Europe's Banks May Get €200bn Bailout

A potential €200bn (£175bn) recapitalisation of the European banking sector loomed yesterday after the French and Belgian governments unveiled a rescue package for Dexia to stop the bank's woes from contaminating the wider financial system.











The planned boost to banks' capital reserves will see national governments in line to inject new cash if the lenders cannot raise the money in the market.

The urgency of increasing eurozone banks' buffers against losses was heightened by the near-failure of Dexia, the French-Belgian bank with big exposures to debt issues by Greece and other financially stretched countries.

The deal to bail out Dexia was designed to stop the bank's crisis spilling out into the rest of the banking sector. The fates of troubled eurozone countries and the region's banks are intertwined and threaten a vicious spiral of losses.

European leaders yesterday delayed by a week a meeting scheduled for next Monday to leave time to receive a definitive report on Greece's fiscal crisis.

Belgium will pay the Dexia Group €4bn for the Belgian retail banking business and provide 60 per cent of state guarantees for a "bad bank" to house Dexia's troubled assets. France will provide 36 per cent of the guarantees, which cover up to €90bn of funding, with Luxembourg supplying the rest.

Dexia's balance sheet of €518bn is bigger than the entire Greek banking sector and is a similar size to the total assets of institutions rescued in Ireland. The bank passed European "stress tests" in July that were meant to shore up confidence in the banking sector.

France and Germany have agreed that Europe's banks should be made to raise extra capital to cushion the impact of a Greek default. The International Monetary Fund has calculated that the region's banks need up to €200bn of extra cash to withstand losses.

Alistair Ryan, an analyst at UBS, said: "If capital is to have any chance of stabilising the banks, it will need to be large: we would start with the IMF's €200bn." He said eurozone governments could end up owning 40 per cent of the sector if they supply the capital.

Markets were calmed by hopes that France and Germany would finally come up with a plan big enough to support the eurozone's banks when Greek defaults – an event seen as inevitable.

The Eurostoxx 50 index closed up 2.3 per cent and the euro rose 1.9 per cent to $1.3648.

The cost of Dexia's bailout has raised questions about France's and Belgium's national credit ratings. France's Finance Minister, Francois Baroin, stressed that Dexia was a "unique" case and that other French banks would not need bailouts. However, many believe France's Société Générale and BNP Paribas would be part of the recapitalisation plan.

Ed Miliband Has Offered An Alternative – But Will Anyone Vote For It?

Miliband's indisputable leftward shift has put Labour at ease with itself but risks making the party less relevant than ever.












Ed Miliband hopes his vision, that he set out at conference, will connect with 'the country's wider shared values'.

Many years ago, I was walking down a street in London with a rising Labour politician. On a lamppost we caught sight of a poster advertising a SWP meeting. "Is there a socialist alternative to Kinnock?" the poster asked. "Yes, there is a socialist alternative," laughed Gordon Brown. "But the problem is that no one will vote for it."

Ed Miliband is certainly no Trotskyist. But his speech to the Labour conference in Liverpool this week is already raising some of the same questions that the old SWP poster did. For Miliband is gambling that there is an alternative to contemporary orthodoxy. He believes that the experience of financial collapse, public spending cuts and recessionary inequalities requires a resetting of the collective moral and economic compass. Crucially, he believes that the electorate can be persuaded to embrace it.

Miliband chose his words very carefully. Terms like socialism and capitalism do not appear in his speech. But they were implicit in it. Read in conjunction with the recent New Statesman article by Miliband's strategist Stewart Wood, this week's speech adds up to an attempt to reclaim social democracy as Labour's core route-finding principle. Cautious it may be – Wood sees Labour's aim as the creation of "a better capitalism", which won't please everyone in the Labour ranks – but the argument is put with clarity. It is indisputably a leftward shift from the New Labour years. It is also what Miliband has always wanted, which helps, sort of.

The large question now is whether Labour will succeed in shifting the national argument so that his version of social democracy stands at the centre of public debate. Miliband's conviction that it can is central to his entire leadership. It was embodied in the many sections of this week's speech that tried to connect Miliband's own vision with the country's wider shared values. If he succeeds in setting an agenda of market, welfare and community reforms that voters really want to and do believe in, then he may indeed reshape British politics. But if he fails, Labour's slide to the political margins will continue.

Less than three days after the speech, most of the reaction to it has already fallen into one of two camps. These strike me as too crude in both cases. On the one side there are those who welcome Miliband's commitment and think he can succeed – this was the general mood at Liverpool. On the other there are those who dismiss what Miliband said and think his approach is doomed to failure – which is what the Conservatives will undoubtedly say next week in Manchester.

In fact, the impact of Miliband's speech could be less straightforward than that. This is not an argument between a wholly laissez-faire approach and a wholly dirigiste one. In reality it is an argument about shifting the balance within a narrower set of priorities than those who insist on talking about the end of neoliberalism ever admit. Even so, this was one of the few party leader's speeches that may be remembered for longer than a week after it was given. Most of its actual phrases may already have gone down our mental chutes into the waters of oblivion. But it is quite likely that a lot of people will remember this as the moment when Miliband turned the party away from the New Labour orthodoxy that compromise with global markets is inevitable.

