British lawyer steps down from Hong Kong trial after intense UK pressure

David Perry, the British lawyer who was hired by the Hong Kong government to prosecute a group of pro-democracy activists, has stepped down following withering criticism from the UK government.

Dominic Raab, the foreign secretary and a former human rights lawyer, had labelled the barrister a “mercenary”, adding that he was unable to understand how anyone could take on the case “in good conscience”.

Mr Perry was hired by Hong Kong authorities to prosecute a group of veteran activists including Jimmy Lai, the media mogul, and Martin Lee, who helped write the territory’s mini-constitution governing its handover from British to Chinese rule in 1997. The trial was set to begin on February 16.

The Hong Kong justice department said on Wednesday: “Mr Perry, QC, expressed concerns about such pressures and the exemption of quarantine, and indicated that the trial should proceed without him.

“In light of the public interest involved and the imminent trial date, the DoJ has instructed another counsel to prosecute the trial as scheduled.”

Beijing imposed a national security law on Hong Kong last year following pro-democracy protests in the city in 2019. Critics say the harsh new measures have threatened the city’s independent judiciary and its status as a financial hub.

Hong Kong authorities have used the law to stage a crackdown on the opposition, arresting pro-democracy lawmakers and detaining at least 53 activists in a raid this month.

Albert Ho, part of the group on trial, had called Mr Perry’s participation “shameful”. The group was accused of organising unlawful assemblies during the protests.

Mr Lee, 82, has been dubbed Hong Kong’s “father of democracy” after helping to write the legal framework that has underpinned the territory’s governance. He said he was “proud” to be a defendant in the case.

The 73-year-old Mr Lai’s campaigning pro-democracy tabloid, Apple Daily, has long irritated local authorities.

Allies of Mr Perry said he was acting under the “cab rank” principle, whereby barristers take cases as they come up. Other lawyers, however, have argued the principle did not apply when accepting overseas cases.

Mr Raab told the BBC at the weekend that a barrister could resist such a case “under the bar code of ethics”.

He added: “From Beijing’s point of view, this would be a serious PR coup.”

Grenville Cross, the former director of public prosecutions in Hong Kong, said the pressure Mr Perry faced was part of a deliberate effort to weaken the city’s legal system. “This may play well with the anti-China lobby in the UK, it will dismay everyone in Hong Kong who values the rule of law,” he said.

CY Leung, Hong Kong’s former chief executive from 2012-17, said the pressure on Mr Perry was “naked political intervention” from the UK.

Additional reporting by Nicolle Liu in Hong Kong

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Japan Inc faces potential forced sell-off of cross-shareholdings

Corporate Japan is facing a historic reshuffle of the Tokyo Stock Exchange and aggressive new guidelines from proxy advisers designed to compel a selldown of the country’s widely criticised “cross-shareholding” networks.

The changes could force companies in banking, construction, food and transportation — sectors in which the problem is most acute — to offload cross-held shares over the next few weeks to flatter their appearances ahead of Japan’s financial year-end in March, analysts said.

Cross-shareholdings are interconnected portfolios of ownership by listed Japanese companies in each other, which protect underperforming managements with a cushion of automatic investor support. 

Although cross-holdings have been in decline since a 1990s peak, companies justify them as necessary to “maintain business relationships” — infuriating fund managers who view such webs as a recipe for complacency, low returns on equity and poor governance.

Almost 11 per cent of Japan’s listed companies have a listed shareholder owning a slice of more than 30 per cent. That compares with 0.9 per cent in the US and 0.2 per cent in the UK. 

“The opportunities for nefariously exploiting this in Japan are far greater because the legal infrastructure covering the issue is so much laxer,” said CLSA Japan strategist Nicholas Smith.

But there are growing signs of a multipronged assault on the practice. 

In a significant overhaul in April, the TSE will streamline its six boards and 3,753 listed stocks to three tiers: prime, standard and growth. Membership of the desirable prime index will depend on the March 31 level of free-floating market capitalisation, excluding cross-held shares. 

The change should in theory push a number of companies into asking cross-holders to sell down stakes before end-March to qualify for the prime index and the huge investment that will track the new index, said Mizuho Securities chief strategist Masatoshi Kikuchi.

In October, US proxy adviser ISS implemented new guidelines calling for investors to vote at shareholder meetings against directors at any company that allocates 20 per cent or more of its net assets to cross-shareholdings. The proposals will apply starting February 2022 but will be based on holdings as of March 31 this year.

Rival proxy adviser Glass Lewis followed suit with a tougher proposal, putting the cut-off line at 10 per cent. 

According to Goldman Sachs, about 9 per cent of companies listed on the TSE’s first section will not meet the ISS requirement, including advertising group Dentsu, Kyocera, and Mitsubishi Heavy Industries. 

While many analysts foresee a decisive impact on Japan’s biggest corporate names and its huge hinterland of mid-cap listed companies, others warn investors to expect a reform-crushing campaign from the powerful Keidanren business lobby.

ISS and Glass Lewis are not as influential in Japan as in the US, analysts note, and separate efforts to convince investors to vote against underperforming managements have failed.

Recent activist campaigns have targeted cross-held shares, resulting in accelerated sales of “strategic holdings” by companies including Fujitsu, shipping group NYK Line and trading house Mitsui.

But the complicated cross-shareholdings held by Toyota, one of the country’s most powerful companies, underscore the limited progress.

While Japan’s largest carmaker has offloaded holdings in some of its suppliers in recent years it still held shares in 65 listed companies as of end-March 2020 — a figure that is even larger when considering other holdings held by its group companies.

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QuantumScape: can battery pioneer live up to the hype?

QuantumScape sped to a near-$50bn valuation last month after reporting a battery breakthrough that would help make electric vehicles “the world’s dominant form of transportation”. Its subsequent plunge has highlighted the perils of joining the rush into technology stocks — particularly those in the race to take battery-powered vehicles to the masses.

After listing via a reverse merger in November, shares in the Silicon Valley start-up tripled as investors bet that its solid-state technology heralded cells that would give a game-changing boost to vehicles’ range and cut charging times.

But the stock has dropped almost 60 per cent since its peak on December 22 amid fears that QuantumScape may just be the latest hyped-up battery group that will not deliver on its early promise.

