A quick way to help in housing

 

COMMENT

Stamping on stamp duty would free empty nesters to fly their coops

Paul Johnson

Monday January 16 2023, 12.01am, The Times

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This is my first column since the Christmas holidays, so I hope you will forgive me for starting by recalling a party I attended over the festive period. Not, I’m afraid, a recollection about the superb drink, stunning food or great company, but rather a reflection on the housing market.

The event was held in a large suburban house. It had once been home to a family, but is now occupied by a single man in his eighties, children long gone, wife deceased some years ago. A number of the guests were from a similar generation and in a similar position, still occupying the large family home, either alone or with a partner.

It’s not only those I meet at Christmas parties who are in this position. More than half of owner-occupied homes are under-occupied, in the sense of having two or more spare bedrooms. And this is a growing trend. On this definition, fewer than 40 per cent were under-occupied in the mid-1990s. Few renters under-occupy their accommodation. They have to pay hard cash for that spare space.

Being adept at the sort of small talk appropriate for such social gatherings, I quizzed a few of those present on their housing choices. “Why haven’t you moved somewhere smaller and more appropriate to your needs, unlocked the capital in your unnecessarily big house and made it available to someone who actually needs it?” It was not quite my conversational gambit, but I think they got the point.

Broadly speaking, I got two answers. First, moving house is a huge and time-consuming upheaval. Bluntly, if you’re in the last decade or two of life, you don’t want to waste a significant fraction of that time going through the sort of hassle involved in moving house. Fair enough.

Second, though, was stamp duty. Awareness of this as a significant cost and a disincentive to move seemed pretty much universal. Hurrah, I said, we economists are on just the same page. Of all the taxes levied at present, Stamp Duty Land Tax — the tax you pay on purchasing a property — has a pretty good claim to be the most damaging and pernicious of the lot. The more often you move, the more tax you pay. It gums up the housing market and, by extension, the labour market. Mutually beneficial transactions, for example an older person in a big house trading places with a younger family in a smaller house, are disincentivised.

This isn’t merely theory or anecdote, either. The best evidence we have is that stamp duty makes a big difference to the number of housing transactions. In a very careful study, Michael Best and Henrik Kleven, the latter a professor at Princeton, estimated that getting rid of a tax rate of only 1 per cent on purchases could increase housing transactions by as much as 10 per cent. If that’s even in the right ballpark, it suggests that even low rates of stamp duty are likely to be very damaging, and the very high rates we levy on expensive properties dramatically more so.

There are only two feasible excuses for the continued existence of stamp duty. The first is that it is a relatively easy way of raising tax. That’s why it was introduced in 1694, making it among the most venerable of all our taxes. But that, frankly, is no longer much of an excuse. We could perfectly easily raise the revenue that it brings in in other ways. Yet stamp duty has been increased time and again in recent years, reaching a top rate of 12 per cent on the most costly properties — and more for those buying a second property or who are not UK-resident.

The second is that it already exists. Abolishing it now would mean a windfall gain for, especially well-off, present home owners. Two responses to that: first, given that stamp duty has been increased over the past couple of decades, for a reasonable fraction of home owners, certainly most of those I was speaking to over Christmas, this would largely be a reversal of windfall losses imposed by previous increases; second, this could be at least partially undone by reforming council tax and raising it on more valuable properties.

Council tax is levied at a lower fraction of property value the more valuable is the property. That is inequitable. There is a single person discount, so single people occupying big expensive properties get a double bonus. And not having been updated in 30 years, it results in especially low rates of tax on family homes in London and the southeast.

It is likely that this is where my yuletide interlocutors and I would part company. I suspect they would not be keen on their council tax going up, even if stamp duty were cut. I understand the political problem. But the corollary of relatively low council tax, as a fraction of property value, enjoyed by the well-heeled occupants of expensive houses in London and the southeast is high tax on the occupants of less expensive properties, especially in the Midlands and the north.

The high cost of trading down is gumming up the housing market

YUI MOK/PA WIRE

Let me be clear. I am not saying anyone should be forced from their family home. What I am saying is that we absolutely should not be penalising those who want to move home. That is deeply damaging. I could make a better argument for subsidising such moves than for penalising them.

We hear much about the housing crisis and the crisis of housing affordability. We hear rather less about the millions of houses that are underutilised and often bigger than their occupants either need or want. The two are not unrelated. There are many contributors to our sclerotic, dysfunctional housing market. Our tax system, in particular stamp duty, without question is one of them. It is one that is readily amenable to government action.