But there are turns and turns. To take an obvious example, which Miliband will have to address eventually, there is all the difference in the world between maintaining the coalition's tax and spending levels and committing to raise them. There is also a gulf between attacking economic predators and extolling producers, as Miliband did this week, and putting strict regulations in place to deny the former and promote the latter. And there is a massive difference between being a party of free trade, a principal that the left has always managed to embrace, and being a party of protection.

If he is dumb, Miliband may be tempted to do what the Tories would love him to do and promise to clamp down directly, almost certainly ineffectively and in all probability with unintended consequences, on morally indefensible excessive pay and bonuses. If he is smart, he will use the bully pulpit, as he did on Tuesday, at least as much as the tax system to encourage the better capitalism, and the better companies, to which he aspires.

The idea that there might be a workforce representative on remuneration committees caused outrage in the rightwing press this week, but it ought to be just the start, not to an expanded role for the unions, but for well-argued and flexible new models of workplace co-determination of the kind that have done so much for German companies.

The best news for Labour I heard in Liverpool is that Andrew Adonis is planning to focus on new thinking about industrial policy, a subject riddled with old ideas, especially in the unions, but which is crucial to any long-term reimagining of the UK economy. It does not follow that the left's traditional state-centred responses are the new centre ground just because people are outraged by the bankers and by indefensible wealth.

The experience of the last three years suggests public opinion has moved to the view that government deficits are part of the problem, rather than the solution. Thursday's vote in Germany and this week's budget in France were the latest reminders of that. Labour was canny about the economy this week: Ed Balls got the balance right in his speech. But parties of the left are losing ground across the world right now and Labour shouldn't imagine there is a magic moral bullet that will enable it to buck that trend.

Labour's move to the left can be, and has already been, exaggerated – by friend and foe alike. Yet it has been a significant declaration by the party nonetheless. The coalition parties will undoubtedly respond, and not merely with abuse and caricature. Expect surprise moves that try to undermine Labour claims to ethical uniqueness.

Electorally, the danger for Labour is that the party will have convinced itself that it has rediscovered its own sense of ethical virtue without persuading sceptical voters that it can run the economy. The party may be more at ease with itself but less relevant than ever. Miliband may want to see himself as the new Clem Attlee. But his ratings suggest that the voters still see him as the new George Lansbury – an unworldly leader and an electoral failure.

Students End Stage Sit-In Over Fees

A group of students protesting against Scotland's leading arts academy's decision to charge fees of £9,000 to students from England, Wales and Northern Ireland ended their sit-in this afternoon.









A spokeswoman for the group said it was "neither practical nor effective" to stay in the foyer of the Royal Conservatoire of Scotland overnight.

Around 30 students started occupying the building at around 11.30 this morning.

They said the protest was part of a rolling programme of "wildcat" occupations over Scottish universities' plans to charge fees to students from the rest of the UK (RUK).

The RCS, which recently changed its name from the Royal Scottish Academy of Music and Drama, is to charge students from elsewhere in the UK £36,000 for four-year degree courses and £27,000 for three-year courses from 2012/13.

The Glasgow-based institution has said the charge reflects the exceptionally high cost of programme delivery in conservatoires, which substantially exceeds the £9,000 fee.

The sit-in at the conservatoire ended shortly after 3pm.

A spokeswoman for the protesters said: "By facilitating fee increases for RUK students the RCS is setting a dangerous precedent in Scotland.

"Despite promises from the SNP Government that Scottish students will not pay fees, we believe that the huge disparity in fees between Scottish and RUK students will become intolerable and will inevitably result in fees for all students.

"Whatever tokenistic measures are introduced, a financial market in education will always result in discrimination against those unable to afford fees, whatever the level.

"Education is a right, and must be free, as it was for generations.

"The Conservatoire's Student Union has abandoned its responsibilities by backing the decision by management."

Robert Gordon University (RGU) in Aberdeen and the Scottish Agricultural College (SAC) also made announcements on fees for RUK students today.

RGU adopted a "tiered approach", with three bands of undergraduate fees.

Business, management and social science courses will cost £5,000 a year, fees for art and design, architecture and built environment, computing, engineering, health and science courses will be set at £6,750 a year, while the master of pharmacy course will be the most expensive at £8,500 a year.

The Scottish Agricultural College (SAC) said fees for RUK students would be £27,000 for a four-year degree, with fees set at £6,750 a year.

The announcements came after St Andrews and Edinburgh universities set fees at the maximum level of £9,000 per year for students from the rest of the UK, meaning that a four-year honours degree at the universities will cost £36,000.

Aberdeen and Heriot-Watt universities also announced £9,000 yearly fees, although both have capped the cost of a degree at £27,000.

Glasgow School of Art also capped fees at £27,000 for a four-year course.

