Aurelia Butler

Today’s top storiesUK prime minister Rishi Sunak ordered his ethics adviser to investigate the tax affairs of Nadhim Zahawi, the Conservative party chair. The government also faces a crisis over allegations BBC chair Richard Sharp helped former PM Boris Johnson secure a private loan. Brazil and Argentina, South America’s two biggest economies, will announce the start of work on a common currency this week and invite other Latin American nations to join. The “sur” (south) as Brazil would like it to be known, could boost regional trade and reduce reliance on the US dollar, and would initially run in parallel with the Brazilian real and Argentine peso. Music streamer Spotify became the latest tech company to announce job cuts (as well as a management shake-up) to reverse its pandemic-era hiring spree.For up-to-the-minute news updates, visit our live blogGood evening.After a week of positive noises from Davos about global recovery, a closely watched survey of economists has suggested the eurozone will avoid recession this year, adding to signs in financial markets that Europe is bouncing back.The Consensus Economics report says the bloc will grow 0.1 per cent in 2023, thanks to falling energy prices, government support and the boost to the global economy from the earlier than anticipated reopening of China. The easing of supply chain disruptions and a strong labour market have also helped, while fears of gas rationing have been greatly reduced. JPMorgan has gone even further, raising its 2023 eurozone GDP forecast to 0.5 per cent.Optimism is also slowly spreading among consumers. New EU confidence data today showed sentiment in January up by 1.1 percentage points in the euro area and 1.4 points in the wider EU, hitting the highest level in nearly a year, although well below long-term averages.The euro has been gaining ground against the dollar as the outlook improves, rising about 13 per cent over the past three and a half months, aided by the greenback’s retreat.Fund managers are starting to turn from China to Europe in their hunt for growth. “Europe remains an attractive market . . . it is the largest institutional and wholesale market outside of the US. It also has a strong responsible investment focus, supported by the regulatory regime,” said one fund chief.Investors are also looking forward to the EU’s plans for “unprecedented” investments in clean energy technologies as Brussels tries to assuage fears that Joe Biden’s huge green subsidies might tempt European businesses across the Atlantic.At the same time, policymakers — as expressed in the FT by the Bundesbank’s Sabine Mauderer — are confident that the eurozone can beat inflation while keeping markets stable.Some economists in the Consensus survey still expect a recession, albeit not as deep as previously thought, while new data today showed the cost of supporting consumers and businesses on energy bills was a sharp widening in the eurozone budget deficit. Need to know: UK and Europe economyThe UK needs a new green strategy to prevent investment haemorrhaging to the US as a result of president Joe Biden’s package of subsidies, according to the head of the CBI employers’ group. CBI chief Tony Danker also hit out at government’s plans to cull EU laws, which he said would create “huge uncertainty for UK firms”. The parlous state of local government finances in England is laid bare in our new Big Read: the budget cuts that are threatening ‘levelling up’. In better UK economic news, a Deloitte survey showed UK consumer confidence edging up for the first time in 15 months.The National Grid will start paying UK households and businesses to use less power during the peak hour for demand between 5pm to 6pm this evening to reduce the strain on the grid. Regulator Ofgem is to investigate suppliers which forcibly switch vulnerable customers to prepayment meters.On February 5 the EU will be cut off from its main provider of diesel when new sanctions on Russian energy take effect, sparking more turmoil in global oil markets. Brussels is looking at using confiscated Russian assets for Ukraine’s reconstruction.Need to know: Global economyCovid cases in China are surging as the country celebrates the lunar new year, while drug shortfalls that hit Beijing and Shanghai last month are now affecting rural areas. The €1.38tn luxury goods market is in rude health as the ultra-rich keep on spending, according to a new report from Bain & Company. The data also highlight that it is the US, rather than China, that is fuelling the boom, and that key drivers are Gen Z and Gen Y, rather than older consumers.Climate and sustainability issues crept into a surprising number of debates at the World Economic Forum in Davos. Our Moral Money newsletter (for premium subscribers) looks back at an eventful week.Can you predict the year ahead better than superforecasters? Try our interactive quiz. Need to know: businessBanks are gearing up for the biggest round of job cuts since the global financial crisis, following a collapse in investment banking revenues. “The job cuts that are coming are going to be super brutal,” said one headhunter. “It’s a reset because they over-hired over the past two to three years.”Microsoft confirmed a multibillion-dollar investment in OpenAI, one of the world’s leading artificial intelligence start-ups and developer behind chatbot ChatGPT and image generator DALL-E.Ken Griffin’s Citadel made $16bn profit for investors last year — the biggest dollar gain by a hedge fund in history — fuelled by the sell-off in government bonds.Shares in Italy’s Juventus plunged