2012 United Kingdom budget

Transcription

(Music) (Music) (Music) We are cursed, ladies and gentlemen, to live in interesting times with an economy reeling from double dip recession and above target inflation. "The Four Horsemen of the Apocalypse" have visited the UK in the form of surging commodity prices, a deep banking crisis, a Eurozone crisis and fiscal austerity. Economic management has rarely been as difficult. There are three key questions to ask. Firstly, do recent short-term cost-push pressures still represent a medium-term threat? Secondly, what is the outlook for aggregate demand and the output after the medium term? And thirdly, will further monetary stimulus help the economy to achieve escape velocity? In both November and February our analysis led us to recommend an unchanged base rate and an expansion of QE to £425 billion, and we are recommending the same policy today. This chart shows how for much of the period since 2007 inflation has been well above target and some claim that the Bank has gone soft on inflation. Food, petrol and energy have often driven inflation above target, alongside sterling depreciation and the VAT increases of 2010 and 2011. These past short-term shocks have now fed through. There is now fresh short-term pressure from a variety of administered and regulated prices, such as tuition fees, rail fares and the green fuel levy. The Bank's own central projection in February shows CPI inflation averaging 2.8%, with a 1% contribution from those sources. And inflation doesn't return to the 2% target until early 2016. So Bank credibility is once again under scrutiny. The MPC's mandate explicitly recognises that inflation can be allowed to depart from the 2% target to stabilise growth in the face of shocks and disturbances. But repeated looking through of short-term cost-push shock since 2007 can begin to look like weakness rather than flexible interpretation of the remit. However, there are reasons to be optimistic about the Bank's credibility. Despite a small recent increase in the inflationary expectations of households and financial markets, this chart shows that the high and volatile inflation since 2007 hasn't de-anchored medium and long-term household expectations. And we believe that the rise in financial markets is caused by talk of a changed mandate which we see as an unhelpful distraction. This chart shows that nominal pay increases remain very low in the context of a weak labour market with real wage growth often negative, especially in 2011. Employees have put jobs ahead of pay increases, and we expect this flexible response to continue into the future. In summary, we see credibility still intact, and although the impact of higher tuition fees will generate above 0.3% inflation for the next three years, the impact of the other administered prices will dissipate more quickly, and we expect wage inflation to remain very subdued. Daniel will explain shortly that, although the recent depreciation of the pound is an anxiety, we expect no significant medium-term cost-push pressures from world commodity prices. So an analysis of our first question suggests that past and current cost-push pressures do not represent a significant medium-term threat. There has been a widespread hope of a rebalancing boost to the UK economy through exports, and I'm going to explore this scenario together with the outlook for world commodity prices. This slide shows the profound uncertainty about policy making within the US and Europe, with both indices being at near record highs. And the evidence suggests that high uncertainty is strongly correlated with low investment and weak economic growth. This is a warning backdrop for any surge in UK exports. Here we see the outlook for 2013 growth in UK trading partners. The radius length of each segment shows the latest IMF forecasts, which assume the Eurozone will tackle its problems and the USA will manage the fiscal cliff. So these forecasts are optimistic. The sector angles show the share of UK exports. This is unambiguously bad news for UK exporters who last year saw around 45% of exports go to the Eurozone, which has now contracted for its third successive quarter, with even Germany contracting 0.6% in Quarter 4. But only a smaller share of exports have reached the BRICs and sub-Saharan Africa where growth is much stronger. Recent news from the USA is mixed. The fiscal cliff is still largely unresolved and sequestration is now underway from the 1st March amid political divisions. However, unemployment has dropped to 7.7%, the housing market continues to pick up and Ben Bernanke has promised to maintain QE3 and the Fed's base rate until unemployment falls below 6.5%. Weak fourth quarter growth of 0.1% was due to exceptional reasons, and overall there is some good news here. The fiscal implications of a dynamic of fear and austerity are captured in our updated version of PIMCO's "Ring of Fire" chart, which highlights countries combining huge budget deficits with high national debts. This shows the need to tap financial markets to fund deficits on top of the lower level of debt. Mario Draghi said he would do