The company has never earned any revenue and has only tested a single-cell prototype. To justify its still lofty valuation — its market capitalisation remains about $20bn — it needs to scale up its technology in the face of competition from global heavyweights including Samsung, Toyota, Panasonic and France’s Bolloré Group. 

Line chart of Market cap ($bn) showing QunatumScape's rising valuation

“I’m not that convinced yet,” said Billy Wu, a battery expert at Imperial College London. “There have been loads of solid-state companies that have come and gone in the past as it’s just really hard to do.” Making something at scale, he said, was a “million miles away from doing it in the lab”.

QuantumScape was co-founded in 2010 by India-born Jagdeep Singh along with two Stanford University scientists. The former telecommunications entrepreneur, who came to the US aged 15 and graduated in computer science four years later, aims to supply batteries to the global car industry.

QuantumScape said last month it had overcome the hurdles that for the past half-century had prevented the development of a solid-state battery, which uses solid electrolytes rather than the liquid ones in conventional lithium-ion cells. 

It revealed a ceramic material it had developed, about the size of a playing card and as thin as a human hair, that enabled its batteries to be charged to 80 per cent capacity in 15 minutes. In lab testing at room temperature the cells maintained their capacity through 1,000 one-hour charging and discharging cycles, meaning a theoretical range of 300,000 miles for a Tesla Model S.

QuantumScape’s ceramic solid-state separator © QuantumScape

Key to the material is that it allows the use of lithium at the battery’s negative electrode rather than conventional graphite. The metal has up to ten times the storage capacity of graphite, the removal of which makes the cell lighter and smaller, Mr Singh said.

The company is targeting an energy density of close to 400 watt-hours per kilogramme, from roughly 260Wh/kg in today’s electric vehicles.

A panel discussion held by QuantumScape last month featured prominent supporters of its technology, propelling much of the hype.

“I have not seen data this good anywhere else,” said Stanley Whittingham, who last year shared the Nobel Prize in Chemistry for his work on lithium-ion batteries. “So I think it’s a real breakthrough. We just have to make the cells bigger and get them into cars.”

JB Straubel, Tesla co-founder, said that while he was inherently sceptical about claims made for battery technologies, QuantumScape’s performance data was “game-changing”.

“To me this fundamentally puts the lithium chemistry battery on kind of a different road map for innovation,” he said. “Seeing these kind of performance numbers is almost unheard of — a 50 per cent improvement, roughly, in energy density volumetric, is incredible.”

But other battery scientists, including Mr Wu, caution that going from one cell to the dozens required for an electric car’s battery pack will require a lot more time, research and development. 

Rivals, meanwhile, are further along the road to a viable product. Colorado-based start-up Solid Power, which is backed by Ford, said last month it had tested its solid-state cells in 22 layers and recorded an energy density of 330Wh/kg. 

Column chart of Annual consumption of batteries (GWh) showing Global lithium battery demand will be driven by electric vehicles

Peter Bruce, a professor at Oxford university who worked with lithium-ion battery inventor John Goodenough in the 1980s, said companies needed to demonstrate high energy density and longevity in real-world conditions, not only in the laboratory.

“While there have been important advances in solid-state batteries there remain problems to be solved,” he said. “Solid-state batteries will need to be significantly better than the best lithium-ion batteries in order for automotive companies to adopt them.”

Mr Singh insists that the only risk investors are taking lies in the company’s execution and that its technology has been proved to work. Comparing the challenge to scaling up production of a raincoat, he said: “You don’t want to worry about fashioning the garment until you first have the fabric.”

Volkswagen, which has invested $300m in QuantumScape and hopes to deploy its cells in 2025, has also committed an undisclosed sum to help it build a pilot factory. But while the German carmaker has the right to buy the first batteries produced, QuantumScape can then sell to any buyer. 

“We are not a Tesla competitor,” Mr Singh said. “We’re a battery company. I see no reason why every car company wouldn’t be a potential customer of ours.”

For now, many investors are keeping the faith. But observers warn that QuantumScape’s valuation remains overblown.

“I don’t think there’s anyone knowledgeable in the stock saying it’s worth that much because the maths doesn’t add up,” said Mark Newman, an analyst at Bernstein. “You have to assume that the numbers are better than projected with zero risk to get to that number.

The solid-state battery race

Nio: The Chinese electric car start-up said this month that its electric saloon launching next year would have a solid-state battery with an energy density of 360Wh/kg. It did not reveal its supplier.

Toyota: The Japanese carmaker is set to launch a solid-state battery in vehicles at the Tokyo Olympics scheduled for this year. It has also partnered with Panasonic to develop the technology.

Samsung: The Korean group has released data showing that its solid-state battery can be charged and discharged 1,000 times and will provide a range of up to 800km.

Bolloré Group: The French industrial group has already deployed its solid-state batteries in a car-sharing service in Paris and in electric buses, although they require high temperatures to work. The company says it can have a battery that can work at room temperature by 2025-2026. 

Ganfeng Lithium: China’s largest lithium producer says it is testing its solid-state batteries with carmakers, and aims to have a commercial product in the next couple of years. 

Additional reporting by Kana Inagaki in Tokyo and Patrick McGee in San Francisco

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Big Tech told work with EU or face patchwork of national laws

Margrethe Vestager has warned that Big Tech companies will face a flurry of countries passing laws to curb their power if they do not support the EU’s approach to regulation.

Ms Vestager, who is both the EU’s competition chief and its head of digital policy, said it was in the interests of the likes of Google, Facebook and Amazon to work with Brussels if they want to avoid “a completely fragmented European legal system”.

The EU has recently put forward proposals for new legislation that will span the bloc — the Digital Markets Act and the Digital Services Act — designed to create a fairer playing field and make online platforms more responsible for the content posted on them.

Senior officials in Brussels want to “move quickly” to enact the new rules, after a year in which the Covid-19 pandemic has accelerated the shift online.

Some hope that the legislation can be in place in 18 months if the rules can avoid the years of wrangling that have beset other recent pieces of tech regulation.

But EU officials are also concerned that some member states are taking unilateral action because of political pressure to rein in the tech giants.

“We are worried that countries are rushing to legislation and will seek to delay the negotiations so they can establish the rules of the game ahead of the commission,” said one person involved in the process.