Paul Johnson is director of the Institute for Fiscal Studies
Follow him on @PJTheEconomist

Lenin was right (debasing the currency)...

In the days of Henry VIII, England seemed to be falling apart. There had never been so many beggars, witnesses reported, many of whom would cut your throat given half a chance. Everyone suspected, rightly it turns out, that the currency was being debased. Morals were as degraded as the coinage. At one infamous funeral in Kent midway through Henry’s reign, an observer reported that “the burial was turned to boozing and belly-cheer”, with an orgy involving “seven score persons of men, every one of them having his woman”. 

The feeling that something was not quite right was shared across Europe, which by the 1590s was consumed by financial crisis, social unrest and war. 

The root of the chaos was a wholly unexpected, and wholly unfamiliar, surge in inflation. For at least the 300 years leading up to the 1500s, western Europe made modern-day Japan look like Zimbabwe. In England in 1500 the price of a standard basket of goods facing consumers (largely food, but including other things such as clothing and light) was no higher than it had been in 1275, suggests work by Gregory Clark, a historian, and researchers at the Bank of England. All this changed after 1500.

 Sustained price inflation, once unthinkable, became unstoppable. Within 50 years average prices across England had doubled. Before long Italian prices were rising by 5% a year, research by Paul Schmelzing of Boston College suggests. In France and Holland, inflation hit 4% by the end of the century. In Russia the inflationary trend picked up from the 1530s. The global rate of inflation peaked in the 1590s at close to 3% a year. 

If 3% does not sound too painful, bear in mind that growth in nominal incomes in a pre-capitalist world was basically zero: almost any level of inflation made people poorer. Just as with today’s inflation, pundits in the 1500s furiously disagreed over the causes The inflationary surge also lasted a long time—longer, even, than the galloping-inflation era in the early 19th century caused by the Napoleonic wars, or that of the 1970s. 

Some countries suffered more than others. Scottish inflation was often a lot worse than English. Dutch inflation might have been the worst of all. Just as with today’s inflation, pundits in the 1500s furiously disagreed over the causes. Nowhere was this debate more heated than in France in the 1560s and 1570s. Jean Cherruyer de Malestroit, one pundit, played the role of Larry Summers, a former American treasury secretary, arguing that price pressure was the result of excessive spending. Jean Bodin, the Paul Krugman of his day, argued that unexpected shocks to the global economic system were to blame. Both economists wrote pamphlets attacking the other’s position. 

Historians continue to disagree. Like Messrs Summers and Krugman today, both Malestroit and Bodin had a point. Excess demand certainly played a role. The population had grown fast after the Black Death; many of those people had moved to cities. This raised demand for food even as it cut the number of farmers producing it. And some monarchs goosed the economy by manipulating the currency. 

 Henry VIII’s “great debasement” of the 1540s involved taking one gold coin, melting it down, adding worthless metal, and then recasting it as two “golden” coins. Using this method Henry plucked coins out of thin air worth about 2% of gdp in some years. Henry spent the extra cash on wars and palaces. The resulting boost to nominal demand provoked merchants to raise their prices. 

It was not just Henry, or his successor, Edward VI, who debased the currency. Scotland started doing it in 1538 and then doubled down on the strategy in 1560. In the southern Lowlands, or today’s Netherlands, Belgium and Luxembourg, the silver coinage was debased 12 times from 1521 to 1644.

 But debasement alone does not explain the great inflation, whatever Malestroit might have argued. It was not a new strategy, for one thing. It is reckoned that France debased its silver coins 123 times between 1285 and 1490. Between those years there was no inflation. And yet in the 1500s, even as many countries slowed down their debasements, they all saw inflation. Spain stopped debasing entirely from 1497 to 1686. 

Some historians, therefore, follow Bodin and say that demand-side explanations by themselves are insufficient. They also look at what was happening across the Atlantic, the source of a huge supply shock to Europe’s economy. In about 1545 people discovered vast silver deposits in Bolivia. Potosí, the centre of this lucrative new industry, became perhaps the fifth-largest city in the Christian world by population (after London, Naples, Paris and Venice). 

In the first quarter of the 1500s just ten tonnes of silver had arrived on Europe’s shores. By the third quarter of the century Europe imported 173 tonnes. Spain, where much of the metal arrived, initially experienced especially high inflation—but it then spread across the rest of Europe, as far as Russia.

