Aurelia Butler

London and Brussels have signed into law a Brexit deal for Northern Ireland but one of the problems it was supposed to fix — months of political paralysis in the region — remains as intractable as ever.Northern Ireland’s biggest unionist party has been boycotting the region’s political institutions since May to oppose post-Brexit trade rules.After the EU and UK ratified the hard-fought Windsor framework last week, the Democratic Unionist Party’s leverage with the British government has shrunk — yet it is still demanding more concessions.Senior unionists believe it will be forced to climb down and will eventually end its boycott of the Stormont assembly and power-sharing executive. But despite overwhelming cross-party support at Westminster for the deal, exasperation from London with the DUP and a worsening financial crisis in Northern Ireland, few expect a speedy resolution.“The issue now is timing — they probably will not do anything before council elections in May, then it’s the [annual traditional] loyalist marching season, so you could be looking at September or October before anything moves again,” warned a senior unionist official. By then Northern Ireland could be facing what first minister designate Michelle O’Neill of the pro-Irish Unity Sinn Féin party called “savage” cuts to public services in one of the poorest regions of the UK, with the country’s longest health service waiting lists.DUP leader Sir Jeffrey Donaldson objects to some EU law remaining in place in Northern Ireland. ‘I’m not a quitter,’ he said. © Brian Lawless/PAThe Northern Ireland Fiscal Council, an independent body overseeing the region’s finances, on Tuesday warned that the region faced a 6.4 per cent cut in departmental spending in the year ahead. Brexit left Northern Ireland inside the EU’s single market for goods. But it put a customs border in the Irish Sea to avoid re-erecting a politically sensitive land border in a region scarred by three decades of conflict.DUP leader Sir Jeffrey Donaldson objects to some EU law remaining in place in Northern Ireland, which he says undermines the region’s status within UK and its internal market.He said he was looking forward to more talks with the UK government to “sort out” continuing problems with the Windsor framework and return to Stormont. “I’m not a quitter,” he said. London, however, insists that negotiations are over. “The British government has bent over backwards for them . . . the ball is in their court,” said one senior Conservative MP.Donaldson says his hardline strategy has been vindicated and the Windsor framework, which eliminates customs checks for goods from Britain that stay in the region, represents significant progress.

Doug Beattie, leader of the Ulster Unionist Party, at an event in Dublin last Thursday to mark the 25th anniversary of the Good Friday Agreement © Grainne Ni Aodha/PA

But he called it a “sticking plaster”, not a solution, and said unionists had to back the deal or there would be no solid basis to restore power-sharing.Gregory Campbell, a DUP MP, echoed his party leader. “How many agreements and deals have become ‘international law’ only to be replaced by further deals and agreements . . . because there was a realisation that the earlier models were not fit for purpose?” he said.However, Doug Beattie, leader of the small Ulster Unionist Party, said Donaldson was a pragmatist. “It’s not if [they return to Stormont], it’s about when.”He added that there were two problems with continuing to hold out.First, the Stormont brake — a mechanism that would allow unionists to object to the imposition of new EU trade law — would be unavailable if the assembly remained paralysed. In that case, “EU law will automatically apply — they’d be cutting off their nose to spite their face,” Beattie said.Second, the prolonged absence of Stormont would not result in direct rule from London as it did before power sharing in the region. There is an understanding that Ireland would have a greater role, which would be anathema to unionists.Niamh Gallagher, a lecturer in British and Irish history at the University of Cambridge, said the DUP had made a calculation to placate hardline voters, but it was a “risky strategy” electorally.

A poster protesting against the Northern Ireland protocol in Larne in February. © Charles McQuillan/Getty Images

While a recent Lucid Talk poll found that three-quarters of DUP voters opposed the Windsor deal, a new survey for the Irish News by the University of Liverpool’s Institute of Irish Studies found nearly three times more unionists backed the Windsor framework than rejected it.Pete Shirlow, the Institute’s head, said the DUP appeared to be clawing back support lost to the hardline Traditional Unionist Voice party in last May’s elections. But moderate voters had not returned. “You’re not going to get these people back by shouting ‘no surrender’,” he added.Donaldson has appointed a panel to canvass unionist opinion on the Windsor framework that is due to report back this week.It is led by former DUP first minister Peter Robinson, who has already said unionists must weigh whether rejecting the deal will “place unionism and Northern Ireland on more perilous ground”. But Bertie Ahern, a former Irish taoiseach who has been liaising with unionists, urged London to consider “if there’s a little bit more clarification of a tweaking . . . to get this across the line . . . because the alternative is just crazy”.

