Aurelia Butler

Boris Johnson’s new “cost of living tsar” is an online entrepreneur who recently called on the prime minister to quit and has claimed voting Tory is “a form of self-harm”.Johnson said David Buttress, former chief executive of Just Eat, the online food delivery group, would “develop and promote initiatives that help households and families with rising costs”. The businessman’s recent social media posts suggest he is an ardent Johnson critic. In January, as the partygate scandal intensified following reports of Covid-19 rule-breaking gatherings in Downing Street, Buttress expressed contempt for the prime minister.“Why is it that the worse [sic] people often rise to the highest office and stay there?” he wrote on Twitter. “Boris has to go, he just has to. You can’t survive judgment like this.”More recently, in April this year, he attacked a Twitter post by Andrew RT Davies, leader of the Welsh Conservatives, who had criticised the fact that workers in Wales received lower pay than the rest of the UK. “The cost of decades of Westminster Conservative neglect of Wales . . . How on earth can the party of Thatcher have the audacity to tweet this?!” he wrote. “This blows my mind. Destroyed Welsh communities and the concept of society in England.”On another occasion that month he wrote: “Voting Tory in Wales is a form of self-harm” and said Johnson’s approach to asylum-seekers who crossed the Channel in small boats was based on “prejudice, lack of common decency and humanity”.His appointment was seized upon by the opposition Labour party, with one aide saying: “We don’t always praise Boris Johnson’s hires — but this guy seems to know what he’s talking about.”Buttress joined Just Eat in 2006 and was chief executive from 2013 until he stepped down in 2017 from the FTSE 250 group, which connects restaurants with customers through its app and website.He has previously called for Welsh independence from the UK, saying there was no question that the principality could “stand on its feet economically” after leaving.Ben Lake, Plaid Cymru’s Treasury spokesperson, said Buttress had “in the past made the compelling case for Wales to set our own fiscal policy and investment agenda to lift people out of poverty. I hope he makes that case directly to the UK government in his new role.”The businessman was appointed by Steve Barclay, a Cabinet Office minister and the Downing Street chief of staff.The government said Buttress would encourage companies to set up schemes and targeted help for people struggling with rising bills. It cited examples such as “price-locking campaigns” at Asda and J Sainsbury and energy supplier Octopus doubling its hardship support fund.But business groups questioned why the new role was required. Tina McKenzie, policy chair at the Federation of Small Businesses, said: “Where’s the help for small business energy costs? Where’s the help on fuel and tax? The government’s appointment of a tsar . . . is not the answer.”

McKenzie added that the “root of consumer price rises is the surging input, utility and fuel costs that firms face — they can only absorb so much before they have to pass operating costs on”. Buttress, who became a millionaire during his period at Just Eat and has deleted many of his most critical tweets, did not respond to requests for comment.Downing Street said his comments were “not relevant” to his new position. “He’s got great experience and I’m sure will help in this area,” said one official. More

Investors are questioning how far Italy’s borrowing costs can rise before they rip a hole through the heavily-indebted country’s economy, as a sell-off intensifies across eurozone bond markets.Yields have shot higher in the bloc since the European Central Bank last week signalled an end to the stimulus measures it ramped up at the onset of the coronavirus pandemic. ECB president Christine Lagarde confirmed plans to withdraw a large-scale bond-buying programme and to initiate interest rate rises next month to tackle record levels of inflation.In turn, Italy has found itself in the market’s crosshairs, because of its need to refinance a borrowing load of around 150 per cent of gross domestic product. Investors are dusting off calculations from the eurozone debt crisis a decade ago as they try to understand when the rise in yields could start to imperil finances for the Italian government as well as for companies and households.