Aurelia Butler

British retailers and food producers will meet ministers on Thursday to raise concerns over a new recycling scheme costing £1.7bn a year, which they warn will lead to higher costs for consumers without benefiting the environment as intended. Companies including Unilever, Marks and Spencer and PepsiCo have been invited to the meeting with environment secretary Thérèse Coffey, alongside trade groups such as the British Retail Consortium, the Food and Drink Federation and Industry Council for Packaging and the Environment.Consumer groups’ executives have said the extended producer responsibility for packaging (EPR) scheme, which is due to take effect in 2024, is badly designed and will lead to higher costs without the desired environmental benefits. As set out, the EPR scheme will apply to companies that supply packaged goods to the UK market under their own brand, import products in packaging, or sell non-UK made plastic products via an online marketplace.Companies that fall under the EPR will be obliged to collect and publish data on the packaging supplied or imported and pay various costs before collecting official “notes” from reprocessors to confirm that packaging waste has been recycled. The costs will include a waste management fee based on the weight of packaging, and a charge payable to the environmental regulator. According to the environment department, the cost of handling household packaging waste — including collection, sorting, recycling and disposal — will be about £1.7bn a year. The FDF estimates that the charge, if passed on by producers, could add up to £60 a year to household bills. In a recent letter seen by the Financial Times, the BRC and FDF urged Prime Minister Rishi Sunak to reconsider the plans. They told him the scheme would “significantly increase the costs of packaging, which, in the current economic climate, will increase prices for consumers, without seeing the desired increase in recycling”. The letter had broad support from retail and consumer goods groups such as Aldi, M&S and Wm Morrison.Industry executives are concerned about the structure of the scheme, under which payments will be made to a publicly run scheme administrator, before being passed to local authorities to collect plastic waste and handle the recycling of packaging. Retailers say the administrator should be run by the private sector, as in other countries, citing concerns over cost controls and investment in national recycling infrastructure, for which they say there is no guarantee that funds will be ringfenced. The BRC said: “The current EPR proposals will lead to higher costs for households but will fail to deliver improvements in recycling that they should expect to see, and which retailers are committed to achieving.”M&S called for the EPR charges to be tied explicitly to waste infrastructure improvements so that they did not push up food prices by becoming “another tax”. “The current sequencing and implementation plans . . . are poorly thought through, add cost to businesses and customers and make no tangible difference,” the supermarket added. The environment department said it had been “engaging closely with waste and packaging companies, manufacturers, national retailers, environmental organisations and local government to outline what could be required for future packaging reforms”. The dispute follows concerns raised by industry over a separate bottle recycling programme to take effect in England, Wales and Northern Ireland in 2025, seven years after it was first announced. The Scottish government has defended the rollout of its own “deposit return scheme” — which will enable consumers to redeem a deposit if they return plastic bottles to designated points — from August this year. But trade bodies have warned that the initiative will cut choice and disrupt trade. More

The presidential and parliamentary votes are set for May 14, three months after powerful earthquakes struck Turkey’s southeast, killing tens of thousands and leaving millions homeless.The opposition picked as its presidential candidate Kemal Kilicdaroglu, leader of the Republican People’s Party (CHP), and formed an alliance aiming to appeal to voters from the left and right, as well those with Islamist roots.The opposition promises to reverse many of the policies of Erdogan, who has championed religious piety, military-backed diplomacy and low interest rates. WHAT’S AT STAKE IN THIS ELECTION FOR TURKEY …The most powerful leader since Mustafa Kemal Ataturk founded the modern Turkish republic a century ago, Erdogan and his Islamist-based AK Party have shifted Turkey away from Ataturk’s secular blueprint.Erdogan has also centralised power around an executive presidency, based in a 1,000-room palace on the edge of Ankara, which sets policy on Turkey’s economic, security, domestic and international affairs.Critics say his government has muzzled dissent, eroded rights and brought the judicial system under its sway, a charge denied by officials who say it has protected citizens in the face of unique security threats including a 2016 coup attempt.Economists say Erdogan’s calls for low interest rates sent inflation soaring to a 24-year high of 85% last year, and the lira slumping to one tenth of its value against the dollar over the last decade…. AND THE REST OF THE WORLD?Under Erdogan, Turkey has flexed military power in the Middle East and beyond, launching four incursions into Syria, waging an offensive against Kurdish militants inside Iraq and sending military support to Libya and Azerbaijan.Turkey also saw a series of diplomatic clashes with regional powers Saudi Arabia, Egypt, the United Arab Emirates and Israel, as well as a stand-off with Greece and Cyprus over eastern Mediterranean