whatever it takes to save the Eurozone from collapse, and the ECB has eased the fiscal crisis and fear of renewed credit crunch through the LTRO and OMT programmes, and interest rates have fallen sharply in gilt, bond and banking markets. The OMT programme has not been used so far, and banks have begun to repay LTRO finance, but there remains the final certainty, with economic outcomes dependent on political contingencies, especially the politics of austerity, given the recent Italian election results, the German elections coming in autumn, and also recent unfortunate news from Cyprus. Sterling is still around 25% below its 2007 peak, but the left hand chart shows there's been no significant improvement in the current account position, and the first three quarters of 2012 saw a sharp deterioration. Alarmingly, the right hand chart shows that the UK has been losing market share in its export market. Why has net trade not improved? The message is gloomy, rooted in the decline of financial and business services, supply constraints and the price insensitivity of export demand. Forecasting future exchange rates is a deeply difficult process. The most likely medium-term scenario is a further depreciation of the pound, reflecting the chronic trade deficit and the continuing normalisation of the Eurozone. But the further depreciation may not all be that substantial, because most of the likely trends, including the loss of Britain's gold-plated AAA status have already been anticipated by the market and are in the price. This absence of a further cost-push spike linked to depreciation would be very good news. The medium-term outlook for commodity prices is weak, even though we may be experiencing nothing but a pause in what JP Morgan describes as the world's third commodity super cycle. This chart shows the volatility of the index of 33 leading commodities. The index may have declined by 70% in real terms over the century to 2002, but the picture has now changed, and recent experience suggests that whenever global demand grows rapidly, it puts pressure upon a very inelastic global supply. However, the medium-term outlook for global demand is only for modest growth. This IMF chart follows the impact on commodity prices of a weak global growth scenario, and this shows falls of at least 20% in both oil and other resources. The second chart reinforces the picture, with commodities being the weakest performing financial asset globally over the past year. It is, therefore, difficult to see any rapid inflation in the medium term other than in a "black swan" scenario, which we are excluding from our judgement. The overall picture is that the UK economy is unlikely to enjoy a significant medium-term boost of aggregate demand from net trade, with some downside risks still posed by the Eurozone crisis. The weaker pound may put pressure on costs, but the good news is that there's no major risk from future commodity cost-push inflation. >>Annabel Asquith: Mervyn King recently predicted that the economy would experience a zigzag recovery; and he was right. Overall growth in 2012 has been revised upwards to 0.2% with large quarterly fluctuations due to bank holidays, Olympic ticket sales and maintenance work in the North Sea's largest oil field in Quarter 4. A triple dip recession in 2013 remains a possibility and the economy is truly bumping along the bottom. GDP is still 3.4% below its pre-recession peak, due to very weak financial services, construction and oil production sectors. Although other sectors of the economy are roughly back to their previous peak, any further growth is elusive. Central to any inflationary outlook is the size of the output gap, and there have been massive debates about how to interpret recent productivity and employment data. Employment has risen above its pre-recession level, with the flipside being that labour productivity has sharply fallen. This is different to previous recessions. Labour hoarding could still be significant as a rational policy for employers, especially in the context of extensive bank forbearance and declining real wages. Low productivity is then a function of weak demand and suggests a relatively large output gap. A more pessimistic outlook is that low productivity reflects a supply constraint, linked to the collapse of investment and the impact of the banking crisis on the reallocation of finance towards smaller businesses, as well as the sharp decline of financial and oil sectors. The labour hoarding view has weakened over time, especially as there has been a significant flow out of old jobs into newly created ones. And the HM Treasury's latest monthly survey of 11 City and independent forecasters suggests that there is a predicted output gap of 3.9%. But our concern is that there is a still a significant downside risk to inflation in the absence of any strong AD growth. What is the outlook for AD? Despite employment holding up, household real disposable income has been squeezed severely since late 2007 by cost-push pressures. And, together with the rise in savings ratio, consumption remains 4% below its pre-recession peak. The good news is that