A regime that behaves like the EU is liable to impose capital controls without compunction, or block energy flows through the interconnectors, as threatened 3 times already (I keep count). And as we have seen, anything can be politicised, even random stochastic blood clots.
We want to see reciprocity and proportionality in exports,” said Mrs Von der Leyen. Delicious. The EU is currently refusing to reciprocate temporary UK waivers to smooth post-Brexit trade flows or to reciprocate on bare-bond equivalence in financial services.
If these daily antics from Brussels and Berlin continue, the eye-wateringly large capital outflows from the eurozone that have already been occurring may accelerate into something closer to outright capital flight.
HSBC says outflows reached €500bn in Q4, (annualized pace: 20% GDP), quickened to €250bn in the single month of Dec. The scale is breathtaking. It happened before the vaccine debacle condemned EU to an extra quarter of economic recession and social despair.
Relative to GDP, these outflows were the largest we have seen going back 20 years,” said Paul Mackel, HSBC's currency chief. Hedging contracts have prevented this setting off a disorderly slide in the euro but that does not change the fundamental picture.
You can interpret these outflows in many ways but they are not a vote of confidence in €Z recovery or the political management of the EU. The exodus is likely to gather pace as US reflation and the vast funding needs of the Biden treasury suck capital out of the global system.
The vaccine “shit show” is an accelerant, made more destructive by the failure of every major EU state to stop the B117 variant from running rampant. The waning epidemic from the old variant and the rising epidemic from the new created an illusory stability in case numbers.
The consequences of a 3rd wave in an un-vaccinated population, with no herd immunity until Sept, is to protract what Keynes called the “long dragging conditions of semi-slump” for many more months, inflicting such damage that the recovery may be sickly even when it finally comes.
While the US is spending $2.8 trillion (13%of GDP) in fast fiscal relief – 2/3 this year – the EU has nothing of the kind. The Recovery Fund is for rebuilding later. “A medium-term investment plan. It doesn’t do much in the short term,” said Lorenzo Codogno, LC Macro Advisors.
The Recovery Fund will in theory dish out €87bn later this year in grants and loans (less relevant) if recipients meet all conditions. That is just 0.7% of GDP. It is why the ECB’s Isabel Schnabel has warned that the fund may be “insufficient”, opening a political Pandora’s box.
There is fiscal stimulus worth 2% of GDP at a national level but the EU/US gap is huge. Washington is “going big” even though the US output gap will be closed by June. The OECD now thinks the US will regain its pre-pandemic trajectory by next year, along with China.
Yet Europe is “going small” even though the output gap in the eurozone is still a dire 8% of GDP, reaching 10% in Italy and Spain (IIF data). It is an Atlantic decoupling like never before in modern times.
The story that has yet to gain media traction is cross-Channel decoupling. It is no longer implausible to imagine the UK leaving EU far behind over the course of 2021, a remarkable thought given the counter-story in the British lay press that post-Brexit trade has been a calamity
Markets have shrugged off the 41% collapse in exports to the EU in Jan, deeming it transient noise. One cannot infer much from trade flows that month – except that firms were not ready, and the EU aims to be bloody minded.
Companies had stockpiled before and were holding back afterwards in case of border chaos. Only if these patterns continue into March there will be grounds for alarm. Fears that inward investment would dry up have proved unfounded. There are clear signs of pick-up in flows into UK
For now sterling is in rude good health. The pound has hit a one-year high of €1.17 against the euro this week and is nearing the top end of its post-referendum trading range. Bank of America says the pound is undergoing a “cyclical rehabilitation”.
There has been steady buying of sterling during New York opening hours by US funds. Japan’s giant life insurers and pension funds are scooping up gilts. RBC Capital says they purchased a net $5.5bn of UK bonds in January alone, the highest in five years.
BNY Mellon, the world’s top custodian bank with $41 trillion under watch, says its iFlow data is detecting a marked shift into UK assets by global fund managers. “It has been going on since last year. Funds are rotating back into UK equities,” said Geoffrey Yu, Europe strategist.
