Financial Times Europe - 12.09.2019

8 ★ FINANCIAL TIMES Thursday12 September 2019

A land bridge to Belfast

would increase investment

The UK’s Department for Transport is

100 per cent right to be studying the

concept of a Belfast fixed link to

interjoin the United Kingdom.

A fixed rail link from Great Britain to

Belfast will by happy coincidence

necessitate a reinstatement of the

Stranraer-Dumfries line (Port Road

line) to facilitate the direct flow of

freight trains from Belfast to London

and indeed continental Europe via the

Channel tunnel.

En route to continental Europe, the

UK is the Irish Republic’s land bridge.

Indeed the EU defines the route from

Cork to Stranraer as a trans-European

route. Thus the loading of Irish goods

on to trains at Belfast direct to

continental Europe will be good for

jobs in the UK logistics sector and

facilitate a major transfer of goods

from road to rail.

An advance in UK-wide

infrastructure, including a Belfast fixed

link, will be good for UK internal trade

and offset Brexit by encouraging the

inward investors who see the UK as the

gateway to Europe. Manyblue-chip

names, such as BAE, have bases in

Belfast.

To make good these opportunities

Boris Johnson needs to ruthlessly slash

red tape that gets in the way of

infrastructure (September 11), take a

leaf out of China’s book and begin

building. Infrastructure and slashing

red tape will boost the UK’s case for

inward investment.

John Barstow

Pulborough, West Sussex, UK

A backstop for Britain,

Ireland — and the Tories

I read with interest your report on the

prime minister considering a Northern

Ireland-only backstop (“Brussels

senses Johnson shift on Northern

Ireland-only backstop”,September 11).

I feel if the government can negotiate

such an agreement with the EU and

win support for it in a very fractured

parliament, it is an outcome that will

serve Britain, Europe and Ireland well.

The Democratic Unionist party

would be the losing party in such a

scenario but they could at least

borrow the words of the founding

father of Ulster Unionism, Lord

Carson, when expressing their

disappointment:

“What a fool I was. I was only a

puppet, and so was Ulster, and so was

Ireland, in the political game that was

to get the Conservative party into

power.”

Paul O’Hara

Belfast, UK

Brexit undermines efforts

to reduce emissions

Plans for a UK carbon emissions tax in

the event of a no-deal scenario provide

further evidence of how crashing out of

the EU will undermine efforts to tackle

the climate emergency (August 30).

The European Commission has

confirmed that the UK could not

continue to participate in the EU’s

Emissions Trading Scheme in a no-deal

scenario. The carbon emissions tax

would therefore replace ETS and the

government plans to set the rate at

£16/tonne, compared with a current

ETS rate of around £25/tonne.

This represents a race to the bottom

on carbon pricing; an apparent

deliberate attempt to give the UK’s

most polluting industries a competitive

advantage over EU countries and

businesses.

Faced with climate chaos, we should

instead be engaged in a race to the top,

by fixing a high and rising price for CO

emissions. And we should be following

the example of countries such as

Finland, which has pledged to become

carbon neutral by 2035.

Molly Scott Cato

Green MEP for South West England and

Gibraltar,

Bristol, UK

Put Consett back on the

map — where it belongs

Consett? A “North West” town?! It’s bad

enough that I overheard someone at

Lord’s yesterday saying they wouldn’t

go to Durham’s riverside ground

because “Newcastle’s too far for a day

trip”. Please put County Durham (and

Consett, and Chester-le-Street) back on

the map.

Geoff Levett

London N4, UK

Why disillusioned German

voters are turning right

I’m sorry to say but to read the same

argument over again is not very

helpful. It promotes well-known

resentment and prejudice (“The AfD

wolf is at the door in east Germany”,

September 9). What if you were to ask

why citizens in the western part of

Germany are voting for AfD? In the city

of Deggendorf, Straubing and others,

they have gained as much as 18 per

cent of the vote.

