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‘The ball is in the UK’s court,’ EU’s #Brexit negotiator says



Britain must send “clear signals” that it wants to seal a deal with the European Union on their relationship after Brexit, the bloc’s chief negotiator said ahead of more talks with London, adding a deal was still possible before the end of the year, write Gabriela Baczynska and Jan Strupczewski.

Michel Barnier (pictured) said Britain had so far not engaged with tentative openings floated by the EU side on state aid and fisheries in the previous negotiating rounds, which have mostly been held on video calls due to coronavirus safety restrictions.

“The ball is in the UK’s court,” Barnier told an online seminar on Wednesday. “I believe that the deal is still possible.”

He said he was “disappointed” with Britain’s refusal to negotiate on foreign policy and defence but that he was open to finding a “margin of flexibility” on thus-far conflicting EU and UK positions on fishing and the state aid fair play guarantees.

“As well as with fisheries and governance, we are ready to work on landing zones, respecting the mandate of the EU,” he said when asked how far the bloc could go towards Britain on the so-called level playing field provisions of fair competition.

They are among the chief obstacles to agreeing a new relationship between the world’s largest trading bloc and the world’s fifth-largest economy. Britain left the EU last January and its standstill transition period ends at the end of 2020.

Barnier said “the moment of truth” would come in October when the negotiating teams must finalize a draft deal if it is to be ratified by all the 27 EU member states in time for 2021.

Should talks fail, Barnier said the UK would be more severely affected than the EU if trade quotas and tariffs kick in, meaning that the bloc would not seal a deal at any cost.

“The level playing field is not for sale. It is a core part of the our trade model and we refuse to compromise to benefit the British economy,” he said.

Barnier added that, while Britain refused to sign up to the level playing field commitments in exchange for access to the single market, it was keen to retain very close ties on financial services and the electricity market.

British Prime Minister Boris Johnson wants a narrower trade deal with the EU, but the bloc is pushing for an alliance that would cover transport, fisheries, security and other areas.

Barnier named nuclear co-operation and internal security as areas where progress had been made but said agreeing a role for the bloc’s top court and sealing Britain’s commitments to the European Convention of Human Rights were still missing.

He pressed Britain to advance preparations for the sensitive Irish frontier as agreed under the EU-UK divorce deal last year.

London and the bloc have agreed to intensify negotiations, with contacts planned every week until the end of July and resuming on 17 August after a summer break.



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One in 4 Alberta CEOs say they don’t know if their business can survive this crisis


CALGARY — One in four chief executives in Alberta are concerned their businesses might not survive the economic collapse triggered by COVID-19, according to a new survey.

Alberta is the country’s largest oil and gas producing province and is widely expected to record the sharpest economic contraction and drop in employment this year, following the dual-threat of the coronavirus pandemic-induced business closures and the concurrent collapse in oil prices.

The Business Council of Alberta published a survey of its members Monday that showed 26 per cent of respondents didn’t know if their “organization will survive this crisis until a vaccine is widely available or we otherwise reach herd immunity.”

“It’s a lot and it’s surprising,” said Mike Holden, the Business Council’s chief economist, noting that survey doesn’t mean those companies will file for bankruptcy — just that they consider it to be a real risk. “This is businesses who think there is some risk.”

He noted that 64 per cent of respondents had delayed spending, 61 per cent had laid off employees and 54 per cent had implemented pay cuts to survive the crisis.

So far, only a handful of companies have announced widespread layoffs during the current recession, but Holden said there might be more announcements if temporary layoffs become permanent.

It’s a lot and it’s surprising

Mike Holden

The survey of leaders at 61 companies conducted by Viewpoint Research between May 13 to May 30 also showed that 61 per cent of businesses expect a slow economic recovery.

“Generally speaking, they’re not expecting it to be quick,” Holden said, adding the uncertainty about the depth and duration of the recession has led to a drop in business confidence.

If Business Council of Alberta’s fears are realized and a quarter of businesses don’t survive the current pandemic, it would mark a dramatic uptick in insolvencies and the business exit rate, which is tracked by the federal government.

In 2017, the last year for which data is available, roughly 15 per cent of Alberta businesses exited the private sector, said Charles St-Arnaud, chief economist with Alberta Central, which provides banking services to credit unions in the province.

Signs outside a business in Calgary, on April 30, 2020.

Signs outside a business in Calgary, on April 30, 2020.

Brendan Miller/Postmedia files

By comparison, the data shows the rate of business exits across Canada is about 11 per cent.

“Alberta has kind of a higher entrance and exit rate than other provinces. There is more business creation than average and also more business failures,” St-Arnaud said.

Still, St-Arnaud said he’s expecting to see an increase in insolvencies and business failures as a result of the COVID-19-induced recession. The business closures and insolvencies will likely accelerate in September or October, once federal support programs wrap up, he said.

“The insolvency data for October will have a better look at how bad it gets,” St-Arnaud said.

Large and small companies in the province are struggling to stay afloat. Even as businesses re-open, Alberta’s largest industry is struggling with the dramatic collapse in oil prices and the resultant fall in oilfield activity.

Calfrac Well Services Ltd., one of the largest fracking companies in the Canadian oilpatch, announced Monday that it would defer payment and make use of a 30-day grace period to make an interest payment that was due June 15.

