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Radar

Europe's geopolitical and economic news

1 The road to Copenhagen

The EU and the US are holding talks on forging a pact with Organisation for Economic Cooperation and Development (OECD) countries and China to eliminate duties on green goods as part of incentives to Beijing in a potential global climate deal. A plan is being discussed by Brussels and Washington, in which the 30 nations in the (OECD) and China would agree a global pact to phase out import tariffs on goods such as wind turbines, renewables and green technologies. But any deal is unlikely to include environmentally friendly hybrid cars. The EU and the US have been pushing within the Doha round of world trade talks since November 2007 for a deal to cut tariffs on environmental goods. China is on course to become the world’s largest producer of wind turbines in the world this year and is a major manufacturer of solar products. It is also the world’s biggest polluter and is under pressure from Europe and the US to cut its CO2 emissions as part of negotiations on a new global climate treaty to succeed the Kyoto Protocol, which lapses in 2012. India and Brazil are also being wooed by the EU and Washington before global climate talks in Copenhagen in December, but are considered unlikely to take part in the initiative. EU trade ministers gave the green light earlier this month to EU president Sweden and the European Commission — which oversees trade policy for the 27-nation bloc — to pursue the negotiations with Washington.

2 Reykjavík

A year on since Iceland’s government seized control of the country’s three major banks following a run on their deposits there are — thanks to an understanding IMF — no obvious signs of panic on the streets. Nevertheless, it will be a long, cold winter for the country. A second round of heavy tax rises and public spending cuts next year are likely to collide with domestic production shrinking a further 1%–2% (after this year’s 9% nosedive). Unemployment is likely to rise to one in 10 of the workforce this winter while others have had their pay cut. An estimated 15%–20% of households are in “severe trouble” having taken out loans partly in foreign currencies, due to Iceland’s high interest rates, the repayments on which have soared after a run on the króna. Anger among households led to a repayment strike in the first two weeks of October, organised by the Icelandic Home Coalition, a new grassroots movement. Similar debt problems face those Icelandic businesses that managed to survive the crisis.

3 London

Blame the recession: British drinking habits show no signs of slowing down, according to a new report from the research firm Mintel. While the overall volume of alcohol consumed in the UK has been static since 2000, the trend towards higher strength beers and wines accounts for a 10% rise in pure alcohol consumption over the same period. Says Jonny Forsyth, senior drinks analyst at Mintel: “In the 1970s, a bottle of wine may have been around 11% in ABV terms and now the same bottle is more likely to be around 13%. Ironically, despite a greater societal concern with being healthy, by stealth we are drinking more pure alcohol than ever.” Indeed, reduced alcohol brands such as Kaliber, first introduced by Guinness in 1986, are firmly back on supermarket shelves and Mintel believes that expansion in the low-alcohol drinks sector will continue to change habits and lift drink industry profits. Interestingly, however, binge drinking among younger people is decreasing. In the past five years, the number of men aged 18 to 24 drinking at least two or three times a week has decreased by 13%, while the figure has fallen 26% for women of the same age. In contrast, regular weekly consumption of alcohol by 45- to 64-year-olds is, says Mintel, on the increase.

4 Dubai

Foreign direct investment into the Middle East fell by more than 6% in 2008 and is expected to dip further this year amid the global economic crisis, according to a new report. The United Nations Economic and Social Commission for Western Asia said FDI inflows to the region, which covers 14 Arab countries, were around $60bn in 2008, down from $64bn in 2007, with Saudi Arabia, the UAE and Egypt capturing nearly 76% of that amount. “The performance of these countries is mainly attributed to their successful endeavours to ameliorate their business environment and to their overall investment-friendly climate,” the report said. In 2008, FDI to Saudi Arabia totalled $22.5bn, down from $24.3bn a year earlier, a 6.5% decline. Foreign investments in the kingdom were mainly in the real estate sector (21%), petrochemicals (16%), and mining (10%). The UAE attracted nearly $13.7bn, a decrease of 3.2% compared to 2007

5 Berlin

The European Bank for Reconstruction and Development (EBRD) is using this month’s 20th anniversary of the fall of the Berlin Wall to appeal for a 50% capital increase to mitigate the impact of the global economic crisis on Central and Eastern Europe. The bank, controlled by some 60 governments, including EU members, the US and Japan, is asking for an extra €10bn to allow it to expand its lending and compensate for a sharp decline in private capital flowing into the former communist countries. The bank’s move, highlights its concerns that the region’s difficulties should not be forgotten as world leaders grapple with the effects of the crisis. Thomas Mirow, the EBRD president, warns, in a letter to shareholders, that while the region’s economies “have begun to stabilise”, they have “not done so uniformly and it would be premature to say that a general turnaround has begun. The crisis will have lasting repercussions”. Contemplating the 20th anniversary of the fall of the Wall, Mirow says the region deserves “broad support” in continuing “its mutually beneficial integration into the European and world economies”.

6 Brussels

Europe’s competition commissioner Neelie Kroes has warned EU states against “bribing” car firms in an attempt to “steal” jobs from other countries, saying it risked sparking a trade war. Kroes, who will decide whether a German-brokered deal to sell General Motors’ European Opel business to Canadian car parts supplier Magna complies with state aid rules, told an audience in New York that she was “examining carefully” Berlin’s conditions for the rescue. “We cannot accept one government bribing companies in order to steal or end the jobs of another,” she said.“We cannot accept companies becoming addicted to aid. Such behaviours are a recipe for a trade war and poverty, not a way out of this recession.” The comments were aimed at Europe’s car industry in general, but she cited the Opel restructuring, which is expected to lead to job losses in the UK, Belgium and Spain.

7 Rome

Consumer confidence is improving in many European markets, as optimism about the state of the economy grows. In Italy, confidence levels rose to their highest point since the end of 2006 in September this year, according to a monthly poll undertaken by the Institute of Studies and Economic Analyses. The institute’s index score for the ninth month of 2009 reached 113.6 points, compared with 111.8 points in August. Similarly, the total for popular perceptions of the economic climate jumped from 87.1 points to 89.6 points, and consumers’ assessment of their own situation climbed from 125.0 points to 125.9 points. In France, the National Institute of Statistics and Economic Studies (INSEE) reported that its regular barometer of confidence in the country stood at –36 in September, up two points; and while the intention to make major purchases has remained largely static since May, at –28, fears over unemployment eased slightly. Meanwhile, in Germany, Europe’s biggest economy, a pre-election consumer climate assessment produced by GfK Group registered a total of 4.3 points for October, up from 3.8 points the previous month. And in late September, the Leading Economic Index for the Euro Area, produced by the Conference Board (and which includes a range of factors such as economic sentiment and levels of manufacturing) nudged up by 1.8% in August, to 99.1 points, although economic activity fell by 0.1%.