Sunday, 20 February 2011

Weekly Brief on Greece, Commodities, Long Term Investments, Fuel for Van Drivers and Pensions.

Last week, I travelled out to Strasbourg via Frankfurt to spend a morning with the European Central Bank (ECB) and back via Paris for a conference of politicians, central bankers and financiers discussing priorities for France’s presidency of the G20.

Not surprisingly much of the conversation with the ECB was about the situation in Greece, Ireland and Portugal. The ECB has been buying debts of these countries over the past year and now owns 17% of the total but, when asked, they would not disclose what average price they have bought the debt at. They say that Greece should be able to reduce its debt burden by selling off government owned real-estate. I then leant that the average Greek household already owns more than 1.5 properties and the two Greek MEPs present were rather more skeptical about the state of their property market.

In Paris the big debates were on commodity prices and trading, the impact the new rules for bank capital and liquidity will have on the wider economy including long term investment, whether this will create a larger “shadow banking” culture and what to do about systemically important financial institutions. There are some who thought that the new banking rules were done and dusted when agreed at previous G20 meetings and then finalised during the debates at the international Basel committee - but it is actually very clear that the ink is far from dry on the detail.

Commodity markets will be in the spotlight during the French G20. There was a very divergent view between those who would like to see all commodities derivatives markets closed down and others who believe that these are useful for hedging risks for manufacturers and food producers - most East Anglian farmers I know have sold their grain long before they harvest it. Everyone agreed that there is a lack of transparent information in commodity markets, both on production levels and traded markets, as well as a need to address long term shortfalls in food supply and raw materials.

It was helpful to listen to a discussion on long term investment, in the UK as well as across Europe there is a desperate need for investment - for infrastructure and especially energy infrastructure. UK and European companies are much more reliant on bank lending than for example their US counterparts with 75% of EU capital coming from banks as opposed to 25% in the US. There is little doubt that if we push banks to hold much more liquidity we will reduce their long term investments. Pension funds which should be longer term investors are also being forced by regulation to hold more liquid shorter dated investments.

In Strasbourg this week we voted on long term targets for fuel emissions from vans. A big issue in the East of England not just for the thousands of tradesmen and delivery drivers who drive vans, but also because the Vauxhall factory in Luton is General Motors main European production facility. The new targets have taken a year to negotiate and we probably a sensible compromise to levels that the manufactures may be able to achieve. Having spoken to many van drivers during the year its clear that fuel consumption is a major business expense - they would like to see more fuel efficient vans but not if the price of the vehicle itself starts escalating. As ever EU targets won’t be the driving factor that create change this will happen because of the consumer pressure to force manufacturing innovation.

We also voted on a report on pensions. Funding pensions is a huge concern in all 27 countries but conditions such as life expectancy, demographics and savings differ significantly. A lot of MEPs were worried that the EU would try to introduce a standard pension age and minimum pension level. Actually the report says these decisions should stay with individual countries. During my work on this report I discovered that the first state pension was introduced in 1889 in Prussia by Bismark. The life expectancy then was just 45 so really very few people ever got to pensionable age at all.

Monday, 14 February 2011

Weekly brief on Environment, Pigs, Bank Accounts and Economics...

This week saw a high footfall of visitors to the European Parliament - a large crowd gathered to see Prince Charles, lots of people turned up to support pig welfare, but the bankers came unaccompanied.

Many more MEPs turned up to listen to the Prince of Wales than would turn up to listen to the Presidents of the European Commission, European Parliament or the European Council. Indeed all 3 presidents turned up for the Prince. In my notes on the Prince’s speech I have written that HRH argued that to have a sustainable economic system you need a sustainable eco system -for long term economic growth one needs long-term environmental sustainability. I’m glad I wrote this down as a fellow MEP, who had not been present told me later that the Prince had said we should stop economic growth altogether.


In another meeting room down the hall there was a well attended screening of the film “Pig Business” (www.pigbusiness.co.uk) which shows some horrific footage of pig factory farms in Poland and the environmental damage that is associated them. My email box has been full of notes from residents of the East of England asking me to attend – so I joined the following debate, having seen the film on an earlier occasion.


This is a particularly important issue in East Anglia because so many of England’s pigs are in this part of the country. A few years ago the UK imposed higher welfare standards than across the EU which the caused many British farmers to find they could not compete against imports and they stopped production altogether. The EU is now looking at pig welfare, I would like to see the playing field moved upwards to UK standards - as well as clearer labelling to give consumers choice. I have long been a supporter of Country of Origin food labelling. This went through the European Parliament by a narrow majority last year - it will happen but will take time.