“You can tell things are getting bad because people are starting to publish papers on Italian solvency again,” said Mike Riddell, a bond fund manager at Allianz Global Investors. “The market isn’t panicking yet, but all this focus on Italy is starting to feel a little like 2011,” he added. Back then, worries over Italian debt sustainability pushed Italy’s 10-year yield to a record high of more than 7 per cent. It touched an eight-year high of 4.06 per cent on Tuesday.The spread between Italian and German 10-year yields peaked at 5 percentage points at the height of the debt crisis a decade ago. Andrew Kenningham, an economist at Capital Economics, said he did not think the ECB would let it get that high, predicting it would intervene once it reached 3.5 percentage points.The recently extended average maturity of Italy’s outstanding debt, at over seven years, means the recent rise in yields will feed through only gradually to the country’s average interest cost, according to analysis by Goldman Sachs. However, seven-year borrowing rates have already blown past 2.75 per cent, the maximum level at which Rome’s debt load would stabilise, according to the bank. Italy’s seven-year debt traded at a yield of 3.79 per cent on Tuesday.With prime minister Mario Draghi’s market-friendly government facing elections next year, any political instability “could well end up being a catalyst for renewed concerns about debt sustainability”, Goldman Sachs said.Investors are also watching the gap between Italian and German borrowing costs — the so-called spread — which has widened to 2.4 percentage points, from around 2 percentage points before last week’s ECB meeting. The central bank has pledged to fight so-called “fragmentation” of the eurozone financial system, but investors were unnerved by the lack of detail last Thursday on a new “instrument” to keep a lid on spreads.Fund managers like Riddell who are betting against Italian bonds believe Italy’s spread has not yet reached levels that would prompt the ECB to intervene in markets. “The ECB had the opportunity to be more dovish and they turned it down,” said Riddell. “It’s almost an invitation to the market to cause more stress.”

Yields surged higher still on Tuesday after Dutch central bank president Klaas Knot told Le Monde that the ECB would not be limited to a half-point rate rise in September — opening the door to a 0.75 percentage point move.“We are getting close to the danger zone,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, adding that the ease of trading Italian debt has deteriorated somewhat.“I understand why the ECB is reluctant to move,” said Ducrozet. “But . . . if bond yields passed the pain threshold, the re-pricing might become self-fulfilling and the ECB would be unable to stop it unless they step in massively.”As well as the longer maturity profile on its national debt, Rome is also benefiting from more than €210bn of grants and cheap loans from the EU’s Next Generation recovery fund.But the ECB worries about a disproportionate rise in Italian borrowing costs, not only because of government debt sustainability, but also because they act as a floor for the overall financing costs for companies and households. In the first four months of this year, average Italian mortgage rates rose from 1.4 per cent to 1.83 per cent, a three-year high, according to the ECB.The Italian central bank said the amount of medium- and long-term debt the country has to refinance will increase from €222bn this year to €254bn next year, which combined with drastically lower purchases by the ECB is likely to increase upward pressure on yields.Rome may have to rely more heavily on Italian financial institutions to buy more of its debt, which could reignite concern about the banks’ vast domestic sovereign debt exposure. At the end of April, Italian banks held over €423bn of domestic government debt securities and €262bn of loans to their government, only slightly below their peak levels in 2015 following the eurozone debt crisis, according to ECB data.If this increases further — and foreign investors were already reducing their exposure to Italian sovereign bonds last year — it could reignite fears about a vicious circle between private sector lenders and governments weakening each other, and ultimately threatening the existence of the single currency zone.“Eurozone banks are in better shape in terms of capitalisation and stock of non-performing assets,” said Lorenzo Codogno, a former chief economist at the Italian treasury. “Yet, they still have a sizeable position in domestic government bonds in many countries. The sovereign-banks doom loop can still be triggered.” More