When asked, people will tell you that

the politics of the ruling Christian

Democratic Union, with Chancellor

Angela Merkel, made them turn away

from the party. Its refugee policy and

many unsolved problems; its energy

policy, with the premature exit from

nuclear power; and early pension,

which gives those aged 63 full

compensation, to mention a few, made

them look for a new conservative

home.

This is also why you find a strong

new wing within the CDU, called

“WerteUnion”, a union based on

conservative values. The days when

Christian Social Union chief Franz Josef

Strauss declared: “Further to the right

(of our party) you will only find the

wall” are long gone.

All of this should be also taken into

account when you write about the

motivation to vote for the AfD in the

eastern states of Germany.

Sven Hansen Höchstädt

Sankt Johann, Austria

Hong Kong is capable of

finding its own solution

Kevin McCarthy (“America must

respond to the pleas of Hong Kong’s

people”, September 11) writes of our

struggle for freedom, claims respect for

private property rights is jeopardised

and alleges that the recently

withdrawn extradition bill would have

removed rights to a fair trial.

I write with 35 years of living here

and regret to inform the Republican

leader of the US House of

Representatives that none of those

armchair remarks is factually correct.

True, an unelected executive

imposed by the Basic Law on a

population where pluralism is

culturally and institutionally resisted

was always going to find responsive

governance a challenge.

But the people of Hong Kong with

whom I have marched are remarkably

resilient, patient and above all

pragmatic.

We are more than capable of finding

our own solution.

John Brewer

Hong Kong

The widening climate

risk protection gap

Your article (Report,September 9)

raises important points on the

structural impacts of climate change

and increasing losses for natural

catastrophes on the insurance industry.

But the terror attack analogy only goes

so far because climate change is not

expressed in one single catastrophic

day of interrelated events, but rather

thousands of days of varied and linked

impacts across the globe.

And customers are an important

missing piece in this puzzle. Premium

increases may be absorbed by some

markets, such as catastrophe insurance

held in connection with a mortgaged

property or for a commercial interest.

However, individual households may

not be able to afford continued

increases in insurance premiums, and a

reduction in coverage may inhibit the

ability of the insurance pool to

maintain the market. Government may

step in where insurance is unaffordable

or let the gap between insured and

uninsured widen.

According toSwiss Re Sigma, 50 per

cent of economic losses from natural

disasters were uninsured in 2018; this

climate risk protection gap is widening,

affecting disproportionately those most

exposed to climate risks.Lloyd’s

estimatesthat 1 per cent insurance

coverage may reduce the cost of

climate-related disasters to taxpayers

or governments by 22 per cent. This

calls into question the view that the gap

between insurance protection and total

losses will narrow.

Those in the insurance industry who

are engaged on climate change know it

affects both the insurance and

investment side businesses, and are

seeing the impact of transition,

physical and liability risk. Those who

are not may be in for a bumpy ride.

Dr Bronwyn Claire

Senior Programme Manager, ClimateWise,

Cambridge Institute for Sustainability

Leadership, Cambridge University, UK

The stark news in

black and white

Mr Hardwick would like the news in

black and white (Letters,September

9). Well, here goes. In the face of the

challenges facing the world today —

climate change, the removal of low-

skilled work through offshoring and

automation, the battle for global

supremacy between the US and China

to name but a few — Brexit is a

needless and self-indulgent process

that will cause harm to Britain’s

economy and standing in the world,

and promotes the worst instincts of

society, instincts that are the least

suited to solving those challenges.

Parliament is split between those

shamelessly pandering to those

instincts and those who do not have the

courage to speak those truths to the

electorate and instead seek to kick the

can of Brexit endlessly down the road

in the hope presumably that some fairy

godmother will descend from on high

and solve the problem for them.

Raj Parkash

London W4, UK

Standing in central Hong Kong at the

nexus of Tiffany’s, Armani and Louis

Vuitton late on Sunday afternoon, I

heard a sound that has stayed with

me. It was a woman — hard to tell her

age behind the mask — crouched by a

safety railing, roaring withanger and

frustration.

