Aurelia Butler

Top bankers and business people say Joe Biden has leapfrogged Europe in its handling of the climate crisis, as companies and investors seek to capitalise on Washington’s huge green energy package. Delegates at the World Economic Forum in Davos were united in praise for the US president’s Inflation Reduction Act, a $369bn package that includes subsidies aimed at luring companies to invest in technologies that will help cut the country’s greenhouse gas emissions. “The US programme is very smart, and huge,” said Jan Jenisch, chief executive of Swiss building materials group Holcim. “So much needs to be built, from factories, to logistics and infrastructure. For the next 10 years, this will be an engine for growth.”Cashing in on the package’s popularity, several Republican and Democrat governors and members of Congress — including Georgia governor Brian Kemp, Illinois governor JB Pritzker, Michigan governor Gretchen Whitmer and West Virginia senator Joe Manchin — made the trip to the Swiss Alpine resort. While such aggressive government intervention would have in previous decades attracted the scorn of the pro-globalisation crowd in Davos, delegates said the subsidies for everything from electric vehicles to hydrogen power were welcome given the urgent need to tackle the effects of climate change. “We are too ideological when we say we shouldn’t subsidise . . . Speed is the most essential ingredient,” said Kristalina Georgieva, managing director of the IMF. “We are in the ditch and we must get out of it.”Karen Karniol-Tambour, co-chief investment officer for sustainability at Bridgewater Associates, the world’s largest hedge fund, said the package was a “big deal” in showing just how involved lawmakers could be. “For so many years [intervention] was a bad word to talk about — everything should be based on markets, governments should not pick winners and losers.” While the bill was intended to counter the dominance of China in renewable energy development and green jobs, it has ended up sparking a backlash among Washington’s trading partners in Europe and elsewhere. They claim the subsidies penalise businesses and could pull manufacturing jobs and investment from domestic shores to the US. German chancellor Olaf Scholz told the forum on Wednesday that, while he welcomed the US investment in green technologies, the act must not lead to any discrimination. “Protectionism hinders competition and innovation and is detrimental to climate change mitigation.”Grant Shapps, UK business secretary, was bolder, labelling the US act “dangerous”.However, Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said the US’s aggrieved trading partners should speak directly to Washington rather than lodge a complaint with it.“It’s far better for them to speak to the US and try to resolve this and see if there’s any way to take account of their concerns than to come to the dispute-settlement system of the WTO,” she said.More recently, EU authorities have sought to respond to the Inflation Reduction Act with measures of their own, with European Commission president Ursula von der Leyen this week promising a relaxation of regulation and new funding to help the bloc catch up.Some corporate executives said the contrast in approaches on either side of the Atlantic was symptomatic of a relatively unfriendly business environment in Europe.“Sometimes, leading with regulation is a dangerous path,” said Borje Ekholm, chief executive of Swedish telecoms group Ericsson, who is frequently outspoken about what he sees as constraints on Europe’s technology sector. “Europe has put us on a path that may put us in a less attractive investment environment.”“In Europe, the approach has been the sticks, in the US it has been a lot of carrots,” said Jesper Brodin, chief executive of the biggest Ikea retailer Ingka Group. “We need both.”One chief executive of a large US-based group said he was “disappointed” at how the US unilaterally shaped the law, causing a rift with “crucial EU allies” at a time of heightened geopolitical tensions. He urged the Biden administration to fix it, suggesting that US trade representative Katherine Tai, who is attending Davos, should start by “saying sorry”.US officials have repeatedly said that, while they were unapologetic about the law, they were working to address some of the allies’ concerns. At Davos, US climate envoy John Kerry said, though tweaks could be made during the US Treasury’s implementation process, “the basics of the legislation” were “exactly what we need”. Kerry urged Europe to spend more on tackling climate change itself.

Some US delegates expressed surprise that Europe had reacted so badly. “I had no idea they were so upset until I got here,” said one hedge fund manager. Most focused on figuring out how to benefit from the subsidies. Jonathan Hausman, executive managing director at Ontario Teachers’ Pension Plan, described a “sucking sound” of green energy investments flowing into the US following the act’s passing in August. “It’s a very powerful signal to [global] investors that this is where it’s happening.”Additional reporting by Akila Quinio in London, Aime Williams and James Politi in Washington, and Sam Fleming in Brussels More

