19 September 2019
Lens on the Week
UK
BREXIT SOLUTION? A publicity trap sprung by the Luxembourg Prime Minister, Mr Bettel? A failure by Johnson to take on a hostile crowd? Look at it as you will, no one comes out of the aborted press conference in Luxembourg with much credit. But Brexit runs deep emotionally and manners suffer. Forget that for a moment and look at the substance; what was really being said in the meeting between Boris Johnson and Jean-Claude Juncker? Jean-Claude’s line seems to be that he is not wedded to the backstop as such but that the EU must have a system which properly protects its markets and its standards. It cannot have an open border between Northern and Southern Ireland and, as customs posts cannot be erected there because of the Good Friday Agreement, the UK needs to come up with an alternative plan.
The odd thing is that there is an obvious plan and, at the risk of boring readers by repeating what was in the Shaw Sheet earlier, we will set it out again. The starting point is that during any backstop period the border for tariffs, regulations dealing with the quality of goods, etcetera has to run down the Irish Sea. At first sight that might be thought unacceptable because it will result in Northern Ireland being aligned with the Southern Irish economy rather than that of the UK. In fact that need not be the case. The right could be given to any NI business with a good tax compliance record to elect out of the Customs Union and into the English system so that:
- if it acquired goods from the EU or from unelected NI suppliers, a tarrif would have to be paid (collectible through its tax returns);
- if it supplied goods to the EU or NI customers other than elected businesses, a tarrif would again have to be paid (again collectible through its tax returns) and the goods would have to meet EU standards;
- there would be no tarrifs on acquisitions from or sales to English businesses;
- in dealing with the rest of the world an elected business would be able to make use of the UK’s treaty network; and
- there would be no objections to a group containing an elected company for third party sales and an unelected company for sales in the EU.
Certainly elected businesses would have to do more form filling and be subject to inspections, but that should not be insuperable. Yes, Northern Ireland would be treated differently from other parts of the UK but its system would be different from that of other EU countries as well and the privilege of businesses being able to choose their regime should help it economically.
Not a bad answer you might think but the difficulty is to get the ear of those involved in the political debate; so if you know a politician, a journalist or someone else who might be interested and if you feel that the Brexit debate has gone on for long enough, please forward this article.
SUPREME COURT: More than 44,000 people were watching the Supreme Court live on Wednesday as the Government’s lawyer, Sir James Eadie QC, submitted that the decision to prorogue parliament was not justiciable, ie reviewable by the Courts. The case is an appeal from the English Divisional Court which accepted the Government’s position and also an appeal from the Inner House of the Scottish Court of Session which came to the opposite conclusion reversing the decision of the Scottish equivalent of the High Court. Judgement will take a few days. If the Government loses, the Queen will presumably be advised to recall parliament, no doubt beginning further initiatives to change or control the Government.
POLLUTION: A new website run by Kings College, London, now provides information on air pollution levels for every London postcode. It is to be extended across the country in due course and commentators say that it will affect property prices. So it will. So it should. Nothing will focus the minds of residents as much as direct impact on value; when they see that they will all want something done about it.
International
IRAN/SAUDI ARABIA: Saudi Arabia’s Khurais oil field and Abqaiq oil production facility were hit by a devastating cruise missile and drone attack on Saturday. The damage to the world’s biggest crude oil processing plant halved the country’s output (reducing it by 5.7 million barrels a day), will take weeks if not months to repair and has left Saudi’s oil industry looking dangerously vulnerable.
Houthi rebels in neighbouring Yemen, where they’re fighting a war against Saudi and its allies, claimed responsibility for the attack. Such a claim has little credibility, however, given the sophistication of the attack and that the missiles and drones couldn’t have flown so far from the Yemen/Saudi border. Accusing fingers were immediately pointed at Iran, the Houthi’s backer and Saudi’s rival in the bitter power-politics of the region, and today the Pentagon said it has evidence that the attack was indeed launched from Iran.
