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Thoughts from Pontevedra, Galicia, Spain

Random thoughts from a Brit in the North West. Sometimes serious, sometimes not. Quite often curmudgeonly.

Thoughts from Pontevedra, Galicia, Spain: 17 February 2021
17 February 2021 @ 11:00

Night’s candles are burnt out, and jocund day stands tiptoe on the misty mountain tops.

Spanish life is not always likeable but it is compellingly loveable. 

- Christopher Howse: 'A Pilgrim in Spain'

Covid

The Times: It 's now well established that Covid-19 is driven by “super-spreading”. Most people with the virus don't infect anyone else, but a small number of people infect many others. Super-spreaders really do exist. Scientists have found people who produce 1,000 times as many as aerosol particles as their peers when they breathe out, making them a far greater risk. The older and more overweight people were, the more likely they were to be among the 20% who exhaled 80% of aerosol droplets.   So . . . Maybe steer clear of fat* old** people.

* Sorry. Choose whatever replacement term you think is acceptable this week.

** Ditto

Probably true: Whether we like them or not, vaccine passports will be difficult to resist. Even if the Government doesn’t mandate proof of inoculation, businesses will ask for it themselves

Curfews: Spain, France, Italy and Greece have them. Netherland might not, as a court has told the Dutch government that an overnight curfew because it breaches the right to free movement.

Living La Vida Loca in Galicia/Spain 

It was to be expected that having seen the country lose virtually all its tourism business last year, the Spanish government would come out in support of a vaccine passport.

Thinking of installing solar panels here in Spain? This is for you.

María's Tsunami, Day 16. Spain's neo-Nazis.

The UK

Looking both backwards and forwards, Ambrose Evans Prichard takes issue with some economic performant stats  . . . Britain will beat the eurozone to recovery this year. Far from a laggard, the UK economy is better placed to bounce back to pre-pandemic GDP levels than its European neighbours. See his (optimistic?) article below, with its rationale for this claim.

The EU

Europe’s most prominent federalist - Guy Verhofstadt,  ex Belgian prime minister and now the  senior liberal MEP - has accused Ursula von der Leyen of overseeing a “diplomatic disaster” that has wrecked relations between the EU and Britain. He attacked the European Commission president for making the EU’s vaccines “fiasco” worse with panicked measures.

Someone asks: Is Guy Verhofstadt the only Remainer willing to confront the EU's failings? His is the only voice on the inside that has come out to criticise the Commission’s blinding ineptitude. 

The USA

Donald Trump declares war on Republican senate minority leader Mitch McConnell. The ex-president called the senator a “dour, sullen, and unsmiling political hack”, highlighting the widening rift in the Republican Party

McConnell need only look at the USA section of this to see the wide range of adjectives he can use in response to this.

Finally . . .

Quote of the week: It’s easy to identify a fraudulent call. The caller normally appears to be helpful and has excellent communication skills. A genuine call from a bank is invariably made by someone with none of those attributes.

Harry and Meghan are to perform on Oprah. An English prince and an ambitious American cable-TV actress. A match apparently made in Hell. Who could have predicted that . . .?

Headline of the year so far: Publicity-shy woman tells 7.67 billion people; 'I’m pregnant'.

Suggestion of the decade so far: The baby’s middle name should be 'Netflix'.

THE ARTICLE

  Brexit Britain will beat the eurozone to recovery this year.

Far from a laggard, the UK economy is better placed to bounce back to pre-pandemic GDP levels than its European neighbours: Ambrose Evans-Pritchard

The UK economy did not suffer a bigger contraction than the eurozone last year after all. The narrative of a particularly British fiasco – believed by the London media, and the world – is essentially untrue.

It never made sense that the UK’s output figures should have been exceptionally disastrous. We now have the data, and we can see more clearly that it never happened. It was a story of apples and oranges.

“The UK actually outperformed other countries in Europe slightly if you look at nominal GDP, and we’re expecting another outperformance this year,” says David Owen from the US bank Jefferies.

The like-for-like nominal GDP contraction was 10% in Spain, 6.2% in France, 4.8% in the UK, 3.8% in Germany, and 2.3% in the US. This alters the historical verdict on the Johnson government and the British Sonderweg – to borrow a German term. Neil Shearing from Capital Economics reaches the same broad conclusion. “We’re clustered in the middle of the pack with Germany, France, and Italy. We might beat some of the others and get back to pre-pandemic levels by the end of this year, if there are no nasty surprises,” he said.

Confusion over past data is due to measurement models. The Office for National Statistics deducts a fall in visits to the doctor and reduced classes at school from accrued GDP. Most other countries do not. They tend to calculate extra health spending as a boost to GDP. Hence a giant anomaly. This is well-understood by the economics fraternity. It has been badly misunderstood by the lay commentariat. What we have had is an epidemic of bogus quantification. The illusory effect will reverse on the way up. The UK’s headline growth figures will be flattered – and look ridiculous – by mirror-image effect.

“The economy is poised like a coiled spring. As its energies are released, the recovery should be one to remember after a year to forget,” says Andy Haldane, the Bank of England’s chief economist. “A year from now annual growth could be in double-digits,” he says. Households have amassed “accidental savings” of £125bn, and have paid down consumer debts by £20bn. Companies have a war chest of £100bn. Mr Haldane thinks a large chunk of this money is going to flood back into the real economy rapidly.

