IT was Europe Day yesterday – and no, I wasn’t celebrating. The EU is shockingly badly managed. It wastes vast amounts, its single currency is in crisis (with bailout-hungry Greece’s credit rating downgraded again), it is bureaucratic and its massive regulatory apparatus is crippling, rather than liberating, Europe’s economies.
Take two all too typical anecdotes: the Commission will next year spend over £225m on communication campaigns, including on the 1,078 staff who work in the Directorate General for Communications. And the EU’s foreign minister (don’t laugh) is formally requesting a 5.8 per cent budget hike for the EU’s so-called diplomatic corps, the European External Action Service (EEAS). It’s a joke – and one in very bad taste at a time when taxpayers in the UK are having to drastically tighten their belts.
Meanwhile, following their devastating defeat on the AV referendum and local elections, the Lib Dems are now pledging to extract more “concessions” from the government. In practice, this is likely to be over the coalition’s NHS reforms, which the Lib Dems had originally backed – but that even the Tories (at least top ones around the PM) now would probably rather ditch. A “climbdown” is thus likely to be engineered.
But the truth is that the Lib Dems have been badly damaged and their longstanding policy of trying to be all things to all people (left-wing in the North, centre-right in the South) is exposed. So if David Cameron does concede policies, he should do a deal: the Lib Dems should allow him to be tougher on the EU in return. The coalition has done nothing yet to reverse the EU juggernaut – it is high time for some action on this important front.
In a capitalist economy, a key determinant of economic growth is the profitability of private firms. The more money they make, the more they will invest and hire staff, at least over time, and the more they will return to investors. So how does the UK and the rest of the developed world stack up on that crucial measure?
In the US, profits have risen 19 per cent over the last year for the 379 S&P 500 firms that have reported first-quarter results. Profits for the 174 European companies reporting were up 17 per cent, according to Deloitte’s chief economist Ian Stewart. The corporate sector is doing well, which means that the rise in stock prices at least has some solid foundations (though of course unsustainably loose public policies have also helped).
While firms are continuing to cut costs, revenues are also growing, albeit not by as much. S&P 500 revenues in the first-quarter were 1.7 per cent ahead of market expectations but profits came in 6.7 per cent above. It does look like there will be a slowdown in profit growth, however. Earnings as a share of GDP are now very high. Inflation is hitting consumers and margins. There has been a massive increase in productivity – yet this has probably largely ran its course. Over the course of last year, analysts raised forecasts for FTSE 350 profits by 44 per cent and for Euro Stoxx 600 firms by 42 per cent. Since January this year, analysts’ profits forecasts for these two markets have remained unchanged. So the picture isn’t bad – but it does suggest that the global recovery will soon be entering a softer stage, especially as monetary policy is tightened.
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