the cost-push pressures have significantly eased, and real household income is predicted to grow by 1.7% in 2013 with growth continuing in 2014. But higher precautionary saving, largely due to a desire to reduce debt levels in the face of uncertainty has not gone away. Having fallen to zero in 2008, the household savings ratio has hovered around 7% for five years, although household debt to income ratio has fallen by about a quarter from its peak, research by M&G Consulting still shows the widespread concern, especially amongst relatively low income families who have the largest marginal propensity to consume. It is likely that because of exceptionally low interest rates and some bank forbearance, a sharper deleveraging by families has been prevented. Consumer confidence still looks exceptionally weak at -26 points in February, and amidst all the gloom, some analysts have speculated that permanent income expectations may have been reduced which will weaken the future growth of consumption. The recovery in house prices has stalled over the last few years, with an average rise of 0.2% in February. The anxiety is that the house price to earnings ratio is still well above the long-run average, and there must be some downside risk if the Funding for Lending Scheme fails to reach first time buyers. PMI surveys reinforce the picture of an economy bumping along the bottom with few signs of growth and remaining weakness in the construction sector. These surveys don't suggest any medium-term surge in investment. This Deloitte Quarter 4 survey describes the priorities of the UK's largest companies over the next year. Although profitability and access to finance is relatively strong, focus remains strongly on cost reduction and cash flow with animal spirits weak. On Monday we met with John Longworth, Director General of the BCC, and much of his focus was on banking and SMEs which Stuart will discuss later. He also focused on fiscal policy, where the reduction of the structural budget deficit is acting as a further drag on growth. A persuasive case is being made by the BCC and others for higher public sector investment, but Wednesday's budget saw the government broadly sticking to plan A. In conclusion, the most likely medium-term scenario is the modest growth of consumption and investment, with continued fiscal consolidation. And this means little or no upside inflationary risks from the domestic demand side of the economy. The output gap may be small, but it is large enough to present a downside risk, and policy needs to explore every avenue to get AD growth. >>Stuart Duffy: I am going to explore how monetary policy can help the economy achieve escape velocity. The recent recession was fuelled by a severe banking crisis and this chart, based on 88 previous banking crises, suggest how output remains well below trend for many years afterwards. Moreover, the current UK recession seems to be worse than the average banking crisis, with real GDP depressed more than 10% below trend. This McKinsey chart shows how high the UK's debt levels were as a percentage of GDP in 2011, especially in the banking sector. Policy challenges to make this debt reduction as smooth as possible and the key lesson to learn from Japan is that monetary policy must be aggressively supportive and broaden its scope during the transition. Policy has to encourage exceptional levels of bank forbearance shown in these charts and the collapse of credit has been avoided. Much has happened to make the banks stronger, with extensive recapitalisation seeing them well on the way with meeting new Basel III regulations in terms of Tier 1 capital. But the news in March of a £5 billion loss last year to RBS is a reminder of the challenge ahead, and we do not support a further cut in a 0.5% base rate as the likely impact will be weaker bank profitability, as incomes held at the Bank of England falls. We are optimistic about the impact of the Funding for Lending Scheme, but our survey of three senior financial officers at HBOS and the Leeds and Nottingham Building Societies emphasises the need for caution. All three individuals described how the LIBOR and savings rate have fallen by 0.5 to 0.75% in recent months, but they believe that the benefits will largely be passed on to loan to value mortgages rather than first time buyers or SMEs. So a scheme may help, but these lags may be long and the scheme may need to be put on steroids as shown by total lending falling by £2.6bn in Quarter 4 of 2012, with only Barclays increasing lending. FLS may reduce the price of credit to SMEs, but John Longworth described to us in detail the risk-averse nature of bank lending today, with only 40% of SMEs unable to access working capital to support growth, especially the "gazelles". He claimed that banks are operating a risk model that accepts a failure rate of lending of just 0.5%. He persuaded us that a business bank for SMEs may be required alongside existing banks, accepting much higher risk, but this has fiscal implications and needs Treasury approval. But what about QE? Talk of QE has become extreme. Some see it as likened to hyperinflation for