Islamic Development Bank Deploys Sukuk to Counter Corona Impact

Respond, Restore, and Restart. That is how the Islamic Development Bank Group (IsDB) aims to tackle the economic fallout of the corona pandemic. The group has set aside $2.3 billion for its Strategic Preparedness and Response Programme. The funds are primarily destined for erecting a robust trade and investment platform that allows OIC (Organisation of Islamic Cooperation) member countries to access opportunities and attain the United Nations’ Sustainable Development Goals.

On Monday, a webinar organised by the IsDB in close cooperation with the United Arab Emirates’ Ministry of Economy and the Annual Investment Forum (AIM) in Dubai, attracted hundreds of participants, representing a wide array of industries, multilateral organisations, and other stakeholders.

In his opening remarks, IsDB President Dr Bandar Hajjar emphasised that the group has been working tirelessly to mobilise every available dollar towards the relief effort. The bank’s private sector entities (Islamic Corporation for the Insurance of Investment and Export Credit – ICIEC; Islamic Corporation for the Development of the Private Sector – ICD; and, International Islamic Trade Finance Corporation – ITFC) have some $700 million at their disposal for initiatives to stimulate foreign direct investment and trade.

ICIEC CEO Oussama Kaissi expressed concern over the effects of the pandemic on trade volumes and small- and medium-sized enterprises: “Harsh conditions for global trade are exacerbated by the tightening of the export credit insurance market, leaving many businesses highly exposed. Now more than ever, international partners must come together in solidarity to support countries as they face this once-in-a-generation crisis. It is essential for ICIEC to provide support in stabilising the trade ecosystem whilst also planning for recovery across our 47 member countries.”

Ayman Sejiny, ICD CEO, added that his corporation has set up a dedicated $250 million facility for SMEs in member states severely affected by the viral outbreak: “This emergency funding would be mainly in the form of medium- to long-term financing instruments to alleviate the economic burden faced by existing and new clients.”

During the webinar, the IsDB unveiled three online initiatives set up with help from the UAE Ministry of Economy that will help countries and private sector businesses showcase opportunities to investors.

OIC member states may partake in Digital Country Presentations – a new global gateway that offers investors, governments, and institutions an in-depth overview of upcoming trade and investment opportunities.

SMEs can open a virtual ‘stall’ on Made in Series – an open platform that enables smaller businesses to present products, projects, and services to a global audience. A Startups Pitch Competition encourages budding entrepreneurs to hone their presentational skills with winners gaining access to global startup platforms where they may secure the financing and expertise necessary to underpin the accelerated development of their business.

Earlier this month, the IsDB made headlines with the successful placement of its first-ever sustainability sukuk (a sharia-compliant bond). The $1.5 billion raised is earmarked for social projects, including job creation and inclusive access to essential services, under the IsDB’s Sustainable Finance Framework.

Due to strong demand, the joint bookrunners decided to reduce the mid-swap price by 15 basis points to 55 bps, resulting in an overall yield of 0.908% – the lowest-ever for a sukuk issued by the IsDB. The bank’s first ($1bn) green sukuk, placed late last year, carried a 1.909% rate. In a testament to the IsDB’s institutional strength, 79% of the sustainability sukuk was allocated to central banks and other official institutions.

According to Group President Hajjar, the latest sukuk placement allows the IsDB to tackle the aftermath of the pandemic with strong interventions in affected countries and sectors. Dr Hajjar also called on the Islamic finance sector to make use of social and sustainable sukuk as alternative asset classes that can help counter the impact of the corona pandemic.

Watch the webinar:

https://www.youtube.com/watch?v=oKwOEAK3ASk


Brazil’s Economic Crossroads: Which Path Will It Choose?

[caption id="attachment_16196" align="alignright" width="300"] Rio De Janeiro, Brazil: Aerial panorama of Christ and Sugar Loaf Mountain[/caption]

Latin America’s largest economy entered the pandemic before it could heal from its worst recession in decades.

First appeared at Americas Quarterly

By Otaviano Canuto

As the pandemic unfolds, Brazil is paying a huge human cost, with the number of victims rising quickly. The scar of COVID-19 will take a long time to heal. And the country will also have to battle on the economic side, where the impact will be deep and long-lasting.

Starting from a jump in the already high level of debt in relation to its GDP, coming from both sides of the equation: spending has skyrocketed while a steep decline in its gross domestic product is expected for this year. The trajectory for the country’s economy over the next decade, it is clear, will be lower than what was expected prior to COVID-19.

Current projections illustrate Brazil’s coming fiscal crossroads: The country can choose either stagnation and insolvency or a gradual fiscal adjustment with better growth prospects. And whether any growth will even be sustainable will depend on Brazil’s ability to move forward with structural reforms that can lift private investments. Regaining the country’s attractiveness for foreign investments will play a key role in its recovery.

For that to happen, though, the agenda of structural reforms – tax, business environment, sector regulatory framework – must return to the forefront, once the current focus on recession-flattening policies can be left behind. Structural reforms that aim at boosting private investments will improve the debt-to-GDP ratio. The multi-year horizon typical of infrastructure investment decisions, i.e. going beyond the current short-term dire economic prospects, means the participation of the private sector in them is necessary to circumvent the lack of fiscal space that will be the reality for Brazil in the decade ahead.

Higher investment in infrastructure and other long-term projects would bring improvements on both demand and productivity sides. The sooner the regulatory framework for private sector investments in sanitation — where changes were recently approved in Brazil’s congress — roads, etc. is fine-tuned, the faster investment decisions will be made.

No time to waste

The latest forecasts by the Senate’s Independent Fiscal Institute (IFI in its Portuguese acronym) project Brazil’s GDP will fall by 6.5% this year, and only partially recover ground next year with a 2.5% growth rate. Depending on the length of the still-unfolding pandemic and its impact on the economy, as well as on the effectiveness of the policies so far implemented to flatten the recession curve, we could also anticipate both an optimistic and a pessimistic path: In the best-case scenario, a contraction of 5.3% in 2020 would be followed by 4.3% growth in 2021. In the worst-case scenario, GDP would shrink by 10.2% this year and by 0.3% the next.

The IFI report projects the potential annual GDP growth rate at 2.3% in the period from 2022 to 2030, with basic real interest rates assumed to converge to 3.3% per year. Such figures are lifted or downgraded in the two other scenarios, the more optimistic and the pessimistic one depending on how favorably — or unfavorably — the country-risk premium will affect exchange rates, inflation, and real interest rates.

The co-evolution of the country-risk premium and the public debt-to-GDP ratio will be key to defining whether Brazil’s GDP takes the more optimistic or more pessimistic trajectory. Like in most countries, anti-catastrophe public policies taken to flatten the recession curve, together with a fall in tax revenues, will – temporarily but steeply – raise the public sector nominal deficit and significantly lift the level of public debt as a proportion of GDP. As a result, even assuming a return to the pre-COVID-19 fiscal framework – including the constitutionally-mandated federal government spending cap that was suspended to allow for the emergency measures – the country will face a fiscal adjustment challenge steeper than the one already prevailing before the pandemic.

 Turning the tide on outflow

It is worth paying attention to the link between structural reforms and private investments, as well as to the changes — in magnitude and profile — of foreign capital flows to Brazil in the recent past. Although a positive current-account balance is expected in 2020, the tendency is one of deficits. Capital inflows have more than covered those deficits in the recent past and, in fact, as recently highlighted in reports by A.C. Pastore & Associates, they are to be held responsible for the dramatic accumulation of foreign reserves by the country, since the mid-2000s, which has underlined its solid position in external accounts. Besides their implications for exchange rates and domestic financial conditions, such capital inflows were a positive factor for investments in the Brazilian economy.

After Brazil lost its investment grade, the country’s capital account changed directions, and outflows were accentuated during the pandemic. Since the 2015-16 recession, the flow of foreign money to equities and fixed-income instruments has turned negative while the transition to lower domestic interest rates has also diminished the country’s attractiveness as a yield provider. The partial return of capital into financial instruments in the last few weeks must not be confounded with a return to previous conditions, as they have reflected a partial unwinding of the portfolio adjustments that happened with the global financial shock in March. Foreign direct investments, in turn, are not likely to fill the void soon in the absence of new opportunities.

Therefore, a combination of a credible return to the fiscal adjustment path and investment-friendly structural reforms would also have the additional positive effect of making possible new rounds of foreign capital inflows. That would reinforce the likelihood that the Brazilian economy will go down the optimistic path of growth and debt, rather than the pessimistic one.

About the Author

Canuto is a senior fellow at the Policy Center for the New South, a nonresident senior fellow at the Brookings Institution, and principal of the Center for Macroeconomics and Development. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund and a former vice-president at the Inter-American Development Bank.


Rishi Sunak: The Safest Pair of Hands for Mission Impossible

[caption id="attachment_16229" align="alignright" width="300"] Chancellor of the Exchequer: Rishi Sunak[/caption]

The Tory chancellor who’s splashing the cash, Rishi Sunak, is widely regarded as the man for the moment. But how far will he go, and can he pull off the Herculean feat of leading the UK to prosperity in the wake of the most devastating economic setback since records began?

If Britons didn’t take much notice when a new chancellor was catapulted into the cabinet in February this year, they do now. Rishi Sunak, a 39-year-old former hedge fund manager, came to the second-most-powerful political job in the UK after Sajid Javid’s dramatic flounce from office. Just a few weeks later, he has become a fixture on TV and radio — and a household name.

