The World This Week

Our editors give us a breakdown of this week’s current affairs

United Kingdom: Harry Street 

The UK government has unveiled revised plans for their high-speed rail schemes; however, these revisions include significant cuts for Northern England, as two-thirds of the stretch of HS2 from Birmingham to Leeds have been scrapped. Furthermore, the plans to improve links between cities in the region have also been cut back. These combined changes have drawn major criticism and have been described as a “betrayal”; many critics now question whether the government truly wants to level up the country. This may further worsen the support for Johnson’s government, which has already been waning following Johnson’s U-turn on the sleaze scandal. A YouGov survey shows growing disapproval of the government’s record, which may only worsen as the country enters a difficult winter period consisting of high inflation and a struggling health service as we enter flu season.

Higher interest payments on public debt and the COVID vaccination programme have hindered the expected falls in public borrowing, which was expected to fall to £13.8bn by October. However, current estimates place public borrowing roughly £5bn higher than this. The chancellor has also made it clear that it is necessary to strengthen current public finances now for future generations; thus, strict contractionary fiscal policy is likely as the country heads into 2022, further hindering economic growth. To counteract the tightening of government spending, the UK economy must see strong sales throughout the Christmas period, which fortunately seem to be on track, as British retail sales grew by 0.8% from September to October. 

Europe: Cameron Fulton 

The Turkish Lira once more fell this week, as the country faces a currency crisis. This is singularly due to the dumbfounding policies of the central bank, who further cut interest rates on Thursday. Expectations of the currency have been left without any clue, as President Erdogen defies traditional monetary policy in pursuit of economic growth. The Lira is entering territory unfounded, trading at TL11.32 per dollar. Dollar exchange rates have already fallen 30% this year alone, as traders have lost faith in the conveyor belt of Turkish central bank governors and seemingly never-ending deviation from traditional policy. Inflation was measured at 20% just last month, as the present governor, Sahap Kavcioglu, has slashed rates by 19% since September. Appreciation must come eventually as per classic exchange rate theory, but at what cost? Either the regime must change, or the Turkish people face potential hyperinflation.

Some have already begun betting on the rise of the currency. The Spanish bank, BBVA, has risked investment into Turkish Garanti Bank this week. The takeover is expected to be worth €2.2 billion, which could either sink, with further interest rate falls depreciating the currency, or swim, with the expected appreciation finally coming to fruition. Investors thought the former, with shares in BBVA closing 4% lower on Friday. The news, adversely, was received with jubilation in Istanbul, as Turkey will see the end of a 6-year decrease in foreign direct investment from the deal. The country is attractive due to buoyant economic growth and young population but Erdogen’s monetary policy remains a huge risk. Investors hope he will be ousted in 2023’s elections.  Charles Robertson of Renaissance Capital comments for the FT: “The consensus view is that all Turkey needs is for one man to retire and the country could be off to the races”.

The outgoing head of the Bundesbank, Jens Weidman, and head of the ECB, Christine Lagarde, clashed this week over policy to curb rising inflation in the EU. Speaking on Friday, Mr Weidman complained that EU COVD stimulus programmes need to be reversed ‘sooner rather than later’ in line with the central bank policy of both the UK and US. They have both begun interest rate hikes to curb rising energy prices exceeding inflation expectations. Ms Lagarde however, remains firm in ECB policy arguing for ‘patience’ to avoid premature policy tightening. Speculators have invested in her stance, with the Euro stuck at its lowest level in 16 months, with the dollar rate specifically decreasing.

India: Rudra Sen

Prime Minister Narendra Modi on the occasion of Guru Purab, announced that the government would repeal the three farm laws after a year of protests. While announcing the decision to repeal these laws, PM Modi apologised to the farmers and urged them to end their protests. Since November last year, thousands of farmers from various parts of the country had assembled and protested against these laws from Delhi’s border. The decision to repeal these laws came as a surprise as the government had maintained that these reforms were good for the agricultural sector and would not be repealed at any cost. These controversial laws would have resulted in the loosening of regulations around the sale and pricing of produce, marking the end of a protectionist regime in the agricultural sector. Meanwhile, several farmer unions and associations have welcomed this decision and hailed it as a victory. However, they have also indicated that they might continue to protest till their demands are officially met

India and Pakistan have reopened the Kartarpur corridor for Sikh pilgrims to visit one of the holiest shrines before the birth anniversary of Guru Nanak, the religion’s founder. The Kartarpur corridor is a visa-free passage allowing Indian Sikhs to visit the shrine inside Pakistan. The corridor was first opened in 2019 but was suspended in March 2020, when Pakistan imposed travel restrictions on India after the COVID-19 outbreak. The Kartarpur corridor is 4.5 kilometres long and connects with Darbar Sahib Kartarpur in Pakistan, where Guru Nanak is believed to have spent the last 18 years of his life. 