 Today’s surge in inflation, only a year or so old, has already had profound social and political consequences. Consumer confidence is at rock bottom as real wages decline; incumbent politicians are unpopular; and protests about the cost of living are mushrooming. All that is peanuts, however, compared with the effects of the 16th-century inflation. 

Average real wages, which at the start of the 1500s were at the princely level of about seven pence a week, then fell, and fell, and fell. They would not regain their purchasing power until the late 19th century. The consequences of this almighty squeeze on living standards went beyond rampant beggary and orgies at funerals. 

Across Europe, society and politics became radically unstable. In a paper published in 1986 Jack Goldstone, now of George Mason University, asked why from 1550 to 1650 “states broke down on a wide scale”. In France in 1572 the Saint Bartholomew’s Day massacre involved Catholic-on-Protestant assassinations, resulting in thousands of deaths. The 1590s were years of revolt in Austria, Finland, Hungary and Ukraine. Russia experienced its “time of troubles”, a 15-year period of lawlessness from 1598. The Thirty Years War started in 1618, and the period culminated with the execution of England’s Charles I in 1649. 

In each year of the first quarter of the 1500s, about six in every 100,000 people globally died in conflict. From the 1620s to the 1640s, about 60 in 100,000 were perishing annually. The number of people tried and executed for witchcraft surged. 

Unhappy elites were, in part, responsible for the chaos. The gentry often depended on fixed payments (such as rents) for their income, and so may have experienced the effects of the great inflation more than those who could simply raise prices. In northern France and Belgium inequality fell in the 1560s and 1570s as middle-income people did fine while rich landlords were squeezed. Plutocrats, not used to economic strife, agitated for change. 

Ruff and tumble 

More importantly governments suffered. Centuries of zero or low inflation affected how they structured state finances. Monarchs often leased plots of land on fixed rents for as long as 99 years. Customs duties were held at nominal prices. This was a problem once inflation took off. From the mid-1570s to the mid-1590s Spain’s tax revenues were constant in cash terms, but they had less purchasing power. And governments’ expenses, which were not fixed, soared. In the century after 1530 the price of putting a soldier in the field rose fivefold. 

 The inflation thus, over time, contributed towards weaker states and a debt crisis. Governments did what they could to raise revenue. In 1544 and 1545 Henry VIII offloaded state assets, such as plots of land, worth over £150,000 (or more than 2% of gdp), and there were smaller sales under Elizabeth I in the early 1600s. Knighthoods were granted “in unprecedented numbers”, most for large fees, pointed out Mr Goldstone. Borrowing exploded, just at a time when many lenders were starting to raise interest rates. 

Defaults, rare in the 1300s and 1400s, multiplied, with France (in 1558, 1624 and 1648), Portugal (in 1560) and Spain (in 1557, 1575, 1596, 1607, 1627 and 1647) reneging on claims to foreign investors. Eventually, the great inflation came to an end. Population growth slowed, reducing demand for goods and services. Monarchs got a handle on monetary and fiscal policy, promising to default and debase less frequently than they used to. And the flow of precious metals from the Americas slowed. Yet the lessons from the century are clear. No matter the cause, societies which let inflation set in should expect more than just their living standards to be debased.

Trading blocs - a bit boosterish but good anyway

 

The Pacific pact is a boon for Britain, and a big threat to EU trade supremacy

The CPTPP’s growing momentum puts Brussels in the shade

AMBROSE EVANS-PRITCHARD13 January 2023 • 8:00am

Japan’s Fumio Kishida was in London this week pushing British accession to the CPTPP CREDIT: Simon Dawson / No 10 Downing Street

Step by step, the Pacific free trade pact is emerging as the epicentre of a new international trading order. It will increasingly set the tone and the rules of global commerce.

If all goes well, the UK will be a full member of this Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) within months, becoming the first European country to join the eclectic club of "middle powers". They have one shared objective: to make trade as easy as possible, subject to basic civilised standards.

Japan’s Fumio Kishida was in London this week pushing British accession along with the Anglo-Japanese defence pact. The view in Tokyo is that UK membership brings G7 heft and free-market credibility, taking the project closer to critical mass.