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So, who, or what, is to blame? Why, 15 years after the start of the last financial crisis, might we be seeing that of another? For many, it is the fault of a long period of ultra-low interest rates imposed by central banks. For others, the cult of the bailout is at fault. We do not need to look far to find the intellectual origins of such views. They lie in Austrian economics. As Brad DeLong puts it in his excellent book, Slouching Towards Utopia, the view is that “the market giveth, the market taketh away; blessed be the name of the market”. The Austrians are not altogether wrong. They are not altogether right either.The essence of the argument is that the transatlantic financial crisis of 2007-15 was the product of over-loose monetary policy. Thereupon, over-loose monetary policy, plus bailouts, thwarted the creative destruction that would have returned the economy to vigorous health. Finally, after Covid, another burst of over-loose monetary policy, combined with aggressive fiscal policy, caused high inflation and still more financial fragility. Now, all the chickens are coming home to roost.The story is simple. But it is wrong.Start with the run-up to the financial crisis. The UK has been issuing index-linked gilts since the early-1980s. The most remarkable feature of the series is the huge fall in real yields from a peak of 5 per cent in 1992 to 1.2 per cent in 2006, then minus 1.4 per cent in 2013 and minus 3.4 per cent in 2021. Central banks alone, however demented they may have been, could not deliver a decline of more than eight percentage points in real interest rates over three decades. If this huge fall in real interest rates were incompatible with the needs of the economy, one would surely have seen surging inflation.So, what was going on? The big background changes were financial liberalisation, globalisation and the entry of China into the world economy. The latter two not only lowered inflation. They also introduced a country with colossal surplus savings into the world economy. In addition, rising inequality within high-income countries, combined with ageing populations, created huge surplus savings in some of them, too, notably Germany. It then needed exceptional credit-fuelled investment, notably in housing, to balance global demand and supply. Happily or not, the financial liberalisation facilitated this credit boom.All this blew up in the financial crisis. The decision then made was not to have another great depression. I do not regret my support for that self-evidently wise decision. But, given the realities of the world economy and the impact of the crisis, there then needed to be either ongoing fiscal support or ultra-loose monetary policy. The former was ruled out. So, it had to be the latter.Data on the money supply show why both ultra-low interest rates and quantitative easing were vital. After the financial crisis, there were extended periods when the private contribution to the growth of the money supply was negative, because credit was contracting. If interest rates had been higher and central banks had not expanded base money, as they did, the money supply would have collapsed. I am not a believer in our ability to stabilise demand by stabilising the money supply. But letting it implode is another matter. Milton Friedman would have considered the actions of central banks in stabilising the growth of broad money after the financial crisis essential. Certainly I do.Then came Covid. At this point, the monetary and fiscal authorities made what turned out to be big mistakes. Monetary growth exploded. According to the IMF, the structural fiscal deficit of the group of seven leading economies also jumped by 4.6 percentage points between 2019 and 2020 and barely shrunk in 2021. This combination fuelled a surge in demand greater than supply could meet, given China’s repeated lockdowns and the Ukraine war. The result was, we hope, a temporary surge in inflation and rising interest rates, which has caused another shock to our fragile banking system.

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In sum, the central banks were not the evil puppet masters of some imaginings, but puppets under the control of more powerful forces. Yes, they made mistakes. Maybe monetary policy should have “leaned against the wind” rather more prior to the financial crisis, QE ended a bit sooner after that crisis, and monetary support been withdrawn faster in 2021. But, given our liberalised financial system and the huge shocks to the world economy, I am sceptical whether any of this would have made a huge difference. Crises were inevitable.Certainly, the legion of critics need to spell out precisely what they would have recommended instead and what effects they would expect their alternatives to have had. We need the counterfactuals specified and quantified. How high should interest rates have been? How big a financial collapse, economic slump, and rise in unemployment would they have then expected after the financial crisis? Why do they imagine businesses would have invested more if interest rates had been higher? Even if productivity would have been raised by slaying “zombie” firms, why would this have been a good thing if the costs included lower output for a prolonged period?Like all human institutions, central banks are imperfect and sometimes incompetent. But they are not crazy. The view that what has gone wrong with our economies in the past few decades is mainly loose monetary policy is a cop out. It rests on the delusion that there is a simple solution to the failings of our financial systems and real economies. Things would not be wonderful if central banks had stood idly by. We cannot abolish democratic politics. Economic policy must be adapted to our world, not to the 19th [email protected] Martin Wolf with myFT and on Twitter More