As ever, Iran’s motive seems impenetrable and its strategic aims unfathomable. Its actions seem perverse – why is it trying to provoke the USA and other Saudi allies into further crippling sanctions, devastating retaliatory attacks or even all-out war, one or all of which are inevitable and will only add to Iran’s problems? One suggestion is that the hard-liners in Iran are trying to sabotage any chance of talks between President Trump and President Rouhani which looked possible after last week’s sacking of John Bolton, the anti-Iran White House hawk. Another suggestion is that the attack is an attempt to sabotage the Saudi Crown prince’s ambitious and historic plans to float Saudi Aramco, the national oil producer; the government had been hoping that the public offering would raise $100 billion, on a valuation of $2 trillion.
ELECTIONS: Boris and the Tories are not alone. Any number of minority governments are bouncing in and out of elections around the word.
In Israel, this week’s snap election appears to have done little to break the stalemate which was the result of last April’s election. Prime minister Binyamin Netanyahu and his Likud party look neck and neck with Benny Ganz and his Blue and White party. It’s possible that Blue and White will pull ahead, but unlikely that Ganz will be able to put together a majority government.
In Italy, former prime minister Matteo Renzi has broken from his centre-left Democratic party to form a new, more right-leaning party, only weeks after persuading the Democrats’ leader to form a new coalition government with the Five Star party. His new party, with thirty MPs, will give him the balance of power in the coalition. He insists that his move will further pull the rug from under the feet of Salvini and the League, but it may well destabilise the already fragile coalition to the point of giving Salvini the election he wants.
In Spain, prime minister Pedro Sanchez has failed to persuade other parties to join his Socialist party in a coalition government. King Felipe finally called an end to the five-month impasse which has followed the last election, and snap elections will be held on 10 November. It will be Spain’s fourth general election in four years.
Financial
LARGE HOLE: Two large holes in fact. The first is in the North York Moors, to the north of Whitby, and reaches some of the way to a large deposit of potash, (polyhalite, if you want to be finicky) a very important agricultural fertiliser. The other hole is in the finances of Sirius, the listed company digging the hole who have just withdrawn their projected bond issue of £400m which was to help pay for the hole to the potash, the machinery to get it out, the pipeline to get it to Teeside, and all sorts of vital other odds and ends. Sirius blames the weakness of the bond market (translation: investors won’t buy the bonds). The company is not out of money yet, having £180m in the bank, but is slowing down the pace of digging whilst it thinks of further ways to raise money. A share issue is not likely as the share price halved on the bond withdrawal; and the government has declined to help out. A possibility is a partnership with another company; and there may be possible cost savings – such as not building the underground pipeline and using the existing railway which reaches to within a few miles – to Sirius’s rival mine, Boulby. Not going to be easy, this one.
NOT WORKING: Another company needing money and struggling to find it is American owned property company, WeWork, which says it is a service company, not a property company, but that does not alter the problem. WeWork rents office space from property companies in major US and European cities on long leases (sometimes buying buildings), and then lets it on very short leases or licences to companies (often start-ups) who don’t want to commit too far ahead. In the process it adds shared facilities, sofas, cafés, glass walls and other goodies, to make work seem hip and fun. Then it charges not by the square foot, but on a time basis, or desk basis, on several models depending on the level of hipness and funness desired. Customers will pay extra for such flexibility it seems. Old cynics will notice a flaw in this model; when bad times come the customers can clear off at very short notice. WeWork had been hoping to raise about $US20bn about now, but the limit of investors for buying long and selling short seems as limited as that for potash mines, and the IPO has been pulled. The company financial details shows that for every dollar the company gets in revenue it currently makes a loss of two. Shouldn’t that be the other way round, guys?
NO GETTING AWAY: From bad news, this week. But hopefully you might escape Brexit conversations on a flyaway holiday with (financially struggling) tour operator Thomas Cook. Though “hopefully” remains the mot juste for the time being. The complex £1.1bn survival deal worked out between existing bondholders, new possible major owners Fosun (a Chinese company which owns Club Med), old shareholders who end-up with practically nothing, and existing bank lenders who end up as 25% shareholders is still not signed, and the creditors vote necessary to apply the ink has been delayed until next week, whilst various technical details relating to the structure are sorted out. The problem is mainly to do with credit insurance on the bonds, so it is rumoured – the bond holders want the bonds written down to nil so that they can claim on the loss. Most stakeholders in this sad tale seem to think though that the delay overall means good news – in that the financial participants seem to agree the company is worth saving.
