Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

A tragedy is in the making for EU economic policy if a misleading conclusion drawn from Mario Draghi’s recent productivity report is cemented. This is the paralysing belief that Europe will fall hopelessly behind the US in innovation unless it finds hundreds of billions in additional public subsidies — which politicians who pride themselves on their realism rush to dismiss as impossible.

Draghi’s analysis is of course a lot more sophisticated than that. But where do the sources of the EU’s innovation gap really lie? A good place to start is a recent study of “how to escape the middle technology trap” by the European Policy Analysis Group.

It starts with the important fact that the EU subsidises innovation as much as the US. In both, public spending on research and development is about 0.7 per cent of their GDP. So this can’t explain America’s innovation advantage. R&D spending by private businesses, however, is almost twice as high in the US as it is in the EU (2.3 versus 1.2 per cent of GDP).

Until recently, sector specific ratios of R&D to revenue were the same on both sides of the Atlantic. But a much larger slice of the US economy is occupied by high-tech sectors, especially pharma and biotech, software, and aerospace and defence. In addition, R&D intensity rates in US high-tech sectors themselves have been pulling ahead of the EU’s in the past decade. But still, 60 per cent of the private R&D spending gap is accounted for by sectoral composition.

Strikingly, the study points out that America’s three largest private R&D spenders changed from Ford, Pfizer and GM at the start of the millennium to Alphabet, Meta and Microsoft today (in between, Intel featured in the top three too). In the EU, they were Mercedes-Benz, VW and Siemens then, and are VW, Mercedes-Benz and Bosch today. This shows two things: that new companies muscle out old giants faster in the US than in the EU; and that Europe has a particular attachment to the automotive sector.

Simply put, the US does more R&D than the EU because it does more private R&D in frontier sectors. It does so because frontier sectors become a bigger share of the economy — and no doubt they become a bigger share because there is more R&D spending on them. The US is enjoying a virtuous cycle, while the EU is caught in a mid-tech trap. This is what policy needs to fix.

The reasons why high tech sectors are bigger in the US are not necessarily to be emulated. An extortionate health payment system and vast military-industrial complex support huge pharma and aerospace and defence markets. But take software — why is software development so much smaller in Europe? (The sectoral value added of information and communication technology is twice as large in the US as in the EU.)

It is obviously not because Europe lacks innovative ability in software. That much is clear from the existence of Linux, Skype, Spotify and X-Road (the distributed information exchange platform underpinning Estonia’s digital government infrastructure). And while the aforementioned report has good ideas on how to improve Europe’s public funding for innovative technology, poorly targeted subsidies are not the likely reason for a small software sector.

We may get closer to the answer by asking different questions. Why every EU government, and the EU itself, isn’t as digitally sophisticated as Estonia’s. Why is so much of Europe using US-made software instead of EU-manufactured alternatives? Why do the bloc’s Skypes and Spotifys find it easier to go to the US to expand both their funding and their business? These failures have less to do with common EU subsidies than with a lack of coherent policy planning.

Smarter, co-ordinated procurement policy could establish EU-wide interconnected digital platforms on everything from Estonian style e-government (Finland and Estonia have connected theirs) to payment systems, where a programmable digital euro could be transformative for European fintech. Take as inspiration the EU’s swift and successful development of something as politically sensitive as a digital vaccine passport trusted across the bloc.

Regulatory policy could make it easier for start-ups to access enough funding and scale up in the EU’s single market by creating a streamlined pan-European start-up entity — the “EU Inc” now demanded by some of the continent’s most successful start-up founders — through a “28th regime” of corporate law.

If smart combinations of procurement and regulation created a much bigger home market for EU software, a bigger, hungrier and more risk-loving industry would surely follow — and with it the desired innovation catch-up.

martin.sandbu@ft.com

Stay informed with free updates

Simply sign up to the Middle Eastern politics & society myFT Digest — delivered directly to your inbox.

Saudi Arabia’s media regulator has ordered an investigation into officials from the Middle East’s largest media group after one of its television channels broadcast a report describing the slain Hamas leader Yahya Sinwar as a “new face of terrorism”.

Without naming the channel, the General Authority for Media Regulation said in a statement on X that the report by Saudi-owned MBC, which sparked a strong backlash on social media from pro-Palestinians across the region, was “in violation of the kingdom’s regulations and media policy”.

The investigation into MBC, a conglomerate founded in London and now majority-owned by the government, highlights the delicate balance Riyadh is seeking to strike in the Middle East conflict: the Hamas and Hizbollah militants being pounded by Israel are its historical foes, but Saudi Arabia is also conscious of the outrage among Muslims and Arabs in the kingdom and across the region at the ferocity of Israel’s year-long assault on Gaza.