Currently, no full-time undergraduates domiciled in Scotland pay tuition fees at Scottish universities.

The conservatoire said the fee its board of governors has agreed is exactly the same as that charged by comparable conservatoires in England which offer four-year undergraduate degree courses in music and three-year undergraduate degree courses in drama and dance.

The conservatoire, whose alumni include James McAvoy, Robert Carlyle, Billy Boyd and Tom Conti, already operates an extensive scholarship programme.

It said that from 2012/13 it will introduce additional scholarships, which will be means-tested, for new undergraduate students from the rest of the UK to partly offset the introduction of increased tuition fees for that group of students.

Scholarships of £3,000 a year will be available for students from a household whose income is less than £25,000 per annum.

The RCS was not immediately available for comment.

David Cameron: 'Recovery Out Of Recession Will Be Difficult'

Prime Minister David Cameron has warned that the recovery from the recession will be ''difficult'' as shares continue to fall and investors worry about the global economic outlook.



Addressing the Canadian parliament in Ottawa, Mr Cameron said the economy was still suffering from the economic collapse of 2008.

Finance ministers and central bankers from the G20 group of countries have promised a "strong and co-ordinated response" to the problem.

Mass Strike Ballots Will Go Ahead, Say Unions

Unions say they will go ahead with ballots for mass strike action over pensions, after talks with ministers fail to reach a breakthrough.













Several unions are holding votes on a "day of action" on 30 November, in protest at plans to increase pension contributions by public sector workers.

They say changes the are unfair and financially unnecessary.

But ministers insist that pension contributions must be increased to make schemes sustainable.

The meeting, between the TUC-led delegation and Chief Secretary to the Treasury Danny Alexander and Cabinet Office minister Francis Maude, followed months of inconclusive discussions.

'Not appropriate'

TUC general secretary Brendan Barber told the BBC there had been no "dramatic change", with the two sides still "a long way apart", but promised there would be further talks.

He added: "Unions will continue to step up their efforts with the ballots of their members and planning of industrial action.

"But we remain absolutely committed to this process, to try to see if it's possible to reach a negotiated settlement without the need for that industrial action."

Nine unions - including Unison, Unite, the Fire Brigades' Union, Prospect and the GMB - announced at the TUC's annual conference last week that they were preparing to ballot for industrial action or to register "trade disputes" with the government.

Four others who took industrial action in June - the Association of Teachers and Lecturers, the National Union of Teachers, the Public and Commercial Services Union and University and College Union - do not need to hold another ballot if they want to strike.

And the National Union of Head Teachers - which has never organised a strike in its 114-year history - announced on Thursday that it would ballot members, starting on 29 September.

'Constructive proposals'

However, the British Medical Association Council said on Wednesday that it had decided this course was "not appropriate" for its members, but did not rule out "industrial action of some kind in the future".

A Cabinet Office spokesman said: "We are totally committed to genuine engagement with the unions. We have a lot to talk about and there are proposals on the table for discussion."

He added that unions had to make "constructive proposals", saying: "It is extremely disappointing that the TUC is calling on union members to lose a day's pay and go on strike while serious talks are still ongoing."

Asked to condemn the strike plans in an interview with New Statesman magazine, Labour leader Ed Miliband - who was jeered at the TUC conference last week when he declined to back calls for action - said: "I'm not going to get into hypotheticals about strikes that may or may not happen.

"What I'm going to do is say government has a responsibility to properly negotiate and they're not doing it and they've got to do it.

"The unions have to make their own judgement about what they do."

Labour Pledges Better Defence Deals

Labour has tried to draw a line under its history of disastrous military equipment spending programmes as it presented a report aimed at ensuring overruns never happen again.













Shadow defence minister Michael Dugher outlined the findings of a 10-month review into defence procurement which investigated how to cut delays and budget overspends in future deals.

Mr Dugher admitted that by holding its review Labour was "confronting the past" of contracts signed during its 13 years in power.

He said: "It is inescapable that the problems of defence procurement which plagued all governments continued on our watch. A future Labour government has got to do much better, which was why we wanted this review. We need big changes going forward."

Shadow defence secretary Jim Murphy claimed the 96-page report, which includes 37 recommendations, is "extensive, open and ambitious".

He said: "We have lived for far too long with a conspiracy of optimism. No more can we have a culture of frequently missed deadlines and estimates which are extended to the detriment of a delivery timetable. There must be more openness in the system and more ruthlessness when there are overruns.

"Being prepared to cancel projects when time and budget exceed 20% of their estimate is, therefore, an example of the recommendations to which we will give very serious consideration."

He said equipment was delayed too often because new technology offered improvements while the original order was still being built - delaying getting much-needed equipment to the frontline.

"The search for the exquisite can delay the deployment of the excellent," said Mr Murphy.

Operation Twist Won't Be Enough To Save The World Economy

Twist and shout....loudly, for help. The $400bn action taken last night to by the Federal Reserve to boost the US economy backfired, by alarming the markets it was meant to reassure.

