Economy

Vladimir Putin and Wang Yi, China’s top diplomat, vowed to strengthen ties between their two countries despite “pressure from the international community” ahead of the first anniversary of Russia’s invasion of Ukraine. Wang’s visit to Moscow, the first by a senior Chinese official since Putin ordered the invasion last year, highlights the deepening relationship between the Russian president and his Chinese counterpart Xi Jinping as the war drags into its second year. “We are prepared to maintain our strategic focus and determination alongside Russia,” Wang said as he met Putin on Wednesday. He added that the two sides would deepen “political mutual trust and strategic co-operation”. Beijing has provided an economic lifeline to Moscow as western sanctions bite, stepping up its purchase of Russian energy exports. It has also increased its supply of technical components that Russia can no longer import from western countries because of sanctions.Five more stories in the news1. Missing Chinese banker planned Singapore family office Missing Chinese dealmaker and billionaire Bao Fan, who founded investment bank China Renaissance, was preparing to move some of his fortune from China and Hong Kong to a family office in Singapore in the months leading up to his disappearance, according to sources. Many Chinese executives view Singapore as a haven to park their money after crackdowns at home.2. Imran Khan supporters arrested in Pakistan protests Former Pakistan prime minister Imran Khan’s party said yesterday that up to 700 of its activists and leaders had been arrested during protests designed to destabilise the government, which is urgently seeking an IMF bailout to avert a default. Khan and his allies said last week that they wanted their supporters to be detained en masse to force early elections.3. Toyota raises Japanese wages by most in two decades Toyota has granted 68,000 unionised workers in Japan their highest pay rises in about 20 years, giving a boost to prime minister Fumio Kishida’s campaign for wage increases to address rising living costs. The move by Japan’s largest carmaker, a bellwether of its manufacturing sector, is expected to put pressure on other companies to follow suit.4. Google claims breakthrough in quantum computer error correction The company’s latest research marks an early but potentially significant step in overcoming the biggest technical barrier to a revolutionary new form of computing. The internet company’s findings, published in the journal Nature, mark a “milestone on our journey to build a useful quantum computer”, said Hartmut Neven, head of Google’s quantum efforts.5. Most Fed officials backed quarter-point rate rise The vast majority of Federal Reserve officials supported slowing the pace of US interest rate rises to 0.25 percentage points last month, according to an account of their most recent meeting that showed the central bank is still determined to bring inflation back to target.Markets news: US stocks fluctuated as investors pored over the minutes of the Federal Reserve’s last meeting.The day aheadJapanese Emperor’s birthday The Japanese stock market will be closed today for the public holiday marking Emperor Naruhito’s birthday. Turkey interest rate decision Turkey’s central bank is set to announce interest rates today. Economists expect policymakers to revive a rate-cutting cycle in a bid to boost economic activity after this month’s devastating earthquakes.Earnings Companies reporting results today include Alibaba Group, Deutsche Telekom, Intuit, Dr Pepper Snapple Group, Budweiser, Warner Bros Discovery, BAE Systems, Telefónica, Live Nation, Qantas and Anglo American. What else we’re reading and listening to Iran’s supreme leader takes centre stage Ayatollah Ali Khamenei has embraced a more active role in public life as he seeks to shore up the authority of the Iranian regime after the most intense demonstrations since the Islamic revolution. But rather than being a sign of change within the theocratic regime, it shows an attempt to manage his image.🎧 The costs of Russia’s invasion of Ukraine One year since Russia launched its full-scale invasion of Ukraine, our latest episode of the Behind the Money podcast examines the costs of this war: How individuals’ lives have been uprooted, how the country’s economy has been turned upside down, and how global markets such as food and energy have been transformed.Newcomer disrupts Nigerian presidential race A few months ago, most Nigerians assumed Saturday’s election would come down to two wealthy and seasoned septuagenarian politicians. But Peter Obi, a businessman and former governor with a carefully crafted reputation for shunning the accoutrements of power, has electrified young voters and made the outcome of the election much more unpredictable.

