this remarkable act of generosity. That something would be that
weakling economies would submit to direction from the central
authorities of the EU.
Bureaucrats from Frankfurt or Brussels would draw up the budgets of
Italy or Greece, not their finance ministers. So a crisis would lead
not to the disintegration of the eurozone but to the much deeper
political union that the euro arguably requires. [This exploitation
of any crisis has always been one of the EU's primary tools of the
forcible integration of Europe -cs]
If euro membership forces southern European countries to make deep
cuts in their budgets in the midst of a recession - at the behest
either of the markets or of Brussels bureaucrats - that sounds like a
recipe for a nationalist revolt. British eurosceptics assume that,
under such circumstances, the Greeks would smash the crockery and
march out of the eurozone.
But that might be underestimating the deep commitment to European
unity on the EU's southern fringe. Countries such as Italy, Greece,
Portugal and Spain are among the most ardently pro-European in the
Union. Unlike the grumpy Brits they associate Brussels with good
government - and the EU as a whole with prosperity and, even, democracy.
Yet if the EU itself does not become the target of political unrest,
some other part of the political system is bound to come under
pressure. In recent months, there have been outbreaks of social
unrest in several EU countries, from Latvia to Greece. As times get
harder, southern Europeans could turn on Brussels. But it is equally
possible that they will direct their fury at politicians closer to
home. After all, they are easier to get at.
===========================
ECONOMIC 'Shorts' 26.1.09
TELEGRAPH
=Barclays rises for second day, bank shares climb
Barclays' comeback continued for a second day, with bank shares
surging again, after it reassured shareholders on writedowns
=Pound opens up against dollar, rises above $1.40
=
TIMES
=Wretched trading continues for retailers
Sixteen per cent of retailers said that year-on-year sales volumes
were up, but 63 per cent said they were down
=One law for taxman, another for taxpayers
Revenue will pay zero interest on overpaid tax, but charge 3.5 per
cent on any tax due
FINANCIAL TIMES
=Madoff victims sue Santander [Owns Abbey, Alliance & Leicester and
part of Bradford & Bingley un UK)
Spanish bank accused of gross negligence
=Friends Provident reassures with good results
Revival in group pensions helps new business rise 11%
=G20 summit set to push back Budget
Publication could be put back until April, allowing the UK chancellor
to present what is likely to be a gloomy economic picture in the
afterglow of Barack Obama's visit to London for the Group of 20
=Redundant vessels find rural retreat
A flotilla of ships has arrived on the deep-water river Fal in south-
west England in recent weeks as the world's slowing economy has led
shipowners to take unemployed vessels out of service - [Told you so
weeks ago!]
BBC ONLINE
=WALL STREET JOURNAL
=========================
POLITICS HOME 27.1 09
COMMENTS
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
House of Commons 27.1.09
Car bail out "pretty small beer", says Ken Clarke
The Tories have accused the government of not being able to afford to
offer help required by the car industry.
Speaking in the Commons, Shadow Business Secretary Ken Clarke said
the package was "pretty small beer" and that the government "cannot
afford anything but modest loan guarantees".
"Is it the case that the secretary of state is not producing the bail
out because he Treasury have finally won the argument inside the
government and explained to him they cant afford the kind of support
that was being trailed?"
He said that existing government support measures had left no money
to enable further support targeted specifically at the car industry.
"This wave of panic stricken announcements has pledged the taxpayer
credit for tens of billions of pounds and someone has said to BERR
'We cannot afford anything but modest loan guarantees," he said.
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