Saudi Arabia is worried that the war could further destabilise the region and has repeatedly condemned Israel’s conduct of its military offensive in Gaza since the latest conflict was triggered by Hamas’s attack on southern Israel last October. At the same time, Riyadh has long considered Iran and the militant groups it backs, including Hamas and Hizbollah, to be malign forces in the region.

Riyadh has made no official public comment on Sinwar since Israeli forces killed him in southern Gaza last week. The MBC report was broadcast shortly after Israel confirmed his death.

In neighbouring Iraq, the country’s media regulator also said it has moved to suspend MBC’s licence over the same report after protesters stormed the MBC offices in Baghdad. Videos circulating online appeared to show the protesters filming themselves chanting anti-Israel and anti-Saudi slogans as they broke into the offices while smashing computers and other equipment on Friday night.

MBC, which is listed on the Saudi exchange and operates studios and offices across the region, aired a 15-minute long news report that described Sinwar, the architect of the attack on October 7 last year, as the latest in a long list of names that belong to political Islamist groups that Saudi Arabia designates as terrorist.

In addition to Sinwar, the MBC report mentioned Osama bin Laden, the Saudi leader of al-Qaeda killed by the US; the Iranian general Qassem Soleimani, who was assassinated in an American air strike; and Hizbollah’s leader Hassan Nasrallah, who was killed by Israel last month.

Under Saudi law, it is illegal to express sympathy with designated terrorists. But in Iraq, which is dominated by political parties backed by Iran, people such as Soleimani and Nasrallah are revered and considered martyrs.

“Given the MBC satellite channel’s violation of media broadcasting regulations via its repeated violations and its attacks on the martyrs, leaders of victory, and heroic resistance leaders who are fighting the battle of honour against the usurping Zionist entity, we confirm taking all necessary legal measures and suspending it from operating in Iraq,” the Iraqi regulator said in a statement published by the state news agency.

Saudi Arabia was in advanced talks with the US over a potential deal to normalise relations with Israel before Hamas’s attack a year ago. But Riyadh has now insisted that Israel would have to end its war in Gaza and take irreversible steps towards the establishment of a Palestinian state before any agreement. It has also become increasingly frustrated with the conduct of Israeli Prime Minister Benjamin Netanyahu’s government.

MBC Group has a market capitalisation of more than $4bn. The channel, which did not respond to a request for comment, has since deleted the controversial report from its social media feeds.

M&S shoppers have been rushing to buy a £5 chocolate Christmas gift that makes a “lovely little stocking filler” for kids.

The posh shop is selling a solid milk chocolate presents sleigh for just a fiver and customers say they are “brilliant”.

1

We might only be half way through October, but shoppers have already been sharing the delicious M&S must-have on social media.

The find was posted on the Dansway Gifts and Bargains UK Facebook group alongside a photograph of the item.

The tin sleigh holds foiled solid milk chocolates inside a parcel bag.

The post was met with more than 800 likes and almost 200 comments from fellow Facebook users.

One said: “They are brilliant.”

Another wrote: “I have recently bought one. A lovely little stocking filler for my young grandson for £5.”

A third added: “They are very good for £5.”

While a fourth explained: “I’ve got two. I think they are so cute.”

You can buy the sleigh in-store at M&S where you’ll find it on the food hall shelves.

You can find your nearest M&S using the store finder tool.

If you spot one in your nearest store you might want to be quick because these Christmas items do tend to sell out fast.

It is also available to order online through Ocado.

It’s important to remember that if you order online, you will need to pay a little extra for delivery so bare this in mind.

If you are thinking of bagging one of the sleighs though, you should have a quick shop around first as you might be able to find a similar product cheaper elsewhere.

Cadbury is selling a build-your-own Santa’s chocolate sleigh online for £14, which is pricier than M&S’ version.

Meanwhile, Morrisons is selling a Santa’s Sleigh Chocolate Mousse for £6.

Supermarkets and retailers change their prices all the time, sometimes multiple times daily, so it’s worth checking you’re getting the best price on an item.

You can use websites like Trolley to see how the major supermarket’s compare in terms of price on any number of goods.

What else is M&S selling this Chrismas?

M&S is renowned for its Christmas food, it’s the time of year when shoppers upgrade their usual food shop and spend a little bit more as a treat.

We were lucky enough to try M&S’ huge Christmas range with 450 new items including Xmas dinner dip, turkey feast lasagne and hot honey brie.

A dip inspired by Christmas dinner featuring bacon bits, turkey, cranberry and even stuffing will be top of my shopping list this year.

Served up on little crisp breads, or scooped up with crisps, the dish is something you could eat by the spoonful.

Not forgetting the tipples for the big day, shoppers will be pleased to see the return of the original snow globe gin liqueur after being missing from shelves last year.

In previous years the drinks have been so popular that M&S slapped them with a buying limit because of the huge demand.

This year the liqueur which contains edible gold glitter comes in just one flavour, Clementine, and in a new gifting box for £20 (70cl).

