The Great Debate UK
In his cautious Franglais central-bank speak, Jean-Claude Trichet has pointed to the strong possibility that the euro zone may face a double-dip or W-shaped recession.
Of course, that's not exactly what the European Central Bank president said. But how else are we to interpret his repeated references to a "bumpy road" ahead, and his comment that we are likely to see quarters with positive growth and other quarters with "less flattering" figures? All this was illustrated with a hand gesture that drew a W (or a corrugated iron washboard) rather than a V or a U.
True, he also said a significant contraction in economic activity has come to an end, and may be followed by a very gradual recovery. The ECB staff have lifted their economic forecasts for the 16-nation euro area after Germany and France surprised markets by exiting recession in Q2. The bank is now forecasting 2010 growth in a range from -0.5 to +0.9 percent, compared to its June prediction of -1.0 to +0.4 percent. But Trichet made clear there remains a high degree of uncertainty.
Furthermore, the ECB's only significant policy announcement -- that it will offer banks yet more 12-month liquidity at its basement 1.0 percent refi rate later this month -- was a strong indication that rates are on hold for the next year, coupled with another clear signal that ultra-loose monetary policy would not be withdrawn any time soon. "Today is no time to exit."
Will the party that traces its roots to Communist East Germany’s SED party that built the Berlin Wall soon be in power in a west German state?
Or is the rise of the far-left “Linke” (Left party) in western Germany to the brink of its first role as a coalition partner in a state government with the centre-left Social Democrats (SPD) simply a political fact-of-life now so many years after the Wall fell and the two Germanys were reunited?
It's not often you get to lift the hood and watch a power struggle going on in the engine room of General Motors. But the vice-president of GM Europe, John Smith, has just provided tantilising details of the arguments over the rival bids for Opel/Vauxhall, the main European arm of the fallen U.S. auto giant. Smith is the chief negotiator on the sale of Opel.
In a blog apparently intended to reassure Opel staff, but accessible to the public, he insisted GM had not specified a preferred bidder. But he made clear his own preference for the bid from Belgian financial investor RHJ International, which is loosely related to U.S. private equity fund Ripplewood, over the offer by Canadian-Austrian car parts maker Magna and its Kremlin-backed Russian partner Sberbank.
Lufthansa <LHAG.DE> is milking an antitrust standoff with the European competition regulators to extract maximum cost cuts from Austrian Airlines <AUAV.VI> as it seeks to cement its dominance of central Europe's skies.
The German flag carrier has held back key concessions to the European Commission needed to secure approval for the takeover of the ailing airline while it squeezes further concessions from Austrian's workforce and its biggest shareholder, the Austrian government. It won another 150 million euros in savings from job cuts agreed in a third round of AUA cost-cutting this week.
The EU regulator, which supports airline consolidation in principle, is right to insist that the creation of a central European mega-carrier should not be at the expense of consumer choice on key routes such as Vienna-Frankfurt.
Lufthansa, which has set its own deadline of July 31 to clinch the deal, has the Austrians in a tight spot because the cost to the Austrian taxpayer would be far higher if it walked away. The Austrian government holding company, OIAG, says this could cost about 1,400 jobs and imply total costs of 840 million euros. The state has promised to assume 500 million euros of AUA's 1 billion euros of debt as part of a Lufthansa deal.
The German giant needs to reduce the cost of acquisitions it launched last year before the financial crisis hit air travel.
It has already beaten down Sir Michael Bishop to lower the cost of his majority stake in British carrier BMI [BMI.UL] and has snapped up Brussels Airlines, the successor to bankrupt Belgian flag carrier Sabena.
In the latter case, Lufthansa made concessions to the Commission on routes and take-off and landing slots to avoid restricting competition. But it has balked so far at the most important remedies for the Austrian deal, which concern what would be a monopoly on nine daily flights between Vienna and Geneva, operated jointly with another subsidiary, Swiss, and above all on feeder flights to its Frankfurt Airport hub to connect with its more lucrative transatlantic routes.
If the Commission does not stand firm on these issues, it risks being overturned by the EU's Court of First Instance, to which rivals Air France-KLM <AIRF.PA> and former Formula 1 racing ace Niki Lauda's latest venture, Fly Niki, would undoubtedly appeal.
Of course, Lufthansa could let the Austrian deal founder on EU competition concerns in hopes of picking up the pieces of a shrunken or bankrupt AUA later. But it might face competition were the airline's assets to be sold out of bankruptcy. Both Air France and a consortium of Air Berlin and Fly Niki were interested last time.
So the betting must be that, as with the Belgian deal, it will yield to Brussels' demands to clinch the deal in the end.
Political and economic logic are set to collide in the byzantine decision-making over the future of German carmaker Opel, the main European arm of fallen U.S. auto giant General Motors.
If politics prevail, as seems likely, the cost to German taxpayers will be higher and the chances of commercial success lower.
The aim of the Berlin government and four federal states, which are sustaining Opel with bridging finance, is to save as many German jobs and production sites as possible. That makes political sense ahead of September's general election. But the business logic is that only a greatly slimmed-down Opel can survive in an industry with chronic overcapacity.
In theory, it is up to GM's board to choose among the three offers it expected to receive on Monday from Canadian-Austrian car parts maker Magna <MGa.TO>, Belgian financial investor RHJ <RJHI.BR>, and, less plausibly, Chinese state-owned auto maker BAIC. But there are several other powerful players with a say. They include the trustees responsible for the company since GM entered U.S. bankruptcy in June, the German federal and state governments, Opel's works council and, last but not least, the European Commission, which must approve the restructuring plan as a condition for authorising the state aid.
from The Great Debate:
Germany's politicians seem to have rescued their bad bank. Pushing back the valuation date for toxic assets to before the Lehman collapse has made it more likely that banks will consign their dud investments to the voluntary scheme.
It had looked as if the banks might simply boycott it. However, while the government has scored a political goal, it is no closer to its aim of boosting lending to a credit-starved German economy.
The essence of the scheme is that banks will be able to transfer some 250 billion euros of toxic assets into "eine Bad Bank". In exchange they receive government-backed paper that they can count towards regulatory capital.
from The Great Debate:
Higher taxes? Lower public spending? Devaluation? Inflation? Investment in green growth?
European governments are pointing in very different directions as they debate an exit strategy from the global financial crisis. Despite European Union efforts to coordinate economic policy, there are clear signs that the main European economies will charge off in disarray towards separate exits.
Professor David Bailey works at the Coventry University Business School and has written extensively on globalisation, economic restructuring and industrial policy, with particular reference to the auto industry. The opinions expressed are his own. -
Recent comments by Tom Purves, Chief Executive of the British based but German-owned luxury car firm Rolls-Royce, struck me as interesting on a number of levels this week.
- Nick Hewitt is a historian in the Department of Research and Information at the Imperial War Museum in London. He studied history at Lancaster University and War Studies at King’s College, University of London, where he specialised in naval history. He joined the Imperial War Museum in 1995. The opinions expresed are his own.-
“D-Day at last! Invasion! Hurrah! God save the King!” wrote a Cheshire schoolgirl on the evening of 6 June 1944. For her, news of the successful D-Day landings clearly meant a great deal. But looking back after sixty-five years, what was the historical significance of D-Day?
Arcandor’s chief Executive Karl-Gerhard Eick has warned that if his department store group is forced into insolvency, it will do to the retail sector what the collapse of Lehman Brothers did to finance. It is hard to know whether Eick really believes this, although one has to hope he does not.