after football authorities docked 15 points from the club following alleged false accounting practices. The deduction makes it unlikely the team will qualify to take part in lucrative European competitions such as the Champions League.Join LaLiga President Javier Tebas, AC Milan owner Gerry Cardinale, super agent Rafaela Pimenta and more at the Business of Football Summit in London on March 1-2 to discuss the new wave of investment flowing into the game. Scoreboard newsletter subscribers can register here for their complimentary digital pass or discounted in-person ticket. Premium subscribers can sign up to receive our weekly newsletter on the business of sport here.The World of WorkHating your job for a long period can only harm your mental and physical health. Here’s some guidance on what to do should you find yourself stuck.Burnout might be one reason. Here’s how artificial intelligence is being deployed in new tools for employee wellbeing.Work and Careers editor Isabel Berwick shares four great podcasts about women and the world of work.Pandemics and other disasters such as the Great Fire of London have long fuelled urban change. As cities struggle to revive, some argue it’s time to recast central business districts as central social districts, writes columnist Pilita Clark.Some good newsTo anyone who has lived in New York, the thought of dolphins returning to the Bronx river may seem a little far-fetched. Think again!It’s true—dolphins were spotted in the Bronx River this week! This is great news—it shows that the decades-long effort to restore the river as a healthy habitat is working. We believe these dolphins naturally found their way to the river in search of fish.(Video: Nick Banco) pic.twitter.com/40ZNgBjJZs— NYC Parks (@NYCParks) January 19, 2023 More

US Treasury secretary Janet Yellen called on China to agree to a rapid restructuring of loans to Zambia, saying Beijing was a “barrier” to ending the debt crisis in the southern African nation.Yellen, speaking in the Zambian capital Lusaka on Monday as part of her 10-day tour of Africa, said she hoped for progress from China on a deal that had “taken far too long already to resolve”.Africa’s second-largest copper producer defaulted on $17bn of debt in 2020. The attempts to restructure the debts will define how China, the biggest creditor to the developing world, responds to a wave of defaults.Zambian president Hakainde Hichilema’s government owes more than a third of the debt to Chinese creditors, but has heard little back from Beijing on specific terms for reducing the loans, despite an agreement in principle last year to provide relief alongside other lenders.“I know the Chinese have been a barrier to concluding the negotiations,” Yellen said, adding that she had “specifically raised the issue of Zambia and asked for [Chinese] co-operation in trying to reach a speedy resolution” when she met Liu He, Xi Jinping’s main economic tsar, last week. “Our talks were constructive,” she said.The former Federal Reserve chair has already visited Senegal and will next travel to South Africa, as the US seeks to rebuild economic and trade ties in the region in the wake of the inflationary fallout from Russia’s war in Ukraine and debt crises linked to Beijing’s lending.Without a restructuring Zambia in particular cannot access a $1.3bn bailout from the IMF needed to reboot its economy. Kristalina Georgieva, the fund’s managing director, was also in Lusaka, where she is pushing for a meeting of major creditors, including China, to tackle the slow progress in resolving defaults across the developing world.Zambia’s economy remains weakened by the 2020 default’s long legacy, providing a warning for countries such as Sri Lanka and Ghana that can no longer afford to pay back debts and owe a significant chunk of their borrowings to China.Zambia’s president said on Monday that he was hoping for a debt deal by the end of the first quarter of this year.Yellen’s visit is the first of several African tours by US officials this year that will highlight painful economic fallout from a surge in infrastructure lending that Beijing extended to the continent in the last decade.Analysts have said that Zambia’s restructuring has been held back by a lack of experience and co-ordination among the several Chinese state and development banks that lent to projects such as hydropower dams, highways and airports that then soured.A restructuring that will enable Zambia to emerge from default is a “top priority” for the US and “we will continue to press for all official bilateral and private sector creditors to meaningfully participate in debt relief for Zambia, especially China”, Yellen said. More

The UK energy regulator Ofgem is to investigate suppliers forcibly switching vulnerable customers to prepayment meters. Jonathan Brearley, chief executive of Ofgem, said on Monday that the regulator did not have legal powers to completely ban forced installations of prepayment meters but it would examine companies’ “checks and balances” and act against those who “do not take due care”.Most customers pay for their power after use but energy providers can force people on to more expensive prepaid meters when they fall behind with regular payments. The number of people who have been moved on to prepayment tariffs has risen sharply as they grapple with soaring energy bills and the cost of living crisis.Brearley’s comments came after Grant Shapps, the business secretary, told suppliers over the weekend that they should voluntarily end the practice of switching households to prepayment meters or face being “named