Citi"s "What If?" Scenarios: Part 2

Yesterday we published the first set of 7 "What If" scenarios that didn"t make it into the Citi Credit team"s (already rather gloomy) year-ahead forecast. Because while Citi"s "base case" was clearly bearish (our summary can be found here), what was left unsaid was even more unsettling, if not troubling. As the bank"s credit team wrote "what about the outcomes that didn’t quite make it into our base case? The scenarios that aren’t central, but which aren’t entirely implausible either – both bullish and bearish." Citi then listed the following 7 scenarios in the first part of its quasi-forecast:

• idiosyncratic risk is returning to credit?


• European corporates get more aggressive?


• global growth & commodity prices disappoint?


• inflation accelerates as output gaps close?


• the US yield curve inverts?


• central bank tapering really is a non-event?


• the market doesn’t like the choice of ECB successor?"

A full discussion of the above scenarios was posted yesterday.

Today, we follow up with part 2, or the second set of 7 hypothetical questions for 2018, which shifts away from economics and finance, and focuses on politics and Europe. As Citi"s credit team writes "you tend to worry less about your leaky roof when the sun is shining. And at the moment the cyclical economic upturn is beaming across Europe. Yet there are clouds which might conceivably hold moisture – or as our economists have put it: political risk is not dead in Europe."

So to avoid a leaky roof turning into a flood, Citi once again set out some of the economic and fundamental scenarios for 2018 that aren’t in the bank"s base case, but which remain reasonably plausible nonetheless; specifically Citi looks at the list of "potential political dark horses for next year." These include the following "what ifs":

• … the market falls out of “amore” with BTPs?


• … Catalonia declares independence (and means it)?


• … meaningful EU reforms actually happen?


• … the UK leaves the EU without a deal?


• … Brexit is called off?


• … Corbyn becomes PM?


• … US tax reform fails?

While Citi concedes that there are many others it could have included, like Middle-East tensions, North Korea tensions, global trade relations, US mid-term elections, escalation in the South China Sea or relations between Russia and the West, these will have to wait for another time. Until then, here is a breakdown of the political "What Ifs" that would keep Citi at night if they were allowed to be part of the bank"s official base case.

1. the market falls out of “amore” with BTPs?

Markets seem largely to have grown comfortable with the idea of an unusually large number of different political constellations that are feasible after the next Italian general election. Legally, they must take place by May, but national newspapers have reported that a deal has been made to hold them on March 4.

Our economists see a centre-right victory as marginally the most likely outcome, but longer-term, big question marks remain over which individual party will dominate within the bloc and the true depth of ostensible EU-scepticism. A grand coalition over the middle also remains a possibility, albeit a fading one. Either would probably be seen as somewhat positive by markets in the immediate aftermath. However, with the M5S still gaining in many polls at the expense of a struggling PD, their involvement in a future coalition of the left remains a reasonable probability. Although M5S has certainly shifted its stance on the EU significantly, with its candidate for PM declaring he wants to stay in the EU and toning down his party’s opposition to the euro, other of their desired reforms would likely be seen as negative by the market. A less likely coalition between M5S and a party on the right, like Lega Nord, could potentially be more confrontational and even less marketfriendly.

While the moderation in stances and the cyclical upturn in Italy have diminished the probability of more extreme outcomes, demand for BTPs could still prove fickle amid the uncertainty and a reduction in ECB purchases.

Indeed, you could argue that private investors fell out of love with BTPs quite some time ago. As illustrated in Figure 1, just about every other major investor type has become a net seller (to the ECB) or a non-buyer of BTPs over the last couple of years. To change that behaviour, we think it remains pretty likely that there will need to be an adjustment in prices. As our rates strategists have pointed out, the ECB could counteract this through an “Italian Operation Twist” (lengthening the maturity of their BTP holdings), but such a response might not come immediately, given the ECB’s reluctance to favour individual countries, unless associated with the conditionality that comes with an economic adjustment programme.

To our minds, this remains one of the most significant political risks to € credit in 2018. Most likely the spillover on credit would be concentrated on Italian and other periphery names, banks in particular. The scenario of a full-on funding crisis is a much lower probability in our view, but would obviously have more systemic implications across the € credit market.

* * *

2. Catalonia declares independence (and means it)?

Then there is the question of Catalonia. Opinion polls suggest that the separatist and non-separatist camps are neck and neck. How the marginal mandates fall will have a very important bearing on what happens next. The scenario where nonindependence parties secure a majority would probably put the whole question on the backburner for the time being, even if they fail to form a formal coalition. Yet with risk premia already so suppressed we doubt that the reaction in the broader market would be discernible – it would not change our central scenario at all.

However, most polls still suggest a narrow majority of seats will go to the three independence parties. In recent statements, two of the three have moved away from a formal deadline for independence, and indicated more openness towards alternative solutions to independence, implying a moderation in their stance. As such, even if they secure a small majority of seats, there is a good chance a repeat of the standoff from October with the central government can be avoided.

Risks arise in the scenario where the more radical separatist parties do materially better than the polls suggest. In particular, if the independence parties were to achieve more than 50% of the overall vote (as opposed to a mere majority of seats). We think the probability has receded greatly in recent weeks, but in an outcome where tension with the government in Madrid escalates again and major protests break out in the region, a more assertive unilateral declaration of independence remains conceivable.

Although actual independence from Spain even in the long term would remain unlikely even under such a scenario, we’d expect a rise in Spanish risk premia especially on those companies with direct exposure to the region. We note that the main banks have already shifted legal domicile to ensure access to ECB liquidity. In all but the most extreme situations we would expect the broader reaction across € credit to remain muted, as it was in October.

We would assign no more than a 10-15% probability to such an outcome and for impact on the wider € IG market you have to move significantly further out on the tail.

* * *

3. Meaningful EU reforms actually happen?

Optimism about major EU reforms following Macron’s election were dealt a significant blow by German voters in September. Yet there seems to be widespread recognition among policymakers that Europe runs a high risk of another sovereign crisis whenever the ongoing cyclical upturn ends, unless the framework is reformed. Banking union remains incomplete, capital markets union remains an ongoing project and with limited scope for a major increase in the EU’s budget, a strengthened lender-of-last-resort mechanism for sovereigns, like the European Monetary Fund proposed by the Commission, would potentially increase resilience considerably.

The differing objectives in European capitals likely either imply protracted negotiations or watered-down compromises that fail to provide markets with much reassurance. Even beyond resources devoted to Brexit negotiations, tensions with several Eastern European member states (though outside the Euro area) also act as a distraction. Poland’s prime minister has stated that he expects the Commission to propose an article 7.1 determination as early as next week. Article 7 is intended to safeguard the values of the EU, which may ultimately result in a member state having voting rights suspended. 7.1 is a warning stage in that process.

As such, major reforms are not in our base case for next year, but are not  inconceivable either. We would argue that sovereign risk premia in European credit are minimal at the moment, limiting the upside from such a scenario to a handful of basis points. Evidently, a strengthened framework ought to have the biggest impact on periphery credit, especially those whose fortunes are tied to their sovereigns, most obviously the banks.

4. the UK leaves the EU without a deal?

In a strictly legal sense, it’s difficult for a “no deal” scenario to materialise next year. According to Article 50 TEU, the EU treaties only cease to apply either when a withdrawal agreement comes into effect or after two years have passed since activation, i.e. March 2019. In practice, though, even with the first phase of negotiations now agreed, the chasm between what many in the UK believe can be achieved on trade in a short space of time and what the EU seems likely to offer means that a complete breakdown of negotiations is a real possibility.

And realistically, to allow for ratification across member states a final deal will need to be reached before the end of 2018. The fact that the trade agreement with Canada was nearly prevented by opposition in Wallonia, while the EU-Ukrainian trade deal was delayed by a Dutch referendum, illustrates that ratification is by no means guaranteed. Article 50 does, of course, leave scope for an extension should more time be needed, but this too, requires unanimity of the EU27 (and the UK) in the Council – and as such may not be completely straightforward.

So if negotiations do break down to the extent that “no deal” becomes central scenario, that should be reflected in spreads already next year.

From a trade perspective, the particular weak spot would be those sectors of the UK economy with a high EU trade intensity while not being covered by WTO goods trade rules, like tech and transport. More than tariffs, we suspect the chief impact would come through increased friction, in the form of additional paperwork and lack of mutual recognition of standards.

The sector that is most obviously exposed is the heavily regulated world of financial services. Admittedly, all banks passed the rather strict “hard Brexit” stress test conducted by the Bank of England, but spreads on those UK banks and insurers that depend on Europe for a significant proportion of their revenues should still react to the considerable uncertainty associated with a “no deal” scenario,  if it becomes central late in 2019.

