Week in Review

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A trade dispute between the UK and the EU erupts over post-Brexit deal. The U.K. government announced a proposal to rework part of the agreement it made with the EU during Brexit in a move one European official called “illegal.” It set off an international trade dispute between the U.K. and the EU, and threatened to disrupt the relative peace in Northern Ireland. (NPR)

Fed’s aggressive rate hikes raise likelihood of a recession. A worse-than-expected inflation report for May—consumer prices rocketed up 8.6% from a year earlier, the biggest jump since 1981—helped spur the Fed to raise its benchmark interest rate by three-quarters of point last week. (AP)

Scholz, European leaders in Kyiv back Ukraine's application for EU candidate status. Germany's Scholz said that the government in Berlin backed Kyiv's bid for EU candidate status. France's Macron said, "We all four support the immediate EU candidate status." (DW)

Tensions heighten in Taiwan Strait as China acts to extend military operations. China’s president has signed legal orders allowing a trial of military operations beyond China’s borders amid heightened tensions over claims by China’s foreign ministry that the Twain Straight is Chinese territorial water. (The Guardian)

Seafarer costs to accelerate on rising officer shortfall. Seafarer wage rates are set to accelerate in the face of worsening officer supply/demand imbalance. Sustained fleet growth will lead to the highest shortfall of officers to crew the world’s merchant fleet in over a decade by 2027, with important implications for both hiring and future manning cost inflation. (HSN)

Ikea packs up Russian operations and plans sale of factories. Swedish furniture giant Ikea is folding up its Russian presence, planning to lay off staff, shut offices and sell factories. This adds the world's largest furniture brand to the list of Western corporations fully exiting Russia as the war in Ukraine grinds into its fourth month. (NPR)

UK interest rates raised to 1.25% by Bank of England. Rates have increased from 1% to 1.25%, the fifth consecutive rise, pushing them to the highest level in 13 years. It comes as finances are being squeezed by the rising cost of living, driven by record fuel and energy prices. (BBC)

As China seeks 'zero COVID,' Shanghai delays reopenings and orders mass testing. Just 10 days after Shanghai lifted its harsh two-month lockdown and less than a week after Beijing declared its outbreak under control, China’s two largest cities found themselves walking back on loosening up restrictions. (ABC)

Retailers’ troubles sound the alarm for rest of economy. The fastest inflation in 40 years squeezed retailers during the first quarter, alarming investors worried about the broader economy’s outlook. (AP)

US pressures Iran by targeting Chinese, UAE companies. The United States on Thursday imposed sanctions on Chinese and Emirati companies and a network of Iranian firms that help export Iran's petrochemicals, a step that may aim to raise pressure on Tehran to revive the 2015 Iran nuclear deal. (Reuters)

Russia’s invasion of Ukraine has caused almost $4.3 billion in agricultural damage, study finds. Russia’s invasion of Ukraine has caused nearly $4.3 billion in damage to Ukraine’s agricultural sector, a new study from the Kyiv School of Economics Agrocenter finds, as the world continues to face a global food crisis aggravated by the war. (Forbes)

India's top court warns demolitions ‘can't be retaliatory’ as Muslim protesters claim homes razed as punishment. India's Supreme Court on Thursday cautioned the Uttar Pradesh state government against the controversial practice of demolishing the homes of Muslim protesters accused of instigating violence amid nationwide protests last week, but it declined to order a halt to the demolitions. (CBS)

Rail strikes will drive passengers away, Grant Shapps says. The transport secretary urged unions to call off next week's strikes, with thousands of workers set to walk out on 21, 23 and 25 June. The RMT union announced the strike action last week after talks over pay and redundancies fell through. (BBC)

 
 

European Parliament Recommends Ukraine for EU Candidate Status

Diana Mota, editor in chief

Nearly four months after Ukraine applied to join the European Union, the EU Commission recommended that the country should become a candidate state, according to news reports. “It is now for the 27 EU member states to decide whether or not they agree with the Commission's opinion,” CNN reported.

