April 23, 2024

DealBook: Cameron Pitches Britain to Investors Sour on Euro Zone

Taking center stage at Davos, Prime Minister David Cameron of Britain appeared to be a thinly-veiled swipe at the Continent.Vincenzo Pinto/Agence France-Presse — Getty ImagesTaking center stage at Davos, Prime Minister David Cameron of Britain appeared to take a thinly veiled swipe at the Continent.

DAVOS, Switzerland — With concern lingering about the future of the euro zone, Prime Minister David Cameron of Britain donned his salesman’s cap on Thursday and delivered a full-throated pitch to the throngs of executives and bankers gathered here: invest in Britain instead.

Taking center stage under a hail of spotlights, Mr. Cameron tried to draw a stark distinction between the euro zone and its ongoing economic and financial troubles, and conditions in Britain’s more open economy, where the government is pushing through what he called an “unashamedly pro-business” agenda.

World Economic Forum in Davos
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“Europe’s lack of competitiveness is its Achilles heel,” he told the hundreds of entrepreneurs and policy makers gathered in the audience, and then ticked off a series of studies showing that European Union nations were losing ground on productivity. By contrast, he argued, Britain “is taking bold steps necessary to get back on track.”

His remarks appeared to be a thinly veiled swipe at the Continent less than two months after European Union leaders criticized him for refusing to sign a Europewide pact intended to help stabilize the euro zone, leading to an outburst of tension between Britain and France that has since cooled.

But for all the contrast Mr. Cameron sought to draw, Britain’s economy remains mired in a slump that is just as bad, if not slightly worse, than that of major competitors like Germany, France and the Netherlands.

Much of the talk here in recent days has been over whether the fever of Europe’s sovereign debt crisis has broken. A consensus seems to be emerging that the worst may be over, primarily because of the unexpectedly strong actions on the part of the European Central Bank to pump more money into Europe’s banking system.

Mr. Cameron, while acknowledging that the euro zone had already made “vital progress” toward resolving the crisis, painted a darker picture. “We need to be honest about the overall situation,” he said. “The crisis is still weighing down business confidence and investment.”

The troubles had already pushed the euro zone toward what could well be its second recession in three years. He argued that the region was at a “perilous moment” that menaced Britain’s own fragile economy, while neglecting to mention that his country had probably slipped into a recession of its own in the fourth quarter.

Declaring his desire to see Europe become “a success,” Mr. Cameron then rattled off a long list of reasons why the Continent might never be as competitive a marketplace for business as Britain.

Among other things, he cited data from the World Economic Forum showing that more than half of European Union member states were less competitive than a year ago. Meanwhile, he assailed a financial transaction tax favored by President Nicolas Sarkozy of France, saying the measure, which is intended to thwart financial speculation, was “madness” at a time when Europe was trying to get national economies moving again.

“In spite of its economy and unemployment challenge, we are still doing things in the E.U. to make life harder,” he said. The bloc, he added, was “imposing burdens on businesses that destroy jobs.”

Moreover, he said, the uncertainty over whether Greece might default on its debts was not helping matters. In the near term, he added, Europe must bring that crisis to an end, recapitalize the Continent’s banks and create a financial firewall big enough to keep the problems in Greece from spreading to large countries like Italy and Spain.

The Continent also needs to move toward greater economic integration, fiscal transfers and debt issuance, he argued. “Currently, it’s not that the euro zone doesn’t have all of these; it’s that it doesn’t really have any of these,” he said, to a ripple of laughter.

By contrast, he contended, Britain was overhauling its public sector pensions, reducing its debt, scrapping red tape, whittling its corporate tax regime and working to get credit flowing from banks into the economy. “My message is: Invest in Britain,” he declared.

To those who think Britain is turning its back on Europe, “nothing could be further from the truth,” he said. “It’s in our national interest to be part of the single market and we have no intention of walking away.”

Mr. Cameron then trotted out a surprise: Boris Johnson, the mayor of London, climbed to the stage to join Mr. Cameron’s call for investment, taking on the unabashed air of a circus barker. “People of Davos and investors around the world, come to London to see what we’re doing!” he called, pointing toward a video screen depicting shots of the city as it prepared to host the Olympic Games this summer.

