Aurelia Butler

The move marks another step towards ending the extraordinary support measures the bank deployed to cushion the economic impact of COVID-19. The ECB has already wound down a massive money-printing scheme and opened the door to its first interest rate hike in a decade.In a sign of continued support for the euro zone’s weakest members, however, the ECB will continue to let banks post Greek government bonds as collateral despite their junk-credit rating and said it reserved the right to do so whenever it sees fit.Under the decision, the ECB will gradually remove measures that have allowed banks borrow more easily from the central bank, including at a time of high market stress in the spring of 2020, by mobilising additional collateral worth 240 billion.It will start in July by no longer accepting “fallen angels”, or bonds that have lost their investment-grade rating during the pandemic, and increasing certain “haircuts”, or valuation discounts, on the loans that banks post as collateral.The process will end in December 2024 when the last tranche of the ECB’s latest multi-year loans, another plank of its pandemic-response, is repaid. “This gradual phasing out allows ample time for the Eurosystem’s counterparties to adapt,” the ECB said in a statement.The ECB also reaffirmed a waiver on Greek government bonds for as long as it keeps investing the proceeds from its Pandemic Emergency Purchase Programme (PEPP).In a hopeful sign for other countries with lower credit ratings, such as Cyprus, Portugal or Italy, the ECB added that it may disregard agencies’ ratings again in the future.”The ECB’s Governing Council reserves the right to deviate also in the future from credit rating agencies’ ratings if warranted,” the ECB said. More

Today’s world is like a giant, fragile train set. From about 1990 to 2008, as China, India and the former Soviet bloc joined the global economy, we essentially took almost every unused piece of track out of the box and joined them all together. The new enlarged circuit turbocharged global trade. From 1992 to 2008, Russian gas exports rose nearly eightfold. From 2000 until Russia’s invasion, Ukrainian corn production jumped more than tenfold. New containers made shipping cheaper. Humanity had never lived so well, nor so long. There was just one problem: if any piece of track malfunctioned, the global train could derail. And that’s been happening ever more often, most recently with Vladimir Putin’s invasion of Ukraine. We’re living in the age of fragility. Just since 2001, inter­connectedness has produced four serious derailments. First, a Saudi-bred perversion of Islam killed nearly 3,000 Americans and prompted misbegotten wars in Iraq and Afghanistan that eventually helped send the US into an internal breakdown. Then, subprime mortgages in the US sparked a global financial crisis. Next, a virus in Wuhan, exacerbated by Chinese secrecy, shut down the world. Now Putin’s late-life crisis is decimating Ukraine, closing off Russia again and making two human necessities — food and fuel — unaffordable for many. Contrast this with the era when these countries were closed: their implosions, such as the killing by Stalin and Mao of millions of their own people, scarcely affected the outside world. Indeed, hardly any foreigners even heard the screams. Given the fragility of today’s system, you’d want a globally appointed stationmaster, but that’s become inconceivable.

