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Biden’s stimulus will affect the whole world

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For the decade after the 2008/2009 financial crisis, many commentators pointed out that monetary policy had become the “only game in town”. With governments concerned to repair their own balance sheets as tax revenues collapsed following the financial crisis, it was left up to central bankers to try to stimulate the economy through cheap money and unconventional asset-purchase programmes. The gargantuan fiscal stimulus package that will soon pass the US Congress will end this regime. The shift will have significance far beyond America’s borders. 

The OECD’s latest economic outlook forecasts that US president Joe Biden’s programme of government spending — worth 8.5 per cent of US national income — together with the rapid rollout of vaccination efforts, will lift global income by 1 per cent this year. The Paris-based think-tank estimates that the world economy will expand 5.6 per cent this year from its pandemic-induced low — up from its previous 4.2 per cent forecast last December.

A booming US economy means economic demand will “spill over” into the rest of the world, particularly its nearest neighbours and most important trading partners Mexico and Canada as well as export-oriented economies in east Asia and Europe. For advanced economies, which borrow in their own currencies, the implications of faster growth in the US is almost entirely positive — increasing potential exports as well as encouraging the “risk on” sentiment that boosts investment.

An overheating US — if the greater demand for goods and services leads to capacity constraints and causes higher inflation — could, however, trigger higher interest rates globally. Investors are betting that the Federal Reserve will either be forced into increasing rates to choke off inflationary pressure or feel comfortable removing stimulus as the economy returns to something near full employment. Members of the European Central Bank’s board are already concerned that this could raise financing costs — reducing the effectiveness of their stimulus efforts in a region where monetary policy remains by far the largest form of stimulus. 

Poorer countries that struggle to borrow in their own currencies will find it harder to adjust. Rising rates will reverse some of the capital flows that have financed fragile economies and led to a stronger dollar, especially if the US recovery diverges from other rich countries. The most exposed countries are in a better position today than during the 2013 “taper tantrum”, when the Fed suggested it would begin to reduce the pace of asset purchases, and emerging market currencies plummeted. Many have spent the intervening period building up reserves to protect against similar outflows and reduce their reliance on external, dollar-denominated finance. 

Higher public sector debt loads, however, mean that for many poor countries rising rates will make themselves felt through government deficits as much as current account deficits — higher interest costs could mean some governments struggle to service debt. Rising commodity prices — lifted by both Chinese and US stimulus efforts — will help exporters but add to the woes of importers. 

Ultimately, though, the policy mix is an improvement on the post-2008 reliance on monetary policy. If the OECD is right about the impact of Biden’s stimulus programme — and there is good reason to think it will be — then a stronger US economy will help to drive a global recovery. It would be even better if the world no longer had to rely on just one source for stimulus and other rich countries were similarly ambitious. 



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EU and UK edge towards accord on trade rules for Northern Ireland

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The UK and the EU are making progress in talks on how to apply post-Brexit trade rules in Northern Ireland, raising hopes of an agreement that could help reduce tensions that have spilled over into violence on the streets of Belfast.

Officials on both sides said that recent days of intensive contacts had given cause for optimism that the UK and EU can craft a “work plan” on how to implement the Northern Ireland protocol, which sets the post-Brexit terms for goods to flow between the region and Great Britain. EU Brexit commissioner Maros Sefcovic and his UK counterpart David Frost may meet to review progress this week. 

“They are advancing on a technical level and probably we will see a [Frost-Sefcovic] meeting rather sooner than later”, said one EU diplomat, while cautioning progress depended on firm commitments from the UK and its “unequivocal support” for the Brexit withdrawal agreement.

Other EU diplomats and officials said strong UK engagement in the technical talks on implementation of the Northern Ireland protocol had raised hopes that an understanding could be reached. 

“The mood seems to have warmed up a bit — the tone of the discussions is quite good,” said one British official. 

The talks are a follow up to a draft plan about implementation of the Northern Ireland protocol that was submitted by the UK to Brussels at the end of last month — a step the EU said was essential to rebuilding trust after Britain unilaterally extended waivers for traders from some aspects of the rules in March. This move prompted EU legal action.

The discussions between British and EU officials in recent days have taken place against the backdrop of violence in Northern Ireland, stoked in part by resentment within the unionist community at how the protocol treats their region differently to the rest of the UK.