and shamed”. Companies should be offering credit or debt advice, with pre-pay installations a last resort, he said.Speaking at an event held by the Institute for Government think-tank, Brearley also called for a “serious assessment” of a cheaper social tariff for low-income households, which would mean those that were least able to pay were charged a lower price for their power. Current rules require suppliers to explore the financial help on offer or carry out appropriate assessments before they can forcibly install prepayment meters or remotely switch a household’s smart meter to a pre-pay tariff.But Brearley said some people were being moved “without even knowing about it”. He cited an example of a customer in Glasgow who “left to go on holiday and returned to find he’d been switched to pre-pay without his knowledge and had no way to top up”. “Although there is good practice in many places, no company came through [in initial investigations] without needing to improve and all have been required to submit plans to meet the standards we set,” Brearley said.The government has introduced an energy price guarantee scheme aimed at restricting a typical household bill to about £2,500 a year until the end of March, and to about £3,000 until spring 2024.Although wholesale gas prices have been falling, Brearley said it was unlikely that prices would return to pre-pandemic levels and that new approaches were needed in Britain’s energy sector.Energy UK, which represents the industry, said: “Suppliers are already required to have exhausted all other options before installing a prepayment meter by warrant.”

The comments came as National Grid confirmed on Monday that it was planning to pay some households that use smart meters to use less power today and tomorrow in what will be the first time it has used a new scheme designed to help prevent power shortages.More than a million households and business are signed up to the Demand Flexibility Service, which rewards people, usually via money off their bills, for turning off appliances such as ovens and dishwashers during a specific period when electricity demand is high.The service is expected to run from 5pm to 6pm on Monday and between 4.30pm and 6pm on Tuesday. National Grid ESO said its announcement should not be interpreted as a sign that electricity supplies are at risk. A separate measure, calling on coal-fired power plants to fire up as back up power has been stood down for Monday evening, although one of them is on standby for Tuesday. More

The writer is a senior fellow at the Malcolm H Kerr Carnegie Middle East Center in BeirutAt first glance, the new loan agreement between the IMF and Egypt, announced on January 10, is as broad and ambitious as it is welcome. In addition to measures addressing the country’s worsening currency crisis and deepening debt, the government in Cairo promises a major restructuring of the shares of the public and private sectors in the economy. It still envisages retaining — and actually increasing — the state’s majority footprint in sectors that currently receive the lion’s share of investment, including real estate and transport. Nevertheless, were the government to make good on its promises, the effect would be greater than that of the privatisation process launched in 1991. Indeed, it could unleash the most significant transformation in Egypt since the “socialist decrees” that nationalised nearly the entire economy in 1961. The commitments made to the IMF draw on a new state ownership policy drawn up by the government last year. The document promises that the state will wholly exit up to 79 economic sectors and partially exit some 45 others within three years, and increase private sector participation in public investments from 30 to 65 per cent.Remarkably, a policy that could have far-reaching implications for the Egyptian economy apparently emerged from a mere three months of closed consultation between a limited number of government officials, members of parliament and private sector business leaders. Moreover, while the proposed changes promise real gains, they also pose a threat to powerful institutional actors and interest groups. Yet neither the government nor Egypt’s president, Abdel Fattah al-Sisi, have publicly prepared the ground to defuse the inevitable pushback or win over key constituencies. The fact Sisi has approved the new state ownership policy formally does not alter matters. His immediate purpose was clearly to clinch the agreement with the IMF in the hope that this would unlock an additional $14bn in credit from other international sources. But the president’s public pronouncements and formal decrees over the past few years reveal a fundamentally different purpose: to capitalise state-owned enterprises and assets such as infrastructure with injections of private funds, while leaving them in state hands. New legislation authorises state-owned providers of services and utilities to “monetise and trade their future revenues for sale to investors”, and allows the private sector to manage government-funded projects and public works. At the same time, the president is moving a growing list of state assets from government hands to the control of an expanding number of newly established bodies that answer directly to him. One of these is the sovereign wealth fund, which has emerged as Sisi’s preferred vehicle for attracting private capital, rather than floating state companies freely on the stock exchange. His endorsement of the state ownership policy is a misdirection, therefore, which he may nonetheless use to disguise his actual