The broader impact of “no-deal” on domestic UK sentiment also needs to be considered. It would evidently depend on the policy stance adopted by the UK government. But given both the limited fiscal space it is already confronted with, together with the balance of Brexiteer opinion favouring a more protectionist “drawbridge” Brexit as opposed to the “Singapore-on-Thames” that some aspire to, the economic consequences for the UK would likely be severe and rapidly felt. Though some of the negative impact of a “no deal” would likely be offset by a weakening currency, we doubt that would suffice to counteract the otherwise deeply market-unfriendly implications.

A trajectory towards a no-deal Brexit probably has only limited implications for broader credit spreads, but it should still leave spreads on credits with material exposure to the UK, and UK-EU trade in particular, 10-30bp wider relative to our central scenario.

5. … Brexit is called off?

Calling off Brexit (Brexit-exit) entirely would, in practical (though not in legal) terms, almost certainly require another referendum – it is hard to imagine any politician doing without consent from the electorate. Until now a second vote hasn’t appeared very likely. But a Survation report for the Mail on Sunday last week found that 50% of voters now want a referendum on a final deal, while only 34% were against. As recently as in June, the same poll showed a majority against a second vote, so this is a significant shift, likely in response to the arduous negotiations.

However, we think a second referendum called by the current government remains unlikely unless there is also a significant shift in the polls on the likely outcome. Though even among Leave voters only a small minority (28%) now expect the UK to secure a “good deal” in its negotiations with the EU, YouGov data indicates that the decline in support for Brexit among UK voters is still quite small. Many polls still suggest the outcome of another referendum would be within the statistical uncertainty. However, as Gordon Brown has suggested, it is possible that this changes if more of Teresa May’s red lines are crossed next year.

If the UK did opt for a second referendum and voted to call off Brexit, between the ambiguity in article 50 and goodwill among other member states, we believe the rest of the EU would agree on surmountable terms.

All else equal, Brexit-exit should be a positive for UK assets, and would likely help £ spreads erase some of their YTD underperformance against € and $ credit (albeit the latter have been boosted by ECB buying and the prospects for US tax reform respectively). Even the scenario where the UK ends up staying in the Single Market and the Customs Union for all intents and purposes is probably a positive relative what is priced currently (unless it involves the scenario below also). And the probability of that happening is significantly higher than of Brexit-exit. Either would in our opinion be viewed as a positive for European cohesion as a whole, shaving perhaps 3-7bp of spreads from our base case scenario.

6. Corbyn becomes PM?

We assume that PM May will survive both the recent brouhaha over the Irish border, being voted down in Parliament and, more importantly, trade negotiations over the coming year. But not with great conviction. The status quo remains highly vulnerable: after all, the threat of a Corbyn government is probably one of the main factors that has held Ms May’s fragile coalition together thus far, in our  view. That logic should continue to hold over 2018, but even if the appetite for another election is miniscule within the Conservative party, the risk of a party split remains elevated. Recent opinion polls suggest that Labour is pulling ahead, with some suggesting they would potentially end up with an overall majority.

For markets, this would have mixed implications.

On the one hand, a Labour government would almost certainly mean a more flexible approach to Brexit. While the Labour leadership has not come down firmly in favour of continued customs union and single market membership (with their preference in favour of keeping the UK “in the customs unions and single market in the transition period and leaving the options on the table for after the transition period”, in the words of Labour Brexit spokesman Keir Starmer), a Corbyn premiership would certainly make that more likely.

At the same time, Mr Corbyn’s policy platform of higher taxes and nationalisations is unlikely to be welcomed by business. Shadow Chancellor John McDonald recently stated that shareholders in key utilities would be offered government bonds in exchange for their shares at rate determined by the government. In theory, government ownership should be positive for bondholders, but under the  associated uncertainty we doubt that’s how risk premia would react initially. And Corbyn’s strong rhetoric towards the City of late doesn’t portend a particularly easy relationship were he to be in power either.

Ultimately, a narrow mandate, a coalition or merely the responsibilities of government might demand a more pragmatic approach once in power. But in the run-up to an election where opinion polls show a Labour lead, we doubt markets would afford UK credit the benefit of the doubt. We’d put the probability of a Corbyn premiership in 2018 at around 15-25%, so it is already somewhat reflected in our base case for £ credit. This anticipates underperformance of names with a high degree of UK exposure, but in an election scenario there we still see further downside to our forecast numbers.

7. US tax reform fails?

As far as credit specifically is concerned, our previous principal worry over US tax reform, namely that the removal of interest tax deductibility would lead US companies to transfer more of their issuance to overseas entities, potentially driving up reverse yankee supply significantly, has largely been dealt with by the current plan’s allowance for interest to be tax deductible up to 30% of earnings. But to the extent that the envisaged mandatory repatriation lowers US corporates funding requirements (a prospect our US colleagues are admittedly more sceptical of than most), failure to pass tax reform would increase the funding requirement in US credit next year, potentially adding to reverse yankee issuance too. On its own this would be a somewhat bigger spread negative for the US, and a smaller one for euro credit, especially for existing reverse yankee bonds.

Failure to get tax reform through would also curtail the earnings boost that European multinationals (concentrated in the health care, consumer staples, industrials and commodity sectors) can expect to see from a reduction in tax rates on their US subsidiaries (estimates we have seen put this in the range of 2-4%). This would be a bigger deal for equities than credit, and it’s not clear how much the assumption of a tax reform-driven boost to earnings have been factored into consensus expectations yet anyway, but at the margin this would also be a small negative for the companies that stand to benefit most.

Overall though, a failure to get tax reform through, after health care reforms had to be shelved earlier this year, would call into question the feasibility of the Republicans’ legislative agenda. Our economists have factored in a 0.4% boost to US growth next year from tax reform, and a scaling back of US growth expectations. We think the spillover on global risk appetite would likely lead to at least 5bp of widening from current levels.

So ‘what if’ then?

As mentioned at the onset, none of these scenarios are base case individually. They weren’t meant to be. But what’s striking is how many are at play in 2018: we managed to come up with more with more than 40 "what ifs" in less than an hour. What you see above is merely a selection. To us, it again illustrates the uncertainty around the prevailing paradigm as we head into 2018. How they play out remains to be seen and there are positive risks too, but overall the exercise has really rammed home how lop-sided risk-reward is at the onset. When spreads are at historical tights, no news is probably the best news one can realistically hope for.

How The U.S. Dictatorship Works

Authored by Eric Zuesse via The Strategic Culture Foundation,

A recent article in the Washington Post described how the current US tax-‘reform’ bill is being shaped; and it describes, basically (at least as far as tax-law changes are concerned), the operation of a US dictatorship by the super-rich.

First of all, however: there is no longer any realistic question as regards whether the US in recent decades has been a dictatorship, or instead a democracy. According to the only scientific analysis of the relevant data, that has been done in order to determine whether the US is a dictatorship or a democracy, the US is definitely a dictatorship that’s perpetrated by the extremely richest, against the public-at-large; in other words: the US Government functions as an aristocracy, otherwise referred-to as an oligarchy, or a plutocracy, or a kleptocracy; but, in any case, and by whatever name, it’s ruled by a tiny number of the extremely wealthiest and their agents, on behalf of those few super-rich, against the concerns and interests and needs of the public (everyone else). So: instead of being rule by the public (the “demos” is the Greek term for it), it’s rule on behalf of a tiny dictatorial class, of extreme wealth — by whatever name we might happen to label this ruling class.

That study, by professors Gilens and Page, explained that it examined “1,779 instances between 1981 and 2002 in which a national survey of the general public asked a favor/oppose question about a proposed policy change,” and it compared those public-policy preferences, by the public, versus the public-policy preferences regarding those same issues, by the super-wealthiest; and, it found that only the public-policy preferences by the super-wealthiest and their paid agents, made any discernible difference, at all, in the likelihood that a given public policy ultimately became enacted into law, in the United States. Whereas the public-policy preferences of the wealthiest do, at far higher than mere random chances, become enacted into laws, the public-policy preferences of the public are (except in political rhetoric and promises — frauds perpetrated to deceive the public) ignored, in the United States.

Here is an excellent six-minute video describing the methodology and findings in that landmark study...

And here is a commentary by former US President Jimmy Carter, in which he says that he knows it’s true.

He said this not on the basis of examining thousands of cases and doing the statistical analysis of the data, like Gilens and Page had done, but just on the basis of his observations of how the US federal government has been functioning in recent decades. And, of course, the scientific study is vastly more reliable than is any individual’s mere opinion about the matter.

