Issue 187: 2019 01 31: Lens on the Week

31 January 2019

Lens on the Week

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UK

BREXIT POKER: So yet again Ireland forms the lynch pin of British politics.  The House of Commons rejects the backstop and asks the Government to fight for alternatives.  The Government paradoxically votes to renegotiate an agreement which it itself proposed and approved.  Odd enough to provide food for the next generation of political dramatists but just where are we at the moment?  There are a few pointers:

No one wants “no deal”.  It will damage us and also European manufacturers such as the German car industry.  For the Irish it will mean a border down the centre of their Island which will destroy the Good Friday agreement and could be the beginning of a long slide into violence.

In the negotiations with Britain the EU probably overplayed its hand.  May was desperate for a deal and had no real cards (apart for not paying bills many of which are probably due anyway).  Accordingly they could use tough terms on the backstop to keep the UK in a weak position in relation to the trade deal which will ultimately be negotiated.  They did not realise that the terms they demanded would not get through the House of Commons.

Back at home the stance of MPs has depended on domestic politics.  Many, driven by personal ambition or pressure from their constituents, have said that the deal should have been done differently.  Others have been driven by beliefs and principles.  There is a clear majority against no deal but also against the backstop arrangements.  There is no obvious way of replacing the backstop and satisfying the Irish concerns.

So where now?  The sanctity of the agreement is an EU red line.  Parliament will not accept the backstop.  The government shuttles to and fro between them, more like a mediator than an administration.  Who will blink first?  The answer must be no one.  Too much political capital has been invested in the red lines.  Does that mean we leave without an agreement?  Not necessarily.  Behind the aggressive staring there is movement.  The EU has had little truck with a Spanish attempt to raise Gibraltar.  Mrs May is at last talking to Labour who could more than make up her deficit of votes in the House.  A fudge?  A statement outside the main text allowing some type of alternative backstop after a time.  That is the way this would work in the commercial world.  Are the politicians up to delivering it?

And meanwhile whose fault is it?  The EU for over negotiating?  The Tories for their internal disagreement?  Mrs May for not bringing Labour on board?  Labour for trying to use a national emergency to leverage their position?  All of them for a failure to properly understand the position?  It depends who you ask but one thing is sure.  If you ask the question south of the Irish border they will tell you that it is the fault of Cromwell and William III.

SALMOND CHARGED: Alex Salmond, formerly the leader of the Scottish Nationalist party, faces charges of attempted rape and sexual assault following an investigation by the Scottish Government.  The charges are denied and Mr Salmond, who lost his seat as an MP at the last election, will retain his weekly show with broadcaster Russia Today.  After saying that it could not comment on the court hearing the Broadcaster added: “This matter does not concern anything related to the Alex Salmond Show or RT, and The Alex Salmond Show will continue on-air, as usual, at this time.”

MP IN PRISON: Fiona Onasanya, the MP for Peterborough, was sentenced to three months in prison for perverting the course of justice after lying about a speeding ticket.  As the sentence is for less than twelve months she remains an MP until or unless a petition for recall succeeds.  That will not happen until her appeal has run its course.

International

VENEZUELA: Juan Guaidó, the leader of the National Assembly (the democratically-elected parliament which has been side-lined by Maduro’s increasingly dictatorial tactics) was proclaimed interim president, and has been recognised as the head of state by the USA, Canada and 20 other countries including all the other major democracies in the Americas; EU countries such as Spain, France, Germany and the UK have said they will recognise him if Maduro does not announce truly democratic and transparent presidential elections this week.  The Bank of England has denied Mr Maduro access to the Venezuelan gold reserves which it holds, and the USA has announced sanctions on the state-owned oil company PDVSA; US companies will only be able to buy Venezuelan oil if payment is made to an account set up for Juan Guaidó’s government.  Other sanctions prevent the export of US goods to Venezuela.

The USA is the only country which has purchased what little oil the Venezuelan oil industry (crippled by inefficiency, corruption and under-investment, though its oil reserves are greater than Saudi Arabia’s) has managed to produce; Venezuela exports oil to other countries such as China and Russia merely to service its debts to them.  Without US dollars to buy the loyalty of the army and other supporters, the Maduro regime looks doomed.  There are also signs that the inhabitants of the barrios (the poorer quarters of Venezuela’s cities) which have traditionally supported Maduro are now ready to rebel against him.

