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EEA could be right place for UK in Europe
David Cameron’s veto of the new EU fiscal arrangements should reopen the debate on the UK’s relationship with the EU. Euro zone membership is politically inconceivable but unless the tone of the debate changes it is likely to be treated by other members as a pariah or even a traitor. There is an alternative – the European Economic Area.
The EEA was established in 1992 as a sort of half-way house between full membership in what was then called the European Community and total autonomy. EEA countries participate fully in the common market and have to follow the EU rules and regulations which keep markets free. But they do not participate in the governance of the Union. As far as other European matters go, they can more or less pick and choose whether to participate.
It’s not a bad economic deal, but the group has shrunk as its founding members joined the EU. The EEA today is only Norway, Lichtenstein and Iceland, with Switzerland legally out but practically in. The UK would be a natural. By leaving the EU, it would save most of its annual 10 billion pound contribution, a sum which could rise by 50 percent if irritated members carry out their threats to its rebate. UK governments would have less at stake in arguments with continental governments they don’t really understand.
Of course, outside the EU, Britain would have even less influence on European decision-making. That decline would be felt in financial markets: euro bond and currency trading would probably migrate to inside the euro zone. But then again, the current arrangement is artificial. Strictly euro business would probably leave London anyway. In higher value-added businesses such as global finance and asset management, London will stay strong as long as the City keeps its skills edge.
The challenge would be to make the transition to the EEA amicable. But it is worth making an effort to keep the benefits of the EU’s large market while minimising costs, friction and bureaucratic meddling. Quietly and non-confrontationally, the EEA should be Britain’s goal.
Tech wrap: RIM under fire ahead of results
Jaguar Financial, an activist shareholder that has asked the BlackBerry maker to sell itself in whole or parts, once again called on two of RIM’s independent directors to push for a separation of the roles of chairman and chief executive.
Bloomberg reports that Zynga updated its initial public offering filing to expand on the risks of losing its chief executive officer after Google Chairman Eric Schmidt called him a “a fearsome, strong negotiator.”
Amazon.com said on Thursday it is selling more than one million Kindle devices a week, an unusual disclosure from the largest Internet retailer that comes in the wake of some negative reviews of its new Kindle Fire tablet.
Chris Maxcer of MacNews World has a look at the most momentous moments the past year at Apple.
Its iconic cofounder and CEO is gone, but the company managed to change the way people buy software, drive its tablet dominance even deeper, bring revolutionary new features to its OS and introduce a service that has people talking to their phones in a whole new way.
Finally, U.S. soldiers facing emotional problems and contemplating suicide may soon be able to use a smart phone application to connect them to help.
The Tennessee National Guard, the state’s reserve military force, launched a pilot program of the “Guard Your Buddy” app that was spearheaded by Clark Flatt, president and CEO of the Jason Foundation.
Europe’s clear and present danger to U.S. economy
A recent raft of better U.S. economic data, including a steep drop in weekly jobless claims reported on Thursday, have pointed to a swifter recovery. But such signals seem a bit futile when there’s a risk of another major global financial meltdown lurking.
Yet just what is the likely impact of the euro zone’s morass on the United States? Economists at Goldman Sachs ran some figures through their models, and the results were not pretty: overall, Europe’s crisis is likely to shave a full percentage point off U.S. economic growth. In a world where economists have come to expect the “new normal” for U.S. growth to be around 2.5 percent, that could mean the difference between a decent recovery and one that is highly fragile and vulnerable to shocks.
Goldman’s analysis focuses on so-called counterparty risk – the exposure of U.S. financial institutions to European lenders.
Euro area banks–including both the head office and the US subsidiaries–currently hold about $1.8 trillion in claims on US counterparties, or 3.3% of total US debt outstanding. If they were to cut their lending to US residents by 25%–an admittedly arbitrary number but roughly equal to the peak pace seen in the 2008-2009 financial crisis–this would imply a 0.8% hit to US debt outstanding. Prior research suggests that such a hit could shave 0.4 percentage points off US growth, all else equal.
Some pullback is already visible in the Fed’s senior loan officers’ survey. In the fourth quarter of 2011, a net 22.7% of the US subsidiaries of foreign banks indicated a tightening of C&I lending standards; in the second quarter, a net 18.2% had indicated an easing of standards. When adjusted for the 20% C&I loan market share of foreign banks and using the historical relationship between C&I lending standards and GDP growth, this implies an impact on GDP growth of about -0.2 percentage points as of the Q4 survey, compared with +0.2 points as of the Q2 survey.
Of course, the behavior of Euro area banks forms only one part of the potential financial spillovers from the Euro crisis. We continue to think that the European crisis will subtract around 1 percentage point from US growth over the next year, with banking spillovers accounting for about half of this impact.
The findings corroborate the research of Princeton University professor Hyun Song Shin, who has done joint work with Goldman’s chief economist Jan Hatzius in the past. Shin argued in an IMF paper last month that the notion that the United States could be insulated from a European banking debacle is naïve.