Furthermore, there exists evidence that even in some local or state governments in the United States, considerable corruption exists, and therefore an extreme slant prevails in favor of the rich. During June 2016, I headlined about this, “Here Is How Corrupt America Is”, and opened:

The best reporting on the depth of America’s dictatorship is probably that being done by Atlanta Georgia’s NBC-affiliated, Gannett-owned, TV Channel “11 Alive,” WXIA television, its “The Investigators” series of local investigative news reports, which show, up close and at a cellularly detailed level, the way things actually work in today’s America. Although it’s only local, it displays what meets the legal standards of the US federal government in actually any state in the union; so, it exposes the character of the US government, such that what’s shown to be true here, meets America’s standard for ‘democracy’, or else the federal government isn’t enforcing federal laws against it (which is the same thing as its meeting the federal government’s standards).

What was exemplified in this reporting by that excellent investigative team could be called “corporate organized-gangsterism,” and this gangsterism was being led by an operation, “ALEC,” that was founded by politicians whose careers are funded by the Koch brothers and some other US billionaires.

Furthermore, as was mentioned briefly at the opening here, a recent issue of the Washington Post’s “PowerPost” section was titled "The Finance 202: Tax overhaul"s big test comes now”, and it described in detail what was shaping the Trump Administration’s tax-overhaul bill. This article reported that the lobbyists were shaping it 100%. It’s a superb nitty-gritty, down among the weeds, description, of the monetary deals, the horse-trading, that were being made, not only for corporations, but for the wealthiest non-business lobbies, including ‘nonprofit’ ones, but almost all of these lobbies, too, depend overwhelmingly upon billionaires for their funding. What’s being carved-up and served, is being carved-up from governments, and being served to the super-rich. (After all: conservatives say “Government bad, business good,” and Republicans are the conservative Party; so, it’s taking from government, and going to business.)

So: is it any wonder why Gilens and Page found what they did? They found that "economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence.” (By “mass-based groups” was being referenced what the left often calls “movements” or “grass-roots” organizations. After all, what happened from “Occupy Wall Street”? Nothing. It was a big waste of time and effort. Authentic movements get marginalized, because the billionaires’ ‘news’media despise them. Fake ones, such as the Kochs’ “The Tea Party ‘movement’,” get weaponized, because the billionaires’ ‘news’media treat them extensively, and often grant them respect. Top-down’s the way, in any dictatorship. That includes in America.)

Here is another excellent video - this one 10 minutes long - summarizing the Gilens and Page study...

The only major difference between Republican politicians and Democratic ones, then, is that, whereas Republican ones don’t even need to pretend that they oppose limitless greed (since limitless greed that’s carried out by frauds instead of by outright physical violence — which latter type of coercion is the type that’s employed more by lower-class crooks, anyway, and those are the type of crooks who fill our prisons, not the type who fill our boardrooms — is, essentially, supported by Republicans’ ideology, as ‘being entrepreneurial’ and ‘competitive spirit’), Democratic politicians do need to make that pretense (since their voters are liberals, and liberals don’t share the conservatives’ “Greed is good” libertarian faith). But the outcomes, even when Democrats are in power, are vastly more helpful to the billionaires, than to the public. 

Does this mean that Democratic (or liberal) politicians are necessarily more hypocritical than Republican ones are? No. Whereas Democrats pretend to be opposed to the system’s favoring the super-rich, Republicans pretend to be opposed to “sins” and other religious-based shiboleths. Both Parties can win and retain power only by deceiving (defrauding) the public, and serving the billionaires, though in different ways — some conservative, and some liberal. Virtually everything else than that service to billionaires (and to centi-millionaires) is just frauds by politicians, because, at least after around 1970, only the richest 1% or (usually far) less are actually being served by the US federal Government. It’s not the billionaires that are defrauded by politicians; it is clearly the public that is being defrauded by them.

The public are served only to the extent that the public’s interests are the same as the billionaires’ interests. And the Gilens and Page study found that the public’s policy-preferences are simply ignored — not ignored in the political rhetoric, but ignored in the political outcomes.

The US Government, thus, is of a few people (the policymakers), by the billionaires, and for the billionaires. And that’s just an established fact.

Hungary"s Ruling Party Hands Out Book Targeting George Soros

Authored by Jacob Bojesson via The Daily Caller,

Hungary’s ruling party is stepping up its campaign against billionaire investor George Soros by distributing a book that accuses the financier of pursuing a plan to flood Europe with migrants.

The book, titled “George Soros,” is written by Andreas von Rétyi - a German author known for pushing conspiracy theories about UFOs and what caused the Sept. 11, 2001 terror attacks on the U.S.

 

Fidesz, a conservative party led by Prime Minister Viktor Orban, plans to distribute 5,000 copies to local politicians across the country.

 

“The book is a detailed and accurate piece,” Fidesz spokesman János Halász told broadcaster RTL Klub, according to newspaper Die Welt.

The Orban administration launched an anti-Soros campaign in the spring to halt the Hungarian-born investor’s operations in the country.

The streets of Budapest were filled with posters and billboards of the Hungarian-born billionaire with the caption “Don’t let Soros get the last laugh!”

Hungarian government poster portraying financier George Soros and saying "Don"t let George Soros have the last laugh" is seen at an underground stop in Budapest.

The campaign claims that Soros wants a 1 million refugee influx to Europe per year.

“The Hungarian standpoint is that illegal migration is clearly a matter of national security,” Orban’s spokesman, Zoltan Kovacs, told The Daily Caller News Foundation in a recent interview.

 

“We shall mobilize the political and legal power of the Hungarian state against anyone who undermines the security of Hungary – regardless of their origins, religious affiliation or wealth.”

Soros struck back at Orban by describing his “mafia state” as “one which maintains a facade of democracy.”

Budget Preview: Chancellor Philip Hammond"s Impossible Task To "Square The UK"s Circle"

At lunchtime today, Philip Hammond will give the weakened Conservative government’s first budget in the new parliament.

Against a likely backdrop of downgrades for the economy from the OBR, the Chancellor will be under immense pressure to provide a sound plan going forward on many issues. As Statista"s Martin Armstrong notes, the NHS has already had its call for an emergency boost of £4 billion rejected, but there will need to be at least some answers to the problems surrounding health and public services funding.

As a new survey by ComRes shows, this topic is one of particular importance to the public, with 67 percent saying that there should be more investment in these services, with a slight majority even saying they would personally be prepared to pay more taxes to enable it.

Clearly, this is a highly significant budget and we would be greatly surprised if it’s considered a success. As we noted yesterday, Reuters columnist and former European economics editor of The Economist, Paul Wallace, believes:

Few British budgets have mattered as much as the one that Philip Hammond will deliver to the House of Commons on Nov. 22. The chancellor of the exchequer must shore up Theresa May’s perilously shaky government ahead of a vital Brexit summit of European leaders in mid-December. At the same time Hammond has to keep a grip on the public finances.

However, it’s worse than that, as the Chancellor is also under pressure from senior members of the Conservative party, never mind UK citizens, to increase spending amid widespread fatigue with austerity. Here is the Financial Times on the stiff challenge Hammond is facing.

UK Chancellor Philip Hammond is under pressure from all sides as he prepares to deliver his second Budget on Wednesday. The first Budget of a new parliament is traditionally the time for chancellors to take bold decisions about taxes and spending. But the economic forecasts are likely to be difficult, public services are under strain, and pro-Brexit MPs are increasingly turning on the chancellor over his support for a “soft Brexit”. If Mr Hammond produces a safety-first Budget, he squanders his opportunity to decisively shape Britain’s future. But boldness risks backfiring, and steering a middle course threatens to satisfy nobody.

The FT notes that the Chancellor’s statement will “serve a cold dish of downgrades for the UK economy” from the independent “Office for Budget Responsibility” (OBR). This year’s growth forecast is expected to be cut from 2.0% to 1.6% and for 2018 from 1.6% to 1.4%. The medium-term forecasts depend on the OBR’s assumptions on productivity growth, which it has already flagged will be cut “significantly”. The FT expects that.

That means growth figures for 2020 and beyond will be closer to 1.5 per cent a year, compared with the 2 per cent that the fiscal watchdog had previously forecast.

Paul Wallace highlighted productivity as Hammond’s biggest problem.

But the gravest challenge he faces is economic: Britain’s persistent productivity blight…

 

Other advanced economies have also experienced setbacks to productivity growth following the financial crisis. Where Britain stands out is in the severity of its reverse. The shortfall in productivity is the main reason real wages are now 4 percent lower than 10 years ago, a potent reason why the leave campaign prevailed in the Brexit referendum.