Today’s members are Japan, Vietnam, Malaysia, Singapore, Canada, Mexico, Peru, Chile, Australia, New Zealand, and Brunei. Britain lifts the fast-expanding group to 16pc of global GDP. 

Several others have either applied or signalled an intent to join, including Taiwan, Korea, Thailand, Uruguay, Colombia, Ecuador, and Costa Rica. The Philippines may soon follow.

China has also applied to join, and this is where geopolitics become unpredictable. There is an emerging competition between China and the US, each concerned that the other will penetrate the pact and gain a lockhold. Either would turn the CPTPP into the only trade bloc that really matters.

British accession is not a done deal. A snag has arisen and the December deadline was missed. “The UK was so generous on agricultural access to Australia and New Zealand in its bilateral deals, that others now want the same thing,” said Cambridge Professor Lorand Bartels, chairman of the UK’s Trade and Agriculture Commission. 

Rishi Sunak has abandoned the dash for post-Brexit trophy deals. He is taking his time, haggling harder and listening to UK farmers. “Sunak doesn’t feel such a need to keep signing FTAs (trade deals) to prove something about Brexit,” said Prof Bartels. Ultimately, the wrinkles are likely to be ironed out. 

Kaewkamol Pitakdumrongkit from Singapore’s Nanyang Technological University says the overriding ethos of the CPTPP is to find ways to make trade flows easier rather than to obstruct them. Self-certification and paperless trade drain the poison from the rules of origin requirements, which bedevil small British firms trying to export to the EU.   

The pact’s highly open character could hardly be further removed from the character of the EU, which uses trade as a forcing mechanism for European political integration, and which has ambitions as a regulatory superpower. 

Brussels rations access to the EU’s single market according to how much of the EU’s legal Acquis you are willing to swallow, and how far you accept the European Court as ultimate master.  

If you swallow almost everything – as Norway does through the European Economic Area – you enjoy a quiet life (plus fish) and the delightful status of an EU member without voting rights. Swallow a bit less like Switzerland, and you live with the threat that Brussels might suspend your bilateral deals at any time.

The EU’s reflexes are rooted in history. It began as a steel and coal community with the central purpose of binding Germany and France so that they could never go to war again. Trade was always the servant of politics.

Confusingly, China already leads another bloc in the region (RCEP) but that is a minimalist network. Beijing wants the real thing. 

China would struggle to meet required job standards of the CPTPP as long as the Uyghurs are in slave labour camps. Xi Jinping’s Leninist state-capitalism sits ill with a chapter stipulating that private and state companies must operate on a level-playing field. But Chinese accession could happen in the end, and the Americans know it.

The US was a key driver of the original Pacific pact (TTP) negotiated by the Obama administration, intended even then as a way to counter Chinese dominance in Asia. Donald Trump either did not understand it, or did not care. He pulled out and played straight into the hands of Beijing. 

Joe Biden knows better but he thinks it is politically toxic, responsible for driving blue collar Democrats into the arms of the Republicans, and costing Hillary Clinton the presidency in 2016. The US has been in an isolationist sulk ever since. 

“The US needs to learn from its TPP mistake and get its seat back at the table,” said Senators Tom Carper and John Cornyn, leaders of a bipartisan push to revisit the issue. A group of US trade negotiators have put forward a plan with the backing of the Asia Society to restore US geostrategic influence in the region, outlining how the pact could be tweaked to secure support on Capitol Hill.

The UK matters in this complex dance since it has similar labour, environmental, and IP protection standards to the US. If it joins, it gives the CPTPP a Western seal of approval and helps to make the case in Washington. American accession would of course give Britain a US trade deal by the back door. 

Britain’s Rejoiner caucus reacts to CPTPP with disdain but also irritation, betraying a creeping awareness of the threat. The refrain for now is that the UK’s accession bid is empty posturing: a risible attempt to put flesh on the bones of Global Britain. It can never be a swap for EU trade. The "gravity" trade model is invariably invoked: the Pacific is far away and volumes are too small to matter.

This is a straw man argument. The CPTPP is not intended to be a swap. It is a different animal entirely. “I think it is going to emerge as the alternative to the World Trade Organisation,” said Professor David Collins, a WTO expert at City University.

The WTO itself is in deep crisis. Washington has lost confidence in the Appellate Body because it keeps ruling against the US - an understandable grievance since the US runs a large structural trade deficit and is therefore almost by definition at the receiving end of (disguised) mercantilist practices by others. Whatever the rights and wrongs, the CPTPP is gradually filling the vacuum. This leaves Europe in a quandary.  

