George Osborne is set to boost lending to small businesses as he faces growing pressure over his austerity policies.
Liberals must restore confidence in health system, end policies that encourage outsourcing
See the original post here: The evidence is in privatization blunders have serious patient care consequences
A ‘three-speed’ world is emerging, and the International Monetary Fund fears the consequences
As crisis-weary finance ministers and central bank governors from around the world kick back in Washington this week, on the sidelines of the twice-yearly International Monetary Fund meetings, they could be excused for feeling a tinge of optimism in the spring sunshine.
In the US, the bombed-out housing market is bouncing back; the stock market has hit fresh all-time highs; and there are hints that the Federal Reserve is starting to think about slowing the pace of its drastic quantitative easing programme. The latest data on consumer spending last week raised questions about how solid the recovery is – but there is hope.
Japan’s experiment with its radical new policy of Abenomics – the attack on deflation launched by new prime minister Shinzo Abe – may be in its early stages, but at least the country’s new policymakers have a plan. And even in the eurozone, where keeping the single currency afloat still demands relentless wrangling, the mood of imminent crisis has abated since the bailout with Cyprus was agreed.
But in a scene-setting speech in New York last week, IMF managing director Christine Lagarde stressed the deep divisions that remain in what she described as a “three-speed” global economy.
Lagarde placed emerging economies at the front of the pack, ahead of a middling group – including the US – that has begun to rebuild its battered economies; while Japan and Europe were trailing behind. She also warned that the world’s biggest banks remained a menace to financial stability, particularly in recession-hit Europe.
Some of these differences, between the leaders and the laggards, are likely to surface in the talks this week among the IMF’s 188 member countries, as central banks fret about their “exit strategy” from the emergency policies they have used to try to stimulate demand since the Great Recession.
A chapter of the IMF’s latest financial stability report, released to coincide with the build-up to the meetings, warns that long periods with ultra-low interest rates and so-called “unconventional” monetary policy, such as quantitative easing, can spawn serious long-term problems, even if they succeed in boosting short-term growth.
At home, “zombie” firms and households that would have gone bust can be propped up by super-cheap borrowing – only to face an even greater risk of collapse when interest rates finally go up.
Meanwhile, some of the cheap money created in the US, Japan and the UK will leak overseas, as investors seek better returns elsewhere. Emerging economies in Asia and Latin America are increasingly concerned about speculative investment flows pumping up their currencies and inflating asset bubbles.
“Despite their positive short-term effects for banks, these central bank policies are associated with risks that are likely to increase the longer the policies are maintained,” the IMF warned.
Depreciation is another welcome by-product of the hyperactive central banks’ policies, and there will also be a debate in Washington about the risks of a beggar-my-neighbour battle to create the cheapest currency.
Even before Japan’s dramatic expansion of its bond-buying programme, the sharp devaluation in the yen over the past six months had raised concerns in Europe that a strong euro will harm competitiveness.
Danny Gabay, of City consultancy Fathom, said an appreciating euro would drive Europe’s economies deeper into recession and put the region’s fragile banks at greater risk. “Do they think the banking system that is already under stress from high unemployment and non-performing loans can withstand a stronger euro too?”
Face-to-face talks, like those that take place at these IMF gatherings, can force policymakers to confront the consequences of their domestically motivated policies – but they are rarely persuaded to change their plans as a result. Sir Mervyn King, the outgoing Bank of England governor, is likely to repeat his frequently expressed fear that there remain deep, fundamental tensions in the world economy, between creditors and debtors, savers and spenders, which have never been tackled.
As he put it in a speech in New York in December: “The G20 in 2009 came together at the London Summit and agreed the easy part, which was stimulatory policies where every country could agree. But … since then … there has been no agreement on the need for working together to achieve some element of re-balancing the world economy.”
Instead of brokering such an agreement, which might involve creditor countries such as Germany and China agreeing to boost their demand, instead of relying solely on cutbacks in debtor countries to narrow the divide, the IMF has repeatedly been dragged into rubber-stamping botched bailouts and harsh austerity policies when tackling the eurozone sovereign debt crisis.
The IMF is due to reform its governance, including giving emerging economies such as China a stronger voice, but so far its board members have been unable to agree firm proposals. Meanwhile, it will stand ready to intevene whenever the next domino falls in the crisis that began more than five years ago.
The reality was that Thatcher was neither popular nor successful economically. Labour must make a clean break with her policies
It is a truism that history is written by the victors. As Margaret Thatcher’s economic policies were continued after she left office, culminating in economic catastrophe in 2008, it is necessary to throw out the myths peddled about her. The first is that she was popular. The second is that she delivered economic success.
