Our editors give us a breakdown of this week’s biggest news stories
United Kingdom: Ross Alexander Hutton
The fallout of the latest tightening of restrictions is already becoming clear as the GfK consumer confidence index dropped to a six-month low. Driven by the belief of one in three hospitality business that they won’t survive the winter, U.K. consumers are becoming increasingly pessimistic about the economy as uncertainty over employment translates into weaker spending. Within these concerning warning signs is a harsher reality: a record number of young workers were made redundant over the summer. TUC general secretary Frances O’Grady said “we are on the edge of a national unemployment crisis. This generation of young workers must not be abandoned to mass unemployment”. Yet, the government has introduced various stimulus packages (such as the Kickstart Scheme) targeted young people. Indeed, government borrowing rocketed in October to fund the extensive support packages, but the question of whether the government’s response has met the moment hangs in the balance.
Chancellor Rishi Sunak is expected to outline plans next week to establish a new National Infrastructure Bank to direct billions of pounds into capital projects as part of the government’s ‘levelling-up agenda’. Whilst the premise of the institution itself is important, its location is particularly notable. This cornerstone of the U.K.’s economic recovery will be based in northern England as part of the agenda of ensuring that, as Sunak puts it, “all corners of the UK get their fair share of future prosperity”. It comes as the Prime Minister announced a “one-in-a-generation modernisation” of the armed forced which, he argues, would not only boost the U.K.’s international influence but would create 40,000 new roles. However, this coincided with the news that the government is considering reducing the foreign aid budget – a somewhat contradictory stance to that defence budget boost. Former prime ministers David Cameron and Tony Blair warned that such a decision would undermine Britain’s soft power and threaten lives.
Leaked notes from a meeting of senior diplomats in Brussels suggest that the EU believes that the Brexit deal is 95% agreed. Is this the first sign there might be a deal in the offing? Perhaps. But the outstanding negotiations are on the same hard-fought issues of fishing, governance and competition. Ursula Von Der Leyen, the EU Commission President, admitted there has been “more movement” on these issues but that there were still “some meters to the finish line”. Even so, talks have been interrupted by coronavirus again as a member of the EU negotiating team tested positive for coronavirus. This makes talks more difficult but not impossible: watch this space.
Europe: Peter Hourston
A standoff between the populist and increasingly illiberal governments of Hungary and Poland with the rest of the EU threatens to derail the bloc’s budgetary negotiations. Budapest and Warsaw oppose any linkage between the funding member states receive from Brussels and what is known as the ‘rule of law’ mechanism – that payout is conditional on respecting certain values espoused by the EU, including the independence of the judiciary. A videoconference summit this week ended in impasse as Hungary and Poland threatened to use their veto, which would risk jeopardising the EU’s €750bn recovery fund from the pandemic. Following the negotiations, EU Council President Charles Michel warned that, ““Nobody underestimates the difficulty of the situation.” The Hungarians and Polish have stood firm in their resolve, with the former’s justice minister, Judit Varga, arguing that, “I think today ‘rule of law’ is everything and anything that you don’t like about Hungary,” and the latter’s foreign minister, Pawel Jablonski, adding, “we have no more trust in the integrity of the [European] institutions that are behind it, so we simply can’t agree to it.” Any compromise solution which might imply the EU is giving ground on democratic values might be hard to reach as a deal with the European Parliament reached earlier this month made clear that MEPs would stand firm on the mechanism.
The Turkish central bank has finally bowed to investor pressure and agreed to raise its benchmark one-week repo rate by 4.75 percentage points to 15 per cent. The announcement followed a shakeup of senior personnel at the central bank and foreign ministry. President Recep Tayyip Erdogan fired former central bank Governor, Murat Uysal, and the next day the finance minister, Berat Albayrak, who is the president’s son-in-law, also resigned. For months Turkey has been reluctant to raise interest rates (with opposition from Erdogan often attributed as a key factor) which has seen lira further fall against the US Dollar. The swift action by the new Governor, Naci Agbal, who is well regarded by international investors according to the FT, saw the lira immediately jump almost 3 per cent against the Dollar.