Shares in the Calgary-based company fell close to 9 per cent to 26 cents per share following the news, which warned that a failure to make the interest payment would trigger a default in Calfrac’s credit facilities. The company has drawn $170 million against a $375-million line of credit.

If the company does default, Calfrac would become the first large energy services firm to become insolvent in the current crisis.

The Business Council’s survey noted that the three largest barriers to an economic recovery in the province were low oil prices, a lack of consumer confidence and the global economic downturn causing a lack of demand for exports.

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Big banks able to weather Bank of Canada’s worst-case scenario, but risks higher for households and businesses


Canada’s six biggest banks survived a severe stress test by the Bank of Canada, which is a relief since they might be the only thing standing between a relatively short recession and something much worse.

The analysis was part of the central bank’s latest Financial System Review (FSR), which is devoted to the COVID-19 crisis.

Generally speaking, the central bank appears confident that its historic response to the shutdown of vast swaths of the global economy has averted disaster. Governor Stephen Poloz stuck to his contention that the recession will be brutal, but probably relatively short, in part because there appears to be little reason to worry about a financial meltdown.

The pandemic remains a massive economic and financial challenge, possibly the largest of our lifetimes, and it will leave higher levels of debt in its wake

Bank of Canada Governor Stephen Poloz

“The country’s banking system and financial market infrastructures are strong enough to deal with the situation,” Poloz said before taking questions on a conference call with reporters. “To be clear, the pandemic remains a massive economic and financial challenge, possibly the largest of our lifetimes, and it will leave higher levels of debt in its wake.”

Still, thanks to decent economic growth during the past few years and the hundreds of billions of dollars in emergency funds that Ottawa is pushing into the economy, the governor said he was “confident that a strong financial system will help Canada emerge from this episode in relatively good shape.”

Unlike many of its peers, Canada’s central bank doesn’t have any regulatory authority over financial institutions. But it does have moral authority, and it wields the country’s most impressive array of economic researchers. Thus, the FSR is an important instrument of policy, since central bankers use it to try to guide behaviour, just as they attempt to steer spending habits by raising and lowering interest rates.

Normally, the annual FSR is a warning mechanism. The Bank of Canada flags vulnerabilities it thinks could lead to pain in the event of a shock. Since we’re currently living through such a shock, this year’s review was more of a “state of play,” as Toronto-Dominion Bank economist Brian DePratto observed. “Vulnerabilities abound, but on balance the bank appears to be cautiously optimistic that the system can handle the current and emerging stresses,” he said in a note to his clients.

The Big Six and the hefty cash reserves they must maintain to satisfy federal regulations are a firebreak in this crisis

Policy-makers are confident that they have avoided a credit crunch, albeit only because they took the unprecedented step of creating tens of billions of dollars to buy government bonds and company debt. The policy seems to be working, since interest rates, which spiked in March as investors retreated when the coronavirus spread through Europe and North America, have returned to pre-crisis levels.

Poloz and the central bank’s other leaders are probably less sure about how many companies and households will survive the recession without declaring bankruptcy.

The central bank reckons about twenty per cent of mortgage borrowers entered the downturn with only enough cash and other liquid assets to cover two months (or less) of loan payments. Many companies are equally fragile, as some of the industries hardest hit by the crisis are also the ones in which companies were already operating with relatively little money in the bank.

“COVID‑19 has hit many households and businesses hard, especially those that are highly indebted or have low cash buffers,” the FSR said. “During this period, emergency measures that provide basic incomes to households and help businesses access credit are crucial.”

Government rescue efforts now exceed 10 per cent of gross domestic product, more than double the value of the fiscal stimulus deployed during the Great Recession a decade ago. Much of the assistance is in the form of emergency loans, and most of that funding is being administered by the biggest banks.

Canada’s banking oligopoly constrains competition and innovation in good times. But the Big Six and the hefty cash reserves they must maintain to satisfy federal regulations are a firebreak in this crisis. Things would be much worse if the banks were as fragile as airlines and oil companies. Fortunately, the banks should be able to withstand a deterioration of current conditions.

Policy-makers ran a simulation of what would happen to the six biggest banks — Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank — if the Bank of Canada’s worst-case economic outlook came to pass.

That scenario, which the central bank acknowledges is plausible, involves a 30 per cent plunge in GDP in the second quarter from the end of 2019 and a slow recovery that would leave economic output below pre-crisis levels for more than two years.

It’s ugly, but the banks survived the test: arrears peaked at a rate that was about double the peak during the financial crisis, and non-performing loans would exceed recent highs. But monetary and fiscal policy counter much of the pain, and the banks’ reserves do the rest. Capital requirements remain above the level required by regulation, which was made tougher after the Great Recession precisely so the most important lenders would be ready for the next economic calamity.

“The six largest banks entered the COVID‑19 period with strong capital and liquidity buffers, a diversified asset base, the capacity to generate income and the protection of a robust mortgage insurance system,” the FSR said. “With these strengths, as well as the aggressive government policy response to the pandemic, the largest banks are in a good position to manage the consequences.”

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‘They are completely intertwined’: Tentative signs of recovery in China help some Canadian companies weather COVID-19 storm


One night in late January, Canadian Jacob Cooke found himself in Jiangsu province in China, desperately trying to find seats on a plane leaving the country and promising his brother, Joseph, he’d make it to Vancouver.