I met the consumer rights group Which?, who wanted to talk about whether your money is safe in a bank. As you remember, after the Northern Rock crisis there was a flight of money from the UK to Ireland when the Irish government said they would guarantee all the cash in personal bank accounts. This race for which government would guarantee the most clearly distorted free competition, jeopardising otherwise healthy banks. As a result there is now an agreement that there should be a standard guarantee of €100,000 (about £80,000) across the EU. In each country banks should set aside money to fund this, rather than taxpayers. We are now negotiating the finer details. “Which?” asked what happens to the person who has just received the insurance money because their house was burnt down - we need to make sure that one- off extraordinary bank balances are still covered.


When asked by “Which?” - what happens if you have some money in for example HSBC and other money in First Direct - a brand of the same bank? I’m afraid I did not agree with their suggestion that the two bank accounts should be covered separately. I don’t want to see life savings wiped out but if you are in the lucky position to hold more than £80,000 in bank accounts you need to be able to take responsibility for checking who guarantees it - better consumer labelling may be helpful here too.”


A delegation from Norway also came to talk to me about the deposit guarantees - Norway is not part of the EU - they have no vote and no say - but their trade agreement with the EU obliges them to apply all EU rules. They are extremely concerned how new rules on bank deposits could affect their own domestic banking system.


During the week I joined a group of 6 British MEPs from 3 major parties and a German MEP in a meeting with a senior management team from Barclays bank. I also attended a dinner with leaders of insurance companies, pension funds and banks. There is a plethora of legislation on financial services and economic matters working its way through European legislation- some of which is as a result of global discussions following G20 agreements. Senior management from other banks from Germany and the US amongst others have been regular visitors to Brussels, UK banks less so.


“A balance still needs to be achieved between requiring banks to put aside money to prevent further collapses versus lending money to the wider economy, helping save for pensions etc - as well as achieving a global level playing field. I still believe that there is much more that the financial services industry could do to help ensure that a correct balance between safer finances and funding growth is achieved.”

Sunday, 6 February 2011

why do british companies not borrow from Europe? Should the UK be like Norway? and other questions

Weekly view from Brussels

This week was a “mini-plenary” which means we have a selection of committee meetings, group meetings and then on Wednesday and Thursday some debates and votes. So it can be quite busy.

Outside the public meetings I met with new representatives of the CBI in Brussels. We have been working quite closely with the CBI over the past year when looking at the impact of new rules on financial services on the wider economy. Their new boss John Cridland has said they will keep the UK government “on their toes” when it comes to decisions that could affect growth. One of the questions I would like them to help answer is why so few British businesses take advantage of loans from the European Investment Bank. These loans are meant to be one of the ways to help innovative businesses Looking at a recent presentation I saw that of the E6.3 billion loans issued between 2007 and 2009 nearly a quarter had gone to German borrowers, 14.3% to Spain, Sweden 10.3% but the was UK down at 8.4%. Lending to businesses has been a big concern since the financial crisis and the European Commission suggesting large increases in EIB loan availability. I want to understand why companies in the UK don’t seem to apply for them - are they too expensive, poorly administered, poorly advertised?. I’m also writing to my local chambers of commerce across the East of England to ask their members’ thoughts.

I had a long discussion with Statoil the Norwegian Oil company regarding Offshore Oil drilling. The European Commission has said they are considering new legislation in offshore Oil production - this is an interesting situation for Norway who are not in the EU, they implement EU rules but have no votes on the legislation. They have more offshore oil production than the 27 members of the European Union put together. We talked about the safety regime that has been established in Norway to prevent spills and how the industry is working to be better prepared to cope with them should they occur as well as the discussions they have on safety and environmental issues with countries outside the EU like Russia. I hope to hear more from the Norwegian authorities in the weeks ahead. I have also invited Statoil to a public hearing I will organise in the European Parliament next month.

Along with the other 5 MEPs who are leading the scrutiny of the “economic governance” package we had various meetings with the European Central Bank, the European commission, social partners - including business, unions and voluntary sector representatives as well as a rather full press briefing. One journalist asked if we had any “red-lines” which is an interesting question as to be honest there are still may fluid issues which will be debated in months to come. My “red-line” though remains to ensure that there is a sensible and practical distinction between those in the Eurozone and those outside - if countries outside the Eurozone wish to “opt-in” to higher levels of scrutiny and the potential fining mechanism that should be permitted. But fines designed to protect Eurozone stability should not be imposed on those who are not in the zone. The ECB was quite interesting on to this issue as well - pointing out that issues such as “macro economic imbalances” are sensitive in all countries but even more so in areas where there is a common currency.

Back in the region last night I joined representatives from the Bio-science research community. We had a long discussion about the issues accessing EU funding for research, last year I worked with the European parliament on a paper suggesting 71 different ways of simplifying the process and cutting red tape but so far the commission has announced action on just 3.