From April 2 there were eight consecutive nights of unrest in Northern Ireland, involving both unionist and nationalist areas. The police responded by deploying water cannons for the first time in six years.

The Brexit deal placed a trade border down the Irish Sea in order to keep commerce seamless on the island of Ireland. The Northern Ireland protocol requires customs and food safety checks for goods entering Northern Ireland from Great Britain.

Officials said the EU-UK talks now under way about implementation of the protocol cover a wide array of practical issues ranging from trade in steel and medicines to the policing of food safety standards, how to deal with residual soil on plant bulbs, and the construction of border inspection posts. 

“Technical talks are ongoing”, said an EU official. “Depending on the progress made at technical level, a political-level meeting may be held soon.”

But EU diplomats and officials also cautioned that more work remains to be done, especially on the thorny issue of applying food safety checks. Difficult talks also lie ahead on the timetable for putting particular measures in place.

Meanwhile Downing Street played down a report in The Observer that it was resisting proposals by Dublin for a special crisis summit to address the outbreak of violence in Northern Ireland.

“We have not refused anything,” said a Number 10 official. “It’s something we will consider.”

However there are concerns on the British side about the wisdom of holding a summit in Northern Ireland with Irish government ministers at a time when pro-UK loyalist groups have been engaged in street violence.

Irish officials said taoiseach Micheál Martin and British prime minister Boris Johnson have spoken and would “maintain close contact over coming days”.



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France to offer mRNA jabs as second dose after AstraZeneca 

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France has become the second country after Germany to recommend that younger people who have had a first dose of the Oxford/AstraZeneca vaccine be given a different jab for their follow-up shot.

The mixed-dose approach has been recommended by health experts in both countries — despite there being little clinical trial data to support it — because of the slim risk that younger people can develop blood clots when given the AstraZeneca jab.

The World Health Organization reiterated its position on Friday that there was “no data on interchangeability of vaccine platforms”, noting further research was needed.

The move comes as the European Medicines Agency said it is also probing a possible link between the Johnson & Johnson vaccine and four serious cases of unusual blood clots in the US, where it is currently being rolled out. It is not yet being distributed in the EU or UK. The vaccine is based on an adenovirus vector, similar to the AstraZeneca shot.

The EMA said it was not yet clear whether there was a causal link. J&J said it is working with experts and regulators to assess the data. “Our close tracking of side effects has revealed a small number of very rare events following vaccination,” it said. “At present, no clear causal relationship has been established.” 

In France, the policy will affect roughly 530,000 people under age 55 who were given a first shot of AstraZeneca from early February to mid-March when they were eligible under its strategy of giving healthcare workers the vaccine, while reserving the mRNA vaccines for elderly people most at risk.

The Haute Autorité de Santé, a panel of medical experts which advises the government, has said they should be given booster shots from BioNTech/Pfizer or Moderna. France has changed course to use AstraZeneca only in people aged above 55 since the blood clot issue emerged.

France announced its decision on Friday after the HAS recommended the mixed-dose strategy. Germany took a similar stance in early April. 

Health minister Olivier Véran told RTL radio on Friday that the mixed-dose approach was “totally logical” given the analysis of European regulators and France’s desire to continue its vaccination campaign as the scientific evidence evolved.

European countries, whose vaccination campaigns have been slower than world leaders such as the US, Israel, and the UK, have been grappling with how to use AstraZeneca doses since the blood clot reports emerged, with some countries applying new age restrictions and others pausing its use entirely.

But with Covid-19 still spreading, officials are also seeking to reassure people that the AstraZeneca vaccine’s benefits still largely outweigh the risks. 

The European Medicines Agency recently established that there was a “possible link” between the AstraZeneca vaccine and unusual blood clots with low blood platelets that have mostly affected women under 60 years old, though regulators have said there is no specific risk factor by gender.

The EMA said it had examined at least 86 such reported cases and 16 deaths, and recommended updating the vaccine’s safety information to list the clots as a possible side effect.

Élisabeth Bouvet, a vaccine expert and member of the HAS, said on Friday that the mixed-dose approach was a practical solution intended to protect younger people, who are at lower risk of developing severe forms of Covid-19, from the risk of blood clotting side effects. “It is really a choice based on safety,” she said.

“Given that the protection of the Covid-19 vaccines begins to diminish after three months, these people need an additional dose,” she added. “The idea is to give mRNA vaccine as a second dose for this population in a ‘prime-boost’ strategy.”