Nigeria’s Labour party presidential candidate Peter Obi © Sunday Alamba/AP

Illiberal democracy comes to Israel The programme of prime minister Benjamin Netanyahu’s latest government is of evident importance for the future of Israel. But it is also of wider significance, argues Martin Wolf, and raises questions about how a democracy can turn into an autocracy via unbridled majoritarianism.Women at the centre of a new Bengaluru museum In India, goddesses are ubiquitous and worshipped widely in the country’s mythology. But reporting shows it is also the most dangerous nation for women across a range of parameters. It’s this paradox that’s at the centre of the inaugural exhibition of Bengaluru’s new Museum of Art and Photography.Take a break from the newsQuality time — an Amy Hwang cartoon. See more of Amy’s work here. More

WASHINGTON (Reuters) -At their last monetary policy meeting, Federal Reserve officials mulled financial stability risks that existed in part due to their aggressive campaign of rate rises, as they also expressed concern over the political fight among elected officials over raising the country’s debt limit. At the Federal Open Market Committee meeting held on Jan. 31-Feb. 1, officials flagged what they saw as potential vulnerabilities in things like commercial real estate and non-bank financial companies, according to meeting minutes released Wednesday. Some Fed officials were also worried about overseas shocks hitting the U.S. financial system. Others “noted the importance of orderly functioning of the market for U.S. Treasury securities and stressed the importance of the appropriate authorities continuing to address issues related to the resilience of the market.” The health of the Treasury market has been an issue for some time and was thrown into stark relief by the tumult seen in the sector three years ago when the coronavirus pandemic first struck. A huge rise in government borrowing coupled with a reduced Fed footprint has raised questions about how this market, critical to global credit, will function, especially if faced with new stresses. At the most recent Fed meeting, officials lifted their overnight target rate range by a quarter percentage point to between 4.5% and 4.75%, as they downshifted the pace of their rate rises aimed at bringing high inflation under control. The meeting minutes showed that officials believed more rate rises were needed to cool inflation, as policymakers flagged the considerable uncertainty that surrounded the economic outlook. COLLATERAL DAMAGE RISKS The Fed has raised rates very aggressively since last March when its target rate stood at near zero levels. While Fed officials have long noted this process could bring pain to the economy, some have said the central bank is mindful of avoiding actions that would break something in the financial system. That said, many market participants have been worried the swift rise in the cost of borrowing could cause trouble for investors and financial firms, and asset markets have been under considerable pressure from Fed actions, which also include a contraction of central bank bond holdings. The minutes showed Fed policymakers were also worried about the unsettled efforts by elected officials to raise the nation’s debt ceiling. Raising the debt limit allows the government to borrow to pay expenses Congress has already approved, but some Republicans are seeking to use the limit to extract concessions from Democrats, even as a wide array of private sector analysts warn of the huge risks that strategy poses. Fed officials appear to agree. “A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy,” the minutes said. The minutes also showed officials taking stock of the ongoing massive inflows of cash into what the central bank calls its overnight reverse repo facility, which helps set a floor underneath short-term interest rates. That facility has taken in over $2 trillion per day since last June. Fed officials have long expected usage of the tool to shrink over time but that has not happened in any meaningful fashion yet. The minutes did not signal what policymakers think will happen next for the reverse repo tool, but they did note that it’s possible as the Fed presses forward with its balance sheet drawdown there could be some turbulence in money markets. Both Fed staff and policymakers noted the Fed has tools to address wobbly markets. But if significant pressures in funding markets were to arise, “several participants also noted the challenges of addressing potential disruptions in U.S. core market functioning.” More