He was already a household name in India, thanks to his marriage in 2009 to Akshata Murthy, daughter of Indian Tech billionaire NR Narayana Murthy, co-founder of IT giant Infosys. As the MP for Richmond in Yorkshire, Sunak was fondly (if perhaps patronisingly) dubbed “the Maharaja of the Dales”. Since becoming the Coronavirus Chancellor, he’s more likely to be known as “Dishy Rishi”, having become one of Britain’s Quarantine Crushes. Apparently this new state of affairs says something about the politics of a despairing populace faced with someone who has an air of competence. Eye rolls aside, he’s certainly more of a sparkly-eyed pandemic pin-up than the governor of New York, Andrew Cuomo, for whom New Yorkers have been going gooey-eyed.

Tipped as a prime minister-in-waiting from the moment he entered the house five years ago, Sunak has found himself unexpectedly responsible for far more than he could have envisaged — but his suave and confident manner and calm optimism has scarcely wavered. Whether calmly and coolly fielding questions or announcing a series of schemes and programmes aimed at securing the UK’s financial future — the overall sense has been of a man who grasps the enormity of the situation, understands business, and is in control.
“For the first time in our history, our government is going to pay people’s wages,” he announced in a briefing on March 20. “We want to look back on this time and remember how we thought first of others and acted with decency.”

From this first speech onwards, the general consensus from all sides has been that Sunak seems to know what he’s doing. The measures seem the right ones, and he has been praised for his leadership skills – appearing calm, clear and effective amid the chaos.

But subtle signs of strain are starting to show as the pressure mounts for him to perform economic miracles. As of early June, his government-funded furlough scheme which launched him to almost rock-star fame has drained the coffers of billions, prompting a reassessment of the exit route as fears grow that the 8.9 million Britons currently furloughed could become addicted to their new status. It is, after all, easier to freeze the economy than to defrost it.

Back in February, the Bank of England was quietly whispering to industry leaders that they should gird up their loins for an anticipated two percent drop in GDP. In reality, the drop is greater than anyone could have predicted.

Government borrowing rose to £62bn in April, the highest monthly figure on record, after heavy spending to shore up the economy in the wake of the pandemic. The deficit between government spending and tax income is now so huge that to the untrained ear it has become akin to Monopoly money. It makes the sums talked about during Brexit seem like pocket change.

But Sunak is no stranger to juggling with vast sums of money. Widely believed to be one of the richest MPs in Parliament, he amassed personal wealth throughout his hedge fund career working in California, India and Britain for investment firms including Goldman Sachs. He later launched his own investment firm. And it is precisely his acute financial sense and hedge fund background that has caused many forecasters to be cautiously hopeful, even if they are crossing their fingers, legs and toes.

In many ways, Britain’s exit from the EU — of which Sunak was a firm supporter from the start — is likely to prove to be the saving of the economy. Without answering to anyone else, Britain can print as much money as it deems necessary, and inflate its way out of the debt — even if this refinancing programme is spread across generations — a luxury that others in the EU are unlikely to be able to enjoy.

Problem of Unprecedented Scale

Economic recovery will be anything but plain sailing. If there is one word that sums up everything about the pandemic and its economic devastation it’s “unprecedented”, which has been used an unprecedented number of times during recent months.

“March’s GDP contracted by 5.8 percent but that was only taking into account two weeks of actual lockdown,” says Zeb Bham, co-founder of FX firm Privalgo. “Extrapolate two weeks of March into April to June and you’re looking at contraction figures of up to 20 percent. That’s where the grey hairs are coming from.”

In Sunak’s defence, he couldn’t have expected that the measures would cost as much as they did. In the first two months of Covid, the deficit went from roughly £50bn to £337bn. Confronted with a recession that is likely to be the worst in 300 years, the tricky part for Rishi Sunak is predicting one of two outcomes:

#1 If and when they ease the lockdown, the economy makes a V-shaped recovery and he doesn’t have to do much in the way of intervention. The tax receipts will go up as businesses get back on track and narrow the deficit.

#2 will be keeping the Chancellor awake at night: the economy does not recover in a significant way, public borrowing continues apace, and “things go south quickly”, says Bham.

To date, Sunak’s arsenal of economic packages has included at least 10 recovery schemes aimed at separate sections of the economy. These include the Coronavirus Job Retention Scheme, (CJRS), announced on March 1, which brought us another Word Of The Year: furlough. This lifeline was immediately grasped by employers of all shapes and sizes when it became available on April 20 — to an extent that would have been hard to predict.

To date, Sunak’s survival and recovery portfolio includes much-lauded headline funds such as the Future Fund. Aimed at innovative and life sciences companies which are pre-revenue or pre-profit and unable to access other government business support, the Future Fund offers loans from £125k to £5m. Firms applying must have raised at least £250k in equity investment from third-party investors in the past five years, and must have been incorporated on or before December 31, 2019. The doors are currently open until the end of September.

Business bodies and organisations gushed with praise for the Future Fund, although eyebrows were raised when it was deluged with applications exceeding its original £250m budget on the first day. But while this marks its success for some, others believe it has failed to protect the businesses that really needed the support.

Stephen Page, CEO of Startup Funding Club, said Venture Capital firms hoovered up the money to protect existing portfolio companies and it failed to serve the 99 percent of “true” startups that are pre-VC. “The most vulnerable companies will miss out and many will fail as a result, their innovation and job creation potential lost from the economy,” he said.

Project Birch, announced a few weeks later, is aimed at saving strategically important companies, as pressure mounts to provide funds in return for an equity stake.

“Aviation, aerospace and steel firms are among those facing acute problems,” says Zeb Bham. “Jaguar Land Rover and Virgin are in talks right now. It’s a lot of money and it begs the question of whether or not Sunak sees himself as the new Margaret Thatcher.

“It’s estimated that government backed loans have amassed £40bn in the first two months of bailout measures alone, and forecast to reach a total of £100bn. I believe that Project Birch could be a good thing if they can reform the British Business Bank to provide more long-term growth orientated funding rather than just short-term bailouts.

“It should be said that the British Business Bank plays a central role in all of Sunak’s schemes, but it needs reforming and it’s certainly not set up to handle something on this scale in its current form. It is centralised, politicised, distant from business and short-termist; keeping in mind that its commercial success must come from growing with its borrowers rather than profiting from them.”

Other funds announced by Sunak include the Covid19 Corporate Finance Facility (CCFF); Coronavirus Business Interruption Loan Scheme, (CBILS); Coronavirus Large Business Interruption Loan Scheme (CLBILS); Bounce Back Loan Scheme (BBLS); Self-Employment Income Support Scheme; Small Business Grants Fund, (SBGF) and Retail, Hospitality and Leisure Grant Fund, (RHLGF); Hardship Grants Scheme as well as the Local Authority Discretionary Fund. He has also announced a funding programme for charities, a time-to-pay delay on VAT and tax and new sick pay terms for SMEs.

Phew. This alphabet soup represents lots of late nights for Sunak and his policy planners at the Treasury; an impressive feat of war-room planning. Working round the clock, yet still calm and collected in briefings, Sunak has definitely been earning his salary and going the extra furlong (or furlough). The schemes have not been perfect — nothing organised so quickly ever could be — but they have done the job and have certainly had massive take up. Right now, many of these support schemes are keeping businesses and employees afloat artificially and it remains to be seen what happens when that support is taken away.

It’s a remarkable paradox for a Conservative Chancellor to be overseeing such a remarkable programme of part-nationalisation of a large part of the British economy, even on a temporary basis. Right now, one in five working Britons is being paid from central government coffers. The scale and rapid introduction of Rishi’s job retention scheme was widely regarded as a positive intervention, delivered with confidence and clarity.

Now he’s faced with the monumental task of successfully weaning employers and employees off the furlough scheme — and the rise or fall of the British economy depends on whether the strategies he opts for are successful or not. In recent weeks, details of his exit plans have been slowly emerging, with new regulations for the furlough scheme being drip-fed to the media.

Since redundancy requires 45 days’ notice, as this issue of CFI.co goes to press, thousands of Britons are likely to be receiving their redundancy notices, and to avert widespread unemployment. Rishi Sunak’s focus will have to be on how to re-direct these people — ideally into the tech or green economy.

UK Government Backed Schemes & Funds

Covid19 Corporate Finance Facility (CCFF)
Launched: March 17
Who is it for?
Helps 'larger firms'...through purchase of their short-term debt.

Coronavirus Job Retention Scheme (CJRS)
Launched: April 20 (backdated to March)
Who is it for?
Businesses, charities, public authorities, recruitment agencies:
- Employers who have enrolled for PAYE online
- have a UK bank account
- created a PAYE payroll scheme before 19 March
Claims portal opened 20 April.
Pays 80 percent (reducing to 70 percent) of furloughed employee salary

Coronavirus Large Business Interruption Loan Scheme (CLBILS)
Launched: April 20
Who is it for? Businesses with group turnover of more than £45m
Maximum term three years, minimum term three months. Commercial interest rates apply.
From May 26, max loan size available rose from £50m to £200m.

Coronavirus Business Interruption Loan Scheme (CBILS)
Launched: March 23
Who is it for?
UK-based SMEs.
Government-backed guarantee to lender to turn a no credit decision into a yes.
More attractive terms.
Govt will cover first six months of interest payments.
Borrower remains 100 percent liable for the debt.
Lender can provide up to £5m.
Must have sound borrowing proposal but insufficient security to meet a lender's normal requirements.
Must be in eligible industrial sector.

Bounce Back Loan Scheme BBLS
Launched: April 27
Who is it for?
For smallest businesses established before 1 March 2020.
Borrow between £2k and 25 percent of turnover up to a maximum of £50k.
No repayments due for first 12 months
Government will pay fees
Fixed interest rate of 2.5 percent.
One loan per business / six-year loan.
You can only get it if you don't already have a CBILS, CLBILS, CCFF.