The EU looks like an omnipotent trade hegemon only if your angle of view is regional: looks like a declining slow-growth bloc to the rest of the world. Its share of global GDP is shrinking by one percentage point every three years and has already slipped below 15pc.

“The EU is going to be increasingly marginalised because it is too small, and its approach to regulations is too heavy-handed. I don’t think it is going to be exporting its rules or precautionary principle for much longer,” said Prof Collins.

Will the EU be the junior player one day, on the outside of the world’s dominant trading structure, with its nose pressed to the glass? Possibly. We are in the Pacific century and right now the CPTPP has unstoppable momentum.

Read this for MV=PT and a good look at what lies ahead

 
My New Year prediction? 2023 will be much improved, but beware the market landmines

AMBROSE EVANS-PRITCHARD3 January 2023 • 2:05pm

A market sell-off should clear away the froth from Covid money-printing CREDIT: ANDREW KELLY/REUTERS

In the light-hearted spirit of New Year predictions, this is your economic and geopolitical fate.

Enjoy the Great Disinflation of 2023 but be careful what you wish for. The real cost of borrowing will snap higher.

We will discover that the deflationary forces of the last quarter century have not completely finished with us. The global savings glut lives on, even if military rearmament (less than it seems in Europe) offers a degree of Keynesian counter-balance. China’s factory gate inflation is already negative again.

Overtightening by central banks still clinging to a broken Lakatosian model (DSGE) has already ensured that the bust in early 2023 will be deeper than necessary, and deeper than market opinion or futures contracts suggest.

Sit out the ordeal in high-grade commercial bonds and hard sovereigns if you want a quiet life. Avoid soft sub-sovereigns in the EU periphery unless you are a tactical trader.

Yields on 10-year US Treasuries and UK gilts will be below 2pc again by June. German Bunds will slice through 1pc a little later. We will not return to the mad world of negative yields on $18 trillion of global debt, but it may feel a little like that.

Global bourses will suffer one last leg down before the spring as corporate earnings buckle and more icebergs float our way from in the shadow banking nexus, now the prime source of lending thanks to the unintended consequences of regulators (do they never learn?). The financial gendarmes hobbled the banks, which pushed the QE leverage bubble off books and into opaque instruments, where it is equally dangerous.  

The sell-off will clear away the equity froth still remaining from Covid money printing. The S&P 500 index will drop a further 15pc to technical support near 3,300, taking the DAX and the FTSE-100 some of the way with it. 

It coils the spring for an asset boom in the second half of the year as the stars align for investor nirvana: a monetary thaw; light at the end of the tunnel in Ukraine; full economic re-opening in China after the Omicron massacre; and relief that globalisation lives on.

A chastened Xi Jinping will tone down his wolf warrior macro-Leninism because China cannot do without western investment and chip technology after all.

Emerging markets are the place to be after going nowhere for fifteen years. They are extremely cheap. The catalyst for return to fair value is in plain sight.

The Federal Reserve’s broad dollar index has rolled over after reaching an all-time high in October. The dollar is henceforth in a secular downward slide that will accelerate once the Fed does a screeching U-turn and starts to slash rates. This will alleviate the painful squeeze in the $14 trillion market for off-shore dollar debt, the prime lubricant of global commerce and investment.

But first the central banks must complete their next blunder. Having unleashed an inflation storm because they failed to heed the warning signals from an explosion of the broad M3/M4 money supply – which typically delivers its punch with a lag of one to two years – they are now making (or have made) the opposite mistake. They are tightening too hard into an enveloping recession after money growth has collapsed.  

The central banks have underestimated the self-reinforcing potency of triple-decker rate rises combined with quantitative tightening, both because they have never done it before, and because their theoretical model for how QE/QT works ignores the classical quantity theory of money.

The result is already evident in America. M3 contracted at an annual rate of 4.9pc over the three months to November in nominal terms, according to the Institute of International Monetary Research. It is almost down to zero year-on-year, something that never came close to happening in the 1970s.

The Fed is not looking at this flashing red signal. It has tied its credibility – and the fortunes of the US economy – to two sets of lagging indicators: jobs and core inflation. The latter is famously distorted by the way property is measured. “Shelter” prices are deemed to be surging at a time when average US house prices are falling faster than they did after the subprime bubble. If that is inflationary, I’ll eat my hat.