For more than a decade, they had run a business called WPIC Marketing + Technologies with an ocean between them, helping brands from Canada and, eventually, all over the globe launch e-commerce operations in China.

But that night, panic was washing over China after news channels started reporting on the highly contagious outbreak of the coronavirus in Wuhan province. There was little information about who was most vulnerable, how the virus spreads or what symptoms to expect, but fears were aroused. Soon, trains were shutting down, hotels were closing their doors and slowly, but surely, ways out of the country were disappearing.

“There was definitely not enough information,” Jacob said. “You didn’t know what to believe, you just wanted to get far enough away from it.”

Jacob also worried about his family, including his wife and their two young sons, aged five and nine, who had travelled from their home in Beijing to visit her family in Jiangsu for Chinese New Year, since it looked like they might be stuck there. After spending hours on the phone, he secured seats on a plane leaving Shanghai for Vancouver, and then tracked down a driver to make the six-hour trek to the airport.

Seven weeks later, after Jacob and his family made it safely back to Vancouver, the situation has in many ways reversed: Canada, and most of the western world, are desperately trying to stop the spread of coronavirus, with new measures being announced almost on an hourly basis that shut down parts of the economy, while China is in recovery.

It’s still not clear how the deadly virus will be contained, or what its ultimate toll will be, so the horizon in Canada and elsewhere remains too dark to look for silver linings.

Yet if the worst does not come to pass, the Cooke brothers and others who hold deep business ties to China can see how the global connectivity of our economies may help both countries.

An economic recovery is now taking shape in China. Self-isolation is starting to end, people are returning to offices and work in factories has largely resumed its pre-coronavirus level of activity.

China opened up a portion of its Great Wall this past week.

China opened up a portion of its Great Wall this past week.

Kevin Frayer/Getty Images

FedEx Corp. on a March 17 conference call said 90 to 95 per cent of large manufacturers in China are now open, as are about two-thirds of small manufacturers. The Hang Seng Index in Hong Kong and Shanghai SE Composite Index both ended the week on a positive swing after brutal declines since the start of the year.

But as supply chains and demand for goods ramps up in China, they’re slowing elsewhere. Yet there were signs of life even in the depths of China’s outbreak.

Joseph Cooke, president of WPIC, said it’s been a strange year in China. Online sales usually dip during the new year celebration, but they remained steady this year, perhaps because people in self-isolation indulged in “retail therapy,” he said.

As the weeks in lockdown progressed, online sales in China accelerated as brick-and-mortar retail stores stay closed. That also provided a lifeline for many Canadian companies, particularly those that need to move seasonal inventory, WPIC chief executive Jacob Cooke said.

“China coming back online is great for Canadian companies,” he said. “With retail closed here, for example, and a lot of stuff being seasonal, it’s got to move somewhere or it’s going to become useless.”

Some companies’ quarterly earnings reports are already bearing that trend out.

China coming back online is great for Canadian companies

Jacob Cooke

For example, Nike Inc. chief executive John Donahoe on Wednesday reported that his company’s e-commerce sales in China increased more than 30 per cent during the last quarter, even as it had closed 5,000 stores in the country during most of that time.

Other parts of China’s economy appear to be returning to normal as well, offering a potential lifeline to companies from Canada and elsewhere needing to sell their goods.

“I was talking today to someone who was in Beijing and she said, ‘Here’s the thing, there was a traffic jam and I had lunch with someone, and it’s the first time I’ve had lunch with someone in weeks,” said Sarah Kutulakos, executive director of the Canada China Business Council.

She said the key to China’s resumption of regular business activity is that everyone has been “incredibly conservative about social distancing and people are taking that very seriously.”

People wearing masks cross a street during after work rush hour, as businesses start returning to their normal routine, in Beijing.

People wearing masks cross a street during after work rush hour, as businesses start returning to their normal routine, in Beijing.

Thomas Peter/Reuters

That has benefited Canadian companies with operations in China as well.

For example, Toronto-based Neo Performance Materials Inc., which turns rare earth and rare metal-based materials into magnets and other products used in cars and high-tech devices, operates four factories in China, all of which are now operating and shipping goods again.

None of its 1,100 employees there have contracted COVID-19, but the company has said it implemented precautionary measures including temperature checks of its workers.

On a March 12 earnings call with analysts, chief executive Geoff Bedford said the supply chain is largely functional again, with his factories able to procure all the raw materials they need.

Still, it’s not all good news. China is still experiencing the repercussions from the lockdown period, including declining demand.

“We are seeing signs of slowing downstream demand from our customers, particularly for supply chains that are located within China,” Bedford said on the call.

He noted that more than 60 per cent of Neo Performance’s sales are related to the automotive industry, including vehicles manufactured for the Chinese domestic market, which is one particular area where demand is softening. But he also noted that trend was already happening the previous year.

Aurora, Ont.-based auto-parts manufacturer Magna International Inc. on Thursday reported that it expects softening demand in China, though its customers there are ramping up again after extended downtime throughout February. Meanwhile, many of its customers in North America and Europe have reduced production rates or temporarily closed.