Next came a furious series of clangs

as she battered the edge of a spanner

against an unbudgeable bolt. She

called a friend over to help. They

agreed the problem was rust. They

redoubled their effortsand,finally,

the boltgave way and a treasure was

claimed from the streets: a metre-long

metal pole and the twin of one I had

just seen being used to smash a

CCTV camera at an MTR subway

station.

The woman placedthe pole on the

pavement just outside the entrance to

JPMorgan’s offices nd went to worka

on the next railing. Few places, as

protests in this financial centre seethe

into their fourth month,highlight the

dissonance hat has gripped the cityt so

acutely.

Nearby, other Hong Kong residents

were engaged in complementary — or

contrasting —activities. Some were

barricading entrances to thesubway

with dustbins, plant pots and water-

cooler flagons. Othersremoved bricks

from the pavement to use as

projectiles.Still more were adjusting

Bose headphones and weaving

through crowds on the way home

from the gym. Domestic helpers

played bingo on cardboard mats.

Shopperssipped coffee andwatched

the turmoilfrom the windows above

Saint Laurent.

This was the 14th straight weekend

ofprotests in Hong Kong. A 15th is

inevitable but a 50th (given where

Beijing’s lines are likely to be drawn)

implausible. Earlier in the day, tens of

thousands — some old enough to need

help walking, others young enough to

be carried in baby slings — processed

past riot police and Government

House.Fury spewed in the coarsest

Cantonese to echo from some of the

most polished skyscrapers in Asia. As

evening fell, a few hundredprotesters

took their rage from the financial

centre past the still-functioning bars

and clubs of Wan Chai to Causeway

Bay, where the now-standard volleys

of tear gas would later waft over the

entrance mats of the Sogo department

store.

For three months, Hong Kongers

have told me, the city has beenaching

from this whiplash. You try to form a

view on what is happening and why,

how it’s morphing and where it may

all end. But that thought process is

besieged bydiscord as violence,

dissent and the root causes of both are

set against glamour, pop-up bubble

tea boutiques and Hong Kong’s

illusory show of business as usual.

What makesthis all the more

wrenching, though, are the unwritten

rules of the protests, which could be

seen prevailing on Sunday. At one

point, protesters were using gaffer

tape and bolt cutters to manufacture

metal spears (these were not, in the

event, used) from bits of the central

reservation. They were doing so with a

venom that, by their own testimony,

may have democracy and “liberation”

as a stated goal but is fuelled in large

part by economic disparity and the

grinding-down of aspiration. The

spear factory was operating near a

Blancpain atch shop and under thew

glare of advertisements for Swiss

private banks. And yet one of thesen

symbols ofwealth had been touched.

Berlutiwas unlooted; Piaget

unpillaged.

And that is the greatpuzzle of these

protests and why their importance

cannot beoverstated. The strength of

the dissonance and the mental

gymnastics required to parse it sends

the observer in odd directions. It

provides excuses to conclude that the

movement is irrelevant, false,

misdirected or doomed. On the other

hand, it provides a complacent,

illusory,sense that Hong Kong will,

eventually, just muddle along because

it is simply too Hong Kongy to fail.

But youcan’t avoid being left with

that woman’s visceral oar ofr

frustration as the rusty bolt refused to

yield andat once give her the weapon

she felt she needed.

That sound and that sense of

urgency cannot be faked. And,despite

the temptation to assume that Hong

Kong’s formidable powers of

accommodation meannew waffle-

house openings can coexist

indefinitely with rubber bullets, that

sound cannot be overlooked.

[email protected]

A fury that

passes by

the symbols

of wealth

Hong Kong

Notebook

by Leo Lewis

Letters

THURSDAY12 SEPTEMBER 2019

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Correction

c he 1993 Oslo Peace Accords commit-T

ted Israel to negotiate a settlement with

the Palestinians, not to facilitate the

birth of a Palestinian state as incorrectly

stated in an article on September 11.