Future Fund
Launched: May 20
Who is it for?
Innovative and life sciences companies who are pre-revenue or pre-profit and unable to access other government business support from eg, CBILS.
A pot of £500m set aside for loans from £125k to £5m.
Open until end of September 2020
Subject to at least match funding from private investors
Must have raised at least 250k in equity investment from third-party investors in the last five years
Companies must have been incorporated on or before 31 Dec 2019

Self-Employment Income Support Scheme
Grants for self-employed or member of a partnership adversely affected by pandemic.

Hardship Grants Scheme
A pot of £500m offering cash grants of up to £25,000 for smallest businesses eg sole traders.
Dispensed by local authorities to provide council tax relief to the vulnerable and households.

Business rates holiday for this year
Retail, Hospitalities, and Leisure sectors.

Winners and Losers

In a recession, winners and losers become more starkly polarised, and what quickly became clear was that so-called pivoting was effortless for some and impossible for others.

Rob Mitchell, formerly at the Economist and The Financial Times, and now CEO of thinktank Longitude points out that alongside the obvious winners and losers “... the more important nuance is how prepared and resilient a company was, going into the crisis.

“Within retail, which has clearly been hit hard, there’s a big difference between those companies that were further along their digital transformation. Adaptability is also key — from small restaurants repositioning themselves as retailers to education providers shifting to online delivery.

Balance sheets clearly matter too, Mitchell believes, and those companies with a war chest to draw on have been better able to weather the storm than those that are more financially leveraged.

“And finally,” says Mitchell, “the crisis highlights the importance of brand. Companies that customers trust are more likely to survive because they have brand equity. Customers will stay with them and be loyal, whereas those companies who evidently care less about their customers will struggle.”

When it comes to brand, Sunak is certainly going to be pushing brand Britain. As industry sectors like aviation juddered to a halt and governments across the world instinctively started to retreat to protectionist language and regulations, global trade took a monumental nosedive. As trust and trade start to go hand in hand, some economic experts predict Britain will forge a fairly dramatic upturn in trade with its commonwealth countries and the gulf states, notably Saudi Arabia and Oman.

All things considered, the huge challenges Rishi faces are mirrored by equally huge opportunities — instead of retraction and protectionism, this crisis is a chance for Britain to capitalise on its innovation cred and its trading expertise. If the Chancellor can go straight from raiding the Magic Money Tree to pulling digital innovation and AI rabbits from hats, Britain could become a more prominent economic world player than ever before.

Russ Lidstone, CEO of The Creative Engagement Group, says it’s crucial that Sunak doesn’t embrace protectionism. “This is a global economic challenge and the way out of it lies in global co-operation. He should use this crisis as a catalyst for change in society and business.

“For example, he is going to have to support innovation. The next few years and our recovery will be all about innovation — in order to compete as we see greater Pacific centring and Asia achieves 50 percent global GDP. This may mean investment in infrastructure perhaps more than people in a post-COVID and AI world, but now will be the time to be bold.

“Sunak and DCMS need to take swift action to support the UK’s creative industries and prevent key culture critical symbols such as theatres and film companies failing. In terms of contribution the creative industries have received little consideration in the discourse surrounding the crisis, but as an industry that is a global leader and generates over £100bn GVA – it is hugely important economically and culturally. It is an industry heavily reliant on freelance talent as well.”

We’re Not in Kansas, Toto

The pandemic Lockdown has been called The Great Pause, and it has certainly sent shockwaves throughout the world and world economies. And as the re-set button is pressed, it’s unlikely to be a case of same old, same old.

Britain’s relationship with many of its key trading partners has been brought into sharp focus — with the biggest question of all being how reliant the UK and other counties should be on the manufacturing output of just one or two countries, such as China. Tensions around relations between UK and China have heightened during the crisis, which spawned a wave of conspiracy theories and crystallised genuine concern over the role of Huawei.

UK Prime Minister Boris Johnson faces pressure from the Trump administration and from MPs to issue a ban on Huawei, and essentially remove it from the UK’s telecoms infrastructure. But telecoms giant Vodafone has issued a warning that any ban would derail the UK from its plan to emerge as a leader in 5G technology. With the pandemic demonstrating that connectivity and a stronger telecoms infrastructure is more important than ever, Sunak could be faced with some of the most politically divisive choices of his career.

Mohammed Al Duaij, CEO of Kuwait’s Alea Global Group, told CFI magazine that in comparison with other countries, the UK has taken serious economic actions in parallel with the health actions from the beginning, encouraging the private sector to keep their employees by supporting their remuneration packages and other actions.

“In Kuwait, which is a rich but small country, up to this moment we do not have any serial action from the government to support the private sector,” he said.

“I think the UK is always in the radar of foreign investment and in the meantime taking into account Brexit it should attract foreign investment more on governmental and private sector by incentives such as tax exemptions, residency, low interest and long maturity loans.”

Henry Humphreys, partner at Humphreys Law, points out that as well as bringing trading relations under the spotlight, the crisis has been a catalyst for transitions that have been stirring for years — such as the shift to remote working and WFH, and it has also revved-up the race to go green.

“Manufacturing has shifted to China over recent decades,” he said, “and even before the pandemic there was a growing nervousness with the volume of data and knowhow going to that side.

“Over the last 20 years or so, an unbelievable level of personal data found its way to the west coast of the US which has caused a lot of concern. So there is a will to re-shore the data — and anyone who can provide tech that allows you to dictate when people have access to your data will be doing really well.”

Times are A-changin’

Economies are always expanding or contracting, and the seismic shift represented by the pandemic makes it difficult to predict how consumer demand will drive market forces once lockdown is eased.

Matthew Lesh, head of research at the Adam Smith Institute, said the economy is not a machine that can be turned on and off. “We don’t know in advance which jobs and companies are going to be useful in future,” he pointed out. “Rishi needs to let companies find their own way. He should be hesitant about bailing companies out; government is not traditionally good at picking winners, and now it sounds like they want to prop-up the losers.

“It’s hard to do politically, but very important to do economically.”

Meanwhile, the devolved governments of Scotland and Wales have been noticeably beating their own drums in response to the challenge. In Wales, where lockdown restrictions have been tighter than in England, Sophie Howe, Wales’ Future Generations Commissioner, said: “Our pre-Covid 19 economy prioritised economic growth, forced many people into poverty, and in turn created an unhealthy population that is particularly susceptible to global crises such as pandemics.”

Howe has called on Welsh ministers to “show political courage with a focus on quality of life over GDP, as the country begins the rebuilding process while restrictions remain in place to stem the spread of COVID-19”.

Among her recommendations is a multi-million-pound stimulus package to support the decarbonisation of Wales’ housing stock — putting money into low-carbon, affordable housing, and launching a national retrofitting programme to improve energy efficiency in existing homes.

As well as ramping-up investment in the low-carbon economy, Howe is pushing for Welsh Government to invest in re-skilling, and employing those who have lost jobs and income in the green economy.

May the force be with him…

[caption id="attachment_16228" align="alignright" width="261"] Author: Naomi Snelling[/caption]

Famous for his self-effacing charm and for not “working” the tearooms of Westminster, Britain’s Chancellor is privately described as easy-going and even goofy. He has joked with predecessor Sajid Javid about Star Wars and more recently praised Javid’s aim to boost education funding.

With economic miracles to perform, right now, nothing could be further from Rishi Sunak’s mind than his political pin-up status. He finds himself between business pressing for a swift release from Lockdown and a PM whose natural libertarian outlook has been cauterized by his own ITU experience with Covid-19. Rishi Sunak goes to sleep each night knowing that he is ultimately the man whose financial acuity, intellect and decisive action will decide the economic fate of Britain.

To paraphrase his sci-fi hero, may the force be with him.

Comments from Industry Leaders on the Future Fund

Michael Moore, Director General of the British Private Equity and Venture Capital Association (BVCA):
“The Future Fund is hugely significant and very welcome. For many venture capital-backed businesses it will build the bridge from today’s severe challenges to the period of recovery, enabling them to survive then thrive.
“The post-COVID economy is likely to look very different to today’s. The global leadership of venture capital-backed companies in the digital, high technology and life science parts of the UK economy will be critical to the UK’s success and this government support will help them to do that. “We anticipate strong demand for this funding and we will continue to work with the government to ensure that there is enough to achieve the objective of sustaining this strategically-important sector.”

Charlotte Crosswell, CEO of Innovate Finance:
“The Future Fund is a welcome step to support our start-up and scale-up economy, and a much-needed intervention from Government to back high-growth businesses. Many FinTech companies have been unable to access the other loan schemes available, so this will provide vital funds to firms in the sector.
“The UK has a reputation as a global FinTech leader and we must make sure this remains the case. We have seen some incredible transformation of financial services from the FinTech sector over the last decade and it will play a key role in our country’s economic recovery. In addition, the opportunity to export more of these products and services to overseas markets will showcase the unique innovation the UK has built and the role Fintech can play.”

Julian David, CEO of TechUK:
“The Future Fund is a strong statement of intent from the UK Government on the value of innovative companies and their importance, not only now, but for the strategic interests of the UK’s economic future.
“I’m pleased to see that the Government has worked to expand the scope of the scheme to make it more inclusive and accessible. It is crucial that as we rebuild our economy and look to the future, we ensure everyone is able to benefit equally. TechUK will continue to work with Government, our members and the tech community to ensure we build a future ready for what comes next.”

