The Week UK 21.03.2020

48 CITY

THE WEEK 21 March 2020

Commentators

Not solong ago, Crown PrinceMohammed bin Salman“hoped

to convincethe globalfinancialcommunity that Saudi Arabia was

arespectable moderneconomy”,saysThe Observer.Somuchfor

that.Bywaginganoilpricewarduringadeadlypandemic,the

princehashelped“wreakhavoc” onglobal markets.Theensuing

slumpin theoilprice,which fellat itsfastestratesincethe 1 991

Gulf war, wipedbillions offthe valuesofthe energycompanies

thatare“pillarsof globalequity markets”.While “shocking”,the

prince’sdecisiontofirethe startinggunonarace topumpmore

oilthanthe globalmarketcan absorbis sadlytruetoform.Rarely

far fromaccusationsofextortion,torture and even murder (all

denied),heclearlyviews theoilmarketasapowergame.By

floodingtheworld withcheapSaudi oil,the kingdomwill“corner

the globalmarketand reassertitsdominanceagainst therise of

Russia and American shale production” ina“race to the bottom”.

With markets in turmoil, wemight reflect thatthere is at least one

constant: “theruthless impetuousnessof theSaudi regime”.

Asthingsstand,RishiSunak’sgiantpackageis“merelyalarge

stickingplaster”,saysNilsPratley.“Loanscanalleviatecashflow

criseswherecompaniesareconfidentdemandwillreturn”,but

whoknowswhenthatwillhappen?The“logicalstep”toavoid

massredundancieswouldbe“fortheGovernmenttounderwrite

achunkofcompanies’payrollcosts”,assomeScandinavian

countriesandFrancearedoing.True,thiswouldbe“highly

expensiveforthepublicpurse”–CloseBrothersputsthecostof

supporting“halfofBritain’swage bill” at around £40bn amonth.

And itwould“clearlybustcurrent deficitprojections”.Butthisis

no time for“economic orthodoxies”.Aglobalrecession isnow

“almostcertain” in 2020 ;someeconomists predictahitof15%

in thenextquarter,afigure“unheard ofduringpeacetime”. With

the yield often-yearUK governmentdebtatjust0.5%,bond

ma rkets areshowingno alarm atthe prospectoftheGovernment

writinglargecheques.On thecontrary,“abacklash fromthe

bondmarketismorelikely tooccur iftheGovernment isjudged

to bespendingtoolittle toprotect theeconomy,nottoomuch”.

TheobjectiveofRishiSunak’splantofiresome15%ofGDPat

thecoronavirusis“notjusttokeepcommercealiveandkicking”,

saysAlexBrummer.It’salso“torestoreconfidence”.The

Chancellorishopingthathiscatchphrase“whateverittakes”will

turnthetideaseffectivelyaswhenitwaslastdeployed–bythe

formerEuropeanCentralBankpresidentMarioDraghiduring

the 2012 eurocrisis.Aswellasprovidinga“massive”economic

boost,theloanpackageshouldensurehealthycompaniescanpay

employeesandkeepsupplychainsopen.Thereareboundtobe

complaintsthatitmerelyaddstodebtloads–theBoEhasout-

lined“therewillbenofreelunchesforbadlyruncompanies”.The

lackof“directlypaidsupportforemployees”mayalsoprovea

mistake:“relyingonthekindnessofbossestokeeppayingwages

onborrowedmoneyforalongtimeisplacingtoomuchtrustin

theirhands”.Afurtherpackageofcashaimeddirectlyatcitizens

“wouldfeelmorereal”thanpromisesofmortgageholidays.Alas,

“eveninwartime,itisnotpossibletobailouteveryone”.

Although major sportsevents, including Olympicqualifiers,are

being cancelled everywhere,theaxe hasyet to fall on theTokyo

Olympics, says LeoLewis.Inacommuniquéthis week,the

International OlympicCommittee outlined that, withfour months

to go, thegamesare stillon. Bu tdoubts are growingby theday.

For JapanInc, there’salot ridingonthe decision. Underpinned by

arecord$3.1bn of marketing–financedin largepartbyJapanese

corporate cash–the 2020 gamesare “the most heavilysponsored

sports eventever staged”: bigger than London2012 andBeijing

2008 combined.Companies from Toyota andPanasonicto mega-

banks MizuhoandSMBC hadhoped theevent would markthe

momentwhenJapa ncould “f inally standtall” after the30-year

slump that followed the burstingoft he 1989 stock marketand

propertybubble.The 1964 Tokyogamesheralded postwar

Japan’sreturn asa“pre-eminent industrialpower”–showcasing

its technical masteryto the restofthe world. 2020was supposed

to repeat thetrick. From that viewpoint,“even ayear’spostpone-

mentwouldbeasmuch acorporatedisaster asasporting one”.

AndrewBailey

“WhenAndrewBailey

wasappointedgovernor

oftheBankofEnglandin

December,thejobalready

lookedtough,”saidThe

Economist.Yethisfirstweek

intheposthaspresented

anextraordinarychallenge,

evenforan“experienced

technocrat”ofhisstanding.

TheBank’s“newsetofeye-

brows”isplungingstraight

intotheCovid-19crisisata

pointwhen“theeconomic

dislocationcausedbythe

diseaselookssettodragnot

justintothesecondquarter

oftheyear,but,perhaps,into

thethirdaswell”.Talkabout

takingthehotseat.

AproductofLeicester’s

WyggestonGrammarSchool

andthenQueens’College,

Cambridge,Bailey,60,is

controversialinsome

quarters:campaignerGina

Millerclaimshisleadership

oftheFinancialConduct

Authoritywascharacterised

bya“toxiccock tailof

negligence,incompetence

andindifference”.Butin

financialcircles,heiswidely

viewedastheclichéd“safe

pairofhands”,saidPhillip

InmaninTheGuardian.His

predecessorattheBank,

MarkCarney,dubbedhim

“the big sexy turtle”–the

joke being that Bailey’s

considered decision-making

is “akin to the mating of

Galapagos tortoises”.

Bailey certainly knows what

acrunch looks like, said Kate

Burgess in the FT. Having

started at the Bank shortly

before the 1987 crash, “he

was chief cashier in 2008,

when RBS ran out of cash”.

Still, the new job “will test

him, and the knitted tortoise

that sits on his desk, as never

before”. Perhaps “the most

valuable tool in any central

banker’s toolkit isastates-

manlike air of control”.

Carney had it. Bailey has yet

to prove that he does too.

Can we trust

the kindness

of bosses?

AlexBrummer

DailyMail

This is no time

for economic

orthodoxies

NilsPratley

TheGuardian

Saudi puts

power above

respectability

Editorial

TheObserver

Japan Inc’s

rapidly souring

Olympic bet

Leo Lewis

Financial Times

City profile