Global shares fell sharply this morning with £56bn wiped off the FTSE 100 index - that's our pension money, by the way.

Taken along with the International Monetary Fund's stark warning of a 300bn euros black hole in the eurozone banking system, due to sovereign debt risks, the Fed's move was interpreted, correctly, as an index of just how bad the situation is out there.


















U.S. Federal Reserve Chairman Ben Bernanke hopes that Operation Twist will help boost the U.S. economy.

Operation Twist, as Bernanke's $400bn mission is nicknamed - is so-called either because it has not been attempted for 50 years, when the Chubby Checker song was in the hit parade, or because it is an attempt to twist the 'yield curve' - in simple terms, to bring down long-term interest rates and thereby boost economic growth.

I could explain this in full, but believe me, you wouldn't want me to.

Along with Operation Twist, the Fed issued a gloomy prognosis on the US economy and the risks from the eurozone, echoing the sentiments from the International Monetary Fund that time is running out rapidly to fix the vulnerabilities in the financial system.

The financial crisis that had its genesis in the banking system was always going to spread to sovereign nations.












The financial crisis that had its genesis in the banking system was always going to spread to sovereign nations.

Now we are indeed entering a new and dangerous phase, and the really worrying thing is the utter and abject lack of convincing leadership, the absence of any big world figure with a convincing vision of how to get out of this awful mess, and what the world might look like when we eventually do.

Share markets have been incredibly febrile so the FTSE 100 and other indexes are quite likely to bounce back.

But this is a deep and real crisis.

The eurozone is facing an existential crisis and the US as the world's dominant economy, is staggering under a mountain of debt.

Hang on to your hats.

World Bank Warns Of 'Danger Zone' As Global Stock Markets Are Sent Tumbling

UK shares suffered their biggest fall in nearly three years today amid fears a global recession.

It came amid a warning from the World Bank of a 'danger zone' and last night's backfired attempt by the Fed in the U.S. to prop up confidence.

All leading global stock markets indices plummeted with the FTSE 100 down 4.7 per cent - a colossal slump of 246.80 points to 5,041.61, its biggest points fall since November 2008.

The fresh sell-off was primarily sparked by America's announcement last night of a £250billion rescue operation to prop up its feeble economy.













Taking stock: A Barclays Capital trader holds his head while working on the trading floor at the New York Stock Exchange, which has seen huge amounts wiped off the value of firms.

The Dow Jones slumped on opening and was down 3.4 per cent by the time of the close in Europe. It adds to a fall of 2.5 per cent on Wall Street yesterday. Germany's DAX closed down 5 per cent.

Fresh evidence also emerged overnight of a slowdown in China and a warning from the World Bank further added to the panic in equity markets.

President Robert Zoellick said the world was 'in a danger zone'.

'Europe, Japan, and the United States must act to address their big economic problems before they become bigger problems for the rest of the world,' he said at the annual meeting of the World Bank and International Monetary Fund. 'Not to do so is irresponsible.'

'Some developed country officials sound like their woes are just their business. But my confidence in that belief is being eroded daily by the steady drip of difficult economic news. The world is in a danger zone.'

Banks were among the biggest losers, now the norm in sell-offs, with Lloyds Banking Group shares down more than 10 per cent at 32.51p and Barclays off 9.4 per cent at 138.85p.

Miners also fell victim, due to the expected slump in demand for commodities, with Vedanta Resources shares plunging 13.3 per cent and Antofagasta down 12.7 per cent.

The huge threat facing the British and global financial system was laid bare last night as the U.S. took unprecedented emergency steps to aid the world’s largest economy.

Frightening evidence that the crisis in euroland is spinning out of control also emerged as the International Monetary Fund revealed that a £263billion black hole has opened up in its banks.

The turmoil on both sides of the Atlantic will spark fears that the world is heading for its worst economic crisis since the collapse of Lehman Brothers three years ago.

The Federal Reserve, America’s central bank, launched a £250billion operation to lower borrowing costs for businesses and for consumers in the U.S., selling its shorter-term securities to buy longer-term holdings.

Its move came amid escalating fears over the health of its banking system.

A trio of the country’s biggest banks – Citigroup, Bank of America and Wells Fargo – had their credit ratings downgraded by leading rating agency Moody’s. The UK is in danger of being caught in a vice caused by the problems on both sides of the Atlantic as the eurozone and the U.S. are our biggest trading partners.

The Fed is already engaged in enormous efforts to stimulate U.S. growth and has held short-term interest rates near zero since December 2008.






04.35pm, 22 Sep 2011 FTSE 100 (UKX)
5,041.61p -246.80p -4.67%

1 day 5 day 1 mth 3 mth 6 mth 1 yr








Prices delayed by 15 minutes.


It is under pressure to revive an economy that has limped along for more than two years since the recession officially ended.

As well as the rescue – the first of its type for 50 years when a much smaller exercise was undertaken – the Fed issued a grave warning about the ‘significant downward pressure on global markets’.


















Fury: People from all over the U.S. have gathered on Wall Street in New York to voice their frustration with the economy and banks.