Rishi Sunak was accused by the Labour party of being at the mercy of “malcontent” Tory MPs on Wednesday, as the prime minister’s efforts to land a Brexit deal on Northern Ireland hit further problems.Sunak had hoped to present a deal to reform Northern Ireland’s trading rules by now, but his allies admit he has had to go back to Brussels to discuss ways to satisfy his critics.The prime minister has told Northern Ireland’s Democratic Unionist party and Eurosceptic Tory MPs that he has secured a key deal to return control of VAT and state-aid rules from Brussels to Westminster.But the DUP and Tory European Research Group, which are co-ordinating their tactics, want to see the legal detail before they welcome any agreement and in the meantime are increasing their demands.Sir Jeffrey Donaldson, the DUP leader, told Sunak he did not want just a tweak of the Northern Ireland protocol, part of Boris Johnson’s 2019 Brexit deal, but wanted to rewrite “the legally binding treaty”.EU member states insist they will not reopen the protocol but were willing to improve its implementation. “We can’t,” said one EU diplomat. “What we are doing is in the framework of the protocol and withdrawal agreement.”Donaldson also said this week he wanted Sunak to create a dual regulatory regime in Northern Ireland, so that manufacturers in the region could choose to produce goods under UK rules for sale in the UK market only, rather than under EU single market rules.The ERG is backing the DUP’s calls for a big overhaul of the protocol, the trade rules that leave Northern Ireland as part of the single market to avoid the creation of a hard border on the island of Ireland.Sir Keir Starmer, Labour leader, told MPs: “It’s the same old story: the country has to wait while the prime minister plucks up the courage to take on the malcontents, the reckless and the wreckers on his own benches.”Sir Simon Fraser, former head of the Foreign Office, tweeted: “How come Number 10 let Rishi Sunak get so exposed on Northern Ireland when there was so much heavy political lifting still to do?”Sunak did not brief the DUP on his plan until the end of last week and brought the ERG into his confidence only this week, leaving some of his critics saying they were being “bounced” into accepting the outline agreement.One veteran of Brexit negotiations said: “It’s incredible they left it this late. They should have started bringing the DUP on board weeks or months ago.” Labour leader Sir Keir Starmer told MPs: ‘The country has to wait while the prime minister plucks up the courage to take on the malcontents, the reckless and the wreckers on his own benches’ © Jessica Taylor/UK ParliamentThe prime minister said parliament would be able to “express a view” on the deal but did not specify how exactly this would take place.Sunak, who briefed Northern Ireland business leaders on Wednesday, has tried to allay concerns over the application of EU state aid and VAT rules to the region, saying they would in future be run from Westminster.The development, first reported by Sky News and confirmed by DUP and Tory officials, would remove one of the irritations of the protocol from the point of view of pro-UK unionists.But Sammy Wilson, DUP chief whip, said his party had seen “no details to assess if there are any exemptions”. A senior Tory MP said: “On the face of it, it’s good news, but how will they actually deliver it?”

An EU official confirmed that the UK would have more freedom to set VAT, tax and state-aid rules in Northern Ireland but said there would be “strings attached”.The prime minister also pledged to address the “democratic deficit” in the deal, giving the Stormont assembly a say over EU rules affecting the region and ensuring the European Court of Justice arbitrates only as a last resort.Stephen Kelly, head of the industry group Manufacturing NI, said Sunak appeared to have “an intimate understanding” of the issues when he briefed business leaders on a video call on Wednesday.But Kelly said he feared relations with the EU could sour if Sunak lost his nerve and retreated from the outline deal taking shape in the face of political opposition.“I think there’s real jeopardy here, a risk of going back rather than going forward, unless this thing is done in the next number of days,” he said. More

The vast majority of Federal Reserve officials supported slowing the pace of US interest rate rises to 0.25 percentage points last month, according to an account of their most recent meeting that showed the central bank is still determined to bring inflation back to target.Heading into the meeting, some investors were concerned the minutes from the Federal Open Market Committee would show deepening divisions among policymakers over whether the central bank was right to shift down to a more typical 0.25 percentage point rate increase in February after a string of larger rises.However, the minutes from the February meeting showed “almost all” participants agreed it was appropriate to raise rates by 25 basis points, even though “a few” said they would have preferred a 50bp increase or could have been persuaded to support one.Against the backdrop of inflation that is still well above the Fed’s 2 per cent goal as well as a very tight labour market, “all participants” said they thought “ongoing” increases in the central bank’s benchmark rate would be needed to bring inflation under control.“Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 per cent, which was likely to take some time,” according to the minutes.The quarter-point increase last month marked a return to a more typical pace of tightening for the Fed, which last year increased rates from near zero to more than 4 per cent via a series of jumbo 75bp and 50bp rises.As inflation began to show signs of cooling, the central bank slowed the pace of its increases in response. But officials also said that insufficiently restrictive policy could “halt” recent progress in moderating inflation, and “pose a risk of inflation remaining unanchored”. Jonathan Cohn, head of interest rate trading strategy at Credit Suisse, said the minutes pointed to a reduced likelihood of a half-point rate rise at the Fed’s March meeting.“It seems like the majority of the committee is in line with [Jay] Powell,” said Cohn, referring to the Fed chair, who said following the February meeting that there had been “encouraging” signs on inflation.“I think market pricing will still be data-dependent, but the bar for a reacceleration towards 0.5 percentage points is high,” Cohn added.The initial market reaction to the minutes was muted, with both stocks and Treasury bond yields slightly lower on the day. Since the meeting, the economic picture has changed significantly, with reports on job creation, consumer price inflation and retail sales all suggesting that persistent price pressures are far from falling away. The January payrolls report, released two days after the Fed’s meeting, showed US employers had added more than half a million jobs, nearly triple what economists had forecast, while the unemployment rate hit 3.4 per cent, its lowest level in 53 years. Although the report showed wage growth had slowed, a tight labour market has historically forced employers to raise wages and potentially push inflation higher.A smaller than expected fall in the consumer price index for January compounded fears about persistent inflation, with notable price pressures still evident in sectors including housing.

Some investors and economists believe the Fed will keep rates higher for longer in light of the recent data.“We’re seeing growth moderate slightly but very very slowly, suggesting the Fed’s job is not yet done,” said Gennadiy Goldberg, a strategist at TD Securities.Since the meeting, two Fed officials, Cleveland Fed president Loretta Mester and St Louis Fed president James Bullard, said they would have supported a larger 50bp rate increase at the time. However, neither Mester nor Bullard are voting members of the committee.Despite the majority of Fed officials backing February’s quarter-point rate rise, Eric Theoret, global macro strategist at Manulife Investment Management, said the fact that the committee had even debated whether to raise rates by a half-point was significant.“Coming out of the meeting, we had the step down to a quarter-point and Jerome Powell talking about disinflation,” he said. “It looks with these minutes like the Fed is messaging here to say they should have mentioned the half versus quarter-point debate then.” More

Developing countries’ stockpile of debt hit a fresh record high last year, the Institute of International Finance said on Wednesday, adding to concerns of a wave of sovereign defaults this year. The combined government, household, corporate and financial sector debts of 30 large low and middle-income countries rose to $98tn at the end of December, as their currencies slumped against the dollar. The debt burden for the 30 countries was up from $96tn a year earlier and from $75tn in 2019, before the pandemic began, the IIF, a trade body for the global banking industry, said in the latest edition of its quarterly Global Debt Monitor. Government debts alone hit almost 65 per cent of gross domestic product by the end of 2022 — an increase of 10 percentage points over pre-pandemic levels and the highest-ever year-end total. The dollar soared against most emerging market and advanced economy currencies over the course of 2022, raising the cost of meeting existing debt obligations — many of which are denominated in the US currency. The dollar’s rise followed the US Federal Reserve’s aggressive interest rate increases to combat high inflation, which had a knock-on impact on global borrowing costs. The US currency has weakened since the autumn. However, Ed Parker, head of sovereign research at Fitch, the credit rating agency, on Wednesday warned 2023 would be “another challenging year” as the dollar remained strong by historical standards. Debts and deficits would “remain well above pre-Covid levels”, he said during an event organised by the IIF.Pakistan and Egypt — both included in the list of 30 — are among the countries considered at high risk of default. Both countries sharply devalued their currencies against the dollar in January, partly in an attempt to unlock emergency funding from the IMF. The strength of the dollar against most emerging market currencies last year led investors to dump emerging market stocks and bonds. This trend went into reverse last October after the dollar weakened. However, recent data on the US economy suggesting inflation and interest rates may remain high for longer than expected has led to a fresh bout of dollar strength. Emre Tiftik, an IIF economist, said the dollar’s strength had left low-income countries facing extra funding costs as many relied heavily on dollar-denominated funding to secure interest from global investors. Sri Lanka and Ghana both defaulted on external debts in 2022, following Zambia in 2020. The ratio of debt service costs to government revenues had risen to “exceptional levels”, Parker said. In advanced economies, total debt declined almost $6tn to just under $201tn, leaving the total global debt burden down slightly, from $303tn at the end of 2021, to below $300tn at the end of last year. More