strategy. The discrepancy between promise and reality will become most apparent in relation to the large share of public goods and services provided by military companies and agencies. The Egyptian government has told the IMF it will subject these to the same regulatory framework as their civilian public sector counterparts. However, not only is the military in the midst of a multiyear expansion that shows no sign of abating, it has in fact continued expanding in sectors the state is supposed to be leaving. All this may seem to put the policy framework agreed with the IMF in doubt, but the fact is that both sides need an agreement that looks good even though neither has the will nor capacity to enforce it. That significant leakages will occur is virtually written in. And foremost among these will be the non-enforcement of provisions concerning the military. The military may not have to fight hard to preserve its economic stake this time: if the past is any guide, the government will prevaricate on its commitments to the IMF in any case. Whether other foreign partners, notably in the Gulf states, will be as forgiving is not as certain, however. For now, Sisi will not allow a serious rift with the military, in the hope that the government can be made to bear the burden of dealing with an increasingly unhappy Egyptian public and of pleading with foreign donors. But he cannot put off confronting them indefinitely. More

I was recently asked on BBC’s Radio Four whether American “protectionism” was bipartisan. I replied that while I understand why Europeans in particular see things like the Biden Administration’s Inflation Reduction Act as isolationist or self-interested (in the sense that the US is giving subsidies for Made in America goods), I don’t see efforts to rebuild the industrial commons in the US as protectionist. In fact, I see it as a crucial part of how the US can help allies by strengthening itself, economically and politically. Let’s put aside the fact that anything that gets the US to move more quickly towards clean energy (as the IRA does) should be applauded by Europeans. Rather, let’s focus on the fact that the subsidies are being given for greenfield technologies (like electric vehicles and their components) in which there is plenty of room for more production in both the US and Europe. That’s one of the reasons that I’m also in support of any European subsidies in areas like semiconductors, lithium batteries, etc. We need a LOT more of this stuff, in many more places, ASAP.What’s more, Europeans should understand that both sides of the aisle in the US are increasingly moving away from the neoliberal system and its laissez-faire approach. In fact, they are even finding common ground in doing so, as witnessed by the National Development Strategy and Coordination Act, put out by Florida’s Republican senator Marco Rubio and California’s Democratic congressman Ro Khanna late last year. While the legislation has been overshadowed by holiday travel debacles and now the debt ceiling, I think it’s a strong indicator of where both parties are going on industrial strategy. I’d be surprised if there wasn’t a larger bipartisan coalition supporting it in the next few months. The bill, which was crafted by Cornell law professor Robert Hockett, would force all cabinet level agencies to identify weaknesses in their supply chains, and also discuss industrial vulnerabilities in the US across agencies. This goes some way towards creating the sort of whole-of-government approach to supply chains that I’ve advocated for in past columns.That sort of approach gives government more power to decide what the nation actually needs to underwrite, which is something that progressives like myself and Hockett (who has worked for both senators Bernie Sanders and Elizabeth Warren) would like to see. But it’s also a clever way to offer conservatives a chance to get rid of bureaucratic waste. As Rubio’s office pointed out to me, “we have 118 credit facilities across multiple agencies” in the US. It’s possible that just as private sector supply chain analysis is lifting the scrim on corporate misbehaviour (a topic I wrote about here), you could see a top-down government analysis of supply chains and procurement financing be a smart, transparent way of eliminating waste. That’s something any self-respecting Republican can get behind.But how to convince allies that this effort is in everyone’s self interest? This gets to the heart of the transatlantic challenge. President Biden cares very deeply about two things — Made in America, and the US’s allies. Those things have been in tension. But they needn’t be. Indeed, historically, they haven’t been. Think about Alexander Hamilton, whose industrial policy was at the heart of the success of the early American republic. He was influenced, as Hockett points out, by European thinkers and leaders like Jean-Baptiste Colbert and his ideas about nation building. And Hamilton likewise influenced people like the German economist Georg Friedrich List.Development is an ongoing process, one that nations shape together. There’s no reason why the US and the EU can’t have a more constructive discussion about how to come together to support industrial policy for a post-neoliberal era in ways that are win-wins for all. I’d love to see continued discussion about a mutual price on carbon, for example, which would go a long way towards combating Chinese mercantilism — a risk for both regions. (Germany is at risk of making the same mistake with its own industrial commons that the US did 20 years ago.) Or a transatlantic