President of the Bundesbank likening it to the work of the devil. Obviously it no longer has any ability to raise aggregate demand. Obviously these views can't both be true, but we believe that neither of them are true. QE has raised asset prices in the gilt, corporate bond and equity markets through portfolio balancing. The FTSE is now roughly back to its pre-recession peak, and more corporate bonds were issues in 2012 than in any of the years since 2003. And as a result there has been an estimated £600 billion wealth effect in households, creating banking corporate liquidity, and despite distributional impacts on pensioners, it must have supported both demand and output. Yet there has been much talk of QE suffering from diminishing returns. The argument seems to be with yields and gilts already exceptionally low, QE can't drown further, so the portfolio rebalancing effect is largely exhausted. But we believe that this argument is mistaken. It is crucial that gilt prices are kept strong, and as shown on this chart at spike £375 billion worth of QE, the private sector is still being asked to absorb more gilts than before the programme began, and the large UK budget deficits, likely to persist into the future, will be adding substantially to the supply of gilts. In addition, Quarter 4 2012 saw the first net private inflation for the Eurozone periphery since 2009, and this must have impacted upon the safe haven status that the UK has recently enjoyed. Gilt yields in the UK have risen by 0.5% in recent months, and there must be a serious risk that gilt prices will weaken further without additional QE. Critics of QE also claim that it is generating a sugar rush, so we did a second survey of three top economists such as George Buckley for Deutsche Bank, to explore this point. This chart suggests that equity prices in the UK are not suffering from irrational exuberance and are broadly in line with their historical relationship with nominal GDP. We agree with the February Inflation Report's claim that as confidence gradually strengthens, so too will the potential for portfolio balancing to boost the equity and bond markets. The decision in November 2012 to transfer to the Treasury coupon payments of gilts held within the asset purchase facility was broadly equivalent to additional QE. For impact of it during 2013/14 will be approximately £35 billion, but we'd like to go above and beyond this with an extra £50 billion. In summary, we continue to believe that the medium-term risk of an economy with much deleveraging ahead of us is still downside. Our view is that parsimony must continue on a broad front with additional QE playing an important part of it, this alongside further recapitalisation, a business bank and a more ambitious Funding for Lending scheme. >>Calum Grant: So, in conclusion, we return to our three principal questions. Firstly, we see little medium-term risk to inflationary expectations from the new short-term cost-push pressures, especially in the context of a labour market with high unemployment and very modest nominal wage growth. Secondly, the weak productivity growth and possibility of a serious supply constraint is an upside risk, but we are more worried about the outlook for aggregate demand as we enter a sober decade of savings, orderly budgets and equitable rebalancing. Net trade will play little role in recovery, with BRIC growth and an improved American picture offset by the likelihood of sclerosis in Europe. The conditions for a pick-up in investment are partially in place, but the huge uncertainty about demand, bank deleveraging and poor SME finance mean that growth is likely to be modest. We see consumption rising somewhat as real household income grows though held back by anxieties and a debt overhang. And the government's fiscal retrenchment will continue to depress aggregate demand. World commodity prices may rise in the long term, but most estimates see them weaker into the medium term, and we don't expect significant further depreciation of the pound. Overall our view is much as it was in February, and if anything, we are a little more anxious because of the Italian election result and the early evidence about the FLS. We continue to see little upside risk to medium-term inflation and some downside risk in the absence of sustained policy activism. The Bank's latest inflation fan chart seems to underestimate the likelihood of undershooting the 2% target, and accordingly we're recommending a further expansion of the QE programme to £425 billion, alongside a continuation of the 0.5% base rate. We see this monetary policy stance as being just one part of a comprehensive package of banking, fiscal and supply side initiatives, with more QE as an important part of that package. Thank you. (Applause) >>Hugh Pym: Thank you. You explain clearly why you think more QE is needed, more stimulus, but did you consider other unconventional measures as well, given that you're pretty downbeat about the outlook for demand and output? We also spoke about the business bank and the idea that you'd do that to increase access for cash particularly for SMEs and medium-sized