The global ?ow of funds perspective suggests that the European crisis of 2011 and the associated deleveraging of the European global banks will have far reaching implications not only for the euro zone, but also for credit supply conditions in the United States and capital ?ows to the emerging economies.
Seen that way, the stakes for top European leaders could not be higher: the fate of the world economy rests in their hands.
Moscow is not Cairo. Time to buy shares?
Comparisons to the Arab Spring may be tempting, given that the demonstrations in Russia are also spearheaded by Internet-savvy youth organising via social networks.
But Russia’s economic and demographic profiles suggest quite different outcomes from those in the Middle East and North Africa. The gathering unrest may, in fact, signal a reversal of fortunes for the stock market, down 18 percent this year, argue Renaissance Capital analysts Ivan Tchakarov, Mert Yildiz and Mert Yildiz.
First of all, Russia’s youth unemployment rate is relatively low at 14 percent, compared to Syria’s 18 and 30 percent in Tunisia.
Secondly, the percentage of young men as part of its rapidly ageing population is low — those aged 15-29 account for 11 percent in 2009 versus a range of 13-17 percent in its fellow oil-exporting peers in the Middle East. This is particularly significant since the relationship between a country’s political stability and its proportion of angry young men has been well elucidated.
And although Russia’s GDP per capita is generally higher than those in the Middle East, its income inequality is more pronounced. Energy exports per capita are also lower in Russia. All this suggests there is room for the Kremlin to ratchet up government spending to cool public anger if it wanted to.
“A strategy of moderately higher government spending on the eve of Russia’s March presidential elections may help assuage current pressures. Russia’s 2012 budget already assumes that spending grows at higher rates than inflation, but we believe additional fiscal disbursement may well occur,” the Moscow-headquartered investment bank said.
“We think this should translate into credit growth rising faster than GDP, with the difference potentially spilling over to the stock market.”
What if the euro collapses?
A closely-watched survey from Bank of America Merrill Lynch out on Tuesday showed a near 50-50 split among fund managers expecting a country possibly leaving the 17-member currency bloc.
And some of our participants at the Reuters Investment Summit last week put a high 70-75 percent chance of some countries leaving the euro zone next year.
Swiss wealth manager Sarasin reckons the impact will be a meteor striking the earth and offers following scenarios:
- A run on the banks by savers keen to put their money into a core euro country would bring down the banking system of the departing country overnight.
- Companies and private households would not have access to loans, nor would they be able access any more cash.
- The state, which in this situation should support the banks, would be bankrupt as well. Financial markets would deny it access to funding.
- The new currency, once it is introduced, would depreciate by between 30% and 50%, which would multiply the government’s debts.
- The depreciation would lead to imported inflation and trigger trade union demand for compensation, setting off a hyperinflationary spiral.
- The bankruptcies of banks in Southern Europe would bring about the downfall of their northern counterparts because the latter have lent them large sums of money in the belief that monetary union would last forever.
- Anticipating an appreciation, huge capital flows would drive up the new Deutschemark. Many medium-size companies would become uncompetitive overnight.
“There are thousands of venues for how a meteor could approach earth and there are thousands of conceivable but unlikely scenarios how the euro could collapse which would substantially alter investors’ optimum positioning… Investors should know that there is no refuge from a euro collapse,” Sarasin’s chief economist Jan Poser says.
Seinfeld, a show about bupkis…
There’s a rumor that my all-time favorite sitcom, “Seinfeld,” is coming back to TV next season. Any chance it’s true?
Basically, yes. They’re shooting it now, with Jerry Seinfeld, Jason Alexander and Julia Louis-Dreyfus reprising their original roles.
That’s GREAT! I can’t wait to see what they…. Hey, wait a minute. What about Kramer?
Well, that’s the new twist. Kramer is out. Instead of New York City, the other three live in Israel, and their wacky neighbor across the hall is President Shimon Peres. I’m telling you, the stuff those guys get up to…
I have to say, Blog Guy, that sounds to me like a VERY different show.
No, it’s pretty much the same, apart from being totally in Hebrew. They’re even recycling some of their more successful plots.
Really? So what’s going on in this top photo, with Seinfeld and Peres?
I believe Jerry is talking to Shimon about some kind of contest the four of them are having. I wish I could tell you more, but this is a family blog…
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Top: Israel’s President Shimon Peres (R) meets U.S. comedian, actor and writer Jerry Seinfeld in Jerusalem November 23, 2007, in this handout photo by the Israeli Government Press Office (GPO). REUTERS/Moshe Milner/GPO/Handout
Left: Peres meets actor Jason Alexander at the president’s residence in Jerusalem October 25, 2011. REUTERS/Ronen Zvulun
Right: Actress Julia Louis-Dreyfus attends a ceremony to unveil her star on the Hollywood Walk of Fame in Hollywood, May 4, 2010. REUTERS/Fred ProuserREUTERS/Ronen Zvulun
More stuff from Oddly Enough
Emerging market bankers feel jobs pain
It’s hard to pin down data for emerging markets alone, but bankers and recruitment specialists say many job cuts have come from this sector, where only a year or two ago financial sector employers were trumpeting emerging market investment as the next new thing.