Russia has deployed almost 2,000 peacekeepers to the disputed territory of Nagorno-Karabakh, as part of a ceasefire deal it brokered between Armenia and Azerbaijan. The mission is a new one for Russia’s defence ministry, which is more accustomed to enforcing its own gains or possessions, rather than playing a role of (nominally) neutral enforcer. The deployment is part of Moscow’s attempt to cement its status as regional hegemon, but comes at a major risk, given that Azerbaijani advances came with the assistance of Russia’s regional rival Turkey, and its traditional military partner, Armenia, must hand over additional land to its neighbour by the end of this month. Some analysts suggest that the peacekeeper mission is an admission of failure by Russia, who has seen Ankara’s influence increase, possibly at the expense of Moscow.
Asia Pacific: Satyajit Mohanan
Thai Prime Minister Prayuth Chan-ocha promised that the government would use all forms of legislation against protesters who broke the law, following the recent escalation of demonstrations that have called for his removal and reforms to curb the powers of King Maha Vajiralongkorn. Dozens of protesters, including many of the most prominent leaders, have been arrested on a variety of charges in recent months
Talks between Pakistan and the IMF to restart a $6 billion loan programme have been stalled over Prime Minister Imran Khan’s refusal to enact reforms over fears of backlash from the middle-class. The conditions proposed under the loan programme include raising electricity tariffs, higher tax collection targets and increasing the repo rate. Analysts argue that Pakistan needs to enter the IMF’s programme to meet its debt repayments and unlock more funds. Pakistan’s external debt and liabilities have grown from $9bn in 2018 to about $113bn in 2020.
Africa & Middle East: Camille Capelle
In Saudi Arabia, a change in attitude has been announced as the government claims it is looking to end its diplomatic conflict with Qatar. The Crown prince stated that, conditional on several security concerns being met, he wants to end Qatar’s blockade, which has been in place since 2017. Other gulf partners, like the UAE, are skeptical that a resolution should be imminent. At the same time, the Kingdom is making steps to improve relations with Turkey which have been frosty since the murder of the journalist Jamal Khashoggi in 2018. Saudi Arabia seems to be strengthening its international position in the face of a potentially problematic relationship with the next US president.
Air strikes continue in Israel and Palestine as both sides claim to be responding to attacks from the opposing side. So far, it seems that there have been no casualties, but the strikes do mark a renewed escalation in the conflict. As Israel considers any and all rocket attacks from Gaza as effected by Hamas, it responds quickly by targeting Hamas targets in return. The attacks are in clear violation of the September agreement to end hostilities.
The war in Ethiopia is growing increasingly concerning as it provokes a refugee crisis as conditions for civilians break down further. The humanitarian situation in the Tigray region is believed to have reached critical levels as food and other supplies have been cut off. The region is also home to hundreds of thousands of Eritrean refugees, which raise suspicions that ethnic cleansing practices are being used.
North America: Amelia Brown
Canadian businesses will be able to start applying for the Canada Emergency Rent Subsidies (CERS) starting Monday. The subsidy is on a sliding scale depending on how much revenue a company, nonprofit, or charity has lost—those who lost 70% or more of their revenue will be eligible for up to a 60% rent subsidy. The program also allows businesses to claim subsidies for similar expenses, such as property taxes, mortgage interest, and property insurance. An additional 25% ‘lockdown support’ subsidy will be available for businesses that have to shutdown or partially reduce operation due to government public health directives, such as restaurants that used to primarily serve food inside that can’t anymore.
