All the latest business and economic news, as Eurozone growth falters and the ECJ’s main advisor rejects Britain’s pleas over bank bonus rulesECJ advisor recommends rejecting UK pleas over bonus capWhat the experts saySummary: Eurozone growth weakensChinese factory growth stalls 1.32pm GMT Over in Greece, finance minister Gikas Hardouvelis will shortly hold a teleconference with troika representatives.It is a bid to break the impasse in negotiations between the two. Officials are saying the teleconference will take place this afternoon, barely a day after prime minister Antonis Samaras’ government sent the troika an email outlining the measures it plans to take to successfully exit its bailout programme. The proposals will be the focus of the talks, well-briefed sources say. Hardouvelis, an economics professor, believes the gap will be much smaller and is sticking by his guns arguing that prognostications of a larger-than-expected fiscal gap this year also failed to materialize. Auditors representing the EU, IMF and ECB have been examining the proposals with officials saying that today’s teleconference will determine when mission chiefs return to Athens to complete their last review of the Greek economy. Much hangs on that decision. Discussions over a precautionary credit line – seen as the first step to Greece effectively exiting its bailout programme – can only begin once the review is completed successfully. Racheting up the pressure on the government, pensioners took to the streets today, demanding that they be compensated for all the cuts they have had to suffer as the price of international aid to keep the Greek economy afloat. 1.14pm GMT Warwick Business School’s professor of financial economics, John Thanassoulis, has suggested a way to end the clash between the UK and Brussels over bankers’ pay.He reckons the UK should accept the principal of a bonus cap but lobby to have the cap reinterpreted as a bonus pool cap, based on a bank’s appropriately weighted assets.“If the bonus cap becomes a bonus pool cap it has the main effect of stopping banks over-stretching their balance sheet to bid for bankers at ever more inflated levels. This hobbles poaching banks, so taking the steam out of the market for bankers and so lowering pay levels. The well run banks can then hire the bankers they would have done in any case, but more cheaply. This lowers the banks’ cost base and enhances their stability.“This proposal is research based and is founded on peer-reviewed articles published in scholarly journals. 12.35pm GMT INEOS shows slide of shale gas well in Texas. Nick Steinsberger says he drilled 1000s in US "all safely". pic.twitter.com/sJWDcHss9N 12.30pm GMT Chemicals and oil producer Ineos is announcing plans to spend £640m searching for commercially viable shale gas sites in Scotland and Northern England.Ineos says it will “lead” the shale revolution in the UK, and is promising to share the proceeds with local residents. Environmental firms are concerned, though:INEOS says it will "lead the shale gas revolution" in UK. Big ambition but only 2 licences to-date. pic.twitter.com/5H52sk9Gh9 12.14pm GMT The opposition Labour party reckons the government was wrong to take the bank bonus tax row to the European Court of Justice.Cathy Jamieson MP, Labour’s Shadow Financial Secretary to the Treasury, says:“While working people face a cost-of-living crisis and lending to business is falling it’s astonishing that George Osborne’s priority has been to spend taxpayers’ money fighting a cap on bankers’ bonuses.“It shouldn’t have taken the EU to act to rein in excessive bonuses, but there has simply been no action from the Chancellor here in Britain. 12.08pm GMT The Open Europe thinktank reckons that the ECJ advocate general has overlooked some important issues, as he swept aside the UK’s opposition to the bank bonus rules.......including the impact of the caps on financial stability (ie, what happens if bankers are simply paid more?)One of the UK’s main arguments is that this law will result in higher fixed pay which makes remuneration less flexible and raises fixed costs for banks, thereby undermining any attempt to improve financial stability. This issue is not addressed at all in the opinion. Furthermore, while the opinion addresses the issues of remuneration impacting risk and the fact that fixed pay can still vary it does not look at how the two can interact. It is clear that as a result of this fixed pay will increase substantially but there is no question of how this impacts stability. Here's our analysis of ECJ AG opinion on the bankers bonus cap - a few issues are glossed over in the opinion http://t.co/pR9BR67nGc 12.02pm GMT The Treasury has now issued a harder-hitting response over this morning’s bank bonus cap ‘ruling’.They argue that the European Court of Justice’s Advocate General has shown why the cap is a bad idea: The detail of the opinion also demolishes the case for the fixed ratio by pointing out that it doesn’t equate to a cap on bankers pay because there is no limit on basic salaries. This is precisely the reason why we, the PRA [Prudential Regulatory Authority] and the Bank of England have been opposed to this policy.” 11.46am GMT PMI data weak across the board so far this morning - China, France, Germany all miss expectations. Not good! 11.35am GMT The weak eurozone PMIs have hit shares across Europe.The FTSE 100 and German DAX are both down 0.7% , while the French CAC has shed 1.2%.Last night’s US Federal Reserve minutes are providing little impetus, and a weak French purchasing managers report and data from China showing growth in the country’s manufacturing sector had stalled this month are also pushing shares down.So with metal prices weak, Rio Tinto is down 70.5p at 2871.5p, Anglo American has lost 32p to 1290.5p and BHP Billiton has fallen 36.5p to 1588.5p. 11.22am GMT This morning's euro zone flash PMI data in three charts. pic.twitter.com/KQX56YUeTi 10.48am GMT The gloom over the global economy has darkened, with the news that the eurozone’s private sector is suffered its weakest growth in 16 months.The latest deterioration in France’s private sector this month (see 8.20am), and the surprise stagnation at Germany’s factories (see 8.43am) has dragged back growth across the region.Another disappointing PMI survey in the Eurozone. Clear slowing of an already slow "recovery".