U.K. Government Open to Temporary Customs Union With EU After Brexit

Date: 15-08-2017
Source: The Wall Street Journal

EU officials say Britain won’t be able to achieve frictionless trade with the bloc post-Brexit

The U.K. government said a forthcoming paper will set out two long-term options for post-Brexit customs arrangements with the EU.

LONDON—The U.K. government on Tuesday will formally signal it is open to creating a temporary customs union with the European Union after Brexit as it prepares for fresh talks on its separation from the bloc later this month.

In a statement, the U.K.’s department for exiting the EU said that its forthcoming paper will set out two long-term options for post-Brexit customs arrangements with the EU aimed at making trade in goods as “frictionless” as possible after the U.K. formally withdraws from the bloc in early 2019.

One option calls for a “highly streamlined” customs arrangement aimed at simplifying border checks on goods moving between the U.K. and the EU. The second envisages a new “customs partnership” that would “negate the need for a customs border between the U.K. and the EU,” according to the statement. Further details are due to be published later Tuesday. EU officials have warned however that Britain won’t be able to achieve frictionless trade with the bloc once it leaves.

What’s Really Behind the Eurozone’s Economic Turnaround

Date: 14-08-2017
Source: The Wall Street Journal By Simon Nixon

Many economists may have underestimated the role of improvements to the supply side of the eurozone economy

It is now four years since the start of the remarkable Spanish economic recovery. Yet at the time, few saw it coming. Back in July 2013, the International Monetary Fund forecast that it would take until 2018 for Spanish economic growth to barely scrape above 1% while unemployment would remain above 25% for five years.

In fact, the Spanish turnaround had already begun: Growth exceeded 1% in 2014 and has been above 3% ever since. In that time, Spain has created more than two million jobs, bringing the unemployment rate down from a peak of 26.2% to an eight-year low of 17.2% today.

Ten Years Later, Younger Workers Still Endure Costs of the Crisis

Date: 10-08-2017
Source: The Wall Street Journal By Simon Nixon

Policy makers’ decisions at the time to spare older generations has led to a rise in intergenerational inequality

All of the £2.7 trillion of wealth created in the U.K. since 2007 has been harvested by those over 45, Bank of England chief economist Andrew Haldane said last year. Above, a view of Canary Wharf district in London.

Ten years on from the start of the global financial crisis, it is conventional wisdom that no one saw it coming. But this isn’t quite right.

Everyone saw it coming, or at least saw something coming. Nobody working in—or writing about—finance in the run-up to Aug. 9, 2007, was in any doubt that markets were running red-hot and that a crash seemed imminent.

There had been a series of market tremors in the preceding years that traders feared could be the start of something bigger before fizzling out—prompting Chuck Prince, the then-chief executive of Citigroup Inc., to utter his immortal advice that “while the music is playing, you have to keep dancing.”

Italy Sees Signs of Migrant Tide Turning

Date: 10-08-2017
Source: The Wall Street Journal

Steep decline in seaborne arrivals since July spurs hopes that smuggling crackdown is paying off

Migrants, miles from the Libyan coast, waited to be rescued last week.

A sharp drop in the number of seaborne migrants arriving in Italy in the past month is raising hopes that the country—and Europe—may have turned the corner in its four-year migration crisis.

Since the start of July, the number of migrants seeking to reach Italy from Libya has dropped by 60%, a remarkable shift in a year that seemed set to break records for seaborne arrivals of migrants. Through the end of June, Italy counted nearly 84,000 arrivals, 17% higher than the same period in 2016, putting it on track to surpass last year’s 180,000 arrivals.

In July, 11,000 migrants arrived, less than half the number in July 2016, while so far in August, just under 1,587 arrived. In August 2016, 21,300 people arrived from Libya.

Tools for Cleaning Up Europe’s Bad Debt: 18-Wheeler and a ‘Strong Stomach’

Date: 09-08-2017
Source: The Wall Street Journal

Lack of documentation, strategic defaulters stymie banks’ efforts to get nonperforming loans off books

When a small Italian bank was looking to buy a portfolio of nonperforming loans last year, its due diligence turned up an unpleasant surprise: Virtually all the documentation for the 40,000 loans was on paper.

With each loan dossier consisting of about 1,000 pages, “we were talking about several 18-wheelers full of paper,” recalls Andrea Clamer, head of Banca Ifis IF -1.24% SpA’s bad-loans unit. So he knocked the price down by 10%, paying less than 5% of the loans’ €1 billion face value. Teams of employees have since spent months manually sorting and scanning all the paper.

Efforts have accelerated to combat the bad-loan problem afflicting much of southern Europe. In Italy, where 16% of all loans are nonperforming, banks may shed more than €60 billion in bad loans this year, according to PricewaterhouseCoopers LLP, partly as a result of this summer’s €25 billion government bailout of three ailing lenders.