Today’s top storiesRussia and China vowed to strengthen ties despite “pressure from the international community” ahead of the first anniversary of Russia’s invasion of Ukraine. Tobacco group Philip Morris said it would “rather keep” its business in Russia than sell on stringent Kremlin terms, highlighting the challenges facing companies trying to leave the country without taking a huge financial hit.Citigroup forecast that UK inflation could return to 2 per cent by the autumn as gas prices fall. Prime minister Rishi Sunak is considering a 5 per cent pay offer to end public sector strikes after the Treasury received an unexpected boost to the public finances from January’s tax receipts.For up-to-the-minute news updates, visit our live blogGood evening.Today’s announcement by Bentley that it is ending production of its 12-cylinder engine could be a significant milestone on the road to electrification.The carmaker is the first of the luxury brands to ditch what was once considered the pinnacle of engineering in the era of the combustion engine. Bentley’s rivals, including Rolls-Royce and Ferrari, still intend to use the technology for several years while developing their electric models. The shift to greener vehicles, together with a focus on selling fewer but more expensive models to make up for damage from the global chip shortage, is now common across the industry. Stellantis, the owner of Jeep and Peugeot, is the latest example, announcing that it had increased profits by a quarter last year and reached margin targets it had set for 2030, despite an overall drop in sales. Sales of electric cars rose by 41 per cent and the company will launch its first electric pick-up truck next year. Renault told a similar tale last week. It is now the third-largest electric car brand in Europe, and second for hybrids behind Toyota. Volvo’s electric sales have tripled. And for US motorists, the age of gas-guzzling looks to be over.The move towards more environmentally friendly vehicles is likely to accelerate as legislation limiting emissions comes into force. Last week the EU said trucks and coaches would need to cut emissions to “near zero” by 2040, while city buses will have to be emission-free by 2030. However, the targets were criticised by environmental campaigners for not being ambitious enough as well as out of step with plans for combustion engines in cars to be banned by 2025. Heavy duty vehicles are responsible for 28 per cent of CO₂ emissions from road transport in the EU, although they only make up 2 per cent of the total.Some carmakers, such as Toyota and Hyundai, are increasing their bets on hydrogen-powered cars as an alternative. But while the vehicles appear to be environmentally sound — emitting just water vapour as a byproduct — there is still much work to be done to make the production of hydrogen fuel greener and less costly. Green hydrogen should get a significant boost from the subsidies on offer in US president Joe Biden’s Inflation Reduction Act, which sets the country on track to becoming a cleantech superpower. Biden’s plans, however, have attracted flak from the EU, particularly its support for American-made electric vehicle chargers. Manufacturers also looking at ways of producing greener batteries and making them easier to recycle and re-use.Questions remain over the long-term supply of lithium, the key component in batteries, not for nothing nicknamed “white gold”. Although prices in China, the world’s biggest electric vehicle market, have fallen back on recent weaker demand, they remain eight times the level of a year ago. Need to know: UK and Europe economy“The sun broke through in February after six months of gloom” was one economist’s reaction to PMI data showing British business activity bouncing back. The better than expected reading of 53 — where 50 marks the divide between expansion and shrinking — is the highest level in eight months.The eurozone PMI was also better than forecast, rising to 52.3 and reinforcing calls for the European Central Bank to keep raising interest rates to tackle high inflation, depressing stocks in the process.The UK government is exploring changes to plans for an American-style register of “foreign influence” after concerns were raised that it could harm inward investment. The US and EU member states have expressed surprise that businesses and civil society groups from their countries are being grouped with those from nations like Iran, Syria and Russia.Need to know: Global economyRelative newcomer Peter Obi has rattled his two established rivals in the race to become president of Nigeria, the biggest economy in Africa and on track to become the world’s third most populated country. David Pilling and Aanu Adeoye set the scene.Soaring rents in Singapore are undermining its campaign to replace Hong Kong as the top Asian financial hub. Meanwhile, Hong Kong is trying to accelerate its recovery with a new round of spending voucher handouts.Our Big Read looks at the role of the World Bank and its efforts to refocus on climate change.