Employees eat their lunch while staying 2 meters away from each other at the Dongfeng Fengshen plant on March 24, 2020 in Wuhan, Hubei province, China.

Employees eat their lunch while staying 2 meters away from each other at the Dongfeng Fengshen plant on March 24, 2020 in Wuhan, Hubei province, China.

Getty Images

Overall auto sales in the world’s biggest vehicle market dropped 79 per cent in February, according to the China Association of Automobile Manufacturers, which does not expect demand to normalize until the third quarter.

WPIC’s Jacob Cooke said Canada’s economy is intricately linked to China’s economy, even if diplomatic spats and trade wars are decoupling the two countries on cultural and political levels.

“They are completely intertwined,” he said. “If either of those pieces go down, it just creates huge problems for the global economy.”

Jacob was in China as it entered the peak of its outbreak and now he’s back in Canada as the coronavirus takes hold here, giving him some insight into how conditions are progressing in both countries.

“This has sort of been the whole process for me,” he said. “You’re basically experiencing it in cycles: you’re either cycling to further and further lockdowns or you’re opening up.”

Right now, Canada and the United States are still cycling to further lockdowns as the number of new cases detected continues to grow daily. But Jacob and his brother Joseph both said it only takes a bit of good news to swing momentum in the other direction.

“I’m feeling like it’s very quiet in Vancouver, and people are staying home,” said Joseph. “Let’s hope we curb the spread.”

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Canadian recession is likely without fiscal stimulus: Scotiabank


Canada is likely to fall into a recession this year unless the government moves ahead with robust fiscal stimulus as the economy takes a double hit from the coronavirus and tanking oil prices, according to the Bank of Nova Scotia.

Scotiabank is the first of the six largest Canadian banks to predict the country could be headed into a recession, though it believes the government will move quickly enough to avert one. A rapid rise in coronavirus cases globally, the sharp fall in oil prices and volatility in financial markets make a contraction in the second and third quarters this year “likely” in the absence of fiscal measures, Jean-François Perrault, chief economist at Scotiabank, said Wednesday.

“A reasonably mild recession appears likely unless timely and targeted fiscal measures are deployed in the very near future to deal with the economic impacts of the virus,” Perrault wrote in a research note.

Prime Minister Justin Trudeau released $1.1 billion in new funding earlier Wednesday in response to the virus, and said the government is ready to do more if necessary. Trudeau also said his government is prepared to use federal financing agencies to further stimulate the economy if needed, a measure that was deployed during the 2008-09 financial crisis.

But that may not be enough. Canada’s measures pale in comparison to those set out by countries such as Italy, which plans to spend as much as 25 billion euros ($28.3 billion) on stimulus measures. Perrault recommends the government roll out a fiscal package equivalent to one per cent of GDP, or just over $20 billion, in order to prevent the Canadian economy from going into recession.

The Toronto-based bank sees the country’s gross domestic product growth slowing to 0.3 per cent for the year in the absence of significant stimulus. Scotiabank’s isn’t the first bearish call to emerge this week in the aftermath of the oil price collapse but it does represent the most aggressive take yet on Canada’s future.

National Bank of Canada Financial and Royal Bank of Canada will release their forecasts later this week. Bank of Montreal was the first of the six banks to revise their forecasts lower this week, with a call for full year GDP growth at 0.5 per cent.

The latest stream of downward revisions include predictions that the Bank of Canada will cut rates to 0.25 per cent by June from its current 1.25 per cent. That’s in line with financial market expectations, according to overnight index swaps trading. The last time the Bank of Canada policy rate reached 0.25 per cent was in 2009. Earlier this month, the central bank cut interest rates by 50 basis points amid escalating coronavirus concerns, matching an emergency move by the Federal Reserve.

Here are the latest revisions from bank economists this week:

Scotiabank — Jean-François Perrault

Sees Canada’s 2020 GDP at 0.3 per cent in absence of substantial fiscal stimulus and 0.7 per cent if there is fiscal stimulus worth one per cent of GDP. Without fiscal stimulus, Q2 and Q3 GDP will contract. Expects the Bank of Canada to cut interest rates by 50 basis points at the next two meetings.

Bank of Montreal — Michael Gregory

Lowers 2020 GDP to 0.5 per cent from one per cent, and sees Q2 contracting by 3.5 per cent. Expects Bank of Canada to cut rates by 100 basis points over the next two meetings to 0.25 per cent.

JPMorgan — Silvana Dimino

Revises down 2020 forecast to one per cent or 1.1 per cent Q4/Q4 basis. Predicts no growth in Q2 and a two per cent rebound in Q3. Expects Bank of Canada to cut by 50 basis points in April with the “heightened risk” for an earlier emergency cut to zero per cent.

Goldman Sachs — Daan Struyven

Revises down 2020 GDP to 0.4 per cent or 0.2 per cent on a Q4/Q4 basis. Sees Canada on “verge of recession” with a zero per cent Q1, -0.5 per cent Q2, 0.25 per cent Q3 and one per cent Q4. Expects Bank of Canada to lower policy rate to 0.25 per cent by its June meeting.

 — With assistance from Erik Hertzberg and Kait Bolongaro

Bloomberg.com



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Canada slips out of list of world’s ten least-corrupt countries after SNC-Lavalin scandal


Canada slid to its lowest level in at least a decade on a global index of corruption, driven down by the SNC-Lavalin Group Inc. scandal, a new report shows.