It said this has been caused by the failure of the euro area politicians to take tough decisions to resolve the turmoil in the single currency area.

The Washington-based IMF echoed the Fed’s swingeing cricitism of Europe’s leaders for failing to rescue their banks and restore stability.

It said that if they do not do so quickly, lending across the region would dry up, accelerating the downward spiral which has brought growth to a shuddering and dangerous halt.

The IMF’s top financial stability official, Jose Vinals, said: ‘Sovereign [debt] risks have spilled over to the region’s banking system.

‘This has put funding strains on many banks in the euro area and has depressed their value.’ Since the euroland crisis flared up in Greece last year an astonishing 40 per cent has been wiped off the market value of Europe’s banks.

Mr Vinals called for an immediate bail-out of the banks across Europe even if this meant nationalising them.













Eurozone: Protesters hurl rocks at police during a violent demonstration against austerity in Greece, a financial crisis which continues to depress markets.

‘The worst thing that you can have are banks that cannot get funding,’ he warned.

Mr Vinals blamed inaction on ‘weak politics’. Failure of leadership on both sides of the Atlantic has led financial markets ‘to question their resolve’.

The IMF estimated the direct exposure of the banks to the struggling PIIGS – Portugal, Italy, Ireland, Greece and Spain – to be 200billion euros (£175billion). But when the banks’ lending to each other is taken into account the number climbs to 300billion euros (£263billion).

Britain moved to bail out its banks three years ago in the wake of the Lehman collapse when the government took big stakes in Royal Bank of Scotland and Lloyds Banking Group and effectively nationalised Bradford & Bingley.

The IMF accused European leaders – German chancellor Angela Merkel and French president Nicholas Sarkozy – of failing to address problems full on.

The euro area needed to act ‘decisively and expeditiously’ to resolve the sovereign risks to the world economy and the spill over to the weak banks.

If there is to be a recovery in Europe then the ailing banks ‘need to have sufficient muscle to support economic recovery through lending’, the IMF said.

A leading IMF official acknowledged that in Britain the Project Merlin agreement between the banks and the Government meant that lending was taking place.

But the official made it clear that the targets need to be revisited on a regular basis and that lending to small and medium sized enterprises needs attention.

RIGHTMINDS

RUTH SUNDERLAND: 'The financial crisis that had its genesis in the banking system was always going to spread to sovereign nations. Now we are indeed entering a new and dangerous phase, and the really worrying thing is the utter and abject lack of convincing leadership, the absence of any big world figure with a convincing vision of how to get out of this awful mess, and what the world might look like when we eventually do. Share markets have been incredibly febrile so the FTSE 100 and other indexes are quite likely to bounce back. But this is a deep and real crisis. The eurozone is facing an existential crisis and the US as the world's dominant economy, is staggering under a mountain of debt.'

Meanwhile, disappointing news about China's economic prospects emerged overnight.

A key survey by HSBC revealed factory output in China fell for a third month running in September, sparking fears of a slowdown in the world's second biggest economy.

UK Inflation Figures Make A Mockery Of The Economic Assumptions Of Old

News emerged last week that during August, UK inflation went up. Again. The consumer price index (CPI) index last month showed that prices were 4.5pc higher than the same month in 2010.












It is noteworthy, also, that UK construction orders plunged 16pc during the second quarter – to their lowest level since 1980. So the outlook for construction is now worse, even, than during the "credit crunch" proper.

Given the growing sense that a tumultuous "euro-quake" end-game may soon be upon us, or at least the still traumatic acknowledgement of an explicit Greek default, the newsflow from Europe last week was almost overwhelming. So there was, perhaps, less comment than there should have been on the fact that UK inflation had just equalled its three-year high.

It used to be reasonable to assume that when the economy slowed, and unemployment rose, then inflation was likely to fall. Well, the UK has just endured its worst recession in more than 60 years. The economy shrank, peak to trough, by more than 6pc. Despite this historic drop, growth has failed to bounce back, remaining as low as 0.2pc during the second quarter.

Yet still, price pressures have been rising. Not so long ago, the publication of data showing that CPI inflation had overshot the Bank of England's 2pc target by more than 1 percentage point would have dominated the news agenda. The Bank's resulting public letter to the Chancellor, triggered by the 3pc breach and designed to explain the divergence, would have been forensically analysed by the commentariat. Such letters are now so common that hardly anyone reads them.

Over the past three years, monthly CPI growth has averaged – yes, averaged – 3.3pc. Those of us who've raised objections, pointing out that this might become a problem, have been dubbed "inflation nutters". It's as if the British economics profession has contracted collective amnesia, immune to the lessons of history, failing to highlight the danger that inflation in the 4pc to 5pc range can very quickly spiral out of control, as high and self-fulfilling inflation expectations become entrenched.

The UK's economic outlook weakened markedly in August. Survey data suggest the risk of the British economy re-entering recession, the dreaded "double-dip", has grown considerably. All three of the main CIPS survey measures fell last month, the main services index dropping at its fastest rate for 10 years.

