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Ireland’s Covid-hit economy boosted by multinational corporations

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The glassy offices of Grand Canal Square in Dublin sit empty as Covid-19 restrictions keep workers at home — but the buildings lie at the heart of the country’s economic outperformance.

Irish gross domestic product is projected to shrink 2.3 per cent this year, well below the 7.4 per cent average contraction across the EU, and recent European Commission forecasts suggested Ireland would be one of just two EU economies to return to their pre-pandemic size by the end of next year.

That is in part because of the strong performance of the occupants of Grand Canal Square and the surrounding area — a hub for the international tech sector, with Google and Facebook located nearby. Another big factor is the surge in pharmaceutical exports from Ireland, where many large global groups carry out manufacturing.

Around 245,000 people in Ireland are employed by global companies that have made the country a European hub for multinationals. Local expenditure by multinationals reached €21.5bn in 2019, according to IDA Ireland, the state agency responsible for attracting foreign direct investment into one of the world’s most open economies.

In ordinary times such activity constitutes a huge boost to the country, with big spin-off benefits in the domestic economy. But these companies’ presence inflates Ireland’s GDP figure, obscuring the impact of the pandemic on the domestic economy, where severe coronavirus restrictions have led to the loss of hundreds of thousands of jobs. In July IDA Ireland said existing investment in Ireland was “resilient but not immune” to the impact of the pandemic. 

Bar chart of Forecast change in GDP by end of 2021 from pre-pandemic level (%) showing Ireland's forecast rebound is rare

Seamus Coffey, economist at University College Cork and former chairman of the Irish Fiscal Advisory Council, a statutory budget oversight body, said the GDP figures result from activity in Ireland but “don’t necessarily reflect the Irish economy” itself.

“The GDP number is real. It does reflect stuff that happens but it’s not an indication of the changes in living standards of Irish people,” he said.

Large parts of the domestic economy have been locked down for months and as a result the public finances are under acute pressure. 

“Ireland saw some of the sharpest declines in consumer spending and output in hard-hit sectors like tourism and retail because our Covid-19 restrictions were more strict and longer than other European countries,” said Conall Mac Coille, economist at Davy stockbrokers in Dublin. 

“Labour market data looked particularly poor during the first round of the pandemic which led to extraordinarily high spending on employment and welfare support.” 

Such is the size of the multinational sector that Dublin has developed a bespoke measure, modified gross national income, in an attempt to capture what is really going on in the domestic economy by stripping out the impact of foreign investment. 

Michael McGrath, public expenditure minister in Micheál Martin’s government, said the true extent of the downturn is more than twice the rate suggested by the GDP data.

Line chart of €bn showing The growing effect of multinational corporations on the Irish economy

“It is undoubtedly the case that the hardest-hit sectors of the Irish economy are domestic in nature — including tourism, hospitality and retail — and this is borne out by the overall numbers,” he told the Financial Times. 

“While the economy is expected to contract by over 2 per cent in GDP terms this year, modified domestic demand, which is a much more accurate barometer of domestic activity, is expected to shrink by around 6 per cent. The challenge for us lies in the fact that the domestic sectors are jobs-rich, and therefore there has been a disproportionate negative impact on employment in our country as a result of Covid-19.” 

Loretta O’Sullivan, chief economist at Bank of Ireland, noted falling consumer and business sentiment just before the latest restrictions took force, adding that the lack of a post-Brexit trade deal between the EU and UK was a further source of anxiety.

“Firms in all sectors — that’s retail, industry, services and construction — did pare their expectations for near-term activity, particularly over the coming three months,” she said. “Households are very worried about what it all means for the economy and they’re very worried about what it means for unemployment.” 

The toll on jobs is severe. Ireland entered the pandemic at close to full employment with a 4.8 per cent jobless rate in February. Unemployment, taking into account people receiving pandemic-related out-of-work benefits, peaked at a record 28 per cent in April and it was at 20.2 per cent in October as a new six-week lockdown was imposed.

Line chart of Unemployment rate (%) showing Pandemic pushes Irish joblessness to historic levels

Some 350,072 people are on special pandemic unemployment payments, the Irish government said on Monday, at a weekly cost of €103.8m. Almost 103,000 people are jobless in the accommodation and food service sectors, 57,000 are jobless in wholesale and retail and another 31,000 are without work in hair and beauty salons.

A further 203,172 people are claiming other, non-Covid-related unemployment benefits.

This month the government has separately paid out €80m in wage subsidies to 19,200 employers, helping to sustain 170,800 jobs. 

The GDP question has a bearing on Ireland’s budget deficit, a crucial gauge of its performance under EU fiscal rules. The deficit is projected by the European Commission to come in at 6.8 per cent of GDP this year, a level “near the bottom” of the range across the eurozone, according to Mr Coffey. 