The shape, speed, and logistical back-up for the UK vaccine roll-out pulls forward economic reopening by roughly three months relative to the eurozone. New company births have been surging. There were 201,820 business formations in the fourth quarter, a sign that the UK’s flexible labour and product markets are adapting very fast to the digital leap forward caused by the pandemic. There is a risk that the recovery boomlet could fizzle out by the end of the year if Schumpeterians run amok or the Treasury reverts to austerity too soon. But that same risk applies in spades to Europe. The IMF warns that Germany, Spain, and the Netherlands all have contractionary fiscal settings this year.

The Haldane corkscrew may be over-optimistic but it is certainly more plausible than the OECD’s dire forecast. It expects the UK to languish at the bottom of the developed world this year. Output will be 6.4% below pre-pandemic levels at the end of 2021, and still 3% lower at the end of 2022. Its French chief economist thinks France and Italy will pull far ahead of the UK this year. I am willing to take the other of that trade with conviction, to use hedge fund parlance.

While Emmanuel’s Macron’s chief focus for weeks has been on how to outflank Marine Le Pen on the hard-Right over multiculturalism and Islamist ideology, he has allowed his country to drift into a vaccination crisis that entails huge economic cost. Just three million doses have been administered. The numbers protected are less because France is sticking to the double-dose rule. The rest of February will be used adding a little extra immunity with boosters, rather than broadening immunity as fast as possible. Large numbers at high risk will have no protection for a long time to come. Some 35% of new cases in France are the English variant, rising to 45% in greater Paris and 80% in Dunkirk. South African and Brazilian variants have broken out in the Moselle. Total new infections are bubbling along at just over 20,000 a day. It looks stable but French epidemiologists say this is wishful thinking. Mr Macron is defying his scientific advisers, gambling that he may be able to escape without another lockdown. Schools remain open. One might conclude that he is making exactly the same mistake that the UK made before Christmas, except that he has less excuse knowing what we now know. Whatever happens, France has no chance of returning to normal economic life for several months. There will be no Haldanian coiled spring recovery before late 2021. By then labour hysteresis and the latent insolvency of small firms will be that much worse.

Italy faces the same painful choices. The B117 variant is suddenly 18% of cases. Health authorities are again calling for an immediate lockdown. Vaccination has been faster than in France but is constrained by the shortage of doses. Premier Mario Draghi has had to kick off his tenure by blocking the reopening of ski lifts, setting off the first explosive divisions in his bizarre coalition. Italy risks losing the early summer tourist season as well. Mr Draghi cannot safely spend his way through another quarter of economic distress given a public debt ratio threatening to break through 160% of GDP. He has a horrible dilemma.

For the OECD to conclude that Britain will be left behind this year by France and Italy, it has to make calamitous assumptions about Brexit. No such calamity is occurring. Nor is it likely to occur under any rigorous analysis of what constitutes authentic UK exports to the EU, as became clear in the faux media drama last week over JD Sports. The company is a retailer. It is having trouble shipping clothes from its UK warehouse to shops in Europe because the goods come from China and southeast Asia. It will instead have to ship directly from the Far East to its EU locations. That is of no macroeconomic relevance to the UK. The re-exports by JD Sports may show up as large items in the UK trade balance but they add almost no value.

What we have had over the last month is decibel levels of noise over trade disruption but little clarity on economic scale or what may be permanent damage. Shellfish have been rotting in wharves because the EU has imposed an unexpected ban on live exports but the total value of these exports is £15m. It is not beyond the wit of man to redirect most of this fish for internal consumption. If scallops, oysters, clams, and langoustines are not appearing already on our shop shelves, they will do soon so long as market forces are allowed to operate. I am salivating at the thought of fresh spaghetti alle vongoleor Saint Jacques à la crème from our own waters.

The big container ports tell me that goods are flowing as normal. More ships are going directly from northern Spain to Liverpool and other ports, or from Antwerp to the Humber, instead of going by road. This is better for CO2 emissions and more efficient. There was a January scare over lorry loads through the Channel but that is hard to separate from the other effects: stock-building before the Brexit deadline; people holding back until teething pains are over; and the B117 coronavirus variant. The worst has already subsided. “It is much-improved since mid-January,” said the Road Haulage Association. The Government says lorry traffic is back to 98% of normal. There is still a problem: roughly 40% are going back empty compared to 20% in the past. This is because customs clearance into the EU is needlessly complicated – arguably protectionist – but this is going to boomerang back against the EU when the UK ends its temporary waivers over coming months and starts to dish out the same treatment. At that point European exporters will lose British market share to competitors from the US, Mexico, Japan, Korea, China, Latin America, or South Africa. Once lost, it probably goes forever. Brussels is going to face pressure from European business to dial down its trade harassment regime. “Supply chain problems are hitting German companies very hard. The bottlenecks are becoming dramatic,” said Joachim Lang, head of the German Industry lobby (BDI), last week. He called for an immediate return to constructive trade dialogue between the EU and the UK. We will be hearing more about this. Supply chains are in ferment. British manufacturers have an added incentive to switch from EU suppliers to local production wherever possible.

Nissan will produce more batteries for its electric vehicles in the UK. That is a direct consequence of the EU’s refusal to grant the UK ‘diagonal cumulation’ on Japanese parts under rule of origin thresholds. “Brexit, which we thought is a risk, has become an opportunity for Nissan,” were the revealing words of the chief operating officer.

There has been much focus on the immediate economic shocks of Brexit, but almost none on the silent offsetting effects. This year is going to turn that perception upside down. The spotlight will be back on Europe’s woes.



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