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Need to know: businessRio Tinto, the world’s second-largest miner, said it expected the global economy to stabilise in 2023 and was optimistic about the prospects for China, on which the company relies for iron ore exports, now that Beijing has relaxed its pandemic restrictions.InterContinental Hotels Group, owner of the Holiday Inn and Crowne Plaza chains, predicted a full recovery for global travel by 2024, led by a strong US economy and the end of Covid restrictions in China. Walmart, the world’s largest retailer, warned sales growth would moderate this year because of the impact of interest rate rises on consumers, despite a solid fourth quarter. Home Depot was similarly gloomy, as was discount chain TJX. Zalando, Europe’s largest online fashion retailer, is cutting 5 per cent of its 17,000 workers as the “pandemic tailwinds” that created a sales boom fade away.The head of Japan’s Kyocera, one of the world’s largest makers of chip components, said China was no longer viable as the world’s factory after the US imposed curbs on access to advanced technology. Smith & Nephew warned that chip shortages were still affecting the medical industry.Cineworld said it was yet to receive any offers to buy the whole company out of bankruptcy following a deadline for interested parties to declare their intention to bid. The world’s second-biggest cinema chain entered into bankruptcy protection last September.The World of WorkMore than nine out of 10 companies that adopted a four-day working week in a UK experiment said they would continue because of evidence of permanent benefits. US office space will drop to 55 per cent of pre-pandemic levels by 2030 as hybrid working takes hold, according to a new report. A quarter was already undesirable and another 60 per cent was at risk of obsolescence and might require “significant investment,” the study said.Do you work in the NHS? We want to hear from porters and nurses to doctors and surgeons about the health service’s survival. Tell us about your experiences via a short survey. Some good newsA third person — Germany’s “Düsseldorf patient” — is said to have been cured of HIV after a stem-cell transplant, following individuals in Berlin and London. More

The World Bank is under mounting pressure. International threats to poverty — from global warming, the spread of disease and war — have become increasingly apparent over recent years. Meanwhile, global debt has surged, geopolitical rifts are denting co-operation, and estimates suggest $125tn of climate investment is needed by 2050 to meet net zero targets. The world is looking to the multilateral development bank (MDB) to provide leadership and finance. With its president David Malpass stepping aside early, now is a vital moment to reform the bank and find the right leader to take it forward.Since its initiation as part of the Bretton Woods system in 1944, the World Bank has undergone several shifts in focus: from rebuilding economies after the second world war, to confronting poverty and supporting the UN’s Millennium Development Goals. Its strategic direction needs refreshing once more. Its country-level approach risks underinvesting in pressing cross-border issues like climate change and public health. This does not mean the bank’s existing goals of ending extreme poverty and boosting shared prosperity should be diluted. But a deeper recognition of how global challenges are interwoven with them is now required. The World Bank needs, then, to take a leading role in addressing climate change at scale and with urgency. Its own estimates suggest that if left unchecked, rising sea levels, droughts, and other harmful effects could drive over 130mn people into poverty in the next decade. Raising its efforts on the green transition and adaptation is key. The bank lags behind other large MDBs in its target for the share of funding going to climate projects. The special adviser to the UN secretary-general on climate action recently accused it of fiddling “while the developing world burns”. Meeting demands for sustainable, inclusive and resilient development means mobilising more finance. The poorest countries, burdened by pandemic debts, must take priority. The World Bank should leverage its existing capital better by considering proposals in a recent G20-commissioned report showing that MDBs could