The country was ranked 12th of 180 countries on Berlin-based Transparency International’s 2019 Corruption Perceptions Index, an annual worldwide list from least corrupt country to worst issued Thursday. Canada ranked ninth in 2018 and sixth in 2010.

While Canada had the best score in the Americas – 77 out of 100 —, the country has slipped four points since last year and 12 points since 2010, the data shows.

“A former executive of construction company SNC-Lavalin was convicted in December over bribes the company paid in Libya,” Transparency International said in the report. “Our research shows that enforcement of foreign bribery laws among OECD (Organisation for Economic Co-operation and Development ) countries is shockingly low,” it said, referring to a group of 36 countries sometimes called the rich nations club.

Denmark and New Zealand co-led the index, emerging as the world’s least corrupt states with scores of 87, while Somalia had the worst score at nine, followed by war-torn nations South Sudan, Syria and Yemen. The U.S. ranked 23rd and the U.K. tied with Canada, Australia and Austria.

The corruption index is among a handful of indicators — such as the Washington, D.C.-based World Bank’s Ease of Doing Business ranking that measures red tape in countries, and the United Nations’ Human Development Index that assesses lifespan, education and income — that give snapshots of a country’s performance. They can help influence foreign policy and even debt ratings.

The report didn’t specifically mention the political realm of the SNC-Lavalin scandal, and how Prime Minister Justin Trudeau was criticized by Parliament’s Ethics Commissioner for improperly influencing then-Minister of Justice and Attorney General Jody Wilson-Raybould to intervene in the bribery case facing the Montreal-based company. Wilson-Raybould later resigned from her posts and Trudeau expelled her from the Liberal party caucus.

“The controversy surrounding the attorney general, the governing party and the allegations of influence — another word for influence is corruption — that has to play into the index, and it should,” Len Brooks, associate professor of business ethics at University of Toronto’s Rotman School of Management, said by phone.

Trudeau said he wanted SNC-Lavalin to face a deferred prosecution agreement — essentially a fine negotiated with a judge instead of a criminal trial — because it would help save jobs that might be put at risk from lost contracts after a criminal conviction. A bribery conviction could ban a company from federal contracts for a decade under government law and also risk contracts linked to the World Bank.

Last month, the Court of Quebec ordered SNC-Lavalin to pay a $280-million fine over five years, with three years of probation, in what appeared to be a break for the company. The RCMP had charged the builder with fraud and bribing Libyan officials in Moammar Gadhafi’s regime with $48 million from 2001 to 2011 to secure contracts.

Brooks said Canada still has work to do on corruption issues, such as stamping out the paying-for-access to politicians, a trend that Transparency International cited as affecting many countries along with concerns over conflicts of interest, preferential treatment, electoral integrity, lobbying activities and civil liberties.

“The work around pipelines and Indigenous groups — there’s all kinds of stuff that comes up there,” said Brooks, who noted Canada’s score would barely earn a B+ at Rotman. “Certainly arguments can be made that we’re not recognizing certain groups of people as best we should.”

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Stephen Poloz throws some cold water on the modern monetary theorists


If he’d been playing hockey, it would have been an elbow to the face of an opponent on his way to the bench.

Stephen Poloz, the Bank of Canada governor, had been speaking to the Empire Club of Toronto for about 25 minutes on Dec. 12. He had delivered roughly 2,500 words of his 3,000-word speech and he had just completed making the fourth of his four points.

But on his way to the conclusion, Poloz pulled a veteran’s move, throwing a rhetorical sucker punch at a group of upstarts who would rewrite the rules of monetary policy.

“As usual, the bank will be working on many more issues in 2020 than I have been able to summarize here,” Poloz said. “Before I conclude, though, let me mention one topic that has garnered a lot of interest lately: Modern Monetary Theory.”

You probably have heard of MMT. You certainly will have seen mention of it if you are one of New York congresswoman Alexandria Ocasio-Cortez’s six million Twitter followers. The face of Democratic Party socialism is a fan of the idea, which, essentially, submits that a country that controls its currency can effectively print as much money as it needs and use fiscal policy to control inflation. Hedge-fund billionaire Ray Dalio said earlier this year that he thinks something like MMT is “inevitable.”

MMT hasn’t jumped the border in a noticeable way. Often, after I’ve written something about deficits, I get an annotated letter from someone called Larry Kazdan, who created a website devoted to the subject. Stephanie Kelton, the academic and Bloomberg columnist who has emerged as the biggest champion of MMT, spoke at a gathering hosted by the Canadian Association for Business Economics in Kingston, Ont., earlier this year. But the New Democratic Party didn’t talk about it in the election campaign, and the chattering classes are mostly quiet, even though MMT has become something of a sensation south of the border.

Poloz apparently wants to keep it that way. He used his last lookahead speech as governor to stomp on MMT on his way out the door. Poloz said the theory was neither “monetary,” since government spending is a fiscal decision, nor “modern,” since similar policies have been tried before. The governor cited the rapid money creation that followed the deficits the U.S. government ran in order to finance the Vietnam War. The aftermath in the 1970s brought a surge in global inflation and the collapse of the Bretton Woods system of managed exchange rates.