Middle East: Dhruv Shah  

At a Bahrain conference yesterday, the US’s defense secretary, Lloyd Austin, reassured Gulf allies that his country was committed towards maintaining security within the region, after the withdrawal of troops from Iraq. He noted that the Biden administration was determined to prevent Iran from gaining nuclear weapons and from using suicide drones – such as those seen in the recent attempted murder of Iraqi prime minister. Talks between Western powers and Iran over the country’s nuclear programme are due to resume at the end of this month.

Last week, in a move which many analysts have described as unthinkable, Gulf Arab navies began their first ever joint military exercises with Israeli naval warships in conjunction with the US. Over five days, the drill took place in the Red Sea and involved countries such as the United Arab Emirates, Bahrain, Israel and the US. The move comes following the Abraham Accords in September 2020, which saw countries like Bahrain and the UAE normalise relations with Israel. It is likely that the growing rapprochement between Israel and the Gulf is due to the growing security challenges posed by Iran within the region. 

North America: Amelia Brown 

The US House of Representatives has approved President Biden’s Build Back Better bill, the social spending counterpart to the infrastructure bill passed last week. The bill includes $1.75 trillion in spending on progressive social measures and tax reforms, meaning it was passed strictly along party lines with all Republicans voting against. The House minority leader invoked his privilege to talk indefinitely on the floor, talking for 8 hours through Thursday night until the vote finally could be called Friday early morning. The long opposition speech came after the Congressional Budget Office (CBO) estimated the bill would add $367 billion to the national deficit over the next 10 years. The White House’s own predictions say that the bill would actually reduce the deficit by $112 billion due to the provision to close tax loopholes for big corporations and increase tax on the ultrawealthy. The bill is expected to go through a good deal of revisions on the Senate floor as the party struggles to get the support of all 50 Democrats, as progressives and moderates within the party fight over how far the bill goes. 

Gas prices hit their highest levels since 2014, at an average of $3.42 per gallon. The increased fuel prices have been a big propellor of overall high inflation in the country, but have particularly been worrisome for households as travel for the Thanksgiving holiday is planned for this coming week. However, some predict that prices will continue to fall this week as oil barrel prices fall below the previous $80 per barrel. Increasing economic shutdowns in Europe and slightly decreasing demand in the US as covid wages surge again seem to be contributing to the gradual decrease. 

Gas problems are also hitting British Columbia, Canada for different reasons. Severe flooding from last week led to 14,000 residents still evacuated from their homes, highways destroyed, and farmland still flooded. Although some highways have started to reopen and food supplies have stabilized, an emergency order was put in place restricting the buying of fuel and the driving on highways until 1 December. Canadian armed forces are in BC helping with repair and cleanup alongside volunteers. 

Latin America: Leo Le Borgne 

Venezuelan opposition parties will be participating in regional elections for the first time since their boycotting of the previous ones in 2018. The opposition hopes to capitalise on the socioeconomic crises that have rocked the country. Following waves of economic sanctions, Venezuela’s poverty is skyrocketing as the nation’s public services continue to collapse. However, it is reported that the multi-faction opposition is losing its consensus against Maduro’s Socialist party. The Sunday vote will take place under the supervision of European Union observers. U.S. government officials objected to the E.U.’s involvement in overseeing the elections, claiming that the bloc’s presence brings international legitimacy to an election that is viewed by many outside experts as already fraudulent.

Business: Aoife Doyle 

Under new laws dubbed “right to rest”, Portugal has banned bosses from contacting employees, through text, email, or otherwise, out of working hours. The law is part of changes being introduced to improve work-life balance as the country continues to work from home due to COVID-19. Companies with more than 10 staff could face fines if they contact employees outside of contracted hours. Further rules announced included new rules on allowing staff with children to work remotely. Parents will now be allowed to work at home indefinitely without seeking prior approval until their child turns eight. Measures introduced to tackle isolation remote workers can feel were also included, with regular face-to-face meetings being expected by employers. The vast package of measures is hoped to attract more foreigners to the country with attractive enhanced labour protections for all workers. 