“As [European Commission President Ursula] von der Leyen made clear on Friday, Ukraine will still have to meet a series of criteria before proper accession negotiations can begin, even if the EU 27 agree to accept its candidate status next week,” CNN said. The process can take years—even decades.

“Giving Ukraine candidate status would challenge the EU’s normal playbook for adding members,” ABC News reported. For example, the EU currently has five official candidate countries under consideration. Montenegro applied in 2008 and membership negotiations began in 2012; Serbia applied in 2009 and negotiations are expected to end late 2024; the Republic of North Macedonia applied in 2004, became a candidate in 2005 and is still waiting to start negotiations; Albania applied in 2009, gained candidate status in 2014 and awaits negotiations; and Turkey applied in 1987, became a candidate in 1999 and started talks in 2005. Bosnia and Herzegovina and Kosovo are potential candidate countries.

“Only one of more than 30 negotiating ‘chapters’ has been completed in the years since, and the whole process is at a standstill as a result of various disputes between the EU and Turkey,” ABC News said. Each of the 35 chapters covers a specific policy area, including free movement of goods, freedom of movement for workers and free movement of capital.

The EU Commission last week “also recommended granting candidate status for Moldova, Ukraine’s ex-Soviet neighbor, but held off on taking the same step on Georgia,” according to France 24. “In the case of Georgia, however, the Commission said it should only be given ‘European perspective’ but that it should only get candidate status once a number of priorities have been addressed,” reported euronews.

On Friday, Russia’s foreign ministry accused the EU Commission of “manipulating” Ukraine with empty promises, CBS News said. According to CNN, “Moscow has previously said that joining the EU would be on a par with joining NATO, a point harder to push back against now that the EU is becoming so overtly geopolitical. … Seeing Ukraine warmly embraced by an institution so associated with the West will no doubt be seen as an act of aggression by Putin.”

Launching accession talks requires unanimous approval from all EU member countries. EU member nation leaders are expected to consider the EU Commission’s recommendation at its June 23-24 summit.

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UK Businesses Prepare for New Protect Duty

Annacaroline Caruso, editorial associate

New legislation known as the Protect Duty, or Martyn’s Law, may be coming to the U.K. in response to a number of terrorist attacks in recent years. It’s meant to improve security at public venues by introducing a “statutory duty for the owners and operators of publicly accessible locations (PALs), likely to include parks and squares, to take appropriate and proportionate measures to protect the public from terrorist attacks,” according to AON.

The Protect Duty could affect roughly 650,000 U.K. businesses across several sectors, per AON. According to risk services provider, Region Security Guarding, companies that own venues capable of holding 100 people or more may need to purchase higher terrorism liability limits as well as the following:

  • Perform risk assessments
  • Train staff
  • Develop a security culture
  • Assess vulnerabilities of the site
  • Consider different types of terrorist attacks
  • Improve communication routes
  • Increase awareness of suspicious behavior

If investigators determine injuries or fatalities at venues are a result of a lack in planning, they could be prosecuted under the Protect Duty. Some business owners are concerned because “venues and organizations vary greatly in terms of business, size, staffing and existing security resources, meaning there cannot be a one-size-fits-all approach,” reads a Field Fisher insight.

If businesses want to defend themselves against claims, they should thoroughly document evidence of risk assessments, training and security measures. “It’s also vital to document the rationale around your risk assessment and the mitigations you put in place as a result of this thinking,” reads an article from WTWCO. “If an attack occurs, gather evidence including witness statements immediately afterwards and hold on to it indefinitely as cases can take a long time to be decided.”

According to WTWCO, companies should ask the following questions:

  • Does your business have a robust, documented process to assess terror risks to the public?
  • Did your organization take appropriate action to minimize the risks identified in your assessment?
  • Was your organization’s physical security enough to protect your premises?
  • Were your employees trained in how to respond to an incident?
  • Did everyone know their roles and what they needed to do?