France, Germany, Denmark and Austria have all moved to pass national laws, and Hungary is reportedly also considering introducing its own rules.

Big Tech lobbyists have said these efforts will undermine the EU’s attempts to have a single set of pan European rules. But Ms Vestager said she saw the national efforts as “encouragement”.

“I think that is really a very strong argument to say to the platforms: ‘Well, you either have this or you would have a completely fragmented European legal system.’”

She added: “The French and the German and actually a number of other member states, they are pushing this for exactly the same reasons as we are pushing this. 

“[EU legislation] may be strict, it may put a lot of obligations and a number of restrictions on what they can do, but at least it has pan-European scale.”

She said regulators had taken a long time to rein in Big Tech because officials were initially in awe of the companies.

“Until quite recently, we were basically very impressed. These giants have also brought a number of very important innovations to our digital economy. They have enabled a small trader to do ecommerce. They enable us to find things on the internet.

“It has taken some time because we needed the wake-up call of the Cambridge Analytica scandal, of the different antitrust cases, to see that this is systemic.”

Margrethe Vestager spoke to the FT in an interview for the FT News Briefing podcast, which is available here.

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US finance chiefs weigh how to spend vast corporate cash piles

US companies are sitting on trillions of dollars in cash that they borrowed to survive the coronavirus shock of 2020. The question now is what they do with all that money, especially if an economic recovery takes hold. 

Corporate America borrowed a record $2.5tn in the bond markets last year. For some, that funding remains crucial to their survival. Pandemic-stricken companies such as airlines and cinemas operators are still burning through cash, hoping for a return to normal when people start travelling and socialising again. American Airlines last month said it anticipated an average cash burn of close to $30m per day for the fourth quarter, while cinema operator AMC recently sought out additional financing. 

But others are in better shape. Companies in the US S&P 500 index built up an additional $1.3tn of cash on their balance sheets last year, according to data from S&P Capital IQ. Many businesses are having to decide what to do with their borrowed fortune.

1. Give it back

The first, and perhaps most obvious, option is for companies to use excess cash to reduce the scale of their borrowings — starting 2021 with a debt diet to undo 2020’s bond binge.

Bank of America’s regular survey at the end of last year showed most fund managers wanted companies to improve their balance sheets by reducing their debt load.

“This is the point in the cycle where balance sheets generally are not in good shape and even equity investors are concerned about leverage . . . For the vast majority of companies the focus will be on balance sheet repair,” noted the analysts.

Occidental Petroleum is one example of a company wanting to divert some of its cash flow to reduce its leverage — the ratio of debt to profits, which provides an important reading of corporate strength.

On its third-quarter earnings call in November, Occidental Petroleum’s chief executive Vicki Hollub said debt reduction would be an important use of the company’s cash flow “well into early 2022”.

2. Capital spending

A desire for balance sheet improvement stands at the top of fund managers’ wishlists, but its dominance declined over the second half of 2020, according to BofA’s survey.

Some investors are instead warming to the idea of executives spending more cash to help grow their business, especially as companies are now more able to snap up long-term debt financing at rock-bottom rates. 

AT&T, which has the biggest pile of net debt of any non-financial company in the world at almost $175bn, according to Bloomberg data, has reiterated its pledge to reduce this overhang. However, John Stephens, the company’s chief financial officer added on its third-quarter earnings call in October that because of its work to push out when its borrowing falls due, it can also opportunistically look to invest cash into the business. 

The company’s balance sheet and debt maturities were “in really good shape,” he said. “The bond market has responded very well to it. We’ll continue to reduce our debt levels. But we’ve got a lot of flexibility going forward.”

Other companies may feel similarly. With such a low cost of borrowing at the moment, deploying cheap funds could prove attractive. 

“If you look at the list of options, sitting on cash in this interest rate environment doesn’t make a lot of sense,” said Kevin Foley, global head of debt capital markets at JPMorgan. “You could pay it back but there are breakage costs to that. Instead, maybe you just invest in the business.”

3. Buy stock, or competitors

Another option for management teams is to take a more aggressive move, such as an acquisition or buying back stock to please their investors.

Analysts expect big US banks to spend about $10bn this quarter on share repurchases, after getting the green light last month from the Federal Reserve to restart these programmes.

They also anticipate a rise in buyouts, funded in part by the cash raised through debt markets last year. Some companies may take on more debt with this aim in 2021. Early examples this year include home improvement shop Home Depot and building materials supplier US Lumber.

4. Hold on to it

It has never been cheaper for companies to borrow. The average yields on bonds issued by both riskier high-yield borrowers, and safer investment-grade companies, are at or around record lows.

Almost 90 per cent of so-called “junk” bonds and more than 95 per cent of investment-grade bonds are trading at or above their original issue price, suggesting that they could be refinanced at a lower cost, according to indices run by Ice Data Services.

Some companies will decide it prudent to maintain a surplus of cash, financed through debt markets, given the uncertain economic outlook, strategists said. Even with the prospect of widespread vaccinations, a cash buffer would help in the event of any further economic shocks. 

“Issuers, certainly with the onset of the vaccine, are feeling good about the cash they raised,” said John Hines, head of debt capital markets at Wells Fargo.

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Portugal suffers surging Covid-19 deaths after mastering first wave

Marta Temido, health minister and one of the best-known figures of Portugal’s fight against coronavirus, stood outside a beleaguered hospital near Lisbon this week and made an impassioned plea.

“We are mobilising every health resource at our disposal,” she said. “But there is a limit, and people have to know that we are very close to that limit.”

Her appeal for the country to respect the rules of a second national lockdown came as record numbers of new cases and hospitalisations threatened to overwhelm a national health service struggling to find more beds and more staff.

After infection rates began soaring in early January, Portugal this week became the country with the highest seven-day average of new coronavirus cases per 100,000 inhabitants in the world, according to Johns Hopkins University.

Health services were coming under “brutal pressure” and doctors suffering “burnout and moral anguish” from having to make complex and difficult decisions over prioritising patients, Miguel Guimarães, head of the Portuguese Medical Association, a professional body representing doctors, said in a statement on Monday.

In March and April, Portugal won international praise for its rapid and effective response to the first wave of the pandemic. But it has since become one of the European countries hardest hit by a second wave that took hold in November and has surged to record levels this year.

