October is always a turbulent month, and I’m feeling uneasy about this one. The FTSE100 index, which looked set to break through 7,000 in September, has lost more than 500 points since then — and would have lost more but for manoeuvres in the mining sector. Pessimism stalks the bond markets, and even a falling oil price is read more as a harbinger of faltering growth than a stimulus for further recovery. Ebola is the new volcanic ash cloud, and attention is focused on the apparently incorrigible weakness of the eurozone — where the biggest problem is what was long seen as the most potent solution, namely the German economy.
Fiscal discipline, strict wage control and relentless pursuit of export success made Germany the locomotive of Europe for the single-currency era; but a 0.2 per cent GDP contraction in the second quarter combined with a plunge in exports over the summer indicate that the ‘dysfunctional’ Germans (to quote economist Philippe Legrain) may be about to join the irresponsible Italians in recession, with the fiscally undisciplined French close behind — bringing consequences for our own path back to prosperity, partly dependent as it is on continental trade. The locomotive has conked out in a siding, and its engineers, set in their rigid German ways, are unwilling to launch domestic stimulus and reforms that might boost consumer spending and business investment while compensating for weak export demand.
What’s more, a historic fear of inflation even at a time when deflation is the more imminent threat means the Germans won’t green-light Mario Draghi of the European Central Bank to embark on the kind of quantitative easing that has underpinned liquidity and asset prices here and in the US — even if market pessimists believe it has also stored up trouble. As for what happens next, the results of the great Europe-wide bank stress-testing exercise are due next weekend: watch particularly for black marks against weak German regional banks. October’s storms aren’t over yet.
My banker friends are taking some stick again. Governor Carney has blasted them for the fact that they ‘got away with their compensation packages… without sanction’ and are ‘still at the best golf courses’ despite the havoc they caused, and told them that if they don’t like new laws that make ‘reckless misconduct’ a criminal offence, they should get out of the sector. Meanwhile, Deutsche Bank has reportedly executed a ‘moral purge’ of staff whose behaviour is ‘purely financially driven’. And the Archbishop of Canterbury has announced plans for a ‘quasi-monastic community’ in which young bankers will be invited to spend a sabbatical year praying, studying ethics and serving the poor.
Hard to picture how trading bosses will pick candidates for that course — imagine Jordan Belfort in The Wolf of Wall Street telling his debauched sidekick Donnie to go get himself a holy detox. But there’s much to be said for a wider, less ascetic programme of job swaps between the City and the outside world. Up-and-coming financiers seeking Bank of England approbation could exchange for a year with managers of housing associations or civil service departments or small businesses with a direct consumer interface. That would erode the dangerous ‘silo mentality’ of finance, and might also discourage demonisation of bankers as a breed. It used to be done often when I was in the City in the 1980s; the downside was that Whitehall hot-shots who temporarily job-swapped into banks took one sniff of the money and never wanted to go back.
Rarity ripe for sale
Eurostar is a rare example of a successful rail business — in profit since it was restructured as a standalone company in 2010 — that is also a stylish brand. Those are two good reasons why the Treasury is justified in selling the taxpayers’ 40 per cent interest, while the hollow-echo-of-the-Major-era counterblast, that ‘this is a gross act of betrayal… by a right-wing government hell bent on selling off the family silver’, sounds like the angry ghost of Bob Crow but in fact comes from his successor as RMT union leader, the allegedly moderate Mick Cash. Readers who enjoy a good argument will find a more eloquent prosecution of the shortcomings of private-sector rail in James Meek’s new book Private Island, but even that offers no persuasive case for hanging on to a minority stake in Eurostar, which runs on tracks owned by Canadian pension funds towards a tunnel largely owned by City institutions.
It was, however, somewhat fanciful to suggest that the £300 million or so proceeds will make a useful contribution towards paying down the national debt, as did smooth-talking Treasury minister Lord Deighton (who is another Goldman Sachs alumnus, by the way). In fact it will pay the interest on the national debt for just two and a half days; in another context, it would buy about two and a half miles of HS2, the proposed fast rail link to Birmingham. So a sale ahead of next year’s election should be seen chiefly as a token that George Osborne has not lost his privatisation bottle after the embarrassment of Royal Mail.
And it might be another smart political move to decide next month’s award of the re-privatised East Coast Main Line in favour of Eurostar, whose joint bid with Keolis (an offshoot of SNCF of France that already holds four UK rail franchises) is shortlisted against Virgin and First Group. Among other positive effects, an extended Eurostar network might cause the great migration of French talent and entrepreneurship to move on from central London towards Osborne’s vaunted northern ‘super city’.
Incidentally — remembering the case of Disneyland Paris, which dropped the name Euro Disney in 2002 to escape negative connotations — can any reader think of another business admired by consumers that still uses the suffix ‘Euro’? I can’t, and that makes the cross-Channel rail service even more of a valuable rarity.