Theruling f Scotland’s highest courto
that Boris Johnson’s suspension of par-
liament wasunlawful ince it aimed tos
“stymie” it — and that he in effect mis-
led the Queen — is extremely grave. It is
not, to be sure, the final word. The
three judges applied Scots law, which
can diverge on constitutional matters
from its English counterpart. The High
Court in London found differently. The
UK’s Supreme Court must now issue a
definitive opinion. Yet whatever that
court decides, the Scottish ruling
strengthens the impression of a gov-
ernment ready to trample on centu-
ries-old conventions. It is yet another
self-inflicted blow for a hapless British
prime minister.
As this newspaperargued at the out-
set, proroguing parliament for five
weeks in the midst of political turmoil
and just seven weeks before a potential
no-deal Brexit was an ffront to democ-a
racy. The government continues to
argue otherwise, speciously claiming
that suspension is normal and neces-
sary to prepare for the launch of a new
parliament session and legislative
agenda. The argument that the proro-
gation extends only slightly parlia-
ment’s customary September break for
party conferences is equally insulting.
Prorogation before a Queen’s Speech
usually lasts only a few days. Normal
business such as select committees —
and hence scrutiny of the executive —
continues during the conference recess
but not when parliament is suspended.
As one of the Scottish judges con-
cluded, “the circumstances, particu-
larly the length of the prorogation,
showed that the purpose was to pre-
vent... scrutiny” of the government.
The suspension is the latest example
of theBrexitprocess undermining
rules and institutions. The root cause
was holding a binary referendum one
of whose options, backed by a thin
majority, led to a range of destinations

from a soft to hard Brexit on which vot-

ers gave no opinion. No parliamentary

majority exists in favour of any single

destination, though a majority opposes

crashing out of the EU with no deal.

Many Leave supporters argue the

Speaker, John Bercow, was the first to

bend parliamentary rules by allowing

MPs to take control of business and

pass a law blocking a no-deal Brexit in

April. In fact, Mr Bercow sought to give

a voice to a parliamentary majority. His

actions were, however, seized on as

political cover by Mr Johnson and his

adviser Dominic Cummings — who has

sneered that Britain’s institutions are

“systemically dysfunctional” —to start

treating the rules in far more cavalier

fashion. Their aim, by contrast, was to

silence the parliamentary majority.

The involvement of the courts pro-

vides some reassurance that the checks

and balances in the UK’s unwritten

constitution are kicking in as they

should. Yet it is regrettable, too, that

judges have been compelled to inter-

vene in matters of politics. It opens the

way for unscrupulous politicians and

elements of the media to characterise

the battle over Brexit — disingenuously

and corrosively — as one pitting the

“people” against not just parliament

but judges too. It risks shifting the UK

towards the US model of a politicised

Supreme Court with partisan brawling

over judges’ appointments.

Returning politics to the pathways of

convention will be one of the greatest

post-Brexit challenges. Yet any future

government tempted to follow Mr

Johnson’s precedent should heed its

consequences. Within a week of

requesting prorogation, he hadlost his

majority nd control of his main policy.a

Whatever the Supreme Court decides

on the legality, the incident has already

provided a lesson — that those who

seek to subvert UK parliamentary

democracy do so at their own peril.

