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EU reverses course after Irish border curbs for vaccines trigger uproar

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Brussels has retreated from an incendiary plan that would have created border restrictions between the Irish Republic and Northern Ireland as part of its efforts to clamp down on vaccine exports from the EU.

Politicians in Dublin, London and Belfast had expressed alarm over the European Commission’s decision to trigger an override mechanism in the Northern Ireland protocol to the Brexit treaty — just weeks after the UK’s departure from the single market.

In a statement late on Friday, the commission said it would now be ensuring the protocol is “unaffected” by its proposed vaccine export control measures which form part of its efforts to contend with a shortage of jabs in the bloc.

Earlier, the export proposals had been taken down from the commission’s website just hours after publication, as top officials in Dublin, London and Brussels conducted frantic diplomacy.

The volte face is an acute embarrassment for the commission and its president Ursula von der Leyen. It follows a week of turmoil for Brussels, as it battles a severe supply squeeze in the EU’s vaccine rollout and fights AstraZeneca over a shortfall in deliveries of the company’s jabs.

The commission had announced the Irish border action as part of tighter vaccine export controls that would allow EU member states to block sales of vaccines to countries such as the UK, US and Japan.

But the provisions affecting Northern Ireland immediately triggered a wave of anxiety across the political spectrum in the UK and Ireland.

Irish prime minister Micheál Martin raised the matter directly with Ms von der Leyen. Boris Johnson, UK premier, spoke with both leaders and told Ms von der Leyen of his “grave concerns”, the UK government said.

Michael Gove, UK Cabinet Office minister, called commission vice-president Maros Sefcovic to express concern over a lack of notification from the EU, saying the UK was “considering its next steps”.

Arlene Foster, Northern Ireland’s first minister, condemned the commission’s original move as an “incredible act of hostility”. Brussels had “at the first opportunity” placed a hard border between the region and the Irish Republic over a vaccine supply chain, she said.

Arancha Gonzales, Spain’s foreign minister, called the initial attempt to use the restrictions in this way an “accident”. “The mishap has been repaired,” she told the BBC’s Newsnight

Ireland immediately welcomed the climbdown. Mr Martin said the shift by the commisison was a “positive development” in light of the challenges presented by the pandemic. On Twitter the taoiseach cast the move as a “welcome decision” following what he described as “constructive discussions” with Ms von der Leyen. 

In its statement on Friday the commission said it would be publishing a revised version of the regulation on Saturday morning.

The rules will require that vaccine exports are subject to authorisation by member states. “Should transits of vaccines and active substances toward third countries be abused to circumvent the effects of the authorisation system, the EU will consider using all the instruments at its disposal,” the commission warned.

The new EU export rules do not explicitly target the UK but the language used echoes Brussels’ concerns that vaccines made in the European bloc have been shipped across the Channel — and could be again.

The initial version of the regulations refers to EU delivery shortfalls by “certain vaccine manufacturers” — an apparent reference to the spat between AstraZeneca and the commission, where officials have questioned whether supplies have been sent to the UK.

The EU wants AstraZeneca to divert production from its UK plants to make up for an expected shortfall of deliveries to the bloc and on Friday published details of its contract with the UK-headquartered company.

But Mr Johnson remains convinced the UK’s contract with AstraZeneca — signed last June, three months before the EU deal — is watertight and will guarantee that UK production is used to meet the company’s promise to deliver 100m doses.

AstraZeneca’s jab was on Friday cleared for use in EU by the bloc’s medical regulator.

The European Medicines Agency said it backed the Oxford/AstraZeneca jab for all individuals aged 18 and over, even as Germany and France expressed concern over its effectiveness for those aged 65 and over.

Hours before the EMA decision, French president Emmanuel Macron said: “Today everything suggests that [the Oxford/AstraZeneca vaccine] is almost ineffective for those over 65, and some say over 60.”

France on Friday tightened its coronavirus restrictions, closing its borders for arrivals from outside the EU from Sunday except for “essential reasons”. It also shut shopping malls from the same day, without imposing a full new lockdown.

Additional reporting by Victor Mallet in Paris





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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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