At a time of shortages, we are certainly not short of gloomy economic forecasts. The Resolution Foundation think-tank notes that average real earnings have fallen by 7 per cent since a year ago and predicts that earnings will take four or five years to recover to the levels of January 2022.Yet if the forecasts are bad, it is the scene in the rear-view mirror that is truly horrifying. The British economy is in a generation-long slough of despond, a slow-burning economic catastrophe. Real household disposable income per capita has barely increased for 15 years. This is not normal. Since 1948, this measure of spending power reliably increased in the UK, doubling every 30 years. It was about twice as high in 1978 as in 1948 and was in touching distance of doubling again by 2008, before the financial crisis intervened. Today, it’s back at those pre-crisis levels.It’s worth lingering on this point because it is so extraordinary. Had the pre-crisis trend continued, the typical Brit would by now be 40 per cent richer. Instead, no progress has been made at all. No wonder the Institute for Fiscal Studies is now talking of a second lost decade.Go back and look for historical precedents for this, and you will not find much. In the National Institute Economic Review, economic historians Nick Crafts and Terence Mills examined the growth in labour productivity over the very long run. (This is defined as the total output of the UK economy divided by the total number of hours worked; labour productivity is closely connected to material standards of living.) They do find worse runs of performance — 1760 to 1800 was not much fun — but none within living memory. Nowhere in 260 years of data do they find a sharper shortfall from the previous trend. The past 15 years have been a disappointment on a scale that previous generations of British economists could hardly have imagined.The questions of how this can have happened, and what can be done to change things, can be left for another column. (Part of the problem, in any case, may have been government by newspaper columnists.) But it is worth looking for symptoms. Is life in the UK really as bad as the apocalyptically bad economic numbers suggest? Perhaps so. There are some obvious problems: widespread worry about the cost of living; strikes everywhere; the utter meltdown of the UK’s emergency healthcare. There are also subtler indicators of chronic economic disease. Consider the public finances. In an ideal world, governments offer their citizens low taxes, excellent public services and falling national debt. In normal circumstances, we can’t have it all. Right now, we can’t have any of it. We have rising taxes. At more than 37 per cent of national income, they are four percentage points higher than they’ve tended to be over the past four decades. Yet those high taxes are doing nothing to shore up public services, which have been steadily squeezed for more than a decade. (The NHS, believe it or not, has been shielded from this squeeze; if it’s bad at your local A&E, don’t think too deeply about schools, courts or social services.) Low growth puts pressure on public sector wage settlements — if the pie isn’t growing, no wonder there is such a scrap over each slice.

One might at least hope that, with high taxes and spending constraints, debt would be low and falling. No. Debt is high, the deficit is a permanent fixture and interest payments on public debt have risen to levels not seen for 40 years. Many people struggle to pay for the basics. A large survey conducted by the Resolution Foundation in late November found that about a quarter of people said they couldn’t afford regular savings of £10 a month, couldn’t afford to spend small sums on themselves, couldn’t afford to replace electrical goods and couldn’t afford to switch on the heating when needed. Three years ago, only an unlucky few — between 2 and 8 per cent — described themselves as having such concerns over spending. More than 10 per cent of respondents said that at times over the previous 30 days, they’d not eaten when hungry because they didn’t have money for food.This is not supposed to happen in one of the world’s richest countries. But then, the UK is no longer in that club. As my colleague John Burn-Murdoch has recently shown, median incomes in the UK are well below those in places such as Norway, Switzerland or the US and well below the average of developed countries. Incomes of the poor, those at the 10th percentile, are lower in the UK than in Slovenia.

If all this was happening during a deep recession, we could have hope. “One day,” we’d say to ourselves, “the business cycle will turn, businesses will start hiring again, tax revenues will increase and some of our problems will disappear of their own accord.” But we are not in a deep recession. Recently unemployment has been lower than at any time since before the prime minister was born, which suggests that a dramatic cyclical uptick is unlikely. The UK economy has the accelerator to the floor yet is barely able to gain speed. That is hardly likely to improve as the Bank of England applies the brakes.I don’t believe the situation is hopeless. The UK has many strengths and many resources and has overcome adversity before. But if we are to solve this chronic economic problem together, we first need to acknowledge just how serious — and how stubborn — the issue has become.Tim Harford’s new book is ‘How to Make the World Add Up’Follow @FTMag on Twitter to find out about our latest stories first More