António Costa, prime minister, on Monday warned the number of Covid-19 infections and deaths would continue to increase this week. “We are living through the gravest hour of the pandemic,” he said, speaking after record levels of fatalities on seven of the previous eight days. 

New confirmed cases of Covid-19 in Portugal, EU, UK, France and Spain
New deaths attributed to Covid-19 in Portugal, EU, UK, France and Spain, Seven-day rolling average of new deaths (per 100,000)

While Portugal has suffered fewer deaths in total since the beginning of the pandemic relative to its 10.2m population than many other countries — including the UK, the US, Spain, Italy and France — it recorded on Monday the third highest seven-day average of Covid-19 fatalities, behind the UK and the Czech Republic (per 100,000 inhabitants). In total, Portugal has recorded 566,958 infections and 9,246 deaths since March.

Ricardo Mexia, an epidemiologist and head of an association of public health doctors, attributes the recent surge in cases to a “perfect storm” of conditions, including a failure to flatten the growth curve of infections sufficiently in the autumn, winter respiratory illnesses and a cold spell. Psychological factors are also playing an important role, he said, as positive messaging around Portugal’s Covid-19 vaccination programme, which began in late December, led people to drop their guard.

Health experts criticised the government for relaxing confinement measures at Christmas too far, lifting travel restraints and allowing families to decide for themselves how many households and people could gather.

Marta Temido, health minister, said: ‘We are mobilising every health resource at our disposal’ © Antonio Pedro Santos/EPA/Shutterstock
Health services were coming under ‘brutal pressure’ and doctors suffering ‘burnout’ © Patricia de Melo/AFP/Getty

“An increase in cases was inevitable after the holiday and this was not properly planned for,” said Mr Mexia.

Doctors and nurses across the country have given dramatic accounts of the pressures they face. “I saw a colleague crying after leaving a Covid ward physically and psychologically exhausted five hours after her shift should have ended,” Ricardo Baptista Leite wrote on social media this week. “As one patient is stabilised, three or four more patients needing stabilisation arrive.” Mr Baptista Leite, health spokesman for the opposition Social Democrats, volunteers as a hospital doctor at weekends.

“We’ve already seen patients being triaged in lines of ambulances waiting outside [overcrowded] hospitals,” Mr Mexia said. Portugal’s track and trace system for identifying chains of infection was also struggling to cope, he said, with thousands of people who should be in isolation not being monitored.

“We haven’t yet reached the kind of catastrophic collapse [of the health system] that we saw in Spain and Italy, but we are close to it,” said João Gouveia, a doctor who heads Portugal’s intensive care association. But if infections continued to increase at the current rate for another week or so, the health service could suffer a similar breakdown he said: “The next six or eight weeks will be very tough.”

Under fire from doctors and epidemiologists for not imposing more restrictive measures sooner and not enforcing them effectively, the government is appealing to people to stay at home. “We succeeded in defeating the virus in an exemplary fashion during the first wave . . . and now we have to do it again,” Mr Costa said.

Portugal on Friday moved from a tiered regional system of confinement to a full national lockdown intended to mirror the successful restrictions of last spring. Mr Costa, however, was forced to tighten the measures on Monday after large numbers of people filled parks and strolled beaches at the weekend. The doctor’s professional body criticised his government for “half measures that serve neither the health sector nor the economy”.

The government has ruled out closing schools or universities, which were shut during the first lockdown. Some epidemiologists argue this is only postponing their inevitable closure as the pandemic worsens. But Mr Costa said interrupting a generation’s education for a second year “cannot be justified in health or social terms”. He told parliament on Tuesday, however, that the government would consider closing schools if the fast-spreading variant of the virus first identified in the UK became dominant in Portugal.

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Biden prepares for a presidential inauguration like no other

Perhaps the only inauguration to compare with the massive security surrounding Joe Biden’s was that of Abraham Lincoln in 1861. On the eve of the US civil war, America’s newly elected president had to dodge and weave his way through slave state territory to reach America’s capital. Unlike Lincoln, who arrived by train incognito in the middle of the night, Mr Biden cancelled his ceremonial arrival in Washington on Amtrak — a journey he took every day for more than three decades. The security risk was just too great.

But Mr Biden has gone ahead with other risks. Against the advice of some in the security agencies, Mr Biden will be sworn into office on the steps of the Capitol — the same building that was stormed two weeks ago by Donald Trump’s “Stop the Steal” mob. Along with former presidents Barack Obama, George W Bush and Bill Clinton, Mr Biden will lay a wreath at the tomb of the Unknown Soldier across the Potomac river in Arlington cemetery after the inauguration.

In a sign of heightened concern, officials have conducted background checks on the 25,000 soldiers who will patrol and guard Washington’s vast green zone. The day before the inauguration, two National Guard soldiers were removed from duty because of suspected links to extreme rightwing groups.

“I have to question the wisdom of holding these events outside — it seems like an unnecessary risk,” said Michael Beschloss, a leading presidential historian. “It is questionable whether the ‘business-as-usual’ image Biden wants to project outweighs the non-trivial threat to his security and other dignitaries.”

In 1861, the US army were on the lookout for the infamous “plug-uglies” — a nativist criminal network that wanted to assassinate Lincoln. He made it through the day unscathed. At least once during his presidency, an enemy sharpshooter penetrated his tall hat. He eventually fell to an assassin’s bullet in 1865.

The Secret Service, the FBI and the DC police have been closely monitoring encrypted communications among the panoply of far-right groups that wish to prevent Mr Biden’s swearing-in — or who view his presidency as illegitimate. Of these, the Oath Keepers, the three percenters, the Proud Boys and various QAnon-inspired groups are prominent.

Even without the security dimension, Mr Biden’s inauguration would have been largely virtual. With the US pandemic death toll continuing to mount, there would have been no traditional crowds lining Pennsylvania Avenue between Capitol Hill and the White House.

With the US pandemic death toll continuing to mount, there will not be the traditional crowds © Susan Walsh/AP

Nor will there be any ceremonial handover between Mr Trump and Mr Biden. The last time a departing president refused to attend the swearing-in of his successor was in 1869 when Andrew Johnson boycotted the inauguration of Ulysses S. Grant. “Johnson had just been impeached, he was angry at having lost the election and he didn’t have many friends left,” said Mr Beschloss. “Does that remind you of anyone?”