Canada has also agreed to a trade deal with the UK after Prime Minister Justin Trudeau’s skepticism last week about Britain’s ability to negotiate for themselves. The deal is a rollover of the EU-Canada trade deal that the two countries have operated with for years, keeping in place the lack of tariffs for 98% of goods going between the two. Although there is no end date for this transitional agreement, Trudeau said, “Now we get to continue to work on a bespoke agreement, a comprehensive agreement, over the coming years that will really maximize our trade opportunities and boost things for everyone.”
The US FDA has given emergency authorization to biotech company Regeneron’s antibody treatment—the same one given to President Trump when he was infected and hospitalized last month. The treatment is meant to be given to people over 12, in the beginning of the infection, who are at risk of developing complications from the virus, but who aren’t hospitalized or on oxygen yet. The company plans to have doses for about 80,000 people in the next few weeks, then ramp up production to have enough for 200,000 by the beginning of January, and 300,000 by the end of January. The federal government gave over $500 million to Regeneron for the development and manufacturing of the treatment. The first 300,000 doses will be free. Additionally, the company Eli Lilly has a similar antibody cocktail that was approved earlier in the month—the government has a $375 million deal with for 300,000 doses.
In terms of the bad kind of drugs, the US prosecutors have dropped drug trafficking and money laundering charges against Mexico’s former minister of defense, after he was arrested last month in LA. The decision came from Attorney General Barr, and was granted by a Brooklyn judge based on her perception that Mexico sincerely wishes to pursue the case themselves. Mexico’s president thanked the US government for dropping the case. A statement by Barr and Mexico Attorney General Manero said the decision to drop the case in the US was made, “so that he may be investigated and, if appropriate, charged, under Mexican law.” However, no investigation existed against him in Mexico at the time of his arrest in the US, and the former General has not been charged yet in Mexico.
Business: Tom Woods
The cryptocurrency bitcoin has continued its recent rally, triggering interest from large institutions and speculative investments. The value of one bitcoin currently sits at around £14,000, having increased from just under £10,000 this time last month. Even more remarkably, the currency’s value dropped to almost £4,000 in March as all sectors were struck by the impact of COVID-19. The surge has been explained as the result of investors looking for stable investments amidst fears over inflation with central banks printing money and firms struggling for survival. Speculators have suggested that the price could rise further, with sensationalist reports suggesting that senior figures at firms such as Citi believe the price could shoot up to £226,000 by next year. Any investment in the cryptocurrency is still wrought with risk however, and the currency experiences mass fluctuations that could make or break fortunes, as was so devastatingly demonstrated with its bubble in late 2017.
YouTube is to reorganise the way its advertising structure works, adding advertisements to smaller channels but refusing to give them a cut. The current way channels can make money is through the YouTube Partner programme, which allows content creators to have ads placed on their videos if they have more than 1,000 subscribers and 4,000 hours of people watching their videos per year. Through the new system, channels who do not meet these requirements may now have ads placed on their channels but will not receive a cut of the advertising revenue. The decision has led to uproar from content creators and others in the community. However, YouTube looks unlikely to reverse its decision, and given the huge amount of power it holds as the dominant platform for content creators, looks likely to continue engaging in what some argue amounts to exploitation.
Theory: Cassi Ainsworth-Grace
This week, The Financial Times has released its list of the best Economics books of 2020. A large number of these focus on the growing concern of economic inequality, particularly between and within nations, including Unsustainable Inequalities: Social Justice and the Environment by Lucas Chancel and The Costs of Inequality in Latin America: Lessons and Warnings for the Rest of the World by Diego Sánchez-Ancochea. Alongside these are a number of works on the pressure that unfettered capitalism puts on the economy and the environment, like that of Less is More: How Degrowth will Save the World by Jason Hickel, an economic anthropologist, and former competition lawyer, Michelle Meagher’s Competition is Killing Us: How Big Business is Harming our Society and Planet- and What to do About It. Increasing political polarisation and rising questions about the role of fiscal spending has also seen consultant Marc Robinson publish Bigger Government: The Future of Government Expenditure in Advanced Economies. Many of these works are sobering, but present much-needed voices about the direction of our economic future.