China’s vice President could have chosen state banquets in Berlin or Paris for his recent trip to Europe. This wasn’t just any visit – it was the introduction of Xi Jinping, the man tipped to become the next Chinese leader, to the world. But instead of either of those venues he chose to tour Croke Park in Dublin indulging in a spot of Gaelic games on the way. After heading to the US, en route to Turkey, Jinping went to Ireland.

The official Chinese itinerary is extremely telling. Beijing chose one of the smallest nations in the currency bloc for Jinping’s visit and this will be followed with a trip by Irish Taoiseach Enda Kenny to China scheduled for next month.

So why did China choose Ireland? The official line is that Ireland and China have a history of friendship and have built up important business and trade links, especially in agriculture where Ireland exports more than EUR 200 million worth of produce to China each year. However, bi-lateral trade between Ireland and China is tiny compared to that between Germany and Beijing. If you read between the lines then the visit may have a subtle subtext.

Interestingly, Ireland could teach China a thing or two. Its low corporate tax rate and stable political climate has attracted some of the world’s largest corporations, many of whom – including Google and Facebook – now base their European operations out of Dublin. Just this week PayPal announced that it was creating 1,000 jobs and establishing a major presence in Ireland in the coming months.

Not even the banking/sovereign debt crisis back in 2010 stopped these companies coming to Ireland; in fact more businesses have moved their headquarters there in the past two years, helping to make use of the excess office space generated by the collapse of some of Ireland’s banking giants.

While some of the world’s most innovative corporate names have been making Dublin their home, China is still viewed with suspicion by the world’s biggest companies, especially in the tech sector. Google and Facebook have limited operations there and while they may desire to tap into the huge demand potential that China offers they are not willing to risk their businesses to patent piracy etc.

So if China’s new leader wants to improve relations with the world’s largest corporations then Ireland is not a bad place to associate himself, especially in light of the strong relationships Dublin has with global business heads.

The pictures from Athens at the weekend showed a city in turmoil: protests turned violent, buildings were alight and an anti-German feeling was clear for all to see. German flags have been burnt as Greek politicians have agreed to yet more austerity, which means reduced pensions, a 20% cut to the minimum wage and mass layoffs in the public sector.

Added to that the EU has demanded that Greek politicians from both sides of the political aisle sign a pledge to implement cuts regardless of the outcome of the general election scheduled for April. Thus, even if the Greek people vote for an alternative to cuts the troika will insist on them.

But while the Greeks protested at this loss of sovereignty the financial markets have been surprisingly calm. While Greek politicians have been in the throes of austerity, negotiations the bond markets in Italy, Spain and Portugal have continued to recover and apart from a slight blip at the end of last week, euro-based risk assets have continued to rally. Added to this, those calling for the end of the euro have been frustrated by the resilience of the single currency.

So does this mean that the markets will have a delayed reaction to what is going on in Athens, or does Greece not matter anymore? I tend to lean towards the latter. That doesn’t mean that no one cares about Greece or her citizens – the pictures at the weekend were truly disturbing – it’s just that in terms of the euro zone crisis, what happens in Athens is not such an important part of the equation anymore.

A trader I know put it this way: rather than spook the markets, the current events in Greece may spur Italy, Portugal and Spain to act to meet fiscal targets and implement structural reform. After all, it shows just how harsh the Troika can be if you repeatedly fail to live up to expectations when it comes to fiscal consolidation.

An Italian tax crackdown has already yielded positive results. A recent article in the New York Times reported that Rome’s tax police swooped on a small workshop near the Vatican that sold religious souvenirs but failed to pay the Italian Revenue its share. Other arrests have been made in ski resorts and high profile nightclubs around the country. The warning is clear: if you live in Italy, drive a Ferrari and report earnings that could hardly pay for a Fiat Punto then the tax police are coming to get you.

Fraud in Italy is said to be worth 255-275 billion euros a year by some estimates. Thus, stories of raids on the rich and famous not only catch the public’s imagination, but are also a way for Italy to score brownie points from Germany.

By Kathleen Brooks. The opinions expressed are her own.

For the last three years talk about the global economy has been decidedly negative. Firstly there was the sub-prime housing crisis in the U.S., then the sovereign debt crisis, now we wonder whether the euro will survive and whether China will suffer a “hard” economic landing.

But amidst all of this doom and gloom, there seems to be a bright spot: Sub-Saharan Africa. For the bulk of the last thirty years the focus has been on famine, civil war or piracy, which has left a decidedly negative impression of the continent. However, in recent weeks there has been a growing number of optimistic reports about Africa, with some even thinking it could continue to grow while the rest of the world stagnates.