Unlike previous governments, Thatcher’s never commanded anything close to a majority in a general election. The Tories’ biggest share of the vote under her was less than 44% in 1979, after which her vote fell. The false assertions about her popularity are used to insist that Labour can only succeed by carrying out Tory policies. But this is untrue.
The reason for the parliamentary landslide in 1983 was not Thatcher’s popularity – her share of the vote fell to 42% – but the loss of votes to the defectors of the SDP and their alliance with the Liberals. Labour’s voters did not defect to the Tories, whose long-term decline continued under Thatcher.
Nor did Thatcher deliver economic success, still less “save our country” in David Cameron’s silly and overblown phrase-mongering. In much more difficult circumstances in 1945, the Labour government, despite war debt, set itself the task of economic regeneration, introduced social security and pensions, built hundreds of thousands of homes and created the NHS. In the 31 years before Thatcher came to office the economy grew by about 150%; in the 31 years since, it’s grown by little more than 100%.
Thatcher believed that the creation of 3 million unemployed was a price worth paying for a free market in everything except labour. Thatcher’s great friend Augusto Pinochet used machine guns to control labour, whereas Thatcher used the less drastic means of anti-union laws. But their goal was the same, to reduce the share of working class income in the economy. The economic results were the reason for Thatcher’s falling popularity. As the authors of The Spirit Level point out, the inequality created led to huge social ills, increases in crime, addictions of all kinds and health epidemics including mental health issues.
Thatcher’s destruction of industry, combined with financial deregulation and the “big bang“, began the decline of saving and accumulation of private- and public-sector debt that led directly to the banking crisis of 2008. The idea that bankers would rationally allocate resources for all our benefit was always a huge lie. Now the overwhelming majority are directly paying the price for this failed experiment through the bailout of bank shareholders.
Thatcher was sustained only by one extraordinary piece of luck. Almost the moment she stepped over the threshold of Downing Street the economy was engulfed in an oil bonanza. During her time in office, government oil receipts amounted to 16% of GDP. But instead of using this windfall to boost investment for longer-term prosperity, it was used for tax cuts. Public investment was slashed. By the end of her time in office the military budget vastly exceeded net public investment.
This slump in investment, and the associated destruction of manufacturing and jobs, is the disastrous economic and social legacy of Thatcherism. Production was replaced by banking. House-building gave way to estate agency. The substitute for decent jobs was welfare. Until there is a break with that legacy there can be no serious rebuilding of Britain’s economy.
The current economic crisis is already one year longer than the one Thatcher created in the early 1980s. In effect the policies are the same now, but there is no new oil to come to the rescue.
Labour will win the next election due to the decline in Tory support, which is even lower under Cameron than Thatcher. But Labour must come to office with an economic policy able to rebuild the British economy – which means a clean break with the economic policies of Thatcher. Labour can build an alliance of the overwhelming majority struggling under austerity: a political coalition to redirect resources towards investment and sustainable prosperity using all the available levers of government.
We can succeed by rejecting Thatcherism – the politics and economics of decline and failure.
Margaret Thatcher’s economic policies spread beyond her party
Read the rest here: Margaret Thatcher’s economic legacy
Energy secretary launches analysis showing that green measures could save householders around £166 a year by 2020
The impact of rising household energy bills will be greatly reduced by climate change policies which could save consumers around £166 by 2020, according to the energy and climate secretary, Ed Davey.
Analysis by the Department of Energy and Climate Change (Decc) published on Wednesday showed that 85% of the present average £1,250 bill cannot be controlled by the government because it is determined by international gas and electricity prices, transmission and metering costs. After energy companies have taken their profits, and VAT has been paid, government policies can only influence around 11% of the bill, said Davey.
In a riposte to some Conservative politicians and media which have claimed that wind power will cost more than £120bn in the next eight years and send household bills soaring, he claimed that energy-saving policies, better gas boilers, tighter building regulations, the coalition’s green deal loan scheme and smart meters could save householders around £166 a year by 2020. According to Decc, that is an 11% cut compared to the government doing nothing.
Onshore and offshore wind power are needed for the UK’s energy mix to insulate it from global gas prices and together cost householders only £18 a year in total, he said. “It is a tiny part of the overall bill.”
He added: “Global gas price hikes are squeezing households. They are beyond any government’s control. The analysis shows that our strategy of shifting to alternatives like renewables and of being smarter with how we use energy is helping those who need it most to save money on their bills,” he said.
By 2020, the average household’s dual fuel bill could be expected to be £1,496 without government policies and £1,331 with energy-saving policies, according to Decc’s analysis. By then, around half of UK households are expected to have at least one major insulation measure delivered through energy supplier obligations which could save households from £25 to £270 a year.