businesses. And that would be the hope of increasing our export markets, so they can - well not just export markets because they're better set up in terms of cash. Because at the moment, when we spoke to John Longworth, he told us that a lot of SMEs and medium-sized businesses were having to actually reject offers for exports from foreign businesses and that's because they don't have the access to finance to actually get the productivity going so they can do that.So one of our aims is that that would increase cash flow so that they could access to cash so that they could do that. So that would increase that in terms of exports. So that's one way our growth would get you going through that. Further complementing Calum's point, as we set up this business bank, hopefully we want to do further recapitalisation which is basically where banks can either gain more of retained profits or they can issue shares on the stock market, and that would allow them to be in a more healthy position in the medium to long term. But the problem with their credit situation at the moment is that SMEs are unable to access finance, which we hope to alleviate that problem through the business bank. >>Hugh Pym: What about extending QE to other assets? One of the big things with that is that would basically mean, if you were to choose the areas, like the sectors of the economy you would put QE into, you're basically favouritising. And I think that's one the reasons Mervyn King up to now has chosen not to do that. And the other issue is, if you choose which sectors yourselves to put it into, then basically what you're doing is you're putting the money into the riskier assets yourself, rather than putting the money into the private sector - the safe asset, the safe assets there, and allowing the private sector themselves to invest into the riskier assets. Further on that point, if you try and go into somewhere like the corporate bond market; it's much smaller compared to the gilt market. And the problem is what the Bank of England may find is that they become predominant market participant in that. And they don't want to risk that because as soon as they rewind the programme, it will have incredible detrimental effects upon that market. And also, like you were saying about removing it, with gilts or with buying gilts, it's very easy to remove after the economy starts to pick up. You sell it back into the private sector. That's why like, with your first question, when you were talking about unconventional measures, we need to sort of consider that sort of "helicopter money drop" that you can't really remove that. That's a serious sort of disadvantage of doing that. But with gilts it is very easy to sell it back to the private sector after the economy starts to pick up. >>Hugh Pym: I'm just going to quickly ask who were the other two economists you consulted apart from George Buckley. James Bevan and Martin Jankelowitz, who's a chief South African analyst. >>Hugh Pym: Any opponents of QE? Luckily for us not. >>Spencer Dale: You talked about the distributional consequences of QE for pensioners. We keep getting a hard time by the pension lobby groups about this. Can you explain to me what you think are the distributional consequences of QE for pensioners? One of the distributional impacts upon pensioners is, if the - well I like to think of it on an individual basis and a company basis. If someone goes through a defined benefit scheme, the individual is relatively safe; it's the company which needs to pay the price of the impacts of QE. Because, for example, if a defined benefit scheme is in deficit, then QE will raise the value of assets. But because there's a large proportion of debt in terms of liabilities, then that will increase the deficit further, so the company needs to put more money into it to try and plug the gap. And the problem with that is that they're diverting funds away from, let's say, investment or trying to increase business activity, and they're just trying to focus on that problem. But on an individual basis, there doesn't seem to be a problem as they're relatively safe. And also, if we look at the final contribution pension schemes, these are linked to the stock market and recently, yes, QE has driven annuities lower. But if you look at the grand scheme of things, the pensioners have done quite well from it and there are other people, especially unemployed people now, who are probably more in need of support in the short term, which is why QE overall we see as a benefit. No policy is going to have only maybe benefit and no disadvantage, but we see that using more QE helps the people who need it most in the short term and in the medium term. Yeah, I mean QE has boosted both demand and output, so it has brought benefits to the real economy that trump the concerns of pensioners, unfortunately. Yeah. So hopefully with trickle-down economics we can, in the medium to long term, then they should be all right. And one needs to remember that many of these pensioners have enjoyed decades of brilliant growth. (Laughter) The harsh reality is... >>Spencer Dale: Okay, thank you. A question on the