The Fed’s Jay Powell is not an economist. This is good. He will recognise that an error is being made – late, but not disastrously late – rather than taking the ship down with an academic idée fixe. As Michael Hartnett from Bank of America says, when the Fed panics, Wall Street parties.

The European Central Bank will tarry longer because it is not about monetary policy at the Eurotower: it is a power struggle between the creditor North and the debtor South over the eurozone’s economic machinery. The Bundesbank is back in charge and this is going to be painful for an economic bloc already facing factory closures, with the risk of permanent deindustrialisation the longer that Putin’s war goes on.

The ECB will keep tightening into the energy storm as it did in 2008 and 2011 until the ground crumbles beneath their feet. German producer price inflation fell 4.2pc in October (month on month) and a further 3.9pc in November. Real M1 money in the eurozone is contracting hard. But Bundesbank wants to scorch the earth and slow salt in the ground for Catharginian certainty. 

The Japanese will run down their vast holdings of Spanish and French debt because the Bank of Japan’s “pivot” at home means that returns on domestic bonds are now higher (adjusted for currency hedge costs). The reverse flow is already nudging up eurozone borrowing costs. Wait for the reverse tsunami.

The Meloni honeymoon for Italy cannot last. Once the risk spread on Italian 10-year debt breaches 250 basis points, slow contagion will spread to Club Med, the Baltics, and overstretched ERM peggers such as Romania. Markets will then focus their attention on the ECB’s putative anti-spread tool and conclude that it can be used only in extremis.

The Bundesbank will find reasons to ensure that it is not deployed, demanding instead that Giorgia Meloni ratify the EU bail-out fund (ESM), which she refuses to do because the instrument entails enforced austerity if ever used – and a Cypriot-style seizure of bank deposits? – under colonial commissars from Brussels. This will be the political fight of 2023.

France has put off all its problems by subsidising everything – from diesel to condoms – and suppressing every price signal that it does not like. But this is the year that Emmanual Macron has to admit that “whatever it takes” is no longer affordable. His valiant attempt to raise the pension age above 62, the sine qua non of French fiscal viability, will set off a late winter of discontent - or a Gilets Jaunes II in gallic vernacular.

Thank goodness for the Bank of England and monetary sovereignty. Threadneedle Street does heed the money supply – up to a point – and will stop tightening sooner than peers. This will mitigate some of the damage. Sterling will therefore weaken. The usual suspects will weaponise this as an indictment of Brexit, and the usual fools will believe them.

The UK’s recession will not be the worst in the G7 this year as the financial press keeps telling us. The by-now familiar Brit-bashing from the Parisian OECD – it’s in the water at Rue André Pascal – will again prove to be overdone, partly because of open-door immigration.

The final tally by late 2023 is that the UK economy will have grown by roughly the same as the eurozone Big Four since the onset of the pandemic, as it has since the Referendum. Better relative performance this year will not make the slightest difference to the Brexit debate. Kitchen-sinking every ill on Brexit will continue, and go largely unchallenged – Julian Jessop notwithstanding.

Vladmir Putin may spoil the recovery in the second half by adding an oil crisis to the gas crisis (in remission, but not cured), hoping to foment a political uprising against Europe’s wobbling governments before the attrition of the war finishes him.

He lacks the fleet of shadow tankers required to outflank the G7 price cap on his oil exports. It is tempting for him to deprive the world of three million barrels a day and drive Brent to $200, calculating that he can get back on price more than what he loses on volume.

He will not do so long as the Chinese are staying holed up in their homes trying to avoid Xi Jinping’s dynamic maximum Covid policy, or lying on hospital floors having caught the virus. The opportunity arises only as China bursts back to full life and adds two million barrels a day to world demand.

He certainly wants to think that is his plan. My presumption is that he won’t dare. It hurts most of the world. He cannot afford to irritate China and India any further, or lose further sympathy in the global South.

My other presumption – low conviction, as hedge funds say – is that the outlines of a settlement in Ukraine will emerge after the Rasputita spring thaw, squalid though it may be. It will end in partition along the lines of the 38th parallel in Korea, or rather the 17th parallel in Vietnam, which proved only to be a holding line before the next war. It won’t be durable peace, but it will be rocket fuel for asset markets.

Annus mirabilis? Not quite, but no catastrophe either. Happy New Year.