It’s difficult to predict what will happen now.  If the army deserts Maduro, his regime will fall and power may pass to Juan Guaidó and the National Assembly, with the restoration of democracy, fairly peacefully. If the army does not desert him but popular protests and demonstrations continue to grow in number and strength, then a violent revolution and counter-revolution may erupt.  Clashes between colectivos (armed pro-Maduro gangs of vigilantes) and anti-Maduro protestors may escalate into civil war.

If armed conflict breaks out, will the USA intervene?  President Trump says that “all options are on the table”.  The national security adviser John Bolton has been sending hawkish signals.  Will other Latin American countries intervene?  The three million Venezuelans who have emigrated to neighbouring countries represent a loss of sovereignty for Maduro and a transfer of it to the governments of those countries which are sheltering them.  Brazil’s new right-wing president Jair Bolsonaro has been a long-standing critic of Maduro’s regime.

Russia and China have warned against foreign intervention and continue to support Maduro.  Maduro’s regime is deeply in debt to both those countries, which are no doubt concerned that regime-change could result in bad debts being written off.  In addition, Russia – dependent on the revenue from its own oil-exports – may well be happy to see the ruinous state of Venezuela continue, as the under-production of the PDVSA keeps world oil-prices high.  The restoration of democratic government in Venezuela could well result in the international investment which its oil industry needs to become efficient and productive again; but this would increase global oil-output which would bring prices down – another unwelcome scenario for Russia.

Financial

PRIDE END:  They will be crying in their beer in London public houses this week with the announcement that Fuller, Smith, and Turner, the oldest independent brewery in London, has agreed to sell itself to the Japanese beer conglomerate Asahi.  Fuller makes London Pride from its Griffin brewery in Chiswick, where it has been domiciled for over 300 years.  It makes though most of its profits from the chain of pubs and hotels which it owns in and around London.  The price is said to be £250m, though up to £45m is to pay tax, fees, and principally redundancy costs – implying that a significant number of Fuller’s staff will be losing their jobs.  The reason for the sale, which was unexpected, is not any trading weakness in the business – December sales were up 9% and the traditional beer sector is continuing to do very well.  Indeed that seems to be the reason for the sale – the number of small craft breweries is booming and Fuller sees them as becoming an increasing threat to future profitability, especially as many have lower cost bases from locations outside London.  So what is seen as an attractive price from Asahi seems to have swung the deal – yet to be formally agreed by the regulator, though that is not likely to be an issue.  Except maybe to traditionalist drinkers.

POWER OFF: Yet another small energy supplier has failed – making 10 last year and already 2 this.  This time it is Our Power, a Scottish supplier, established by the Scottish government as a specialist source for social housing owners – supplying its products only through pay-as-you-go meters.  It never achieved a large enough customer base to achieve viability, and now has decided it cannot sustain its losses any further.

POWER ON: At the other end of the supply chain, things are a bit different.  The national power networks – the grid which delivers electricity to homes and business – is owned by 9 power companies who are responsible for maintaining and running the networks.  These have always been attractive to those wanting a low risk low reward investment, but increasingly are been looked at as businesses which could take a little sweating to produce enhanced income.  Just up for sale is Electricity North West, currently owned by JP Morgan, the American investment bank. Although the most likely buyer was thought to be another infrastructure investor, perhaps from Europe, Scottish Power, who own two regional networks,are said to be emerging as frontrunner.  Scottish Power is UK domiciled, of known reliability, and will be able to make some economies of scale in absorbing another similar business.  In the eyes of the regulator, those are all positive things and will do no harm at all to Scottish Power’s bid, if it comes in at more or less the right price.

POWER ON: If the lights do go out, it looks as though at least we’ll be able to cook for a little longer. The North Sea seems to keep on giving. Even though its reserves were thought to be near exhaustion years ago, new fields keep turning up, though most are small. However, ten years ago the discovery of the big Culzean gas field breathed new life into gas explorers; now that has paid off with the revelation that the Glengorm site, a hundred miles off Aberdeen, has reserves of around 250 million barrels.  What’s more, they can be accessed from existing drilling platforms.  Good news for the owners, China National Offshore Oil Corporation, for gas users, and for the economy. And maybe for the Scottish National Party…

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