maritime boundaries, until it changed tack two years ago and sought rapprochement with some of its rivals.Erdogan’s purchase of Russian air defences triggered U.S. arms industry sanctions against Ankara, while his closeness to Russian President Vladimir Putin led critics to question Turkey’s commitment to the NATO Western defence alliance. Ankara’s objections to NATO membership applications from Sweden and Finland have also raised tensions.However, Turkey also brokered a deal for Ukrainian wheat exports, underlining the potential role Erdogan has staked in efforts to end the Ukraine war. It is not clear that a successor would enjoy the same profile he has created on the world stage, a point he is likely to stress in the election campaign.WHAT ARE THE OPPOSITION PROMISING?The two main opposition parties, the secularist Republican People’s Party (CHP) and centre-right nationalist IYI Party, have allied themselves with four smaller parties under a platform that would reverse many of Erdogan’s signature policies.They have pledged to restore independence to the central bank and reverse Erdogan’s unorthodox economic policies. They would also dismantle his executive presidency in favour of the previous parliamentary system, and send back Syrian refugees.Erdogan supported failed efforts to topple Syrian President Bashar al-Assad, while hosting at least 3.6 million Syrian refugees who have become increasingly unwelcome amid economic hardship in Turkey.The opposition has echoed Erdogan’s plans to return some refugees to Syria, but neither has set out how that could safely take place.WHAT IS NEXT?Erdogan formally announced the election decision on March 10, kicking off campaigning for what polls suggest will be a tight race.While the first of Erdogan’s two decades in power was marked by surging economic growth, the last 10 years have seen a decline in prosperity which has hit his popularity with voters.Initial polls since the quakes had suggested that Erdogan was able to largely retain his support despite the disaster. But the emergence of a united opposition, even after a delay in picking its candidate, could prove a bigger challenge for him, analysts say.How the opposition will garner support among the Kurdish voters, accounting for 15% of the electorate, remains key. The co-leader of the pro-Kurdish Peoples’ Democratic Party (HDP) said they may back Kilicdaroglu after a “clear and open” talk.(This story has been refiled to indicate Erdogan has formally announced election date) More

The European Central Bank’s president has warned of the risk of a “tit-for-tat dynamic” between companies and workers that pushes up profit margins and wages, increasing price pressures as both groups try to avoid a hit from higher inflation.Christine Lagarde said on Wednesday that the ECB’s recent increases in borrowing costs were “only starting to take effect now”, and signs that inflation was persisting at high levels meant it had to “bring rates to sufficiently restrictive levels to dampen demand”.The recent banking turmoil has sowed doubts over what happens to inflation, raising fears of a credit crunch that would weigh on demand and, eventually, prices. But Lagarde listed other reasons why it was likely to be harder for the ECB to lower prices pressures without raising rates above their current level of 3 per cent. “Inflation is still high, and uncertainty around its path ahead has increased,” Lagarde told the ECB and its watchers conference in Frankfurt. “This makes a robust strategy going forward essential.”“So far, we do not see clear evidence that underlying inflation is trending downwards,” she said. “In fact, we see two forces pushing underlying inflation in different directions.” Lower energy prices are pushing inflation down but buoyant domestic demand is offsetting this, as companies increase profit margins and workers push for higher wages in tight labour markets. The euro climbed after Lagarde spoke, rising 0.3 per cent to a five-week high against the dollar of $1.080.Krishna Guha, head of policy and central bank strategy at US investment bank Evercore ISI, said Lagarde’s comments “indicate a bit more confidence” that banking turmoil will not disrupt plans to raise rates. Her comments chimed with a warning from Joachim Nagel, head of Germany’s central bank, who told the Financial Times that eurozone rate-setters must be “stubborn” and continue raising rates to tackle inflation.Echoing this, Germany’s economic council warned on Wednesday that financial market instability could undermine efforts by central banks to fight inflation, as it predicted price growth of 6.6 per cent for Germany in 2023.“The high degree of uncertainty in financial markets that we’ve seen in the past few weeks is making it harder for central banks to fight inflation,” said Ulrike Malmendier, one of the members of the council, which advises the German government on economic policy.Lagarde called for a “fair burden sharing” between workers and companies to distribute the losses caused by higher inflation, which she said would bring wages and price pressures down. But if both groups “attempt to unilaterally minimise their losses” it could push up profit margins, wage growth and prices all at once. “The risk of such a ‘tit-for-tat’ dynamic is also heightened by the prospect that labour market tightness will linger,” she said. The ECB president said its main power to bring down inflation by raising interest rates could be diluted by a number of factors. These include banks’ reluctance to pass on higher rates to savers, the build-up of €900bn of excess savings since the pandemic hit three years ago, an extra €250bn of fiscal support from governments last year and again this year, and a lower level of variable-rate mortgages.