“The single currency area is struggling to eke out any growth, with the PMI indicating that GDP is likely to have risen by just 0.1-0.2% in the fourth quarter. A drop in new orders for the first time in almost one-and-a-half years, albeit only very marginal, suggests growth could slow further in December.“Policymakers will no doubt be disappointed that recent announcements and stimulus measures are showing no signs of reviving growth. The deteriorating trend in the surveys will add to pressure for the ECB to do more to boost the economy without waiting to gauge the effectiveness of previously-announced initiatives.” 10.37am GMT Lawyer Alexandria Carr of Mayer Brown (who we quoted earlier), also reckons the ECJ’s Advocate General has ignored part of the UK’s case against bonus caps:“The Advocate General argues that the legislation does not impose a “cap” or limit on pay because banks are free to raise basic pay which would permit the amount of the bonus to be increased also, as the legislation fixes the level of bonuses by reference to basic pay.This ignores the UK’s main concern: that the legislation actually breaks the link between compensation and performance by driving banks to increase basic pay which, unlike bonuses, cannot be clawed back in the event of performance issues relating to the bank or individual. 10.24am GMT Back to the European Court of Justice advisor’s ruling against UK over the bankers bonus cap.Tom Gosling, head of PwC’s reward practice, reckons the ECJ will take the same view, in its final decision next year:It seems unlikely now that the Court will overturn the Advocate General’s Opinion, so banks should continue planning on the basis that the bonus cap will still be in force next year. It’s probably cold comfort for many, but at least one of the many sources of regulatory uncertainties for banks’ pay seems to have been removed. “The bonus cap alone is too blunt an instrument to curb risk taking in the banking industry and brings with it many unintended consequences, particularly an increase in fixed pay and a reduction in the level of bonuses available for clawback in the event of future prudential or conduct issues. Bonus levels in the industry needed to, and have been, coming down, but in our view other remuneration reforms are more effective at curbing risk.“EBA and the EU Commission have already said they don’t like “fixed” or “role based” allowances, which some banks introduced, so the debate is likely to now move from arguing about the validity of the cap to arguing about the validity of new practices such as these allowances.”“As expected, it looks like the bonus cap is here to stay and that could lead to further regulation if basic, non-performance related, salaries rise as a result. The Governor of the Bank of England has suggested this week that fixed pay may itself need to be subject to clawback, leaving the whole pay package exposed.”“While this is not necessarily the end of the UK’s challenge, it doesn’t give the UK much hope of success when the Court hands down its decision early next year. Some may even say it’s a clear indication of the likely winner in the power struggle between the EU and the UK.“The Advocate-General’s view may signal the end of the UK’s campaign of organised disobedience against the EU’s rules on pay in banks.” 9.50am GMT UK retail sales rose faster than expected last month, thanks to an increase in demand for furniture and generally lower prices, according to data just released. The ONS reports that retail sales volumes jumped by 0.8% month-on-month, after shrinking 0.4% in September.Disinflation alert! Disinflation alert! UK Average store prices fell by 1.5% in October 2014 compared with October 2013 #GBPSeriously, big number in retail sales is deflator, -1.5% overall, -1.2% ex auto fuel. So volumes strong cos prices down. #goodeflation 9.49am GMT Rachel Farr, employment lawyer at Taylor Wessing LLP, also believes the European Court of Justice will side with Advocate General Jääskinen and uphold bankers bonus caps.http://t.co/iBhINYQZFY AG does not accept UK's bonus cap argument - what are the chances of the ECJ saying different? Not great I'd suggest 9.45am GMT Alexandria Carr, regulatory lawyer at international law firm Mayer Brown, reckons the UK’s attempt to fight EU bonus caps looks doomed, now that the European Court of Justice’s advisor has recommended rejecting Britain’s pleas.She says: “The Opinion of the Advocate General is not unanticipated and is in line with the general direction of travel of EU financial services regulation post financial crisis which has seen increased EU intervention in matters which were previously regarded as matters best left to the discretion of each individual country. Although this Opinion is not binding, and the Court chose not to follow this very Advocate General’s Opinion in respect of the UK’s challenge to the short selling regulation, it would be surprising if the Court chose to depart from the Opinion in this case.” 9.32am GMT The UK Treasury has issued a brief statement:“The government notes the Advocate General of the European Court of Justice’s Opinion on our legal challenge against the EU ‘bonus cap’.We are considering the Opinion and its implications in detail.” 