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Icelanders can't afford Big Macs anymore

McDonald's is to close its business in Iceland because the country's financial crisis has made it too expensive to operate its franchise. The fast food giant said its three outlets in the country would shut - and that it had no plans to return.

Besides the economy, McDonald's blamed the "unique operational complexity" of doing business in an isolated nation with a population of just 300,000. Iceland's first McDonald's restaurant opened in 1993. The franchises are run by a firm called Lyst, with owner Jon Gardar Ogmundsson saying the decision was "not taken lightly". He said that the restaurants imported the goods from Germany, but that costs had almost doubled, with the falling krona making imports prohibitively expensive.

Mr Ogmundsson said the restaurants had "never been this busy before... but at the same time profits have never been lower". "It just makes no sense. For a kilo of onion, imported from Germany, I'm paying the equivalent of a bottle of good whisky," he added. He now plans to run the restaurants under another name so that he is able to buy cheaper Icelandic products.

Iceland's banks collapsed at the height of the global credit crisis - wrecking the country's economy and forcing it to rely on an $10bn (£6.1bn) international aid package.

David McWilliams discusses the pullout here.

Recession ending for some

Brazil has come out of recession after its economy grew in the April-to-June quarter. The largest economy in Latin America expanded by 1.9% in the second quarter from the previous three months.

Data also showed Sweden emerged from recession on Friday, a sign that economies are starting to recover from the global economic downturn. Other countries that have come out recession include the eurozone's largest economies, Germany and France. Japan, the world's second-largest economy, also grew by 0.6% in the second quarter, less than the 0.9% growth the government initially estimated.

Stupid bankers!

Q: What's the question most bankers are asking these days?
A: "Do you want fries with that?"

Q: What's the difference between a bank manager and a pigeon?
A: A pigeon can still put a deposit on a Ferrari.

Q: How do you get a banker out of a tree?
A: Cut the rope.

Q: What’s the definition of optimism?
A: A banker who irons five shirts on a Sunday evening.

A banker said he was going to concentrate on the big issues from now on. He sold me one in the street yesterday.

Q: What is the difference between a banker and a large pizza?
A; The pizza can still feed a family of four.

Q: What's the difference between a banker and a couch?
A: The couch can support a family of four.

Q: What do you call a banker without a girlfriend?
A: Homeless

An Bord Snip Nua report is out

As a result of Ireland's financial crisis there were calls before Christmas for the formation of a new body to identify areas for cut-backs in public expenditure. A group of experts was called together at the behest of the Minister for Finance Brian Lenihan. The group's formal title is "Special Group on Public Service Numbers and Expenditure Programmes". It is a four person group, headed by University College Dublin economist Colm McCarthy (pictured above). Colloquially, it is referred to as "An Bord Snip Nua".

Today, the Department of Finance published An Bord Snip Nua's recommendations for around €5.3bn worth of public spending cuts. The 80-page report includes hundreds of proposals, including the abolition of the Department of Community, Rural and Gaeltacht Affairs.

It recommends a reduction of up to 5% in social-welfare rates, an increase in the retirement age, a reduction in the number of Irish embassies and increases in hospital charges. Other proposals include a cut of 500 in Defence Forces personnel, an amalgamation of small primary schools, means tests for home-care packages and reduced spending on road maintenance. An Bord Snip is also recommending the abolition of Sports Campus Ireland and the Irish Film Board, a 33% reduction in the number of VECs and the discontinuation of the rural transport scheme.

Euro cities cheaper to live in

A new survey released today has shown that Dublin has dropped out of the top 20 most expensive cities in the world, due to lower rents and the euro's fall against the US dollar. The cost of living survey for 2009, carried out by consultants Mercer, puts Dublin as the 25th most expensive of the 143 cities covered. This compares with 16th last year. Tokyo has knocked Moscow off the top spot.

In Mercer’s survey, New York is used as the base city for the index and scores 100 points, all cities are compared against New York and currency movements are measured against the US dollar.

Standing room only?

Ryanair Holdings may offer free flights to passengers willing to stand up during flights of less than 90 minutes, Sky News reported, citing chief executive Michael O'Leary.

Ryanair is asking Boeing about converting planes or delivering a new fleet with a section of “vertical seating”' that would allow passengers to stand or to sit on bar stools similar to those in trains' dining cars, Sky reported Mr O'Leary as saying in an interview.

July Quiz!

Today is the day we start our monthly competition. Still not sure of the prize but rest assured, it will be decent. All you have to do is answer the following five questions correctly. Send your answers along with your name (and address if I don't teach you) to bleconomics@gmail.com. Closing date is Friday, 31st July. The answers are all on the site somewhere! Good luck!

1. Which famous British economist, currently back in fashion, believed the way to stimulate an economy in a recession (or depression) was for the government to reduce interest rates and also to invest in infrastructure?

2. NAMA is to be run under the control of which body?

3. Which economist, known affectionately as Dr. Doom, coined the term 'stagdeflation' in 2008?

4. Where and when was the IMF founded?

5. Which company announced in February that it is entering the residential electricity market, with a guarantee to customers that its prices will be at least 10% lower than the ESB?

Is privatisation dead?

There is an excellent article by Richard Wachman and Tim Webb in this morning's Guardian, which asks whether the idea of privatisation is now dead. I have abridged it as it's quite long but you can read the full piece from the link at the bottom.

Have we reached the end of the line for privatisation?
First it was the banks, now the government is taking over a key rail service. But it may not be enough to reverse the process begun by Thatcher.

Nationalisation used to be a dirty word, but now it's back in vogue. The government's move last week to nationalise the east coast rail franchise comes in the wake of the state's takeover of parts of the UK banking system, all of which has raised fundamental questions about the success of market-driven capitalism. That may seem strange given that over the past quarter of a century, it has been a one-way street with the transfer of assets from the public to private sector, a process that was the centrepiece of Margaret Thatcher's governments in the 1980s. For years, no one questioned the prevailing orthodoxy that the running of companies was best left to the market and that managers would perform better if they were answerable to shareholders rather than civil servants.

...

But since the collapse of the banking system and the state rescue of capitalism itself by government and central banks, the wind is blowing from a different direction. That doesn't mean that British industry is about to undergo wholesale nationalisation, but many believe that the pendulum has swung too far the other way. Blind faith in global market forces over three decades is viewed as just as short-sighted and dangerous (more so, it seems) as over-dependence on the discredited socialist ideologies that played out in the 1970s. No one should be under any illusion that the world has changed a great deal since Margaret Thatcher left Downing Street 20 years ago. Nationalisation, raising taxes and Keynesian economics are back in fashion. And many of the virtues that she claimed for the market place have been shattered by the greed and stupidity of bankers, and the short-sightedness of politicians on both sides of the divide.

Source: The Guardian 05 July 2009