It “sounds like Modern Monetary Theory is offering a free lunch, and most of us know there is no such thing,” Poloz said. “There are far better means of avoiding slow growth and deflation — promoting innovation, providing infrastructure, removing impediments to international and intra-national trade, eliminating red tape — just to cite a few obvious examples,” he added.

Sounds like Modern Monetary Theory is offering a free lunch, and most of us know there is no such thing

Stephen Pooz

Easy for Poloz to say. He’s a respected economist with nearly five decades of professional experience, including almost seven years at the helm of a Group of Seven central bank. And he has no reason to be sensitive to politics, since he’s decided to leave the Bank of Canada when his term ends in June.

Assuming relative stability is desirable, will the next governor possess the the same combination of authority and independence that Poloz showed by going on the offensive against MMT? The answer is, “probably yes.” But try saying it. When I think it through, I’m unable to convince myself that a new leadership group at the Bank of Canada couldn’t be pushed off centre by political winds with enough force.

The central bank is a vocal supporter of the stress test on mortgage borrowers, which is unpopular with the real-estate lobby. The re-election of Justin Trudeau looked like evidence that the forces seeking to weaken the policy had been defeated, since the Liberals, unlike the Conservatives, hadn’t promised to consider changes. And then these words appeared in Finance Minister Bill Morneau’s mandate letter on Dec. 13: “Review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.”

Nothing’s sacred.

Keep that in mind in 2020 and 2021. Poloz’s comments on MMT were arguably prejudicial. Earlier in his remarks, he had reminded his audience that the Bank of Canada was in the middle of a review of how it goes about controlling inflation. That’s normal. The central bank always conducts research ahead of the renewal of its five-year agreement with the Finance Department, which was last issued in 2016. But this time, the Bank of Canada said it is conducting a “horse race,” pitting the many approaches to monetary policy against one another to discover which produces the best results. MMT clearly isn’t part of the contest.

But it could be if the public insists on it.

To the central bank’s credit, it is making an extra effort to involve interested parties in the policy review. In 2020, Poloz promised “a number of round tables with civil society stakeholders to deepen our understanding of the economy across sectors and regions.” He also said there will be an “open, public consultation process” on the central bank’s website. “As an accountable public institution, we are eager to hear your views,” Poloz said.

MMT or some other revolutionary notion could yet come to Canada. The next governor should possess the ability — or the fortitude — to tell us and the people that we elect that there are no free lunches.

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Nancy Pelosi, White House have tentative deal on new NAFTA, insiders say 


The Trump administration and House Democrats have a tentative deal on the U.S.-Mexico-Canada trade agreement, according to people familiar with negotiations, paving the way for congressional approval as early as this month even as Democrats prepare to impeach the president.

Speaker Nancy Pelosi is reviewing changes to the agreement that U.S. Trade Representative Robert Lighthizer and his Mexican counterpart Jesus Seade have put on paper over the past week.

The revision of the North American Free Trade Agreement is one of President Donald Trump’s top priorities, and its passage would help the White House make the case that he’s pursuing policy achievements on behalf of the country even while lawmakers debate removing him from office.

At the same time, a deal would show that Democrats can legislate while also investigating the president’s administration.

“I’m hearing a lot of strides have been made over the last 24 hours with unions and with others,” Trump told reporters on Monday. “I’m hearing very good things. I’m hearing from unions and others that it’s looking good, and I hope they put it up to a vote.”

Lighthizer and Seade exchanged proposals on labor inspection rules and tougher steel provisions and finished a compromise package late Friday that they submitted to Pelosi, the people said. A demand from the U.S. regarding steel and aluminum, which people briefed on the talks said came from the United Steelworkers union, threatened to stall the negotiations last week.

In a change of plans Monday, Seade stayed in Mexico rather than returning to Washington to meet with Lighthizer again, according to three people familiar with his plans.

Mexican President Andres Manuel Lopez Obrador said earlier Monday that he expects a decision from the U.S. on the agreement very soon.

“Now is the time to vote on it,” Lopez Obrador said Monday. “I am optimistic we can reach a deal.”

Seeking Approval

Seade and Foreign Minister Marcelo Ebrard plan to update reporters on advances in the negotiations later on Monday, the ministry said.

While all parties are still reviewing the deal, representatives from the three countries are already discussing where to have a signing ceremony, according to one person familiar with the matter.

U.S. labour groups and House Democrats will need to agree to the final details, in addition to the leaders of the three countries, another person said. If the AFL-CIO, the biggest labour federation in the U.S., is on board with the deal, it could make it easier for the Democratic-led House to expedite the process and vote as soon as next week, according to a different person briefed on the negotiations.

AFL-CIO President Richard Trumka spoke with Trump before Trumka briefed the labor group’s executive committee meeting at 2 p.m., according to two other people familiar with the matter.

The peso extended a five-day climb after news of a potential deal, rising 0.5 per cent to become the second best-performing currency in emerging markets on the day.

Pelosi last month cautioned that even with a deal, there might not be enough time to vote on the agreement this year, reminding her members that “in a world of instant gratification,” legislating takes time.

There are still a number of procedural hurdles before the agreement can come to the floor for a vote, including committee hearings and review of the implementing bill in the House Ways and Means and Senate Finance committees. Those steps could be waived to save time, though, and people familiar with the talks said lawmakers are likely to skip some of them.