German Industry Misses a Beat but Economy Looks Strong

Date: 08-08-2017

Source: The Wall Street Journal

Economists said decline in factory output in June contrasts with other strong indications of growth

The German economy remains on a path of strong growth despite a surprising decline in factory output in June, economists said following Monday’s release of data on industrial production for Europe’s biggest economy.

In adjusted terms, output declined by 1.1% in June from the previous month, the country’s Economics Ministry reported, marking the index’s first monthly decline since last December. Economists polled last week by The Wall Street Journal had expected a slight gain of 0.1% in the index. The monthly decline was broad-based, with manufacturing output down 1.4% and construction output also down 1.0%. On the flip side, energy output grew by 1.4% compared with May.

Brexit Uncertainty Shadows Bank of England’s Every Move

Date: 07-08-2017
Source: The Wall Street Journal

More rate increases than planned might be warranted as markets brace for unknown shape of post-EU economic regime

Mark Carney, governor of the Bank of England, said last week that the BOE’s rate-setting committee believes that if the economy continues to grow in line with its revised forecasts, further rate increases will be warranted.

All major central banks now face a similar dilemma, but the challenge for the Bank of England is harder than most. The failure of wages to rise despite falling unemployment, a puzzle common to all advanced economies, makes it hard to know when interest-rate increases might be needed to offset inflation. But in the U.K., that assessment is made more complicated by Brexit.

Much of the world is enjoying the first synchronized upswing since the start of the global financial crisis 10 years ago, but U.K. growth is slowing. The economy expanded by 0.2% and 0.3% in the first two quarters. That is just half the rate of the buoyant eurozone, and it forced the BOE last week to cut its forecast for growth this year by 0.2 percentage points to 1.6%.

The BOE’s downbeat assessment of the impact of Brexit uncertainty—and the lack of guidance on the timing of a rate increase—triggered a swift market reaction: Sterling fell 0.6%, and the gilt yield curve flattened. In the space of a few weeks—and despite inflation at 2.6%, well above the BOE’s 2% target and forecast to stay above target for the rest of its three-year forecasting horizon—speculation that the BOE might be the next central bank to raise interest rates has given way to a belief it will be the last. But was the market right to react this way?

Meet Amazon’s New Archrival: BRIAN

Date: 03-08-2017
Source: The Wall Street Journal

Morgan Stanley has a new framework for determining which industries are vulnerable to competition from Amazon

You have heard of FANG, but have you met BRIAN?

Morgan Stanley has a framework for assessing which industries are more or less susceptible to encroachment by Amazon.com. It is calling this five-factor rubric BRIAN, an acronym for “bespoke products,” “regulatory hurdles,” “industry/business model,” “attention post-sale” and “nuances.”

Strengths or weaknesses in those areas impact the “pace and potential of Amazon disruption,” wrote analyst, er, Brian Nowak in a research note. Travel, luxury goods and formal apparel have a high degree of customization so can’t be easily replicated online; pharmaceuticals and insurance are protected by regulatory hurdles; low margins provide a defense for craft and dollar stores; do-it-yourself auto parts and home improvement require specialized customer service and installation; and real estate and auto purchases tend to be too complex for online sales.

We Survived Spreadsheets, and We’ll Survive AI

Date: 03-08-2017
Source: The Wall Street Journal

History shows technology fuels new kinds of jobs in addition to the ones it renders obsolete

Whether truck drivers or marketing executives, all workers consider intelligence intrinsic to how they do their jobs. No wonder the rise of “artificial intelligence” is uniquely terrifying. From Stephen Hawking to Elon Musk, we are told almost daily our jobs will soon be done more cheaply by AI.

Yet AI is too amorphous a label to actually convey anything useful about what, precisely, it’s supposed to displace. Instead, think of it as a technology that does one thing particularly well: predictions. Such as, will that mark on the X-ray prove to be a tumor? Is the object in the road a paper bag or a child? Which headline will get the most readers to click on an article?

Britain’s Unreal Brexit Transition Debate

Date: 03-08-2017
Source: The Wall Street Journal By Simon Nixon

Theresa May and her party will have a hard time negotiating with the EU when they can’t figure out precisely what they want

British Prime Minister Theresa May has talked about a wide range of possibilities for the U.K.’s future relationship with the European Union.

There is an air of unreality about the debate that has been raging this summer over a Brexit transition deal. The mere fact that this debate is taking place at all is unreal. It was never remotely plausible that the U.K. and European Union could negotiate and ratify both a divorce agreement and a new free-trade deal in the two years allowed under the Article 50 timetable, let alone the 21 months remaining after Prime Minister Theresa May squandered the first three months on a snap general election.

So the fact that it has taken until now for the cabinet to accept that a transitional deal will be essential—even if official government policy is still that a new Brexit trade deal can be agreed by March 2019—is alarming.