Issue 175: 2018 10 25: Lens on the Week

25 October 2018

Lens on the Week

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UK

BREXIT: Question: “When is a backstop not a back stop?”.  Answer: “When it is a backstop to a backstop”.  The Byzantine negotiations over what happens in which contingency are enough to confuse anyone, but in the end it is all about where we end up if there is no further agreement between the parties as to how the UK relates to the Customs Union.  The EU’s answer is a customs border down the Irish Sea splitting the UK into two parts, only one of which (Northern Ireland if you’re still following) would obey EU market rules and fall within the Customs Union.  That doesn’t work for Mrs May, both because she is dependent on the Democratic Unionists in the Commons but also because she is unwilling to see our links with Northern Ireland weakened in that way.

That leaves two possibilities.  One is to keep the whole of the UK in the Customs Union.  That the Irish question should dictate the entire running of the UK economy may sound odd, but the real weakness in this proposal is that it would prevent our entry into trade deals with other countries.  We might tolerate it for a bit but, as an endgame, it is unsatisfactory.

That leaves the third possibility, a lightweight inspection regime on the border between the North and South of Ireland.  It is the obvious logical answer but means altering the Good Friday Agreement and that is politically highly sensitive.  Hence the impasse.  How much easier it would have been if Leo Varadkar, the Irish Taoiseach, had thought a bit more before he nailed his colours to the “completely unacceptable” mast and had merely said that he would ensure that any border arrangements did not unduly impact local people.  Still, he was new to this and no doubt proud of his red lines.  Presumably he will be less proud of them if they result in a no-deal Brexit, with a hard border and no trade agreement between the North of Ireland and the South.  Perhaps if that is likely he will step back a bit – announcing his tactics as a great success, of course.  Pass the fudge bag someone.

TECH COMPANIES: Those whom the gods would destroy they first make mad.  As technology companies Amazon, Google and Uber tool up with lobbyists to defend their low tax bills, they would probably do better not to back their lobbying with threats about reducing their UK investment.  For one thing, it is an oddly misplaced response.  The question facing the legislators is whether tax should be paid by reference to access to the UK marketplace rather than, as is traditionally the case, by reference to where work is actually done.  For another, there is no prospect whatever of the technology companies winning this argument, either here or in other countries whose marketplaces they cannot afford to ignore.  Better, perhaps, to work with governments in designing a system they can work with.  But perhaps they are too big and too arrogant for that, in which case there are unlikely to survive in their present form.  Read about the fate of the Templars, darlings.

GUNS: The National Ballistics Intelligence Services reported a record level of guns and ammunition being sent to it for analysis this year.  The previous peak was in 2012, but that level has now been passed.  Possession of a firearm with intent was up 8% over the year, although gun murders have dropped by 45% over the last decade.  Home Office statistics show that thirty-two people were shot dead in the year ending March 2017.

International

INF TREATY: President Trump has decided to withdraw the USA from the Intermediate-Range Nuclear Forces agreement signed by Ronald Reagan and Mikhail Gorbachev in 1987, which banned missiles with ranges between 500km and 5,500km.  The White House believes that the range of Russia’s new land-based cruise missile, the Novator 9M729, breaks the agreement.  By walking away from the treaty, the USA would be able to develop and deploy weapons to counter this and other Russian missiles, and to counter the possible deployment of similar missiles by China which is not bound by the agreement.

The decision may well have played into Putin’s hands, however.  The Kremlin would be free to continue with its policy of weapon-development while casting the US as the war-mongering deal-breaker for tearing up the agreement.  The treaty was designed put an end to the deployment of missiles in Europe; but any attempts by the USA to return nuclear weapons to Europe would almost certainly trigger widespread protests, political opposition and anti-American sentiment in the host nations, driving a wedge between the USA and its European allies – which is one of the Kremlin’s strategic aims.  Russia claims that the US’s deployment of a missile defence system in eastern Europe is itself a violation of the INF treaty.

The US national security adviser John Bolton flew to Moscow for meetings with Russia’s foreign minister Sergei Lavrov and with President Putin to discuss nuclear security and Washington’s withdrawal from the treaty.  Presidents Trump and Putin will meet next month in France after the World War I commemorations to discuss the issue.