Political Pressure

Democrats from rural, swing districts are especially eager to get a deal done. Farmers have faced devastating economic losses this year because of the trade war with China, although the president has blamed some of that on the delay in getting the USMCA approved.

The U.S. International Trade Commission, an independent government panel, in an April analysis said USMCA would boost the U.S. economy by 0.35 per cent and lead to 176,000 new jobs in the sixth year after implementation, a small addition to the 132 million people employed full-time in the U.S.

Leaders of Canada, Mexico and the U.S. signed the agreement more than a year ago and the White House and Democrats have spent months locked in tense negotiations over four key areas: environment, labour commitments, drug-patent protections and enforcement mechanisms. In recent weeks, the discussions have focused on the deal’s labour enforcement.

One of the main sticking points was a Democratic proposal to enforce labor rights by allowing products from factories accused of violations to be inspected and blocked at the U.S. border. California Representative Jimmy Gomez, a member of House Democratic negotiating team, said last week that Pelosi and Lighthizer have offered Mexico a compromise on labor enforcement that “respects Mexico’s sovereignty.”

Republicans and the business community increased pressure on Pelosi as they grew concerned that time was running out for a vote in 2019, believing it would be difficult to hold a vote in an election year. Pelosi said she wouldn’t rule out a vote in 2020, although she said her preference would be to get it done sooner.

The president has become increasingly frustrated that his deal has stalled and expressed pessimism about the chances Congress would ever take it up for a vote.

“Hard to believe, but if Nancy Pelosi had put our great Trade Deal with Mexico and Canada, USMCA, up for a vote long ago, our economy would be even better,” Trump said in a tweet on Saturday. “If she doesn’t move quickly, it will collapse!”

Labour Role

Key to reaching a deal has been neutralizing any opposition from the largest U.S. union confederation, the AFL-CIO.

Trump and his advisers tout USMCA as the best agreement ever negotiated for unions and Democrats, particularly the deal’s labor provisions and stricter auto-content rules that they say would boost U.S. manufacturing.

Trumka urged Democrats in a November meeting not to rush into an agreement without strong enforcement procedures and said they should hold out for more concessions.

The labour leader told The Washington Post on Monday that he is reviewing the deal.

–With assistance from Justin Sink.

Bloomberg.com



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EU ministers criticize recent memorandum between #Libya and #Turkey on the #EasternMediterranean


Turkish President Recep Tayyip Erdogan and Fayez al-Sarraj, chairman of the Presidential Council of Libya

Arriving at today’s (9 December) EU Foreign Affairs Council, Josep Borrell Fontelles, EU High Representative for Foreign Affairs and Security Policy and Vice-President of the European Commission was asked about the recent memorandum between Turkey and Libya that would give access to a contested zone across the Mediterranean Sea.

The memorandum of understanding on maritime borders signed between Turkey and the Tripoli-based Government of National Accord is thought to have no legal standing and contravenes the provisions of the International Law of the Sea. Egypt, Greece, Cyprus and France, along with the EU and the US State Department. US State Department. The US State Department spokesperson stated: “The announcement of a signed Turkish-GNA delimitation memorandum of understanding has raised tensions in the region and is unhelpful and provocative.”

The agreement was endorsed by the Turkish parliament last week and prompted Greece to expel the Libyan ambassador to Greece. The agreement aggravates tensions that already exist over exploratory drilling in Cyprus’s exclusive economic zone and a long-running dispute of Turkey with Greece, Cyprus and Egypt over oil and gas drilling rights in the eastern Mediterranean.

Greece has expelled the Libyan ambassador in response to the deal. Dutch Foreign Minister Stef Blok said that he sided with Greece on the respect for international law. The Austrian minister for foreign affairs, Alexander Schallenberg said he was “a little bit astounding how they (Turkey and Libya GNA) split up the Mediterranean between themselves.”

Josep Borrell said that “it’s not a matter of sanctions today,” adding that ministers would study the “memorandum of understanding” agreed upon between Turkey and Libya. The Turkish and Libyan GNA  MoU also includes a deal on expanded security and military cooperation. The agreement is considered to be illegal since it is contrary to the International Law of the Sea and has not been reached with the consideration of the legitimate rights of other states in the region.

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Tags: Blok, Borrell, EU High Representative, exclusive economic zone, Greece, Libya, Turkey

Category: A Frontpage, Economy, EU, EU, European Commission, Politics





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Stephen Poloz to step down: How Canada’s top banker went from folksy obscurity to steady hand


OTTAWA — Outgoing governor Stephen Poloz once joked that, after being chosen to succeed Mark Carney as head of the Bank of Canada in 2013, he was received much like the guy who replaced Wayne Gretzky. That is to say: nobody actually remembers the guy who replaced The Great One.

Poloz was plucked from relative obscurity as head of Export Development Canada and, despite being on the shortlist of successors, was considerably less well-known compared to the high-profile Carney, who had engineered Canada’s response to the deepest recession in decades and made Time magazine’s 100 “most influential” list.

“I run into people in the street and they ask me, ‘how’s Mark?’” Poloz said in an April 2019 interview with Maclean’s. “And I’m like, ‘great… and I’m doing okay too.’”

