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Flanders looks beyond Brexit Britain for business opportunities



One of the EU regions most economically intertwined with Britain is urging its companies to look beyond the UK for new opportunities as it waits to feel the full impact of post-Brexit trading conditions.

Jan Jambon, minister-president of Flanders, told the Financial Times his administration was encouraging businesses to think ambitiously about new markets — harnessing the region’s strengths in cutting-edge sectors such as chemicals and machinery.

The strategy mirrors one advocated by UK prime minister Boris Johnson. Mr Johnson believes once British companies get to grips with the form-filling and other new requirements for doing business with the EU, they will have the administrative knowhow to trade elsewhere with ease. 

Mr Jambon said his government’s programme — known as “Go Beyond Brexit” — was driven by similar logic, noting the UK’s departure meant Flemish businesses would need to navigate customs procedures that did not exist within the EU, and that they should exploit this new knowledge.

“Companies will be supported [by the government] in diversifying their export markets and transforming their business operations,” Mr Jambon said.

Jan Jambon says the moment of truth is still to come as UK customers of Flemish companies stockpiled inventory in the last months of 2020, temporarily reducing demand © Dirk Waem/Belga Mag/AFP via Getty Images

The region’s plans include support with customs paperwork and other administrative hurdles, and help from a government agency in defining export strategies.

The move is a sign of how the EU is grappling with the realities of what Brexit means for trade, as companies, especially SMEs, contend with new obstacles to established business relationships. The message from Flanders is that it is not just the UK that needs to move on.

Mr Jambon acknowledged that Flanders also needed to be braced for the possibility that trade with Britain — its fourth-largest export market — may simply not be as lucrative as it was in the past.

Studies cited by the Flemish authorities suggest that even if Britain had opted for a softer Brexit, staying inside a customs union with the EU, then Flanders would have lost 0.6 per cent of gross domestic product and 6,500 jobs.

“It’s difficult to say already what will be the effect of Brexit on the competitive position of our companies on the UK market,” Mr Jambon said. “If it changes and our competitive position will be worse than it was . . . then, OK, the diversification of markets also helps companies.”

Flanders, which encompasses the northern part of Belgium, has been heavily interlinked with the British economy for hundreds of years. Its ports of Zeebrugge and Antwerp are vital conduits not just for Belgium but for the wider EU in its trade with the UK. Flanders’ annual exports to the UK are worth about €26bn with cars and chemicals among the biggest sources of bilateral trade.

So far Belgium has not been hit by the disruption that snarled up trade on the British side of the border, with no large-scale backlog at the ports.

Flanders’ export dependence on the UK, share of country’s goods exports going to the UK, 2019 (%)

But Mr Jambon said the moment of truth was still to come — noting UK customers of Flemish companies had stockpiled inventory in the last months of 2020, temporarily reducing demand. That, coupled with typically light trading around the start of year, meant that the full reality of the new arrangements would only start to be felt around the end of January or early February, he said. “This will be the real stress test.” 

Government authorities expect food, textiles, cars and chemicals to be among the most affected sectors, in line with academic studies.

Tine Vandervelden, international business manager at the Federation of the Belgian Food Industry, said the sector was braced for more problems to come to light in the coming weeks.

An immediate concern has been the UK’s new limitations as a distribution hub, as some companies are hit by tariffs when they re-export products from Ireland after importing them into Britain. 

“There has been virtually no time to adapt to this situation,” Ms Vandervelden said. One proposal is to ship directly from Belgium to Ireland, cutting out the UK, but this would entail significant logistical difficulties of its own.

Further complications will follow as the UK implements the full range of border checks in the coming months, after introducing a light-touch regime at the start of the year. It is the “calm before the storm”, Ms Vandervelden said. 

Luc Vanoirbeek, the secretary-general of the Association of Belgian Horticultural Auctions, said the effect of Brexit on Belgium’s fresh produce sector was being masked in some senses because of the quieter, winter season for exports of fruit and vegetables. 

“Once the season really gets started, every delay is a delay too many,” he said, referencing the need for rapid deliveries of perishable products such as strawberries and lettuce. 

Mr Jambon said contingency plans were in place to try to minimise border disruption at the ports: dedicated parking zones have been established to deal with customs formalities, and drivers are also equipped with an app showing when they can proceed from parking lanes into the port terminals.

One indication of potential difficulties is the hundreds of questions the region’s authorities have received via their Brexit help desk and in webinars organised since the trade deal was struck. 

A webinar, organised specifically on the so-called “rules of origin” that goods must meet to be traded tariff-free, filled up with participants so quickly that another had to be organised for the following week. 

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ECB signals rising concern about eurozone bond market sell-off




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




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




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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