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Businesses welcome zero-tariff Brexit deal but warn of hard months ahead

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British businesses welcomed the EU trade deal with wearied relief after four years of negotiations finally secured zero-tariff arrangements on goods with the largest market for UK exports and imports.

The announcement on Thursday prompted companies around the UK to scramble for details about what it will mean for their operations, with only a week before the UK leaves the EU’s customs arrangements.

Bosses said that it had been essential for the UK to avoid tariffs, which would have hit sectors such as manufacturing, farming and retail particularly hard.

Helen Dickinson, chief executive of the British Retail Consortium, said that given four-fifths of Britain’s food imports came from the EU, the zero-tariff agreement “should afford households around the UK a collective sigh of relief”.

John Allan, chairman of retailer Tesco and the vice-president of the CBI, the employers group, said that a “deal, albeit a limited deal, will be welcomed by most businesses. It removes uncertainty for importers and exporters.”

Manufacturers welcomed an agreement over so-called rules of origin — allowing them to self-certify and ensure that the processing of goods also counts under the zero-tariff regime.

Stuart Rowley, president of Ford Europe, said: “It is now important to understand the detailed rules of origin which will apply and to create as smooth a transition as possible by maximising flexibility as businesses adjust to the new trading environment.”

But City of London firms were resigned to losing market access to EU clients with the end of “equivalence” of rules.

Paul Manduca, chairman of insurer Prudential, said he regretted that financial services had not been considered in the agreement, but added that common sense had more broadly prevailed in a deal that would reset the relationship between the UK and EU.

William Vereker, chairman of bank Santander UK and former Downing Street business envoy, said: “We should not forget that large parts of the UK economy are outside the scope of this agreement and the future relationship for much of the service economy and the financial services sector in particular has yet to be fully defined.”

Other professional services also worried about being left without market access after losing “passporting rights” under the deal. Qualifications for professionals such as doctors, engineers and architects must be recognised in each state.

Advertising boss Martin Sorrell said that the benefits of the accord were “more ‘psychological’ than material, as compared to no deal”, adding that “no longer should western Europe dominate our trade patterns. We have to do what the Germans do so effectively. Export until we drop . . . We have to be a ‘Singapore on steroids’ or ‘on Thames’ to avoid further marginalisation.”

Companies are still worried about border delays and disruption to integrated regional supply chains. The EU warned of more red tape and delays, with value added tax and excise duties on some products. UK producers selling to EU and UK markets must meet both sets of standards and regulations, and fulfil all compliance checks by EU bodies, with negotiators having failed to agree equivalence of conformity assessment.

UK food exports will need health certificates, and border checks will be carried out systematically. Ms Dickinson said that the UK and EU needed to find “new ways to reduce the checks and red tape that we’ll see from the 1 January”.

Stephen Phipson, chief executive of manufacturers’ group, Make UK, said the sector would “cautiously welcome” the trade agreement, which avoids the catastrophe of no deal. But he said that there were “many months of further hard work yet to come”, calling for an adjustment period.

One Airbus executive said there were some “good signs” in the deal: zero tariffs, continued market access for a broad range of sectors, a UK-led subsidy system and continued participation in some EU programmes such as Horizon Europe, a scientific research initiative.

But Paul Everitt, chief of ADS, the UK trade body for the aerospace, defence, security and space sectors, said the agreement “does not meet all our ambitions and [we] will examine the full legal text to ensure priority areas including aviation safety and chemicals regulation, customs and border control, and Northern Ireland are appropriately addressed”.

Still severely weakened from the economic toll of the coronavirus pandemic, many smaller companies also say they feel unprepared for any disruption from Brexit, even now a deal has been agreed, with little spare cash or resources available to ease the transition. Business groups are fighting for extra financial support for small companies.

Jonathan Geldart, director-general of the Institute of Directors, said: “The clock is still very much ticking for businesses. There is very little time for directors to prepare their organisations.”

Additional reporting by Peter Campbell



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ECB signals rising concern about eurozone bond market sell-off

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The European Central Bank has indicated it will increase the pace of its emergency bond purchases to counter the recent sell-off in eurozone sovereign debt markets if borrowing costs for governments, companies and households continue to rise.

Philip Lane, chief economist of the ECB, said on Thursday that the central bank was “closely monitoring the evolution of longer-term nominal bond yields” and its asset purchases “will be conducted to preserve favourable financing conditions over the pandemic period”.

The ECB has pledged to ensure financial conditions encourage investment and spending, helping the eurozone economy to make a swift recovery and lifting inflation towards the central bank objective of just below 2 per cent.

To achieve this, Lane signalled that it would rely on its pandemic emergency purchase programme, under which it plans to spend up to €1.85tn on buying bonds by March 2022. There is just under €1tn of that amount left to spend.

“We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,” he said.

Eurozone government bonds fell to their lowest levels for almost six months this week, and while Lane’s comments caused a brief rally on Thursday afternoon, prices then resumed their downward path.

Bond yields move inversely to prices, so the sell-off is pushing up the cost of borrowing for governments, which must sell vast amounts of extra debt this year to cover the cost of the coronavirus pandemic and its consequences.

Germany’s 10-year bond yield has risen to its highest level since last March, while the French equivalent returned to a positive yield for the first time since June and Italian sovereign yields hit their highest level since November.

ECB president Christine Lagarde said in a speech on Monday that policymakers were “closely monitoring” the rises. 

Isabel Schnabel, another ECB executive board member, said in an interview with Latvian news agency Leta published on Thursday: “A too-abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery.”

Lane gave more detail of how the ECB defines “favourable” financing conditions, saying it would track the availability and cost of bank lending and market-based funding — in particular, the risk-free overnight index swap curve and the GDP-weighted eurozone sovereign bond yield curve, which have both risen in recent days.

He warned of the need to avoid “a mutually-reinforcing adverse loop” in which banks interpret lower borrowing demand as a negative signal about the economy and companies interpret a tightening of bank lending conditions as a worrying sign about the outlook. 

Eurozone bank lending to the private sector grew by just under €12bn in January, down 75 per cent from the average monthly loan growth last year according to data published on Thursday.

Much of the slowdown was because of a sharp fall in net lending to insurers and pension funds. Lending to non-financial companies also retreated slightly, while lending to households still grew but at its slowest rate since last April.

Krishna Guha, vice-president at Evercore ISI, said “ECB jawboning” was “having little effect” and “the next step — in our view presaged by Lane — is for the ECB to dial up the pace of its [bond] purchases”.

Last week the ECB spent a net €17.3bn on its emergency bond purchase programme, up slightly from the previous week but still well below the levels of last April, during the previous sell-off in government bond markets.

Frederik Ducrozet, strategist at Pictet Wealth Management, said the ECB was likely to wait until it was clear the bond market sell-off was a lasting shift before increasing its emergency bond buying above €20bn per week. But he said that “will bring the risk of disappointment [for investors] — because you have to walk the walk as well as talk the talk as a central bank”.



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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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