Mr. Johnson, with his unruly straw-colored hair flying in every direction, extolled a list of products made in London, including bicycles, TV antennas and chocolate cake exported mostly to France, adding, “Let them eat cake, I always say.”

Article source: http://feeds.nytimes.com/click.phdo?i=faec59d1a2a5c379e70ad12ffc080745

Markets Rise as Focus Shifts to Economy

European markets turned higher on Wednesday as investors focused their attention on fundamental economic developments this week.

Shares rose despite worries over the nuclear crisis in Japan and Libya’s violent conflict. In addition, the euro hit a 15-month high against the dollar on expectations the European Central Bank would raise interest rates later this week.

“It seems that the geopolitical concerns that have haunted markets recently are easing,” Yusuf Heusen, a senior sales trader at IG Index, said.

Interest rates considerations are taking center stage, with several central banks issuing policy statements this week.

Already the People’s Bank of China has raised its main interest rate for the fourth time since October as it tries to keep a lid on rising inflationary pressures.

The European Central Bank is poised raise rates on Thursday, the first increase in nearly three years, as it too worries about inflation. A quarter-percentage-point increase in the main rate to 1.25 percent has already been priced into the markets so investors will be more interested in what the central bank’s president, Jean-Claude Trichet, says in his monthly news conference.

Many analysts think that he will continue to sound a relatively hawkish tone and that has helped the euro clamber above $1.43 for the first time since last May.

Jane Foley, senior currency strategist at Rabobank International, thinks the markets may be getting ahead of themselves in expecting interest rate increases in Europe and that, as a result, the euro may struggle to push much higher.

“We see risk that the E.C.B. could signal that they may not hike rates as aggressively as the market is prepared for this year,” Ms. Foley said. “This would likely take some of the wind out of the euro’s sails.”

The euro’s ascent since it hit a multiyear low around $1.18 last summer has taken many currency traders by surprise, not least because Europe’s debt crisis continues to brew, with Portugal widely expected to become the third euro country after Greece and Ireland to get an international bailout.

Though Portugal managed to raise about a billion euros ($1.4 billion) in a Treasury bill sale Wednesday, it had to pay substantially more to get the cash than it had to at previous auctions.

For now, interest rate policy remains the key to the euro’s gains, especially as the European bank’s peers, like the Federal Reserve and the Bank of Japan, are not expected to start raising borrowing costs just yet, though the Bank of England could well be tightening policy in the next month or two.

However, analysts said the Fed is showing signs that it is ready to change course after it brings its current $600 billion monetary stimulus to an end in June. Though it may not raise interest rates this year, it seems the Fed policy makers are preparing to begin withdrawing some of the extraordinary measures implemented during the financial crisis.

The minutes to the last Fed rate-setting meeting, published Tuesday, indicated that the “normalization” process would begin in the coming months, and that process would eventually lead to an increase in the main Fed funds rate from the current 0 to 0.25 percent range.

The reaction to the Fed minutes has been fairly muted in markets.

The Dow Jones industrial average was up 33.26 points, or 0.27 percent. While the Standard Poor’s 500-stock index gained 3.33, or 0.25 percent. The technology heavy Nasdaq added 14.37, or 0.51 percent.

In London, the FTSE 100 index was up 0.72 percent while the DAX in Frankfurt rose 0.67 percent. The CAC 40 in Paris rose 0.3 percent.

Bond prices fell, pushing yields up. The yield on the 10-year Treasury note rose to 3.51 percent from 3.49 percent late Tuesday.

In the oil markets, the apparent stalemate in Libya, which accounts for a little under 2 percent of daily oil production, kept prices high. The benchmark rate in New York was 7 cents a barrel higher at $108.41.

Earlier in Asia, Japan’s battered Nikkei 225 closed down 0.3 percent to 9,584.37, while Hong Kong’s Hang Seng gained 0.6 percent to 24,285.05 . In China, the Shanghai Composite Index returned from a holiday to close 1.1 percent higher at 3,001.36.

Article source: http://www.nytimes.com/2011/04/07/business/07markets.html?partner=rss&emc=rss