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Monday newspaper round-up:BAE, Spending cuts, ESM

paulajohn
Written By:
paulajohn
Posted:
Updated:
24/09/2012

BAE protects ‘special relationship’ with the Pentagon; Lib Dems oppose more fiscal pain; funds for European Stability could go to 1 trillion euro

BAE Systems has warned it will walk away from its proposed 35bn euro tie-up with EADS if the deal waters down its special relationship with the Pentagon.

“BAE will not do this deal if its Special Security Arrangement has to change to look more like that of EADS,” said one person close to BAE, in a sign of the complexities surrounding one of Europe’s largest and most sensitive industrial mergers in years.

This SSA specifies that BAE’s senior leadership in the US is made up of Americans, among other things, and has allowed the UK’s biggest defence company to work on many lucrative US national security projects.

These include the 1,500bn dollar F-35 joint strike fighter programme to develop the most advanced radar-evading jet fighter, The Financial Times says.

 

Nick Clegg said on Sunday he would block any more spending cuts in this parliament, in the clearest indication yet that the coalition is prepared to miss its borrowing targets rather than inflict more fiscal pain on the country.

The Liberal Democrat party leader said it was better to spread cuts over a longer period, lasting well into the next parliament. He argued that the rich would have to pay their “fair share” – possibly through a mansion tax.

Amid speculation that the coalition will miss its target to bring down national debt by 2015, Mr Clegg said the markets would be incredulous if the Treasury announced new cuts and thus undermined recovery.

“We are not going to chase our own tail: the markets are not stupid.”

 

BAE Systems and EADS are to ask for an extension to the October 10 deadline set by the Takeover Panel to agree merger terms because political differences are slowing progress to create a €38bn (£30bn) European defence and aerospace giant.

Worries about job losses, industrial strategy and the “national interest” are being voiced by Angela Merkel, German Chancellor and Francois Hollande, the French president, as they consider the price to be paid for their support for the ambitious deal.

BAE and EADS are expected to ask the Panel for an extension to the merger timetable to give politicians more time to agree a common position. The move comes amid reports that BAE will walk away from a deal if it waters down its relationship with the Pentagon, which has allowed the British defence giant to work on lucrative US security projects, The Telegraph reports.

 

Eurozone countries are discussing plans to massively boost their bailout fund so that it could rescue big countries such as Italy and Spain. The plan to lift the European Stability Mechanism (ESM) to at least €1trn is a revival of hopes that were first debated last year. It is back on the table after Germany’s Constitutional Court approved the permanent ESM this month, but it is facing stiff opposition from Finland and could stumble again in Germany because any deal would have to be put back to MPs in the Bundestag.

The stability mechanism’s existing €500m firepower has been agreed by all 17 countries that use the single currency. Two methods of leverage could be copied from the temporary bailout fund that provided rescue loans for Greece, Portugal and the Republic of Ireland — the original “big bazooka” intended to blow apart Europe’s debt crisis, according to The Times.


Households are the least downbeat about their finances in two-and-a-half years, the latest survey of consumer confidence has found. Some 40% of households predict their finances will deteriorate over the next 12 months, according to the Markit household finance index (HFI). That compares with 29% who expect to see an improvement, showing the least pessimistic outlook since March 2011.

Scotland is less pessimistic about household finances than some parts of the UK, such as Wales, which had the most downbeat households surveyed. Londoners took the least negative view, but according to the statistical measure used, they are still not optimistic.

People working in IT and telecoms tended to be the most positive, while those working in health, education and social care tended to be the most downbeat, the study found. Those in the private sector were less downbeat than those in the public sector, continuing a trend seen for almost two-and-a-half years, said the report, The Scotsman says.

 

Subsidies for new nuclear power could add £70 to annual household energy bills, Ian Marchant, the chief executive of SSE warns. Ministers should refuse to subsidise EDF Energy’s plans for the first British nuclear reactors in a generation unless the French energy giant agrees to deliver them for a substantially lower price than is widely expected, Mr Marchant argues.

The government is in negotiations with EDF over a long-term guaranteed price for electricity from its proposed plant at Hinkley Point in Somerset. If the market price for electricity remains below that level, EDF will receive ‘top-up’ subsidies paid for through levies on all UK electricity consumers, The Telegraph says.

In an exclusive interview with The Daily Telegraph, Mr Volcker said that plans to force banks in the UK to ring-fence their traditional retail arms from “casino” investment divisions would not work in the event of a bail out.

Ringfencing, he said, would only work in “fair-weather” conditions but not when banks were under pressure. “In my experience ring-fencing is not terribly effective,” said Mr Volcker.

“It only works in fair-weather. But doesn’t work in foul weather. They have already run into problems and they are bound to run into more.” The criticism comes less than a month after the publication of Sir John Vickers’ banking reform proposals.