After 20 years of turmoil, we’re all deglobalisers now, including even the politicians mocked by nativists as “globalists”. Trade peaked as a percentage of the global economy in 2008. Now Joe Biden promises “to make sure everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end. All of it.” Emmanuel Macron wants France to make its own pharmaceuticals. The EU pledges to wean itself off Russian oil, gas and coal by 2027. Each new bloc — the west, and China with its unreliable Russian junior partner — aims to build its own, smaller, self-contained train set. Even the globalisation of the mind is being reversed: Russia is following China in shutting out the global internet. And lord knows when the pre-2020 hordes of Chinese tourists and students will return to the west. Deglobalisation is already making us poorer. Just as many Europeans in the late 1940s remembered 1913 as a golden age of plenty, so our generation may yearn forever for 2007.But global fragility will persist despite deglobalisation. That’s mostly because of strongmen, their nukes and climate change. As my FT colleague Gideon Rachman notes in his new book, The Age of the Strongman, Putin is not a one-off but a harbinger. Several other strongmen are likewise trying to set themselves up as leaders for life — most notably China’s Xi Jinping, Turkey’s Recep Tayyip Erdogan, and next perhaps Saudi Arabia’s Mohammed bin Salman or India’s Narendra Modi. The strongman grows old, isolated and starts obsessing — as Putin did — about his place in history. More than boring economic growth, he seeks greatness. And he’s increasingly likely to be nuclear-armed. India, Pakistan and North Korea all first tested workable nuclear bombs between 1998 and 2015. Iran and Saudi Arabia could be next. If the strongman decides to press the button, who’s to stop him? As Rachman points out, Russia, China and Saudi Arabia have all shifted away from collective leadership (politburos, vast numbers of Saudi royals) to one man’s whims. The Russian army’s incompetence in Ukraine may only heighten dangers. Six weeks ago, Putin thought he had a strong military. Now, to adapt the cold war jibe about the USSR, Russia looks like Burkina Faso with nukes plus a brutal artillery. That could encourage Putin to use his one unbeatable weapon: nuclear. We may, God forbid, start getting used to isolated nuclear attacks, after which we move on, like after the atomic bombs of 1945.The next derailment could be Donald Trump’s re-election in 2024, especially if he then lets his old pal Putin have eastern Europe. In that case, the world’s two largest economies and strongest militaries might both have Russia’s back. But other global threats haven’t gone away since this war began. We’re just ignoring them. In an age of constant crisis, the urgent shoves aside the important, which in our case is climate change. I don’t see how we fix this. Follow Simon on Twitter @KuperSimon and email him at [email protected] @FTMag on Twitter to find out about our latest stories first More

“We had a very small amount of assets related to Russia. In the meantime, we could sell most of those assets so that the exposure to Russia-related assets is close to zero,” Thomas Jordan told reporters on a call following the central bank’s decision to keep rates on hold.He also said he did not believe the Russian invasion of Ukraine was a problem for the stability of Switzerland’s financial sector. “The exposure of the Swiss financial sector to Russia is rather limited so the war itself has only a limited impact on banks or financial institutions in Switzerland,” Jordan said.If the war changed the global economy completely, there could be a negative impact on Switzerland, but so far the impact was “very small, very limited”.Jordan said the SNB did not have a business relationship with the Russian central bank and did not hold rouble reserves.”I assume that the commercial banks would mostly be responsible if the situation made it necessary to provide roubles to the economy, not the central bank,” he said in answer to a question.Russian President Vladimir Putin said on Wednesday that Russia, the world’s largest natural gas producer, would soon require “unfriendly” countries including Switzerland to pay for gas in the country’s currency, the rouble. More

The government will cut the tax on fuel for three months by 30 euro cents ($0.33) for gasoline and 14 cents for diesel, Finance Minister Christian Lindner told reporters in Berlin. Taxpayers will also receive a one-off payment of 300 euros, he added.©2022 Bloomberg L.P. More

