The focus was inevitably on Britain as the clock ticked down on Friday night towards the moment of departure from the European Union. How would the economy fare on the outside of the world’s biggest market in the years to come? What sort of trade deal with the EU would be cooked up in the scant time available for negotiations? How easy would it be to do a deal with the arch-protectionist Donald Trump?
Those are all perfectly reasonable questions. But they are based on an assumption: that Britain is weak and doing badly, and the remaining 27 members of the EU are strong and doing well. That, most definitely, is not the case.
Official figures showed that growth in the eurozone eased back from 0.3% to 0.1% in the final three months of 2019. France and Italy – the second- and third-biggest monetary-union countries – both recorded falls in output. Data for Germany, Europe’s powerhouse economy, has yet to be released, but the signs are that it grew by as little as 0.1%.
Strikes in France were partly responsible for the 0.1% drop in French GDP but industrial unrest was not to blame for the 0.3% contraction in Italy, a country where output has yet to regain pre-financial crisis levels.
Germany, meanwhile, has been struggling because its economy depends on the export of manufacturing goods. These have been adversely affected by a slowdown in global demand exacerbated by President Trump’s aggressive approach to trade.
At the start of the year there was some hope that the global economy had bottomed out. Central banks had provided a fresh dose of monetary stimulus, and demand seemed to be picking up. Washington and Beijing called a truce in their trade war. The International Monetary Fund was starting to sound a bit more optimistic about the state of the global economy.
Europe has never really recovered from the last crisis
Then the coronavirus struck. It is too early to say whether the deaths in China represent a Black Swan event – something that comes as a shock and has a major impact – but the crisis certainly has the potential to be one. Already there have been indications of slower growth in China, curbs on air travel, and fears that global supply chains could be severed. None of which is good for Germany or the wider European economy.
If, as most economists expect, the Chinese government quickly gets to grips with the coronavirus, the hit to the global economy will be brief and modest. If it doesn’t, the EU is in serious trouble.
Why? First there is not a great deal of scope to loosen policy, at least in the conventional sense. The European Central Bank is operating with negative interest rates and has restarted its quantitative easing – or money creation – programme. There is not a lot more the ECB can do.
Second, Europe has never really recovered from the last crisis. The ECB was slower than the US Federal Reserve to cut interest rates, slower to experiment with quantitative easing, and lacked the wherewithal to sort out the bad-debt problems of Europe’s banks.
So while the credit channels in the US are again functioning, in the eurozone they are still blocked, making monetary policy less effective than it would otherwise be.
There is one final problem: monetary union will remain half-baked without a banking union and a unified eurozone budget. Neither – largely due to German opposition – is remotely in prospect.
The year ahead is going to be tough – just as tough, if not tougher, than it will be for the UK.
Aston Martin pins its hopes on Bond and an SUV
Aston Martin’s much-hyped stock market float has ended with a humiliating bailout by a billionaire not even 18 months later.
The luxury carmaker’s executives, international shareholders and bankers made fortunes from the initial public offering in late 2018. Aston Martin was “worth” £4.3bn at the time, a valuation that was rapidly revealed to be fanciful. A plan that relied on a new factory doubling total production meant that the company’s chief executive, Andy Palmer, was always walking a tightrope. When sales dropped and costs kept rising, Aston Martin was left horribly exposed.
The serial fashion investor Lawrence Stroll, who led the rescue consortium and will now become executive chairman, at least appears to have his heart in it, with a pledge to use the Aston Martin brand on his Formula One racing team for the next decade.
Investors have welcomed Stroll. Following a cash injection to stave off bankruptcy, the shares rose 24% on Friday (though they are still just a quarter of their £19 float price). With the prospect of a James Bond marketing blitz around the latest film in April – just as Aston Martin starts production of its new DBX SUV – and the stardust of Formula One, there might finally be a few reasons for cautious optimism at the company’s HQ in Warwickshire.
Still, there are bumps ahead. The bet on an untested SUV is not a surefire winner. Nor are luxury products aimed at the rich immune from shocks. China is key for the SUV, so the coronavirus could not have come at a worse time.
Slashing investment in zero-emissions electric battery technology will surely store up problems for the future for shareholders (not to mention the planet).
Palmer needs the DBX launch to go to plan if the bailout is not to become his swan song.
Ticketing watchdog needs rather more bite
No one familiar with “secondary” ticketing will have been surprised to see the ticket resale site StubHub criticised by the Competition and Markets Authority (CMA) for allegedly misleading consumers and potentially breaking consumer law.
After all, we’ve been here before. The CMA has fought a long-running battle with StubHub’s chief rival, Viagogo, which refused to change its ways until the CMA resorted to legal action.
StubHub styles itself as the more acceptable face of ticketing. Now it has been accused by the regulator of Viagogo-style transgressions, such as selling tickets without warning buyers that they might be refused entry to events when artists have imposed prohibitions on resale. The company also allegedly misleads consumers about the scarcity of available tickets – a pressure-selling tactic.
If both major resale sites behave like this, what hope is there of any improvement if Viagogo’s proposed £3.1bn takeover of StubHub goes ahead, creating an unrivalled industry powerhouse?
The CMA is currently weighing up whether to intervene in the British part of this tie-up on monopoly grounds. It is hard to imagine why it would allow the two major players in the UK’s ticket resale market to get together, even if they had spotless records.
While the watchdog has the power to intervene in the merger, its teeth are less sharp when it comes to consumer law. The CMA can go to court but it’s a lengthy and costly process that requires a judge to make a ruling. That’s why the CMA’s chief executive, Andrea Coscelli, used the StubHub announcement to call for the regulator to be given greater powers to determine when consumer law has been broken and to issue fines.
Given the difficulty it has had in bringing StubHub and Viagogo to heel, it is hard to argue that the CMA should be denied more effective ways of exercising its authority.