Gerard Grech, CEO of Tech Nation:
“We are delighted to see that the Future Fund is now open for applications and are grateful for HMT’s work over the past few weeks to ensure that as many businesses as possible can access the liquidity they need. This is an important step to provide investment to pre-profit, pre-revenue businesses with a cash injection to get them through these challenging times.”

Irene Graham, CEO of the ScaleUp Institute:
The Future Fund is an important initiative and takes us another step forward in meeting the needs of the UK’s scaleups at this time, who employ 3.5m people across all industry sectors and regions. We welcome the streamlined and investor-led process which will enable swift execution, getting money out as quickly as possible across the country. This is part of a suite of financial solutions needed for scaleups and we welcome the fact the Government will continue to keep it under review as its take-up develops.”

Jenny Tooth OBE, CEO of UK Business Angels Association (UKBAA):
“UK Business Angels Association congratulates the Government for bringing this important initiative so rapidly into the market. The Future Fund responds to the needs of innovating growth focused businesses that may have had investment from angel investors in their early growth stages and now have the capability to benefit from the support of a Convertible Loan alongside VC investment. This will bring vital further finance to enable them to address the impact of the Covid 19 crisis and ensure their continuing ability to build and scale their business.”
“We recognise that many equity backed small businesses right across the UK are developing vital innovative products and services and that have the capacity to help the growth of our economy in the months ahead as we emerge into economic recovery. Yet many of these businesses need further support and investment to withstand the impact of the Covid-19 crisis to ensure that they can survive and successfully continue to build and commercialise their innovations. UKBAA acknowledges the importance of the new Future Fund offering a vital new £250m of support through a Convertible Loan Note, alongside matching VC or other relevant third party investors to enable these innovating businesses to successfully survive and lay the foundations for further significant growth”.

Erin Platts, Head of EMEA and President of the UK Branch, Silicon Valley Bank:
“We see the Future Fund as a very positive step in supporting the UK’s Innovation Economy. It is great news that the Fund has moved swiftly to implementation and from today innovation companies and their investors will be able to apply to access the funds they need to help them through this period and support their growth plans. The Future Fund is one way to protect the UK’s thriving innovation and life sciences industries to help maintain our place as one of the most attractive and successful tech hubs globally. The Future Fund will provide valuable investment to extend runway for UK start-ups and scale-ups, allowing them to continue to operate, preserve and create jobs and build the technologies of the next decade and beyond. We are also pleased to see inclusion and diversity efforts being front of mind as part of the fund’s process, something we greatly welcome and support. We will continue to assist and partner with UK innovation companies and their investors through this initiative and other government programmes.”


UNCTAD: COVID-19 Has Hurt Global Investment but the Recovery Offers the Chance to Build a More Sustainable Economy

The crisis caused by the COVID-19 pandemic has severely impacted investment and trade flows, but it arrives on top of existing challenges to the system of international production and trade. Flows of cross-border investment in physical productive assets stopped growing in the 2010s, the growth of trade slowed down, and GVC trade declined. The 2010s were only the quiet before the storm however. The new industrial revolution (robotics, digitisation, additive manufacturing), growing economic nationalism and the sustainability imperative are all shaping economic development as we move into the 2020s. The UNCTAD World Investment Report 2020 discusses these trends and proposes how actions aimed at recovery from the pandemic, both by governments and business, can help establish a more sustainable economy, especially in developing countries that have been hardest hit by the crisis.

The COVID-19 pandemic has created not just a health crisis but an economic crisis, pushing the global economy into recession and millions of people into unemployment. But as governments and businesses look beyond the global lockdown, recovery from the pandemic presents opportunities, not least the chance to put sustainability, including human health, at the heart of future business strategies and investment decisions.

UNCTAD’s World Investment Report, which this year celebrates 30 years as the leading authority on global investment trends and analysis, forecasts the dramatic impact of the pandemic on global foreign direct investment (FDI) by multinationals. It estimates the fall to be as much as 40 per cent in 2020, bringing FDI to below $1 trillion for the first time since 2005. FDI is projected to decrease by a further 5-10 per cent in 2021. A gradual recovery can only be expected starting 2022.

The significant fall in investment flows, caused by the pandemic, will make the task of channeling private sector funds to sustainability-related sectors, especially those relevant to the UN’s Sustainable Development Goals (SDGs), harder. This situation is even more pronounced in developing countries where the hit to investment has been greater. Fragile health care systems in developing countries could come under additional stress due to the pandemic. There is a risk that progress made on sustainable development and investment in the last few years could be undone.

[caption id="attachment_16247" align="aligncenter" width="592"] Figure 1: FTSE funds performance - environmental opportunities versus others, 2003-2020 (Billions of dollards). Source: FTSE-Russell.[/caption]

However, investing in sustainability, including the SDGs, is not just about mobilizing funds and channeling them to priority sectors. It is also about integrating good environmental, social and governance (ESG) practices in business operations to ensure positive investment impact. Global capital markets are instrumental in this process, supporting not only good corporate governance, but providing a platform for sustainable finance. ESG-themed funds and indices, including some focused on the SDGs, are increasingly becoming a focus of investor interest and company reporting.

UNCTAD estimates that the total value of private sustainability-dedicated bonds and funds is now between $1.2 trillion and $1.3 trillion.[1] It consists mainly of green bonds (nearly $260 billion), sustainability-themed equity funds (about $900 billion) and social bonds ($50 billion), plus COVID-19 response bonds ($55 billion). Nevertheless, given that more than 90 per cent of sustainability funds are concentrated in developed countries, sustainability financing largely bypasses developing countries, in particular the poorest countries among them.

The pandemic has expedited the issuance of bonds focused on relief issues and SDG 3 (Good health and wellbeing) as well as other SDGs. These COVID-19 response bonds fund a range of activities, from supporting the transition of production lines to health care materials, to providing bridging finance for SMEs struggling with the effects of national lockdowns, to raising money for the development and distribution of a COVID-19 vaccine, along the lines of the “vaccine bond” first issued in 2006 by the International Financing Facility for Immunization (see infographic).

The use of social and sustainability bonds in response to the COVID-19 crisis has increased focus on the potential applications of these financial instruments and has elevated their status and scale closer to that of green bonds. When the pandemic subsides, the remarkable momentum that has built up behind social bonds and the lessons learned regarding their issuance and use of proceeds should be channeled to focus on financing sustainability-related investments, including in SDG relevant sectors.
Meanwhile, the surge in sustainable indice and funds, including mutual funds and exchange-traded funds, is making equity markets more aligned with sustainable development. Sustainability equity index data are also reinforcing the view of many that sustainability issues are material to the performance of industries in the long run. A well established example is the FTSE Russell’s Environmental Opportunities index. Since the launch of the SDGs in 2015, the index has significantly outperformed not only its benchmark global all-companies index, but especially the fossil fuels index. The index’s consistent outperformance indicates that investors are recognizing the materiality of sustainability in the new policy context established by the SDGs (see Figure 1).

Over the next 10 years capital markets can be expected to further develop and strengthen their sustainability-related activities. One key challenge, however, will be identifying and promoting a pipeline of projects and companies to respond to the growing demand and interest in sustainability-related investments and emerging and frontier markets. Towards this end, a related challenge will be to improve the quality and credibility of sustainability-themed financial products.

Investment promotion efforts in most countries are not specifically targeted at attracting investment in sustainability-related or SDG-relevant sectors. To the extent that incentives or other promotional measures that focus on specific sustainability targets or SDG sectors are in place, they often leave out core sectors, such as health, education, ecosystems and biodiversity, water and sanitation, and climate change adaptation. The recovery from the pandemic should therefore focus on more systematic efforts to mainstream sustainability and the SDGs into the overall investment policy framework of countries and to embed sustainability strategies into investment promotion schemes.

[caption id="attachment_16248" align="aligncenter" width="900"] COVID-19 pandemic response bonds (use of proceeds).
Source: UNCTAD, based on ustainalytics and IFC.[/caption]

The pandemic once again proves that failure to act on sustainability can be costly in every aspect, and the prompt response of capital markets to the urgent need to fight the pandemic has demonstrated the importance of sustainability financing in addressing global challenges. Any recovery plan from the pandemic should therefore take sustainability into full account as a long-term solution to current environmental, social and health problems and as an opportunity for investment and growth, for both governments and business.

The UNCTAD World Investment Report has been bringing contemporary investment issues, including in developing markets, to the attention of a global audience for 30 years. It is now leading the charge to reorient investment towards a sustainable future and embed sustainability and the SDGs across the entire investor landscape. Recovery from COVID-19 could in fact present an opportunity to accelerate this transition.

[1] The lack of consistent definitions makes it difficult to estimate the global asset size of sustainability-aligned investment. According to the IMF’s 2019 Global Financial Sustainability Report, estimates of the global assets of sustainability investment as of 2018 range from $3 trillion (JP Morgan) to $30.7 trillion (GSIA). For analytical purposes, UNCTAD groups the variety of sustainable investments into two groups according to their contributions to sustainable development: responsible investment (the vast majority) and sustainability-dedicated investment (focused on funds targeting ESG or SDG-related themes or sectors, such as clean energy, clean technology, sustainable agriculture and food security).

About the Author

[caption id="attachment_11338" align="aligncenter" width="300"] Author: James Zhan[/caption]

Dr James Zhan is senior director of investment and enterprise at the United Nations Conference on Trade and Development and lead editor of the World Investment Report.


EU Prime Ministers Beat a Path to The Hague

[caption id="attachment_16263" align="alignright" width="300"] The Hague[/caption]

This month, The Hague has become the destiny of choice for EU prime ministers and presidents embarking on a pilgrimage to placate, woo, mollify or pay homage to Saint Mark – the self-anointed patron of the frugal. In his impressively undersized office, located in a tower of likewise underwhelming size, part of the Medieval Binnenhof complex that houses the Dutch government, Prime Minister Mark Rutte received in quick succession his Spanish, Italian, and Portuguese counterparts.