In 1940, John Maynard Keynes set out “How to pay for the war” in a pamphlet. It is a question western countries should be asking themselves today. They may be trying hard not to be dragged into the fighting themselves, but the war is nonetheless imposing costs on Ukraine’s friends — and nowhere more so than in energy prices. Gas, electricity and fuel prices have soared; traders now warn of a “systemic shortage” of diesel.We are, in other words, already paying the costs of war. These costs are nothing compared with those suffered by the people of Ukraine, of course. They are also smaller than the sufferings of innocent Russians treated by President Vladimir Putin’s mafia regime as human shields against western sanctions, and of poor countries around the world. But the costs for Ukraine’s western friends are nonetheless real and consequential — and include those of welcoming refugees, tackling looming food shortages and managing the recession and supply chain logjams which are surely under way. Energy costs, however, are clearly the most important part.How, then, to pay for the war? Asking the question in this way can, perhaps, focus our minds so that the answer is the one we choose rather than one we passively let happen because we underestimate the scale of the task ahead. What is more, ensuring that we consciously plan how to pay for (our part of) the war in the best possible way also makes it more likely that we will help Ukraine (and therefore ourselves) to win it — because the better we manage the pain of higher energy costs, the easier we shall find it cutting off the oil and gas revenues that finance Russia’s war crimes.While western leaders do not describe them as paying for the war, sky-high energy prices are evidently on top of their minds. Spanish prime minister Pedro Sánchez is leading a campaign to de-link electricity pricing in the EU from the level of gas prices. Belgium’s prime minister Alexander De Croo is calling for a gas price ceiling. The issue will loom large at today’s European Council summit — though perhaps still not large enough. The illusion that only Ukraine is at war is holding back EU countries’ readiness to put their own economies on a war footing.Once we accept that the squeeze on energy and other commodities must, like other costs of war, leave the economy poorer overall, we can distinguish three main ways to allocate the burden. The first is inflation: just let prices rise and sauve qui peut. The second is to take the burden on the fiscal balance sheet, through subsidies paid for with some sequence of government borrowing and tax increases. The third is price controls.The first world war and its aftermath were in many countries paid for in the first way: inflation. The second world war was paid for by a combination of the second and third: significant national indebtedness, certainly, but also price management and the rationing that necessarily comes with it. Inflation was largely repressed through forced saving. It is important to understand Keynes’s argument as to how this repression would happen in Britain’s second world war effort — not just by legally holding prices down (and rationing in the face of the resulting excess demand) but because massive public borrowing diverted private spending power into private savings.Countries around Europe have grasped for a combination of all of these. Inflation in commodity and energy prices, originally because of a lopsided US post-pandemic recovery but intensified by the war, is spreading to most other prices. Governments have offered support packages for energy consumers — UK chancellor Rishi Sunak doubled his to £1bn in Wednesday’s Spring Statement. But they have also acted to manage down prices — Sunak cut fuel taxes, and the examples mentioned earlier show the bigger price control policies pushed by some EU states.The risk today is that politicians are too tempted by the third because they are too worried about public finances. The short-run political gain from putting a lid on energy prices is obvious: it pleases all buyers of energy and puts the cost on somebody other than the government imposing it. But it is a terrible idea. If the reason for high prices is ultimately not enough supply to meet the desired demand, then capping prices will simply make that problem worse, discouraging both supply drives and demand reduction efforts. That also means price regulation by itself cannot ultimately work without resorting to some sort of rationing and enforced efficiency gains.This is particularly important in the EU, which until the war organised much of its policy around its big ambitions for a carbon-free economy. In that context, high energy prices — driven by the high price of gas and other fossil fuels — are a tool to help speed up the green transition, by increasing the rewards for expanding carbon-free electricity supply and for economising energy demand and using energy more efficiently.Everyone understands that shifting away from fossil fuels is also in Europe’s geostrategic interest. Yet, evidently, many leaders see political advantage in blunting the incentive to do so. The inconvenient fact is that capping prices, even reducing them simply by lowering energy taxes, will delay efficiency drives and tilt investment decisions away from non-carbon energy relative to letting the market work as at present. A recent paper from EU national energy regulators explains this very well.Instead, governments must bite the bullet on option two, even though it is by far the costliest for public finances. That means letting energy prices balance supply and demand but massively increasing fiscal support for those hurt the most and for investment. The right model is to pay households and small businesses an energy subsidy, not linked to their actual use but to cover the cost, above “normal” prices, of stipulated necessary minimum consumption levels. It could be partly financed by carbon and energy taxes — carbon dividends are a good model here — but also by borrowing. Designed well, this brings the best of all worlds: price signals to accelerate the energy transition, shifting the cost towards those who can most easily bear it, and a moderate form of indirect rationing of energy to ensure the strongest needs are provided. People would be able to keep consuming moderate amounts of energy at no greater cost than before, and would be rewarded for finding ways to economise their consumption further.Keynes emphasised that the costs of the war should be managed so as to bring forward rather than delay the goal of greater equality. The same is true today for the goal of a fair transition to a carbon-free economy. But more immediately, the state of the public finances should not be seen as an obstacle to doing the right thing in the conflict with Putin’s Russia. For as Keynes said in 1940 with words that apply as strongly today: “Victory may depend on our making it evident, that we can so organize our economic strength as to maintain indefinitely the excommunication of an unrepentant enemy from the commerce and society of the world.”Other readablesEverything you need to know about the UK’s not-quite-a-Budget Spring Statement.Is China helping Russia protect its foreign exchange reserves from sanctions? Andriy Kobolyev, the former chief executive of Ukraine’s state-owned gas company Naftogaz, explains how Europe could impose energy sanctions on Russia.Numbers newsToday’s purchasing managers’ indices for France and Germany suggest that Putin’s war on Ukraine has not so far slowed down their output growth. More