While public finances look slightly more robust in the near-term, the outlook is deteriorating 3-4 years out, as the  FT explains"

Tax revenues have been stronger than expected this year, alongside lower-than-expected public spending. As a result, this year’s expected public borrowing will fall by about £8bn. The debt burden will begin to fall next year, giving Mr Hammond the opportunity to boast that he has turned the corner on public finances. But good news in the short term disappears towards the end of the forecast horizon, as weaker economic forecasts bear down on projected tax revenues. Before any accounting or tax changes, the deficit forecast in 2020-21 is likely to rise by more than £10bn compared with the March forecast. The government has already said it wants to reduce borrowing to under 2 per cent of national income by 2020-21, but Mr Hammond’s headroom is likely to roughly halve, from £26bn to about £13bn, in that year.

However, he does have one thing up his sleeve…an off-balance sheet accounting gimmick.

The chancellor wants to signal that after a difficult year, things are looking up, with debt falling and Brexit-related uncertainties lifting. To offset bad news in the medium-term public finances, he will use a £5bn-a-year accounting change — by taking housing associations’ borrowing off the government’s books — to free up more money for housing, wages and healthcare.

Affordable housing is a major problem for Hammond and Prime Minister Theresa May. According to the FT:

Fixing the “broken housing market” is the government’s biggest domestic priority. The chancellor wants to make rents more affordable and ease the path to home ownership for younger adults who have deserted the Conservative party in recent elections. Mr Hammond has already set a target of 300,000 new homes per year, but has also insisted there is no “single magic bullet” to solving housing problems.

He will announce a housing package on Wednesday that is likely to include commissioning of new building on public land and funding for local authorities to construct homes. He will also reaffirm the Tories’ promise from last month’s party conference to commit £10bn more of Help to Buy equity loans, and set out plans to lower stamp duty for some first-time buyers. There will be no big reform of planning laws for the “greenbelt” of protected area outside of London, but local authorities could be given more powers for compulsory purchase of land.

In its budget preview, the left-leaning Guardian newspaper highlights the deteriorating outlook for public finances due to the productivity problem.

Lower expectations for the output per worker will have an impact on the gross domestic product, cutting the amount of economic output available for taxation. The Institute for Fiscal Studies reckons the downgrade will contribute to a £20bn black hole in the public finances, limiting Hammond’s spending power if he wants to stick to his pledge to remove the deficit by the mid-2020s. John McDonnell, the Labour shadow chancellor, seized on the October data to argue that seven years of spending cuts had “caused pain and misery for millions with little to show for it”.

As if “Fiscal Phil” Hammond didn’t have enough on his plate, he’s also been lambasted for his gaffe that “there are no unemployed people” in Britain, in a television interview at the weekend. Disliked by the pro-Brexit side of his party, Hammond’s budget speech is being viewed by some as the “make or break” moment of his career. We concur.

Meanwhile, Bloomberg has been doing some sleuthing on budget preparations by government departments and think tanks. It identifies six things to look out for when Philip Hammond stand up in parliament to deliver his speech.

The U.K. budget is usually a mixture of measures that have been heavily trailed in the run-up by various government ministers, with a liberal sprinkling of surprises. In the past six months there have been myriad consultations and papers on everything from the offshore oil to air pollution that hint at possible measures in the works. Bloomberg trawled through that documentation, as well as recent announcements, to identify six areas that are likely to get a mention when Chancellor of the Exchequer Philip Hammond lays out his economic blueprint.

1. Stamp Duty and the Housing Crisis
Prime Minister Theresa May last week pledged that it’s her personal mission to “build more homes, more quickly.” To that end, the budget is likely to include a number of measures to encourage construction and enable younger people to get on the housing ladder. Asked on the BBC on Sunday about whether the home-buying tax known as stamp duty would be cut for younger buyers, Hammond declined to discuss tax matters, but didn’t deny he was looking at the measure.

“We recognize the challenge for young first-time buyers, that in many parts of the country deposits are now very large,” Hammond said. “Nobody is saying we’ve done enough. We must do more. We recognize there’s a challenge there and on Wednesday I shall set out how we intend to address it.”

2. North Sea Oil and Gas
Whilst remaining committed to its climate-change goals, the U.K. is also trying to extract as much value from its waning oil and gas fields in the North Sea. The industry is crucial to the economy in Scotland, which would be grateful for any assistance to a financial lifeline even as it remains angry at the Conservatives for taking it out of the European Union.

At the last budget in March, the government published a “discussion paper” that examined allowing transfers of tax history between buyers and sellers of oil and gas assets -- a measure designed to make it easier to buy and sell the fields, and keep them producing for longer. It would allow buyers to get a tax refund as a result of any costs incurred decommissioning the field at the end of its life.

Hammond told the Sunday Times he’s “looking at” a possible change in the tax rules, which is “the No. 1 ask of my Scottish colleagues.” Even so, he did issue a note of caution, adding that the Treasury needs to ensure the reform “is robust and that we don’t inadvertently create scope for gaming on a grand scale in the tax system."

3. Boosting Research & Development
May on Monday said the government aims to increase public and private research and development spending to 2.4 percent of economic output by 2027, and beyond that to 3 percent. “This could mean about 80 billion pounds ($106 billion) of additional investment in the next decade,” she said.

As part of an announcement the same day linked to her government’s Industrial Strategy -- due to be published next week -- she said that would begin with a commitment for an extra 2.3 billion pounds of investment in the 2021-2022 tax year, taking total public investment to 12.5 billion pounds that year. The government also signaled plans for a 1.7 billion-pound fund focused on improving regional transport links.

4. Shale Wealth Fund
In another measure aimed at boosting the fossil-fuel industry -- in this case by making it more palatable to local communities -- the government promised at the last election to overhaul a pledged fund worth as much as 1 billion pounds to distribute some of the profits from hydraulic fracturing.

The aim is to ensure “a greater percentage of the tax revenues from shale gas directly benefit the communities that host extraction sites.” The government last week responded to a consultation on the issue pledging the fund will initially consist of as much as 10 percent of tax revenues from shale-gas extraction, with proceeds to be spent on projects ranging from play parks for children to improved transport links and restoring historical sites.

5. Air Pollution Tax
Diesel vehicles have become a political football of late. For years, governments ignored evidence that diesel is worse for air quality and encouraged its use because the fuel is less damaging to the climate than gasoline. With air pollution now under the microscope in London in particular, the government published an air-quality plan over the summer and is likely to include measures in the budget designed to help clean up the air in Britain’s cities by encouraging cleaner vehicles.

Possible measures include raising the sales tax on diesel cars, known as vehicle excise duty, or raising taxation on diesel fuel itself, which is currently taxed at the same level as gasoline, at about 58 pence per liter. The government has also said it will consider programs to encourage motorists to trade in their older, more polluting cars, for newer, cleaner ones. Ministers also stepping up efforts to encourage the use of more electric vehicles by supporting the development of batteries and the deployment of charging points.

6. Fund for Start-Ups
In August, the government proposed a new National Investment Fund that would help start-ups access the “patient capital” funding they need to develop into so-called “unicorns” -- innovative companies valued at over $1 billion. A consultation on the proposal closed in September, and Hammond is likely to propose a confirmed plan of action in the budget.

The consultation suggested funding should come from the British Business Bank, replacing the backing currently received from the European Investment Fund. One of the reasons this could get a mention is that the the government is keen to demonstrate that London can attract Big Tech even when it’s no longer in the European Union.

Although the view is hardly unique to this government, a mere 22 percent said that they feel taxpayers" money is currently being spent wisely.

Whether this percentage will go up or down after the Chancellor"s statement today, remains to be seen.

Britain"s Gravest Economic Challenge Isn"t Brexit

Authored by Paul Wallace, op-ed via Reuters.com,

Few British budgets have mattered as much as the one that Philip Hammond will deliver to the House of Commons on Nov. 22.

The chancellor of the exchequer must shore up Theresa May’s perilously shaky government ahead of a vital Brexit summit of European leaders in mid-December. At the same time Hammond has to keep a grip on the public finances.

But the gravest challenge he faces is economic: Britain’s persistent productivity blight.

Productivity – output per hour worked – is the mainspring of economic growth.

In the decade before the financial crisis of 2007-08 productivity was increasing in Britain by just over 2 percent a year, outpacing the average for the other economies of the G7. But since the crisis British performance has been dismal. Although productivity jumped in the third quarter of 2017, prolonged weakness means that it is barely higher than its pre-crisis peak a decade ago. The recovery in GDP has been driven overwhelmingly by more labor input, a source of growth that is running dry – not least since the vote to leave the European Union delivered a message to curb immigration.