Prime minister’s heavy-handed tactics risk politicising the judiciary

Johnson suffers another

self-inflicted Brexit blow

Mario Draghi’s penultimate meeting
as president of the European Central
Bank will rank among the most impor-
tant in his eight-year tenure. He has
signalledeasingthat would lock in
ultra-loose monetary policy for several
years to come — and with it protect the
eurozone economy from further weak-
ness in economic growth and inflation.
Marketexpectationsare high, partly
boosted by earlier comments from a
senior ECB official about a “very strong
package”. The ECB governing council is
not, however, united over the need for
comprehensive easing. Given the wors-
ening global backdrop, now is not the
time to disappoint. Doing too much
would be less costly than too little.
Thursday’s meeting will mark the
first loosening of ECB policy since
March 2016. Interest rates are set to
drop deeper into negative territory,
probably accompanied by a new tiered
system to offset some of the hit to bank
profitability. Asset purchases are
expected to resume after a nine-month
break. The bank’s forward guidance on
interest rates will be strengthened, pos-
sibly by adding a numerical threshold
into the guidance. Given the ECB’s own
findingsthat the current toolkit is most
effective when used as a package there
is a clear case for deploying all meas-
ures. This would also give Christine
Lagarde space to focus on other issues
when she takes over in November.
Building consensus for fiscal stimulus
across Europe is a key priority.
Escalating trade tensions and the
threat of a disorderly Brexit have wors-
ened the global economic backdrop in
recent months. Disruptions to global
supply chains and the ongoing weak-
ness in investment and confidence
could take years to play out and are dif-
ficult to capture fully in forecasts. The
US Federal Reserve already acted on
rising external risks in late July with its
first interest rate cut in a decade.

Another rate cut is widely expected

from the Fed next week. Should the

ECB disappoint marketstoday by

announcing only a mild easing — an

interest-rate cut but no asset purchases

— it could face a stronger euro and

higher bond yields. Both would push

inflation further below target and

make it harder to kick-start the slug-

gish eurozone economy.

Mr Draghi must also convince mar-

kets that further easing of monetary

policy will be effective, and that it will

not leave the ECB at its limits. Tiering is

key. By creating thresholds whereby

banks’ excess reserves are charged at

different rates, the ECB can help shield

their shrinking interest margins from

the impact of negative rates. This could

ease financial stability concerns and

the pressure on bank share prices. It

should also reduce political opposition

to negative interest rates by making it

less likely that banks will pass these on

to retail depositors. Tiering is not guar-

anteed to give a significant boost to

lending (loan growth is positive in

countries most affected by negative

rates) but even a modest one could

help. Crucially, it will act as a signal for

further easing, if required. Without it

the ECB risks creating a floor in yields.

Updated ECB projections are

expected to show only modest down-

ward revisions. But the low starting

point is what matters. Inflation has

remained below target for much of the

past six years, though negative interest

rates have been in place since 2014. By

reiterating the commitment to the

inflation target of below, but close to 2

per cent, and being prepared to tolerate

some overshoot, Mr Draghi can help to

prevent expectations from becoming

anchored at low levels. The eurozone is

facing no imminent crisis but the risks

to the outlook are profound. Mr Draghi

must use this lastbig opportunity to

provide all the support he can.

With external risks continuing to rise, caution could prove costly

Draghi must deliver his

parting shot of stimulus

Jonathan Ford falls into the

unfortunate trap of assuming investors

in private equity funds — and pension

fund managers in particular — are, to

put it plainly, stupid (“The exorbitant

privilege enjoyed by private equity

firms”, Inside Business,September 8).

On the contrary, investors are highly

sophisticated and know that private

equity has consistently produced

outstanding returns. Indeed, for all the

talk of “performance” in Mr Ford’s

article, nowhere does he state what the

performance actually is. As soon to be

released data shows, BVCA members

produced a since inception return of

14.4 per cent in 2018, with large buyout

funds (those that make more than

£100 million of equity investments) at

their joint highest level — 15.6 per cent

— since 2010. These figures are,

crucially, net of fees and consistently

higher than other asset classes,

including the public markets.

This outperformance, rather than

being driven primarily by leverage, is

in fact generated by what is dismissed

as “bits and bobs”. A report published

by EY, and commissioned by the BVCA

and the Private Equity Reporting

Group in December, found that

between 2005 and 2017, 47 per cent of

the gross return of private equity

comes from strategic and operational

improvement (52 per cent for exits

between 2015 and 2017). This is less

“bits and bobs” and more the nuts and

bolts of why investors keep coming

back and why private equity, as well as

being good for UK business, is also

great for UK pension funds.

Tim Hames

Director-General, British Private Equity

and Venture Capital Association,

London WC2, UK

Private equity lifts business and pension funds