So why all the positivity? The media might be behind the curve on this one since Sub-Saharan growth has outperformed the global average for most of the past decade, according to data from the International Monetary Fund (IMF). What is even more astonishing is that it has managed to sustain its growth rates even during periods of crisis. Last year growth averaged more than 5 percent even  though the sovereign debt crisis ravaged Europe and exports stayed high. Now that global food and energy inflation is starting to level, the continent is in a solid position.

The IMF predicts that Sub-Saharan Africa will grow at a faster pace than Brazil – one of the BRIC economies – between 2010 and 2015. So how has the continent managed to divert the narrative from famine and war to growth and prosperity?

There are a few reasons for this: firstly, demographics, secondly, natural resources and thirdly, its lack of exposure to developed world banking sectors. Looking at demographics first, a growing middle class is starting to emerge and now makes up approximately one third of the population of Sub-Saharan Africa. This class of people want to spend money and have helped to lift domestic demand as a share of GDP across the region. Added to this, 70 percent of the middle class is under the age of 40 so have many “spending” years ahead of them.

The Middle Class has been helped by some expedient political decisions in the region, debt relief and peace returning to parts of the continent. This helped to nurture a private sector that has also benefitted from intra-regional trade. A growing middle class brings with it societal benefits: rising education standards and aspirations, which may eventually filter down to poorer parts of society. There is no denying that poverty is a reality in Africa and by 2060 one third of the population is expected to be still living on $1.25 per day, but at the same time more and more people are expected to lift themselves out of poverty.

By Kathleen Brooks. The opinions expressed are her own.

It used to be Greece that was the canary in the coal mine, these days it’s Hungary. The new year got off to a bad start for the Eastern European nation after it experienced a failed bond auction, causing its bond yields to surge.

This caused major jitters across global financial markets and once again a small, relatively unknown economy is dominating the headlines and causing a massive headache for the European authorities.

But while there are many similarities, the reasons for the panic in Hungary’s debt markets are different from Greece’s problems. Athens borrowed too much and public spending spiralled out of control. However, Hungary’s problems were not based on the size of its budget deficit, which was a fairly manageable 4.2 percent of GDP at the end of 2010, but the amount of debt in its public and private sector that was denominated in foreign-currency.

While the post-Communist era in Hungary helped to modernise the state, its capital markets did not keep up to date. Borrowing costs were lower in the euro zone and other parts of Europe where banks were willing to lend relatively cheaply across the Eastern European bloc, especially to Hungary. While the Hungarian forint was strong it was fine to have liabilities in euro and Swiss franc, however, since the start of 2011 the forint has deteriorated at a rapid pace. Since August alone the forint has lost more than 17 percent of its value against the euro.

Here is the problem: when your liabilities are in euro but you earn forint, all of a sudden servicing your debts becomes much more expensive and bad debts start to rise.

That’s where the similarities with Greece start. If bad debts start to rise then Austria and Italy could be on the hook. Austrian banks hold a whopping $40 billion of Hungarian liabilities, while Italian banks have a slightly more manageable $20 billion.

By Kathleen Brooks. The opinions expressed are her own.

Some people assumed that after the debacle over the 2008 mortgage-backed security crisis in the U.S., the credit rating agencies would be discredited. However, here we are three years later and the focus is still on the same rating agencies, waiting with bated breath to see whether they move the ratings of some of the world’s most important economies.

Within the last six months rating agencies have played a big part in shaping the direction of financial markets. First, there was Standard & Poor’s downgrading of the U.S. at the start of August, which caused a wave of risk aversion and turmoil on financial markets. Europe has also been the focus of concern.

Italy has seen its credit rating slashed to the lowest A rating you can have, while new kid on the block rating agency Egan Jones has gone one step further and on Monday cut Italy’s rating to BB from BB+. Belgium has also been cut and rumours are spreading that France isn’t going to keep its coveted triple A status for much longer.

Far from drift into the background, the focus has been on the diminishing number of countries rated triple A in the western world and what this means for borrowing costs. France has also been under the rating agencies’ microscope. It is at risk of losing its triple A credit rating due to its high public sector debt level combined with a sizeable deficit, also Paris has been slow to take steps to try and bring public sector finances under control. A false statement that France had been downgraded by Standard & Poor’s in October caused French bond yields to surge and it also enraged the French government who threatened to take steps to ban the rating agencies from commenting on France again.