The oil giant Royal Dutch Shell has announced a plan to move its headquarters to the UK as part of proposals to simplify the company’s structure. If shareholders vote to shift the headquarters it will see the company change its tax residence from the Netherlands to the UK. Under the current dual-share structure, Shell’s Dutch A shares are subject to a 15% withholding tax, which means only British B shares could be bought back economically – capping buy-backs at $2.5bn a quarter. If the company ditches the dual Anglo-Dutch share structure this could see the maximum rising to $5bn increasing cash returns to shareholders. Earlier this year, a court judgement in the Netherlands ruled that by 2030 Shell must cut its CO2 emissions by 45%, however, Shell’s CEO Ben van Beurden said Shell could transition to net-zero by 2050, only if the move to greener energy was funded by oil and gas. Moving headquarters to the UK would see the company only comply with UK CO2 emission laws. Shares in Shell rose by more than 2% on Monday following the announcements showing initial confidence in the managements’ proposal. 

Japan’s government has approved a $490 billion stimulus package in an attempt to boost an economy battered by restrictions, and a supply chain crisis affecting the country’s largest manufacturers. Earlier this month, Japan announced a partial easing of border restrictions and has lifted virtually all restrictions on its economy. These measures were implemented as the country’s virus caseload fell due and 76% of its population were fully vaccinated. However, a continued ban on international tourists continues to weigh heavily on economic growth. The largest stimulus package to date in Japan accounts for just over 10% of the country’s economic output and aims to increase such output by 5.6%. The package includes programs to encourage domestic tourism, aid for struggling businesses, and a one-time cash handout of 100,000 yen ($878), per child under 18 for households where the highest-earning parent is paid less than 9.6million yen (~$84,300) per year. Under such restrictions nine in ten households with children are eligible. There is criticism of the cash handouts in an aging society. Last spring, the government sent stimulus checks to every resident, however, they did little to raise inflation or consumer spending; with analysts estimating that 70% of the handouts went into household savings.  

Culture: Armaan Gheewala

Thailand has taken a step back in terms of LGBTQ+ rights as its constitutional court has just ruled against same sex marrige. This controversial decision has prompted activities in the country to host a protest on the 28th of November in an attempt to raise awareness around the issue and potentially have this verdict overturned. However, before this verdict, the civil partnership bill was put forward which allows for same sex couples to enter into civil parternships where they can adopt children, pass on inheritances etc. This would be the most progressive same sex law to go forward in all of South East Asia. However, many claim that this is a ‘cop out’ by the Thai government and in fact singles out same sex couples when they ‘want to be treated like others’.

Unesco has released their global report on the future of education and goals to ‘reimagine the standards’ that current education is not matching and to ‘equip the next generation with future skills required in the new and innovative economy’. For example, a major proposed change is emphasising the need for economics to be taught in school as many youths exit school with little knowledge about the tax system or interest rates which is a key part of all individual’s lives. This is in response to claims that ‘today’s education system is not fit for purpose’ implying that many people leaving school do not have the skills required to operate in the society of tomorrow and the unprecedented challenges it will face.

Science & Technolgoy: Abi Byrne

Official data shows that deforestation in Brazil’s Amazon rainforest has hit its highest level in over 15 years. The report published by the Brazilian space research agency (Inpe) has found that deforestation increased by 22% in a year. According to the latest published  data, a total of 13,235 sq km (5110 sq miles) has been lost in the last year, the highest annual total since 2006. This is perhaps unsurprising as deforestation of the Amazon has increased under President Jair Bolsonaro, who has encouraged agriculture and mining in the rainforest. These are alarming statistics as recently Brazil was among a number of nations who pledged to end and reverse deforestation by 2030 during the COP26 climate summit. The pledge consisted of almost £14bn of public and private funds. Some of that will go to developing countries to restore damaged land, tackle wildfires and support indigenous communities.

Austria has announced a full COVID-19 national lockdown starting on Monday after experiencing a sudden spike in coronavirus transmission. Latest figures show there are currently 1,049.9 cases per 100,000 people in the past week, a record 15,809 cases were reported in the past 24 hours, in a population of under nine million. Austrian Chancellor Alexander Schallenberg said the imposed lockdown would last a maximum of 20 days. Additionally, it has been announced there will be a legal requirement to get vaccinated from 1 February 2022. This is in response to one of the lowest vaccine uptake globally, with one in three Austrians still not vaccinated against COVID-19. Austria is the first European country to take this stance on vaccination, however, nearby Germany, Bavaria, and Slovakia are all introducing ‘de facto’ lockdowns on the unvaccinated where case numbers are too high. 

Theory: Cassi Ainsworth-Grace 
The Financial Times has released its list of the best Economics books of 2021. Their list is dotted with names familiar to those in the Economics field – Eswar Prasad and his work The Future of Money, Markus Brunnermeier’s The Resilient Society and Cambridge University’s Diane Coyle and her work Cogs and Monsters (you can find a podcast of Coyle discussing her work with the IMF here). There are some old favourites on the list as well, including the final edition of behavioural economists Richard Thaler and Cass Sunstein’s Nudge

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