EU Council President Charles Michel also found his way to The Hague as did French President Emmanuel Macron who, during an earlier visit to the Binnenhof, caused some consternation after he mistook Rutte’s office for an anteroom to a chamber of more appropriate grandeur and expressed disbelief that a prime minister of any country, let alone one home to the fifth-largest economy of the union, could dwell in such a cramped space.

However, the modest size and sparse decoration of Rutte’s office drives home a point that few visitors can miss: the Dutch, even those of a more worldly persuasion, remain committed to their Calvinist view of the world, particularly when it comes temperance, debt, and penance. That philosophy of prudence and frugality clashes head-on with the present need for fiscal largesse, and solidarity, to prevent the current corona recession from turning into a depression – and a hatchet that may strike at the root of European integration and split the union into quarrelling regional blocs.

After politely listening to the appeals made by his visitors, Rutte gave no indication that he may cede ground. His position remains unaltered even after Michel came bearing gifts worth billions of euros. Michel assured the Dutch that they may keep their prized €1.5 billion annual rebate on EU remittances and promised to set aside €5 billion for countries such as The Netherlands that are hard-hit by the UK’s exit from the union. He also promised to shave another €24 billion or so from the next EU budget.

Rutte appreciated the gesture and called it an ‘entry ticket’ to start negotiations. However, he still insists that the proposed €750 billion post-corona recovery fund be entirely comprised of credit facilities to be distributed on the basis of merit – not need. Only member states that implement meaningful structural reforms may qualify for cheap and plentiful credit. The Dutch also demand that an entity be created to monitor compliance and that it be invested with the power to halt payouts should members deem the pace of reform insufficient.

These demands are unacceptable to the governments of Spain, Italy, and Portugal which flatly refuse to submit their countries to a novel ‘troika’ not dissimilar from the one that dictated terms to Greece during the country’s 2010 debt crisis. In an unfortunate coincidence, that troika of stern paymasters was led by former Dutch Finance Minister Jeroen Dijsselbloem whose claim to infamy includes the tactless remark that Mediterranean people should lay off the ‘women and wine’ and work a bit harder instead.

Though determined to maximise the return on his brinkmanship, and basking in the limelight, Rutte realises that he is ultimately unable to stop the French-German juggernaut from imposing its will on the European Union. The most he can hope for is to nudge the Paris-Berlin axis a few points off course. For now, though, Rutte remains the man of the moment, holding the key to the outcome of next Friday’s council meeting in Brussels when both the EU’s own budget and the emergency recovery fund need to be hammered out.

Remarkably, Rutte has not blinked so far and shrugged off German criticism of his ‘childish behaviour’, assuming with evident gusto the role of naysayer vacated by the UK upon leaving the union. Last week, the Dutch flexed their newfound diplomatic muscle by successfully mobilising smaller member states to block the election of Spanish Economy Minister Nadia Calviño to the presidency of the Eurogroup, the informal yet powerful body that brings together the euro area’s finance ministers.

Though Calviño’s candidacy was openly and wholeheartedly supported by Germany, France, and Italy, she lost out to Irish Finance Minister Paschal Donohoe who received backing from the smaller member states, loosely united in the Hanseatic League 2.0, yet another Dutch initiative to check the power of Berlin and Paris. The episode was interpreted as a shot across the bow, reminding the larger EU member states that they cannot impose their will on the smaller ones.

No longer content to follow Germany’s lead, certainly not after Chancellor Angela Merkel abandoned her prior commitment to austerity and frugality, the Dutch are expected to hold out until a bit past the proverbial eleventh hour. Experience shows that agreement in the European Council is usually reached in the wee hours of the morning when the recalcitrant succumb after having their grievances addressed in a roundabout – double Dutch – way that saves face and enables all participants to claim victory.


The Red Sea International Airport Takes Off: Contract Award to Nesma & Partners and Almabani

This contract has been awarded to support the creation of a sustainable gateway opening Saudi Arabia to the world

Riyadh, 13 July 2020: The Red Sea Development Company (TRSDC), driver of one of the world's most ambitious tourism initiatives, has awarded its largest value contract to date for airside infrastructure works for the destination’s international airport, set to open in 2022. The contract was awarded - following a competitive tendering process - to a joint venture between leading Saudi contractors Nesma & Partners Contracting Co. Ltd and Almabani General Contractors, both of whom have a strong track record for delivering similar projects in the region.

“The Red Sea Development Company is making huge progress in the development of a world-leading destination and, by awarding our largest contract to date, we take another significant step in this direction, while demonstrating our ongoing commitment to creating opportunities within the Saudi Arabian construction sector,” said John Pagano, CEO of The Red Sea Development Company.

“Turning our vision into reality will require us to work with organisations that share our values and uncompromising commitment to enhance the environment. This was a key consideration when appointing Nesma & Partners Contracting Co. Ltd and Almabani General Contractors. Both our partners have impressive expertise in delivering airside infrastructure, coupled with both local and international experience,” Pagano concluded.

The contract covers the essential construction of airside infrastructure works, including the design and building of a Code F Runway 3,700 meters, Code B Seaplane Runway, Parallel & Link taxiways and pavement works, Aeronautical Navigational Aids, Aerodrome Ground Lighting, Airside utilities, helipads, roads and associated buildings.

According to Rami Alturki, Vice Chairman & Board Member at Nesma & Partners Contracting Co. Ltd,

“This award marks the start of our exciting partnership with The Red Sea Development Company, who are on track to deliver a world-class sustainable giga-project in support of Saudi Vision 2030. We are proud to be selected to contribute to the development of the Red Sea International Airport which we believe will play a key role in the transformation of the Kingdom of Saudi Arabia by welcoming up to one million visitors per year to the destination by 2030.”

Joseph Daher, CEO at Almabani General Contractors Co. commented that, “As a contracting company, Almabani has a special focus on airport and infrastructure projects, and we are honored to serve The Red Sea Development Company, by utilising our expertise to deliver an airfield of international quality to our customer. For this project we will mobilise our most experienced airport resources and qualified experts to ensure we meet our customer’s expectation, and we are ready for the challenging delivery period, especially during this tough health crisis currently affecting the entire globe. We are proud to partner with Nesma to become key contributors to a pillar project in the Vision 2030.”

The design contract for the airport was awarded to Foster + Partners in October 2019. Its architecture is informed by the natural beauty of the surrounding landscape and represents the vision of The Red Sea Project. Land levelling work is already underway to prepare the airport for development and the project remains on schedule to support TRSDC plans to welcome the first guests to the destination by the end of 2022.The schematic design stage NOC was received from the General Authority of Civil Aviation (GACA) earlier this year. The location of Red Sea International Airport was accepted along with its airside master plan, and its orientation of 15/33, was approved. Additionally, GACA approved the conceptual airspace and aeronautical studies that draw the approach path for flights bound for the airport, domestically and internationally.

https://youtu.be/qe8a-0feJaU

In line with the company’s sustainability goals, the entire infrastructure of The Red Sea Project, including its transport network, will be powered by 100% renewable energy. The eco-friendly airport design focuses on using shaded areas and natural ventilation to minimise the reliance on air conditioning.

Once complete, the airport will serve an estimated one million tourists per year catering to both domestic and international flights. Envisaged as a unique and iconic airport, it will provide an unforgettable aviation experience for travellers and guests. In addition to the dedicated airport, the first phase of the development includes sixteen hotels offering 3,000 rooms across five islands and two inland sites, as well as commercial, retail and leisure facilities and other infrastructure.

About TRSDC

The Red Sea Development Company (TRSDC) is a closed joint-stock company wholly owned by the Public Investment Fund (PIF) of Saudi Arabia. It was established to create The Red Sea Project, a luxury tourism destination that will set new standards in sustainable development and position Saudi Arabia on the global tourism map.

Message from the General Authority of Civil Aviation, Kingdom of Saudi Arabia

“GACA is honored to accept the location of Red Sea Airport and review its airside master plan which matches the highest specifications and standards. We’re working continuously with the TRSDC team to achieve Vision 2030. The Red Sea Airport will connect Saudi Arabia domestically and globally to a new level of tourism and adventure.”

- Abdulhadi bin Ahmed Al-Mansouri, President.


Global Markets Stall as Future Remains Uncertain

In this era of big and bigger numbers, the size of the US budget deficit – $864 billion in June – dwarfs all else. In a single month, the US Treasury overspent about the same amount as the entire post-corona recovery package the European Union is bickering about. The US deficit, almost a trillion dollars in 2019, tripled in the first nine months of the 2020 fiscal year and is expected to keep growing at a brisk pace for a few more quarters yet.

Next Monday, Congress reconvenes to consider add-ons and extensions to its earlier rescue packages. The optimism that the recession would be short-lived and V-shaped has mostly evaporated with Republican lawmakers hitting the mute button after crowing victory and ‘mission accomplished’ too soon – a trait that has now become a GOP hallmark.

Wall Street is preparing for a dismal earnings season with average quarterly EPS (earnings per share) growth of S&P 500 corporations nosediving to minus 45 percent. The most recent precedent of such a steep decline was Q4 2008, just after the epic fail of Lehman Brothers when EPS plunged to minus 69 percent. That heralded the start of the Great Recession which reverberated throughout the decade that followed.