Unexpectedly high inflation, wars in key commodity-producing regions, declining real wages, slowing economic growth, fears of tightening monetary policy and turbulence in stock markets — we see all of these things in today’s world economy. These were also the dominant features of the world economy in the 1970s. That period ended in the early 1980s, with a brutal monetary tightening in the US, a sharp reduction in inflation and a wave of debt crises in developing countries, especially in those of Latin America. It was also followed by huge changes in economic policy: conventional Keynesian economics was buried, labour markets were liberalised, state-owned enterprises were privatised and economies were opened up to trade.How close are the parallels, especially to the 1970s? What are the differences? And what can we learn from those mistakes? The World Bank’s Global Economic Prospects report, out last week, addresses these questions. The parallels are clear, as are differences. Not least, there are mistakes to be avoided: do not be over-optimistic; do not take high inflation lightly; and do not leave vulnerable people and economies unprotected against the shocks themselves and their painful legacies.Does what we are seeing already amount to stagflation — defined as a prolonged period of higher than expected inflation and lower than initially expected growth? The answer is “not yet”, but it is a risk.Inflation is well above target almost everywhere. As in the 1970s, this is partly due to one-off shocks — then two wars in the Middle East (the Yom Kippur war of 1973 and the Iran-Iraq war which began in 1980), this time Covid and Russia’s invasion of Ukraine. Most important is the danger that this inflation will become embedded in expectations and so in economies. Part of the reason this risk intensified in the 1970s was the failure to recognise in time the slowdown in the rate of potential growth. Today, too, optimists assume pre-pandemic growth trends will continue. Yet the World Bank argues: “Over the 2020s as a whole, potential global growth is expected to slow 0.6 percentage points below the 2010s average.”The echoes of the 1970s are loud then: higher than expected inflation, big shocks and weakening growth. But the differences are also encouraging. The real price of oil jumped substantially more between 1973 and 1981 than this time. Global inflation is also much less broad-based than it became in the 1970s. This is especially true of “core” inflation. Yet this may be because we are at an early stage in the inflationary process. Inflation is likely to become broader the more persistent it is.Monetary policy frameworks are also more credible and more focused on price stability than those of the 1970s. But the latter, too, has become less true recently, especially in the US. Moreover, inflation expectations in, say, 1970 were certainly not for the inflation that subsequently occurred. Policymakers tended to blame inflation on temporary factors then, too, just as we have seen more recently. Economies are, it is true, more flexible now than in the 1970s. But the upsurge in protectionism may lead to a reversal in this respect. Energy intensity has certainly fallen since then, too. But energy prices are still important. Finally, fiscal policy is expected to be less expansionary this time, though it was very much so in 2020 and 2021.In all, the assumption that things will be very different this time has plausibility but is far from certain.Above all, whether it proves true depends on what policymakers do. They need to avoid the mistake of allowing inflation to get out of control, as they did in the 1970s. They should still have time to do this. But acting decisively creates dangers too, most obviously of an unnecessarily sharp slowdown, with the economic costs that would follow. Against this, it is possible that demographic shifts, slowing technological change, deglobalisation, exhaustion of important past opportunities for growth and rising populism will weaken disinflationary forces in the long term. That would make achieving and sustaining low inflation even harder.An obvious danger arises in the one respect in which the world economy looks more fragile than 40 years ago: the size of the debt stock, especially the stock denominated in foreign currencies. Crucially, that is not only true of emerging and developing countries. The euro, too, is in essence a foreign currency for a crisis-hit eurozone member.If monetary policy tightening were substantial and prolonged, messy and costly debt crises are likely to emerge. It is widely believed that the lenders are better placed to take such hits than the international banks in the early 1980s. But the borrowers might not be: one must assume that those with a choice to make between imports of food and energy, on the one hand, and debt service, on the other, will normally choose the former.It is also too optimistic even to be sure that the shocks to the real economy themselves are over. The virus might have more ghastly tricks up its sleeve. Moreover, nobody knows how the war will unfold. What is more, some of the measures being discussed, notably a ban on marine insurance on shipments of Russian oil, might generate further jumps in global oil prices. Russia might also cut off exports of gas to Europe, generating further disturbance.I worked as an economist at the World Bank in the 1970s. What I remember most about that period was the pervasive uncertainty: we did not have any idea what would happen next. Many mistakes were made, some out of over-optimism and others out of panic. The past does not repeat itself. But it is rhyming. Do not ignore time’s [email protected] Martin Wolf with myFT and on Twitter More