It is noteworthy, also, that UK construction orders plunged 16pc during the second quarter – to their lowest level since 1980. So the outlook for construction is now worse, even, than during the "credit crunch" proper. This matters not only because the sector accounts for a chunky 7pc of the UK economy and employs millions of people. Construction is also a reliable "bellwether", with trends in the industry often pointing to what the economic future holds.

It looks likely, then, that we'll see virtually no growth in Britain for the rest of this year, even if global financial markets avoid meltdown.

It's also likely, though, that inflation will keep rising from 4.5pc over the coming months, above 5pc and beyond. The old retail prices index (RPI), more realistic than the CPI that replaced it, is already at 5.2pc. Such inflation numbers, amid a ghastly slowdown, make of mockery of the usual economic assumptions.

A big reason still higher UK inflation looks inevitable in the coming months is the price of energy and other commodities. Utility bills are soaring, as are UK food prices – which rose 6.2pc during the year to August. These miserable outcomes have their origins in the fact that global energy prices, to the surprise of many, have remained remarkably firm despite the latest Western slowdown. As such, another economic assumption of old has been upended.

Until recently, a slump in the "advanced countries", most of which are oil importers, was enough to generate a fall – expected, actual or both – in world oil prices, due to the impact of weaker Western energy demand. This was very useful for the developed world because the lower oil prices that resulted when our economies slowed helped to bring about our recovery. Cheaper fuel and heat would cut household and industry costs, boosting disposable incomes, profits and growth itself. Lower oil prices also helped tame inflation, giving our central banks the room to cut rates, so consolidating recovery.

Global oil markets, then, have long provided a crucial "self-correction" mechanism for the Western world. In light of the cardinal importance weaker crude prices have played in bringing about previous Western recoveries, it's worth examining their recent path.

Last month, amid fears relating to Europe's banks and Western sovereign debts, financial markets obviously took a big hit. The S&P 500 index of US stocks gave up all its 2011 gains, ending August 4pc down since the start of the year. Analysts slashed their growth forecasts for the US, the UK and mainland Europe. Yet, incredibly, the price of oil, while it has oscillated, has stayed pretty much where it was. Brent Crude remains up more than 21pc since the start of 2011, averaging no less than $112 (£71)/barrel so far this year.

Why is this happening? Typically, signs that the West is slowing, on cue, bring oil prices down too. But the markets now judge that the fundamentals suggest crude prices should stay roughly where they are, even if the West is struggling, not least because the bulk of oil demand in the world now derives from elsewhere.

The non-Western world today accounts for 55pc of global oil use. The insatiable energy appetite of China, India and the other large emerging economies – most of which are still growing by pc to 8pc – means they now set the tone on world commodity markets. The numbers are truly incredible.

The US Energy Information Agency (EIA )has just released estimates that the world will use 88.2m barrels of oil daily during 2011 – an all-time high, despite sluggish Western growth. As the emerging markets have expanded, engaging in massive infrastructure building, while their huge populations have become richer and adopted more energy-intensive lifestyles, global oil use has risen no less than 15pc over the past 10 years.

The EIA forecasts oil demand of 99m barrels daily by 2015, another 15pc rise from today, but this time in five years. Even in 2009, when the world economy contracted, world oil demand fell just 2pc, then grew 4pc the following year. So the oil market's long-held assumption of "demand destruction" when Europe or America slumps, is now being seriously tested.

The supply-side of the oil market also looks tight. The credit-crunch cut investment in exploration and well-development. The EIA sees a short-term deficit of 1.4m barrels per day in the fourth quarter of this year. Looking forward, oil traders are now showing a lot more interest in rapid depletion and falling yields at Ghawar, Cantarell and the world's other giants fields.

The politics of Opec have also recently been turned upside-down. Just a few years ago, Saudi Arabia made sure the exporters' cartel targeted $25 a barrel, so as to keep the Western world buoyant and oil demand strong. But now the Middle East can sell crude, as fast as it can pump it, to the emerging giants of the East. Meanwhile, the "Arab Spring", and resulting social expenditures to placate restive populations, mean that Saudi, and other oil exporters in the Gulf, need oil above $100 just to balance their budgets.

Like so much in economics these days, our usual assumptions about the oil market, in place for decades and reassuring for the West, are being revised before our eyes. The implications of these revisions we'll ultimately find impossible to ignore, even if so many continue to dismiss the inflationary dangers we face.

Cameron Is Railroading His NHS Bill Through Parliament

After a political fix with Nick Clegg, Cameron is denying MPs their constitutional role to scrutinise this waste-ridden legislation.












David Cameron and Nick Clegg meet nurses and doctors at Guys Hospital in London.

After a politically turbulent summer, coalition MPs might have been hoping for a quiet first week back in Westminster. But as Save the NHS protests and vigils are held across the country, the House of Commons begins two days of crucial debates on the hugely unpopular health and social care bill.