In fact, an argument can be made that the Great Recession never really came to a close since any growth that followed was not organic but the product of quantitative easing and other financial stimuli to goad the economy to show signs of life. One of the (many) differences between then and now is that a growing number of companies no longer issue a formal guidance on profits, leading to an information blackout that is almost unprecedented. The reason for this corporate silence is, of course, that given the uncertainties introduced by the pandemic, the ominous seesawing of ‘the curve’, and the absence of leadership, no-one knows what’s in store – if anything.

Meanwhile, analysts are all over the place – and nowhere. Never before has the gap between their highest and lowest estimates been wider. When PepsiCo on Monday kicked off the earnings season, reporting only a modest 3 percent drop in net revenue and an 18 percent EPS retreat, some analysts were excited whilst others dipped into gloom. There was no agreement on the significance of the numbers.

Quoted in the Financial Times, Chief US Equity Strategist Jonathan Glub revealed that he is focused on relative corporate performance as opposed to the absolute numbers: “The story of the [reporting] season is going to be who’s able to come through this crisis better than others.”

Reflecting the growing realisation that the Corona Recession may not be as short-lived as expected initially, investors have taken a breather after pushing the market to a remarkable high. With the current price-to-earnings ratio of the S&P 500 hovering north of 22, well above the five-year average of 17, gains have stalled as investors worry about rising corporate debt levels and plummeting revenues. Though credit flows smoothly and abundantly, analysts suspect corporations may be relying too heavily on the prospects of a quick recovery that is unlikely to materialise.

This may help explain why the Trump Administration has declared a war of words on the venerable Dr Anthony Fauci, the leading advisor to the White House coronavirus task force, whose unwelcome comments are seen by some officials as alarmist and undermining the president’s efforts to open up the US economy. Dr Fauci is worried about the slope of the curve which he called ‘exponential’. He also warned that, before long, the country may tabulate 100,000 new infections a day, a scenario that is panning out almost to the letter.

Even the most ardent Republican state governors are now beginning to have second thoughts and have begun beating a retreat from their previous the-devil-may-care attitudes in the face of mounting infection rates and rising death tolls.

Global stock prices are slipping in response to the re-imposition of lockdown measures in Texas, Arizona, and California. Though most investors can live, for now, with lower corporate earnings, they are less sanguine about the near future and fear a second hit to economic activity. Investors are also leaving China in droves pulling out $2.5 billion on Tuesday morning alone, according to data supplied by Bloomberg.

US Secretary of State Mike Pompeo didn’t help boost market sentiment when he announced that his country will ‘push back more forcefully’ against China’s territorial claims in the South China Sea. For the first time since 2014, the US has dispatched two carrier groups to ensure freedom of navigation. This week, the People’s Liberation Army is conducting exercises in the waters surrounding the disputed Paracel Islands, a Chinese-occupied archipelago claimed by both Taiwan and Vietnam.

On Tuesday, Beijing upped the ante by slapping sanctions on US defence contractor Lockheed Martin for supplying a $620 million upgrade to Taiwan’s Patriot surface-to-air missile systems. China’s foreign ministry also rejected Mr Pompeo’s assertion that the country seeks to establish an empire in the South China Sea. Earlier this month, Foreign Minister Wang Yi said that China-US relations have deteriorated to a low not visited after both countries re-established diplomatic ties in 1979.

In an unusually frank moment, Mr Yi admitted that tensions over Taiwan, Tibet, and a range of other issues could ‘torpedo’ progress on a new trade deal with the US. Though he said that Beijing is eager deescalate tensions, Mr Yi also indicated that his country will not abide to ‘limits’ set by the US.

Whilst the pandemic rebounds in the US, holds Latin America in its grip, and acerbates tensions in the European Union, the last thing the world needs is a clash of superpowers. That would be the only bit missing from the ‘perfect storm’ predicted and feared by Dr Fauci.


UBS CEO Ralph Hamers: Understated Efficiency in Minding the Bottom Line

[caption id="attachment_16310" align="alignright" width="300"] CEO: Ralph Hamers[/caption]

On Monday, 2 November, Ralph Hamers (53) will take the exclusive side entrance of UBS Group’s imposing head office on Zürich’s Paradeplatz to enter a world that quietly exudes wealth, privilege, and power. The Dutchman, recently whisked to the uppermost echelon of the Swiss banking group, will take the oak-panelled elevator reserved for the privileged few to his vast CEO office suite.

Upon arrival, Hamers may expect a culture shock: Until 30 June, he headed ING Groep which enjoys a slightly less settled reputation than his new employer does. Both innovative and slightly contrarian, the Dutch financial group in the 1980s pioneered discounted sovereign debt swaps and launched a new trade that was later refined and formalised as the Brady Plan, named after then-US Treasury Secretary Nicholas Brady, who adopted ING’s feat in financial engineering as his own.

Under Hamer’s leadership, ING Group may no longer have pushed the envelope, but the organisation did continue to display its innovative streak. The bank was quickly streamlined to a much more agile, modern, and – gasp – ‘hip’ financial services provider. With that, profit margins widened considerably.

Ruthless in shedding bulk and successful in restructuring the corporate behemoth into a nimble fintech platform, Hamer’s six-year stint as CEO was, however, not entirely without controversy.

In 2018, Hamers stood at the centre of a political firestorm over a salary increase proposed by the group’s board of directors which would have upped his annual take-home pay to about €3 million – an amount considered absurd by most in The Netherlands. As soon as customers started to close their accounts in disgust and droves, Hamers announced his rejection of the board’s proposed remuneration scheme and intention to forego any future salary increases.

At UBS Group, where his predecessor Sergio Ermotti was paid in excess of €11 million last year, Hamers will be tasked with infusing some of his fintech magic into an organisation that suffers from both static revenues and high costs.

Preparing the executive changeover, the Swiss financial group’s main concern was to ensure a smooth transition. The bank’s board had cast a wary eye on the boardroom wars at Credit Suisse, just across Paradeplatz, and the soap opera surrounding the aborted transfer of Andrea Orcel to Banco Santander which got slapped with a €100 million lawsuit for breach of contract by the flamboyant Italian investment banker and former chief of the UBS investment banking unit.

Who better than a comparatively understated Dutchman to ensure not just a seamless change of the guard but also the discreet efficiency that UBS Group longs for? Suffering from a mild form of ‘flygskam’, Hamers avoids airline travel and prefers his BMW hybrid for moving about within Europe.

His appointment as Ermotti’s successor took most market watchers by surprise. Hamer’s name did not feature on anyone’s shortlist. He was reportedly handpicked by UBS Chairman Axel Weber who had established a good rapport with the Dutchman in the European Banking Group, a forum of high-level bankers. Both men also sit on the board of the Institute of International Finance, the finance industry’s global trade association.

Weber and Hamers coincide in their dim view on the loose monetary policy pursued by the European Central Bank (ECB) and have – curiously enough in light of their disapproval – also voiced criticism on the central bank’s apparent inability to end the era of negative interest rates. These, of course, depress the profit margins of financial services providers.

Notwithstanding the somewhat inimical monetary environment, Hamers managed to double the ING Groep’s profits in six years’ time. He did so by thoroughly revamping the bank’s core retail business and moving it online. This allowed the bank to downsize its branch network in the Benelux whilst improving overall customer satisfaction. ING also moved into new markets as an online-only bank, significantly reducing the cost of setting up shop and gaining market share.

Returning to its slightly rebellious and contrarian roots, and on the suggestion of its CEO, ING Groep ditched formality – replacing suits and ties with more casual attire – up to and including sneakers. Hamers would like banks to take a cue from tech companies and embrace their more modern and relaxed approach to business.

Frank, direct, and fearless in expressing his opinions as befits a Dutchman, Ralph Hamers will now have to deal with the über-rich and family offices that may not warm so easily to his style. He will also find that monochrome suits, ties, and Oxford shoes remain much de rigueur in Zürich. However, minding the bottom line is what ultimately counts – and that is a skill Hamers has mastered better than most.


Reimaging Leadership Post COVID-19: Dreaming Health, Social and Planetary Equity Into Being

To achieve a limitless mindset-based leadership, a leader not only needs to be a visionary, a good strategist, focused on executing and delivering results, possess diverse experience and background, and have a reasonable level of technical knowledge, but s/he also needs to possess key personal qualities. An effective leader is constantly and conscientiously acting with high standards of ethics, care, kindness, consideration, and empathy.

To navigate the current pandemic, we need leadership that supports science-based decision making and leverages the best in all of us. This requires fostering trust and care and appropriate governance. In environments with generalised flawed leadership, lacking appropriate oversight and "checks and balances," employees and populations are limited in the actions they can take, most of which are ineffectual.

"The greatest threat to positive societal reset is not the challenges of the present but a stagnant mindset of impossibility; and our perceived limits of what is possible, a major stumbling block in attempting a societal reset, need to be confronted."

- Tolu Oni [1]

Jacinda Ardern has proven to be an effective leader, operating in a country with solid governance. With New Zealand declaring a current win against the virus on April 25, 2020, the country is set to start lifting restrictions on movement. Ardern has been effective at communicating with her constituents to ensure predictability and understanding, while never underestimating the threat or the need to sooth societal anxieties. Empathetically concerned with children's capacity to cope with the crisis, she announced that the Easter Bunny and the Tooth Fairy are considered essential workers. At the same time, she has ensured that effective science testing and monitoring COVID-19 has been driven by fact-based decision making. Her government's effective measures to curtail the contagious virus have resulted in minimising the numbers of deaths as well as the stress to the healthcare system. New Zealand has leveraged all data using a systems approach to contain the risks related to the pandemic.

Regarding governance, New Zealand has historically had one of the lowest levels of corruption in the world. The 2019 Corruption Perceptions Index ranks the country first out of 180 countries, a placing it also held for seven consecutive years from 2007-2013.