The writer is the global head of short-term interest rate strategy at Credit SuisseSince the end of the cold war, the world has largely enjoyed a unipolar era — the US was the undisputed hegemon, globalisation was the economic order and the dollar was the currency of choice. But today, geopolitics once again pose a formidable set of challenges to the existing world order. That means investors have to discount new risks.China is proactively writing a fresh set of rules as it replays the Great Game, creating a new type of globalisation through institutions such as the Belt and Road Initiative, the Brics+ group of emerging economies and the Shanghai Cooperation Organisation, a collective security alliance of eight countries. While under lockdown, Beijing forged a special relationship with Moscow and Tehran. This relationship with Russia, with the unwitting assistance of global warming, is helping extend China’s BRI through Arctic shipping lanes. And late last year, we saw the very first summit between China and the Gulf Cooperation Council and hence a deepening of China’s ties with Opec+. All of this may eventually lead to “one world, two systems”.If we are drifting from a unipolar world to this multipolar one, and if the G20 fractures into the camps of the G7 plus Australia, Brics+ and the non-aligned, it’s impossible that these rifts will not affect the international monetary system. Growing macroeconomic imbalances in the US further add to these risks.The dollar-based monetary order is already being challenged in multiple ways, but two in particular stand out: the spread of de-dollarisation efforts and central bank digital currencies (CBDCs).De-dollarisation is not a new theme. It started with the launch of quantitative easing in the wake of the financial crisis, as current account surplus countries frowned at the idea of negative real returns on their savings. But recently, the pace of de-dollarisation appears to have picked up. Over the past year, China and India have been paying for Russian commodities in renminbi, rupees and UAE dirhams. India has launched a rupee settlement mechanism for its international transaction while China asked GCC countries to make full use of the Shanghai Petroleum and Natural Gas Exchange for the renminbi settlement of oil and gas trades over the next three to five years. With the expansion of Brics to beyond Brazil, Russia, India and China, the de-dollarisation of trade flows may proliferate.CBDCs could accelerate this transition. China has changed the strategy through which it internationalises the renminbi. Given that financial sanctions are implemented through the balance sheets of western banks, and that these institutions form the backbone of the correspondent banking system that underpins the dollar, using the same network to internationalise the renminbi may have come with risks. To get around this, a new network was needed.Around the world but particularly in the global east and south, CBDCs are spreading like fast-growing kudzu vines with more than half of the world’s central banks exploring or developing digital currencies with pilots or research, according to the IMF. They will be increasingly interlinked. Central banks interlinked through CBDCs essentially recreate the network of correspondent banks that the US dollar system runs on — instead of correspondent banks, think more of correspondent central banks. The emerging, CBDC-based network — enforced with bilateral currency swap lines — could enable central banks in the global east and south to serve as foreign exchange dealers to intermediate currency flows between local banking systems, all without referencing the dollar or touching the western banking system.Change is already afoot. The current account surpluses of China, Russia and Saudi Arabia are at a record. Yet these surpluses are largely not being recycled into traditional reserve assets like Treasuries, which offer negative real returns at current inflation rates. Instead we have seen more demand for gold (see China’s recent purchases), commodities (see Saudi Arabia’s planned investments in mining interests) and geopolitical investments such as funding the BRI and helping allies and neighbours in need, like Turkey, Egypt or Pakistan. Leftover surpluses are held increasingly in bank deposits in liquid form to retain much-needed options in a changing world.In finance, everything is about marginal flows. These matter the most for the largest marginal borrower — the US Treasury. If less trade is invoiced in US dollars and there is a dwindling recycling of dollar surpluses into traditional reserve assets such as Treasuries, the “exorbitant privilege” that the dollar holds as the international reserve currency could be under assault. More

Japan’s core inflation rate rose to a new 41-year high of 4 per cent in December, adding to mounting market pressure on the Bank of Japan to abandon its yield curve control policy which has helped maintain ultra-low interest rates.Official statistics released on Friday showed core inflation, which excludes volatile food prices but includes oil, reached its fastest pace since December 1981, exceeding the Bank of Japan’s 2 per cent inflation target for the ninth consecutive month.While price rises in Japan remain mild compared with those in the US and Europe, inflation in Asia’s most advanced economy has gained pace due to a weaker yen and heavy exposure to the increasing cost of imported commodities.Energy prices were a main driver of December’s price rises, increasing 15.2 per cent, but inflation excluding energy also hit a 30-year high, climbing 3 per cent.The yen weakened 0.4 per cent against the US dollar following the data release on Friday, reversing the previous day’s gains.The release came two days after Japan’s central bank defied market pressure and maintained its ultra-loose monetary policy, arguing that wage growth was not strong enough to sustainably achieve its inflation target.Uniqlo owner Fast Retailing and other large companies have in recent weeks announced plans to dramatically raise wages, fuelling hopes that rising prices could finally drive salaries higher in a country that has wrestled with three decades of price stagnation.But economists remain divided on whether the wage increases are a one-off, and wider inflationary pressures are expected to subside after government curbs on gas and electricity prices take effect.“It’s highly possible that this December year-on-year rise in core inflation was the peak,” said Takahide Kiuchi, executive economist at Nomura Research Institute.The BoJ on Wednesday raised its core inflation outlook for the fiscal year ending in March to 3 per cent, up from a previously forecast 2.9 per cent.But the central bank expects the year-on-year rise in core inflation to fall below 2 per cent in the next two fiscal years and has cited the forecast as another reason to preserve its yield curve controls to support the economy.