demand and output bit of the presentation. You talk about labour hoarding and you think that lots of companies are doing labour hoarding. But then when we go and ask companies and say - how much spare capacity have you got? - they say not much. So if they're hoarding lots of labour and they're not doing very much, why haven't they got much spare capacity? So basically some companies operate in that you need a certain amount of people to do a certain task, and it could be that those people could increase their own output, but those amount of people are necessary for the task to be done. So they are sort of underemployed in that they could be producing more output, but they can't actually at the moment. Sorry, do you mind repeating the question again? So they're labour hoarding, so they're holding on to these 'cos they don't want to get rid of them. But then surely - those workers, the workers are sitting around twiddling their thumbs. If I go up to them and say - how much spare capacity have you got? They say - I've got loads 'cos all my workers are sitting around twiddling my thumbs. So when I go up and ask companies at the moment, they say at the moment - I haven't got much spare capacity. I was trying to square how that response from companies is consistent with the fact that we think they're doing lots of labour hoarding. It could be that perhaps a lot of workers are doing things which will benefit the future output of the company. So they're not necessarily creating output now and helping to contribute to GDP at the moment, but they are doing things which in the future will help to increase their productivity and output and will be more beneficial then. But it's something which does have to be done at some point, but it's just negatively affecting us at the moment. And obviously that could be a reason - or that just perhaps it's more like capital intensive work that they could increase their output with as opposed to labour, so that could be a reason. (Pause) >>Ian McCafferty: I was very interested in your confident statement that the current Bank fan chart underestimates the risk of an undershoot at the two year level. With due deference to my colleagues, that's probably not the case over the course of the last three years or so, where if anything, mistakes have been on the other side of the equation. I just wondered, given your early remarks about the credibility of the Bank, whether you think that expanding quantitative easing at this stage would compromise our credibility. Well without QE we're going to undershoot the 2% target, and so with the QE we think that the Bank's basically restating their complete intent on their commitment to the 2% target, and making sure that in the medium term we do hit it. And that's what a lot of the talk of the remit's been about it, because if they don't keep that commitment, then if there's a chance that inflation expectations are going to become unhinged, and they'll become de-anchored basically and that has - that'll have a lot of negative effects in terms of wage spirals - inflation expectations on gilts, not index-linked. You're talking about how inflation has been on the other side of the equation, and it has with all the short-term cost-push spikes. You know, in the short term global food prices are set to suffer a short-term inflationary spike. But we are looking into the medium term where we think, yeah, demand is going to be weak, commodity prices are falling and many other factors which will cause - without more QE, banks undershoot the inflation target. Also with the cost-push shocks, there's the - there's one of the things said about the Bank's central projections said there'd be a 1% contribution from those cost-push shocks, which basically means that if you don't give QE and don't get up to the 2% target, then - well you undershoot. One of the things that's been so crucial to keeping Bank credibility is the fact that they're so clear about to the public that - on the reasons for doing each thing to us. At the moment undershooting the 2% target, you need QE to get it up to that 2% target, so that you hit it in the medium term - for when those cost-push shocks dissipate. >>Ian McCafferty: And given that you've proposed a further £50 billion in terms of asset purchases - another £50 billion - aren't we reaching the natural limits of QE already? One of the reasons why we don't believe that we've reached the upper limit of QE is because the whole programme is purchasing government bonds, gilts. And with large UK budget deficit, which despite George Osborne's plan A doesn't seem to be reducing borrowing somewhat within the short term, it's about adding substantially to the supply of gilts. Therefore the upper limit of QE is - it just keeps on rising and rising, and with the self-imposed limit of the Bank of England not to purchase more than 70% of the gilts within circulation, we are nowhere near that at the moment. So there's much more scope for QE to play an important part within today's economic world. With the supply of gilts, like Stuart said about George Osborne - in terms of austerity, but the deficit isn't coming down