Other advanced economies have also experienced setbacks to productivity growth following the financial crisis. Where Britain stands out is in the severity of its reverse. The shortfall in productivity is the main reason real wages are now 4 percent lower than 10 years ago, a potent reason why the leave campaign prevailed in the Brexit referendum.

Productivity is so central to prosperity and to macroeconomic management – by determining how fast the economy can sustainably grow – that a gaggle of economic researchers have been busy in their labs trying to diagnose the now decade-long disease. Early detective work highlighted the impact of the financial crisis itself, which was especially severe in Britain. This held back productivity by throttling bank credit to new potentially fast-growing ventures and by jamming up the usual way in which capital moves from declining to advancing sectors. 

But as the crisis has receded and British banks have become better capitalized this explanation is less convincing. Longer-term forces appear to be in play in Britain and elsewhere. Firms at the technological frontier continue to forge ahead in raising productivity. However, the diffusion of their best practices within economies has slowed. An aging workforce is now acting as a drag. And the contribution to productivity from improved educational attainment is falling.

One reason the productivity setback has been particularly severe in Britain is that its apparently robust performance before the crisis was overstated and unsustainable. Banking activities ballooned on the basis of what turned out to be economically and socially harmful practices such as risky securitizations. Despite making up less than a tenth of the economy, the financial sector has been responsible for nearly a third of the productivity slowdown. Longstanding weaknesses in qualifications and skills have also become more damaging as business becomes more knowledge-based. Over a quarter of British working-age adults perform poorly in numeracy or literacy or both.

Investment is inadequate, too. Although firms have stepped up their capital spending after it collapsed during the recession, they have done much less so than in previous recoveries. Business investment is only 5 percent above its pre-crisis high a decade ago. At a similar stage in the recoveries following recessions at the start of 1980s and of the 1990s it was 63 percent and 30 percent higher than the respective previous peaks.

The reluctance to invest in turn is rooted in a financial and business culture that is especially and perniciously short-termist in Britain. Firms under pressure from the markets are reluctant to make the strategic investments needed to keep productivity moving ahead. And too many British managers are simply not good enough.

Although a definitive diagnosis of the British productivity disease remains elusive there is a surprising degree of consensus about the treatment needed to resuscitate the patient. The chancellor’s to-do list should include steps to tackle congested roads and overcrowded trains, to support the sciences, to foster R&D in the private sector, and to upgrade Britain’s poor skills. Since competition spurs higher productivity as new and smarter firms drive out older and less productive businesses, Hammond needs Britain to be as open an economy as possible.

The remedies make good sense but they will not rescue the chancellor, who has in any case already announced more spending on infrastructure. First, they will take time to be effective. Second, finding more money for austerity-hit public services such as policing and health will add to the pressures on the public finances. And third, Brexit is now contributing to the productivity malaise as businesses respond to corrosive uncertainties by curbing their investment plans and as Britain becomes less open to trade by leaving the EU. Raising taxes is always an option for a cash-strapped chancellor, but it would be highly unpopular − not least in the bitterly divided Conservative party.

When he presents his budget, Hammond can be expected to put a brave face on things. He will point to the fall in the budget deficit from a peak of almost 10 percent of GDP after the financial crisis to 2.3 percent of GDP in the financial year ending in March 2017. But what matters now is the future path of the public finances. Britain’s poor productivity prospects will box the chancellor in because GDP is the tax base and future revenues will be smaller to the extent that output per hour worked continues to stall.   

The harsh reality is that Brexit will blight the public finances by hurting productivity. While Prime Minister May might see Britain’s overriding priority as ensuring that next month’s summit enables the Brexit talks to move on to trade, she’ll have to broaden her focus if she hopes to stay in office long enough to secure a deal that minimizes the damage Brexit is inflicting on the economy.

UK Cabinet Poised To Increase Brexit Divorce Payment By Another 20 Billion Euros

Theresa’s May’s government is poised to concede an improved Brexit settlement offer to gain EU approval to move the negotiations on to the next stage.

May reportedly has the backing of senior ministers ahead of a critical cabinet meeting on Monday afternoon. The list of senior ministers is thought to include chancellor, Philip Hammond, Brexit secretary, David Davis, environment secretary, Michael Gove and weakened foreign secretary, Boris Johnson, who famously said in July that the EU could “go whistle” over a divorce settlement. Hammond said at the weekend “we’ve always been clear it won’t be easy to work out that number, but whatever is due, we will pay”. Press reports suggest that the UK will formally offer about 40 billion Euros, versus the previous 20 billion. The news caused Sterling to rise more than half a percent to a two and a half week high of 1.3272, its strongest level since 2 November 2017. According to Bloomberg.

The U.K. could be about to improve its financial offer to the European Union ahead of a crucial meeting of the bloc’s leaders in December. Members of Prime Minister Theresa May’s divided cabinet will consider Britain’s divorce from the EU at a meeting Monday afternoon of the Brexit sub-committee that could be key to unlocking the most controversial matter in the negotiations -- money. Britain is “on the brink of making some serious movement forward” and starting to break the “logjam,” Chancellor of the Exchequer Philip Hammond told the BBC on Sunday. While Hammond is among the most pro-European members of cabinet, his suggestion follows Brexit Secretary David Davis’s hint from Berlin on Friday that more details on a financial settlement would be presented within weeks. With businesses clamoring for clarity and the departure just 16 months away, pressure is mounting to break the impasse.

The impact of a 40 billion Euros settlement offer is hard to judge as it likely to fall short of the EU’s demands, while it might enrage a substantial proportion of the British public. Bloomberg continues.

The EU is pushing for Britain to pay at least 60 billion euros ($71 billion) to cover budgetary commitments and future liabilities such as pensions for EU civil servants. So far, May has said she will make 20 billion euros of budget payments after Brexit, and is going through the other items line by line. The Times said that while the government wouldn’t put a figure on it, it was likely to add another 20 billion euros to what it’s already agreed to. There’s a risk that might not be enough to unblock talks. It’s also unlikely to go down well domestically. “If we start saying that we’re going to give 40 to 50 billion to the EU, I think the public will go bananas, absolutely spare,” Robert Halfon, a Conservative lawmaker and former minister, said late Sunday in a BBC radio interview. “That is going to be very difficult if it is going to be that sum, amount of money.” Halfon has a point: one of the main messages of the pro-Brexit wing in last year’s referendum was that it would put an end to sending large sums of money to the EU, and polling shows the British public are adverse to paying a large exit bill. A YouGov poll in September found that even a bill of 20 billion pounds was unpalatable to 63 percent of voters surveyed.

Time is running out for the financial settlement to be agreed if it is to be approved at the next EU Council meeting in mid-December. After meeting Prime Minister May on Friday, EC President Tusk indicated that early December was the deadline. As Bloomberg explains.

“We are waiting for a substantial offer from the British,” Dutch Foreign Minister Halbe Zijlstra said on Monday.

 

“It has to be concrete and on the table instead of in the press”…

 

Time is pressing on Britain to come up with an improved offer after EU President Donald Tusk said early December would be “the latest” for additional concessions on the bill if talks are to advance beyond the divorce and on to future trading arrangements after a mid-December summit. “We will make our proposals to the European Union in time for the council. I am sure about that,” Hammond said in an interview with the BBC on Sunday. Asked if time was running out for the U.K. to make an improved offer on its exit payment, he replied that “the council is in three weeks, so, yes.”

With the deadline approaching, the posturing by both sides is ratcheting up and an agreement – or otherwise – will probably go down to the wire.

The process has been complicated along the way by what sometimes looks like a game of brinkmanship. In an interview with the BBC, Davis insisted that Britain has “made all the running” and that now “I want them to compromise,” meaning the EU. Tusk responded by saying he found that position laughable: “I really appreciate Mr. Davis’s English sense of humor.”

Another point is that success or failure could well be decided at the highest political levels and relatively last minute. In Berlin on Friday, Davis said “we’ll make some decisions, political decisions, later on.” The stalemate in Brexit talks is dragging on as EU leaders refuse to discuss a future trade deal with the U.K. until sufficient progress is made on money, guaranteeing rights of citizens, and the Irish border.

Ahead of today’s cabinet meeting, an MP from May’s party warned her not to “play Santa Claus” to the EU. As the BBC reports.

The UK government cannot afford to "play Santa Claus" to EU bosses by handing over billions of pounds, a Conservative MP says. Nigel Evans accused the EU of demanding "ransom money" from Theresa May to move Brexit negotiations forwards. He was speaking ahead of a meeting between Mrs May and senior ministers to try to make progress on the stalled talks.

This was May leaving church with her husband in a red coat on Sunday.