Higher inflation and recent turmoil in the Japanese government bond market had raised market expectations that the BoJ would pivot from its massive monetary easing programme by further loosening its yield target or abandoning the policy altogether.The central bank deployed the equivalent of about 6 per cent of Japan’s gross domestic product over the past month on buying bonds to try to hold yields within its target range after prices surged.In December, the central bank said it would allow yields on 10-year bonds to fluctuate by 0.5 percentage points above or below its target of zero. Scrapping the cap on yields would have effectively pushed up interest rates for longer-term government debt.Additional reporting by William Langley in Hong Kong More

(Reuters) -Eli Lilly and Co on Thursday said the U.S. Food and Drug Administration had rejected accelerated approval of its experimental Alzheimer’s drug because it had not submitted enough trial data from patients who were treated for at least a year.Lilly said the FDA had sent it a complete response letter for donanemab, an antibody designed to remove amyloid protein plaques from the brains of people with early Alzheimer’s. Such letters typically outline concerns and conditions that must be addressed to gain U.S. approval.The FDA had issued the letter “due to the limited number of patients with at least 12 months of drug exposure data provided in the submission,” Eli Lilly (NYSE:LLY) said. In the mid-stage trial, patients stopped treatment once their amyloid was cleared – which Lilly said had happened after six months for 40% of patients.”I don’t think it says anything negative about the drug. It was just a manifestation of the study design,” said Dr. Ronald Petersen, an Alzheimer’s expert at the Mayo Clinic in Rochester, Minnesota.The company said it remained on track to report in the second quarter of this year results from a confirmatory Phase 3 trial of donanemab. That study, Lilly said, would form the basis of donanemab’s application for traditional FDA approval shortly thereafter.”I don’t see this is an impediment to the process or timeline in any way,” said Dr. Eric Reiman, executive director of Banner (NASDAQ:BANR) Alzheimer’s Institute. “When the Phase 3 trial reads out, I understand it will have that safety data in at least 100 people.”UsAgainstAlzheimer’s chief operating officer Russ Paulsen said the advocacy group was “disappointed this treatment won’t be made available to patients sooner,” but was encouraged by the reason. “Donanemab worked too well …. The FDA requires a minimum of 100 patients to be on the drug for at least 12 months but, due to donanemab’s quick action in some patients, many were able to stop treatment in as little as six months,” he said in an email.The FDA can grant “accelerated” approval to drugs based on their impact on a measurement, in this case amyloid brain plaques, likely to correlate with patient response. Full approval requires clinical evidence a drug will help patient outcomes.Shares of Lilly were down 1.4% at $346.02 in after hours trading.Donanemab is in the same class as aducanumab and lecanemab, the latter being a treatment for early Alzheimer’s that was given accelerated approval by the FDA earlier this month. It is being marketed under the brand name Leqembi by partners Eisai Co (OTC:ESALY) Ltd and Biogen Inc (NASDAQ:BIIB), which have said they are in the process of seeking full FDA approval.Shares of Biogen were up 2.8% at $288 after hours.Sales of amyloid-lowering Alzheimer’s drugs, which need to be given by infusion, are expected to be minimal until they receive standard FDA approval. That is because the U.S. government’s Medicare health plan for people over age 65 currently reimburses amyloid-targeting drugs with accelerated approval only if patients are enrolled in a validated clinical study. More

The decision to go ahead with both measures, which would total 6 billion pounds ($7.4 billion), depends on inflation falling and economic growth recovering, The Times said. Last year, then finance minister Rishi Sunak cut fuel duty by 5 pence per litre in a bid to reduce the cost of gasoline at the pumps for motorists after a surge in oil prices worldwide. Earlier on Thursday, the Financial Times reported that Hunt has warned Conservative members of parliament not to expect tax cuts in his March budget.Some Conservatives want to start reducing taxes now, but Hunt told members of parliament this week it would be irresponsible to do so in his March budget at a time of high inflation, the report said, citing people briefed on the discussions.($1 = 0.8071 pounds) More