generate hundreds of billions in new lending simply through more efficient use of their balance sheets. They should not, however, take undue risks that undermine their triple-A credit ratings. Encouraging richer shareholders to inject more capital could also significantly boost the World Bank’s lending capacity with only modest increases. More crucial will be drawing on private sector finance and expertise, including through partnerships with investment funds, innovative financing, and by de-risking projects.Operational changes are needed too. The bank has been criticised for being too slow: the average time taken to disburse funds is 465 days, though there are often delays beyond its control. Either way, tackling bureaucracy and working more closely with private sector expertise — from fund managers, to clean tech and construction outfits — to deploy and finance projects quickly is important. With the transformative impact of technological change and the energy transition, the bank will also need to go beyond its national approach and operate at regional and subnational levels, while co-ordinating development efforts at the heart of the MDB system.Malpass’s replacement needs to command the respect of the bank’s shareholders, whose backing is crucial in tackling issues beyond their borders. They will need a mastery of finance and private sector experience, alongside a deep knowledge of development and a commitment to tackling climate change. These are challenging criteria. But making a success of reform will require a leader of the highest calibre. More

Iberdrola will launch a legal challenge against a “discriminatory” windfall tax imposed by Madrid on Spain’s largest energy companies, following in the footsteps of banks that are fighting a similar levy in the courts.Ignacio Galán, Iberdrola chair, said its “legal department is already taking action to defend the interests of shareholders” as the company prepares to appeal against the tax this week at Spain’s National High Court.The Spanish group’s challenge raises the stakes in a battle between some of the country’s biggest companies and the Socialist-led government, which proposed the windfall taxes last year as it seeks funds to mitigate the impact of high energy costs and inflation on citizens.Spanish lenders including Santander and BBVA have decided to challenge the authorities over the temporary taxes after paying their first instalment, which was due by February 20.The energy windfall tax will be levied on companies that had revenues of more than €1bn in 2019, including electricity utilities and oil and gas groups.Iberdrola, Europe’s biggest utility, has already paid a €100mn windfall tax bill for 2023, half of the expected total for this year.Galán questioned the design of the tax for energy utilities because it is a 1.2 per cent levy on their revenues that is charged regardless of profits.“The government are saying they are going to charge based on the windfall profit. I think we have windfall losses,” he said. “We have 19 per cent less profit than the previous year [in Spain].”Gerardo Codes, Iberdrola’s director of legal services, said the tax was “arbitrary and discriminatory”, adding: “We consider that [it] is in breach of the Spanish constitution and European law.” He said the court was not likely to issue a judgment until next year.Aelec, an energy trade group whose three members are Iberdrola, Endesa and EDP, launched its own appeal against the windfall tax at the National High Court last week.The government of prime minister Pedro Sánchez argues that big utilities and banks are making “extraordinary” profits and have a responsibility to help alleviate the cost of living crisis.María Jesús Montero, Spain’s finance minister, said last week that the government was promoting “fiscal justice” so that those with the greatest earnings “make an effort to help the majority in society”.The government has signalled its confidence that the windfall taxes will withstand legal challenges.It is aiming to raise €4bn in 2023 and 2024 from utilities, which have benefited from a soaring gas price that has also lifted renewable power revenues for groups such as Iberdrola because of the way market pricing works.Madrid also wants to raise a total of €3bn from banks, which must pay a 4.8 per cent tax on their income from interest and commissions. Lenders are benefiting hugely from rising interest rates, the government says, citing their latest bumper quarterly earnings as evidence. Iberdrola generated revenues of €54bn in 2022, up from €39bn in the previous year, with more than €16bn made in the final quarter. Strong growth in the US and Brazil helped the company offset weakness in Europe linked to the region’s energy crisis.Galán told the Financial Times in November that clean energy incentives in the US made it a “very much” more appealing place to invest than the EU. On Wednesday he was more complimentary about the EU, saying its efforts to create a European version of the US Inflation Reduction Act were “moving in the right direction”. More