Archive December 7, 2020

Europe is right to risk a double ‘no deal’

The proposed agenda for a summit of EU leaders later this week presents a picture of an orderly world. There are soothing words on Covid-19, climate change and the US presidential election. Left off the agenda are the two elephants that will be clattering around outside the conference chamber: Brexit, and a confrontation with Poland and Hungary over the rule of law.

But the reality is that, if compromises are not found soon, the EU could soon be looking at a double “no deal” — with the British, and with the Poles and Hungarians. That would mean a breakdown in trading relations with the UK from January 1 — leading to the imposition of tariff barriers, long queues of lorries at the borders and possible confrontations between fishing fleets.

The consequences of no deal with Poland and Hungary would be that the EU fails to agree a budget for the first time in decades — leading to a disruption in financial flows and a stand-off with Warsaw and Budapest that could conceivably culminate in two further departures from the EU.

No sane EU leader would happily embrace these outcomes. So why are EU leaders prepared to run the risk? The preferred narratives in London, Warsaw and Budapest are that arrogant European bureaucrats, spurred on by the French, are trying to push around the three sovereign nations.

The reality is that no one in the EU wants a double “no deal”. But European negotiators know that concluding two bad deals would be even worse for the bloc’s long-term future.

For the EU, a bad Brexit deal would involve granting the British unfettered market access, while leaving open the possibility that businesses based in the UK could undercut their European competitors by operating under laxer regulations. That is why the EU is so insistent on a “level-playing field” on regulations, as a condition for a trade deal.

The British argue that Canada was not held to similar standards as a condition for its deal with the EU. But Canada did not get completely tariff and quota-free access to the European single market. And the UK is right on the EU’s doorstep, and so potentially poses a much bigger competitive challenge.

European governments know that if they get this wrong, they could sustain long-term economic and political damage at home. The fear of stoking domestic Euroscepticism also lies behind France’s hardline position on fishing in the Brexit negotiations. The last thing that President Emmanuel Macron needs, ahead of a presidential election in 2022, is to devastate fishing communities in a region that is already trending towards the far-right.

A bad deal with Hungary and Poland would be potentially even more drastic in its consequences. These two important EU countries have been drifting towards authoritarianism for some years. The proposal to tie future EU funding to respect for the rule of law represents perhaps the last proper opportunity for Brussels to put pressure on the Polish and Hungarian governments to change course.

If that effort fails, the EU may have to accept that its claim to be a club of law-governed democracies has lost credibility. That failure would be all the more galling, given that the Poles and Hungarians would continue to receive lavish funding from the EU budget.

Getting the Hungarian and Polish issue right is ultimately more important than Brexit. When Clement Beaune, France’s Europe minister, was interviewed on the Arte television channel last week, the first half of the interview was about Hungary and Poland; Brexit was only issue number two. But Mr Beaune made it clear that he saw a connection between the two subjects. In both cases, the EU needs an agreement — but not at the cost of sacrificing its fundamental interests.

The irony is that it is also in the interests of the populations of the UK, Hungary and Poland to get a deal — largely along the lines currently proposed by the EU.

The pursuit of unfettered sovereignty is an important principle for some British Conservatives. But the government of Prime Minister Boris Johnson claims that it has no intention of undercutting EU environmental or labour regulations. So it would be very odd to rupture economic relations with the EU in defence of a right that the UK will not use. And fishing — while symbolically important — is a tiny industry. Under any conceivable deal, the UK will get a larger share of the catch. There is no British national interest involved in poisoning relations with France to secure some extra herring.

As for Poland and Hungary, the EU’s core concerns are Polish and Hungarian laws that undermine the independence of the judiciary — not imposing a “LGBTQ ideology”, as the government in Warsaw claims. Independent courts are awkward for authoritarians. But they are obviously in the interests of ordinary Poles and Hungarians, since they represent the best guarantee against corruption and arbitrary rule.

Poles and Hungarians also continue to benefit massively from membership of the EU — both in terms of funding and in the freedom to live and work across the region.

A double “no deal” — in the midst of the coronavirus pandemic — would get the EU off to the worst possible start to 2021. But the consequences of two bad deals would last for decades.

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Joe Biden unveils healthcare team to tackle coronavirus crisis

Joe Biden, the US president-elect, has chosen Xavier Becerra, the California attorney-general, to be the next US health and human services secretary, as he prepared to unveil the team that will be charged with tackling the pandemic in his administration.