But in recent months there has been no smoke without fire and newspaper reports this week suggest that S&P is days away from stripping France of its top rating due to the slowdown in global growth and the impact this will have on French tax receipts. This couldn’t come at a worse time for Europe as France is integral to the European Financial Stability Facility (EFSF) – Europe’s rescue fund, which relies on France and Germany’s triple A status to keep its own top rating. Thus if France is stripped of its triple A this will have ripple effects on the EFSF fund and could make bailing out Europe’s troubled members more expensive, thus aggravating the debt crisis even more.

There were rumours that France was meant to be downgraded last week along with Belgium; however this was scrapped at the last minute. This has set the market rumour mill into over-drive with speculation building that the EU high command could have had something to do with the delay.

By Kathleen Brooks. The opinions expressed are her own.

The markets have had to – grudgingly – get used to pricing in political risk in recent months. Instead of being moved by economic data and fundamental or technical factors, a large amount of recent price action has been driven by politicians, and that always spells bad news.

Firstly, we have had to listen to the machinations of Europe’s various branches of power as they try to muddle through to a solution to the euro zone debt crisis. This has done very little apart from cause excess amounts of volatility in the markets as politicians talk at odds to each other. The results are pathetic: more than 18 months since the Greek crisis first flared up not only is Athens still deep in its own sovereign crisis but contagion has spread to Italy and Spain and even threatens to engulf some of the core member states like France.

Although most of the focus has been on Europe, the spotlight may shift to the U.S. Republicans and Democrats have failed to agree on $1.3 trillion of cuts to the Federal Budget, which makes it unlikely that the bi-partisan Deficit Committee can come reach a debt deal by Wednesday’s deadline. The problem isn’t the cuts: if Congress can’t agree where the axe can fall then automatic cuts will be enforced. The problem isn’t even the repercussions of missing the deadline: these cuts wouldn’t be imposed until January 2013 and the missed deadline will not cause a default on U.S. debt or a government shut-down, unlike the impasse in Washington back in August.

Instead this suggests that the U.S. and Europe are in a chronic state of political partisanship. In the U.S. its two main political parties are pitted against each other and in the currency bloc the same thing occurs with inflation and austerity hawks in the North failing to bow to pressure to implement policies that could boost the financially weakened Southern states. Essentially the political stalemate is a bit like blocked plumbing since it disrupts the normal flow of things, which damages investor confidence and has the power to cause excess market volatility and a prolonged slump in the global economy.

Thus, the political impasse in the U.S. coming at the same time as outright political dysfunction in Europe is important for two reasons. Firstly, Presidential elections don’t take place for another 12 months in the U.S. so there could be more political brinkmanship and bi-partisan bickering for some time. This is likely to undermine risk sentiment even further since it shows a lack of fiscal resolve in the U.S., which creates uncertainty – and the markets hate uncertainty.  Secondly, the bitter dispute regarding deficit cuts has turned ideological, which could impact growth going forward.

Republicans want spending cuts and Democrats want to increase taxes for the wealthiest Americans to boost the revenue side of the U.S.’s enormous balance sheet. This is important since it makes an extension of the payrolls tax cut and emergency unemployment benefits much less straight forward. Both of these expire at the end of the year and are considered important to boost growth: payroll tax cuts help to encourage firms to hire and unemployment benefits can keep consumption levels stable during periods of high unemployment.