Rishi Sunak has hinted at further support for households in the autumn after his Spring Statement was criticised for failing to provide enough help for households facing the biggest fall in living standards since records began in 1956.The chancellor said that “of course” the government would do “what it can to help” with gas and electricity bills if the energy regulator, Ofgem, puts up the household price cap in the autumn.“When we get there and see what happens, you know, of course, as I said, we will look at the situation and see what needs to be done,” he told BBC Radio 4’s Today programme.Sunak used Wednesday’s statement to offer some relief to households by raising the threshold at which national insurance has to be paid by £3,000, cutting fuel duty by 5p a litre for a year and proposing a 1p income tax cut in 2024. “Yesterday we announced the tax plan that will provide significant help to people over the coming months and years,” he told Today.But the chancellor is now under growing pressure to unveil a much bigger household rescue package in the autumn amid runaway inflation and higher energy bills.The household energy price cap is already leaping by £693 to £1,971 in April. Estimates released on Wednesday by the UK’s fiscal watchdog, the Office for Budget Responsibility, suggest it could rise to more than £2,800 per household per year from October 1. The cap is reviewed twice a year by Ofgem.A snap YouGov poll taken after Sunak’s Spring Statement found that 69 per cent of people thought he had not done enough to help people with the increased cost of living.The OBR said people would face a 2.2 per cent decline in living standards — disposable household incomes adjusted for inflation — in the coming fiscal year, the biggest fall since records began.It concluded that Sunak’s tax cuts would only offset a quarter of the tax rises announced in last October’s Budget. The overall tax burden would rise from 33 per cent of GDP in 2019 to 36.3 per cent by 2026, the OBR added — the highest level since the 1940s.Wednesday’s tax-cutting measures were dwarfed by previously announced tax rises including a jump in the NICs rate, a looming corporation tax increase and a freeze in income tax thresholds.The Treasury faces major headwinds after spending close to £400bn dealing with the Covid-19 pandemic and now a global spike in the price of wholesale gas, which is driving up energy bills, prices at the petrol pump and inflation. “We are all grappling with global inflation and the response to Putin’s aggression,” Sunak said.Official forecasts predicted that inflation was likely to peak at a rate close to 9 per cent towards the end of the year, far outstripping public sector wages.While Sunak hopes to have headroom for a pre-election income tax cut, he admitted on Wednesday: “We should be prepared for the public finances to worsen, perhaps considerably.”The Joseph Rowntree Foundation think-tank warned that Sunak’s failure to upgrade welfare payments in line with inflation meant an extra 600,000 people will be pulled into poverty.

Labour said the tax cuts in the Spring Statement were nowhere near enough to offset the cost of living crisis.“Ordinary families, disabled people and pensioners are facing really difficult choices,” said Rachel Reeves, shadow chancellor. “Mums skipping meals so that their children don’t. Families struggling to buy new school shoes and uniforms for their children. Older people hesitating about putting on the heating because they’re worried about the cost.”But with ongoing volatility in the market price of wholesale gas, Sunak said it was worth waiting until closer to the next Ofgem announcement before making another intervention.“We will have to get to that point, we will see where we are,” he said on Thursday. “If there is a significant problem the government will always do what it can to help. I’ve demonstrated that repeatedly over the past few years.” More