It’s been clear that EU bureaucrats were determined to extract the maximum possible settlement to punish the UK for leaving. However, the sudden weakening in Merkel’s position, after her failure to negotiate a new coalition government, might shake Brussels’ hardline approach enough to get a compromise deal over the finishing line.

We never fully bought into the “Merkel is May’s ally” narrative, but time will tell.

Japan Sounds Alarm On "Unprecedented, Critical And Imminent” Threat From North Korea

Following the landslide victory by Prime Minister Abe in Japan"s Sunday elections, which left his ruling coalition with a supermajority allowing him to change Japan"s constitution, Abe wasted no time in signalling a push towards his long-held goal of revising Japan"s post-war, pacifist constitution, however as Reuters reported earlier, Abe would "need to convince a divided public to succeed." Parties in favor of amending the U.S.-drafted charter won nearly 80% of the seats in Sunday’s lower house election, leaving the small, new Constitutional Democratic Party of Japan (CDPJ) as the biggest group opposed to Abe’s proposed changes. Still, Abe claimed he wanted to get other parties on board, including Tokyo Governor Yuriko Koike’s new conservative Party of Hope, and was not insisting on a target of changing the constitution by 2020 that he floated this year.

Yet, despite Abe"s soothing vision, just one day after the election Japan was already setting the groundwork for creating the strawman that would be needed to get public support largely behind Abe"s militant venture.

As a result, Japan’s defense minister said on Monday that North Korea’s nuclear and ballistic missile capabilities have grown to an “unprecedented, critical and imminent” level, requiring “different responses” to the threat.

The minister, Itsunori Odonera, was quoted by AP as saying that this rising threat compels his country to endorse the U.S. view that “all options” must be considered, which President Donald Trump says includes possible military action. And since this pivot would require a revised constitution, the next step is already in play.

Odonera’s comments came at the outset of a so-called trilateral meeting in the Philippines (where over the weekend Russia was "delivering" weapons to the Duterte regime, as reported overnight) with U.S. Defense Secretary Jim Mattis and South Korea’s defense minister, Song Young-moo. Each made statements about North Korea before a group of reporters and news cameras, but none took questions according to AP.

Mattis was in the Philippines to attend portions of a two-day meeting of defense ministers from the 10 Association of Southeast Asian Nations. He used the occasion to hold a three-way meeting with his counterparts from Japan and South Korea. He is scheduled later in the week to travel to Seoul to attend annual consultative talks with the South Korean government, which is expected to focus mostly on North Korea.

Elevating the North Korea bogeyman to unprecedented levels, and assuring that "no crisis will go to waste", Odonera said North Korea’s most recent underground nuclear test could have been a hydrogen bomb, which is vastly more powerful than an atomic bomb.

“The country has steadfastly improved it nuclear and missiles capability,” said Onodera. He added: “The threat posed by North Korea has grown to the unprecedented, critical and imminent level.”

 

“Therefore, we have to take calibrated and different responses to meet that level of threat,” he said, without elaborating on what “different” responses Japan favors.

Trump has said he will resolve the North Korea problem alone if necessary, to prevent the North from gaining the capability to attack the United States with a nuclear-armed missile.

As usual, the far cooler Mattis - who clearly does not have a constitution-revising agenda - was much more reserved in his remarks than Onodera, although he did slam Pyongyang for defying U.N. Security Council resolutions against its nuclear and ballistic missile programs. But the U.S. defense secretary did not mention any potential military action. Mattis instead emphasized a unified U.S.-Japan-South Korea position in pressuring the North to give up its nuclear program.

“North Korea’s provocations threaten regional and global security,” he said.

Meanwhile, South Korea’s defense minister, Song, said that North Korea’s behavior is “becoming worse and worse.” In brief remarks to reporters, earlier on Monday Song was asked about the risk of war against North Korea.

“I want to emphasize that war is not as easy as the journalists make it sound in the press and the media,” he said. “As defense ministers who are in charge of national defense and other high tech weapons such as ballistic missiles, we understand the very weight of engaging in a war and as such we will make all the efforts necessary to resolve the issue in a diplomatic and economic way as possible.”

He added: “However, if we are attacked then we will have to take firm actions.”

Most importantly, however, is that it has been a month since North Korea has engaged in any provocative actions, and contrary to expectations that it would launch a ballistic missile in early and mid October, so far Pyongyang has - despite launching the occasional verbal grande at Trump - kept a low profile. Which considering it is now in Japan"s best interest to have a provocative neighbor who will greenlight the desired constitutional changes, will likely change in the near future.

UK Slams Tariffs On Bombardier: "This Is Not What We Expect From A Long-Term Partner"

It appears the Commerce Department"s preliminary ruling, issued late last night, to slap a 220% tariff on Canadian aircraft manufacturer Bombardier could trigger an all-out trade war between the UK and Canada (on one side) and the US (on the other) as public officials in the UK and Canada blasted the ruling and threatened retaliation should the sanctions, which still need to be approved by the US International Trade Commission, become permanent.

Earlier today, the Commerce Department ruled that Bombardier"s jets should face the levy because the company received anticompetitive government subsidies. The ruling comes after Boeing said the Bombardier C-Series jet would not exist without hundreds of millions of dollars in launch funding from the governments of Canada and Britain, or a $2.5 billion equity infusion from the province of Quebec and its largest pension fund in 2015. Boeing brought the complaint after Delta Air Lines agreed in April 2016 to purchase 75 C-Series jets, an order worth some $5 billion.

The preliminary ruling - which comes as the US, Canada and Mexico are holding their fourth meeting to renegotiate Nafta - has met with praise from Boeing, and criticism from virtually everybody else involved.

The UK, which does a brisk business with Boeing, is threatening to cut ties with the company if the decision against Bombardier is finalized. The reason? Bombardier has a large plant in Belfast, employing some 4,200 people in Northern Ireland, a region that the UK"s ruling conservative party relies on heavily for support. If Bombardier, which is already struggling, takes another hit, those people could lose their jobs, potentially threatening the conservatives" tenuous grip on power after losing their majority in snap elections over the summer, according to Reuters. 

UK Defense Minister Michael Fallon said in a TV interview today that the ruling could jeapordize Boeing"s business relationship with the UK government.

“This is not the behavior we expect from Boeing and it could indeed jeopardize our future relationship with them,” British Defence Secretary Michael Fallon told reporters in Belfast at a briefing in the historic Harland & Wolff shipyard, a few hundred yards from the Bombardier plant.

“Boeing has significant defense contracts with us and still expects to win further contracts. Boeing wants and we want a long term partnership but that has to be two way.”

“Boeing is an important investor in the United Kingdom and an important employer in the United Kingdom but we would prefer this kind of issue to be settled on a negotiated basis,” Fallon said.

“This is not the kind of behavior that we expect from a long-term partner and I’ve made that very clear to Boeing,” Fallon told reporters.

Britain recently ordered the Boeing P-8 maritime surveillance plane and a new fleet of Apache attack helicopters. Its armed forces have deployed Chinook helicopters, the C-17 transport plane and the E-3 Sentry airborne early warning and command post.

Meanwhile, British Business Secretary Greg Clark said on Wednesday he was confident he would be able to have the U.S. anti-subsidy complaint against Bombardier dismissed.

“We’ve been working very closely with the Canadian government to make it clear that this is a complaint that is unjustified,” Clark told Sky TV.

“What needs to happen now by the trade commission is that they look to see whether there has been any detriment to Boeing,” he added.

“There hasn’t been because this aircraft does not compete with Boeing so we’re confident that we will be able to demonstrate that and have this case dismissed.”

Threatening language aside, the Gaurdian points out that Boeing has substantial leverage should the UK act to curtail its business relationship with the defense contractor. Boeing employs or supports more than 10,000 jobs in the UK; any tit-for-tat retaliation could affect them.

Even the labor party, which isn"t politically dependent on Northern Ireland and thus has less of an incentive to care about the potential closure of a Bombardier plant there, has joined in the Boeing bashing. Labour leader Jeremy Corbyn has just told his party conference in Brighton that the tariffs imposed on Bombardier planes threaten “thousands of jobs”. He called on Prime Minister Theresa May to leverage her "special relationship" with the US to try and protect workers in Northern Ireland.

"Thousands of jobs are now at stake...a Prime minister is betting our economic future on a deregulated trade deal with the US might want to take a moment to explain how 220% tarifsf are going to boost our exports from this country."

Of course, once the ITC issues its ruling, the Trump administration will have the final say on tariffs. Will May"s relationship with the president be enough to save Bombardier? Or will Trump side with Boeing and spin the tariffs as a bid to protect US workers - throwing red meat to his base in the process?

What do you think?