By Kathleen Brooks. The opinions expressed are her own. Nicolas Sarkozy, the French President, has put UK membership of the EU centre stage. His spat last weekend with Prime Minister David Cameron at the EU summit was captured by the global media. In no uncertain terms, he said that the UK hated the euro and should mind its own business. Cue a rebellion from Conservative backbenchers who scheduled and then lost a parliamentary vote this week on whether or not to hold a referendum on our membership in Europe. This faction may not be getting what it wants right now, but its voice is getting louder. More than 80 Conservative MP’s defied the wishes of their leader (some at the risk of losing  their jobs) and voted for the referendum after Tory backbencher David Nuttall proposed the motion because of an e-petition backed by more than 100,000 people. As the euro zone tries to fight for survival and re-write the rule book is now the time for the UK to contemplate its EU membership? Obviously for those Tory back benchers it is. But while David Cameron may call himself an “EU pragmatist”, the evidence suggests that the majority of people in the UK are “European Agnostics” – they don’t care if we are in Europe or not. In a recent poll by Angus Reid 49 percent of people in the UK said they want us to leave the EU. This compares with 60 percent of Conservative Party members, according to a recent poll by Conservative Home. So the rebellious Tories don’t really represent the majority view, and, with a very large margin of error, roughly half the population want us to stay in the euro zone, or couldn’t care either way. I suspect the latter is true. Most people have enough politics in their lives with the 24-hour news cycle and a general election every five years. The EU, with its myriad rules and regulations and multiple branches of power, is enough to drive most people dizzy. I don’t know anyone – not even European politics majors – who can say that they fully understand how the euro zone works. Thus, the way the EU impacts our lives may come as a surprise to some. Did you know that EU law takes precedence over UK law and that some UK laws are actually illegal according to the EU statute books? The EU is a huge influence in our lives, but why are people not that interested in whether we stay or we go? One answer is that we never voted to be in the EU in the first place. We joined the EU in 1973, before most people under 40 were even born. Thus, a huge cohort of the UK has never known life without EU membership. Added to this, a lot of the things we come into most contact with in our daily lives are actually controlled by the UK, for example public expenditure including social security, health and pensions. But the EU determines a huge amount that can influence the prosperity of this nation including our trade laws, rules on financial sector regulation and even some macroeconomic policy. And then there are the costs of our membership, which tends to grab the headlines once every couple of years. The UK’s contribution to the EU Budget topped £6.4 billion in 2009/10, this expanded to £7.9 billion in 2010/11, when the UK was recovering from the worst recession since the 1930’s. Added to this, the UK now receives a trimmed down rebate from Europe. This rebate was negotiated by Margaret Thatcher in 1984, but was altered under Tony Blair’s leadership, which saw the rebate cut in return for a review of EU subsidies and the hopes of a smaller Budget. Those were sweet dreams: the EU’s budget continues to rise on cue each year. So what are the benefits of EU membership? Some may say not much, when you look at it from a cost-return basis, however that view is missing the point. EU membership allows the free movement of labour both to and from our shores as well as easy access to trade in the region; this is important since our European neighbours are our largest trading partners. The free movement of labour can be a controversial topic, however it has not only boosted the demographics of this country, but it has also had many cultural benefits. Perhaps the most important reason for our membership is prestige. The euro zone is the largest economy in the world, the UK is sixth largest but we are being chased for that spot by some fast-growing emerging market economies. Thus, our relationship with Europe helps to keep us at the forefront of the world stage. It also allows us to have a say over how to solve major global problems like the European sovereign debt crisis. The Tories may not have won their referendum this time, but our membership of the EU is likely to come under greater scrutiny as Europe’s short-comings continue to grip the headlines. But the fact is that our relationship with Europe is of the love-hate variety and it is likely to drag on for some time yet. Image — Colin Hingston from Southampton stands with other anti-European Union demonstrators as they wait to go into The Houses of Parliament in London October 24, 2011. REUTERS/Suzanne Plunkett

By Kathleen Brooks. The opinions expressed are her own.

As New Yorkers hurried to work on Wall Street on Friday morning they were greeted by police bracing themselves to cope with a wave of protestors apparently threatening to storm the New York Stock Exchange. By lunchtime the storming had failed to occur, 14 protestors had been arrested and hungry workers were free to go out and get a sandwich.

In recent days the Occupy Wall Street campaign is looking more like a damp squib than a counter-capitalism movement. The protests may be born out of a genuine frustration with bank bailouts funded by the tax payer, but no sooner had the first placard been written then corporate big-wigs sensed the opportunity it presented and rushed in to join the fray.

According to reports, a condom maker is in on the act creating a brand of protection specifically for the protest; obviously some think there is the risk that Occupy might turn into a mini Woodstock. Added to this, the directors of the board of ice cream maker Ben & Jerry’s released a statement saying they were supporting the protest.

But this corporate alignment doesn’t seem to have had the desired effect. Instead of drumming up support for the protestors it has made them something of a laughing stock. Papers, blogs and TV reports are running competitions for the best flavour ice-cream Ben & Jerry’s could create to honour the protests (ocu-pie is gaining some traction). But all of this is distracting from promoting the protestors’ aims and message.

The problem is that corporate support is doomed from the start primarily because it is self-serving for the companies involved. Banker-bashing has become incredibly popular in recent years. Saying that you work in finance and earn squillions of dollars is outright unacceptable. It labels you as old school, probably male, out of touch with reality and a fervent believer that climate change is a conspiracy of the left – in other words the opposite of cool. Cool sells, so by aligning yourself with the protestors you can boost your bottom line.

It doesn’t take long for advertisers and other corporate machines to claim counter-culture for themselves. Look at Woodstock and the 1968 protests. Images of these events pervade so much of modern advertising. Free love sells jeans, fizzy drinks and beer these days.  Thousands of films have been made about the summer of love that have earned billions of dollars for Hollywood’s largest studios.