The healing tone and content of Mr Biden’s address is likely to strike a sharp contrast to Mr Trump’s dystopian “American carnage” speech four years ago. So, too, will the atmosphere. Mr Trump’s highly-litigated inaugural committee faces court hearings later this year. The District of Columbia’s attorney-general has accused Mr Trump’s team of having directed a large chunk of the $107m it raised for the event to pay inflated prices at the Trump International Hotel and other arms of the Trump Organisation.

“The experience was the most shocking of my life,” said Stephanie Winston Wolkoff, who was a key player on the Trump inaugural committee, and who, as a former employee at Vogue, had befriended Melania Trump when she appeared on the magazine’s cover in 2003. “The level of self-dealing and deceit that I saw in Trump’s inaugural celebrations was a foretaste of what America would go through for the next four years.”

Mr Biden’s inauguration will also strike a very different kind of contrast to Barack Obama’s first one in 2009, which drew crowds of 1.9m in front of a glinting snow-covered foreground. Steven Spielberg, the Hollywood director, remarked that it would be impossible to create a film set like that.

Even without the heightened security tensions and the pandemic, this occasion would have been different. Mr Biden is not known for his strong oratory. Nor is he known for his brevity. The most celebrated inaugural speeches have tended to be the shortest: George Washington in 1789, Lincoln in 1861 and 1865 and John F. Kennedy in 1961.

Kennedy’s “ask not what your country can do for you” speech is what history best remembers about his event. But it was also marred by the appearance of smoke from under the lectern when Cardinal Richard Cushing, the archbishop of Boston, was giving his blessing. The cardinal later said that he had strung out his prayer so as to protect Kennedy from a possible bomb blast. In the event, the smoke turned out to been caused by an electrical fault.

Cushing’s blessing went on for longer than JFK’s address. Although the outgoing president, Dwight D. Eisenhower, was no fan of Kennedy, the jovial atmosphere around that event, and most other inaugurations, could not be further removed from Mr Biden’s.

America’s 46th president will be hemmed in by a vast cage of protective fortifications more redolent of a country at war than a peaceful democracy. The man who made this all possible — Mr Trump — will have left the city several hours earlier for his Mar-a-Lago club in Florida.

The departing president and first lady have not even upheld the tradition of showing the incoming first family around the White House. Nor has Mr Trump formally conceded defeat. “Melania didn’t even invite Jill Biden around for tea,” said Ms Wolkoff. “They are leaving office as they entered it: with no grace and no respect.”

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Strangely lost for words, Trump exits White House for last time

Donald Trump has spent his final days in the White House cut off from his legions of supporters after he was banned by Twitter and Facebook. For the first time in four years, the outgoing president appears to be lost for words.

After his defeat to Joe Biden in November’s election, Mr Trump launched a last-ditch bid to cling to power, peddling fake conspiracy theories of mass voter fraud, fighting the outcome in the courts, and pressuring Republican officials to overturn the result.

But that all changed on January 6, when he was blamed for inciting the deadly attack on the US Capitol, which resulted in him becoming the first president to be impeached not once, but twice.

For four years, the White House hosted a string of made-for-television events that Mr Trump would hold with titans of industry from blue-chip companies and celebrities, but the waning days of his administration have been eerily quiet.

One of the few visitors last week was Mike Lindell, an outspoken conspiracy theorist and chief executive of MyPillow, a tiny company that makes pillows for people who have trouble sleeping.

Mr Trump’s official schedule has been virtually empty. “President Trump will work from early in the morning until later in the evening. He will make many calls and have many meetings,” it has said almost every day since Christmas, triggering much ridicule from critics.

On Wednesday morning, when president-elect Biden wakes up in Blair House, the presidential guest house across from the White House, Mr Trump will be preparing to leave on the Marine One presidential helicopter. Then he will board his final flight on Air Force One to West Palm Beach, Florida, where he will take up residence at his Mar-a-Lago resort.

In a final act of defiance that underscores his unorthodox presidency, Mr Trump will be the first president in more than 150 years to snub his successor by not attending the inauguration. The event will be attended by all the living former presidents — Barack Obama, George W Bush and Bill Clinton — except 96-year-old Jimmy Carter.

Mr Trump will hold a farewell event at 8am at Joint Base Andrews, the military airport outside Washington used for the president. But in a sign that the White House was struggling to draw people to the event following the US Capitol attack, it resorted to inviting former staff who have long been deemed personae non gratae by Mr Trump.

Anthony Scaramucci, the former White House communications chief who became a vocal critic of Mr Trump, received an invitation for himself and five guests, but turned it down. John Kelly, a former chief of staff who also drew the ire of Mr Trump, told CNN that he too had declined an invite.

“Yes he is with me that morning having his fingernails pulled out,” Mr Scaramucci tweeted of Mr Kelly’s decision.

Mr Trump’s exit closes a chapter in the most tumultuous period in modern American politics. In his inaugural address, he spoke about “American carnage”, in a dark speech that prompted George W Bush to comment, “that was some weird shit”.

He closed out his presidency four years later with real carnage when his rhetoric about a stolen election was accused of triggering the violent siege on the Capitol that left five people dead.

The inglorious end to the Trump presidency comes after a tumultuous year for the 45th occupant of the White House. In February, he was acquitted during his first impeachment trial. Shortly after, coronavirus arrived on US shores and Mr Trump — who would contract the disease himself — was repeatedly attacked for his administration’s response to the pandemic.

Then came his historic second impeachment this month.

Even Mitch McConnell, the top Republican in the Senate, who rarely rebuked the president, has decided that enough is enough. On Tuesday, he said the pro-Trump mob had been “fed lies” and “provoked by the president”.

Mr Trump leaves office with the lowest approval rating of any president. According to the Pew Research Center, his approval rating fell to 29 per cent after averaging 40 per cent until the attack on the Capitol.

Line chart of Evaluation of Donald Trump's handling of his presidency (%) showing As Trump leaves office his approval rating falls to its lowest level

But he retains a strong support base. And he has secured fealty from many Republicans with an implied threat that he will mobilise his fans behind challengers in Republican primaries if they break with him.

