Tuesday 27 September 2016

Richard Curran: Money talks in Brussels and it will again with Brexit

Published 03/07/2016 | 02:30

The EU may well be involved in a massive game of bluff with the UK as it continues to take a tough stance on negotiating Britain's future relationship with the union.

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The tough stance began right away, when Angela Merkel said there would be no talks until the UK triggered the treaty clause announcing its intention to leave the EU.

Then on Friday, EU Trade Commissioner Cecilia Malmstrom dropped a new bombshell when she said detailed talks on a new trading relationship between the UK and the European Union should not start until after the process of leaving politically under Article 50 of the Lisbon Treaty.

In other words, the UK would spend two years negotiating its exit - and once out, it would begin the process of negotiating its future trade relationship with the union.

As a bluff, it is about piling pressure on the UK to consider a second referendum or begin the long exit process as quickly as possible to allay continuing economic uncertainty.

If it isn't a bluff, then the UK (and Ireland) might not know the future trading position and status of the Border for several years - possibly not this side of 2020.

It is hard to see how the EU could retain this stance because the uncertainty will undermine the performance of many key businesses in countries like Germany and France.

Take Germany, for example. Last year, Germany's trade surplus with the UK came in at €51bn. This means it sold that much more goods and services to Britain than it imported from the UK.

With around €90bn worth of exports to the UK last year, Britain is Germany's third-largest export market, after the US and France. Germany sells more cars to Britain than any other country, with 810,000 exported last year. Also, half of the 2.6 million cars made in Britain last year were built by German-owned firms, such as BMW, which runs Mini and Rolls Royce.

Other big German exports include mechanical engineering products, with the UK as the fourth-most important foreign market for the sector.

All of these highly influential companies will be bending the ear of Ms Merkel to do a deal with the UK that is based on access to the single market.

The French are not that different. During the week, Renault said it may have to raise prices on cars it exports to Britain, as its rival Peugeot and others scrambled to adjust to the weakening of sterling.

Ironically, Renault is more vulnerable because, as an exporter to the UK, it doesn't have any production facilities in Britain, which gives it little protection against currency swings.

But Renault might not be the only ones putting up its prices in the UK. Retailers in London, from local shops to luxury stores, will weigh up the effect the fall in sterling will have on their business. They may have to accept smaller profits, because buying in their goods will cost them more, or pass on the increase to consumers.

That is why Bank of England governor Mark Carney is talking about a recession in the UK and the need to take measures on interest rates and/or quantitative easing to combat it.

But the knife delivered by Michael Gove between the shoulder blades of Boris Johnson last Thursday may have done us all a favour. Gove is unelectable as prime minister - and it has left Home Secretary Theresa May as the front runner.

She was in the Remain camp and would be more amenable to push for a deal that concedes freedom of movement in return for ongoing access to the single market. That is why both sterling and the stock market went up on the news that Johnson was out of the race to lead the Conservative Party.

A single market deal would be good for Ireland, because it would preserve the status quo along the border and with our UK export markets.

But - as ever - there are some big prospective problems with the 'Theresa May to the rescue' scenario.

It would be welcomed by major exporting business interests in Germany and France but might be too good a deal for the UK and one that would encourage others to also consider leaving the EU.

That is where Ms Malmstrom's comments come in. If the EU is eventually going to do that kind of deal with the UK down the road, best to make it look like you have beaten them up a bit first. It would also make it look like the British government had won some concessions when the time comes.

Money will talk at the end of this process.

It always does.

UTV Media was a real game of two halves

Sometimes business, just like soccer, can be a funny old game. This is how management and shareholders at Wireless Group - formerly UTV Media - must be seeing it. Back in January 2015, when UTV Group launched UTV Ireland, its shares were trading at 245p and it had a market capitalisation of £168m.

Incredibly, everything went wrong at UTV Ireland to such an extent that its first-year losses were four times the original estimate. The group had to renegotiate its banking covenants and was ultimately driven to sell its entire TV business. Having secured an excellent price of £100m for the TV businesses, it was able to repay debt and become a radio-only play.

The group was always going to be the subject of a takeover and it came last week when News Corporation offered to buy the lot for £220m. Shareholders will receive a total of around £229m when dividends are included, despite the group being valued at £168m just before embarking on a strategic disaster. Unfortunately, the company is gone.

A lot has been made of the significance of News Corporation's foray into Irish radio - but you have to wonder how committed it is to the radio sector in Ireland.

It has paid a massive 70pc premium to the share price - true. It has acquired some very good radio stations in Ireland with this deal - like FM104, LMFM and others - but surely its big play was Talksport in the UK, the national station with broadcast rights for Premier League matches.

Radio has not seen the advertising bounce that many would have expected here after the austerity years and even a giant like News Corporation will find it hard to extract future value from what must seem to Rupert Murdoch like very small assets in a very small market. Perhaps it will even look to offload the Irish assets further down the road.

As for Talksport, Murdoch has paid a hefty price, but it's "back of the net" time, as he sees it.

Rental crisis is now about the least bad solutions

The Fine Gael-led Government finally relented during the week and has agreed to increase rent allowance by up to 29pc in some parts of the country.

It was a little strange to see Leo Varadkar - a Fine Gael social protection minister - implementing a homelessness prevention measure that a Labour Party minister in the same role point blank refused to do on several occasions.

Joan Burton was right when she said that increasing rent supplement was not the answer to the housing crisis. However, the worse the housing problem gets, the more it is about finding the "least bad" solution, instead of the right solution.

Higher rent supplements will go straight into the pockets of landlords and will not provide additional housing for anybody. However, landlords can get that kind of rent anyway from other tenants because the rental crisis has been allowed to get so bad.

This is not a solution. It is a sticking plaster. But it may go some way towards keeping some families in a home and unfortunately it has come far too late for many others.

Sunday Indo Business

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