The ECB will “monitor carefully” whether banks start to apply a larger “intermediation wedge” to the cost of credit to demand higher compensation for increased risks, she said. If this happens the “pass-through” from higher rates to lower demand and prices would “become stronger”. Lagarde reiterated that there was “more ground to cover” for the ECB in raising rates if it maintained its forecasts showing inflation would remain higher than its 2 per cent target for the next three years. But she added that banking tensions had “added new downside risks and have made the risk assessment blurrier”. More

Germany’s central bank boss said the eurozone must be “stubborn” and keep raising borrowing costs to tackle inflation, as rate-setters on both sides of the Atlantic wrestle with the recent turmoil in the financial sector.“Our fight against inflation is not over,” Joachim Nagel, Bundesbank president, told the Financial Times after he and other members of the European Central Bank’s governing council stuck to plans to increase interest rates by half a percentage point last week.He was speaking ahead of the US Federal Reserve’s own rate-setting decision on Wednesday. “There’s certainly no mistaking that price pressures are strong and broad-based across the economy,” Nagel said of the eurozone. “If we are to tame this stubborn inflation, we will have to be even more stubborn.”The Fed is set to decide whether to continue raising interest rates, despite the collapse of US lenders Silicon Valley Bank and Signature. Analysts largely expect it to raise US borrowing costs by a quarter point. Following the rescue-takeover of Credit Suisse on Sunday, Nagel said it was possible banks would become “more cautious” in lending. However, he added that it was too early to draw the conclusion that the region was heading for a credit crunch that would choke demand. Nagel, who became Bundesbank president at the start of last year, downplayed the risk of contagion to the eurozone’s “resilient” banking system. “We are not facing a repeat of the financial crisis we saw in 2008,” he said. “We can manage this.”Joachim Nagel said it was possible banks would become ‘more cautious’ in lending following the market jitters © Ben Kilb/FTNagel displayed little sympathy for owners of SFr16bn ($17bn) of additional tier 1 (AT1) bonds in Credit Suisse, which were wiped out by Swiss authorities as part of the UBS rescue-takeover. “Those who profit from opportunities should also take their share when risks materialise,” he said. “This was one of the takeaways from the global financial crisis.” But he confirmed that the eurozone would not follow the Swiss decision to bail in AT1s before a bank’s equity was wiped out.Markets increasingly expect the ECB to pause its rate increases in May as financial conditions worsen. However, Nagel said eurozone inflation had to drop “significantly and sustainably” from 8.5 per cent — more than four times the ECB’s 2 per cent target — before the bank would stop raising borrowing costs. Core inflation, which excludes energy and food prices, would also have to “decline sufficiently” after it hit a record of 5.6 per cent last month, he said. “There’s still some way to go, but we are approaching restrictive territory,” he said, adding that once the ECB stopped raising rates it would then have to resist calls to cut them. Doing so would enable “inflation to flare up again”, as it did after the oil supply shocks of the 1970s.Nagel is determined to maintain the German institution’s traditional “hawkish” stance. As the biggest shareholder in the ECB, the Bundesbank has an important influence on policy, though Nagel’s predecessor, Jens Weidmann, was often isolated in his resistance to more dovish monetary policy.Nagel will visit the UK this week, including the House of Lords where he will make the first appearance by a Bundesbank president since Hans Tietmeyer in 1998. He maintained a bullish outlook for the German and eurozone economies, saying: “I still envision a soft landing.”His optimism on growth — and anxiety over inflation — was largely down to the eurozone’s “extraordinarily robust” labour market. Unemployment remains at record lows despite the ECB raising interest rates by an unprecedented 3.5 percentage points since last summer. “This is a very exceptional cycle,” he said, adding that raising rates in the past had led to significant job losses. Another difference was that the banking system remains awash with €4tn of excess liquidity, stemming from years of vast bond purchases and ultra-cheap lending by the ECB. The bank this month started to shrink its bond holdings by not replacing €15bn of the securities that mature each month in its €3.2tn asset purchase programme. But Nagel, whose first job at the Bundesbank involved calculating excess liquidity levels, wanted to go faster. “We should do more,” he said, when the council reviews the strategy in July. He added that “at a later stage” the ECB could also consider shrinking a separate €1.7tn pandemic emergency purchase programme, launched in 2020 to counter the fallout of the Covid-19 pandemic.While he praised ECB president Christine Lagarde’s ability to “bring people with different views together”, the consensus on the ECB council could soon be tested. “It’s when the going gets tough that you find out how good a team really is,” he said. More