ELECTIONS: The people of Afghanistan went to the polls for the third time since the defeat of the Taliban in 2001.  Technical problems meant that voting was extended for an extra day.  Dozens were killed in almost 200 attacks; in a polling station in Kabul, a suicide bomber killed 15 people and wounded many more.  Taliban militants prevented people from entering polling stations in some areas.

In Poland, the governing Law And Justice party appears to have won the regional elections (although centrist parties appear to have triumphed in elections for mayors in big cities).  These were the first elections since the ones which gave Law and Justice their parliamentary majority in 2015.  Since then, the government’s attempts to control the judiciary and the media have been condemned by the EU.

Following the recent inconclusive referendum in the Republic of Macedonia, the republic’s parliament has voted by 80 MPs to 39 to change the country’s name to the Republic of North Macedonia.  Both sides are claiming illegal foreign interference; some say that the USA and the EU attempted to swing the vote in favour of the name change, others say that Russia tried to swing the vote against the change.  The MPs who enabled prime minister Zoran Zaev to secure the required two-thirds majority have received death threats and are under police protection.  The change – which includes dropping any claims to the legacy of Alexander the Great – should ease the way to Greece dropping its objection to its neighbour applying to join the EU and Nato and so reducing Russian influence in the Balkans.  The Greek parliament now needs to take a vote on the change.

SCHOOL SHOOTING: A teenage student armed with bombs and firearms attacked staff and fellow pupils at a technical college in the Crimean city of Kerch.  At least 19 people were killed and many more wounded.  The 18 year old attacker killed himself when faced with security officers.  It was the latest in a number of attacks in Russian schools.

Financial

ALL THE NEWS THAT’S FIT:  The battle over the future of Johnston Press seems to be nearing a flash point.  Johnston, whose headquarters are in Dundee, is the largest publisher of regional newspapers in the UK, owning over 200 titles – including such major papers as the Yorkshire Post and the Scotsman.  That used to be a lucrative business but the digital age has meant that many people get their news via the internet or the radio – the BBC’s network of free access regional radio stations has been especially blamed for the decline in circulation of printed newspapers, many of which have become freesheets dependent on advertising revenue, itself in steep decline.  Cost cutting has meant a fall in editorial standards and disappointed readers abandoning the printed pages.  Now Johnston has a £225m bond to refinance next June, no resources with which to do it, and revenues which continues to decline.  In 2007 the company had a value on the LSE of £1.4bn; last week it was £2.5m.  The obvious course would be a restructuring with perhaps an interim administration to enforce terms on shareholders, bondholders, and creditors.  But that is not to the taste of shareholder Christen Ager-Hannson, a Swedish freesheet publisher, who began buying shares last year and last week took his stake over 25%.  That means that whilst he cannot control the company, he can block any major reconstructions and unless the present board want to put the group into insolvency, they have to deal with him.  The market now awaits word from both camps as to what they intend to do next.

BUT ON THE OTHER FOOT:     Good news from Dr Martens, the iconic bootmaker from – no, not Northampton nowadays, but from hip Camden, north London.  Earnings last year were up a third, on total revenue up 20%.  More sales at higher margins is the holy grail of retailing – but what it needs is for your products to become the height of fashion.  Heavy boots seem a bit unlikely but Dr Martens have long ridden the roller coaster of fashion – almost going bust a couple of times in the process – and now is one of the good times.  The business sells both through other stores and direct; they have opened another 25 stores in the last year, giving them 94 stores in high fashion locations around the world – such as Camden – but also sell on line.  Indeed, whilst overall direct revenue rose 23%, on-line was up 34% and now accounts for almost half the firm’s direct sales.  (Retail revenue through other retailers is about 30% of total sales.)

GO EAST: Sir James Dyson, whose fortune is derived from the application of high quality manufacturing to high quality design (he says it, but it is true) is going east for his next venture, the long trailed movement into the manufacture of electric cars.  Dyson has looked at many locations but it is no great surprise that the place chosen is Singapore, where Dyson sponsors the research department of the University and employs 1,100 in a very advanced plant making electric motors for the group’s consumer products.  Sir James says that this is nothing to do with Brexit – he is a great Leave supporter saying that it is a fantastic opportunity for the UK.  But he thinks the leading market for the car, which should be on sale in 2021, will be in the Far East and it makes much more sense to build close to the key markets, where local trends can be closely monitored.  The new business will create another 1,000 jobs in Singapore.

 

 

 

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