By Kathleen Brooks. The opinions expressed are her own.

Chancellor George Osborne has weathered criticism of his economic policies from both sides of the political isle in recent months, so it was no surprise that the buzz word from his Conservative Party Conference speech was “difficult”. Life at Westminster is difficult for Osborne at the moment and it’s unlikely to get any easier.

The problem for the Chancellor is that he has staked his credibility on bringing down the UK’s deficit, yet he is also trying to be a pioneer of growth and jobs. In the current environment neither goal looks achievable.

Public sector net borrowing has failed to slow in any sustainable way. Since January borrowing has been on average GBP6.6 billion per month. But that disguises the fluctuations throughout the year, which brought the total to more than GBP60 billion by August. This makes the government’s target to cut borrowing by GBP20 billion to GBP120 billion this fiscal year difficult to achieve.

The Office for Budget Responsibility (the independent verifier of the government’s fiscal plans) forecasts public sector net borrowing to fall to 7.9 percent of GDP in the current fiscal year, down from 9.9 percent in 2010/11. By 2015-16 borrowing is expected to fall to 1.5 percent of GDP, but at the current pace targets such as these seem utterly detached from reality. Either more spending cuts come into play in the coming months or the government misses its 2011/ 2012 forecasts. At this stage the latter seems most likely. For a country that is meant to be on a path to fiscal consolidation, slippage at this early stage of budget restraint suggests the ship has blown dramatically off course.

The latest OBR forecasts date back to March, the next set is due to be released next month. Expect to see revisions to both fiscal and growth targets. The OBR expects to see growth of 1.7 percent this year, 2.5 percent in 2012 and 2.9 percent in 2013. This is far higher than credit rating agency Standard & Poor’s, which has forecast growth of 1.8 percent on average between 2011 and 2014. The International Monetary Fund (IMF) cut its forecast for the UK growth for the third time in nine months in September. It now expects the economy to expand by a fairly lacklustre 1.1 percent this year, and only 1.5 percent next year. It also warned that further growth under-performance would warrant a U-turn in policy and a slower pace of fiscal consolidation.

This is very worrying for Osborne. Low growth will hit tax receipts. Revenues and Customs reported that receipts from income tax, capital gains and national insurance fell as a proportion of GDP to 16.8 percent of GDP in 2010-11, compared with 17.8 percent in 2007-08 as a direct result of the recession. If we get sluggish growth as the S&P predicts then the UK’s tax receipts are unlikely to recover anytime soon.

By Kathleen Brooks. The opinions expressed are her own.

Ireland is on a wave. After a bad patch and a massive loss of confidence eventually it looks like it has turned a corner and we can start to believe that there may be brighter times ahead. Of course, I could be talking about the Irish rugby team who had a stunning win over Australia at the rugby World Cup in New Zealand. But the economy isn’t doing too badly either.

Data last week showed that the economy grew by a respectable 1.6 percent in the second quarter, after expanding by an even better 1.9 percent in the first three months of this year. This beats the dismal growth rates in the UK and the euro zone, which both came in at 0.2 percent in the three months to June.

More importantly to Dublin, however, has been the drop in Irish bond yields. In recent weeks it has bucked the trend of other euro zone countries with dodgy financials who have seen their bond yields rise, instead its 10-year yield has fallen from a high of 14 percent in July to 8.7 percent at the end of last week. In contrast, Greek yields have risen more than 10 percent over the same period.

So, as ironic as it may seem, during the current period of market turmoil when stocks and other risky assets experienced heavy losses, Irish bond yields were one of the few winners out there along with the dollar and the yen. This is an about turn, back in November when Ireland applied for bailout funds its position was considered so precarious that it caused a wobble in the euro more severe than the decline we have seen in September.

But while officials in Dublin might not be allowing themselves to have grand ideas that Ireland could turn into the next safe haven they will be delighted that their bond yields have fallen as this not only lowers their costs of funding, but also brings them one step closer to achieving their goal of re-entering the capital markets in 2013. The cost to insure Irish debt from default has also fallen by more than 100 basis points over the past few weeks, which suggests investors are more confident that Ireland has stepped back from the edge of the default.

So what has Ireland done right? Growth in the second quarter was driven primarily by exports, which expanded by a whopping 23.9 percent between the second quarter of 2010 and 2011. The industrial (excluding construction) forestry, fishing and agriculture were the only sectors to see positive annual growth rates, but that is still not bad for an economy that just seven months before had to go cap in hand to the IMF and EU for a bailout loan.