Mr Biden also chose Rochelle Walensky, the chief of infectious diseases at Massachusetts General Hospital, to be the next director of the Centers for Disease Control and Prevention, the US government agency on the front line of the coronavirus battle.

In a statement on Monday, Mr Biden said the appointments would mark a big change compared with the Trump administration’s approach to Covid-19.

“This trusted and accomplished team of leaders will bring the highest level of integrity, scientific rigour, and crisis-management experience to one of the toughest challenges America has ever faced — getting the pandemic under control so that the American people can get back to work, back to their lives, and back to their loved ones,” he said in a statement.

Mr Biden also said Anthony Fauci, the infectious disease specialist at the National Institutes of Health who has clashed with President Donald Trump over the course of the coronavirus crisis, would remain in his role — and tapped Vivek Murthy as surgeon general. Mr Murthy served in that position during Barack Obama’s administration.

Jeff Zients, a close adviser to Mr Biden and former director of the National Economic Council, will also play a significant role in the coronavirus response.

Mr Biden has made the coronavirus fight one of his top priorities in office, as the country has been badly hit by the latest wave of infections, with some states introducing new lockdowns and other restrictions.

He has been choosing nominees to fill cabinet positions in recent weeks ahead of his inauguration in January, including Janet Yellen as Treasury secretary and Antony Blinken as secretary of state.

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European powers warn Iran over plan to escalate nuclear activities

European powers have warned Iran that its plans to expand its atomic energy programme risk scuppering efforts to revive a landmark international nuclear deal after US president Donald Trump leaves office. 

The so-called “E3” of Germany, France and the UK condemned proposals from authorities in Tehran to boost uranium enrichment capacity, “substantially expand” its nuclear programme and limit UN inspectors’ access.

The E3 statement on Monday highlights the hurdles to restoring the 2015 nuclear accord ditched by Mr Trump in 2018, even though president-elect Joe Biden has said the US will rejoin if Iran meets certain conditions.

 “If Iran is serious about preserving a space for diplomacy, it must not implement these steps,” the E3 said in a statement on Monday on the agreement, which is known as the JCPOA and is also signed by Russia and China.

“Such a move would jeopardise our shared efforts to preserve the JCPoA and risks compromising the important opportunity for a return to diplomacy with the incoming US administration,” the statement continued.

A nuclear fuel enrichment plant in Natanz, where Iran has said it plans to install more advanced centrifuges
A nuclear fuel enrichment plant in Natanz, where Iran has said it plans to install more advanced centrifuges © Henghameh Fahimi/AFP/Getty

The E3 said Iran’s recent disclosure to the UN’s International Atomic Energy Agency that it intended to install more advanced centrifuges at a nuclear fuel enrichment plant in Natanz was “contrary to the JCPOA and deeply worrying”.

The European countries also expressed “great concern” at a law passed by the Iranian parliament in the wake of the assassination of its top nuclear scientist that would, if implemented, “substantially expand Iran’s nuclear programme and limit IAEA monitoring access”. 

“The measures would be incompatible with the JCPOA and Iran’s wider nuclear commitments,” the E3 said. 

Iran has since last year made an escalating series of breaches of the nuclear deal in retaliation for the US decision to exit the accord and impose tough sanctions on Tehran. Iran, which has always denied having a nuclear weapons programme, has called on Washington to resume compliance with the agreement without preconditions.

Heiko Maas, Germany’s foreign minister, said it was “important for Iran to return to its obligations under this deal — that is currently not the case”.

But he also stressed that the agreement would have to be “expanded” to include “Iran’s regional role, its ballistic missile programme”.

“The fact that Joe Biden has publicly said he’s willing to restart talks on these issues, we have to take advantage of that,” he told German radio. “And so it would make the world safer if the US returns to the nuclear deal with Iran.”

Mr Biden told the New York Times last week that — in consultation with allies and partners — the US was going to “engage in negotiations and follow-on agreements to broaden the nuclear deal”. These would aim to “tighten and lengthen Iran’s nuclear constraints, as well as address the missile program”. 

The western calls for new elements to be added to the nuclear deal set up a potential flashpoint with Iran. Tehran has resisted past efforts to widen the accord to cover its ballistic missile programme and regional activities.