9.28am GMT The government's attempt to appeal against EU bank bonus cap looks like it's unravelling. ECJ Advocate General decides it's "valid". 9.13am GMT ECJ opinion is not final word on UK's challenge to bankers bonus cap - but will likely be rejected next year. 9.01am GMT The Advocate General at the European Court of Justice has concluded that European legislation limiting bankers’ bonuses is valid, in a blow to the UK government.Britain had asked the ECJ to strike down EU rules which limit a bankers’ bonus to 100% of their base salary, or 200% with shareholder approval.ECJ advocate general suggests all UK complaints against caps on bankers bonuses should be rejected. Final ruling next year.The UK also argued that the provisions infringe the principles of proportionality and subsidiarity, that the directive violates the principle of legal certainty, that the conferral of powers to the EBA is illegal, and that the regulation’s measures requiring disclosure of remuneration infringes the right to privacy and data protection rules.In his Opinion today, Advocate General Niilo Jääskinen suggests that all the UK’s pleas should be rejected and that the Court of Justice dismiss the action. ..fixing the ratio of variable remuneration to basic salaries does not equate to a “cap on bankers bonuses”, or fixing the level of pay, because there is no limit imposed on the basic salaries that the bonuses are pegged against.ECJ finds that banker bonuses haven't been capped - you can still increase the salaries they're pegged against! (HT @jamestitcomb) 8.43am GMT Crumbs. Germany private sector growth has fallen to a 16-month low, as its factory sector stalls. Germany #PMI: Private sector activity growth drops to 16-month low as new orders stagnate http://t.co/KxgfgPxbe0 http://t.co/HAZSsrE4wCGerman manufacturing at 50 - any lower then manufacturing industry would fall into contraction“Private sector output growth in Germany slowed to a 16-month low in November. Moreover, it seems Germany’s service sector has started to lose momentum, with activity growth in the sector the weakest since July last year, while manufacturing growth remained sluggish. Companies reported that economic uncertainty and lower demand from both domestic and foreign markets hampered stronger growth in Germany’s private sector.“The combination of weak output growth, ongoing spare capacity and a lack of new order wins (despite a further reduction in charges) paints a worrying picture of the underlying health of the German economy.” 8.38am GMT More economic woe for France as private-sector output falls for the 7th successive month as its November #PMI comes in at 48.4 8.20am GMT France’s private sector has shrunk for the seventh successive month, with factories reporting another sharp fall in output in November.Zut alors.“November’s Flash PMI data point to another weak performance by France’s private sector economy, with output showing a further modest fall. Increased government spending helped support a 0.3% rise in third quarter GDP, but the continued softness in private sector activity signalled by the PMIs suggests an ongoing drag on growth during the fourth quarter from this area of the economy. 8.06am GMT In the UK, Royal Bank of Scotland has been fined a total of £56m over a meltdown in its consumer systems in 2012, that locked 6.5 million customers out of their bank accounts for several days.Tracey McDermott on @BBCBreakfast: "Firms have to change. They recognise that. It's a process they have to carry on" pic.twitter.com/kw64XDhgV2Cough. BOE. CHAPS. Cough. RT @TheFCA: We fine RBS, NatWest and Ulster Bank Ltd £42 million for IT failures http://t.co/QlnUNEWLqx" 8.00am GMT The disappointing Chinese data will hit sentiment in the City, says Mike van Dulken, head of research at Accendo Markets.He writes that the PMI report:...adds to signs that more stimulus is needed to offset slowing growth in the world’s number 2 economy. There is talk of China boosting banks’ lending power to help spur growth, with more flexible loan-to-deposit ratios (short term boost, longer term danger?). 7.51am GMT The drop in the Chinese factory PMI shows “just how choppy China’s economy is at the moment”, says Stan Shamu of IG. 7.48am GMT This chart from Reuters shows how the pace of growth in China’s factory sector has been slowing, pretty much, for the last few years#China #factory growth stalls, at 6-month low #hsbc flash #PMI ReutersChina http://t.co/SujgMyYG6S @ReutersGraphics pic.twitter.com/UJ435Lznzu 7.46am GMT Japanese factory activity grew at a slightly slower rate in November as new order growth dipped, in another sign that demand eased this month.Japan’s manufacturing PMI fell to 52.1 in November from 52.4 in October, signalling a slight slowdown (but still in expansion territory over 50) 7.38am GMT Growth in China’s factory sector has stalled this month, in the latest signal that the global economy is slowing.HSBC’s survey of Chinese firms, released this morning, shows that activity across the sector was flat in November. And output is actually contracting, for the first time in six months.Disinflationary pressures remain strong and the labour market showed further signs of weakening. Weak price pressures and low capacity utilization point to insufficient demand in the economy. Furthermore, we still see uncertainties in the months ahead from the property market and on the export front. We think growth still faces significant downward pressures, and more monetary and fiscal easing measures should be deployed.” 7.37am GMT Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.Coming up this morning... ‘flash’ estimates of how the eurozone’s two largest economies, Germany and France, are performing this month. Continue reading...
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