Despite the unprecedented pause and the NHS Future Forum's demolition job of the bill, the chorus of criticism has grown again as doctors, nurses, patient groups and health experts have digested the detail of the reorganised reorganisation and concluded that the government is failing to properly safeguard the NHS.

During and after the so-called listening exercise, David Cameron made much of his willingness to pause, listen and reflect. Nick Clegg, meanwhile, boasted of major concessions to the original plans – plans he himself had signed off last year. In reality, what happened in June was a political fix, more concerned with the future health of the coalition than the future of the NHS, and a fix that has acted as a smokescreen around the detail of the repackaged bill.

The changes to the bill have left it more complex, more costly and less likely to help the NHS change to meet the financial and service challenges it faces. Meanwhile, many essential elements of the long-term Tory agenda – to break up the NHS and set it up as full-scale market – remain in place and need further challenge.

The revised bill will mean more bureaucracy, more complexity, more cost and more waste. It creates at least five new national bodies to manage the NHS, centralising power into unelected bodies. Having promised to "abolish the bureaucracy", the government is trebling the number of statutory commissioning bodies from 163 to over 500.

The scale of change reflects the Tories' long-term plan to set up the NHS as a full-scale market and break up the NHS as a national public service, with patients seeing the services on which they depend subject to the lottery of where they live.

The government's response to the NHS Future Forum promised that the role of the secretary of state in providing the health service, established since 1946, would be restored. However the key wording of the founding act is still changed. Legal analysis commissioned by 38 Degrees confirms what Labour has argued: that the national duties of provision will be weakened and broken up.

Monitor, meanwhile, remains an economic regulator with the power to enforce competition law, fine hospitals 10% of their turnover, or direct commissioners to open up all services to competitive tender.

Far from getting on with real reform in the NHS, we have had a wasted year of chaos and confusion, which is set to drag on as the government forces through the biggest reorganisation in NHS history. £850m will be spent on redundancies, while 2% of PCTs' budgets, almost £2bn, is being held back from patient care to cover the costs and risks of the reorganisation.

All of this is taking place at a time when NHS finances are being squeezed and when all efforts should be dedicated to making sound efficiencies and improving services. It is high cost and high risk, and Labour continues to believe that many of the changes the NHS must make could largely be achieved without legislation and huge internal reorganisation.

Having done his political fix with Clegg, Cameron is now railroading his bill through parliament with a procedural fix. Limited time for debate and the lack of a new impact assessment means that MPs are being denied their constitutional role to properly scrutinise his plans for the NHS. They are being asked to judge the recommitted bill and over 1,100 amendments in rapid time and without the full facts at their disposal. By rushing the parliamentary process, David Cameron is forcing through bad legislation that will lead to more waste, cost and confusion in the NHS.

Could This Be The End Of The RAF? Military Chief Refuses To Rule Out Merger With Navy As Cuts Loom

The future of the RAF and Royal Navy were thrown into doubt last night after the head of the Armed Forces said their merger should be 'debated'.


















Cash-strapped: Air Chief Marshal Sir Jock Stirrup has not ruled out an amalgamation of the RAF and the Navy.

Sir Jock Stirrup caused consternation when he failed to rule out the amalgamation of two of the three cash-strapped military services.

The Chief of the Defence Staff said it was only 'plausible' that they would all exist separately in ten years' time.

The drastic cuts needed and the growing cooperation between forces in Afghanistan raised the controversial possibility that the air and sea service could unite.

Sir Jock made his comments at the unveiling of the Government's Green Paper on military reform, which lays the groundwork for a full-scale strategic defence review after the General Election.

The document, published by Defence Secretary-Bob Ainsworth, revealed no spending figures nor any indication of how the Armed Forces would look after the long-awaited shake-up. But it was revealed that:

* Defence chiefs will be forced to compromise on purchasing costly state-of-the-art equipment as ministers battle to reduce the nation's £178billion deficit;
* Britain can expect higher casualty rates as we are dragged into guerilla wars with increasingly sophisticated enemies;
* Despite the nation's battered finances, ministers will press ahead with the £20billion update of the Trident nuclear deterrent;
* The Armed Forces will have to work more closely with the French and other allies as spending cuts bite.

Mr Ainsworth also announced that the war in Afghanistan - which has claimed the lives of 253 UK service personnel - remained the top defence priority. Funding for troops and equipment will rise from £3.5billion to £5billion next year.






















And despite the urgent need for the MoD to cut costs in the face of a £ 36billion shortfall, he said that two new aircraft carriers costing £5billion each would 'most likely' go ahead.

The Green Paper warned: 'We cannot proceed with all the activities and programmes we currently aspire to, while simultaneously supporting our current operations and investing in the new capabilities that we need.'

The total number of British service personnel - 188,440 - is dwarfed by that of China and the U.S. and even trails that of France.

The Defence Secretary refused to say where cuts - expected to be significant - would be made in the defence budget.

But Sir Jock admitted that it was 'plausible' that one of the three services could be cut in future.














Top of the list: Afghanistan will remain the priority, with funding set to rise.

