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Analysis

Commentary

US may inspire new arms race

by Brian Reading in London | Fri 24 Mar 2017

Economists worry that Donald Trump is intent on starting a trade war. More attention should be given to the arms race that he may accelerate. Global defence spending slowed towards the end of the last century and in the early 2000s, when geopolitical threats diminished and financial constrains intensified. Today, major countries have started or plan to spend more. The greatest need is for software, rather than hardware, to fight terrorism and improve cybersecurity. Better defence spending, rather than simply more expenditure, is necessary.

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Renewed sub-Saharan optimism

by Seedwell Hove in Zurich | Thu 23 Mar 2017

Sub-Saharan Africa has begun 2017 with renewed optimism. Growth will be supported by increased global demand, a modest recovery in the price of oil and other commodities, and increased infrastructure spending in many countries. The larger economies which dragged down regional growth in 2016 are recovering, but this needs to be sustained. Countries must accelerate economic diversification to build resilience against external shocks, improve the business environment, and invest in infrastructure to sustain long-term growth.

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Osborne the editor ‘will contest Brexit’

by William Keegan in London | Wed 22 Mar 2017

George Osborne, former UK chancellor, is a passionate ‘Remainer’ in the Brexit debate. He apparently plans to use his editorship of the London Evening Standard as a platform for opposing the prime minister’s lame acceptance of the UK-EU referendum result, writes William Keegan. In London, some 60% of people who voted were Remainers. If an Evening Standard under Osborne’s editorship can help to persuade the 40% who voted ‘Out’ to think again, this could have a decisive impact on the eventual outcome.

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May off guard over Scottish referendum

by David Marsh in London | Tue 21 Mar 2017

Theresa May and her government have been caught off guard by the sudden upsurge in support for a new referendum on Scottish independence. When May became UK prime minister in July, she promised Nicola Sturgeon, leader of the independence-seeking Scottish National Party, that the British government would adopt an European Union exit path aligned with Scotland’s interests. To many SNP supporters, May’s decision that Britain will quit the single market as well as the EU contravenes that undertaking.

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Dijsselbloem’s Eurogroup role in jeopardy

by Roel Janssen in The Hague | Mon 20 Mar 2017

Jeroen Dijsselbloem’s role as chairman of the Eurogroup of finance ministers is in jeopardy after his Labour party lost 29 of its 38 seats in the Dutch parliamentary election. He will lose his post as finance minister once a new government is formed opening the way for Luis de Guindos, the Spanish economy minister, to seek the Eurogroup leadership. Unlike after the elections of 2012, when urgent action was needed to tackle the effects of the financial crisis, the Dutch economy is booming and the government budget is in balance.

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Trump-Merkel Washington debut

by David Marsh in London | Fri 17 Mar 2017

Donald Trump and Angela Merkel are both interested in walls – and they may discuss them when they meet for the first time in Washington today. Observers make much of Trump-Merkel differences in style and substance. There is plenty of tinder: Russia, the European Union, human rights, protectionism, the US trade deficit with Germany. The president’s impetuosity stands in contrast to the chancellor’s alleged immovability. Stereotypes should not be taken too far. Merkel, for all her trademark caution, has a record in springing surprises.

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Trump rides the Laffer curve

by Brian Reading in London | Fri 17 Mar 2017

US economist Arthur Laffer was an early exponent of supply-side economics at a time when most others were discarding John Maynard Keynes for Milton Friedman. In 1974 his ‘Laffer curve’, an illustration of the theory on optimum tax rates, became popular with policy-makers. In 2015 the US had the highest statutory corporate tax rate in the G20. Yet among members of the OECD, the US comes close to the bottom of the revenue table. If Donald Trump lowers the high corporate rates, this is likely to boost tax revenue.

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Euro supports German trade surplus

by Marcello Minenna in Rome | Thu 16 Mar 2017

Early estimates have been officially confirmed: the German trade surplus for the past year reached 9.2% of GDP, or around €255bn. Critics believe that imbalances in trade flows could damage the structure of monetary union, and argue that Germans should invest today what they collect from foreign trade in order to promote European growth. But German inflation, at 2.2% in February 2017, is already the second highest in mainstream Europe. The reality is that the main factor behind the high surplus is the euro itself.

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Hogg sets right example

by David Marsh and Brian Reading in London | Wed 15 Mar 2017

Charlotte Hogg, chief operating officer of the Bank of England since 2013, has rightly resigned from her new role as a deputy governor after yesterday’s stinging parliamentary select committee report assailing shortcomings in her 'professional competence'. The size of the offence was greatly exceeded by the symbolic value of the perceived misdemeanour. This was a technical oversight, not deliberate concealment. But, in such cases, perception is everything. She did the right thing and set an example that others should follow.

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The case of the Czech koruna

by Miroslav Singer in Prague | Wed 15 Mar 2017

As inflationary pressures stemming from renewed domestic demand increase, the Czech National Bank is likely to be one of the first central banks to revert to normal monetary policy tools. Demand for Czech currency and the pace of inflows associated with it slowed considerably between January and February, as investors realised that their exit from koruna positions will be complicated. The €40bn increase in the CNB’s reserves from the introduction of the currency floor in November indicates that finding counterparties for trading will not be easy.

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