The Fake News Media Of Sweden

Authored by Nima Gholam Ali Pour via The Gatestone Institute,

• In most democratic countries, the media should be critical of those who hold power. In Sweden, however, the media criticize those who criticize the authorities. Criticism is not aimed at the people who hold power, but against private citizens who, according to the journalists, have the "wrong" ideas.


• TV4 and all other media refused to report that it was Muslims who interrupted the prime minister because they wanted to force Islamic values on Swedish workplaces. When the Swedish media reported on the event, the public were not told that these "hijab activists" had links with Islamist organizations. Rather, it was reported as if they were completely unknown Muslim girls who only wanted to wear their veils.


• The Swedish media are politicized to the extent that they act as a propaganda machine. Through their lies, they have created possibilities for "post-truth politics". Instead of being neutral, the mainstream Swedish media have lied to uphold certain "politically correct" values. One wonders what lifestyle and political stability Sweden will have when no one can know the truth about what is really going on.

In February 2017, after U.S. President Donald Trump"s statements about events in Sweden, the journalist Tim Pool travelled to Sweden to report on their accuracy. What Tim Pool concluded is now available for everyone to watch on YouTube, but what is really interesting is how the Swedish public broadcasting media described him.

On Radio Sweden"s website, one of the station"s employees, Ann Törnkvist, wrote an op-ed in which Pool and the style of journalism he represents are described as "a threat to democracy".

Why is Pool "a threat to democracy" in Sweden? He reported negatively about an urban area in Stockholm, Rinkeby, where more than 90% of the population has a foreign background. When Pool visited Rinkeby, he had to be escorted out by police. Journalists are often threatened in Rinkeby. Before this incident, in an interview with Radio Sweden, Pool had described Rosengård, an area in the Swedish city of Malmö heavily populated by immigrants, as "nice, beautiful, safe". After Pool"s negative but accurate report about Rinkeby, however, he began to be described as an unserious journalist by many in the Swedish media, and finally was labeled the "threat to democracy."

One might think that this was a one-time event in a country whose journalists were defensive. But the fact is that Swedish journalists are deeply politicized.

In most democratic countries, media are, or should be, critical of those who hold power. In Sweden, the media criticize those who criticizes those who hold power.

In March 2017, the public broadcasting company Sveriges Television revealed the name of a person who runs the Facebook page Rädda vården ("Save Healthcare"). The person turned out to be an assistant nurse, and was posting anonymously only because he had been critical of the hospital where he worked. Swedish hospitals are run by the local county councils, and thus when someone criticizes the healthcare system in Sweden, it is primarily politicians who are criticized. Sveriges Television explained on its website why it revealed the identity of the private individuals behind Facebook:

"These hidden powers of influence abandon and break the open public debate and free conversation. Who are they? What do they want and why? As their impact increases, the need to examine them also grows."

It is strange that Sveriges Television believes that an assistant nurse who wants to tell how politicians neglect public hospitals, is breaking "the open public debate and free conversation". This was not the only time that the mainstream Swedish media exposed private citizens who were criticizing those who hold power. In December 2013, one of Sweden"s largest and most established newspapers, Expressen, announced that it intended to disclose the names of people who commented on various Swedish blogs:

"Expressen has partnered with Researchgruppen. The group has found a way, according to their own description, without any kind of unlawful intrusion, to associate the usernames that the anonymous commentators on the hate websites are using to the email addresses from which comments were sent. After that, the email addresses have been cross-checked with registries and authorities to identify the persons behind them."

The term "hate websites" (hatsajterna) is what that the mainstream media uses to describe some of the blogs that are critical of Islam or migration.

It is one thing to be critical of bloggers who you may consider have racist opinions. But exposing the people who have written in comments sections of various blogs in one of Sweden"s biggest newspapers is strange and terrifying.

Researchgruppen has clear links to Antifascistisk Aktion (Antifascist Action), a group which, according to the Swedish government, consists of violent left-wing extremists. For their efforts to expose private individuals in the comments section, Researchgruppen received the Guldspaden, a prestigious journalistic award in Sweden.

Jim Olsson was one individual exposed in Expressen simply because he wrote something in a blog"s comments section. A 67-year-old docent in physical chemistry, Olsson received a home-visit from Expressen with a camera and microphone present. A private citizen with no connection to any political party or organization, he exposed by Sweden"s media because he had written the following in the comments section:

"The Swedish asylum system rewards swindlers with a permanent residence permit. There are, of course, swindlers flooding Sweden."

The Swedish newspaper Expressen accessed databases of website commenters, targeted critics of immigration, and confronted them at home. The above screenshot is taken from a video on the Expressen website, published under the headline "Jim Olsson writes on hate sites."

Another private individual, Patrik Gillsvik, with no political links, was exposed and fired from his job because, in a blog"s comments section, he wrote:

"I would like to join the structural prejudices of the majority in society and state that gypsies are inventive and witty entrepreneurs who can enrich our culture -- yes, and then they steal like ravens, of course!"

Although the statement can be criticized for being unacceptably racist, what is unique is that the mainstream media in a Western democracy can expose private individuals because they wrote something in a blog"s comments section. Criticism is not aimed at the people who hold power, but against private citizens who according to the journalists have the "wrong" ideas.

Moreover, each of these private citizens, who have had their lives ruined because they wrote something distasteful in a comments section, serves as a warning, so that others will not dare to make the mistake of posting something politically incorrect on a blog.

It is shocking that in a democracy, the media acts this way, but that is how Swedish -- and, increasingly, other Western media -- operate these days.

In addition to punishing private individuals who, according to the them, communicate "wrong" ideas, the media celebrate and support people who have the "right" ideas. On May 1, 2017, Sweden"s Prime Minister Stefan Löfven was interrupted by a number of hijab-wearing activists who were protesting a verdict of the Court of Justice of the European Union that employers are entitled to prohibit staff from wearing a hijab. Given that Sweden"s prime minister cannot directly influence the Court, and that one should not interrupt the country"s prime minister when he speaks, one would think that these "hijab activists" might be criticized in the media.

TV4, a national TV-channel and one of the first media outlets to report this incident, refused to say that those who interrupted the prime minister were wearing the Islamic veil. The title of TV4"s clip was "Demonstrators Interrupted Löfven speech". The sub-headline read as follows: "Female protesters screamed out their anger against the prime minister and wondered where the feminist government was."

From the text, it is not clear that these activists demonstrated against the verdict of the Court of Justice of the European Union; that all activists wore a hijab, or that they screamed, "Stand up for Muslim women"s rights!" However, information that these activists were wearing hijabs and protesting the verdict of the Court of Justice of the European Union was on their Facebook page and YouTube. Nevertheless, TV4 and all other media refused to report that those who interrupted the prime minister were Muslims who were interrupting the prime minister because they seemingly wanted to force Islamic values on the Swedish workplace.

The day after their protest, in an interview with Radio Sweden, these activists had the opportunity to explain why they protested -- but were not asked any critical questions. The next day, an Expressen columnist, Maria Rydhagen, compared one of the hijab-activists glowingly with one of the founders of the Swedish Social Democratic Party, Axel Danielsson. Rydhagen wrote the following about Jasmin Nur Ismail:

"Then, on Monday, the protest of the girls was perceived as only an incident. But imagine if it was the start of something big? Perhaps history was being written, there and then? Imagine if Jasmin Nur is the Axel Danielsson of 2017. Hero and rebel. In that case: Was it not a pity to remove her with the help of the police?"

As the media refused to write anything negative about the protest against the prime minister, this author began to investigate the matter. It took half an hour to find out several important things which were never mentioned by the Swedish mainstream media. Jasmin Nur Ismail had written about the incident on her Facebook page shortly after the protest. Who was behind the protest was not a secret.

The demonstration had been organized by the Hayat Women"s Movement and a network called, "The Right to Our Bodies". The Hayat Women"s Movement was founded by Aftab Soltani, who in March 2017 was one of the speakers at a much-criticized annual Islamic event in Sweden, Muslimska Familjedagarna (Muslim Family Days). The event was blamed by both the left and the right for inviting hate preachers, anti-Semites and Muslim radicals as speakers. Another speaker at this Islamic event in March 2017 was Jasmin Nur Ismail, a heroine of the Swedish media. Muslimska Familjedagarna was organized by the Islamist Ibn Rushd Educational Association, the Islamic Association of Sweden (Islamiska Förbundet i Sverige) and Sweden"s Young Muslims (Sveriges Unga Muslimer).

Jasmin Nur Ismail, hailed as a heroine in Expressen, is a public figure. Southern Sweden"s largest newspaper, Sydsvenskan, described her in an October 2016 article as an "activist, anti-racist and writer". According to Sydsvenskan, Jasmin Nur Ismail"s political role-model is Malcolm X. During the Swedish Forum for Human Rights in 2016, Jasmin Nur Ismail was, in a panel discussion, the representative for Malmö"s Young Muslims -- in turn, a subdivision of an Islamist organization, Sweden"s Young Muslims.

