Defence in the downturn
The ‘currency wars’ are usually a bit more abstract than this. Just as the Japanese look to be finally weakening their stubborn yen and spur some inflation in a stagnant economy, there is a suggestion, just a suggestion mind, that a deliberate plan to scupper, or at least hinder, that plan might be afoot.
The exact time of death can be recorded as 1:01pm BST. But, really, the pulse was lost long ago. BAE Systems and EADS announced that they have decided to terminate their discussions. So should we blame another breakdown in eurozone relations? Or maybe, just maybe, BEADS wasn’t a merger worth saving.
Asian stock markets fell and the yen rose after data showed Japanese machinery orders fell 14.8% in May from the previous month. (Bloomberg) Japan’s current account surplus for May was its smallest since at least 1985. The surplus was 215.1bn yen, less than half the median estimate of 24 economists. (Bloomberg)
UK military leaders have raised concerns that more than 80 per cent of the UK’s liquefied natural gas imports would be halted if Iran made good its threat to block the Strait of Hormuz, the FT reports, citing people within the Ministry of Defence and the Department of Climate Change. Ministers and senior military figures have been warned that almost half the UK’s gas imports, and 84 per cent of its LNG imports, use the waterway. Lord West, former head of the Royal Navy and security adviser to Gordon Brown when the latter was prime minister, told the FT that, if the strait were blockaded, the sharp fall in the UK’s gas supplies would be the country’s single most critical issue. Furthermore, Iran’s upcoming presidential elections are adding to Tehran’s need to posture, said Christopher Parry, the MoD’s former director-general of development, concepts and doctrine.
Barring a Republican rebellion in the House of Representatives, the Budget Control Act of 2011 will be passed by both houses of Congress on Monday, and sent to the President for his signature. Despite the resurrection of real market-shifting news on Monday, it’s worth quickly reflecting on the deal. A few other sites have done some post-mortems from a political or policy point of view. But see below for FT Alphaville’s debt ceiling winners and losers. (It was a lot harder to find winners than losers.)
*The name’s Daly. Frank Daly. And I, representing the Irish National Asset Management Agency, will be attending the Second Annual Global Intelligence Forum, to be held in Dungarvan, Ireland on July 11-13, where I will be giving a keynote speech … on matters that are of no concern to you (and which will never be disclosed publicly anyway). We’ll end with the Frank Daly impersonation there.
UK chancellor George Osborne will this week offer Budget sweeteners to low earners, motorists and holidaymakers but has ruled out giveaways or any slackening in the pace of cuts, reports the FT. The chancellor said on Sunday he had no need to inflict further pain through tax rises or spending cuts, suggesting he believes new measures in the March 23 Budget will be broadly fiscally neutral. But his room for manoeuvre is constrained, even though this year’s deficit is likely to undershoot the official forecast of £148.5bn by £8bn, according to the Ernst & Young Item Club, an independent forecaster. Economists say the Office for Budget Responsibility will cut its 2011 economic growth forecast from 2.1 to 1.8% and from 2.6 to 2.1% in 2012. Osborne is also negotiating with the Ministry of Defence to fund operations in Libya. one analyst told Sky News.
The Pentagon is deploying naval and air forces around Libya as the US and UK governments consider tougher measures to force Muammer Gaddafi from power, including the possible establishment of a no-fly zone, reports the FT. “We must not tolerate this regime using military force against its own people,” David Cameron, UK prime minister, said. “In that context I have asked the Ministry of Defence and the Chief of the Defence Staff to work with our allies on plans for a military no-fly zone.” “Nothing is off the table so long as the Libyan government continues to threaten and kill Libyans,” added Hillary Clinton, US Secretary of State, at a UN meeting in Geneva. According to Colonel David Lapan, a Pentagon spokesman, US military planners are working on “various contingency plans … [and] repositioning forces to be able to provide for that flexibility once decisions are made”. The military manoeuvering coincided with US and UK efforts to ratchet up financial pressure being brought to bear on Colonel Gaddafi, whose forces remain in control of Tripoli, the capital.
As we have discovered in recent weeks there’s a greater chance of getting blood from a stone than a UK-listed company voluntarily confessing to M&A activity. So it’s to Serco’s credit that it has has attempted to set the record straight following reports which claimed the outsourcing firm had made a $2bn offer for SRA International, a US security, defence and health services company.
The government remains committed to defence kit and support spending despite reductions in the military budget, reports Reuters. The news agency also reports that Britain plans to increase the proportion bought from small and medium-sized firms. Junior defence minister Peter Luff said the government would spend about £50bn pounds on kit and support over the next four years on deals, following on from about £13bn pounds in defence industry deals last year.
Comment, analysis and other offerings from Monday’s FT, Wolfgang Münchau: Berlin’s goal is limited liability I have been observing the European Union for a while, but I have rarely seen a political victory as total and far-reaching as that of Angela Merkel, the German chancellor, last week, the FT columnist writes. As one seasoned observer put it, Ms Merkel was the only one in the European Council who knew what she wanted. And she got exactly that. She got an amendment to the Lisbon treaty, which says that any crisis mechanism can only be triggered as a last resort option. She got agreement on her nine points on a future crisis mechanism – intergovernmental, with preservation of the national veto, with collective action clauses to wipe out bondholders, and with strict conditionality. And she utterly defeated any attempt to extend the ceiling and the scope of the existing crisis mechanism. Not one of the other leaders dared suggest a eurozone bond. Last week, the EU became a fully paid-up subscriber to the German version of crisis management – adjustment through deficit-cutting, and if necessary, through deflation.