Security Minister Damian Hinds told the BBC he would “guarantee” the new law would have a strong legal duty on venues, as well as tough enforcement measures for those that do not comply. The U.K. government is still working on details of the legislation, but news outlets have reported it could become law in 2023.

Belgium Must Continue Reforms to Sustain Recovery, Future Growth

OECD

Belgium should intensify structural reform efforts to strengthen public finances and raise its economic potential as the war in Ukraine exacerbates fiscal and economic challenges and poses risks to the recovery.

The latest OECD Economic Survey of Belgium says labor shortages since the onset of the recovery from the pandemic as well as rising inflationary pressures and supply bottlenecks since Russia began its war in Ukraine are hampering Belgium’s post-COVID recovery. Increasing labor market participation and improving public spending efficiency would drive stronger growth, lower unemployment and help restore fiscal sustainability.

A revenue-neutral tax reform lowering the tax burden on salaries and wages, in particular at the lower income end, could help improve work incentives and broaden the tax base. Raising public investment and improving competition and digitalization would foster productivity growth.

“Prior to the pandemic, Belgium enjoyed robust growth and low unemployment, said OECD Secretary-General Mathias Cormann. “The recovery from the pandemic was slightly better than for the EU as a whole, but as for many countries around the world is now being dampened by the effects of Russia’s war against Ukraine. It is now even more pressing to carry out reforms to boost labor market participation, productivity growth and business dynamism, and to ensure strong and sustainable public finances.”

Belgium’s economy rebounded swiftly from the Covid-19 pandemic with GDP growth of 6.2% in 2021. However, the crisis had a disproportionate effect on young, low-skilled and immigrant workers, making for an uneven recovery. Adding to this, the war in Ukraine has increased risks to trade and supply chains and lowered business and consumer confidence. Job vacancy rates were high at the end of 2021 and inflation reached 9.9% in May. The survey sees the pace of recovery slowing to 2.4% growth in 2022 and 1% in 2023, notably as the consequences of the embargo of the European Union on Russian oil materialize. Core inflation is projected at close to 5% through 2023 before easing.

The survey recommends boosting equality of opportunities for disadvantaged groups in terms of education, labor and housing to promote social mobility, as well as improving adult skills and facilitating job reallocation through more flexible labor and product markets. While the government’s existing recovery plans provide a good starting point to accelerate investment and growth, further reforms are needed to foster productivity growth and help the economy adapt to the digital and green transitions, for example via changes to streamline highly regulated building and environmental permits.

The survey also recommends a medium-term fiscal consolidation strategy based on spending reviews to help lower the debt-to-GDP ratio, which reached 108.4% of GDP in 2021, up more than 10 percentage points from 2019. With public spending among the highest of OECD countries at almost 55% of GDP in 2021, Belgium could also introduce multiannual budgeting, including an expenditure rule. Fiscal support provided to households and firms affected by high energy prices should be targeted and temporary.

A planned pension reform, which seeks to keep more older people in jobs for longer will help to ease the growing pressure on public finances from population ageing. Without policy reforms, Belgium’s public spending on pensions is set to rise from 12.2% of GDP to 15% of GDP in 2070, higher than the European Union average of 12% of GDP. Belgium’s employment rate is lower than in peer countries, especially for groups such as low-skilled workers, migrants or the disabled, and people stop working at age 60.5, on average, compared with an OECD average of 63.1.  

The government also is preparing a broad tax reform whose main objective is to boost jobs and growth by lowering labor taxes, which remain high despite past reforms. A tax reform should also include in-work benefits for low-income single parents whose participation is discouraged by higher taxes and lower benefits when taking up jobs. The survey also discusses ways that more flexibility could be introduced into Belgium’s wage setting mechanism to boost productivity growth.

 

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Week in Review Editorial Team:

Diana Mota, Editor in Chief

Annacaroline Caruso, Editorial Associate