ROME (Reuters) – Italy will detail on Tuesday a new package of measures worth almost 5 billion euros ($5.41 billion) to cut costly energy bills paid by families and firms, government officials said.The office of Prime Minister Giorgia Meloni called a press conference at the end of the cabinet meeting scheduled for 1500 GMT to discuss the measures.Rome earmarked over 21 billion euros in its 2023 budget to soften the impact of energy costs on the euro zone’s third-largest economy in the first quarter of this year.Meloni aims to revamp these measures using part of the funding initially set aside but not yet spent due to a recent drop in energy prices, the officials said.The benchmark gas contract on the Dutch TTF hub hovers around 42 euros per megawatt hour (MWh) at present, sharply down from 73 euros in early 2023.The government will extend until June an existing bonus aimed at cutting energy bills paid by low-income households, which benefits people with an annual income of up to 15,000 euros.Separate tax bonuses will help firms whose spending for electricity and gas supplies in the first quarter of 2023 increased by more than 30% compared with the same period in the year 2019.A flat-flee bonus to compensate gas costs for families will take effect from October until December.Rome also intends to soften a windfall tax weighing on energy companies that have benefited last year from oil and gas prices.The right-wing administration plans to apply a 50% one-off levy on the part of 2022 corporate income which is at least 10% higher than the average income reported between 2018 and 2021.Italy said last November it expected to raise around 2.565 billion euros from the scheme, but now the Treasury wants to exclude part of the companies’ reserves from the 2022 income which is needed to estimate the tax due, according to the draft.($1 = 0.9235 euros) More

LONDON (Reuters) – Europe’s banks face less threat from some of the problems now showing in the commercial real estate markets than their U.S. counterparts, analysts at JPMorgan (NYSE:JPM) have said.Economists are worried commercial property could be the next shoe to drop if problems in global banking markets trigger a broader credit crunch for the multi-trillion-dollar sector that was already under pressure. Demand for office space has been sapped by the pandemic-era trend of working from home and though rising global interest rates have made it more expensive for firms to borrow, the structure of the European market has provided some comfort.”Fundamentally, we believe that any contagion from either U.S. banks or U.S. CRE (commercial real estate) onto European peers is not justified, given different sector dynamics,” JPMorgan analysts said in a research note published late on Monday.Whereas the U.S. market is blighted by high office vacancy rates and negligible rental growth, they highlighted that Europe has far fewer empty properties and benefits from more inflation-linked rental contracts. “Europe: 2 – US: 0!” JPMorgan said, summarising the situation as if it were a soccer match.Policymakers’ main fear is a so called “doom loop” where concerns about banks’ health trigger a deposit flight and encourage banks to start calling in real estate loans in a bid to free up money.That would accelerate a property sector downturn, aggravating underlying health concerns as it did during the 2007-08 global financial crisis and a number of other major crashes.Analysts at Capital Economist estimated this week that U.S. commercial property prices will slump a further 18-20%, having already fallen 4-5% from their peak in mid-2022.Lending to commercial property accounts for about 40% of all loans by smaller U.S. banks, defined by the Federal Reserve as being those outside the 25 largest by asset size. These banks account for about 70% of outstanding loans to the commercial real estate sector.JPMorgan said an important part of its more positive view on European CRE was the willingness of European banks to continue providing finance to the sector as wholesale funding markets have started to clam up. “In our opinion, liquidity is the crux of the matter, especially in the context of such an illiquid asset class as CRE,” the bank’s analysts said.”Quite flippantly, we would be tempted to say that valuations don’t matter until you need to sell the assets, quickly!” More

BRUSSELS (Reuters) – The European Union has agreed to allow retaliation against countries that put undue economic pressure on EU members to change their policies, such as the trade restrictions the bloc says China has imposed on Lithuania. Representatives of the European Parliament and the Council, the grouping of EU countries, reached a provisional deal on the anti-coercion instrument (ACI) early on Tuesday.The proposal is designed to counter a spillover of geopolitical tensions into trade. An EU report on the ACI referred to the administration of former U.S. President Donald Trump, China and Turkey using trade as a political tool.A prominent recent case involves Chinese trade practices against Lithuania, after the latter allowed Taiwan to set up a de facto embassy there. The EU says Beijing imposed blocks on Lithuanian exports and pressured companies to remove Lithuanian content from supply chains when exporting to China.The EU is challenging China at the World Trade Organization (WTO) over the issue, but WTO cases typically take well over a year to resolve. Beijing has said accusations that it is targeting Lithuania are “pure fabrication”.Bernd Lange, overseeing the matter in the European Parliament, said it was possible the new counter-measures proposal would be applied in the Lithuania case and for possible retaliation by Beijing after the Netherlands decided to limit semiconductor technology exports to China.Under the ACI, EU governments would vote on whether a third country’s economic measure amounted to coercion.If dialogue failed, the bloc could impose restrictions, such as higher import tariffs or limited access to EU public tenders. The entire process would take up to one year, although the threat of retaliation is designed to serve as a deterrent.”Sometimes it’s necessary to put a gun on the table, even knowing that is not used day-by-day. This instrument is a last resort,” Lange said. The legislation should take effect in the second half of 2023 and is envisaged more to apply to new instances of economic coercion, rather than existing cases.Some EU countries had been sceptical about the measure over concerns it could be protectionist and spark trade wars.The EU would take action if a “qualified majority” of countries supported doing so, unlike sanctions for which individual EU governments have veto power. More