On the eve of his departure, Mr Trump posted a pre-recorded video on YouTube, in which he said the movement that propelled him to the White House four years was “only just beginning”.

The former New York property mogul has previously hinted that he would run for president in 2024. But he also faces the possibility of conviction in his forthcoming Senate trial and being barred from holding public office in the future.

Mr Trump will also be hampered by the loss of the social media platforms that helped him bypass the mainstream media.

In an interview with the Financial Times shortly after his inauguration in 2017, he seemed taken aback when asked whether he would dial back his tweeting and become more presidential.

“Without the tweets, I wouldn’t be here . . . I have over 100m followers between Facebook, Twitter [and] Instagram . . . I don’t have to go to the fake media,” Mr Trump said. “You lost, I won,” he added, referring to the media.

Yet in the end, even though he won 74m votes in November — more than any previous candidate in a US election except Mr Biden — he still finished his presidency with the label he hates more than any other: loser.

Graphic by Brooke Fox and Christine Zhang

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EU immigration: Frontex faces scrutiny over its growing role

The camera lingers first on the EU’s circle of stars insignia and then shifts to a close-up of the officer’s side cap, styled similarly to those used in the US military and French police. The man salutes in front of a logo for the armed force he represents: the Frontex European Border and Coast Guard.

Set to stirring music, the promo video to celebrate the launch last week of Frontex’s first uniform is a 77-second microcosm of a profound change in EU migration policy. The 27-member European bloc may not have the army that some cherish, but in order to protect its borders it now has its first weaponised corps, which is due to swell to 10,000.

To its supporters, Frontex — a once-obscure agency based in Warsaw — has become key to the EU’s strategy of controlling entry to its territory. It is an important milestone in the bloc’s efforts to create functioning institutions that can implement its security and foreign policy objectives. The US, some European officials like to point out, had a coastguard before it had its own navy.

Critics, by contrast, see Frontex as the spearhead of a militaristic “Fortress Europe” strategy that has been plagued by allegations of abuses and lacks sufficient accountability. Giulia Laganà, a migration specialist at the Open Society European Policy Institute, brands the Frontex video a “ludicrous” example of the “utter hypocrisy” of the EU’s “failed migration policy”.

The Frontex headquarters in Warsaw, Poland. The once obscure agency has become a key part of the EU’s strategy of controlling entry to its territory © Wojtek Radwanski/AFP/Getty
Frontex officers deal with Iranian and Iraqi Kurdish migrants who have just arrived by boat in Calabria, southern Italy © Alfonso Di Vincenzo/LightRocket/Getty

“Frontex want to make themselves look like the equivalent of homeland security or ICE [Immigration and Customs Enforcement] in the US,” she says. “The objective is keeping as many people out of Europe as possible, by any means possible.”

As it gains a higher profile, Frontex is facing a growing docket of concerns. On the same day the new uniform was unveiled, reports revealed that its headquarters had been raided in December by investigators from Olaf, the EU’s anti-fraud office. The agency has also come under increasing pressure from the European Commission over its alleged failures to implement human rights safeguards and write crucial rules including on how its agents should use firearms.

Most pressingly, Frontex faces an inquiry into multiple claims that it has been complicit in illegal “pushbacks” of refugees trying to enter the EU on foot or in flimsy boats. This can endanger migrants’ lives at sea or leave them stranded in countries such as Bosnia, sometimes in makeshift camps. Such actions also deny people the right to apply for asylum, even though some may be fleeing conflict zones or seeking refuge from persecution. Initial results of the review, set up by Frontex’s own management board, which comprises representatives of EU member states and the commission, are due to be discussed on Thursday. The report is likely to fuel the already intense battles over the agency’s activities and future.

Irregular migration to the EU is way down on its 2015 peak


Mediterranean land and sea arrivals to the EU in 2015


Mediterranean land and sea arrivals to the EU in 2016


Mediterranean land and sea arrivals to the EU in 2020 (Source: UNHCR)

Frontex defends its record in response to questions by the FT. It says it is co-operating with the Olaf probe, adding that raids like last month’s “do not necessarily imply any malpractice”. It says an internal inquiry had made a preliminary finding that there was no evidence of involvement in pushbacks by Frontex staff, or officers deployed in Frontex operations.

It also points to the scale of its transformation and its landmark status in the 70-year history of the EU and its forebears. “The creation of the EU’s first uniformed law enforcement service is a Herculean task,” it says.

Money and mandate

The story of Frontex is also the tale of how migration has become a dominant theme in EU politics since it sparked a crisis in 2015. In that year, more than 1m people arrived in the bloc, many from civil war-racked Syria, triggering border closures by some EU states and bitter arguments about where the refugees would go. The policy debate since then has revolved around how to prevent a repeat. This has stoked deep divisions between Mediterranean nations that want to redistribute arriving asylum seekers around Europe, and states such as Hungary that refuse to take any.

One of the few big policies member states have managed to agree on is the need to beef up Frontex. The 15-year-old agency was given the task in 2019 of building a standing cadre of 10,000 officers by 2027. It says it will have hired 1,000 of those by the end of this year, with the remainder to be made up of secondees from national authorities. The agency’s budget has grown from €142m in 2015 to €460m last year.

Frontex also enjoys support at the top level of politics. In 2018 Angela Merkel, chancellor of Germany, which took in more than 1m refugees from the 2015-16 arrivals, backed Frontex in a speech to parliament. “The question of fighting illegal migration means we have to strengthen external border protection,” she said. “That means also that the countries with an external border must give up some of their national responsibilities.”

Frontex officials question migrants picked up in the Mediterranean in Malaga harbour © Guillaume Pinon/NurPhoto/Getty
A protest outside the regional EU office in Warsaw against the treatment of refugees stuck at the Turkish border with Greece © Jaap Arriens/NurPhoto/Getty

But the speed of Frontex’s growth in both money and mandate has fuelled questions about the agency’s governance. These are magnified because of its mandate to deploy in neighbouring countries such as those in the western Balkans and co-operate with still farther-flung nations.

“If you give an organisation a lot of money and you constantly reiterate that they are at the centre of migration policy, you get this inflated sense of importance,” says Hanne Beirens, director of the Migration Policy Institute Europe think-tank. “Because of that there has been less emphasis on making sure there is a control mechanism on the activities of Frontex.”