What is needed today is for all leaders to reimage how to value and promote health equity in our policies, eliminate environmental factors that promote zoonoses (diseases jumping from wild animals to human hosts), and design economies that do not ask us to reopen businesses while sacrificing the health of the most vulnerable. Professor Tolu Oni (2020) asks the following questions in her recent article on COVID-19 induced re-imagination:

What if contribution to health became the primary performance indicator of urban infrastructure development?

What if incentives such as tax breaks were aligned with disease burden attributable to manufacturing, transport and trade?

What if a surge of impact investment deployed post-pandemic prioritised health goals over short term returns? (Tolu Oni, 2020)

Oni (2020) goes on to discuss the need to face the paradoxes of conflicting paradigms of economy, ecology, and health. How do we privilege systems that consider health and the environment at the same level as the economy? If we are to successfully rethink our economies, and our educational, and environmental policies for an interconnected world where planetary health is important, we need to value natural capital and all the benefits we get from nature. We need to ensure that the financial costs and rewards related to caring for humanity are linked to our interdependence with all life forms on earth, not divided by borders and differing GDPs that viruses mock. We need to find a way to solve the practical challenges we face today while imagining a tomorrow that is not dualistic but embraces ecology, health, and economy in a oneness we cannot yet imagine.

Why ethics, care, and kindness are crucial for achieving effective leadership

Effective leadership for humanity needs to factor in how kind we are to the planet. To change how we relate to the planet, we need to change our priorities. We need to change whose interests we put first. In this new world order, shareholders do not come first, clients do not come first, playing politics does not come first, the personal desires and intentions of high-ranking public servants, senior managers, board members or shareholders also do not come first. All stakeholders come first. These stakeholders include all the people who are affected by how our institutions work, such as employees who work in a committed and productive manner towards defined objectives and endorse effective "good person" leaders. We also have to take into consideration how our actions impact the planet, such as how we affect its capacity to regenerate resources essential to all life, how we promote clean air, keep our waterways free of plastics that are killing biodiversity, maintain soils rich in friendly microbial life that promote the flourishing of our food systems, and work with plant root systems to prevent mudslides and flooding.

Only leaders that possess both "hard" and "soft" qualities can embrace the needed limitless mindset to determine the most appropriate objectives and strategies, and guide individuals towards delivering successfully the objectives, satisfying the expectations of all the stakeholders and the needs of populations.

"It is not a crisis of the planet. It is not a crisis of the environment. It is a crisis of humanity. The planet will be there after we are gone, but we won't be there any more to see it" [2]

If we do not change how we relate to the planet

In the current pandemic health crisis, which has affected the lives of everyone everywhere, the leaders that present acts of consideration and empathy are the most highly appreciated by employees, clients, and populations, positively affecting their performance, commitment, and satisfaction. The public celebration of such leaders' actions, and the degree of disappointment toward self-serving actions taken by other leaders, are of a magnitude that leads to the following question:

Why are most leaders not effective "good person" leaders?

In both the private sector and in the public sector, the hiring or appointment process of leaders is flawed overall. In addition, the governance that applies to the oversight of the leaders' actions is also generally defective.

The recruitment and selection process of leaders rarely contemplates the assessment and consideration of the candidates' personal qualities that are crucial for effective leadership. Furthermore, in many cases the preferred candidates are actually those that are insensitive, unethical, and/or insecure, many of which feel free to take actions for personal benefits, including favors from others with power. How is this possible? The answer is simply that in such cases the hiring or appointment process and the overall governance are also led by defective leaders that lack personal qualities (and normally also the necessary experience and knowledge).

What can be done?

In his 2019 book, Trailblazer: The Power of Business as the Greatest Platform for Change, Marc Beniof, CEO of Salesforce, states: "The tough times are when values and culture matter most." During this crisis, Salesforces and its Ohana – its deep-seated support system – has demonstrated this belief by caring for the homeless and working hard to increase healthcare system's access to PPE.

What we need today are more leaders that not only focus on strategy and profit but genuinely live and scale values and cultures that bring health, the environment, and the planet to the center of all they do. The planet urgently needs all leaders to become values centered. We need leaders focused on sustainability of natural resources and care for people. We therefore encourage organisations and governments to identify what are the most important aspirational ethical shared values of their stakeholders and work to embed these in all their daily activities. We appeal to all institutions to consistently apply these to measure character not just competence. These values need to become foundational to all hiring, appointment, development, compensation, and oversight. With this process, we will consciously and dependably nurture leadership for Good and promote leaders that empower over those that hoard power. Only then will we be able to heal ourselves and the wounding of Mother Nature.

[1] Tolu Oni (2020). Coronavirus (COVID-19)-induced re-imagination: 7 things we knew, but "could do nothing about"…until we could…and did Source
[2] Andre Hoffmann (2017). Quote from Introducing the Hoffmann Centre for Sustainable Resource Economy:

https://www.youtube.com/watch?time_continue=264&v=CEwe3IAWoUM&feature=emb_logo

This work was originally published in “Leadership for the Greater Good: Reflections on the 2020 Pandemic,” a blog published by the International Leadership Association (www.ila-net.org).

About the Authors

[caption id="attachment_16316" align="aligncenter" width="271"] Author: Éliane Ubalijoro PhD[/caption]

Éliane Ubalijoro PhD is the Deputy Executive Director for Programs at Global Open Data in Agriculture and Nutrition (GODAN). She is a fellow of the African Academy of Sciences. She is a member of Rwanda's Presidential Advisory Council and National Council for Science and Technology. Eliane has been an advisor for six cohorts of McGill's International Master's in Health Leadership. She is on the Board of the International Leadership Association.

[caption id="attachment_16317" align="aligncenter" width="274"] Author: Christian Novak[/caption]

Christian Novak is a Professor of Practice at McGill University - Institute for the Study of International Development (ISID), where his work focuses on development financing. Christian is also Managing Partner of FMA - Frontier Markets Advisors, a Canadian firm that provides advisory services to organisations involved in development financing and impact investing. His previous experience includes senior leadership roles in investment banks and in a regional development finance institution.


Boston Consulting Group (BCG) CEO Rich Lesser: Inspiring Excellence

[caption id="attachment_16349" align="alignright" width="300"] CEO: Rich Lesser[/caption]

In his seven years as CEO of Boston Consulting Group (BCG), Rich Lesser (58) has doubled both the firm’s revenue and its workforce. Moreover, BCG was the only major global management consultancy to keep growing strongly through the Great Recession. Most market analysts feel confident that he can put in a repeat performance during the current corona downturn.

Known as somewhat of a sage, Lesser is quick to dispense advice and provide insights into questions that may baffle others. He also likes to talk back and immediately denounced the Trump Administration’s restrictive immigration policy, calling the temporary ban on the issue of H-1B visas for high-skilled professionals ‘short-sighted and deeply damaging’.

To the dismay of some, Lesser in 2017 accepted an invitation to join the Strategic and Policy Forum set up by President Trump to provide a business perspective to the White House. After a number of prominent members resigned a few months later, the president dissolved the forum by tweet.

The BCG CEO remains, however, convinced that strong leadership and out-of-the-box thinking can go a long way to address many of today’s ills. Also, membership of the — at the time — slightly controversial forum did not implicate an endorsement of any particular set of policies, but an opportunity for having a voice and a place at the table.

Lesser is all about inclusiveness and diversity — and about concrete steps to further these goals. Women now hold well over a third of the seats on the BCG executive committee whilst the company’s LBGT community has increased tenfold over the last decade. The CEO does not shy from hot button issues though he usually refrains from commenting on government policy, choosing instead to make a difference via the consultancy’s social impact and public sector practice – and by directly engaging with world leaders.

Lesser is first and foremost a pragmatic geared for tangible result. This trait perhaps helps explain the remarkable growth trajectory of BCG and the firm’s reputation for offering no-nonsense advice. BCG’s services have been in strong demand as governments and corporates grapple with the manifold uncertainties introduced by the pandemic. Looking for opportunities as the global economy adjusts to a yet enigmatic new normal, BCG already identified a few sectors in the financial services industry that may experience solid growth: compliance, digital identity, risk management, and (IT) security.

With its proactive approach to consultancy, BCG has expanded its leading edge by preparing governments and businesses alike for the future and the digital economy whilst being careful not to become blinded by new technology. Lesser considers that it still is of paramount importance to remain a tight focus on competitiveness and client satisfaction.

In order to do just that, and set an example, the BCG CEO established a company-within-a-company to bring together a multidisciplinary group of professionals. The initiative aims to help clients devise ways to build digital products and services.

BCG Digital Ventures ‘invents, builds, and invests’ in start-ups and does so jointly with corporate clients to provide an early-stage growth platform. Since its launch, six years ago, the incubator has coached more than 60 initiatives towards success by using advanced analytics, big data, and — crucially — human talent. The venture also established an innovation centre in Singapore to tap into the vast regional pool of disruptors and other upsetting upstarts.

Lesser is, however, not all the optimist and is quite concerned about the apparent mismatch between markets and the real economy. In a recent article for the World Economic Forum he points to declining long-term growth rates and the rise of new learning technologies as reasons why companies need to accelerate innovation and deepen their knowledge base.

Regarding the pandemic, Lesser expects multi-stakeholder capitalism to take centre stage as business picks up, highlighting the societal role of corporations as they embrace sustainability principles and face heightened scrutiny by customers.

Much aware of its own corporate responsibilities, BCG practices what it teaches — not necessarily a given in its industry. As he prepares to step down as CEO next year, Rich Lesser is determined to leave a legacy of excellence in management consulting — if only to set an example for others to follow.