Swedish newspapers did not write a single word that the person and organizations behind the protest against Sweden"s prime minister had links with Islamist organizations. When the Swedish media reported about the event, the public were told that these hijab-activists were completely unknown Muslim girls who only wanted to wear their veils.

Mainstream Swedish media outlets simply do not report some things. When the largest mosque in Scandinavia was opened in Sweden"s third largest city, Malmö, the news about this was first published in the Qatar News Agency and The Peninsula on May 3, 2017. The reason that Qatar"s media wrote about it was because Qatar financed a large part of the mosque. On May 5, an article about this mosque was published in Breitbart. On May 6, one day after Breitbart reported the news and three days after the Qatari media reported the news, the Swedish terrorist expert Magnus Ranstorp sent a tweet about this mosque, but he linked it to the Qatari media. At this time, there are still no Swedish media outlets that have reported anything about the largest mosque in Scandinavia.

On May 8, the Swedish blog Jihad i Malmö wrote about the mosque and its Qatari financing. On May 9, the Swedish blog Pettersson gör skillnad wrote about the mosque. At the same time, the Norwegian author and activist Hege Storhaug, who is critical of Islam, wrote about the mosque and noted that the Swedish media had not yet written about it:

"I had expected that the Swedish media at the very least would mention the opening of Scandinavia"s largest mosque with positive words. But no, not a word in Swedish mainstream media, as far as I have noticed. You have to go to the English version of Arabic media to get some limited information, like Qatar News Agency."

By the time I tweeted about it on May 10, the mainstream Swedish media still had not widely reported it. On May 15, I wrote an article on it for the news website Situation Malmö, run by the Sweden Democrats party branch in Malmö. With one hour"s research, I managed, through what the mosque had published on Facebook, to discover that one of the leading Social Democrat politicians in Malmö, Frida Trollmyr, a municipal commissioner with responsibility for culture, recreation and health, had been at the mosque"s opening. Representatives of the Qatari government also attended, but the mainstream Swedish media still had not reported anything about it.

On May 17, two weeks after the Qatari media had written about the opening of Scandinavia"s largest mosque in Malmö, 12 days after Breitbart had written about the event, and two days after my article, the Sydsvenskan newspaper wrote about the mosque opening. You could not read the article, however, if you had not paid for "premium membership" to this newspaper.

One can see this omission as an unfortunate coincidence, but it is strange when Breitbart succeeds in communicating more information about Malmö than southern Sweden"s largest newspaper, which is headquartered in Malmö. Why would the Swedish media not write about the mosque? It was certainly not a secret. There was no explanation from the Swedish media or anyone else. Yet, these same media outlets did not hesitate to expose the names of private citizens who wrote inappropriate opinions on a public comments page.

There are journalists in Sweden who change their views as soon as the government changes its opinion. Göran Greider, a journalist and editor, active in the public debate in Sweden for more than 30 years, wrote the following in August 2015, about migration policy:

"The European governments who say no to increasing the number of refugees received not only show a shameful lack of solidarity. They are also silent when they decline to rejuvenate their populations."

In November 2015, only three months later, when the Swedish government was forced to change its migration policy because of the migration crisis, Göran Greider wrote:

"But even the left, including many Social Democrats and members of the Green Party, have sometimes been characterized by an unwillingness to discuss the great challenges that receiving refugees, in the quantity we have seen lately, implies for a society. No one wants to be a nationalist. No one wants to be accused of running the errands of Sweden Democrats, or racism. But in this way, people on the left, who are so broadly for bringing in refugees, have often locked themselves out of a realistic discussion."

There is nothing wrong in reconsidering one"s opinion. But it has become common for Swedish journalists frequently to have opinions that favor certain political parties -- often the Social Democrats, the Left Party and the Green Party. The issue is not even about values. People who work for the mainstream Swedish media are ready to reconsider their values so long as it helps certain parties to stay in power. This is far from what is presumably the media"s main task in a democracy.

How is it that no newspaper is rebelling against this order? It would be a good business proposition; such a media outlet could gain financial benefits. Sweden"s political establishment is, after all, not popular. Well, we can look at the example of someone who tried. In February 2017, a financier, Mats Qviberg, bought a free daily newspaper, Metro, usually distributed in subways and buses in Sweden. In May, he gave an interview to the newspaper Nyheter Idag, considered by the Swedish establishment to be "right-wing" or "populist". In his interview, Qviberg gave a slight playful hint that Metro might in some way cooperate with Nyheter Idag.

The consequence of the playful statement was that the Green Party in Stockholm County Council threatened that Stockholm County would stop handing out Metro in Stockholm"s subways. A columnist stopped writing for the paper. Other media outlets started to wonder out loud if Metro were becoming a racist platform. Before the month of May was over, Qviberg had sold his shares in Metro. That politicians would punish a newspaper owner who had "wrong" views did not surprise anyone in Sweden; the situation was not worth mentioning. In Sweden, even owners of newspapers are supposed to follow the political order.

In June 2017, the leader of the Sweden Democrats (SD), Jimmie Åkesson, spoke in Järva, a district in Stockholm dominated by immigrants. The Sweden Democrats is a social-conservative party in the Swedish parliament; it supports, among other matters, a restrictive migration policy. While Åkesson was speaking, there were protests against him; and among the protesters were various placards. A photograph of Radio Sweden"s van showed an anti-SD placard inside it. On it, one could read "Jimmie = Racist". The explanation from Radio Sweden was:

"Someone put a sign on Ekot"s (a Radio Sweden news program) car in Järva on Sunday evening. It was taken down and put into the car and then thrown away on the way from there."

You can have a discussion about why Radio Sweden spends its time discarding placards that left-wing protesters use. Is that what journalist are supposed to do when they are covering a story? In the end, however, it does not matter. The people"s confidence in the mainstream media in Sweden is being eroded as we write.

A new study from Institutet för Mediestudier shows that 54% agree, or partly agree, that the Swedish media are not telling the whole truth about problems in society linked to migration. Instead of the media accepting that they are biased and starting to change their ways, the media continue to attack citizens who appear critical.

In June 2017, the editorial writer of the daily Aftonbladet, Anders Lindberg, wrote an editorial titled, "Hitler Did Not Trust the Media Either," in which he equated the critics of the Swedish media with Nazis. Anders Lindberg, after working 10 years for the Social Democrats, resigned as the Communications Ombudsman for the Social Democrats in 2010, to start working as an editorial writer for Aftonbladet. He is so well-known for what his critics view as unusual versions of the truth that he has the privilege of writing for Sweden"s largest newspaper. In 2015, he described the issue of organized begging, a visible problem in northern Europe, as "legends and folklore". Today there is no party that denies that organized begging is a real problem.

I often have difficulty explaining to many of my American friends and colleagues how the Swedish media work. Often, there may be clear examples of anti-Semitism and other unsavory behavior. The first question I always get is: Why is the media not writing about this? The answer is simple. The Swedish media are politicized to the extent that they act as a propaganda machine. It is not a propaganda machine in the traditional sense of the word, with an official Ministry of Propaganda. But in Sweden, many journalists and editors are either old established political party employees, as Anders Lindberg, or simply ideologically indoctrinated and therefore extremely biased. The Swedish propaganda machine punishes those who have the "wrong" opinions and celebrates those who have the "right" opinions.

What happened to Tim Pool was a part of how media works in Sweden. As long as he said the "right" things, the Swedish media gave a positive picture of him. When he started to have the "wrong" opinion, the propaganda machine started doing its work and Pool became "a threat to democracy".

There are, of course, more examples that show how sick the Swedish debate- and media-climate has become. In such a negative environment, there are many casualties. The first casualty is, obviously, the truth. When people start to understand that the mainstream media are lying, they turn to alternative media. Alternative media outlets, however, also usually have political agendas. A democracy cannot survive well only on biased media. A democracy desperately needs mainstream media outlets that inform its citizens and criticize people who hold power. That is something Sweden does not have today.

A large portion of the Swedish population are apparently aware of this and do not trust the media. Through its lies, the Swedish media have created possibilities for "post-truth politics" in Sweden. Instead of being a neutral party, the mainstream Swedish media have lied to uphold certain "politically correct" values. The result is an atmosphere where many people believe that everything that the media says has a political agenda. When the mainstream media in Sweden lie shamelessly, where can one go to find the truth? One wonders what lifestyle and political stability Sweden will have when no one can know the truth about what is really going on.