The UK will reopen and return to growth months before the eurozone. The measurement distortion that overstated the UK’s economic contraction by roughly 2% of GDP last year will flatter growth this year with a mirror-image distortion on the way back up.
All the stars are aligning for what the BoE’s Andy Haldane calls a “coiled spring” recovery. That does not in itself validate Brexit, but the spectacle of cross-Channel decoupling will profoundly change the global discourse on the UK leaving the EU.
The real test comes later during the hard grind of the 2020s. But my hunch is that the first year of independence will be much better than almost anybody expected.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Diplomacy is usually shaped by interests rather than past grudges. As Eurocrats were gradually replaced by successors coming fresh to the job, I expected the EU to concentrate on its own prosperity rather than entering into a series of needless scraps with its largest customer.
I was wrong.
The EU’s rage will last for years, possibly decades, and we need to adjust our foreign policy accordingly. I am not talking here of provocations (Michel’s outrageous claim the UK is blocking vaccines, aggressive tweets, petty diplomatic micro-aggressions ... ).
#UK Bid to make more vaccines in Britain as the EU ramps up its threats.
Ministers are working on plans to accelerate the onshoring of coronavirus vaccine production to make the country more self-sufficient amid fears of rising vaccine nationalism. telegraph.co.uk/politics/2021/…
In some EU countries, there are excess supplies of the AstraZeneca jab, despite the supply issues. Decisions by several EU countries to suspend use of the AstraZeneca vaccine on suspicion that it causes blood clots served to further tarnish its reputation.
On Saturday night responding to the remarks from Mrs Von der Leyen, a UK Govt source said: “It’s incredibly frustrating that there are 7.2 million unused doses of the Oxford vaccine sitting around in the EU. The EU has monumentally ballsed this up.
Exclusive: Pfizer warns EU to back down on vaccine threats to UK. Drugmaker warns Brussels that UK has the power to retaliate against any export ban by withholding raw materials shipped from Yorkshire
Pfizer and its partner BioNTech have warned the EU to back down from its threat to block vaccines to the UK because the firm needs crucial ingredients shipped from Yorkshire, and the UK could retaliate against any export ban by withholding raw materials needed for its jab.
Croda International, a chemicals firm based in Staith, North Yorkshire, has been delivering vital "fatty molecules" to Pfizer's factories in the EU since signing a five-year contract with the firm in November.
The Super Heavy Booster, the other half of SpaceX's Starship deep-space transportation system, is starting to come out into the light. space.com/spacex-first-s…
The UK's vaccination efforts will be paralysed from next month because the Indian Government is temporarily holding exports, according to the CEO of the Serum Institute of India (SII), Adar Poonawalla, whose company is manufacturing the AstraZeneca vaccine in India.
"It has nothing to do with the SII. It is up to the Indian Government allowing more doses to the UK," Mr Poonawalla told The Telegraph, who confirmed that 5 million doses of the Oxford vaccine had already been delivered to the UK in early March.
The second batch of 5 million further doses that the SII has pledged to the UK will only be delivered once the company was given the green light by New Delhi, which is deliberating how to slow a concerning resurgence in new daily Covid-19 cases, according to a source.
Data show the UK did not suffer a bigger contraction than the €Z in 2020 (confusion due to different GDP measurement models: a like-for-like was -4,8% instead of -10%) and is better placed to bounce back to pre-pandemic GDP levels in 2021.
By AEP telegraph.co.uk/business/2021/…
The UK economy did not suffer a bigger contraction than the eurozone last year. The narrative, believed by the London media,
never made sense. We now have the data, and we can see more clearly that it never happened. It was a story of apples and oranges.
Confusion over past data is due to measurement models. The ONS deducts a fall in visits to the doctor and reduced classes at school from accrued GDP. Most other countries do not. They calculate extra health spending as a boost to GDP. Hence a giant anomaly.