Comment, analysis and other offerings from Friday’s FT, Philip Stephens: Capitalism can save the planet Not so long ago governments around the world stepped in to rescue capitalism. It’s time for capitalism to repay the favour by turning its mind to saving the planet. Politicians, you see, have just about given up, writes the FT’s Stephens.The only vaguely encouraging thing to say about next week’s Cancun climate change gathering is that expectations have been set so low the negotiators will struggle not to exceed them. The UN-led search for a global accord to replace the Kyoto protocol has stalled.
Defence chiefs are insisting that the Treasury must next year “guarantee” that UK military spending will rise annually by about 2 per cent in real terms from 2015, warning that otherwise they will be unable to implement the defence review on time, the FT reports. David Cameron, in last month’s strategic defence and security review, unveiled the planned structure of the armed forces in 2020, which included a new carrier strike capability and the resources to sustain 6,500 troops in a stabilisation operation. But Air Chief Marshal Sir Stephen Dalton, head of the RAF, said to meet these goals, the Ministry of Defence would soon need a “bankable number” from the Treasury, guaranteeing a minimum rise for defence spending from 2015. Sir Stephen said, in an interview with the Financial Times, that the guarantee was essential because the MoD had to start taking procurement decisions at the end of next year. These would affect the UK’s military configuration between 2015 and 2020.
British prime minister David Cameron has just finished unveiling fiscal cuts to the country’s armed forces at pixel time on Tuesday. Quick highlights — British troops will finally leave their Cold War German bases in 2020, only 29 years after the Soviet Union fell; defence spending will fall by 8 per cent in real terms; a lot of blood in the water for the Royal Navy’s fleet.
Comment, analysis and other offerings from Thursday’s FT, John Gapper: Facebook is not a punk’s dramaPunk. Billionaire. Genius. That is the three-word description of Mark Zuckerberg, the founder of Facebook, in the film account of how he took a social networking site from a Harvard dormitory to a valuation of $30bn in seven years, writes the FT’s John Gapper. The Social Network, the Aaron Sorkin-scripted film that opened this week to critical acclaim, tells the story of how he fell out with the Winklevoss twins, two fellow students who believed he had stolen the idea for Facebook from them, and later squeezed out Eduardo Saverin, his co-founder. But it does pose a disturbing question about entrepreneurs. Must they be “punks” and “assholes”, as she calls him in the first scene, to succeed?
Liam Fox, defence secretary, said on Wednesday he was “appalled” that his private warnings to David Cameron over the consequences of impending budget cuts had been leaked to the media, as police began an investigation into the leak, reports the FT. Fox’s private letter to the prime minister, written on Monday night, was leaked to the Daily Telegraph. In it, he attacked the Treasury’s attempt to slash his department’s budget and warned that “draconian” cuts to military spending could not be implemented without “grave consequences” for the Conservative party and the government.
Liam Fox, the defence secretary, has launched a big assault on the Treasury’s attempt to slash his department’s budget, warning that “draconian” cuts to military spending cannot be implemented without “grave consequences” for the Conservative party and the government, reports the FT. In a head-on attack on chancellor George Osborne’s call for cuts of up 20 per cent in the Ministry of Defence budget, Mr Fox has told David Cameron that he refuses to back any substantial reduction in funding for the armed forces. In a private letter to the prime minister, written on Monday night, Mr Fox said the Tories risked “destroying much of the reputation and capital” they had built up on defence if they implemented the cuts demanded by the Treasury.
BAE Systems, Europe’s biggest defence contractor, has confirmed it plans to sell parts of its US commercial businesses in a house-cleaning sale that could yield as much as $2bn (£1.3bn), reports the FT. “The company regularly reviews its portfolio to ensure it is delivering the best value for shareholders and customers,” BAE said in a statement on Monday. The sale comes as BAE and its competitors look to rationalise their businesses as they prepare to deal with the consequences of defence budget cuts in the UK coupled with Washington’s drive to slow military spending as the administration aims to save $100bn over the next five years. BAE last week announced it was shedding almost 1,000 jobs, mainly in its UK military aircraft division. The news followed job cut announcements by Boeing and Lockheed Martin of the US.
Comment, analysis and other offerings from this morning’s FT, Editorial Comment: Investors should block HBOS dealConceived in the crucible of the financial crisis eight weeks ago, the proposed takeover of Halifax Bank of Scotland by Lloyds TSBnow looks hasty, maybe even ill-judged. On competition grounds alone, there was a strong case to block a merger that would restrict choice for UK savers and borrowers. That was before the government, with its £400 bn taxpayer-funded rescue of the banking industry, undermined the logic of a private sector deal that was supposed to avoid another nationalisation. In these changed circumstances, investors are right to ask whether HBOS would be better off if it remained independent.