Saeed Khatibzadeh, Iran’s foreign ministry spokesman, said on Monday that “Iran will neither compromise nor negotiate over its national security issues” and said Europe had also failed to meet some of its commitments under the deal. Mohammad Javad Zarif, Iran’s foreign minister, said last week that Iran would “not renegotiate a deal, which we’ve negotiated” and accused western states of “malign behaviour” by selling weapons to Gulf states.

A further complication is that Saudi Arabia and the United Arab Emirates have long called for Middle East regional states to be involved in any future negotiations to ensure their concerns are addressed. 

The two Gulf powers, which backed Mr Trump’s decision to abandon the accord, were angered that they were excluded from the negotiations that led to the 2015 accord. 

They argue that Tehran’s missile programme and its backing of regional militias present an immediate and direct threat to the region and should be incorporated into any future negotiations. 

Additional reporting by Najmeh Bozorgmehr in Tehran

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Ikea takes ‘emotional’ decision to scrap catalogue

Ikea is to stop producing its iconic catalogue, once the most-printed book in the world ahead of the Bible and Koran.

The flat-pack furniture retailer on Monday said its current catalogue — released in August — would be its last as more and more shoppers move online and fewer read a pamphlet first released in 1951 by Ikea’s founder, Ingvar Kamprad.

“It’s an emotional decision, but it’s a rational decision,” said Inter Ikea, the owner of the brand and concept.

At its peak in 2015, Ikea produced more than 200m copies of the catalogue featuring a full array of its products from Billy bookcases to Ektorp sofas. The glossy brochure became a staple of family homes and student flats around the world.

The first catalogue was produced by Kamprad in his home region of southern Sweden, Smaaland, and distributed in 285,000 copies as part of his mail-order business, seven years before the first Ikea store opened. It gradually expanded around the world and the current 2021 catalogue ran to 40m copies.

“We don’t have a replacement for the catalogue, as of today. But we will look at how we reach the many people globally,” said the company, now based in the Netherlands.

Ikea is undergoing a huge transformation as it moves from forcing shoppers to drive to its big out-of-town warehouses to pick up and then assemble their own furniture to a wider range of options from city-centre stores to home delivery and even help with assembling sofas and wardrobes.

Its online sales increased 45 per cent in the year to the end of August while there were 4bn visits to its website. Ikea managers say shoppers are increasingly combining online and physical shopping, checking out furniture beforehand online or sitting on it in store before ordering from the website.

The catalogue was not without controversy. The Swedish government reacted furiously in 2012 when it emerged that women had been airbrushed out of pictures in the Saudi Arabian version of the catalogue. The Ikea hotel in Almhult, the company’s home town, had a copy of the catalogue and a Bible in every room.

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Continental warns of price to livelihoods in electric car transition

Continental, one of the world’s largest car suppliers, has warned the transition to electric vehicles is happening too rapidly and at the expense of people’s livelihoods.

Ariane Reinhart, the German group’s head of human resources, told the Financial Times that environmental regulations, although necessary, were coming so fast “we cannot compensate for it in terms of employment”.

The Hanover-based parts-maker is struggling to adjust to the car industry’s technological shift, putting 30,000 jobs at risk worldwide, including 13,000 in Germany, as it goes through a painful restructuring and pushes through plans to close entire plants.

“An electric car has a lower employment density than a conventional car,” said Ms Reinhart, who oversees the company’s 230,000 staff.

European carmakers have been forced to quicken the pace of the transition to electric after strict fleet-wide emissions targets were introduced by the EU this year.

Brussels is considering tightening its CO2 reduction target for 2030 from 40 per cent to at least 55 per cent — a move that has been criticised by the German car lobby, the VDA.

Continental expects revenues of more than €37bn in 2020 and an adjusted profit margin of about 3 per cent, despite the challenge of moving to battery-powered vehicles and the devastating impact of the pandemic.

Earlier this year, the group came under fire for continuing to pay a dividend of €3 a share, totalling €600m, even though several thousand workers were put on furlough.

The Dax-listed group is integral to the global car supply chain: four out of five cars worldwide contain its products.

Elmar Degenhart, the company’s outgoing chief executive, has argued that the global car industry will not recover to its 2017 peak for at least another four years, and that drastic cost-cutting is necessary to remain competitive.

Ms Reinhart said Continental’s restructuring plan will not be revised if “the situation does not deteriorate”, but cautioned that the economy remains very “volatile”.

On Wednesday, workers’ representatives in Germany accused the company’s management of not showing any interest in alternatives to cutting jobs and focusing only on maintaining an 8 per cent margin.