He warned against 'duplications, overlap and inefficiencies' in the Army, Royal Navy and RAF, while insisting the three could work seamlessly together. However, he said: 'There are interesting issues to be debated here.'

Experts suggested that the RAF - formed in 1918 - could be most vulnerable to the axe. Its fast jets, transport planes and helicopters could be split between the Army and Navy.


















Mr Ainsworth said he did not foresee 'major structural change' but warned: 'Not allowing single service interests to stand in the way of efficient delivery of security to the nation is something we have to look at.'

He added that the UK must prioritise its defence capabilities because it could not afford to 'insure against every risk'.

He made clear Labour would not scrap the Navy's new aircraft carriers despite criticism they were unaffordable and unsuited to modern conflict.

However, he refused to be drawn on the 140 Joint Strike Fighters intended to fly from the warship. The price of each jet has soared from £37million to more than £62million in four years.

He paved the way for greater military co-operation with France in a 21st century 'Entente Cordiale' while insisting the U.S. would remain Britain's most important ally.

'Our Armed Forces must be prepared if called upon to protect our interests, often in distant places, and most likely as part of a coalition of international forces,' he said.

Mr Ainsworth also promised legislation to force future governments to carry out a strategic defence review every four years. The last was in 1997 soon after Labour entered power.

Tory defence spokesman Liam Fox said: 'That our nation's security should be compromised by Labour's historic economic incompetence is truly a national tragedy.'

Priorities Questioned Over Defence Cuts

Nearly 2,000 armed services personnel are learning that their jobs are to disappear today.

At least half of the 920 Army jobs and 930 RAF roles are expected to face compulsory redundancies in the first round of defence cuts.












RAF pilots prepare for a mission over Libya.

The Gurkhas face the heaviest cuts, with 140 soldiers facing redundancy. No service personnel currently receiving the operational allowance will be forced to leave, however.

"Just as many RAF personnel will be thinking about returning home having performed heroics in Libya, ministers are drawing up their P45s," shadow defence secretary Jim Murphy said.

"People will be shocked and will wonder whether the government have got their priorities straight."

The defence cuts follow an eight per cent overall reduction in the MoD's budget in the comprehensive spending review.

Broader financial problems have forced defence secretary Liam Fox to seek a more fundamental rationalising of his department, leading to plans for over 22,000 jobs to go in total by 2015.

"The tough measures will bring the budget largely into balance for the first time in a generation," Mr Fox said.

"Extra money allocated for the equipment budget from 2015 will allow capability to grow in the second half of the decade."

The slow-burning nature of the cuts makes them politically sensitive, however. Around 1,600 redundancies in the Royal Navy are expected to be announced next month.

"This underlines the scale of the government's cuts in manpower. The frontline cannot be protected from cuts this deep," Mr Murphy added.

"Savings must be made, but in a world of uncertainty to many this will seem a worrying loss of important capability."

Chancellor Tells World Leaders To 'Show Courage'

George Osborne today called on global leaders to show "courage" and work together to fend off another financial crisis and keep the recovery on track.


















The Chancellor warned the "future prosperity of millions" was at stake without decisive action to tackle problems in the world economy.

He joined finance ministers from Singapore, Canada, South Africa and Australia in demanding reforms in a range of areas to go along with tough deficit-cutting measures as the head of the World Bank warned global stock markets were entering a "new danger zone".

Robert Zoellick said the response by leaders in America and Europe to economic challenges in recent weeks had led many in the markets to "lose confidence in economic leadership of some of the key countries".

That was echoed by Mr Osborne and the other finance ministers, who wrote today: "We all knew the recovery from the global financial crisis would be prolonged. However, the more serious malaise today is the lack of confidence in efforts by governments to address the structural problems that underpin weak growth, high unemployment and unsustainable fiscal balance sheets."

Calling for a "new global response", they outlined reforms of regulation, banks, closer eurozone integration and a push for trade to go alongside fiscal discipline.

In an attempt to set the agenda before major meetings in the autumn, they wrote in the Financial Times: "The biggest barriers are political, not economic, so what is needed is political leadership and courage." They added: "We have more than our credibility at stake. We have the future prosperity of millions of fellow citizens to safeguard."

The intervention follows a turbulent week on the stock markets after concerns about debt in the eurozone and the downgrading of the US economy.

French president Nicolas Sarkozy and German chancellor Angela Merkel are meeting tomorrow to try to thrash out a plan to tackle the crisis on the Continent.

It comes amid further concerns about the British economy and a Coalition row over scrapping the 50p top rate of income tax. A Chartered Institute of Personnel Development and KPMG survey of 1,000 employers found unemployment is set to rise this year.

Meanwhile senior Liberal Democrats are pushing the Government to consider a tax on the richest homeowners as a trade-off for scrapping the 50p rate of income tax.

Mr Osborne gave his strongest hint yet that the top rate will be abolished, saying it was "very uncompetitive". But scrapping it would lead to demands from the Lib-Dems for the richest to be taxed in another way - possibly through a levy on homes.