Perhaps the European Central Bank was feeling left out as the financial world turned its attention to the US Federal Reserve’s interest rate hike. But emergency meetings of major central banks are supposed to produce more substance than the weak offering that emerged from Frankfurt after a morning of contemplation: a plan to accelerate work on a “new anti-fragmentation instrument”.
The fragmentation in question is the widening of bond yields between eurozone countries. In short, as interest rate rises have come into view, weaker economies are having to pay meaningfully greater rates to borrow than the likes of Germany – about 2.4 percentage points more in the case of Italy.
Since the phenomenon, in more extreme form, represented a crisis for the eurozone that rumbled through the 2010s, it definitely needs to be addressed. Just as last time, however, expressions of good intentions are rarely enough. Investors always want to see the details of how intervention would work, and see the size of bazooka.
The only conclusion to be drawn from Wednesday’s statement is that the ECB is still fiddling, which is surprising in one sense. Two months ago Christine Lagarde, the ECB president, said the bank was on the job. “If and when it becomes necessary, we will know what to do and [the tool] will be operational promptly,” she said after a meeting of the bank’s governing council in April.
So why the delay? Is it purely a matter of design, as the statement suggested? It seems more likely that the ECB is worried about potential challenges in German courts, which have tended to take an interest in the ECB’s role as buyer of sovereign debt. Or perhaps there is haggling behind the scenes over any demands to be made of the Italian government, or over when intervention would actually happen. Whatever the truth, the ECB would have looked less panicked if it had issued Wednesday’s ho-hum update alongside its regular meeting last week.
The lesson from the last eurozone crisis was that going early and communicating clearly is the best way to prevent a riot in eurozone bond markets. Mario Draghi, in charge of the ECB at the time, learned to practise both arts. Largarde, by contrast, has started slowly and vaguely. She has probably got a month – no more – to get a nailed-down plan in place.
Premier Inn’s reason to be cheerful
A reminder that not every consumer-facing company is huddled in a corner awaiting the full blast of energy price hikes and the whack to punters’ real-terms incomes. Whitbread, owner of Premier Inn, sounds almost optimistic about life. Hotel revenues in the UK in the fist quarter were almost a third above pre-pandemic level, or by 21% in like-for-like terms.
Food and beverage sales, largely from Beefeaters and Brewers Fayres, are still 4% behind the old days, it should be added. And the group reckons it will have to spend an extra of £20m-£30m on wage rises, refurbishments and IT. On the other hand, chief executive Alison Brittain talked up Premier Inn’s prospects in Germany, the group’s big expansionary bet for the next couple of decades, more enthusiastically than usual.
“The trading performance of our more mature hotels in the two months post the lifting of Covid restrictions only reinforces our positive view of the significant opportunity in Germany,” she said.
This could, of course, be the calm before the storm, which is roughly what the stock market has been saying in recent months. The shares, even after Wednesday’s 6% bounce, still stand roughly halfway between their lockdown lows of 2020 and their reopening highs of spring 2021.
But the clue to the tone of corporate confidence may lie in the clunky phrase “accelerated independent supply contraction”. Bouncing back is easier if a chunk of your small hotelier competitors never made it out of lockdown.
Is business warming to Labour?
Jim O’Neill, as a recruit to lead a review of funding for start-ups, isn’t quite the political catch for the Labour party that he once was. The former Treasury minister, and George Osborne favourite, resigned as a Tory peer back in 2016.
Still, it all helps shadow chancellor Rachel Reeves’ efforts to build Labour’s credentials with business, and the timing is good. Talk to boardroom big beasts these days and many are privately poisonous about the performance of the current government. There is a willingness to give Labour a fair hearing.
For her next trick, though, Reeves will have to come off the fence about her support, or not, for rail strikes. Being “pro-worker, pro-business” is just a slogan.