tracking of critical supply chains across industries, which could help shape a mutually beneficial discussion about what really is crucial for states to support in terms of the technology sector, and what isn’t.Gideon, I know you’ve been quite sceptical of industrial policy in the past. But, do you see ways to bring the US and the EU (which certainly has plenty of its own policies) together on this issue? Recommended Reading This NYT deep dive on Hunter Biden is good, but it buries the lead (and in fact, the only thing you really need to know) on the bottom of the first column of the jump page (yep, I still read long form in print): “Despite their years of efforts — including Mr. Trump’s attempt to muscle Ukraine into helping him sully the Bidens, an escapade that led to his first impeachment — Republicans have yet to demonstrate that the senior Mr Biden was involved in his son’s business deals or took any action to benefit him or his foreign partners.”Nicholas Lemann’s piece in the Washington Monthly is spot on about the shifts in the American political economy. This Big Read by the FT’s Patrick McGee, on whether Apple can disentangle itself from China, is a wonderful analysis of the pickle that the US tech giant is in. For years, it has depended on China for both production and profit. Now, decoupling is totally upending its business model. My wise colleague Tim Harford, aka the Undercover Economist, tells us what economic models get wrong about personal finance. I’ll be thinking about this a lot as I try to plan out my next few years’ personal finance trajectory.And finally, read my wonderful colleague Martin Wolf’s Weekend FT essay, which is based on his new book coming out in February about the challenge facing democratic capitalism. We don’t agree on everything (like trade dynamics, which I think are quite different for small European countries versus big free markets like the US or state-run systems like China) but his concerns about the tensions between the market system and democracy are worthy and well-stated. I’ll be ordering and reading this book with great interest.To coincide with Martin Wolf’s new book, The Crisis of Democratic Capitalism, publication, join Martin and other thought leaders online for a subscriber-exclusive event on January 31. Register for free here.Gideon Rachman responds Rana, I certainly take your point about the growing bipartisan consensus around industrial policy in the US. In fact, I recently heard Jared Kushner make very similar arguments to the ones you’ve just made. Guess where that happened? Yes, Davos! But let’s not revisit that argument.You are right that I am sceptical about industrial policy. I think I may be an example of that old saying (but who said it, Swampians?) that if you want to understand somebody’s worldview, you have to know what was happening in the world when they were 20.I was 20 in 1983 — just as the Thatcherism was taking wing in Britain. The liberal policies that she was pushing (I think you would call them neoliberal?) were a reaction to decades of failed industrial policy. Britain had subsidised all manner of “strategic” industries — cars, shipbuilding, the railways, coal. The results had been almost universally dreadful. Far from being worldbeaters, British industries were decrepit and plagued by strikes.Thatcher decided to get the state out of the business of “picking winners”. She decided that market forces should decide which businesses flourished and who should receive investment. “Privatisation”, pioneered by Thatcher, became a global trend. Forty years later, I still think that the reasons that Thatcher ditched industrial policy are broadly correct. Government bureaucrats should not be picking winners. Not only do they waste taxpayers’ money, they also distort the economy. The key to success (at least initially) becomes your ability to attract government money, rather than to design a product that the market genuinely wants. Concentrating investment power in the hands of the government is also an invitation to corruption.And those are just the domestic effects. Internationally, the spread of industrial policy spells disaster for companies based in small countries that cannot match the financial and subsidy power of the US — or China for that matter. That is a major reason why the EU has cracked down on state-aid and subsidies within its 27-member Union. If they were allowed, it would mean that Germany and France could always crush competitors in smaller EU countries. And an EU-wide subsidy regime would immediately degenerate into a fight over which countries’ companies got the cash.So, to summarise, you ask is there a way for Europe and the US to co-operate on industrial policy? I don’t know. But I sincerely hope not.Your feedback  And now a word from our Swampians . . . In response to “Celebrity speed dating in Davos”:“I wonder if anyone has calculated the total cost of this huge gathering of who’s who in this world . . . In the case of firms/private individuals they would have to figure out whether this venture was worth the time and the cost. As far as country representatives are concerned this kind of scrutiny would be evaluated in less numerical terms and it would be difficult to find what these costs actually are. I doubt if anything concrete or binding is ever achieved. At most it is simply a tête-à-tête. So I get this feeling that it is nothing more than a huge party which you attend to boost your ego and most probably, at someone else’s expense.” — Ajay Doshi, Nairobi, KenyaEdward Luce is on book leave and will return in mid-February. More