But the deficit as a proportion of modified GNI comes in at around 12 per cent, comparable with the highest deficits in the single currency bloc.

“To suggest that [the pandemic] is only having a modest impact on the deficit, using GDP, doesn’t give a true reflection,” Mr Coffey said. “It’s looking like a modest deficit in an economy that’s been shut down for months.” 



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Armenia’s prime minister claims military is plotting a coup

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Armenia’s prime minister has claimed the country’s military is plotting a “coup,” and taken to the streets with his supporters after senior army figures in the former Soviet republic called on him to resign.

Nikol Pashinyan has faced months of protests demanding he step down after the defeat of Armenian forces in a six-week war with neighbouring Azerbaijan that ended in November.

The army weighed in on Thursday, calling on the prime minister to quit after he fired the first deputy chief of staff for criticising him.

A letter to the prime minister signed by 40 senior officers warned Pashinyan not to use force against demonstrators, but did not say whether the army would act to remove him from power.

“The current government’s ineffective management and serious mistakes in foreign policy have put the country on the brink of collapse,” the officers wrote on Facebook.

Pashinyan later fired the chief of the general staff, Onik Gasparyan, ordered police to secure government buildings in Yerevan and told his supporters in the capital’s Republic Square to avoid violent clashes.

Demonstrators at an opposition rally in Yerevan demand the resignation of Nikol Pashinyan. They cheered as a fighter jet flew overhead © Artem Mikryukov/Reuters

Describing the situation as “manageable” the prime minister denied he was planning to flee the country and said the army’s statement was an “emotional reaction” to a dispute over the defeat in the Nagorno-Karabakh conflict.

“We have no enemies in Armenia. I am calling for calm,” Pashinyan said, according to Russian news agency Interfax. “Of course, the situation is tense, but we need dialogue, not confrontation.”

He later took to the streets with several thousand supporters and a megaphone — an echo of the 2018 “velvet revolution” that swept him to power following a march across the country that galvanised popular support. A few thousand opposition supporters gathered at a different square and cheered as a fighter jet flew overhead.

Pashinyan has fought off calls for his resignation since signing a Moscow-brokered peace deal in November that cemented territorial gains for Azerbaijan in Nagorno-Karabakh. The mountainous enclave in the South Caucasus is internationally recognised as part of Azerbaijan, but is populated by ethnic Armenians who seized control after a war that broke out in the dying days of the Soviet Union.

Azerbaijan, a mostly Muslim country and a close ally of Turkey, launched an offensive in September with the aim of retaking the entire enclave. Armenia’s army was ill prepared for oil-rich Azerbaijan’s modern drone fleet and significant backing from Ankara.

More than 3,300 Armenian soldiers died in the conflict, with a further 9,000 wounded. Thousands of civilians were displaced, including some who set their own homes on fire as they fled land now under control of Azerbaijan.

Russia, the traditional regional power broker and Armenia’s most important ally, remained neutral even as several previous ceasefires failed and has deployed 2,000 peacekeepers to secure the region.

Pashinyan admitted the terms were “unbelievably painful for me and my people” but argued the concessions were necessary to prevent further losses.

The devastating defeat sparked fury among Armenians who stormed the country’s parliament and attacked its speaker, demanding the prime minister’s resignation.

Pashinyan backtracked on a pledge to step down after snap elections earlier this month and remained in office in the face of opposition from Armenia’s ceremonial president, three parliamentary opposition parties, and key church leaders.

The Kremlin said on Thursday it was “following events in Armenia with caution” but considered them “exclusively Armenia’s internal matter”.

Dmitry Peskov, President Vladimir Putin’s spokesman, told reporters Russia was “calling on everyone to be calm” and said “the situation should remain within constitutional limits,” according to Interfax.



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German accounting watchdog chief to step down in wake of Wirecard

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The head of Germany’s accounting watchdog is to step down following mounting political pressure over corporate governance shortcomings exposed by the Wirecard fraud.

Edgar Ernst, the president of the Financial Reporting Enforcement Panel (FREP), said on Wednesday he would depart by the end of this year. He is the third head of a regulatory body to lose his job in the wake of one of Germany’s biggest postwar accounting scandals.

The collapse of Wirecard, which last summer filed for insolvency after uncovering a €1.9bn cash hole, triggered an earthquake in Germany’s financial and political establishment.

Felix Hufeld, president of BaFin, the financial regulatory authority, and his deputy Elisabeth Roegele were pushed out by the German government in January for failing to act on early red flags suggesting misconduct at Wirecard. Ralf Bose, the head of Germany’s auditors supervisor Apas, was fired after disclosing he traded Wirecard shares while this authority was investigating the company’s auditor, EY. The German government is also working to revamp the country’s accounting supervision and financial oversight.