Otaviano Canuto: Economic Recovery From the Pandemic May Come to Resemble a Square Root

Signs of recovery in various parts of the global economy started in May, after the depressive dip imposed by Covid-19.

They emerged after the easing of restrictions on mobility and reflected policies of flattening the recession curve (income transfers to part of the population, credit lines to vulnerable companies, and others).

Far from giving back the GDP lost in all countries, there are doubts about the strength of the recovery. There is a similar sequence in each country, but there are differences due to the rhythms of the pandemic, and the effectiveness, magnitude, and time scale of the policies to flatten the recession curve.

The pace of the pandemic matters not only because of the possibility of returning restrictions on mobility, but also because it affects customer behavior. It is not by chance that the signs of recovery are stronger in the manufacturing industry and weaker in the service segments that involve an agglomeration of people.

Take, for example, China – the “first in, first out”. Its GDP grew 3.2 percent per year in the second quarter, above expectations but still leaving the level of its GDP with a decline of 1.6 percent in the first half of the year. On the other hand, retail sales disappointed. It should be the only large economy to show growth at the end of the year (one percent), but well below its pre-Covid trajectory.

It is worth noting that the Chinese resorted to the growth-cum-debt policy that was applied after the global financial crisis of 2008-09. That led to concerns about its financial stability. Recent drops on Chinese stock exchanges were echoed on Wall Street and in Europe.

In the United States, the recent Federal Reserve Bank report —the "beige book" — showed increased activity in all districts, but again far from pre-Covid levels. Industrial production rose 5.4 percent in June, to a large extent due to the normalisation of production of vehicles and auto parts. High-frequency indicators for services, however, show lower levels than before the pandemic.

Employment levels rose in May and June (two and three million, respectively). To a large extent it was the reversal of temporary layoffs, accompanying the return of mobility. The group of permanently unemployed job seekers increased by two million.

In Europe, the dive caused by Covid-19 was deeper than in the US, and the recovery has been faster. Industrial production fell 29 percent in March and April, regaining 14 percent in May. But, like in China and the US, with services lagging.

Now take Brazil as a reference for emerging markets. The fall in GDP in the second quarter was less than expected, partly because the emergency aid disbursed by the federal government until the end of May was larger than the losses in the wage bill to date. Doubts arise, however, regarding positive surprises in the second half of the year, not least because everything will depend on the pace of recovery of informal employment at the end of emergency transfers in August.

In the second half of the year, everything will depend on the pace of new virus infections, as this will continue to negatively affect the economy. Consumer behavior tends to reflect that, regardless of a possible return to mobility restrictions.

What will be the shape of the economic recovery curve in the different cases? Will any country have a “V”, that is, the return of the economy in a short time to the previous trajectory after suffering a strong blow during the pandemic? Or a "U"? Perhaps a "W" if new outbreaks of Covid-19 appear and new rounds of mobility restrictions are established?

Probably the square root sign illustrates the most likely scenario, with some recovery of the lost GDP but not a return to the previous trajectory. The surge in demand, previously pent-up, is momentary and exhaustible. It is not possible to compensate for dinners in restaurants or trips that did not occur during restrictions. Additionally, as observed in all countries, the fear of physical proximity and restrictions on the occupancy of supply capacity will keep limits on the recovery of services.

The collapse in economic activity will leave scars in terms of closed firms and jobs that will not return. Fiscal restriction walls impose limits on the duration of policies to flatten the recession curve. It is not by chance that almost all economic projections suggest national GDPs at the end of next year will still be below last year's levels — except, perhaps, for China and India.

Success in crossing the coronavirus crisis will be measured by the proximity, but not return, to the previous GDP trajectory. The task will be to deal with structural unemployment created by changing consumption patterns, increased levels of poverty in much of the world, the concentration of income, the challenges posed by digitalisation and the trend to relative deglobalisation.

One should add the need to move toward a green recovery. The calculation of the square root will depend on the policies applied in each country.

https://www.youtube.com/watch?v=g0O8GKcTH2g

Otaviano Canuto is a senior fellow at the Policy Center for the New South, a nonresident senior fellow at Brookings Institution, and principal of the Center for Macroeconomics and Development. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund and a former vice-president at the Inter-American Development Bank. He is also a former deputy minister for international affairs at Brazil’s Ministry of Finance and a former professor of economics at University of São Paulo and University of Campinas, Brazil.

First appeared at the Policy Center for the New South


EU Cements Union and Recovery Package

Union leaders have agreed on a landmark €750 billion post-corona EU recovery package that authorises the European Commission to issue bonds for the first time ever. Hailed as a ‘historic day’ for Europe by President Emmanuel Macron of France, the deal was reached after four days of, at times, acrimonious negotiations that pitted the Paris-Berlin axis against a Dutch-led bloc of fiscally conservative countries coalescing around the Frugal Four.

With the support of Finland and the three Baltics, the ‘frugals’ managed to extract significant concessions, including a larger rebate on their remittances to Brussels. They also succeeded in reducing the volume of grants and subsidies to troubled member states from the €500 billion initially proposed by the European Commission, and seconded by Germany and France, to €390 billion. The remaining €360 billion is to be made available as long-term credit to member states.

The leaders gathered in Brussels also signed off on the EU’s next seven-year budget. At the request of the Frugal Four, a number of programmes were either downsized or eliminated. Dutch Prime Minister Mark Rutte was pleased with the last-minute inclusion of an ‘emergency brake’ that allows any member state to raise concerns over another’s failure to implement a reform agenda and ask for the temporary suspension of payouts from the recovery fund. Rutte had made his support for the deal conditional on weaker member states such as Italy and Spain embracing a comprehensive and meaningful set of structural reforms to modernise their economies and rebalance their national accounts.

As they sought to break the stalemate over the weekend, EU leaders offered Rutte a Dutch treat of sorts. The Dutchman was told his country could keep its rebate on EU remittances if only he’d sign on the dotted line.

A veteran of EU negotiations, Rutte flatly refused to be bribed with his own money and, with the full backing of four other ‘frugals’ (Finland has now joined the original four), insisted in demanding iron-clad guarantees that recipients of EU largesse implement a reform agenda and adhere to the rule of law. The latter demand incensed Hungarian Prime Minister Viktor Orbán who recognised a dig at his own populist style of politics.

Orbán, who regularly professes a great admiration for Atilla the Hun, blamed ‘the Dutchman’ for the disarray in Brussels and wondered why Rutte ‘hates’ him. The Dutch prime minister’s demand that each member state be granted veto power over disbursements from the EU recovery package was, however, a bridge too far.

Queried by President Macron on why the European Commission should not be entrusted with monitoring compliance, Rutte deadpanned that the commission had been unwilling to act in the past against member states found in breach of EU fiscal rules. Macron too recognised a dig and, with his dignity slightly offended, threatened to walk out the room. Later that Sunday, Macron reportedly asked EU Council President Charles Michel to consider withdrawing the offer regarding the Dutch rebate. That also didn’t fly as Michel recognised that Rutte was willing to shoulder the blame for the summit’s eventual failure and seemed ready to call the Paris-Berlin axis’ bluff.

At the conclusion of the summit, German Chancellor Angela Merkel said that the rule of law mechanism included in the final deal was not directed at ‘one or two countries’ in particular but applies equally to all member states. Both Poland and Hungary had voiced strong objections to the provision but were ultimately strong-armed into acceptance.

The remarkable bit about the showdown in Brussels is that the Dutch were not merely putting on a show of strength but seemed actually determined to stop France and Germany from imposing their will on smaller member states. As the fifth-largest EU economy, and one of its richest, The Netherlands has become the natural leader of an increasingly powerful bloc that includes other ‘frugals’ Austria, Denmark, Finland, and Sweden – and counts with covert support from the three Baltics.

As one of only six EU member states boasting a coveted AAA credit rating from all three global credit agencies, the Dutch government is unwilling to lend the country’s creditworthiness to underwrite an exercise in European solidarity – unless its strict conditions are met. Moreover, the parliament in The Hague has indicated in no uncertain terms that it will not greenlight any commitment that exposes the country to increased credit risk. Thanks to its ability to issue bonds at negative interest rates, the public debt sustained by The Netherlands – barely 48 percent of GDP before the pandemic – has become a source of income.

Though far from perfect, the deal now sealed shows that the EU can act with both speed and resolve to address major issues facing the bloc. The marathon negotiations also underscore the democratic nature of the union and the inability of its larger member states to impose their will on the others.

Finally, the Dutch have now formally taken on the role of bogeyman previously entrusted to the UK. The Hague also severed its long-standing alignment with Berlin, no longer willing to follow the German lead after Merkel abandoned her commitment to fiscal prudency in favour of solidarity with troubled southern member states. Effectively leading a bloc of smaller yet financially secure member states, the Dutch have managed to avoid the power vacuum that followed the UK’s exit from benefitting France and Germany. This helps explain why both Macron and Merkel were barely able to hide their anger at Rutte’s refusal to be intimidated or cave under pressure.

Monday’s agreement seeks to redress the EU’s absence from the first phase of the viral outbreak when nearly all member states sidelined Brussels and adopted national responses to the pandemic, closing borders and ignoring spending caps and debt ceilings. Whilst the European Central Bank (ECB) acted quickly to provide ample liquidity, the EU only regained the initiative after the worst of the outbreak had passed and attention shifted to rebuilding economies shattered by the pandemic. For all its detractors, the EU has, however, shown that 27 very different countries can, after four days of diplomatic wrangling, agree on €1.8 trillion in spending. That represents a remarkable feat and a welcome show of unity in a fractured world.