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Triple Crunch Log                                                                                                            

in Abu Dhabi. The government has unveiled a range of new initiatives, such as support for the Dalton Nuclear Institute in Manchester and the Nuclear Advanced Manufacturing Research Centre in Rotherham.”9

Europe's first electricity grid dedicated to renewable power takes a step closer to reality this month as nine countries formally draw up plans to link their renewables projects around the North Sea. The thousands of kilometres of highly efficient undersea cables, designed to counter the influence of weather on supply, could cost up to €30bn (£26.5bn). An EC working group will produce a plan by the end of 2010.10

Will Hutton sees an upbeat 2010 for the UK economy, thanks in part to government intervention. “Over the last nine months, the stock market has recorded the third biggest rise since 1693, according to the Bank of England, and if it carries on rising just a little more in January it will be the biggest sustained rise for 317 years. A stock market cannot jump on this scale and with this ferocity without matters quickly improving on the ground.” Unemployment has risen less than expected and fell sharply in December. “The two great students of the impact of credit crunches, Carmen Reinhart and Kenneth Rogoff, calculate in their remarkable book on 800 years of banking crises, This Time Is Different, that the average rise of unemployment in countries experiencing major systemic banking crises since 1930 is 7% of the workforce. In Britain, this would have meant an unemployment rise of around 1.75 million. It is not going to happen, catching everyone out, including me. Unemployment will certainly carry on rising in 2010, but the eventual rise will be around 1.25m; serious, but not as cataclysmic as it could have been.” “We have witnessed a powerful example of how public policy can head off putative slumps.”11

City economists see fiscal deficit as main problem in a sluggish UK economy. 37 of the 79 economists polled said the UK was threatened by a fiscal crisis that could derail any revival. Howard Davies: “The major risk is the loss of confidence in the government’s ability to get the public finances back under control.” In that case, investors would eschew the high priced government bonds, and interest rates would rise. Sir John Gieve, former deputy governor of the central bank: inadequate plans for addressing the fiscal deficit could result in sharp rate rises and a fall in the pound.12

Russia halts oil shipments to Belarus after a dispute on pricing similar to previous on in January 2007. The Russians object to Belarus importing oil, refining it, and selling it on the Europe at lower price than Russian oil. The knock-on worries in Europe about an oil price war between Russia and its former satellites are less than for gas, because oil is more fingible than gas.13

Fed chief says tougher regulation is still needed. “Borrowers chose, and were extended, mortgages that they could not be expected to service in the longer term,” Ben Bernanke says. “This description suggests that regulatory and supervisory policies, rather than monetary policies, would have been more effective means of addressing the run-up in house prices.”14

Beware the next financial crisis, around the corner, says Clive Crook in the FT. The rules have to be tightened, and they aren’t being. Something must be done about moral hazard (though not via a new Forget Glass-Steagal Act). “In good times, when lending is expanding quickly and financial institutions’ concerns about capital and liquidity are at their least, the requirements should tighten. Under current rules, they do the opposite.” Banks will oppose this of course, he notes.15

4.1.10. Oil price breaks $80 and FT’s Ed Crooks predicts $70-80 at the end of 2010. The current price rsie is mainly down to a US cold spell, and Carola Hoyos predicts in the FT that the Iraqi election in March will be the biggest determinant of the price ahead this year.16 Some politicians are already saying they will reverse contracts agreed with the IOCs. Ed Crooks’s forecast is based on Opec supply availability meeting Chinese demand, but is offered with appropriate caveats.17

Cairn Energy prepares to drill its first oil well off Greenland, with shares riding high on hopes of a find. Only 6 wells have been drilled in Greenland, all of them unsuccessful. But the USGS estimates many tens of billions of barrels of available resources. FT: “Greenland is a true frontier, which is what makes it exciting; ‘romantic’, as one analyst put it. It is also nerve racking when you are spending an estimated $300m for four wells – Cairn’s expected budget – and plan to drill for two or three years.”18

5.1.10. National Grid warns industrial customers their gas could be cut off as a cold spell intersects with the return to work. This “gas balancing alert,” and a surge in gas prices, show once more how low UK gas storage capacity is.19

Carbon Trust says UK offshore wind faces huge challenges, but they can be overcome. The government’s announcement of the result of offshore wind licensing in a few days will see the UK emerge as the biggest offshore wind market. But 5 MW turbines will have to be installed in 30 metres of water at the rate of 2 a day to hit government targets. And the market-enablement regime beyond 2014 is in doubt, which means the economics and investability is too.20 But the CT thinks it can be done, and would create 70,000 jobs by 2020, 50,000 of them in the manufacturing that it hopes will come to the UK. The result would be comparable to the opening up of the North Sea for oil in the 1970s and 80s.21

Why don’t governments talk about peak oil? Could it be because they know it is a huge problem? So a researcher asks in a review on The Oil Drum. Shane Mulligan, a postdoctoral fellow at the University of Waterloo, examines every explanation he can find referred to in the literature. They just don’t “get it”, or they are overly committed to neoclassiocal economics, or they are hindered from realisation by cognitive biases, or they have been misled by the IEA or EIA, or we can blame it on the media, or they get it but they can’t talk about it, or they are actively avoiding the issue (as in the Wicks Review), or they’re on the case. He tends to the view that they do know about peak oil, and not acknowledging it is part of their policy response.22

6.1.10. FTSE rides on 16 month high, with RBS one of the star stock performers. The FTSE 100 benchmark closes at 5,530.

BIS invites top bankers to Basle to discuss resurgance of “excessive” risk behaviour in banks. The Bank of International Settlements – the central banks’ bank – says “financial firms are returning to the aggressive behaviour that prevailed during the pre-crisis period”. Among those invited were the CEOs of Goldman Sachs and JP Morgan Chase, and they do not plan to attend.23

Iceland’s President says he will take government’s EU reparation pledge to a referendum. By doing this he effectively blocks legislation to repay Britain and the Netherlands more than €3.8bn ($5.5bn, £3.4bn) lost to shareholders in Iceland’s banking collapse. He risks making Iceland a financial pariah nation.24

Business leaders hail Scottish ministers green light for power line through the Highlands as vital for

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