Meanwhile, criminal prosecutors in Frankfurt are evaluating a potential criminal investigation into BaFin’s inner workings and on Wednesday asked the market authority to hand over comprehensive documents, the prosecutors office told the FT, confirming an earlier report by Handelsblatt. The potential scope of any investigation as well as the individuals who might be targeted is still unclear. BaFin declined to comment.

Ernst came under pressure as the parliamentary inquiry commission uncovered that he joined the supervisory board of German wholesaler Metro AG in an apparent violation of internal governance rules, which from 2016 banned FREP staff from taking on new supervisory board roles.

Last week, the former chief financial officer of Deutsche Post filed a legal opinion to parliament defending his move. He argued that his employment contract was older than the 2016 ban on board seats and hence trumped the tightened governance regulations.

The German government had subsequently threatened to ditch the private-sector body which currently has quasi-official powers.

In a statement published on Wednesday evening, FREP said that Ernst wants to open the door for a “fresh start” that would be untainted by the discussions around his supervisory board mandates. “FREP is losing a well-versed expert in capital markets,” the body said.



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Putin and Lukashenko’s ski fun shows cold shoulder to EU

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As news of new EU sanctions against Russia began to leak out of a meeting of bloc foreign ministers on Monday afternoon, Vladimir Putin and his Belarusian counterpart Alexander Lukashenko were discussing a different challenge to the Russian president.

“You can try to compete with Vladimir Vladimirovich,” Lukashenko, in ski gear, said to his son, Nikolai. “But you probably won’t catch up,” he added, with a smile to Putin as the Russian leader pushed off down the slope.

Putin and Lukashenko are the men behind Europe’s two repressive crackdowns over the past six months, who have both jailed or exiled their most prominent opponents and seen their security forces violently assault and detain thousands of peaceful protesters.

But in a summit in the snow-covered mountains of Sochi, on Russia’s southern coast, they revelled in their twosome of leaders shunned and sanctioned by Brussels, in a calibrated message to the EU that the cold-shoulder was mutual.

For foreign policy experts there were few details to digest, despite the complex negotiations going on behind the scenes as the two post-Soviet states seek to recalibrate their future relationship.

Putin is keen to deepen integration on Moscow’s terms. Lukashenko is desperate for Russian investment and trade co-operation but is loath to relinquish sovereignty. Yet in place of diplomatic negotiations and policy pronouncements, photographs and video footage of the two leaders enjoying each other’s company were in full display.

At the outset, Putin, in jeans and an open-collar shirt and blazer, greeted his guest with a handshake and a hug. “Even our appearance, clothes and so on, suggest that these are serious negotiations in ordinary clothes,” Lukashenko quipped. “It suggests that we are close people.”

Pleasantries exchanged, it was time for the salopettes and ski boots, and a shared chairlift to the summit. Putin, pushing off confidently, set off down the gentle slope, Lukashenko in his wake.

After a short ride on snowmobiles back to their chalets, discussions continued over more than six hours — and what appeared to be three different sized wine glasses.

“The optics for the international audience is that they have been able to maintain their positions and nothing can be done against them,” said Maryia Rohava, a research fellow at Oslo university specialising in post-Soviet relations.

“Now we’re talking not just about sanctions against Belarus but also against Russia,” she added. “And it seems like they look at that like, ‘Well, we don’t care . . . We’re just enjoying our winter break like autocrats do.’”

To be sure, the fun on the slopes was not wholly without power games. Putin was clear to underscore he was the senior partner, from wrongfooting his guest at the top of the ski lift to releasing photographs of their meeting showing Lukashenko scribbling notes as his host spoke.

But the mood music was in sharp contrast to Lukashenko’s last visit to Russia in September. Then, with protests raging and the Belarusian leader’s position looking shaky, Putin reprimanded his guest for mishandling the unrest and risking the toppling of an ageing post-Soviet regime that could weaken his own.

Then, in a businesslike and cold atmosphere, Lukashenko pleaded with Putin that “a friend is in trouble” and was granted a $1.5bn loan from Moscow — but not before his host remarked that Belarusian people should be given a chance to “sort this situation out”.

The absence of such language on Monday also sent a subtle signal to other illiberal regimes, particularly those on the outer rim of Europe who, like Belarus in the past, find themselves lured towards Brussels by economic opportunities but repelled by the reforms and democratic standards demanded in exchange.

The message to the likes of Georgia, Moldova, Armenia and Turkey is that Putin, whose relations with the EU are at rock bottom, is always ready to talk.



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