As Frontex grows, the EU’s migration neuralgia has continued to flare, despite irregular arrival numbers falling to a fraction of 2015-16 highs. While national authorities and Frontex have faced questions over allegations of border violence in several countries including Croatia and Hungary, the Mediterranean and Greece in particular have become the centre of attention. Greece’s eastern neighbour Turkey is home to around 4m refugees and migrants, the vast majority of them Syrians, and also serves as an important transit point for people seeking to reach Europe from Afghanistan, Pakistan, Iran and African nations.

Last March, Turkey’s president Recep Tayyip Erdogan followed through on a threat to “open the gates” to refugees. The move showed the fragility of a 2016 deal under which Turkey has received billions of euros in EU funding in exchange for taking back refugees who have travelled from its soil to Greek islands. Thousands travelled to the border with Greece, which Ursula von der Leyen, European commission president, then praised as the EU’s aspida, or shield. Media investigations later suggested two men may have been shot dead by Greek security forces — allegations Athens denies.

The burnt-out Moria refugee camp on Lesbos. Fires left thousands of migrants homeless © Dimitris Tosidis/EPA-EFE

In September, fires at the Greek island refugee camp of Moria left thousands homeless and exposed the squalor of the overcrowded facility. Ylva Johansson, EU home affairs commissioner, unveiled a proposed new migration “pact” the following month with the declaration that the bloc should have “no more Morias”. She acknowledged that the disaster and its aftermath showed the “failure” of the EU to agree needed migration and asylum reforms.

But critics of the bloc see the Greece-Turkey border troubles and the Moria conflagration as features of EU migration policy, not bugs. “Greece has followed hardline policies carried out in the UK and EU, with the protection of its partners, after Ursula von der Leyen called it the ‘shield’ of Europe,” says Epaminondas Farmakis, co-founder of HumanRights360, a Greek activist group.

Marine frontline

Frontex operates in the Aegean Sea under the banner of Operation Poseidon. It deploys vessels and aircraft mostly seconded from EU countries and co-operates closely with Greece’s small coastguard. Frontex says it supplies almost 600 “guest officers”, who perform border surveillance and assist in the identification and registration of incoming migrants, as well as debriefing and screening.

The Aegean has become a centre of allegations of pushbacks of migrants, in contravention of international law and what are supposed to be EU norms. Louay Alnassar, a 33-year-old Syrian IT specialist living in Turkey, claims he was the victim of a pushback in March 2020. He says he paid €2,500 to cross from Turkey to the Greek island of Rhodes at night in a rubber dinghy with 17 other people. They landed on a deserted beach at 6am and were picked up shortly afterwards by a police patrol.

Frontex officers on a patrol vessel in Malaga after intercepting a dingy carrying migrants. In the Aegean Sea off Greece the border force has been accused of the pushback of migrants © Jesus Merida/SOPA Images/LightRocket/Getty
One of the migrants in a thermal blanket after being rescued in the Mediterranean © Jesus Merida/SOPA Images/LightRocket/Getty

Mr Alnassar says he and his fellow travellers were locked up with very little food and water for two days, during which no one took down their details. On the second night, masked security force agents took them to a port and put them on a coastguard boat that sped out to sea for about an hour. “They took our phones and pushed us into orange life rafts, shouting at us the whole time,” he recalls. “We drifted in the dark for about two hours, then a Turkish coastguard boat picked us up.”

Greek authorities either deny that pushbacks occur or claim the country is protecting its national borders according to international law. Kyriakos Mitsotakis, prime minister, said in August that pushbacks “didn’t happen” and claimed his country was the victim of a “serious misinformation campaign”. In September, Giannis Plakiotakis, shipping minister, said Greece had “prevented the entry of more than 10,000 people since the start of the year”, while avoiding saying exactly how.

“Greece neither orchestrates nor encourages the so-called pushbacks,” the migration ministry in Athens told the FT.

Frontex has faced allegations of complicity in these illegal pushbacks, from human rights groups, media reports and other sources. A joint probe published by international journalistic outlets and investigative groups in October found six incidents in which the agency was allegedly either directly involved in, or near to, a pushback. In a separate October incident, Swedish coastguards said a Frontex co-ordinating officer discouraged them from filing a so-called “serious incident report” after they saw a pushback into Turkish waters by Greek authorities off the island of Chios, according to a written exchange between Frontex and its management board seen by the FT.

Frontex declines to respond specifically to alleged incidents, citing ongoing inquiries into them. It says it is co-operating closely with the working group review of the allegations set up by Frontex’s management board. If necessary, it would upgrade its reporting mechanism to “make sure no possible violation of fundamental rights goes unreported,” it adds.

Human rights concerns

The pushback allegations play into wider claims that Frontex pays insufficient attention to oversight of human rights. Far from forcing member state authorities to do better, its critics say, it has failed to hold them to account.

“It’s a very closed agency, I must say,” says Tineke Strik, a Dutch Green politician, who has examined Frontex as a member of the EU parliament’s committee on civil liberties, justice and home affairs. “It’s very difficult to find out if the procedures that are in place, such as for serious incident reports and complaints, are effective enough.”

The European Commission is also scrutinising Frontex’s performance. It says it is “deeply concerned” about reports of pushbacks and non-compliance with EU laws on human rights and the right to access to asylum procedures.

Monique Pariat, the commission’s director-general for migration and home affairs, raised a series of problems in a letter sent last month to Fabrice Leggeri, Frontex’s executive director, and seen by the FT. Ms Pariat attacked Mr Leggeri over the way he had presented “a number of important points” to the commission and EU legislators.

Monique Pariat, left, the European Commission’s director-general for migration and home affairs raised a series of problems in a letter sent last month to Fabrice Leggeri, right, Frontex’s executive director ©
The new Frontex uniform was launched last week ©

Ms Pariat alleged Frontex acted unlawfully by publishing job vacancies for a fundamental rights monitoring officer and deputy without management board approval. She also pointed to unjustified delays in Frontex recruitment, including of 40 fundamental rights monitors. She added that the agency had made inadequate preparations for its standing corps, including a delay in drawing up draft rules on the carriage and use of weapons.