WASHINGTON (Reuters) – Historic Federal Reserve lending to banks in the wake of Silicon Valley Bank’s collapse punched a huge hole in its effort to shrink the size of its balance sheet, though economists don’t view that turnaround as a shift back toward a stimulative use of its asset stockpile.Instead, the rapid expansion of the Fed’s holdings of cash and bonds has emerged as a key tool to help contain financial stability issues, speaking to the core mission of why the central bank was founded just over a century ago. The usage of these lending facilities, including the Fed’s long-shunned discount window for bank lending, gave the central bank room, should it choose it, to press forward with rate rises and avoid past cycles of being forced to stand aside or cut rates when markets suffer notable turbulence. While the Fed may have underestimated how rate rises and its bank oversight would affect the financial system, “in one way they were remarkably prescient — the Fed has been trying to institutionalize reforms to the discount window designed to improve financial stability in the aftermath of the early-COVID financial crisis,” wrote Joseph Politano, of Apricitas Economics, in a newsletter Saturday. The “unprecedented use of the discount window partially reflects the desired results of those reforms.”Evercore ISI analysts pointed to the seeming contradiction of an expanded balance sheet driven by financial stability concerns happening as monetary policy tightens, and noted there is “rarely a perfect separation between financial stability and monetary policy goals. Messy real world policymaking needs to embrace this.”BIG NUMBERSFed numbers showed the speed of the shift to a new balance sheet reality. Last Thursday, Fed data showed a massive surge in lending to banks, driven notably by $153 billion in what’s called discount window credit, up from $5 billion the week before and blazing through a record set in the fall of 2008, when the financial crisis pushed banks to take $112 billion.That borrowing, which also saw other large-size Fed credit extensions, pushed the size of the Fed’s overall balance sheet up to $8.7 trillion on Wednesday, versus $8.4 trillion the week before. Fed holdings peaked at just shy of $9 trillion last summer. On the face of it, the emergency borrowing unraveled months of progress in which the Fed allowed some of the Treasury and mortgage securities it owns to expire each month. This effort, known in markets as quantitative tightening, or QT, complemented the Fed’s aggressive rate rises aimed at bringing down inflation. That puts the central bank in a seemingly awkward position. While the banking sector’s woes have generated considerable uncertainty into the outcome of the rate-setting Federal Open Market Committee meeting which concludes Wednesday, the Fed nevertheless appears on track for another quarter point rate rise. The details of Fed holdings matters greatly in terms of understanding Fed balance sheet dynamics, analysts say. Benson Durham, head of global policy at Piper Sandler, said the key is the composition and not the size of Fed holdings. Emergency borrowing has driven up the overall level of Fed holdings, but the Fed continues to shed bonds and cut the level of reserves in the banking system, which is how the QT process has worked all along, he said. Even with a jump in the balance sheet the Fed is “still credit tightening” and when it comes to the increase in the overall size, “it’s hard for me to imagine that this is remotely inflationary,” Durham said. Tim Duy, chief U.S. economist with SGH Global Advisors, agreed and said the Fed emergency lending is “not funding that’s going into banks that they can make loans with per se,” a key factor blunting any form of new stimulus. There’s even a case for how some of the underlying factors driving banks to borrow Fed cash point to the tighter financial conditions the central bank has sought to control inflation, and which could hamper growth. Matthew Luzzetti, chief U.S. economist at Deutsche Bank (ETR:DBKGn) Securities, said “a tightening of bank lending conditions could lead to a broader tightening of financial conditions that would meaningfully dent growth prospects and heighten recession probabilities.” LESS ROOM TO RUN?One factor limiting economists’ interpretation of the balance sheet surge is the fluidity of the factors now driving it. “At this early stage in the process, it is unclear how much of the Fed’s emergency lending will turn out to be sticky,” analysts at Wrightson ICAP (LON:NXGN) said in a note over the weekend. But even with that caveat, the firm saw some potential implications for how the Fed proceeds with its balance sheet drawdown, depending on banks’ reserve positions. Even if, as expected, the FOMC decides at the meeting to keep the drawdown at its current pace of $100 billion per month, it may allow the drawdown to end earlier than previously expected.There’s little doubt banks’ demand for reserves has risen amid more fragile conditions, the note said. “If some of the recent surge in emergency lending runs off in the weeks ahead, it may very well be the case that this episode has nudged the banking system closer to the point of effective reserve scarcity rather than farther away.” More