White mulled wine (£6, 11%) is another new twist on a winter favourite, with pear, vanilla and mulled spice flavours.

Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.

Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories

A THIRD of flyers are adapting their airport attire to account for security checks, research has found.

A poll of 2,000 adults found 77 per cent have previously had to remove their shoes in airport security.

2

2

Advertisement

And 30 per cent feel restricted by what they can wear before jetting off.

Only 19 per cent of passengers will wear boots at an airport because of the need to take them off, and 30 per cent have previously avoided wearing boots to account for security when travelling.

The research was commissioned by London Luton Airport, which has recently installed next generation security scanners meaning passengers no longer need to remove footwear or have wardrobe worries.

It also means travellers can also leave liquids and electronic items in their bags as they pass through security.

Neil Thompson, chief operations officer at the airport, said: “We were delighted to become one of the first major airports in the UK to offer the benefits of next generation security to passengers ahead of what was a busy and successful summer at the airport.

“This investment provides LLA with enhanced screening technology, significantly streamlining operations to ensure a simple, friendly airport experience for all of our guests.”

It also emerged from the research that a quarter of travellers cited footwear as the first item of clothing considered when deciding on their airport ‘get up’.

With this rising to 43 per cent for Gen Z 44 per cent for Millennial flyers.

More than one in four (26 per cent) of passengers dread the prospect of having to go barefoot when at the security gates.

As many feel embarrassed (20 per cent) and self-conscious (20 per cent) at the prospect of baring their feet whilst going through security in case they have a hole in their sock.

Bu nearly half (46 per cent) are excited by the prospect of a more simplified travel process.

And as a result, many are planning on sporting heavy footwear before they next jet off, like Timberlands (26 per cent) and Dr Martens (23 per cent).

Stay informed with free updates

Simply sign up to the US banks myFT Digest — delivered directly to your inbox.

US banks are considering aggressive cuts to interest payments for corporate depositors as they seek to protect their profit margins after the Federal Reserve cut benchmark lending rates. 

Since 2022, lenders have been offering better rates to savers as the Fed raised benchmark interest rates to 23-year highs and they sought to ensure customers did not move their cash to another bank or into money market funds. 

Corporate bank clients were some of the biggest beneficiaries, demanding and receiving payments on their deposits that rose in lockstep with the Fed’s benchmark rates.

Following the first interest rate cut in more than four years last month, some banks have identified corporate accounts as the ones most subject to changes in savings rates.

“Corporate rates are moving [down] faster than expected and faster than consumer deposit rates,” said Scott Hildenbrand, chief balance sheet strategist at Piper Sandler. 

The 50 basis point cut by the Fed is expected to be the first in a series of reductions. Policymakers indicated in projections that rates could eventually come down from around 5 per cent to around 3 per cent by 2026. 

“You can price down [deposits] faster, let’s say in your corporate books because they were demanding every penny on the way up,” Bruce Van Saun, chief executive of Rhode Island-based regional lender Citizens Financial, which has about $175bn in deposits, told the Financial Times.

Tim Spence, CEO of Cincinnati, Ohio-based Fifth Third Bank, told the FT that “corporate clients got the greatest benefit out of rising rates, and therefore it’s only logical that their rates would fall”.

This view was echoed by Michael Santomassimo, finance chief at Wells Fargo, the third-biggest bank in the US by deposits. 

“We’re seeing exactly what we thought we would see on the most interest rate-sensitive deposits,” Santomassimo said in a presentation for Wells’ third-quarter results last week. “So on the commercial side, as rates started to come down, the betas are exactly what we thought and are pretty high for those deposits. So that’s working.”

Deposit betas measure how much of the change in interest rate policy banks pass on to customers.

Weak demand for loans has hurt interest income. But it has given banks more flexibility when it comes to lowering what they pay depositors, because they do not need the deposits immediately to fund new lending.

“It’s still very early in the cycle but you certainly have started to see banks take action a little bit prior to this Fed cut in mid-September and certainly additional actions after the Fed cut,” said Jason Goldberg, research analyst at Barclays. “We’re in the, I would say, early innings of this down beta cycle.” 

Bank deposits are their primary source of funding. The pressure to increase savings rates in order to keep customers has been particularly acute for mid-sized and smaller lenders in the US. Larger institutions like JPMorgan Chase and Bank of America have benefited from their perceived safety and national branch networks. 

Around 32 per cent of JPMorgan’s $1.9tn in US deposits do not earn any interest whereas Citizens pays no interest on around one-fifth of its deposits, resulting in a larger pool of cheaper funding for JPMorgan. 

Van Saun said Citizens took a “very, very scientific” approach to measuring the best way to price deposits to ensure they remain with the bank. 

“We have all kinds of behavioural models across all the different deposit products that we have,” he said. “You’re trying to basically predict what are the rates that customers need to feel OK and leave their money in the bank but you’re not paying significantly above that.”