Greenpeace’s policy director, Doug Parr, said: “This report demonstrates that green policies are not causing rocketing household bills and they will not do so in future. With the right investment, UK clean energy will only get cheaper. The same cannot be said of gas.”
Davey brushed off reports that Britain was risking the lights going out with only two days’ gas in store. “It is true that supplies are relatively low, but that is because it is the end of winter. It is what we expect. It does not mean we are running out of gas. Only a small part of our supply is stored. Reports of big consumer bill [hikes] are wildly wrong,” he said.
The report said businesses could expect much bigger rises in energy prices without the same cushion. “The picture for businesses is less positive, which is why our new proposals to exempt and compensate the most energy-intensive industries from certain policy impacts is crucial. Nothing would be gained from forcing industry, jobs and emissions abroad,” he said. In 2011, the government announced £250m compensation for so-called energy-intensive industries such as cement, chemical and others.
But Mark Swift, a spokesman for EEF, the manufacturers’ organisation, said: “This is a wake-up call. Policies are already adding 30% to business electricity prices, and this will rise to 50% by 2020. Measures to shield the most energy-intensive industries from a portion of the costs will make a difference but, unless we get a grip on spiralling policy costs, steeply rising electricity prices for the rest of the sector risk making the UK an increasingly unattractive location for industrial investment.”
“This report demonstrates that green policiesare not causing rocketing household bills and they will not do so in future. With the right investment, UK clean energy will only get cheaper. The same cannot be said of gas.”, said Greenpeace Policy Director Doug Parr
Mortgage brokers say that government support for home loans is a “significant step forward” for buyers, but there has also been criticism of the policies.
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Troika of international lenders leaves country after failing to agree over future of 25,000 civil servants
Greece’s “troika” of international lenders – the EU, the European Central Bank and the IMF – have left the country amid a dispute over sacking 25,000 civil servants.
After extending their trip by several days, troika inspectors said they would return in April to finish their review.
Insiders confirmed that progress on an agreement to unlock the country’s next €2.8bn aid instalment, vital to public coffers, had been impeded by creditors’ demands to cut 25,000 civil servants from the state payroll by the end of the year.
Athens’s fragile government had hoped to convince lenders of the need to gradually transfer the employees into a special labour reserve by 2014, citing record levels of unemployment, anger with austerity and growing social unease. None of the mission chiefs was persuaded, however, given the reluctance of past administrations to shed staff who under the constitution enjoy jobs for life. Other disagreements included a relief plan for overindebted households and a controversial property tax levied through electricity bills.
Although both sides put on a brave face and played down the postponement – with the Greek finance minister Yannis Stournaras saying “there has been significant progress in the talks with the troika” – well-briefed sources did not share the same view. A member of one of the governing parties said there were “very real concerns” that further aid disbursements to Greece would be stopped. “The government is not going to axe civil servants. Full stop. There are very real concerns that come the summer the next loan disbursement [from the bailout] will not be made. Nothing is certain.”
If Athens refuses to press ahead with redundancies, the inevitability of the government having to adopt further cuts and tax rises looms. With revenue shortfalls in January and February described as much worse than expected, there are fears that the country’s reform programme will be derailed.
The Greek impasse came as European leaders joined battle in Brussels in an increasingly sterile argument over whether austerity or stimulus was the magic formula for arresting decline and spurring growth in the EU and single currency zone.
But for the first time since the sovereign debt and single currency crises ushered in the age of austerity three years ago, the leaders of the 27 countries or the 17 of the eurozone were unlikely to take any far-reaching decisions.
The summit was the first since the heads of government were stunned by the outcome of the Italian election, which delivered a resounding rejection of the harsh medicine prescribed by Germany and administered by Brussels.
“Italy is the talk of the town,” said a senior EU official. “One of the things that has shifted the debate is the Italian election. People are worried,” added a senior European diplomat.
But all the signs from Berlin and Brussels indicated that while voters may kick out policymakers, they cannot overturn the policies since the room for manoeuvre in the declining economies of, say, Italy or France, as well as bailout recipients, is too narrow if they want to retain the confidence of the financial markets.
“If you need to get people to lend you money, if you finance yourself in the markets, an economic policy shift is not viable,” said the senior diplomat. “It’s about credibility.”
The Thursday evening summit focused on economic policy options and was to be followed by another meeting of the 17 eurozone leaders at which Mario Draghi, the head of the European Central Bank, was to brief the meeting and was expected to name and blame countries failing to implement adequate structural reform.
While the draft summit communique repeatedly referred to the need to stimulate growth and deplored Europe’s record levels of unemployment – more than 26
Investors have welcomed better-than-expected corporate results and the Fed’s stimulus policies. But a growing number of analysts say the market is due for a pullback.
See more here: Stocks lose traction with peak still in sight