But Poloz, who announced on Friday he would be stepping down from the role, has nonetheless made a name for himself over the last six years — even if he hasn’t reached rock-star status.

He became known for his honest communication style, delivered with a trademark folksiness and a penchant for metaphors (he once used a “spaghetti-sauce model” to describe monetary tapering after the recession of 2007-08, and compared exchange rate fluctuations to walking a dog on a leash).

He made a point of accounting for the pulse of the “real economy,” focusing on business investment and the sentiments of CEOs more than his predecessors. Most of all, he kept inflation largely within the bank’s target, even amid trade threats from U.S. President Donald Trump and a Canadian economy that, after years of tepid growth, suddenly caught fire in 2017.

It wasn’t always a smooth ride. He started his term amid some concerns that his connection to the EDC and exporters would make him partial to a lower Canadian dollar. Others were rankled by his communications style, which sometimes veered from the Bank of Canada’s official script. He gradually overcame those frustrations.

“I think he’s gained more respect over time in this role,” said Mark Chandler, head of Canadian rates strategy at RBC Capital Markets.

Poloz took over from Carney at a time when the country was climbing out of the deepest recession in decades. A prolonged period of low interest rates had pushed household debts to among the highest of any developed nation, leaving the governor tightly wedged between mediocre economic growth and fast-expanding consumer credit.

I think he’s gained more respect over time in this role

Mark Chandler, head of Canadian rates strategy at RBC Capital Markets

His first major test came when oil prices suddenly collapsed in mid-2014, sending the wider economy into a tailspin. Poloz shocked the market with a sudden rate cut in early 2015, followed by a second cut months later, reducing the overnight rate to 0.5 per cent. The move both solidified what proved to be a prescient move by Poloz, while also laying bare the limits of monetary policy in the current economy.

“He was a creature of his time,” Chandler said. “It’s something you can give him credit for — he acted quite quickly, and at a time when others maybe hadn’t recognized the impact of the oil shock.”

Poloz was born in Oshawa, Ont., and completed his economics degree at Queen’s University in Kingston. He received a master’s degree in economics in 1979 and a PhD in economics in 1982, both from the University of Western Ontario. He first joined the Bank of Canada in 1981, where he rose up through the ranks over a 14-year period.

Christopher Ragan, former special advisor to Bank of Canada governor David Dodge, said it was immediately evident to him that Poloz was on the fast track for the governor position when he first met him in the early 90s.

Poloz was heading the bank’s then-research arm at the time. The other potential successor Ragan had identified was Tiff Macklem, who would later become senior deputy governor at the bank.

“They just had the complete package of things that you want,” Ragan said. “They had the analytical power, they had the administrative savvy, they had the communication chops. It was clear as day to me.”

Macklem was seen by many analysts as a natural successor to Carney, a long-time Bank of Canada employee who seemed groomed for the job. The decision by then-finance minister Jim Flaherty to appoint Poloz was met with confusion by some.

In a 2013 interview with the Globe and Mail, former European Central Bank economist Thorsten Koeppl said there was “a lot of head scratching going on” after the appointment. Macklem stepped down from the bank shortly after the appointment, four years before the end of his term.


Bank of Canada Governor Stephen Poloz (centre) with Mark Carney (left), and the late Finance Minister Jim Flaherty in Ottawa May 2, 2013. Andre Forget/QMI Agency

But Poloz gradually won the confidence of Bay Steet, in part through a communication style that, unlike his predecessor, would readily convey the unknowns and uncertainties in the bank’s economic models.

“It’s part of his ‘aw-shucks, we-don’t-know-everything-that-the-previous-guy-knew’ communication style,” Ragan said. “He probably trades on that a little bit, and that’s okay.”

“He would say, ‘there are things the bank doesn’t know, things that I as a governor don’t know, things that the economics profession doesn’t know.’ And I think that’s extremely healthy.”

Another of his trademarks was a stand against debt. Poloz was uncommonly outspoken about rising consumer debt levels across Canada, and often expressed his worries over a heated housing market.

“That’s something that’s reasonably different than what other governors have done in the past,” said Jean-François Perrault, chief economist at Scotiabank.

“Unfortunately, that also muddles a little bit the approach to monetary policy,” he added.

Some analysts have disagreed with Poloz’s decision to continue holding rates, especially in recent months when trade rifts between the U.S. and China kicked off a wave of cuts at central banks around the globe.

“Over the last few weeks one could make a very good case that there was a need for lower interest rates in Canada to guard against risks,” Perrault said.

Scotiabank had predicted the bank would cut rates in October or December.

The wisdom of Poloz’s move remains to be seen, particularly with Canada’s current interest rate of 1.75 per cent being the highest among advanced economies.

Meanwhile, consumer debts have continued to rise. Canada’s household debt in 2018 averaged 181 per cent of total income, well higher than the United States (109 per cent), Germany (95 per cent), and others, according to the Organisation for Economic Co-operation and Development.

That could be among his more unfortunate legacies at the bank, RBC’s Chandler said. Concerns about household debts had already begun to surface when Poloz took over from his predecessor, when the Canadian economy was taking its long, slow climb back to health.

“Seven and a half years later, debt levels are even higher,” Chandler said. “So if that legacy was a question mark for Carney, it’s even more so under Poloz.”

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