Frontex says it fully respects human rights and points to the difficulties of its task, particularly during the global health crisis. It regrets any miscommunications that might have occurred in its work with EU member states and institutions. “Unfortunately, some misunderstandings in such demanding times and online discussions are unavoidable,” it says, adding that it looks forward to “continued collaboration to together keep our borders safe”.

The Frontex promo video encapsulates wider questions about the agency’s commitment to transparency. Frontex would not confirm the identity of the model — whose name tag read “Mihail Gan” — or whether he even worked for the agency. It denies that his garb was the “militaristic uniform of the armed forces”, adding that it has been endorsed by the commission and member states.

Frontex officers will become ever more visible as the first public face of the EU seen by many arrivals. Even as controversy over its activities grows, its influence continues to expand. As the agency itself puts it, the European bloc’s unprecedented border force is already “becoming a reality”.

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Dear Joe Biden, deficits still matter

The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘Ten Rules of Successful Nations’

New US president Joe Biden arrives at the White House on Wednesday with splashy plans for $1.9tn in new stimulus, buoyed by a solidifying consensus in the American elite that deficits don’t matter.

Warnings that rising deficits will reignite inflation and undermine the dollar have proved wrong for decades, so deficit hawks are increasingly easy to mock as crotchety old scolds. The new view, expressed by leading figures from the IMF, academia and media, is that with inflation long dead and interest rates at record lows, it would be unwise, even irresponsible, not to borrow to boost the economy. The amounts — billions, trillions — hardly matter, especially not for the US, which still has the world’s most coveted currency.

Mr Biden captured this elite view perfectly when he said, in announcing his spending plan: “With interest rates at historic lows, we cannot afford inaction.”

This view overlooks the corrosive effects that ever higher deficits and debt have already had on the global economy. These effects, unlike roaring inflation or the dollar’s demise, are not speculative warnings of a future crisis. There is increasing evidence, from the Bank for International Settlements, the OECD and Wall Street that four straight decades of growing government intervention in the economy have led to slowing productivity growth — shrinking the overall pie — and rising wealth inequality. 

This research does not question the use of stimulus during a crisis; the problems flow from the cumulative impact of constant stimulus. That suggests strongly that the growing scale of each new infusion matters as well. Average voters are justifiably befuddled by the claim that governments can borrow without limit or any consequences.

We calculate that last year the US and other developed nations committed a median sum equal to 33 per cent of their gross domestic product to stimulus, shattering the mark of 10 per cent set back in 2008. Those figures do not include the Biden plan, which will bring total US fiscal stimulus to fight the pandemic to more than $5tn, more than the GDP of Germany or Japan. That’s a lot for an economy to absorb in less than a year, and Mr Biden plans a second, more ambitious spending proposal next month.

The incoming administration argues that low rates liberate governments to borrow and spend in unlimited amounts for the foreseeable future. But this claim gets the story backward. Instead of a path to freedom, low rates are a trap. They encourage more borrowing and rising debt, which drags productivity lower and slows growth. That makes the economy financially fragile, forcing central banks to keep rates low. Given today’s very high levels of debt, only a small increase in interest rates would make the debt burden unsustainable.

This “debt trap” is, despite elite dismissals, a real issue. Public debts in the US and other developed countries averages about 110 per cent of GDP, up from 20 per cent in 1970, according to IMF data. During the Bretton Woods system, from 1945 to the early 1970s, many developed countries ran consistent budget surpluses. Since then they have run consistent deficits, in good times and bad.

Increasingly, the money printed by central banks goes to finance government debts. Many elites see this as fine, since it has yet to revive consumer price inflation. Though governments can print all the money they want, they cannot dictate where it goes, and much of it has stoked a different kind of inflation — asset price inflation. Since the 1970s, the size of financial markets has exploded from about the same size as the global economy to four times the size. Most of those gains go to the wealthy, who are the main owners of financial assets. 

As the era of constant stimulus gained momentum, average wealth in the past three decades has risen about 300 per cent for US families in the top 1 per cent, 200 per cent for the next 9 per cent, 100 per cent for the next 40 per cent, and zero per cent for the bottom 50 per cent. One out of 10 families in the bottom 50 per cent have negative wealth (they owe more than they own).

When those on the left, such as Senator Bernie Sanders, promise much more stimulus to come, they do not make this link between stimulus and rising wealth inequality. Yet Wall Street traders do. They drive up asset prices when Mr Sanders calls for more spending, or US Federal Reserve chair Jay Powell promises continued monetary support. They see these vows as more money in their pockets.

But recent studies show that easy government money has ended up supporting the least productive companies, including heavily indebted “zombies” that would otherwise fail. The support also favours monopolies that have expanded not because of their innovation but by lobbying governments for favours and sidelining smaller rivals. The OECD warned, in a 2017 study linking falling productivity to easy money, that these trends will make it harder for societies to deliver “on their promises to current and future generations”. 

BCA Research recently demonstrated that nations with big spending governments tend to suffer slower per capita GDP growth. Similarly, Ned Davis Research found that, since 1947, US government spending above 22 per cent of GDP is correlated with periods of slower economic growth. It warned that this share has risen above 34 per cent during the pandemic. My team also found a statistically significant link between periods of rising government debt and slow GDP growth. These studies cannot show causation, but the consistent link between growing deficits and weakening growth is unlikely to be coincidence. 

Even those arguing for unlimited new borrowing agree the money would be best invested in roads, green energy, and other projects that would boost productivity and future growth. Nonetheless, comforted by the faith that deficits don’t matter, Biden-backers are supporting a plan stuffed with cash transfers, including a $1,400 check for most Americans,

Like many in the no-worries camp, Mr Biden says more stimulus is urgently needed to limit the damage from job losses and bankruptcies. There was a case for that while the economy was in decline. But as vaccines roll out and normalcy returns, injecting more stimulus into a recovering patient is likely to do more harm than good. 

The average person understands that there is no free lunch. The path to prosperity cannot be so easy as to just print and spend. If he relies on low rates to fund further massive government spending increases, Mr Biden will double down on policies that have magnified the problems he aims to fix: weak growth, financial instability and rising inequality. Decades of constant stimulus have left capitalism weaker, less dynamic and less fair, fuelling angry populism. Deficits matter for the damage they are already inflicting. 

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