The writer is prime minister of BarbadosOn October 10 2008, G7 finance ministers and central bankers met at the US Treasury in Washington as the greatest financial crisis since the Depression unfolded. Those gathered recognised the moment and grasped it. They tore up the prepared communiqué and wrote another: one of the shortest, most influential on record. The first point read, “We agree to take decisive action and use all available tools.” And they did. Since then, G7 central banks have purchased $25tn of government bonds, avoiding another depression. On that day and the days that followed, they showed that humanity is not limited by ambition or ability. Today we are in the throes of another crisis — an even bigger one. The Intergovernmental Panel on Climate Change tells us that the Earth’s average temperature is 1.1C above where it was before European industrialisation. And at 1.5C, the earth’s chemical, biological and physical systems destabilise. Between the Tropics of Cancer and Capricorn, rising temperatures and sea levels have already made floods and droughts more devastating and created new problems, from climate refugees to locust plagues to saltwater intrusion in freshwater wells. My country, Barbados, is on this frontline, where a storm can destroy 100 per cent of our national income in a few hours. But the frontline is moving towards the industrialised north, where the resources to make the investments in climate mitigation we need reside. It has not reached those countries yet, but when it does, it will be too late. If, 14 years ago, governments had instructed their central banks to purchase bonds that financed climate mitigation, instead of ordinary government bonds, we would by now be halfway to ending the climate crisis. When the G7 meets again in Bavaria on June 26, the war in Ukraine and food and energy inflation will dominate the conversation. But the biggest crisis facing humanity must also be firmly on the agenda. Today, multilateral development banks, such as the World Bank, can only lend on concessional terms — low-interest rates and long repayment periods — to the poorest countries. But, partly as a result of globalisation, more than 70 per cent of the world’s poor do not live in the poorest countries. And because of the climate crisis, middle-income countries on the frontline are vulnerable to losing everything from climatic events, or else of sinking permanently below the waves. Expressing sympathy afterwards is too late. Climate-vulnerable countries need funds now to build defences. And the G7 can make a difference by widening the eligibility for concessional lending to include climate vulnerability. The poorest countries need all the support they can get. Current efforts to achieve the UN’s sustainable development goals require additional financing. If the G7 were to agree to channel part of the almost $1tn of special drawing rights, issued by the IMF to help central banks lend their reserves, to multilateral development banks, then the latter could lend $500bn more. The countries meeting in Bavaria, plus the former Soviet Union, account for almost 50 per cent of the stock of greenhouse gasses that cause global warming. But the costs of dealing with the climate crisis rests on the tiny balance sheets of frontline states that made next to no contribution to the problem. We need a new financial architecture that can better respond to the current reality of massive vulnerability to external shocks. G7 countries should set the market convention by adopting Barbados-style natural disaster clauses in all of their government bonds. Under these clauses, debt servicing is automatically suspended when an independently verified disaster hits and put back on at the end of the term with compensating interest. If every country had had such clauses during the pandemic, developing countries would have had access to a substantial store of additional liquidity. Instead, constrained by the existing debt architecture and fearful of a messy rescheduling, developing countries accounted for only 5 per cent of the global fiscal and monetary response. Finally, we need a new and separate balance sheet on which the costs of addressing external problems sit, instead of on the balance sheets of the most vulnerable countries. This global balance sheet could be funded through the issuance of new climate instruments where part of the return is a verifiable amount of greenhouse gases reduced or removed, or measurable climate adaptation achieved. This is all unprecedented, but doing nothing is the riskiest option. The wave is coming. More