Even in the absence of clinical data, Bouvet said that they believed the approach carried low risks of side effects and was likely to offer people additional protection given that the Covid-19 vaccines all aim at the same spike protein on the coronavirus.

“We think that this approach will work,” she said. “There is no reason to expect any particular side effects with mixed dosing but it would be good to study the immune response it creates.” 

Peter English, a retired Public Health England consultant in communicable disease control, said it was “reasonable” to use other vaccines, particularly in younger patients, until the risk of blood clots caused by the AstraZeneca vaccine has been clarified.

“If we are to achieve vaccine-induced herd immunity [not just through masks and social distancing] a high uptake of vaccination will be required in the groups most likely to spread the virus, not just in those most at risk if infected,” he said, noting vaccine mixing and matching has been done for other diseases. 

Trials studying a combination of vaccines, including AstraZeneca’s and Russia’s Sputnik V shots, are under way.



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Late frost to wreak havoc on French wine production

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Severe frosts across France this week have badly damaged buds and flowers in vineyards and fruit orchards and will cut grape harvests in some areas by as much as 90 per cent, according to growers and farmers’ organisations. 

“It was like winter coming in spring,” said Didier Delagrange, whose family has made wine from grapes grown on the slopes of Volnay in Burgundy for seven generations. 

“There was considerable damage, but we haven’t fully evaluated it yet,” he said. “The Chardonnay was more affected because the [shoots] were more advanced.” Around half of the vines in Burgundy have been damaged, according to local producers. 

In Chablis to the north, winegrower Thierry Mothe said the temperature had fallen as low as -7C, and 90-95 per cent of the potential crop would be lost. “There will be very little harvest in 2021,” he said. “It was like a winter frost, not a spring frost.” 

After a series of other problems, including US wine import tariffs linked to a trade war with the EU and the closure of many restaurants and bars around the world as a result of the Covid-19 pandemic — “there are some domains today that will be in very severe difficulties,” Mothe said.

Lines of heaters protecting vineyards outside Chablis, France on April 7 2021
Using heaters is expensive as well as inadequate to counter a very severe frost. Growers can afford to protect only the vines for their finest wines © Pascal Rossignol/Reuters

Even Bordeaux in south-western France was hit by the frosts, which also damaged the growth on fruit trees such as apricots, peaches and nectarines, and field-crops such as rapeseed and sugar beet. The impact was particularly severe because the freeze followed several days of warm weather that accelerated plant growth. 

Julien Denormandie, agriculture minister, said a state of agricultural calamity would be declared to mobilise financial support for farmers. “This is a completely exceptional situation,” he said on Franceinfo radio. “The losses are substantial.” The CNIV, which represents wine producers, called the disaster “one of the worst of recent decades”. 

Social media in France have been marked this week by eerie night-time pictures of smoky braziers illuminating vineyards across the country as growers sought to heat the air and limit the damage to their crops, but the method is expensive as well as being inadequate to counter a very severe frost. 

Delagrange said he would have needed 4,500 paraffin-fuelled heaters to cover all his 15 hectares at a cost of nearly €50,000 for the two worst nights, and growers could afford to protect only the vines for their finest wines. 

“In numerous regions, from north to south and east to west, the damage is severe for winegrowers and fruit farmers,” the National Federation of Farmers’ Unions said in a statement. “There is also great distress for arable farms. The impact on rape, just as it is flowering, is dramatic, as it is for sugar beet seedlings: many growers will have to replant more than half their crops.” 

Late frosts are not unprecedented, but many French farmers blame global warming for some of the erratic weather they have endured in recent years, including droughts and floods. 

Shorter winters, higher summer temperatures and faster ripening is changing the character of French wine vintages, and grapes are now harvested up to three weeks earlier than they were only a few decades ago. 

Temperatures also dropped to below zero across the north of Italy, after weeks of sunshine and warm weather. Nebbiolo, Moscato and Barbera winemakers in Piedmont said that between 50-80 per cent of their annual production had been destroyed by the frost. 

In Piedmont and farther south, in Tuscany and Lazio (the region that contains Rome), apricot, peach and kiwi harvests have also been lost, according to local media reports.

Additional reporting from Silvia Sciorilli Borrelli in Milan

This article was amended after publication to include Barbera winemakers in Piedmont





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