Credit Suisse and Unicredit are among banks where there have been emerging market job losses, banking sources say.
According to Scott Miller of emerging markets recruitment specialists the Downings Partnership:
We have seen a big decrease in recruitment over the last six months, the banks have really stopped recruiting, though there is some recruitment into the asset management firms and hedge funds. We are seeing a lot of people looking for jobs because bonuses are so bad.
Particularly hard-hit are of course jobs focusing on Middle East and North Africa, after investment there has heavily dried up due to the Arab Spring. A lot of MENA-focused hedge funds have suffered in the last 18 months, Miller says.
Hedge funds, which often take bets on riskier emerging markets, have generally been having a bad year. The industry has shrunk to $1.66 trillion, its smallest in nearly two years, after punishing redemptions in October, according to data this week from BarclayHedge and TrimTabs Investment Research.
Meanwhile at the banks, firms are no longer trying to do everything, but instead want to concentrate on what they do well, and that might not include emerging markets.
According to Jonathan Nicholson, MD at international recruitment firm Astbury Marsden:
We will see less full-service offerings in the next 12 months, some reshaping and more streamlined banks. There will be more traders — and people supporting those functions — out on the street.
Moscow is not Cairo. Time to buy shares?
Comparisons to the Arab Spring may be tempting, given that the demonstrations in Russia are also spearheaded by Internet-savvy youth organising via social networks.
But Russia’s economic and demographic profiles suggest quite different outcomes from those in the Middle East and North Africa. The gathering unrest may, in fact, signal a reversal of fortunes for the stock market, down 18 percent this year, argue Renaissance Capital analysts Ivan Tchakarov, Mert Yildiz and Mert Yildiz.
First of all, Russia’s youth unemployment rate is relatively low at 14 percent, compared to Syria’s 18 and 30 percent in Tunisia.
Secondly, the percentage of young men as part of its rapidly ageing population is low — those aged 15-29 account for 11 percent in 2009 versus a range of 13-17 percent in its fellow oil-exporting peers in the Middle East. This is particularly significant since the relationship between a country’s political stability and its proportion of angry young men has been well elucidated.
And although Russia’s GDP per capita is generally higher than those in the Middle East, its income inequality is more pronounced. Energy exports per capita are also lower in Russia. All this suggests there is room for the Kremlin to ratchet up government spending to cool public anger if it wanted to.
“A strategy of moderately higher government spending on the eve of Russia’s March presidential elections may help assuage current pressures. Russia’s 2012 budget already assumes that spending grows at higher rates than inflation, but we believe additional fiscal disbursement may well occur,” the Moscow-headquartered investment bank said.
“We think this should translate into credit growth rising faster than GDP, with the difference potentially spilling over to the stock market.”
Tech wrap: Is RIM circling the drain?
Zynga shares opened as much as 10 percent above their offer price on Friday but then rolled back below the IPO price, showing that investors were still concerned about its dependence on Facebook and its growth prospects and that demand for hot tech IPOs may be waning.
The news has not deterred the creators of “Angry Birds,” who are said to be considering a stock market flotation in Hong Kong.
Staying with the creator of “FarmVille”, tech editor Peter Lauria, social media editor Anthony DeRosa and reporter Liana Baker spill the secrets to Zynga’s addictive gaming platforms.
Finally, TechNewsWorld is reporting that the U.S. Patent Office has granted Google a patent that covers the way in which cars could transfer from human-driver mode to autonomous-driving mode. Google has already conducted many driverless-car experiments, claiming it’s logged 200,000 miles of driver-free travel.
AMD slowly replenishes its ranks
New Chief Executive Rory Read, who started in August, has lured Lisa Su from Freescale Semiconductor to head up AMD’s client, commercial, graphics and game console markets.
Su will define the requirements for new chips and get them to market. To get that done she’ll work closely with Mark Papermaster, who joined AMD in October to head up R&D and engineering of new chips.
Papermaster once worked on iPod and iPhone development at Apple and should be a major asset as AMD focuses more on making energy-efficient chips for mobile devices.
Read’s arrival at AMD ended an eight month search after the board forced out chief executive Dirk Meyer at the start of the year. Board members — by some accounts awed at a plethora of tablets and smartphones running ARM-based chips at the Consumer Electronics Show in Las Vegas — reportedly disagreed with Meyer over what they saw as his slow approach to attacking the mobile market.
Other executives left AMD soon after Meyer’s departure.
Read has emphasized cleaning up AMD’s execution troubles, including problems with foundry partner GlobalFoundries manufacturing its new 32 nanometer Llano chips.
In November, Read cut 10 percent of AMD’s workforce, equivalent to over 1,000 people, in a bid to trim $200 in operating costs and bankroll research and expansion into low-power chips and cloud computing.
Shortly after Read began, highly respected AMD veteran executive Rick Bergman jumped ship, and he has yet to be replaced. An AMD spokesman said to expect more senior executives to be appointed, including a head of human resources and a head of strategy.
Sheltersu 