Separately last week, Ms Reinhart unveiled plans for Continental, whose products have a carbon footprint amounting to 125m metric tons of CO2 a year, to be 100 per cent climate neutral through its value chain by 2050.

The company will also offer parts with a net zero carbon footprint for emissions vehicles from 2022, allowing car manufacturers to offer a more environmentally friendly end-product.

The group did not confirm if a third party would monitor its progress in reducing emissions, but said the targets would be included in its annual and sustainability reports, which are independently audited.

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Coronavirus latest: Paris air show organisers scrap 2021 event

Song Jung-a

South Korea will impose tougher distancing measures in the greater Seoul area from Tuesday as health authorities struggle to curb a spike in coronavirus infections during the winter.

The country reported 615 new coronavirus cases, including 231 in Seoul, raising the total caseload to 38,161, according to the Korea Disease Control and Prevention Agency.

Four more deaths were added, increasing the total fatalities to 549.

Under the tightened measures, gatherings of more than 50 people will be banned and most risk-prone facilities including clubs, karaoke bars and gyms will be closed in the greater Seoul area, home to about half of the country’s 52m population.

All cram schools will be closed while sports events will be allowed without spectators.

Most facilities including restaurants, cinemas, amusement parks, barber shops, large grocery stores and department stores will be closed after 9 pm.

Seoul faces tighter restrictions on social distancing as cases surge

Restaurants cannot serve customers after 9pm with only takeout and delivery allowed, while cafes can serve only takeout at all hours.

In-person religious services are limited to fewer than 20 participants.

Health minister Park Neung-hoo warned of an explosive spread of virus infections and a faltering medical system if health authorities are unable to slow the current pace of infections under the stronger distancing measures.

The tougher anti-virus measures and nighttime curfews are likely to damp consumption further, slowing the country’s fragile economic recovery.

Goldman Sachs on Monday revised down the country’s private consumption forecast for the fourth quarter to 0.8 per cent from 2.0 per cent previously, but improving exports are likely to offset slowing consumption.

Overall, the US investment bank raised South Korea’s growth forecast for the fourth quarter to 0.3 per cent quarter on quarter from its previous forecast of a 1.2 per cent contraction.

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Universal Music buys Bob Dylan’s music catalogue in ‘9-figure deal’

Universal Music has acquired Bob Dylan’s entire publishing catalogue in a nine-figure deal, the latest marker of the soaring valuation of music rights in the streaming era. 

The deal, which spans six decades of hits such as “Blowin’ In The Wind,” and “The Times They Are a-Changin’,” valued the catalogue in the hundreds of millions. Universal, the world’s largest music label, called the deal the “most significant music publishing agreement this century”, but declined to disclose the price. 

Mr Dylan, whose acclaimed songwriting won the Nobel Prize for Literature in 2016, did not formally shop around his catalogue. Rather, the renowned singer-songwriter had been in talks with Jody Gerson, chief executive of Universal Music’s publishing arm, for years, according to people close to the situation.

Unlike many other big artists, Mr Dylan owned the publishing rights to his music, which was administered outside the US by Sony/ATV Publishing.

An iconic catalogue such as Mr Dylan’s generates revenue for decades as his songs continue to be streamed, played on the radio, or used in films and advertisements.

The value of owning music has jumped in recent years as streaming revived the industry. Universal Music was valued at €30bn in a stake sale last year, well above the €6.5bn that SoftBank had offered for it in 2013.

Groups such as the UK-listed Hipgnosis have raced to buy music rights as popular songs provide a predictable income stream to investors. As streaming has become mainstream, millions of new fans are able to discover and play older hits.

The pandemic has only hastened the gold-rush as streaming on Spotify and other platforms has surged during lockdowns. 

At the same time, music rights deals have gathered pace as performing artists who write their songs have looked to sell their royalties to replace the loss of touring income, said Michael Sukin, a longtime music lawyer who has worked with the estate of Elvis Presley. 

“The multiples available for publishing catalogues are, on average, higher than I have seen them”, he said, noting that low interest rates have attracted investors to music copyrights as an alternative asset. 

Last week it was revealed that Stevie Nicks sold a stake in her publishing catalogue for $100m to Primary Wave, while last month Taylor Swift’s catalogue was sold to private equity group Shamrock for more than $300m. 

Although it does not break down the details of individual deals with artists, Hipgnosis has reported spending £560m to buy 42 catalogues — totalling around 10,000 songs — in the year to March 2020. 

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