and he didn't really change much in Wednesday's budget, which makes likely, the most likely scenario is sort of continuing budget deficits that will be high. So like Stuart said there is a huge supply of gilts out there. >>Charlie Bean: You mentioned during the course of your presentation Basel III and later on touched on recapitalisation. Can you tell me what Basel III requires and why recapitalisation might be necessary? Basel III is a macroprudential regulation in which banks have to hold a 12% capital ratio, which is the ratio between Tier 1 capital, which can be retained profit or shareholders' money, which is permanent money within the banks. And also for incomes which are coming through borrowings, so that can be transfers from other financial institutions or you and I inputting bank deposits within the bank. And - pardon, what was the second part of the question? >>Charlie Bean: It connects with the recapitalisation. I wonder why you think this is significant? Why does bank capital matter? Well bank capital matters because, as seen in 2008, their capital ratios were incredibly small. So when some of these subprime mortgages fell through, they had no Tier 1 capital to kind of act as a buffer against it. So then the people who were hit were people like you and I, people who have inputted their savings within a bank account, which is what is happening within Cyprus at the moment. People's hard-earned savings are getting taken away because the amount of Tier 1 capital within the banking institutions is not high enough. And with Basel III banks are hoping - well either through one or two ways - to improve that capital ratio, which can either happen through - for further recapitalisation which can occur through either setting up more shares within the stock market or it can be with what's happened with RBS where the government steps in and purchases its shares itself. Or when a loan is repaid or when - yeah, a loan is repaid, it pays back the borrowing which you and I have put in, so it shrinks its balance sheets. And in the medium to longer term that should indicate a more healthy banking system and should prevent any more economic shocks as what happened in 2008. >>Charlie Bean: And early on in your presentation, you also mentioned the ECB's OMTs. Would you like to tell me what they are and what they're designed to achieve? So basically the OMT is the Outright Monetary Transactions, and the point of it is there's always been a risk in the Eurozone that no one would be left to buy, especially Greek, but Greek gilts and everything like that, and there's a risk of default. And a Eurozone break-up would be terrible. So the point is - is that Draghi and the OMT programme is offering to buy a limited bond if the country is in desperate need and asks the ECB for this. You do have to sign up to very, very harsh austerity, which may - is very unpopular, and is yet to be tested because it's easy to say we'll buy as many bonds - government bonds from you, but when it actually comes to the matter where maybe debt is soaring, deficit's soaring, to actually keep doing it with harsh austerity, that's when Draghi will be tested. Hopefully he won't have to be tested. And another possible negative impact could be - many people are sceptical whether or not they are actually going to let out the bonds again or if they're simply going to cancel them like my quote with the President of the Bundesbank; he basically thinks that they're just going to cancel all these bonds when they've been paid up, and that could incredibly detrimentally impact upon the European Central markets. The OMT programme in the short term been good, because interest rates in the gilts markets have fallen a lot. Investors are much more assured now, because like a couple of years ago everyone - there was a lot of widespread belief that, you know, the Eurozone may default - someone in the Eurozone may default soon, contagion will start spreading, you know, every country will slowly - not every country, but Spain, Italy, etc. slowly start going down. And this has provided some investors some hope that the Eurozone will stay together. >>Charlie Bean: Okay, thank you very much. (Applause) (Music) Announcer: In joint fourth place - King Edward VI School, Southampton, taught by Malcolm Walter and represented by Nikhil Ohri, Tom Capper, Alexander Jones and James Skinner. Millfield School from Street in Somerset, taught by Jon Andrews and represented by Laura Dearman, Izzi Halewood, Seb Newsam and Luke Sidney-Jones. Robert Gordon's College, Aberdeen, taught by Jackie Farquhar, and team members Sam Povey, Adam Hendry, Aaron McPherson and Henry Symons. In joint second place Tonbridge School, taught by Patrick North and represented here today by Toby McBride, Jason Chen, Clayton Gillespie and Christopher Morris. St Paul's School, Barnes, taught by Andrew Sykes with team members, Isar Bhattacharjee, Brock Boyd-Taylor, Michael Lever and Jake Morgan. (Music) (Music) The Target 2.0 National Champions, the Grammar School at Leeds, taught by Chris Law, and team members Calum Grant, Annabel Asquith, Stuart Duffy and Daniel Gross. (Music)